-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Dv8CXZr0KPu9zskzZwvxfiPAGaQKDO4S9K89N/a3AjlwQWSa7ph6EmrpfWe03u1C 19lBsCiNwEExeHdMRV+oQQ== 0000743988-98-000012.txt : 19981113 0000743988-98-000012.hdr.sgml : 19981113 ACCESSION NUMBER: 0000743988-98-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981003 FILED AS OF DATE: 19981112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: XILINX INC CENTRAL INDEX KEY: 0000743988 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 770188631 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-18548 FILM NUMBER: 98744685 BUSINESS ADDRESS: STREET 1: 2100 LOGIC DR CITY: SAN JOSE STATE: CA ZIP: 95124 BUSINESS PHONE: 4085597778 MAIL ADDRESS: STREET 1: 2100 LOGIC DRIVE STREET 2: 2100 LOGIC DRIVE CITY: SAN JOSE STATE: CA ZIP: 95124 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended October 3, 1998 or --------------- [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _______to _________. COMMISSION FILE NUMBER 0-18548 XILINX, INC. (Exact name of registrant as specified in its charter) DELAWARE (State or other jurisdiction of incorporation or organization) 77-0188631 (I.R.S. Employer Identification No.) 2100 LOGIC DRIVE, SAN JOSE, CA 95124 (Address of principal executive offices) (Zip Code) (408) 559-7778 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. YES [ X ] NO [ ] Class Shares Outstanding at October 3, 1998 ----- ------------------------------------------ Common Stock, $.01 par value 71,483,000 PART I. FINANCIAL INFORMATION Item 1. Financial Statements
XILINX, INC. CONSOLIDATED CONDENSED STATEMENTS OF INCOME (in thousands except per share amounts) Three Months Ended Six Months Ended Oct. 3, Sept. 27, Oct. 3, Sept. 27, 1998 1997 1998 1997 --------- ----------- --------- ----------- Net revenues $156,443 $ 150,272 $308,046 $ 311,033 Costs and expenses: Cost of revenues 58,814 56,048 115,637 116,954 Research and development 22,560 19,950 43,363 39,888 Marketing, general and administrative 32,447 31,226 63,881 63,892 --------- ----------- --------- ----------- Operating costs and expenses 113,821 107,224 222,881 220,734 --------- ----------- --------- ----------- Operating income 42,622 43,048 85,165 90,299 Interest income and other 4,729 5,303 8,637 11,089 Interest expense (3,565) (3,496) (7,057) (6,987) --------- ----------- --------- ----------- Income before provision for taxes on income and equity in joint venture 43,786 44,855 86,745 94,401 Provision for taxes on income 13,574 13,905 26,891 30,007 --------- ----------- --------- ----------- Income before equity in joint venture 30,212 30,950 59,854 64,394 Equity in net income (loss) of joint venture (2,381) - (4,994) - --------- ----------- --------- ----------- Net income $ 27,831 $ 30,950 $ 54,860 $ 64,394 ========= =========== ========= =========== Net income per share: Basic $ 0.39 $ 0.42 $ 0.76 $ 0.87 ========= =========== ========= =========== Diluted $ 0.37 $ 0.38 $ 0.72 $ 0.79 ========= =========== ========= =========== Shares used in per share calculations: Basic 71,912 73,921 72,377 73,708 ========= =========== ========= =========== Diluted 74,881 81,416 75,860 81,371 ========= =========== ========= =========== (See accompanying Notes to Consolidated Condensed Financial Statements.)
XILINX, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands except per share amounts) Oct. 3, March 28, 1998 1998 ---------- ----------- ASSETS Current assets: Cash and cash equivalents $ 69,894 $ 166,861 Short-term investments 288,244 195,326 Accounts receivable, net 74,071 60,912 Inventories 58,709 55,289 Advances for wafer purchases 49,979 72,267 Deferred income taxes and other current assets 58,442 49,569 ---------- ----------- Total current assets 599,339 600,224 Property, plant and equipment, at cost 176,493 163,632 Accumulated depreciation and amortization (83,801) (75,356) ---------- ----------- Net property, plant and equipment 92,692 88,276 Restricted investments 36,355 36,271 Investment in joint venture 87,064 90,872 Advances for wafer purchases 69,743 77,342 Deposits and other assets 46,149 48,253 ---------- ----------- $ 931,342 $ 941,238 ========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 21,215 $ 20,332 Accrued payroll, interest payable and other accrued liabilities 33,786 32,735 Income taxes payable 23,544 16,692 Deferred income on shipments to distributors 62,977 55,898 ---------- ----------- Total current liabilities 141,522 125,657 Long-term debt 250,000 250,000 Deferred tax liabilities 17,383 15,406 Stockholders' equity: Preferred stock, $.01 par value - - Common stock, $.01 par value 715 729 Additional paid-in capital 99,483 119,172 Retained earnings 559,328 504,468 Treasury stock, at cost (115,373) (56,973) Cumulative translation adjustment (21,716) (17,221) ---------- ----------- Total stockholders' equity 522,437 550,175 ---------- ----------- $ 931,342 $ 941,238 ========== =========== (See accompanying Notes to Consolidated Condensed Financial Statements.)
XILINX, INC. CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS Increase (decrease) in cash and cash equivalents (in thousands) Six Months Ended Oct. 3, Sept. 27, 1998 1997 ---------- ----------- Cash flows from operating activities: Net income $ 54,860 $ 64,394 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 15,186 15,768 Undistributed earnings of joint venture 4,994 (1,028) Changes in assets and liabilities: Accounts receivable (13,159) 6,263 Inventories 26,267 8,054 Deferred income taxes and other (4,001) 6,752 Accounts payable, accrued liabilities and income taxes payable 13,556 5,694 Deferred income on shipments to distributors 7,079 10,526 ---------- ----------- Total adjustments 49,922 52,029 ---------- ----------- Net cash provided by operating activities 104,782 116,423 Cash flows from investing activities: Purchases of short-term available-for-sale investments (405,320) (234,495) Proceeds from sale or maturity of short-term available-for-sale investments 312,436 270,154 Purchases of restricted held-to-maturity investments (36,228) (36,136) Proceeds from maturity of restricted held-to-maturity investments 36,145 36,130 Advances for wafer purchases - (30,000) Property, plant and equipment (17,287) (10,556) Investment in joint venture (5,448) (67,422) ---------- ----------- Net cash used in investing activities (115,702) (72,325) Cash flows from financing activities: Acquisition of treasury stock (105,426) (15,164) Proceeds from issuance of common stock 19,379 15,535 ---------- ----------- Net cash (used)/provided by financing activities (86,047) 371 ---------- ----------- Net decrease in cash and cash equivalents (96,967) 44,469 Cash and cash equivalents at beginning of period 166,861 215,903 ---------- ----------- Cash and cash equivalents at end of period $ 69,894 $ 260,372 ========== =========== Schedule of non-cash transactions: Tax benefit from stock options $ 7,925 $ 10,252 Issuance of treasury stock under employee stock plans 47,026 17,011 Receipts against advances for wafer purchases 29,888 - Supplemental disclosures of cash flow information: Interest paid 6,466 6,480 Income taxes paid $ 15,233 $ 26,087 (See accompanying Notes to Consolidated Condensed Financial Statements.)
XILINX, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. The accompanying interim consolidated financial statements have been prepared in conformity with generally accepted accounting principles and should be read in conjunction with the Xilinx, Inc. (Xilinx or the Company) consolidated financial statements for the fiscal year ended March 28, 1998. The balance sheet at March 28, 1998 is derived from audited financial statements. The interim financial statements are unaudited but reflect all adjustments which are, in the opinion of management, of a normal, recurring nature necessary to present fairly the statements of financial position, results of operations and cash flows for the interim periods presented. The results for the three-month period ended October 3, 1998 are not necessarily indicative of the results that may be expected for the fiscal year ending April 3, 1999, the Saturday nearest March 31. The three-month and six-month periods ended October 3, 1998 consisted of fourteen and twenty-seven weeks, respectively. The three-month and six-month periods ended September 27, 1997 consisted of thirteen and twenty-six weeks, respectively. 2. Inventories are stated at the lower of cost (first-in, first-out) or market (estimated net realizable value). Inventories at October 3, 1998 and March 28, 1998 are as follows:
(in thousands) Oct. 3, March 28, 1998 1998 -------- ---------- Raw materials $ 4,242 $ 5,976 Work-in-process 27,067 24,845 Finished goods 27,400 24,468 -------- ---------- $ 58,709 $ 55,289 ======== ==========
3. The computation of basic net income per share for all years presented is derived from the information on the face of the income statement, and there are no reconciling items in either the numerator or denominator. Additionally, there are no reconciling items in the numerator used to compute diluted net income per share. The total shares used in the denominator of the diluted net income per share calculation includes 3.0 million and 3.5 million incremental common shares attributable to outstanding options for the second quarter and first six months of fiscal year 1999, respectively, as compared to 7.5 million and 7.7 million in the comparable fiscal 1998 periods, respectively. The shares issuable upon conversion of long-term debt to equity, approximately 4.9 million shares, were not included in the calculation of diluted net income per share as their inclusion would have had an anti-dilutive effect for all periods presented. In addition, outstanding options to purchase approximately 5.8 million and 4.4 million shares for the second quarter and first six months of fiscal year 1999, respectively, and 0.6 million and 0.5 million shares in the comparable fiscal 1998 periods, respectively, under the Company's Stock Option Plan were not included in the treasury stock calculation to derive diluted income per share as their inclusion would have had an anti-dilutive effect. 4. The Company has adopted the Statement of Financial Accounting Standards No. 130 (FASB 130), "Reporting Comprehensive Income" in the first quarter of fiscal 1999. FASB 130 established standards for the reporting and disclosure of comprehensive income and its components; however, the disclosure has no impact on the Company's consolidated results of operations, financial position or cash flows. Comprehensive income is defined as the change in equity of a company during a period resulting from certain transactions and other events and circumstances, excluding transactions resulting from investments by owners and distributions to owners. The difference between net income and comprehensive income for Xilinx is from foreign currency translation adjustments and unrealized gains or losses on the Company's available-for-sale securities. The components of comprehensive income for the three and six month periods ended October 3, 1998 and September 27, 1997 are as follows:
Three months ended Six months ended (in thousands) Oct. 3, Sept. 27, Oct. 3, Sept. 27, 1998 1997 1998 1997 --------- ---------- ---------- ----------- Net Income $ 27,831 $ 30,950 $ 54,860 $ 64,394 Cumulative translation adjustment (2,360) (3,457) (4,495) (3,610) Unrealized gain on available for sale securities, net of tax 102 50 20 (25) --------- ----------- --------- ----------- Comprehensive Income $ 25,573 $ 27,543 $ 50,385 $ 60,759 ========= =========== ========= ===========
5. The Company is currently involved in various legal proceedings, (see Part II, Item 1, Legal Proceedings). The legal proceedings with Altera Corporation and Joseph Ward are of an uncertain nature and the lawsuits are still in the pre-discovery or pre-trial stage, therefore the ultimate outcome of these matters cannot be determined at this time. Management believes that it has meritorious defenses to each claim and is defending them vigorously. In addition, on July 31, 1998, the Lemelson Foundation Partnership filed a lawsuit in the United States District Court in Phoenix, Arizona against the Company and twenty-five (25) other United States semiconductor companies for infringement of certain of its patents. The ultimate outcome of this matter cannot be determined at this time. However, management does not currently expect that this matter will have a material adverse effect on the Company's financial condition and results of operations. The foregoing is a forward-looking statement subject to risks and uncertainties, and the ultimate outcome of this matter could differ materially due to the uncertain nature of the litigation. 6. The Company, United Microelectronics Corporation (UMC) and other parties have entered into a joint venture to construct a wafer fabrication facility in Taiwan, known as United Silicon Inc. (USIC). During the second quarter of fiscal 1999, the Company invested additional equity of $5.4 million in USIC. However, as other parties increased their equity in USIC during the most recent investment, the Company decreased its equity ownership to 20%. The Company will still receive up to 31.25% of the wafers produced in this facility. 7. During the second quarter of fiscal 1999, the Company's Board of Directors authorized another stock repurchase program whereby up to 3,000,000 shares of its common stock may be purchased in the open market from time to time as market and business conditions warrant. The Company plans to use shares repurchased from this program and all previous stock repurchase programs to meet the stock requirements of the Company's Stock Option and Employee Qualified Stock Purchase plans. During the quarter ended October 3, 1998, the Company repurchased a total of 1,375,000 shares of common stock for $51.8 million, and reissued 462,000 shares during the period for Stock Option exercises and Stock Purchase Plan requirements. As of October 3, 1998, the Company was holding approximately 2.9 million shares of treasury stock. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion contains forward-looking statements, which involve numerous risks and uncertainties. Actual results may differ materially. Certain of these risks and uncertainties are discussed under "Factors Affecting Future Operating Results". RESULTS OF OPERATIONS: SECOND QUARTER AND FIRST SIX MONTHS OF FISCAL 1999 - ------------------------------------------------------------------------------ COMPARED TO THE SECOND QUARTER AND FIRST SIX MONTHS OF FISCAL 1998 - ----------------------------------------------------------------------------- REVENUES Revenues of $156.4 million in the second quarter of fiscal 1999 represented a 4.1% increase from the comparable prior year quarter. The increase was primarily attributable to the revenue growth of the Company's XC4000EX, XC4000XL and XC9500 product lines. The increase was partially offset by the decreased revenues relating to the Company's mature XC4000 family. Revenues for the first six months of fiscal 1999 were $308.0 million, a 1% decrease from the $311.0 million achieved in the prior year comparable period. Despite the growth in second quarter revenues, revenues for the first six months of fiscal 1999 were impacted by the overall slowdown in the semiconductor market and the economic environment in Japan and Southeast Asia. The Company believes that these factors, as well as others described in "Factors Affecting Future Operating Results," could continue to impact revenues in the near term. The Company currently classifies its product offerings into four categories. The Base products consist of the Company's mature product families that use technology greater than 0.6 micron; this includes the XC2000, XC3000, XC3100, XC4000 and XC7000 families. Revenues for Base products represented 22.8% of total revenues in the second quarter of fiscal 1999, as compared to 42.2% in the second quarter of fiscal 1998. Mainstream products use 0.5 and 0.6 micron technology and include the XC4000E, XC4000EX, XC5200 and XC9500 product lines. Mainstream products represented 43.6% of total revenues in the second quarter of fiscal 1999 and 39.3% of total revenues in the prior year second quarter. Mainstream product revenues were primarily driven by the revenue increases in the XC4000EX and XC9500 product lines. Advanced products include our newest technologies on .35 micron and smaller which include the XC4000XL, XC4000XV and Spartan product lines. Advanced products represented 20.6% and 6.0% of total revenues in the second quarter of fiscal 1999 and 1998, respectively. The revenue increase for the Advanced products was driven primarily from the XC4000XL product family. The Company's Support products make up the remainder of the product offerings and include serial proms, HardWire and software. Support products represented 13.0% and 12.5% of total revenues in the second quarter of fiscal 1999 and 1998, respectively. The Company has historically been able to offset much of the revenue declines of its mature technologies with increased revenues from newer technologies, although no assurance can be given that the Company will continue to do so in the future. International revenues represented approximately 31% of total revenues in the second quarter of fiscal year 1999 in comparison to approximately 37% in the prior year quarter. International revenues are derived from customers in Europe, Japan and Asia Pacific/Rest of World which represented approximately 21%, 6% and 4% of the Company's worldwide revenues, respectively, in the second quarter of fiscal 1999 as compared to approximately 21%, 11% and 6% of worldwide revenues, respectively, in the second quarter of the prior fiscal year. Japan and Asia Pacific/Rest of World experienced revenue declines in the second quarter of fiscal 1999 as compared to the same quarter a year ago primarily as a result of the weak economic environment in those regions. Relative to the second quarter of fiscal 1998, Japan related revenues experienced a decrease in both yen and equivalent US dollars. A comparison of the erosion in the yen to US dollar exchange rate resulted in a decline of approximately $1.5 million in the second quarter fiscal 1999 as compared to the second quarter of the prior fiscal year. GROSS MARGIN Gross margin was $97.6 million, or 62.4% of revenues and $192.4 million or 62.5% of revenues for the second quarter and first six months of fiscal 1999, respectively. Gross margin for the comparable periods of fiscal 1998 were $94.2 million, or 62.7% of revenues, and $194.1 million, or 62.4% of revenues, respectively. The stable gross margin percentages from the prior year three and six month periods were due to the favorable impact of lower wafer prices from wafer suppliers, manufacturing process technology improvements, and improved yields that offset continued selling price reductions. The Company recognizes that ongoing price reductions for its integrated circuits are a significant element in expanding the market for its products. Management believes that gross margin objectives in the range of 60% to 62% of revenues are consistent with expanding market share while realizing acceptable returns, although there can be no assurance that future gross margins can remain in this range. RESEARCH AND DEVELOPMENT Research and development expenditures were $22.6 million for the second quarter and $43.4 million for the first six months of fiscal 1999, or 14.4% and 14.1% of revenues, respectively. Research and development expenditures for the comparable periods in the prior year were $20.0 million and $39.9 million, or 13.3% and 12.8% of revenues, respectively. The increase in expenditures over the prior year periods was primarily attributable to the increased costs associated with designing and developing new product architectures of complex, high density devices including increased labor-related costs and testing of new products. Specifically, additional costs are being incurred in connection with the Company's development of its Virtex (XC4000XV) family members. The Company remains committed to a significant level of research and development effort in order to continue to maintain its technology leadership in the programmable logic marketplace. MARKETING, GENERAL AND ADMINISTRATIVE Marketing, general and administrative expenses increased 3.9%, to $32.4 million in the second quarter of fiscal 1999 as compared to $31.2 million incurred in the comparable prior year quarter, and remain consistent at $63.9 million for the first six months of fiscal 1999 as compared to the same periods from the prior fiscal year. The increase in the second quarter expenses was primarily attributable to increased labor-related costs and increased marketing expenses for new product introductions. As a percentage of revenues, marketing, general and administrative expenses were 20.7% for both the second quarter and first six months of fiscal 1999 as compared to 20.8% and 20.5% for the comparable prior year periods, respectively. The Company remains committed to controlling administrative expenses. However, the timing and extent of future legal costs associated with the ongoing enforcement of the Company's intellectual property rights are not readily predictable and may significantly increase the level of marketing, general and administrative expenses in the future. OPERATING INCOME Operating income of $42.6 million and $85.2 million represented 27.2% and 27.6% of revenues in the second quarter and the first six months of fiscal 1999, respectively, as compared to $43.0 million and $90.3 million, or 28.6% and 29.0% of revenues, respectively, from the comparable prior year periods. Operating income could be adversely impacted in future years by the factors discussed throughout this report, particularly those noted in "Factors Affecting Future Operating Results". INTEREST AND OTHER, NET Interest and other income for the second quarter of fiscal 1999 declined $0.6 million from the amount in the second quarter of fiscal 1998 and decreased $2.5 million for the first six months of the current fiscal year over the prior years' comparable period. Average cash and investment balances have decreased in both the second quarter and first six months of fiscal 1999 as compared to the prior year periods resulting in lower interest and other income. In addition, the weakening of the yen relative to the US dollar resulted in unfavorable foreign exchange losses in both the second quarter and first six months of fiscal 1999 as compared to the same periods in fiscal 1998. The amount of net interest and other income in the future will continue to be impacted by the level of the Company's average cash and investment balance, prevailing interest rates and foreign currency exchange rates. PROVISION FOR INCOME TAXES The company recorded a tax provision of $13.6 million for the second quarter of fiscal 1999 as compared to $13.9 million in the same prior year period representing an effective tax rate of 31.0% for both periods. For the first six months of fiscal 1999, the Company recorded a provision of $26.9 million as compared to $30.0 million for the first six months of fiscal 1998 representing an effective tax rate of 31.0% and 31.8%, respectively. The lower tax rate is primarily due to legislation reinstating the R&D Tax Credit through June 1998 as well as increased profits in foreign operations where the tax rate is lower than the US rate. JOINT VENTURE EQUITY INCOME The Company records its proportional ownership of the net income (loss) of United Silicon Inc. (USIC), a wafer fabrication joint venture located in Taiwan, as joint venture equity income (loss). The Company recorded $2.4 million and $5.0 million net losses for the second quarter and the first six months of fiscal 1999, respectively as the wafer fabrication facility began ramping up production. Many of the expenses associated with full foundry operations are being incurred during the early stages of limited production, and the Company expects that profitability of the joint venture will occur, if at all, only after a sufficient volume of wafer production and shipments are obtained. HEDGING Through fiscal year 1998, the Company's purchases of processed silicon wafers from Japanese suppliers were denominated in yen. Beginning in fiscal 1999, most wafers purchased from Japanese suppliers have been denominated in US dollars. The Company continues to invoice Japanese customers in yen, resulting in a net yen exposure. The Company is currently using hedging instruments to limit its net yen related exposure. The use of hedging instruments did not have a material impact on the Company's results of operations for the three and six-month periods ended October 3, 1998. At October 3, 1998, the unrealized gain or loss on all outstanding hedging instruments was immaterial. INFLATION To date, the effects of inflation upon the Company's financial results have not been significant. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES - --------------------------------------------------------- The Company's financial condition at October 3, 1998 remained strong. Total current assets exceeded total current liabilities by 4.2 times, compared to 4.8 times at March 28, 1998. Since its inception, the Company has used a combination of equity and debt financing and cash flow from operations to support on-going business activities, fund acquisitions and make investments in complementary technologies, obtain facilities and capital equipment and finance inventory and accounts receivable. The Company continued to generate positive cash flows from operations during the first six months of fiscal 1999. As of October 3, 1998, the Company had cash, cash equivalents and short-term investments of $358.1 million and working capital of $457.8 million. Cash generated by operations of $104.8 million for the first six months of fiscal 1999 was $11.6 million lower than the $116.4 million generated from the first six months of fiscal 1998. This decrease in cash generated by operations resulted primarily from an increase in accounts receivable, the cash flow impact of reduced net income and a decrease in deferred income taxes and other partially offset by the decrease in cash spent on inventory as inventory receipts continue to be received against the advance for wafer purchases. The $13.2 million, or 21.6% increase in accounts receivable was primarily a result of the Company's continued efforts to move domestic distributors to longer payment terms in exchange for elimination of prompt payment discounts. One distributor switched over to the new terms in the first quarter of fiscal 1999. Cash flows used for investing activities during the six months ended October 3, 1998, included net short-term investment purchases of $92.9 million, $17.3 million of property, plant and equipment, and an additional $5.4 million equity investment in the USIC joint venture. In the first six months of fiscal 1998, investing activities included an equity investment of $67.4 million in the USI joint venture, a $30.0 million advance to Seiko Epson for wafer purchases, and $10.6 million of property, plant and equipment acquisitions, which were partially offset by the net maturities of $35.7 million in short-term investments. Net cash flows used by financing activities were $86.0 million in the first six months of fiscal 1999, as the acquisition of treasury stock during the period of $105.4 million was only partially offset by proceeds received from the issuance of common stock under employee stock plans of $19.4 million. For the comparable fiscal 1998 period, financing activities included $15.5 million in proceeds from employee stock plans, which were almost completely offset by the acquisition of treasury stock during the period of $15.2 million. Stockholders' equity decreased by $27.7 million during the first six month of fiscal 1999, principally as a result of the Company's stock buyback programs whereby approximately 2.6 million shares were purchased during the six months ended October 3, 1998. Partially offsetting the treasury stock repurchases was the net income during the period and the proceeds from the issuance of common stock under employee stock plans and related tax benefits from stock options. The Company has available credit line facilities for up to $46.2 million of which $6.2 million is intended to meet occasional working capital requirements for the Company's wholly owned Irish subsidiary. At October 3, 1998, no borrowings were outstanding under the lines of credit. The Company anticipates that existing sources of liquidity and cash flow from operations will be sufficient to satisfy the Company's cash needs for the foreseeable future. The Company will continue to evaluate opportunities to obtain additional wafer capacity, procure additional capital equipment and facilities, develop new products, and acquire businesses, products or technologies that would complement the Company's businesses and may use available cash or other sources of funding for such purposes. FACTORS AFFECTING FUTURE OPERATING RESULTS - ---------------------------------------------- The semiconductor industry is characterized by rapid technological change, intense competitive pressure and cyclical market patterns characterized by diminished product demand, limited visibility of demand for products further out than three to nine months, accelerated erosion of average selling prices and overcapacity. The Company's results of operations are affected by a wide variety of factors, including general economic conditions, conditions relating to technology companies, conditions specific to the semiconductor industry, decreases in average selling prices over the life of any particular product, the timing of new product introductions (by the Company, its competitors and others), the ability to manufacture sufficient quantities of a given product in a timely manner, the timely implementation of new manufacturing technologies, the ability to safeguard patents and intellectual property from competitors, and the impact of new technologies resulting in rapid escalation of demand for some products in the face of equally steep decline in demand for others. Market demand for the Company's products, particularly for those most recently introduced, can be difficult to predict, especially in light of customers' demands to shorten product lead times and minimize inventory levels. Unpredictable market demand could lead to revenue volatility if the Company were unable to provide sufficient quantities of specified products in a given quarter. In addition, any difficulty in achieving targeted wafer production yields could adversely impact the Company's financial condition and results of operations. The Company attempts to identify changes in market conditions as soon as possible; however, the dynamics of the market make prediction of and timely reaction to such events difficult. Due to the foregoing and other factors, past results, including those described in this report, are much less reliable predictors of the future than is the case in many older, more stable and less dynamic industries. Based on the factors noted herein, the Company may experience substantial period-to-period fluctuations in future operating results. The Company's future success depends in large part on the continued service of its key technical, sales, marketing and management personnel and on its ability to continue to attract and retain qualified employees. Particularly important are those highly skilled design, process, software and test engineers involved in the manufacture of existing products and the development of new products and processes. The competition for such personnel is intense, and the loss of key employees could have a material adverse effect on the Company's financial condition and results of operations. Sales and operations outside of the United States subject the Company to risks associated with conducting business in foreign economic and regulatory environments. The Company's financial condition and results of operations could be adversely impacted by unfavorable economic conditions in countries in which it does significant business and by changes in foreign currency exchange rates affecting those countries. Specifically, the Company has sales and operations in the Asian markets, including Southeast Asia and Japan. The recent instability in the Asian financial markets has adversely impacted revenues and may continue to adversely impact revenues in those markets in several ways, including reduced access to sources of capital needed by customers to make purchases and increased exchange rate differentials that may adversely effect the customer's ability to purchase or the Company's ability to sell at competitive prices. In addition, the instability may increase credit risks as the recent weakening of certain Asian currencies may impair customers' ability to repay existing obligations. Depending on the situation in Asia in coming quarters, any or all of these factors could adversely impact the Company's financial condition and results of operations in the near future. Also, the Company's financial condition and results of operations are becoming increasingly dependent on a global economy. The increased instability in worldwide economic environments could lead to a contraction of capital spending. Additionally, risks include government regulation of exports, tariffs and other potential trade barriers, reduced protection for intellectual property rights in some countries, and generally longer receivable collection periods. The Company's business is also subject to the risks associated with the imposition of legislation and regulations relating specifically to the import or export of semiconductor products. The Company cannot predict whether quotas, duties, taxes or other charges or restrictions will be imposed by the United States or other countries upon the importation or exportation of the Company's products in the future or what, if any, effect such actions would have on the Company's financial condition and results of operations. In order to expand international sales and service, the Company will need to maintain and expand existing foreign operations or establish new foreign operations. This entails hiring additional personnel and maintaining or expanding existing relationships with international distributors and sales representatives. This will require significant management attention and financial resources and could adversely affect the Company's financial condition and results of operations. There can be no assurance that the Company will be successful in its maintenance or expansion of existing foreign operations, in its establishment of new foreign operations or in its efforts to maintain or expand its relationships with international distributors or sales representatives. Many of the Company's operations are centered in an area of California that has been seismically active. Should there be a major earthquake in this area, the Company's operations may be disrupted resulting in the inability of the Company to manufacture or ship products in a timely manner, thereby materially adversely affecting the Company's financial condition and results of operations. In addition, the securities of many high technology companies have historically been subject to extreme price and volume fluctuations, which may adversely affect the market price of the Company's common stock. DEPENDENCE UPON INDEPENDENT MANUFACTURERS AND SUBCONTRACTORS The Company does not manufacture the wafers used for its products. During the past several years, most of the Company's wafers have been manufactured by Seiko Epson Corporation (Seiko Epson) and UMC. The Company has depended upon these suppliers and others to produce wafers with competitive performance and cost attributes, including transitioning to advanced manufacturing process technologies, producing wafers at acceptable yields, and delivering them to the Company in a timely manner. While the timeliness, yield and quality of wafer deliveries have met the Company's requirements to date, there can be no assurance that the Company's wafer suppliers will not experience future manufacturing problems, including delays in the realization of advanced manufacturing process technologies. Additionally, disruption of operations at these foundries for any reason, including natural disasters such as fires or earthquakes as well as disrupted access to adequate supplies of electricity, natural gas or water could cause delays in shipments of the Company's products, and could have a material adverse effect on the Company's results of operations. The Company is also dependent on subcontractors to provide semiconductor assembly services. Any prolonged inability to obtain wafers or assembly services with competitive performance and cost attributes, adequate yields or timely deliveries from these manufacturers and subcontractors, or any other circumstance that would require the Company to seek alternative sources of supply, could delay shipments, and have a material adverse effect on the Company's financial condition and results of operations. The Company's growth will depend in large part on the Company's ability to obtain increased wafer fabrication capacity and assembly services from suppliers which are cost effective. In order to secure additional wafer capacity, the Company from time to time considers alternatives, including, without limitation, equity investments in, or loans, deposits, or other financial commitments to, independent wafer manufacturers to secure production capacity, or the use of contracts which commit the Company to purchase specified quantities of wafers over extended periods. Although the Company is currently able to obtain wafers from existing suppliers in a timely manner, the Company has at times been unable, and may in the future be unable, to fully satisfy customer demand because of production constraints, including the ability of suppliers and subcontractors to provide materials and services in satisfaction of customer delivery dates, as well as the ability of the Company to process products for shipment. In addition, a significant increase in general industry demand or any interruption of supply could reduce the Company's supply of wafers or increase the Company's cost of such wafers. Such events could have a material adverse affect on the Company's financial condition and results of operations. DEPENDENCE ON NEW PRODUCTS The Company's future success depends in large part on its ability to develop and introduce on a timely basis new products which address customer requirements and compete effectively on the basis of price, functionality and performance. The success of new product introductions is dependent upon several factors, including timely completion of new product designs, the ability to utilize advanced manufacturing process technologies, achievement of acceptable yields, availability of supporting software design tools, utilization of predefined cores of logic and market acceptance. No assurance can be given that the Company's product development efforts will be successful or that its new products will achieve market acceptance. Revenues relating to some of the Company's mature products are expected to continue to decline in the future. As a result, the Company will be increasingly dependent on revenues derived from newer products. In addition, the average selling price for any particular product tends to decrease rapidly over the product's life. To offset such decreases, the Company relies primarily on obtaining yield improvements and corresponding cost reductions in the manufacture of existing products and on introducing new products which incorporate advanced features and other price/performance factors such that higher average selling prices and higher margins are achievable relative to mature product lines. To the extent that such cost reductions and new product introductions do not occur in a timely manner, or the Company's products do not achieve market acceptance at prices with higher margins, the Company's financial condition and results of operations could be materially adversely affected. COMPETITION The Company's field programmable gate arrays (FPGAs) and complex programmable logic devices (CPLDs) compete in the programmable logic marketplace, with a substantial majority of the Company's revenues derived from its FPGA product families. The industries in which the Company competes are intensely competitive and are characterized by rapid technological change, rapid product obsolescence and continuous price erosion. The Company expects significantly increased competition both from existing competitors and from companies that may enter its market. Xilinx believes that important competitive factors in the programmable logic market include price, product performance and reliability, adaptability of products to specific applications, ease of use and functionality of software design tools, functionality of predefined cores of logic and the ability to provide timely customer service and support. The Company's strategy for expansion in the programmable logic market includes continued introduction of new product architectures which address high volume, low cost applications as well as high performance, leading edge density applications and continued price reductions proportionate with the ability to lower the cost of manufacture for established products. However, there can be no assurance that the Company will be successful in achieving these strategies. The Company's major sources of competition fall into four main categories: the manufacturers of custom CMOS gate arrays, providers of high density programmable logic products characterized by FPGA-type architectures, providers of high speed, low density CPLDs and other providers of new or emerging programmable logic products. The Company competes with custom gate array manufacturers on the basis of lower design costs, shorter development schedules and reduced inventory risks. The primary attributes of custom gate arrays are high density, high speed and low production costs in high volumes. The Company continues to develop lower cost architectures intended to narrow the gap between current custom gate array production costs (in high volumes) and PLD production costs. The Company competes with high density programmable logic suppliers on the basis of performance, voltage, the ability to deliver complete solutions to customers, and customer support, taking advantage of the primary characteristics of flexible, high speed implementation and quick time-to-market capabilities of the Company's PLD product offerings. Competition among CPLD suppliers is based primarily on price, performance, design, software utility and the ability to deliver complete solutions to customers. In addition, the Company competes with manufacturers of new or emerging programmable logic products on the basis of price, performance, customer support, software utility and the ability to deliver complete solutions to customers. Some of the Company's current or potential competitors have substantially greater financial, manufacturing, marketing and technical resources than Xilinx. To the extent that such efforts to compete are not successful, the Company's financial condition and results of operations could be materially adversely affected. INTELLECTUAL PROPERTY The Company relies upon patent, trademark, trade secret and copyright law to protect its intellectual property. There can be no assurance that such intellectual property rights can be successfully asserted in the future or will not be invalidated, circumvented or challenged. From time to time, third parties, including competitors of the Company, have asserted patent, copyright and other intellectual property rights to technologies that are important to the Company. There can be no assurance that third parties will not assert infringement claims against the Company in the future, that assertions by third parties will not result in costly litigation or that the Company would prevail in such litigation or be able to license any valid and infringed patents from third parties on commercially reasonable terms. Litigation, regardless of its outcome, could result in substantial cost and diversion of resources of the Company. Any infringement claim or other litigation against or by the Company could materially adversely affect the Company's financial condition and results of operations. COMPUTER INFORMATION SYSTEMS In order to compete effectively in an industry characterized by rapid technological change, intense competitive pressure and cyclical market patterns, the Company continually evaluates its computer information systems. As a result, the Company has recently implemented information systems or system enhancements relating to its semiconductor manufacturing and financial applications. In addition, the Company is in the process of implementing computer information systems relating to its software manufacturing and order entry applications. The Company currently expects that these systems will be implemented by the middle of calendar 1999. The time period for which these systems are expected to be implemented represents a forward-looking statement subject to risks and uncertainties and actual results may differ materially from those described above due to a number of risk factors. These risk factors include, but are not limited to, the complexity of the conversion process and the new systems themselves, the transfer of data from old to new systems and the need for employee training in connection with adopting these new systems. Implementation of these new systems could potentially require the Company to be without certain capabilities critical to normal business operation (including processing customer orders and shipping product) for a period of time until the new systems are operational. In addition, the Company could encounter problems after implementation of these systems. There can be no assurance that these risks would not have a material adverse impact on the Company's financial condition and results of operations. As is the case with most other companies using computer information systems in their operations, the Company is currently working to resolve the potential impact of the Year 2000 on the processing of date-sensitive information by the Company's computerized information systems, as well as the vendor and customer date-sensitive computerized information electronically transferred to the Company. The Year 2000 issue is the result of computer programs being written using two digits, rather than four, to define the applicable Year. Any of the Company's systems that have time-sensitive software may recognize the year "00" as 1900 rather than the year 2000, which could result in miscalculations, classification errors or system failures. The Company has performed a thorough review of its internal use software and hardware applications and software products in order to identify those applications and products that are not Year 2000 compliant. Currently the Company's Year 2000 efforts have been focused on implementing the upgrades for the software and hardware applications identified in the review as well as assessing its outside suppliers and other critical business partners. The Company believes that its internal computer system implementation or enhancement efforts principally conducted to improve competitive and operating efficiencies, as described above, will also address some of the Company's internal Year 2000 compliance issues. Additional internal information systems are also currently being upgraded. Electronic data interchange modifications have been completed that are intended to ensure all dates are handled properly, although there can be no assurance of this. With regard to all information technology hardware, including desktops, networking and telecom equipment, and servers, the Company has completed its assessment, has begun to make the necessary upgrades and expects to complete the upgrades by mid calendar 1999, although there can be no assurance of this. The Company believes that its release M1.5 software is Year 2000 compliant, except for the Japanese version, although there can be no assurance of this. The Japanese version of release M1.5 is currently expected to be released during the quarter ending January 2, 1999, although there can be no assurance of this. However, some of the Company's customers are running product versions that are not Year 2000 compliant. The Company has been encouraging such customers to migrate to the current product version. The Company plans to take several steps to minimize any Year 2000 effects such as miscalculations, classification errors or system failures. Internal preparedness includes specific steps that will be taken in anticipation of the Year 2000 as well as relying on a contingency plan which would include the ability to utilize both the San Jose and Ireland manufacturing facilities for shipment and having multiple vendors who can provide critical wafer, assembly and test products and services. The time periods provided above represent forward-looking statements subject to risks and uncertainties and actual results may differ materially from those described above due to a number of risk factors. These factors include, but are not limited to, the complexity of identifying potential Year 2000 issues, the ability to allocate and/or obtain qualified resources to resolve Year 2000 issues, the ability to work effectively with vendors and other critical business partners and the Company's effectiveness at encouraging customers to migrate towards its current software product version. There can be no assurance that the Company will be able to successfully, in a timely manner, modify all systems and products to comply with Year 2000 requirements, which could have a material adverse effect on the Company's financial condition and results of operations. The costs directed solely towards Year 2000 compliance are not incremental to the Company, but represent a reallocation of existing resources. To date the Company has incurred less than $1.0 million on efforts directed solely towards Year 2000 compliance and expects to incur a total of less than $2.0 million when the process has been completed, although there can be no assurance that this will be the case. Although the costs of addressing potential problems are not currently expected to have a material adverse impact on the Company's financial position, results of operations or cash flows in future periods, if the Company, its customers or vendors are unable to resolve such processing issues on a timely basis, the Company's financial condition and results of operations could be adversely affected. EURO CURRENCY Effective January 1, 1999 11 member countries of the European Union are scheduled to establish fixed conversion rates between their existing sovereign currencies and the Euro and adopt the Euro as their common legal currency. During the three year transition, the Euro will be available for non-cash transactions and legacy currencies will remain legal tender. The Company is assessing the Euro impact on its business including the ability to handle the conversion in the accounting and other information systems, ability of foreign banks to report on dual currencies, the legal and contractual implications of contracts, and reviewing pricing strategies. The Company expects that modifications to its operations and systems will be completed on a timely basis and does not believe the conversion will have a material adverse impact on the Company's operations. However, there can be no assurance that the Company will be able to successfully modify all systems and contracts to comply with Euro requirements on a timely basis. LITIGATION The Company is currently engaged in several lawsuits. See "Legal Proceedings" in Part II. PART II. OTHER INFORMATION Item 1. Legal Proceedings On June 7, 1993, the Company filed suit against Altera Corporation (Altera) in the United States District Court for the Northern District of California for infringement of certain of the Company's patents. Subsequently, Altera filed suit against the Company, alleging that certain of the Company's products infringe certain Altera patents. Fact and expert discovery has been completed in both cases, which have been consolidated. On April 20, 1995, Altera filed an additional suit against the Company in the Federal District Court in Delaware, alleging that the Company's XC5200 family infringes an Altera patent. The Company answered the Delaware suit denying that the XC5200 family infringes the patent in suit, asserting certain affirmative defenses and counterclaiming that the Altera Max 9000 family infringes certain of the Company's patents. The Delaware suit was transferred to the United States District Court for the Northern District of California and is also before the same judge. On October 25, 1998, both Altera and the Company filed motions with the Court for summary judgement with respect to certain of the issues pending in the litigation. On July 22, 1998, the Company filed a suit for injunctive relief against Altera and Joseph Ward, a former Xilinx employee, in the Circuit Court of Cook County, Illinois, to prevent disclosure of certain Company confidential information. On the same day, Altera filed suit against the Company in Superior Court in Santa Clara County, California, arising from the same events. Altera's suit requests declaratory relief and claims the Company engages in unfair business practices and interference with contractual relations. On September 10, 1998 the Company filed cross claims against Altera and Ward for unfair competition and breach of contract, among other claims, in the California action. Subsequently, the Company dismissed its suit for injunctive relief in Illinois. On October 20, 1998, Altera and Ward filed crossclaims against the Company for malicious prosecution of civil action and defamation. The ultimate outcome of these matters cannot be determined at this time. Management believes that it has meritorious defenses to such claims and is defending them vigorously. The foregoing is a forward-looking statement subject to risks and uncertainties, and the future outcome of these matters could differ materially due to the uncertain nature of each legal proceeding and because the lawsuits are still in the pre-discovery or pre-trial stages. On July 31, 1998, the Lemelson Foundation Partnership (Lemelson) filed a lawsuit in the United States District Court in Phoenix, Arizona against the Company and twenty-five (25) other United States semiconductor companies for infringement of certain of its patents. The ultimate outcome of this matter cannot be determined at this time. However, management does not currently expect that this matter will have a material adverse effect on the Company's financial condition and results of operations. The foregoing is a forward-looking statement subject to risks and uncertainties, and the ultimate outcome of this matter could differ materially due to the uncertain nature of the litigation. There are no other pending legal proceedings of a material nature to which the Company is a party or of which any of its property is the subject. The Company knows of no legal proceedings contemplated by any governmental authority or agency. Item 4. Submission of Matters to a Vote of Security Holders The following matters were submitted to a vote of security holders in conjunction with the Annual Meeting of Stockholders of Xilinx held on August 6, 1998. (a) Election of directors Votes For Votes Withheld --------- -------------- Bernard V. Vonderschmitt 64,430,033 530,234 Willem P. Roelandts 64,705,101 255,166 John L. Doyle 64,699,526 260,741 Philip T. Gianos 64,731,533 228,734 William Howard 64,721,059 239,208 (b) To ratify and approve an amendment to the Company's 1997 Stock Option Plan to increase the number of shares reserved for issuance thereunder by 1,500,000. For Against Abstain No Vote ---------- ---------- --------- --------- 38,056,406 26,759,224 144,637 7,529,987 (c) To ratify and approve an amendment to the Company's 1990 Employee Qualified Stock Purchase Plan to increase the number of shares reserved for issuance thereunder by 2,000,000 shares. For Against Abstain No Vote --------- ---------- --------- --------- 60,779,454 4,046,186 134,628 7,529,987 (d) To ratify the appointment of Ernst & Young LLP as independent auditors of the Company for the fiscal year ended April 3, 1999. For Against Abstain No Vote --------- --------- --------- --------- 64,788,536 106,878 64,855 7,529,987 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits None (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. XILINX, INC. ------------ Date November 11, 1998 /s/ Kris Chellam ------------------------ ------------------ Kris Chellam Senior Vice President of Finance and Chief Financial Officer (as principal accounting and financial officer and on behalf of Registrant) EX-27 2
5 This schedule contains summary information extracted from Xilinx, Inc.'s CONSOLIDATED STATEMENTS OF INCOME AND CONSOIDATED BALANCE SHEETS and is qualified in its entirety by reference to such financial statements. 1000 3-MOS 6-MOS APR-03-1999 APR-03-1999 JUN-28-1998 MAR-29-1998 OCT-03-1998 OCT-03-1998 69,894 69,894 288,244 288,244 80,449 80,449 6,378 6,378 58,709 58,709 599,339 599,339 176,493 176,493 83,801 83,801 931,342 931,342 141,522 141,522 250,000 250,000 0 0 0 0 715 715 521,722 521,722 931,342 931,342 156,443 308,046 156,443 308,046 58,814 115,637 58,814 115,637 55,007 107,244 0 0 3,565 7,057 43,786 86,745 13,574 26,891 27,831 54,860 0 0 0 0 0 0 27,831 54,860 0.39 0.76 0.37 0.72 Represents basic earnings per share.
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