Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended March 28, 1998 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the Common Stock on June 9,
1998 as reported on the NASDAQ National Market was approximately
$2,181,991,000. Shares of Common Stock held by each executive officer and
director and by each person who owns 5% or more of the outstanding Common
Stock have been excluded in that such persons may be deemed affiliates. This
determination of affiliate status is not necessarily a conclusive
determination for other purposes.
At June 9, 1998, the registrant had 72,490,000 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Proxy Statement for the Registrant's 1998 Annual Meeting of
Stockholders are incorporated by reference in this Form 10-K Report (Part
III).
PART I
------
ITEM 1. BUSINESS
Items 1 and 3 of this 10-K contain forward-looking statements concerning the
Company's development efforts, strategy, new product introductions, backlog
and litigation. These statements involve numerous risks and uncertainties
including those discussed throughout this document as well as under "Factors
Affecting Future Operating Results" in Item 7.
GENERAL
Xilinx, Inc. (Xilinx or the Company) designs, develops and markets complete
programmable logic solutions, including advanced integrated circuits (ICs),
software design tools, predefined system functions delivered as cores of logic
and field engineering support. The Company's programmable logic devices
(PLDs) include field programmable gate arrays (FPGAs) and complex programmable
logic devices (CPLDs). These components are standard ICs programmed by
Xilinx's customers to perform desired logic operations. Xilinx also markets
HardWire devices, which are specifically configured during the manufacturing
process and functionally equivalent to programmed FPGAs. The Company's
products are designed to provide high integration and quick time-to-market for
electronic equipment manufacturers in the data processing, telecommunications,
networking, industrial control, instrumentation, high-reliability/military and
consumer markets.
Competitive pressures require manufacturers of electronic systems to bring
increasingly complex products to market rapidly. Customer requirements for
improved functionality, performance, reliability and lower cost are often
addressed through the use of components that integrate ever larger numbers of
logic gates onto a single integrated circuit because such integration often
results in faster speed, smaller size, lower power consumption and lower
costs. However, while global competition is increasing the demand for more
complex products, it is also shortening product life cycles and requiring more
frequent product enhancements.
Xilinx provides programmable logic solutions, which combine the high logic
density typically associated with custom gate arrays with the time to market
advantages of programmable logic and the availability of a standard product.
The Company offers a broad product line of PLDs, which serve a wide variety of
applications requiring high levels of integration, competitive speed and
acceptable pricing. In many of these applications where time to market is
important, customer demand unpredictable and/or frequent design modifications
are necessary to adapt a product to new markets, the flexibility achieved
through the products' programmability features is instrumental. Xilinx CPLDs
complement the Company's FPGA products and contribute to the Company's efforts
to offer comprehensive programmable logic solutions. With FPGAs, which have
the advantages of higher density and lower power consumption, and CPLDs, which
are typically faster and have lower densities, the Company's products enable
electronic equipment manufacturers to rapidly bring complex products to market
in volume.
The Xilinx software strategy is to deliver an integrated design solution for a
broad customer base ranging from customers who are not familiar with designing
systems using PLDs to the most sophisticated customers accustomed to designing
high density, specifically configured gate arrays. The objective is to
deliver strategic software advantages that combine ease of use with design
flexibility, effective silicon utilization and competitive performance.
System designers use Xilinx proprietary software design tools together with
industry standard electronic design automation (EDA) tools and predefined
system functions delivered as cores of logic to design, develop and implement
Xilinx programmable logic applications. Designers define the logic functions
of the circuit and revise such functions as necessary. Programmable logic can
often be designed and verified in a few days, as opposed to several weeks or
months for gate arrays, which are customized devices that are defined during
the manufacturing process. Moreover, programmable logic design changes can
typically be implemented in as little as a few hours, as compared to several
weeks for a custom gate array. In addition, significant savings result from
the elimination of non-recurring engineering costs and the reduction of
expenses associated with the redesign and testing of custom gate arrays. By
reducing the cost and scheduling risks of design iterations, PLDs allow
greater designer creativity, including the consideration of design
alternatives that often lead to product improvements. Further, since PLDs are
standard products and production quantities are readily available, exposures
to obsolete inventory can be significantly reduced.
Xilinx was organized in California in February 1984 and in November 1985 was
reorganized to incorporate its research and development limited partnership.
In April 1990, the Company reincorporated in Delaware. The Company's
corporate facilities and executive offices are located at 2100 Logic Drive,
San Jose, California 95124.
PRODUCTS
The timely introduction of new products which address customer requirements
and compete effectively on the basis of price, functionality and performance
is a significant factor in the future success of the Company's business.
Delays in developing new products with anticipated technological advances or
delays in commencing volume shipments of new products could have an adverse
effect on the Company's financial condition and results of operations. In
addition, there can be no assurance that such products, if introduced, will
gain market acceptance or respond effectively to new technological changes or
new product introductions by other companies.
Programmable Logic Devices
The Company's PLD products include both FPGA and CPLD product lines. The FPGA
products include the XC2000, XC3000 and XC3100 families, which represent first
generation products, as well as the XC4000, XC4000X, XC5000 and Spartan
families, which represent second generation products. The Company's XC4000
product family includes both the XC4000 and XC4000E. The Company's XC4000X
product family includes the XC4000EX, XC4000XL and XC4000XV. The XC4000EX
family utilizes the benefits of the XC4000E architecture and provides
additional routing resources aimed to meet the design requirements for ICs
with high gate densities. The XC4000XL family is the industry's first 3.3
volt FPGA family manufactured on 0.35 micron technology. The family has 11
members shipping in volume ranging in density from 2,000 to 180,000 system
gates. The XC4000XV utilizes 0.25 micron technology. The Company began
sampling one device in the XC4000XV family during fiscal 1998.
The Company's two newest FPGA product families are the Spartan and Virtex
product lines. The Spartan Series of FPGAs began revenue shipments in fiscal
1998 and is the Company's first product line that is price competitive with
high volume application-specific integrated circuits (ASICs). Derived from
the XC4000 architecture and spanning up to 40,000 system gates, the Spartan
Series combines high performance, on-chip RAM, software cores, and lower
prices.
The Virtex series of FPGAs presently features leading-edge 0.25 micron
technology. Xilinx plans to deliver a 1,000,000 system-gate Virtex device by
the end of fiscal 1999, with first sampling to begin in the same fiscal year.
Virtex is intended to address the demand for higher density, higher
performance products in the telecommunication, networking, and multimedia
market segments. With the Virtex family, Xilinx will deliver its first fully
programmable alternative to high density system-level ASIC design.
The two preceding paragraphs contain forward-looking statements which are
subject to risks and uncertainties including those discussed in Item 7 in
"Management's Discussion and Analysis of Financial Condition and Results of
Operation - Factors Affecting Future Results."
The Company's CPLD products include the XC7000 and XC9500 families. The
XC9500 family utilizes a Flash-based CPLD architecture and offers in-system
programmability. This family delivers high speeds, while giving the
flexibility of an enhanced, customer-proven pin-locking architecture and
direct interface to both 3.3 and 5 volt systems.
PLDs are available in a wide variety of plastic and ceramic package types,
including pin-grid array, surface mount and quad flat pack configurations.
These devices meet the industry standard operating temperature ranges of
commercial, industrial and military users.
The Company's HardWire ASICs offer a low cost migration path from FPGAs for
high volume applications. Once a programmable logic design is finalized,
customers can take advantage of HardWire products, which are specifically
configured during the manufacturing process. The Company's HardWire ASICs
offer a complete turn-key conversion solution, which reduces the engineering
and risk burden normally associated with conventional gate arrays. Each
Hardwire ASIC is completely interchangeable with its FPGA counterpart and for
each current Xilinx FPGA family, there is a corresponding HardWire ASIC;
except for the Spartan family, which would not benefit from HardWire
conversion.
In order to minimize the printed circuit board area required for external
storage of the FPGA configuration program, the Company provides a family of
erasable programmable read-only memories (EPROMs). These devices are sold by
the Company in conjunction with its FPGAs.
Software design tools
Xilinx offers complete software design tool solutions, which enable the
implementation of designs in Xilinx PLDs. These software design tools combine
powerful technology with a flexible, easy to use graphical interface to help
achieve the best possible designs within each customer's project schedule,
regardless of the designer's experience level.
The Company offers two complementary software design tool solutions. The
Foundation Series provides designers with a complete, ready-to-use design
solution based on industry-standard hardware description languages (HDLs) and
is easy to learn and use. For those customers new to designing with PLDs or
desiring a low cost approach, the Company offers this fully integrated
software solution. The Alliance Series is for designers who want maximum
flexibility to integrate programmable logic design into their existing EDA
environment and methodology. With interfaces to over 50 EDA vendors, this
product allows users to select tools with which they are most familiar thereby
shortening their design cycle.
The Company also offers more than 75 pre-implemented, fully verified, drop-in
cores of logic for commonly used complex functions such as digital signal
processing (DSP), bus interfaces, processors and peripheral interfaces. Using
logic cores, available from the Company and third party AllianceCORE partners,
customers can shorten development time, reduce design risk and obtain superior
performance for their designs. Additionally, the Company's CORE Generator,
announced during the fourth quarter of fiscal 1998, is an easy to use tool
that delivers parameter-based cores optimized for the Company's FPGAs and
features an interface to third-party system level DSP design tools. The CORE
Generator is shipped with the Company's software design tools.
Xilinx's software design tools operate on desktop computer platforms,
including personal computers using Windows 95 and Windows NT and workstations
from IBM, HP, DEC and Sun Microsystems. Through March 31, 1998, the Company
had sold over 42,000 software design systems worldwide.
RESEARCH AND DEVELOPMENT
Xilinx's research and development activities are primarily directed towards
the design of new integrated circuits, the development of advanced
semiconductor manufacturing processes, the development of new software design
tools and cores of logic and ongoing cost reductions and performance
improvements in existing products. The Company's recent primary areas of
focus have been: to increase the Company's CPLD market share; to maintain
density/performance leadership with its newest FPGA product lines, including
the XC4000X, Spartan and Virtex families; to give its customers a low-cost
migration path for high-volume applications with its specifically configured
HardWire ASICs and to support all its product families with easy-to-use, fully
automated software design tools and cores of logic. However, there can be no
assurance that any of the Company's development efforts will be successful,
timely or cost-effective.
Xilinx believes that software design tools and logic cores are important
factors in expanding the use of programmable logic devices. The Company's
research and development challenge is to continue to develop new products that
create cost-effective solutions for customers. In fiscal 1998, 1997, and
1996, the Company's research and development expenses were $80.5 million,
$71.1 million and $64.6 million, respectively. The Company expects that it
will continue to spend substantial funds on research and development. The
Company believes that technical leadership is essential to its future success
and is committed to continuing a significant level of research and development
effort.
MARKETING AND SALES
Xilinx sells its products through several channels of distribution: direct
sales to manufacturers by independent sales representative firms, sales
through franchised domestic distributors, and sales through foreign
distributors. Xilinx also utilizes a direct sales management organization and
field applications engineers (FAEs) as well as manufacturer's representatives
and distributors to reach a broad base of potential customers. The Company's
independent representatives generally address larger OEM customers and act as
a direct sales force, while distributors serve the balance of the Company's
customer base. The Company's sales and customer support personnel support all
channels and consult with customers about their plans, ensuring that the right
software and devices are selected at the beginning of a customer's project.
In North America, Hamilton-Hallmark, Marshall Industries, and Insight
Electronics, Inc. distribute the Company's products nationwide, and Nu
Horizons Electronics provides additional regional sales coverage. The Company
believes that distributors provide a cost-effective means of reaching certain
customers. Since the Company's PLDs are standard products, they do not
present many of the inventory risks to distributors as compared to custom gate
arrays, and they simplify the requirements for distributor technical support.
Revenue from product sales direct to customers and foreign distributors is
generally recognized upon shipment. However, the Company defers the
recognition of revenue and the related cost of revenue on shipments to
domestic distributors that have certain rights of return and price protection
privileges on unsold product until the distributor sells the product.
BACKLOG AND CUSTOMERS
As of March 28, 1998, the Company's backlog of purchase orders scheduled for
delivery within the next three months was $97.2 million. Because of an
overall slowdown in the semiconductor market and a widespread perception by
customers that product is readily available, many of the Company's customers
are currently placing orders for near-term delivery and providing the Company
relatively limited visibility to demand for products further out than three
months. Backlog as of March 29, 1997 was $84.4. Backlog amounts for both
years include orders to distributors, which may receive price adjustments upon
sale to end customers. Also, orders constituting the Company's current
backlog are subject to changes in delivery schedule or to cancellation at the
option of the purchaser without significant penalty. Accordingly, although
useful for scheduling production, backlog as of any particular date may not be
a reliable measure of revenues for any future period.
No single end customer accounted for more than 5% of revenues in fiscal 1998
or 1997 or 6% in 1996. See Note 10 of Notes to Consolidated Financial
Statements in Item 8 for Industry and Geographic Information.
WAFER FABRICATION
The Company does not manufacture the wafers used for its products. Over the
last two years, the majority of wafers purchased by the Company were
manufactured by Seiko Epson Corporation (Seiko Epson) and United
Microelectronics Corporation, (UMC). Precise terms with respect to the volume
and timing of wafer production and the pricing of wafers produced by Seiko
Epson and UMC are determined by periodic negotiations between the Company and
these wafer foundry partners.
Xilinx's strategy is to focus its resources on creating new integrated
circuits and software design tools and on market development rather than on
wafer fabrication. The Company continuously evaluates opportunities to
enhance foundry relationships and/or obtain additional capacity from both its
main suppliers as well as other suppliers of leading-edge process
technologies. As a result, the Company has entered into agreements with UMC
and Seiko Epson as discussed below.
The Company, UMC and other parties have entered into a joint venture to
construct a wafer fabrication facility in Taiwan, known as United Silicon Inc.
(USIC). See Notes 4 and 6 of Notes to Consolidated Financial Statements in
Item 8. The Company invested an additional $67.4 million in fiscal 1998 to
bring the total cumulative investment to $101.7 million. The Company
currently holds a 25% equity ownership and the right to receive 31.25% of the
wafer capacity from this facility. Under the terms of the agreement, the
Company may be required to make a third equity installment of up to an
additional $30 million in the USIC joint venture if warranted based on the
capital and operational requirements of the joint venture. UMC has committed
to and is supplying the Company with wafers manufactured in existing
facilities until capacity is available in the new facility.
In fiscal 1997, the Company signed an agreement with Seiko Epson. See Note 2
of Notes to Consolidated Financial Statements in Item 8. This agreement was
amended in fiscal 1998 and provides for an advance to Seiko Epson of $150.0
million. In conjunction with the agreement, $60.0 million was paid in fiscal
1997 and an additional $90.0 million was paid in fiscal 1998. Repayment of
this advance is in the form of wafer deliveries, which began during the fourth
quarter of fiscal 1998. Specific wafer pricing is in US dollars and is based
upon the prices of similar wafers manufactured by other, specifically
identified, leading-edge foundry suppliers. The advance payment provision
also provides for interest to be paid to the Company in the form of free
wafers.
SORT, ASSEMBLY AND TEST
Wafers purchased by the Company are sorted by the wafer foundry, independent
sort subcontractors or by the Company. Sorted wafers are assembled by
subcontractors in facilities in Pacific Rim countries. During the assembly
process, the wafers are separated into individual integrated circuits, which
are then assembled into various package types. Following assembly, the
packaged units are tested by independent test subcontractors or by Xilinx
personnel at the Company's San Jose or Ireland facilities.
PATENTS AND LICENSES
Through March 28, 1998, the Company held over 200 United States patents and
maintains an active program of filing for additional patents in the areas of
software, IC architecture and design. The Company intends to vigorously
protect its intellectual property. The Company believes that failure to
enforce its patents or to effectively protect its trade secrets could have an
adverse effect on the Company's financial condition and results of operations.
See Legal Proceedings in Item 3 and Note 11 of Notes to Consolidated Financial
Statements in Item 8.
Xilinx has acquired various software licenses that permit the Company to grant
object code sublicenses to its customers for certain third party software
programs licensed with the Company's software design tools. In addition, the
Company has licensed certain software for internal use in product design.
EMPLOYEES
Xilinx's employee population has grown by 9% during the past year. As of
March 28, 1998, Xilinx had 1,391 employees compared to 1,277 at the end of the
prior year. None of the Company's employees are represented by a labor union.
The Company has not experienced any work stoppages and believes it has good
relations with its employees.
COMPETITION
The Company's FPGAs and 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 a number of
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 are comprised of several elements:
the manufacturers of custom CMOS gate arrays, providers of high density
programmable logic products characterized by FPGA-type architectures,
providers of high speed, low density CPLDs devices 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, the ability
to deliver complete solutions to customers, voltage 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.
The benefits of programmable logic have attracted a number of companies to
this market, competing primarily on the basis of speed, performance, design,
price, software utility or cost. Xilinx recognizes that different
applications require different programmable technologies, and the Company is
developing architectures, processes and products to meet these varying
customer needs. Recognizing the increasing importance of standard software
solutions, Xilinx has developed common software design tools that supports the
full range of integrated circuit products. Xilinx believes that automation
and ease of design are significant competitive factors in the programmable
logic market.
Several companies, both large and small, have introduced products competitive
with those of the Company or have announced their intention to enter this
market. Some of the Company's competitors may possess innovative technology,
which could prove superior to Xilinx's technology in some applications. In
addition, the Company anticipates potential competition from suppliers of
logic products based on new technologies. Some of the Company's current or
potential competitors have substantially greater financial, manufacturing,
marketing and technical resources than Xilinx. This additional competition
could adversely affect the Company's financial condition and results of
operations.
Xilinx also faces competition from its licensees. Under a license from the
Company, Lucent Technologies is manufacturing and marketing the Company's
non-proprietary XC3000 FPGA products and is employing that technology to
provide additional FPGA products offering higher density. Seiko Epson has
rights to manufacture the Company's products and market them in Japan and
Europe but is not currently doing so. Advanced Micro Devices is licensed to
use certain of the Company's patents to manufacture and market products other
than SRAM-based FPGAs.
EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information regarding each of Xilinx's executive officers is set forth
below:
Name Age Position Officer
Since
Willem P. Roelandts 53 President and Chief Executive Officer 1996
R. Scott Brown 57 Senior Vice President, Worldwide Sales 1985
Robert C. Hinckley 50 Vice President, Strategic Plans and Programs 1991
Richard W. Sevcik 50 Senior Vice President and General Manager, Software 1997
Gordon M. Steel 53 Senior Vice President, Finance and Chief Financial Officer 1987
There is no family relationship between any director or executive officer of
the Company.
Willem P. "Wim" Roelandts joined the Company in January 1996 as Chief
Executive Officer and a member of the Company's Board of Directors. In April
1996, he was appointed to the additional position as President of the Company.
Prior to joining the Company, he served at Hewlett-Packard Company, a computer
manufacturer, as Senior Vice President and General Manager of Computer Systems
Organizations from August 1992 through January 1996 and as Vice President and
General Manager of the Network Systems Group from December 1990 through August
1992.
R. Scott Brown joined the Company in 1985 as Vice President of Sales and was
promoted to Senior Vice President, Worldwide Sales in 1995. Mr. Brown has
announced that he plans to retire from the Company. A retirement date has not
been determined.
Robert C. Hinckley joined the Company in 1991 as Vice President, Strategic
Plans and Programs and as the Company's General Counsel. He was appointed
Secretary in 1993. He acted as interim Chief Operating Officer from March
through August 1994.
Richard W. Sevcik joined the Company in April 1997 as Senior Vice President
and General Manager, Software. He was at Hewlett-Packard Company for 10 years
where, from 1994 through 1996, he served as Group General Manager of the
company's Systems Technology Group and oversaw five divisions involved with
product development for servers, workstations, operating systems,
microprocessors, networking and security. In 1995 he was named Vice
President. From 1992 to 1994, he served as Group General Manager of Computer
Systems and Servers and was responsible for four divisions.
Gordon M. Steel joined the Company in 1987 as Vice President, Finance and
Chief Financial Officer and was promoted to Senior Vice President, Finance and
Chief Financial Officer in 1995. Mr. Steel has announced that he plans to
retire from the Company. A retirement date has not been determined.
ITEM 2. PROPERTIES
Xilinx's corporate offices, which include the administrative, sales, customer
support, marketing, research and development and final testing groups are
located in San Jose, California. The site includes adjacent buildings
providing 335,000 square feet of available space, which are leased through
1999. The Company has entered into lease agreements relating to these
facilities which would allow the Company to purchase these facilities on or
before the lease expiration dates in December 1999. The Company has also
entered into an agreement whereby an 180,000 square foot facility is being
constructed on property adjacent to the Company's corporate facilities. The
Company will have the option to purchase the building after an initial lease
term. See Note 6 of Notes to Consolidated Financial Statements in Item 8.
In addition, the Company has a 100,000 square foot administrative, research
and development and final testing facility in the metropolitan area of Dublin,
Ireland and a 60,000 square foot facility in Boulder, Colorado. The Irish
facility is being used to service the Company's customer base outside of North
America, while the Boulder facility is the primary location for the Company's
software efforts in the areas of research and development, manufacturing and
quality control. Additionally, the Company purchased a 59-acre parcel of land
located in Longmont, Colorado, near the Company's current Boulder, Colorado
facility. Plans for infrastructure and the future development of the new
property have not been finalized.
The Company also maintains domestic sales offices in twenty-two locations
which include the metropolitan areas of Atlanta, Boston, Chicago, Denver,
Dallas, Los Angeles, Minneapolis, Philadelphia, Raleigh and San Jose as well
as nine international sales offices located in the metropolitan areas of
London, Munich, Paris, Stockholm, Milan, Tokyo, Taipei, Seoul and Hong Kong.
ITEM 3. LEGAL PROCEEDINGS
On June 7, 1993, the Company filed suit against Altera Corporation (Altera) in
the United States District Court for the Northern District of California for
infringement of certain of the Company's patents. Subsequently, Altera filed
suit against the Company alleging that certain of the Company's products
infringe certain Altera patents. Fact and expert discovery have been
completed in both cases, which have been consolidated. In October 1997, the
Court held a hearing with respect to construction of the claims of the various
patents in suit.
On April 20, 1995, Altera filed an additional suit against the Company in
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.
Discovery has not begun.
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, and has not recorded a provision for the ultimate
outcome of these matters in its financial statements. The foregoing is a
forward looking statement subject to risks and uncertainties, and the future
outcome could differ materially due to the uncertain nature of the litigation
with Altera and because the lawsuits are still in the pre-trial stage.
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
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Xilinx's Common Stock is listed on the NASDAQ National Market System under the
symbol XLNX. As of March 31, 1998, there were approximately 650 shareholders
of record. Since many holders' shares are listed under their brokerage firms'
names, the actual number of shareholders is estimated by the Company to be
over 29,000.
Fiscal Year 1998 Fiscal Year 1997
High Low High Low
------ ------ ------ ------
First Quarter $57.50 $45.25 $37.88 $29.88
Second Quarter 56.38 45.19 39.75 26.63
Third Quarter 51.25 29.69 44.50 31.63
Fourth Quarter 46.63 34.06 50.88 36.00
ITEM 6. SELECTED FINANCIAL DATA
CONSOLIDATED STATEMENT OF INCOME DATA
(In thousands except per share amounts) Years ended March 31,
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Net revenues $613,593 $568,143 $560,802 $355,130 $256,448
Operating income 173,868 159,061 * 165,756 + 92,048 & 65,168
Income before taxes and joint venture 180,596 165,758 * 170,902 + 94,845 & 67,436
Provision for income taxes 56,728 55,382 69,448 35,567 26,157
Net income 126,587 110,376 * 101,454 + 59,278 & 41,279
Net income per share:
Basic 1.72 1.52 * 1.43 + 0.85 & 0.61
Diluted $ 1.58 $ 1.39 * $ 1.28 + $ 0.80 & $ 0.57
Shares used in per share calculations:
Basic 73,741 72,816 71,092 69,414 67,963
Diluted 80,010 79,675 78,955 74,109 72,237
-------- -------- -------- -------- --------
* After write-off of discontinued product family of $5 million, $0.05 per basic share and
$0.04 per diluted share net of tax.
+ After non-recurring charge for in-process technology related to the acquisition of NeoCAD of
$19,366, $0.27 per basic share and $0.25 per diluted share.
& After non-recurring charge for the write-off of a minority investment of $2,500, $0.02 per
basic and diluted shares net of tax.
CONSOLIDATED BALANCE SHEET DATA
(In thousands) Years ended March 31,
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Working capital $474,567 $504,302 $436,070 $180,064 $143,103
Total assets 941,238 847,693 720,880 320,940 226,156
Long-term debt 250,000 250,000 250,000 867 2,195
Stockholders' equity 550,175 490,680 368,244 243,971 172,878
-------- -------- -------- -------- --------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT
The statements in this Management's Discussion and Analysis that are forward
looking involve numerous risks and uncertainties and are based on current
expectations. Actual results may differ materially. Certain of these risks
and uncertainties are discussed under "Factors Affecting Future Operating
Results". Forward looking statements can often be identified by the use of
forward looking words, such as "may," "will," "could," "should," "expect,"
"believe," "anticipate," "estimate," "continue," "plan," "intend," "project,"
or other similar words.
NATURE OF OPERATIONS
Xilinx, Inc. (Xilinx or the Company) designs, develops and markets complete
programmable logic solutions, including advanced integrated circuits (ICs),
software design tools, predefined system functions delivered as cores of logic
and field engineering support. The Company's programmable logic ICs include
field programmable gate arrays (FPGAs) and complex programmable logic devices
(CPLDs). These components are standard ICs programmed by Xilinx's customers
to perform desired logic operations. Xilinx also markets HardWire devices,
which are mask-programmed ICs functionally equivalent to programmed FPGAs.
The Company's products are designed to provide high integration and quick
time-to-market for electronic equipment manufacturers in the data processing,
telecommunications, networking, industrial control, instrumentation,
high-reliability/military and consumer markets. The Company markets its
products throughout the world through a direct sales organization, direct
sales to manufacturers by independent sales representative firms, sales
through franchised domestic distributors and sales through foreign
distributors. Xilinx's products have provided effective solutions to a wide
range of customer logic requirements.
RESULTS OF OPERATIONS
REVENUE
(In thousands) 1998 Change 1997 Change 1996
- -------------- -------- ------- -------- ------- --------
Revenues $613,593 8.0% $568,143 1.3% $560,802
The Company's 8.0% revenue increase in 1998 was primarily attributable to the
revenue growth of the XC4000X product family, which includes the XC4000EX and
XC4000XL devices, as well as revenue growth from the XC5200 and XC9500 product
families. The revenue growth from these products was offset by decreased
revenues from the Company's first generation products, including the Company's
XC3000 product family and the Company's XC4000 family, a mature second
generation product line. New products, which include the XC4000X, Spartan and
XC9500 families, contributed nearly $70 million in revenue in fiscal 1998
compared to approximately $7 million in fiscal 1997. Despite the significant
growth in new product revenues, fiscal 1998 revenues increased only 8.0% over
fiscal 1997 as revenues were impacted by an overall slowdown in the
semiconductor market, increased price competition, inventory reductions at end
customers and a general economic downturn in the Asia Pacific region. Fiscal
1997 revenues, as compared to fiscal 1996, were significantly impacted by
price competition as well as a semiconductor industry inventory correction,
which reduced customer demand.
Revenue contribution by programmable logic product line reflected a mix
between increased customer demand for low cost, medium range density
programmable logic devices (PLDs) and the functionality and performance
provided by the Company's higher density and higher speed programmable logic
devices. Revenues from proprietary products, for which there is no second
source competitor, increased from 91.0% of aggregate revenues in 1997 to a
record 94.1% in 1998. Deriving revenues from leading-edge programmable logic
solutions has been emphasized by the Company. The Company's corporate pricing
strategy aims to expand the market for its products by reducing sales prices
proportional to cost reductions achieved in the manufacturing of these
products. The Company intends to continue to actively pursue a strategy of
broadening the markets it serves through the enhancement of software design
tools, availability of pre-defined cores of logic, the introduction of
architectures offering new functionality, and the reduction of IC prices
through continuous advancements in the silicon manufacturing process.
Revenues for the Company's first generation products, which include the
XC2000, XC3000 and XC3100 families, represented 25.5% of total revenues in
fiscal 1998, as compared to 32.2% in fiscal 1997. The Company's second
generation products, including the XC4000, XC4000X and XC5200 families,
represented 58.3% of total revenues in fiscal 1998, as compared to 53.2% in
fiscal 1997. Combined revenues from the Company's XC4000 and XC4000X product
lines represented 49.0% of total revenues in fiscal 1998 compared to 46.5% in
fiscal 1997, a dollar increase of 13.7% to $300.7 million. Revenues from
other programmable logic products, which include the XC7000 and XC9500 CPLD
families, HardWire and serial proms, increased from 11.6% to 13.5% of total
revenues in fiscal 1998 as compared to the prior year, mostly due to the
increased revenue from the XC9500 family. Revenue from the XC9500 family
increased from $2.3 million in 1997 to $13.9 million in 1998. No single end
customer accounted for more than 5% of revenues in fiscal years 1998 or 1997
or 6% of revenues in 1996.
During fiscal 1998, the Company's total PLD unit sales increased 28%, as
compared to fiscal 1997.The average selling price for the highest volume PLD
products decreased over 30% from fiscal 1997 prices while individual products
within certain families experienced price decreases in excess of 50% during
the year. The Company believes that price decreases are instrumental in
expanding market share to the extent that the Company can maintain acceptable
returns. Price erosion has been common in the semiconductor industry, as
advances in both architecture and manufacturing process technology have
permitted continual reductions in cost. The Company relies upon introducing
new products, which incorporate advanced features and other price/performance
factors such that higher average selling prices and higher margins are
achievable despite the price erosion on mature product lines.
Xilinx's software design tools are used by the Company's customers to
implement designs in the Company's programmable logic devices. Cumulative
licenses for proprietary software design tools sold to customers through the
end of 1998 totaled approximately 42,000 units, as compared to approximately
30,000 and 24,000 units at the end of 1997 and 1996, respectively. The
increase in software revenue seats resulted primarily from increased demand
for the Company's lower cost, easier to use Foundation Series software
introduced in fiscal 1997. Software revenues decreased from $17.1 million in
both fiscal 1996 and 1997 to $16.5 million in fiscal 1998. Although software
seats increased, software revenue decreased 3.4% due to the change in the
sales mix towards lower priced products as well as price reductions for
specific products. Software sales as a percentage of total revenues
represented approximately 3% of revenues in all years presented.
International revenues represented approximately 38%, 36% and 35% of total
revenues for 1998, 1997 and 1996, respectively. International revenues are
derived from customers in Europe, Japan and Asia Pacific/Rest of World which
represented approximately 23%, 10% and 5% of the Company's worldwide sales,
respectively, in fiscal 1998. Revenue growth in Europe and Asia Pacific/Rest
of World over the past year was 11.9% and 26.6%, respectively. Revenues from
Japan were adversely impacted by the weakening yen, as yen denominated
revenues increased approximately 16% year-to-year but grew approximately 6%
when translated into US dollars at the then prevailing exchange rates.
GROSS MARGIN
(In thousands) 1998 Change 1997 Change 1996
- -------------------------- --------- ------ --------- ------- ---------
Gross margin $382,903 9.8%* $348,806* (2.5%) $357,610
Percentage of revenue 62.4% 61.4%* 63.8%
* Includes write-off of discontinued product family of $5 million. Gross
margin as a percentage of revenues was 62.3% excluding this charge.
The gross margin percentage remained consistent from fiscal 1997 to 1998,
excluding the impact of a $5.0 million write-off of the discontinued product
family, as the selling price reductions were offset by the favorable impact of
lower wafer prices from wafer suppliers, manufacturing process technology
improvements, the impact of the strengthened US dollar exchange rate against
the yen, and improved yields. The increase in the cost of revenues as a
percentage of revenues in 1997 as compared to 1996 was primarily attributable
to selling price reductions and increased inventory reserves relating to an
expanded level of inventory, partially offset by the favorable impact of lower
wafer costs and improved yields. Over the past three years, Xilinx has also
been able to offset much of the erosion in gross margin percentages on more
mature integrated circuits with increased volumes of newer, proprietary,
higher margin products, although no assurance can be given that the Company
will do so in the future. The Company recognizes that ongoing price
reductions for its integrated circuits are a significant element in expanding
the market for its products. Company 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 will be in this range.
During fiscal 1997, the Company discontinued the XC8100 family of one-time
programmable antifuse devices. As a result, the Company recorded a pretax
charge against earnings of $5.0 million. This charge primarily related to the
write-off of inventory and for termination charges related to purchase
commitments to foundry partners for work-in-process wafers which had not
completed the manufacturing process.
RESEARCH AND DEVELOPMENT
(In thousands) 1998 Change 1997 Change 1996
- -------------------------- -------- ------- -------- ------- --------
Research and development $80,456 13.2% $71,075 10.0% $64,600
Percentage of revenue 13.1% 12.5% 11.5%
The Company continued to increase the amount spent on research and
development, as it has done in each year of its fourteen-year history. During
fiscal 1998, the increase in research and development expenses was primarily
attributable to the increased costs associated with designing and developing
new product architectures of complex, high density devices as well as
labor-related expenses. The increase in research and development expenses
from fiscal 1996 to 1997 was primarily attributable to increased headcount and
labor expenses, increased purchases of engineering wafers and increased
facility and support costs associated with an expanded scope of operations.
The Company remains committed to a significant level of research and
development effort in order to continue to compete aggressively in the
programmable logic marketplace. Through March 31, 1998, the Company has
received more than 200 US patents and maintains an active program of filing
for additional patents in the areas of software, IC architecture and design.
As of March 31, 1998, research and development personnel were split
approximately 45% for software development and 55% for IC design and process
development. Xilinx has not capitalized any of the costs associated with its
software development.
MARKETING, GENERAL AND ADMINISTRATIVE
(In thousands) 1998 Change 1997 Change 1996
- -------------------------- --------- ------- --------- ------- ---------
Marketing, general and
administrative $128,579 8.4% $118,670 10.0% $107,888
Percentage of revenue 21.0% 20.9% 19.2%
The 8.4% increase in marketing, general and administrative expenses in fiscal
1998 was primarily attributable to increases in headcount and related employee
expenses and to a lessor extent an increase in legal expenses. Sales and
support expenses have increased each year due to increasing personnel and
labor costs and greater commission expenses associated with higher revenues.
Sales and support expenses increased in fiscal 1997 over 1996 due to increased
personnel and labor costs and increased commissions due to changes in the
revenue channel mix. 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
general and administrative expenses in the future.
NON-RECURRING CHARGES
During fiscal 1996, the Company incurred a $19.4 million non-recurring
write-off of in-process technology relating to the acquisition of NeoCAD, Inc.
See Note 3 of Notes to Consolidated Financial Statements.
OPERATING INCOME
(In thousands) 1998 Change 1997 Change 1996
- ------------------------------- --------- ------- --------- ------- ---------
Operating income, as reported $173,868 9.3% $159,061 (4.0%) $165,756
Percentage of revenue 28.3% 28.0% 29.6%
Operating income before write-
off and non-recurring charge $173,868 6.0% $164,061 (11.4%) $185,122
Percentage of revenue 28.3% 28.9% 33.0%
The decrease in operating income as a percentage of revenues in 1998 from
1997, before consideration of the write-off, is primarily a result of the 8.0%
revenue growth in 1998 in comparison to a 13.2% increase year-to-year in
research and development spending, and an 8.4% increase in marketing, general
and administrative spending. The decrease in operating income in fiscal 1997
from 1996 was primarily a result of the 1.3% revenue growth in 1997 in
comparison to 10% increases year-to-year in both research and development
spending and marketing, general and administrative spending. Operating income
as a percentage of revenues could be adversely impacted in future years by the
factors discussed throughout this document, particularly those noted in
"Factors Affecting Future Operating Results".
INTEREST AND OTHER, NET
(In thousands) 1998 Change 1997 Change 1996
- -------------------------- ------- ------- ------- ------- -------
Interest income and other $6,728 0.5% $6,697 30.1% $5,146
Percentage of revenue 1.1% 1.2% 0.9%
The Company earns interest income on its cash, cash equivalents, short-term
investments and restricted investments. The amount of interest earned is a
function of the balance of cash invested as well as prevailing interest rates.
The Company incurs interest expense on the $250 million 5 1/4% convertible
subordinated notes issued in November 1995. The Company's investment
portfolio contains tax-advantaged municipal securities, which have pretax
yields that are less than the interest rate on the convertible subordinated
notes. For financial reporting purposes, the Company effectively records the
difference between the pretax and tax-equivalent yields as a reduction in
provision for taxes on income.
Interest and other income for 1998 remained consistent with the amount in
1997. In 1998, average cash and investment balances and average interest
rates remained fairly consistent with the prior year, resulting in comparable
net interest and other income over both years. The increase in interest
income in fiscal 1997 over the prior year was primarily attributable to higher
investment portfolio balances and joint venture equity income. As a result of
the difference in interest income and expense yields and future uses of the
Company's investment portfolio, levels of net interest and other income could
decrease in the future.
PROVISION FOR INCOME TAXES
(In thousands) 1998 Change 1997 Change 1996
- ------------------------------ -------- ------- -------- ------- --------
Provision for taxes on income $56,728 2.4% $55,382 (20.3%)* $69,448*
Effective tax rate 31.4% 33.4% 40.6%*
* Includes non-recurring write-off of in-process technology relating to the
acquisition of NeoCAD. Excluding the write-off of in-process technology, in
fiscal 1996 the Company's effective tax rate was 36.5%.
The tax rate for fiscal 1998 as compared to fiscal 1997, as well as the tax
rate for fiscal 1997 as compared to fiscal 1996, was favorably impacted by
legislation reinstating the R&D Tax Credit as well as increased profits in
foreign operations where the tax rate is lower that the US rate.
JOINT VENTURE EQUITY INCOME
The Company records its 25% proportional ownership of the net income of United
Silicon Inc. (USIC), a wafer fabrication joint venture located in Taiwan, as
joint venture equity income. To date, USIC's net income has resulted
primarily from favorable foreign currency exchange gains as well as interest
earned on its investment portfolio. Through the second quarter of fiscal 1998,
equity income was immaterial and remains classified in "Interest income and
other". The Company expects to incur joint venture equity losses during most
of fiscal 1999 as the USIC wafer fabrication facility begins to ramp up
production. Many of the expenses associated with full foundry operation will
be incurred in 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 is obtained.
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 March 31, 1998 remained strong. Total
current assets exceeded total current liabilities by 4.8 times, compared to
6.2 times at March 31, 1997. 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, make acquisitions and investments in
complementary technologies, obtain facilities and capital equipment and
finance inventory and accounts receivable.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Xilinx's cash, cash equivalents and short-term investments decreased by $63.7
million in 1998 as cash was used to fund investing and financing activities.
Cash, cash equivalents and short-term investments represented 38.5% of total
assets at March 31, 1998. The Company generated cash flow of $218.4 million
from operating activities in 1998, offset by $200.8 million of cash used for
investing activities and $66.6 million used in financing activities.
Investing activities during fiscal 1998 included expenditures for property,
plant and equipment together with a deposit for a facility under construction
on the San Jose corporate campus, an additional investment in the USIC joint
venture and additional advances to Seiko Epson for wafer purchases.
Investment proceeds were received from the net maturity of short-term
investments. Financing activities during 1998 included $93.8 million to
acquire treasury stock offset by $27.2 million in proceeds from sales of
common stock under employee option and stock purchase plans.
RECEIVABLES
Receivables decreased 15.7% from $72.2 million at the end of 1997 to $60.9
million at the end of 1998. In addition, days sales outstanding at the end of
each year decreased from 43 days in 1997 to 36 days in 1998. In fiscal 1998
receivables decreased as the Company increased collection efforts relating to
international sales as well as increased allowances for pricing adjustments
and customer returns.
INVENTORIES
Inventories decreased 11.3% from $62.4 million at March 1997 to $55.3 million
at March 1998. Inventory levels at March 31, 1998 represent 86 days of
inventory, which is in line with the Company's objective of 70 to 90 days,
compared to 96 days at March 31, 1997. Inventory levels decreased during
fiscal 1998 as both architecture and manufacturing process technology
improvements have permitted continued cost reductions as well as continued
improvement of inventory management. The Company seeks to balance two
contradictory objectives with regard to inventory management. On the one
hand, the Company believes that its standard, off-the-shelf products should be
available for prompt shipment to customers. Accordingly, it attempts to
maintain sufficient levels of inventory in various product, package and speed
configurations to meet estimates of customer demand. At the same time, the
Company also wishes to minimize the handling costs associated with maintaining
higher inventory levels and to realize fully the opportunities for cost
reductions associated with architecture and manufacturing process
advancements. The Company continually strives to balance these two objectives
so as to provide excellent customer response at a competitive cost.
ADVANCES FOR WAFER PURCHASES
In fiscal 1997, the Company signed an agreement with Seiko Epson, a primary
wafer supplier. This agreement was amended in fiscal 1998 and now provides
for an advance to Seiko Epson of $150.0 million. In conjunction with the
agreement, $60.0 million was paid in fiscal 1997 and an additional $90.0
million was paid in fiscal 1998. Repayment of this advance is in the form of
wafer deliveries, which began during the fourth quarter of fiscal 1998.
Specific wafer pricing is based upon the prices of similar wafers manufactured
by other, specifically identified, leading-edge foundry suppliers. The
advance payment provision also provides for interest to be paid to the Company
in the form of free wafers.
PROPERTY, PLANT AND EQUIPMENT
During 1998, Xilinx invested $29.7 million in property and equipment, as
compared to $26.8 million in 1997. During 1998, the Company purchased land in
Longmont, Colorado for approximately $7 million and continued to invest in
software development tools and semiconductor design, test and manufacturing
equipment at each of its manufacturing locations.
CURRENT LIABILITIES
Current liabilities increased from $97.3 million in fiscal 1997 to $125.7
million at the end of 1998. The increase was primarily attributable to an
increase in deferred income on shipments to distributors due to increased
sales through distribution as well as distributor demand for new product
lines.
LONG-TERM DEBT AND LINES OF CREDIT
In November 1995, the Company issued $250 million in convertible subordinated
notes. The Company has 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 Ireland manufacturing facility. At March 31, 1998 and 1997, no
borrowings were outstanding under the lines of credit. See Note 5 of Notes to
Consolidated Financial Statements.
STOCKHOLDERS' EQUITY
Stockholders' equity grew by 12.1% in 1998 to $550.2 million. The increase of
$59.5 million was primarily attributable to $126.6 million in net income and
$43.3 million related to the issuance of common stock and the tax benefit from
stock options, partially offset by the $93.8 million used to acquire treasury
stock. Subsequent to March 31, 1998, the Company began an additional treasury
stock program to purchase up to approximately 3 million shares as market and
business conditions warrant. Stockholders' equity as a percentage of total
assets was 58.5% for 1998 and 57.9% for 1997.
COMMITMENTS
The Company invested an additional $67.4 million in the USIC joint venture in
fiscal 1998 to bring the total investment in USIC at the end of fiscal 1998 to
$101.7 million. The Company currently holds a 25% equity ownership in USIC
and the right to receive 31.25% of the wafer capacity from this facility.
Under the terms of the agreement entered into between the Company and USIC,
the Company may be required to make a third equity installment of up to an
additional $30.0 million in the joint venture during fiscal 1999, if warranted
based on the capital and operational requirements of the joint venture.
United Microelectronics Corporation (UMC) has committed to and is supplying
the Company with wafers manufactured in an existing facility until capacity is
available in the USIC facility. The Company is accounting for this investment
using the equity method. See further discussion in Notes 4 and 6 of Notes to
Consolidated Financial Statements. As the US dollar increased in value
relative to the New Taiwan dollar during fiscal 1998, adjustments were made to
the carrying value of the investment of approximately $17 million since its
inception. Offsetting amounts were recorded to the cumulative translation
adjustment account within stockholders' equity.
EMPLOYEES
During 1998, Xilinx experienced a 9% increase in the number of its employees.
The Company had 1,391 employees at the end of fiscal 1998 as compared to 1,277
at the end of the prior year.
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 for
investments to obtain additional wafer supply capacity, procurement of
additional capital equipment and facilities, development of new products, and
potential acquisitions of 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 to 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. The recent instability in the Asian
financial markets has adversely impacted sales and may continue to adversely
impact sales 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.
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 two 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 would 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.
LITIGATION
The Company is currently engaged in patent litigation with Altera Corporation
(Altera). See Note 11 of Notes to Consolidated Financial Statements. The
ultimate outcome of these matters cannot be determined at this time.
Management believes that it has meritorious defenses to the claims asserted
against it and is defending them vigorously. The foregoing is a forward
looking statement subject to risks and uncertainties, and the future outcome
could differ materially due to the uncertain nature of the litigation with
Altera and because the lawsuits are still in the pre-trial stage.
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 percentage of total revenues. 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 a number of
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 are comprised of several elements:
the manufacturers of custom CMOS gate arrays, providers of high density
programmable logic products characterized by FPGA-type architectures,
providers of high speed, low density CPLDs devices 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, the ability
to deliver complete solutions to customers, voltage 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.
YEAR 2000 COMPLIANCE
As is the case with most other companies using computers 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. Based on preliminary information,
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. However, 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. Accordingly, the Company plans to devote the necessary
resources to resolve all significant year 2000 issues in a timely manner.
MARKET RATE RISKS
Interest Rate Risk - The Company's exposure to interest rate risk relates
primarily to the Company's investment portfolio and long-term debt
obligations. See Note 5 of Notes to Consolidated Financial Statements. The
Company's primary aim with its 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, corporate bonds, and US Treasury securities. In accordance
with the Company's investment policy, the Company places investments with high
credit quality issuers and limits 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. All securities have remaining
maturities less than one year as of the balance sheet date, and the Company
believes it has the ability to hold its investments until maturity.
Therefore, the Company does not expect to recognize an adverse impact on
income or cash flows, although there can be no assurance of this.
The Company is also subject to interest rate risk related to outstanding
long-term debt. If long-term market interest rates decrease, the effective
cost of the debt will increase. In order to mitigate the interest rate risks,
the long-term debt fixed interest rate liability has been matched against the
Company's short-term variable interest rate assets through a liability
interest rate swap agreement. The liability swap exchanges one half of the
underlying debt amount based on a fixed interest rate for the same amount
based on variable interest rates. If interest rates rise by 10%, the cash
flow impact of the swap would continue to be immaterial and would be offset by
the increase in short-term investment interest rates. This contract was
entered into for a two and a half-year period and will end in November 1998.
As the long-term debt may be outstanding until November 2002, the Company will
continue to evaluate its strategy related to the fixed rate debt.
The table below summarizes the Company's investment, debt and interest rate
swap notional amounts as of March 31, 1998 as well as weighted average
interest rates by year of maturity for the next four years and thereafter.
The fair value as of March 31, 1998 is also shown.
Maturity Date Fair Value
(In thousands) March 31,
1999 2000 2001 2002 Total 1998
--------- --------- ------ --------- --------- -----------
ASSETS
Available-for-sale securities $ 340,415 - - - $ 340,415 $ 340,585
Average pre-tax interest rate 3.87%
Held-to-maturity securities $ 36,271 - - - $ 36,271 $ 36,266
Average interest rate 5.09%
LIABILITIES
Convertible long-term debt - - - $ 250,000 $ 250,000 $ 255,000
Average interest rate 5.25% 5.25% 5.25% 5.25%
INTEREST RATE DERIVATIVE FINANCIAL INSTRUMENTS
Interest rate swap
Pay variable/receive fixed $ 125,000 - - - $ 125,000 $ 170
Average pay rate USD 3 month Libor
Average receive rate 5.94%
Foreign currency risk - Through fiscal year 1998, the Company's purchases of
processed silicon wafers from Japanese foundries have been denominated in yen.
To help offset the Company's exposure for yen denominated liabilities, the
Company's sales to Japanese customers through fiscal 1998 have also been
denominated in yen. The Company has periodically hedged its net exposure to
fluctuations in the yen-to-US dollar exchange rates through the use of forward
exchange or option contracts. However, beginning in fiscal 1999, most wafers
purchased from Japanese suppliers will be denominated in US dollars. The
Company also intends to begin invoicing Japanese customers in US dollars
during the second half of fiscal 1999. For a period of time, wafers will be
purchased in US dollars and invoicing to Japanese customers will continue to
be in yen, resulting in a yen exposure. However, after invoicing begins in US
dollars, the Company believes that its net yen exposure relating to
fluctuations in the yen-to-US dollar exchange rate should decline, although
there can be no assurance that this will be the case. As a result, the
Company plans to adjust its future hedging strategy. In addition, the Company
entered into foreign exchange forward contracts in fiscal 1997 to minimize the
impact of future exchange fluctuations relating to its fiscal 1998 investment
in the USIC joint venture, which was denominated in New Taiwan dollars. No
currency forward or option contracts were outstanding as of March 31, 1998.
The Company has several subsidiaries and an equity investment in the USIC
joint venture whose financial statements are recorded in currencies other than
the US dollar. As these foreign currency financial statements are translated
at each month end during consolidation, fluctuations of exchange rates between
the foreign currency and the US dollar increase or decrease the value of those
investments. If permanent changes occur in exchange rates after an investment
is made, the investment's value will increase or decrease accordingly. These
fluctuations are recorded as a separate component of stockholders' equity as
cumulative translation adjustments. To date, the USIC joint venture has
recorded approximately $17 million as cumulative translation adjustments, as
the New Taiwan dollar has decreased in value against the US dollar. Also, as
the Company's subsidiaries and the USIC joint venture maintain investments
denominated in other than local currencies, exchange rate fluctuations will
occur. USIC's net income to date has resulted largely from favorable foreign
currency exchange gains on its US dollar denominated investments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts) Years ended March 31,
1998 1997 1996
--------- --------- ---------
Net revenues $613,593 $568,143 $560,802
Costs and expenses:
Cost of revenues 230,690 214,337 203,192
Write-off of discontinued product family - 5,000 -
Research and development 80,456 71,075 64,600
Marketing, general and administrative 128,579 118,670 107,888
Non-recurring charges - - 19,366
--------- --------- ---------
Total operating costs and expenses 439,725 409,082 395,046
--------- --------- ---------
Operating income 173,868 159,061 165,756
Interest income and other 20,652 21,258 10,791
Interest expense (13,924) (14,561) (5,645)
--------- --------- ---------
Income before provision for taxes on income
and equity in joint venture 180,596 165,758 170,902
Provision for taxes on income 56,728 55,382 69,448
--------- --------- ---------
Income before equity in joint venture 123,868 110,376 101,454
Equity in net income of joint venture 2,719 - -
--------- --------- ---------
Net income $126,587 $110,376 $101,454
========= ========= =========
Net income per share:
Basic $ 1.72 $ 1.52 $ 1.43
========= ========= =========
Diluted $ 1.58 $ 1.39 $ 1.28
========= ========= =========
Shares used in per share calculations:
Basic 73,741 72,816 71,092
========= ========= =========
Diluted 80,010 79,675 78,955
========= ========= =========
See accompanying notes.
CONSOLIDATED BALANCE SHEETS
(In thousands except per share amounts)
March 31,
1998 1997
---- ----
ASSETS
Current assets:
Cash and cash equivalents $166,861 $215,903
Short-term investments 195,326 209,944
Accounts receivable, net of allowances for doubtful accounts, pricing
adjustments and customer returns of $8,408 and $5,734 in 1998 and 1997,
respectively 60,912 72,248
Inventories 55,289 62,367
Deferred income taxes 38,694 36,420
Advances for wafer purchases 72,267 -
Other current assets 10,875 4,673
--------- ---------
Total current assets 600,224 601,555
--------- ---------
Property, plant and equipment, at cost:
Land 10,361 3,111
Building 27,414 26,840
Machinery and equipment 114,955 114,525
Furniture and fixtures 10,902 9,967
--------- ---------
163,632 154,443
Accumulated depreciation and amortization (75,356) (67,863)
--------- ---------
Net property, plant and equipment 88,276 86,580
Restricted investments 36,271 36,257
Investment in joint venture 90,872 35,286
Advances for wafer purchases 77,342 60,000
Developed technology and other assets 48,253 28,015
--------- ---------
$941,238 $847,693
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 20,332 $ 16,758
Accrued payroll and payroll related liabilities 15,318 13,769
Interest payable 5,399 5,364
Income tax payable 16,692 10,858
Deferred income on shipments to distributors 55,898 36,355
Other accrued liabilities 12,018 14,149
--------- ---------
Total current liabilities 125,657 97,253
--------- ---------
Long-term debt 250,000 250,000
Deferred tax liabilities 15,406 9,760
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 2,000 shares authorized;
none issued and outstanding - -
Common stock, $.01 par value; 300,000 shares authorized; 74,363 and
73,383 shares issued; 72,913 and 73,342 shares outstanding at
March 31, 1998 and 1997, respectively 729 733
Additional paid-in capital 119,070 114,447
Retained earnings 504,468 377,881
Unrealized gain on available-for-sale securities, net of tax 102 83
Treasury stock, at cost (56,973) (1,847)
Cumulative translation adjustment (17,221) (617)
--------- ---------
Total stockholders' equity 550,175 490,680
--------- ---------
$941,238 $847,693
========= =========
See accompanying notes.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Years ended March 31,
1998 1997 1996
---- ---- ----
Increase (decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net income $126,587 $110,376 $101,454
Adjustments to reconcile net income to net cash provided
by operating activities:
Write-off of in-process technology - - 19,366
Depreciation and amortization 32,709 27,997 22,464
Undistributed earnings of joint venture (3,747) (1,336) -
Changes in assets and liabilities net of effects of NeoCAD acquisition:
Accounts receivable 11,336 7,280 (34,777)
Inventories, excluding receipts against advances for wafer purchases 7,469 (14,095) 19,375
Deferred income taxes and other 15,644 14,134 (783)
Accounts payable, accrued liabilities and income taxes payable 8,861 (3,193) 7,408
Deferred income on shipments to distributors 19,543 (1,213) 15,755
---------- ---------- ----------
Total adjustments net of effects of NeoCAD acquisition 91,815 29,574 48,808
---------- ---------- ----------
Net cash provided by operating activities 218,402 139,950 150,262
---------- ---------- ----------
Cash flows from investing activities:
Purchases of short-term available-for-sale investments (337,500) (247,022) (292,013)
Proceeds from sale or maturity of short-term available-for-sale investments 352,149 303,604 92,333
Purchases of restricted held-to-maturity investments (72,281) (72,227) (96,141)
Proceeds from maturity of restricted held-to-maturity investments 72,267 72,189 72,555
Advances for wafer purchases (90,000) (60,000) -
Acquisition of NeoCAD, net of cash acquired - - (33,412)
Property, plant and equipment (29,700) (26,803) (60,506)
Investment in joint venture (67,422) - (34,316)
Deposit on building (28,351) - -
Other - - (1,235)
---------- ---------- ----------
Net cash used in investing activities (200,838) (30,259) (352,735)
---------- ---------- ----------
Cash flows from financing activities:
Net proceeds from issuance of long-term debt - - 243,901
Acquisition of treasury stock (93,795) (32,028) -
Principal payments on capital lease obligations - (977) (1,389)
Proceeds from issuance of common stock 27,189 28,324 14,151
---------- ---------- ----------
Net cash (used)/provided by financing activities (66,606) (4,681) 256,663
---------- ---------- ----------
Net (decrease)/increase in cash and cash equivalents (49,042) 105,010 54,190
Cash and cash equivalents at beginning of period 215,903 110,893 56,703
---------- ---------- ----------
Cash and cash equivalents at end of period $ 166,861 $ 215,903 $ 110,893
========== ========== ==========
Schedule of non-cash transactions:
Tax benefit from stock options $ 16,099 $ 16,730 $ 7,907
Issuance of treasury stock under employee stock plans 38,669 30,181 8,223
Receipts against advances for wafer purchases 391 9,034 32,966
Supplemental disclosures of cash flow information:
Interest paid 13,008 13,309 201
Income taxes paid $ 39,472 $ 34,426 $ 74,688
See accompanying notes.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Unrealized
Three years ended March 31, 1998 Gain/(Loss)
On
Common Stock Additional Available- Cumulative Total
(In thousands) Outstanding Paid-in Retained For-Sale Treasury Translation Stockholders'
Shares Amount Capital Earnings Securities Stock Adjustment Equity
------- ------- -------- -------- ---------- --------- --------- ----------
BALANCE AT MARCH 31, 1995 71,658 $ 717 $ 85,755 $166,051 $ (329) $ (8,223) $ - $ 243,971
Issuance of common shares
under employee stock plans 275 2 2,070 - - - - 2,072
Issuance of treasury stock
under employee stock plans - - 3,856 - - 8,223 - 12,079
Tax benefit from exercise of
stock options - - 7,907 - - - - 7,907
Unrealized gain on available-
for-sale securities, net of tax - - - - 761 - - 761
Net income - - - 101,454 - - - 101,454
------ ------ --------- -------- -------- ---------- --------- ---------
BALANCE AT MARCH 31, 1996 71,933 719 99,588 267,505 432 - - 368,244
Issuance of common shares
under employee stock plans 2,287 14 28,310 - - - - 28,324
Acquisition of treasury stock (878) - - - - (32,028) - (32,028)
Issuance of treasury stock
under employee stock plans - - (30,181) - - 30,181 - -
Tax benefit from exercise
of stock options - - 16,730 - - - - 16,730
Unrealized loss on available-
for-sale securities, net of tax - - - - (349) - - (349)
Cumulative translation
adjustment - - - - - - (617) (617)
Net income - - - 110,376 - - - 110,376
------ ------ -------- -------- --------- ---------- ---------- --------
BALANCE AT MARCH 31, 1997 73,342 733 114,447 377,881 83 (1,847) (617) 490,680
Issuance of common shares
under employee stock plans 1,901 (4) 27,193 - - - - 27,189
Acquisition of treasury stock (2,330) - - - - (93,795) - (93,795)
Issuance of treasury stock
under employee stock plans - - (38,669) - - 38,669 - -
Tax benefit from exercise
of stock options - - 16,099 - - - - 16,099
Unrealized gain on available-
for-sale securities, net of tax - - - - 19 - - 19
Cumulative translation
adjustment - - - - - - (16,604) (16,604)
Net income - - - 126,587 - - - 126,587
------ ------ -------- -------- --------- ---------- ---------- --------
BALANCE AT MARCH 31, 1998 72,913 $ 729 $119,070 $504,468 $ 102 $ (56,973) $(17,221) $550,175
====== ====== ======== ======== ========= ========== ========== =========
See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF OPERATIONS
Xilinx designs, develops and markets complete programmable logic solutions,
including advanced integrated circuits, software design tools, predefined
system functions delivered as cores of logic and field engineering support.
The wafers used to manufacture the Company's products are obtained from
independent wafer manufacturers, located primarily in Japan and Taiwan. The
Company is dependent upon these manufacturers to produce and deliver wafers on
a timely basis. The Company is also dependent on subcontractors, located in
the Asia Pacific region, to provide semiconductor assembly services. Xilinx
is a global company with manufacturing facilities in the United States and
Ireland and sales offices throughout the world. The Company derives more than
one-third of its revenues from international sales, primarily in Europe and
Japan.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CONCENTRATIONS OF RISK
Basis of presentation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries after elimination of all
intercompany accounts and transactions. The Company's fiscal year ends on the
Saturday nearest March 31. For ease of presentation, March 31 has been
utilized as the fiscal year-end for all financial statement captions. Certain
amounts from the prior year have been reclassified to conform to the current
year presentation. Reclassifications had no effect on previously reported
statements of financial position or results of operations.
Cash equivalents and investments
Cash and cash equivalents consist of cash on deposit with banks,
tax-advantaged municipal bonds, and investments in money market instruments
with insignificant interest rate risk and original maturities at date of
acquisition of 90 days or less. Short-term investments consist of
tax-advantaged municipal bonds, tax-advantaged auction rate preferred
municipal bonds and corporate bonds with maturities greater than 90 days but
less than one year from the balance sheet date. Restricted investments
consist of US Treasury Securities held as collateral relating to leases for
the Company's facilities. See Note 6 of Notes to Consolidated Financial
Statements. The Company invests its cash, cash equivalents and short-term
investments through various banks and investment banking institutions. This
diversification of risk is consistent with Company policy to maintain
liquidity and ensure the safety of principal.
Management classifies investments as available-for-sale or held-to-maturity at
the time of purchase and re-evaluates such designation as of each balance
sheet date, although classification is generally not changed. Securities are
classified as held-to-maturity when the Company has the positive intent and
the ability to hold the securities until maturity. Held-to-maturity
securities are carried at cost adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization, as well as any
interest on the securities, is included in interest income. Securities not
classified as held-to-maturity are classified as available-for-sale.
Available-for-sale securities are carried at fair value with the unrealized
gains or losses, net of tax, included as a separate component of stockholders'
equity. Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are included in other
income. The fair values for marketable debt and equity securities are based
on quoted market prices. The cost of securities matured or sold is based on
the specific identification method.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
(estimated net realizable value) and are comprised of the following at March
31, 1998 and 1997:
(In thousands) 1998 1997
------- -------
Raw materials $ 5,976 $ 4,952
Work-in-progress 24,845 30,898
Finished goods 24,468 26,517
------- -------
$55,289 $62,367
======= =======
Advances for wafer purchases
In fiscal 1997, the Company signed an agreement with Seiko Epson, a primary
wafer supplier. This agreement was amended in fiscal 1998 and now provides
for an advance to Seiko Epson of $150.0 million. In conjunction with the
agreement, $60.0 million was paid in fiscal 1997 and an additional $90.0
million was paid in fiscal 1998. Repayment of this advance is in the form of
wafer deliveries, which began during the fourth quarter of fiscal 1998.
Specific wafer pricing is in US dollars and is based upon the prices of
similar wafers manufactured by other, specifically identified, leading-edge
foundry suppliers. The advance payment provision also provides for interest
to be paid to the Company in the form of free wafers.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation for financial
reporting purposes is computed using the straight-line method over the
estimated useful lives of the assets of three to five years for machinery,
equipment, furniture and fixtures and up to thirty years for buildings.
Revenue Recognition
Net revenues are stated net of discounts and allowances. Revenue from product
sales direct to customers and foreign distributors is generally recognized
upon shipment. However, the Company defers the recognition of revenue and the
related cost of revenue on shipments to domestic distributors that have
certain rights of return and price protection privileges on unsold product
until the distributor sells the product.
Foreign currency translation
The US dollar is the functional currency for the Company's Ireland
manufacturing facility. Assets and liabilities that are not denominated in
the functional currency are remeasured into US dollars, and the resulting
gains or losses are included in net income. The functional currency is the
local currency for each of the Company's other foreign subsidiaries and the
USIC joint venture. Assets and liabilities are translated at month-end
exchange rates, and statements of operations are translated at the average
exchange rates during the year. Exchange gains or losses arising from
translation of foreign currency denominated assets and liabilities are
included as a component of stockholders' equity.
Derivative financial instruments
As part of its ongoing asset and liability management activities, the Company
periodically enters into certain derivative financial arrangements to reduce
financial market risks. These instruments are used to hedge foreign currency,
equity and interest rate market exposures of underlying assets and
liabilities. The Company does not enter into derivative financial instruments
for trading purposes.
The Company periodically enters into currency forward or option contracts to
minimize foreign exchange risk relating to the Company's wafer purchases that
are denominated in yen. These contracts are accounted for as identifiable
hedges against wafer purchases. Realized gains or losses are recognized upon
maturity of the contracts and are included in cost of sales. The Company also
periodically enters into foreign exchange forward contracts to minimize the
impact of future exchange fluctuations in foreign currency firm commitments.
A forward foreign exchange contract obligates the Company to exchange
predetermined amounts of specified foreign currencies at specified exchange
rates on specified dates or to make an equivalent US dollar payment equal to
the value of such exchange. These contracts are accounted for as hedges of an
identifiable foreign currency commitment. Realized gains or losses are
recognized upon maturity of the contracts and offset the underlying asset or
liability.
The Company has entered into an interest rate swap agreement in order to
mitigate the interest rate risks whereby the long-term debt fixed interest
rate liability is matched against the Company's short-term variable interest
rate assets. The liability interest rate swap agreement involves the exchange
of fixed interest rate payments for variable interest rate payments over the
life of the agreement without an exchange of the notional amount. The
differential to be paid or received as the variable interest rate changes is
accrued and recognized as interest expense. The related amounts payable or
receivable from the third party is included in other liabilities or assets.
The fair value of the swap agreement and changes in the fair value as a result
of changes in market interest rates are not material. See Note 5 of Notes to
Consolidated Financial Statements.
Employee stock plans
The Company accounts for its stock option and employee stock purchase plans in
accordance with provisions of the Accounting Principles Board's Opinion No. 25
(APB 25), "Accounting for Stock Issued to Employees." In addition the Company
discloses pro forma information related to its stock plans according to
Financial Accounting Standards Board's Statement No. 123, "Accounting for
Stock-Based Compensation" (FASB 123). See Note 8 of Notes to Consolidated
Financial Statements.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the
reported amounts of net revenues and expenses during the reporting period.
Such estimates relate to the useful lives of fixed assets and intangible
assets, allowances for doubtful accounts, pricing adjustments, customer
returns, inventory reserves, potential reserves relating to litigation matters
as well as other accruals or reserves. Actual results may differ from those
estimates, and such differences may be material to the financial statements.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 (FASB 130), "Reporting Comprehensive
Income". FASB 130 establishes standards for the reporting and disclosure of
comprehensive income and its components in a full set of general-purpose
financial statements. Comprehensive income is defined as the change in equity
(net assets) during the period from non-owner sources. The Company is
required to adopt FASB 130 in fiscal 1999. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
The adoption of FASB 130 will have no impact on the Company's consolidated
results of operations, financial position or cash flows.
Also in June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131 (FASB 131), "Disclosures about
Segments of an Enterprise and Related Information". FASB 131 revises previous
standards related to the way public companies report information about
operating segments in annual financial statements and requires that those
companies report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. The Company is required to adopt FASB 131 in fiscal 1999. The
adoption of FASB 131 will have no impact on the Company's consolidated results
of operations, financial position or cash flows.
Concentrations of credit risk
The Company attempts to mitigate the concentration of credit risk in its trade
receivables with respect to the high-technology industry with the Company's
credit evaluation process, relatively short collection terms, distributor
agreements, sales among various end-user applications throughout the
high-technology market and the geographical dispersion of sales. The Company
generally does not require collateral. Bad debt write-offs have been
insignificant for all years presented.
Concentration of other risks
The semiconductor industry is characterized by rapid technological change,
intense competitive pressure and cyclical market patterns. 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 process 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.
Based on the factors noted herein, the Company may experience substantial
period-to-period fluctuations in future operating results.
NOTE 3. ACQUISITION
In April 1995, the Company acquired NeoCAD, Inc. (NeoCAD), a private company
engaged in the design, development and sale of FPGA software design tools for
programmable electronic technologies, for $35.0 million in cash. The
transaction was treated as a purchase for accounting purposes; accordingly,
the purchase price was allocated to the assets acquired and liabilities
assumed based on their estimated fair values. NeoCAD's financial results from
the date of acquisition are included in the Company's consolidated financial
results. The excess of the purchase price over the fair values of liabilities
assumed, net of tangible assets acquired, was allocated to in-process
technology ($19.4 million), the assembled workforce ($0.7 million), and
developed technology ($15.7 million). The amount of in-process technology was
written-off as a non-recurring item during fiscal 1996. The assembled
workforce asset was amortized over two years and was completed in fiscal year
1997. The developed technology asset is being amortized over six years, $2.6
million of which was recorded as amortization in fiscal 1998, for cumulative
amortization to date of $7.8 million.
NOTE 4. JOINT VENTURE
The Company, United Microelectronics Corporation (UMC) and other parties have
entered into a joint venture to construct a wafer fabrication facility in
Taiwan, known as United Silicon Inc. (USIC). The Company invested an
additional $67.4 million in USIC during fiscal 1998 to bring the total
cumulative investment to $101.7 million. The Company currently holds a 25%
equity ownership and the right to receive 31.25% of the wafer capacity from
this facility. UMC has committed to and is supplying the Company with wafers
manufactured in an existing facility until capacity is available in the USIC
facility. The Company is accounting for this investment using the equity
method. To date, USIC's net income has resulted primarily from favorable
foreign currency exchange gains as well as interest earned on its investment
portfolio. Through the second quarter of fiscal 1998, equity income was
immaterial and remained classified in "Interest income and other". See
further discussion in Note 6 of Notes to Consolidated Financial Statements.
NOTE 5. FINANCIAL INSTRUMENTS
Cash and Investments
The following is a summary of available-for-sale securities:
March 31, 1998 March 31, 1997
--------------------------------------------- --------------------------------------------
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value Cost Gains Losses Value
--------- -------- ---------- --------- ---------- --------- --------- ----------
Money market funds $ 13,614 $ - $ - $ 13,614 $ 23,864 $ - $ - $ 23,864
Auction rate preferred 30,292 12 (2) 30,302 17,297 5 (1) 17,301
Municipal bonds 296,509 189 (29) 296,669 378,848 165 (31) 378,982
---------- --------- --------- --------- ---------- --------- ---------- ---------
$ 340,415 $ 201 $ (31) $ 340,585 $ 420,009 $ 170 $ (32) $ 420,147
========== ========= ========= ========= ========== ========= ========== =========
Included in short-term investments $ 195,326 $ 209,944
Included in cash and cash equivalents 145,259 210,203
--------- ---------
$ 340,585 $ 420,147
========= =========
All investments classified as "available-for-sale securities" have maturities
due in one year or less. Realized gains or losses from sales of
available-for-sale securities were immaterial for all periods presented.
Held-to-maturity securities of $36.3 million at March 31, 1998 and March 31,
1997, represent investments in US Treasury Securities for which amortized cost
approximates estimated fair value. Held-to-maturity securities relate to
certain collateral requirements for lease agreements associated with the
Company's corporate facilities and have maturities due in one year or less.
See Note 6 of Notes to Consolidated Financial Statements.
Derivatives
In fiscal 1997, the Company entered into foreign exchange forward contracts to
minimize the impact of future exchange fluctuations on the US dollar cost of
investing in the USIC joint venture. The contracts required the Company to
exchange US dollars for New Taiwan dollars and matured within one year. The
contracts were accounted for as a hedge of an identifiable foreign currency
commitment. Realized losses, which were immaterial, were recognized upon
maturity of the contracts in fiscal 1998 and included in the USIC joint
venture investment.
The Company has entered into an interest rate swap agreement with a third
party in order to reduce risk related to movements in interest rates. Under
the agreement, which was effective starting in May 1996 and terminates in
November 1998, the Company effectively converted the fixed rate interest
payments related to $125 million of the Company's convertible long-term debt
to variable rate interest payments without the exchange of the underlying
principal amounts. The Company receives fixed interest rate payments (equal
to 5.935%) from the third party and is obligated to make variable rate
payments (equal to the three month Libor rate) to the third party during the
term of the agreement. The fair value of the interest rate swap is immaterial
based on market exchange rates.
At March 31, 1998, no commitments under foreign currency forward or option
contracts were outstanding.
Long-Term Debt and Lines of Credit
In November 1995, the Company completed a private placement of $250 million
aggregate principal convertible subordinated notes under Rule 144A of the
Securities Act of 1933. The notes, which mature in 2002, are convertible at
the option of the note holders into the Company's common stock at a conversion
price of $51 per share, subject to adjustment upon the occurrence of certain
events. The conversion price represented a 24.77% premium over the closing
price of the Company's stock on November 7, 1995. Interest is payable
semi-annually at 5.25% per annum. As of November 4, 1997, the notes are
redeemable at the option of the Company at an initial redemption price of
103.75% of the principal amount. However, prior to November 3, 1998, the
notes are not redeemable unless the closing price of the Company's common
stock has exceeded $71.40 (40% premium over the conversion price) per share
for twenty trading days within a period of thirty consecutive trading days.
Redemption prices as a percentage of the principal amount are 103%, 102.25%,
101.50% and 100.75% in the years beginning November 1, 1998, November 1, 1999,
November 1, 2000 and November 1, 2001, respectively. Debt issuance costs of
$6.1 million incurred in conjunction with issuance of the convertible
subordinated notes are being amortized over the seven-year life of the notes.
In 1998, the Company recorded debt issuance cost amortization of $0.9 million.
At March 31, 1998, the fair value of the convertible subordinated notes was
approximately $255 million based on quoted market prices. The Company has
reserved 4,901,961 shares of common stock for the conversion of these notes.
The Company has $40 million available under a syndicated bank revolving credit
line agreement, which expires in March 2001. Under this agreement, borrowings
bear interest at the prime rate or 0.625% over the Libor rate. Additionally,
the Company's Ireland manufacturing facility has an additional $6.2 million
available under a multicurrency credit line, which expires in November 1999.
Under this agreement, borrowings bear interest at the bank's prime rate. At
March 31, 1998, no borrowings were outstanding under any credit lines. The
Company is in full compliance with the agreement's required covenants and
financial ratios. The agreements prohibit the payment of cash dividends
without prior bank approval.
NOTE 6. COMMITMENTS
The Company leases its manufacturing and office facilities under operating
leases that expire at various dates through December 2014. Lease agreements
for certain corporate facilities contain payment provisions, which allow for
changes in rental amounts based upon interest rate changes. The approximate
future minimum lease payments under operating leases are as follows:
Years ended March 31, (In thousands)
---------------
1999 $ 4,150
2000 3,268
2001 332
2002 188
2003 118
Thereafter 655
---------------
$ 8,711
===============
Rent expense was approximately $4.5 million for the years ended March 31, 1998
and 1997 and approximately $4.3 million for the year ended March 31, 1996.
The Company has entered into lease agreements relating to certain corporate
facilities which would allow the Company to purchase the facilities on or
before the end of the lease term in December 1999. If at the end of the lease
term the Company does not purchase the property under lease or arrange a third
party purchase, then the Company would be obligated to the lessor for a
guarantee payment equal to a specified percentage of the Company's purchase
price for the property. The Company would also be obligated to the lessor for
all or some portion of this amount if the price paid by the third party is
below a specified percentage of the Company's purchase price. The Company is
also required to comply with certain covenants and maintain certain financial
ratios. As of March 31, 1998, the total amount related to the leased
facilities for which the Company is contingently liable is $39.8 million.
Under the terms of the agreements, the Company is required to maintain
collateral (restricted investments) of approximately $36 million during the
lease term.
During fiscal 1998, the Company entered into an agreement for a facility to be
built on property adjacent to the Company's corporate facilities. Building
construction is expected to be completed in fiscal 1999. Upon signing the
lease agreement, the Company paid the lessor $31.3 million for prepaid rent
and an option to purchase the facility. The rent prepayment covers one year
and was discounted to its present value. Additionally, the Company can
exercise the lease agreement's purchase option between the sixth and twelfth
month following the commencement date of the lease term. If the Company
elects to exercise the option, the prepaid purchase option will be considered
payment in full. However, if the Company decides not to exercise the purchase
option, the prepaid option will be returned without interest at the end of the
first year of the lease.
Under the terms of the agreement entered into between the Company and USIC,
the Company may be required to make a third equity installment of up to an
additional $30 million in the USIC joint venture, if warranted based on the
capital and operational requirements of the joint venture.
NOTE 7. NET INCOME PER SHARE
During the quarter ended December 27, 1997, the Company adopted the Financial
Accounting Standards Board's Statement No. 128 (FASB 128), "Earnings per
Share". The new standard required the Company to change the method used to
compute net income per share and to restate all prior periods. The new
requirement includes a calculation of "basic" net income per share, which
excludes the dilutive effect of stock options. Basic net income per share is
computed by dividing net income available to common stockholders by the
weighted average number of common shares outstanding during the period. In
computing diluted net income per share, the average stock price for the period
is used in determining the number of shares assumed to be purchased from the
exercise of stock options. Diluted earnings per share is computed using the
weighted average common and dilutive common equivalent shares outstanding,
plus other dilutive shares which are not common equivalent shares.
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 6,269,000, 6,859,000 and
7,863,000 incremental common shares attributable to outstanding options for
fiscal years 1998, 1997 and 1996, 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
1.9 million, 1.0 million and 0.6 million shares, for the fiscal years 1998,
1997 and 1996, 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.
NOTE 8. STOCKHOLDERS' EQUITY
The Company's Certificate of Incorporation provides for 300 million shares of
common stock and 2 million shares of undesignated preferred stock.
Treasury Stock
The Company authorized a stock buyback program in September 1996 whereby up to
2 million shares of the Company's common stock were purchased in the open
market from time to time as market and business conditions warranted. This
program was completed in November 1997. In December 1997 an additional
program was authorized to buyback up to an additional 2 million shares. The
Company has reissued treasury shares repurchased in response to Employee Stock
Option exercises and Employee Qualified Stock Purchase Plan requirements.
During fiscal 1998 and 1997, the Company repurchased a total of 2,330,000 and
877,500 shares of common stock for $93.8 million and $32.0 million,
respectively. In fiscal 1998 and 1997, 921,000 and 837,000 shares were
reissued, respectively. As a result, the Company was holding 1,449,500
treasury stock shares at March 31, 1998.
Stockholder Rights Plan
In October 1991, the Company adopted a stockholder rights plan and declared a
dividend distribution of one common stock purchase right for each outstanding
share of common stock. The rights become exercisable based upon the
occurrence of certain conditions including acquisitions of Company stock,
tender or exchange offers and certain business combination transactions of the
Company. In the event one of the conditions is triggered, each right entitles
the registered holder to purchase a number of shares of common stock of the
Company or, under limited circumstances, of the acquirer. The rights are
redeemable at the Company's option, under certain conditions, for $.01 per
right and expire on October 4, 2001.
Employee Stock Option Plan
Under existing stock option plans (Option Plan), options reserved for future
issuance to employees and directors of the Company total 18,410,000 shares.
Options to purchase shares of the Company's common stock under the Option Plan
are granted at 100% of the fair market value of the stock on the date of
grant. Options granted to date expire ten years from date of grant and vest
at varying rates over four or five years.
A summary of the Company's Option Plan activity, and related information,
follows:
Years ended March 31, 1998 1997 1996
------------------ ------------------ ------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
(000) Price (000) Price (000) Price
------- --------- ------- --------- ------- ---------
Outstanding at beginning of year 13,708 $ 20.54 13,888 $ 16.78 11,452 $ 10.81
Granted 2,979 47.82 2,597 33.52 3,971 30.95
Exercised (1,540) 10.73 (1,752) 10.58 (1,169) 6.22
Forfeited (622) 31.76 (1,025) 19.49 (366) 17.18
------- ------- -------
Outstanding at end of year 14,525 $ 26.70 13,708 $ 20.54 13,888 $ 16.78
======= ======= =======
Shares available for grant 3,885 2,992 1,264
------- ------- -------
The following table summarizes information relating to options outstanding
and exercisable under the Option Plan at March 31, 1998:
Options Outstanding Options Exercisable
Weighted
Average Weighted Weighted
Options Remaining Average Options Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices (000) Life (Years) Price (000) Price
- -------------------- ----------- ------------ --------- ------------ ---------
0.12 - $12.96 2,025 3.93 $ 6.86 1,949 $ 6.66
12.96 - $15.58 2,361 5.62 13.23 1,785 13.25
15.58 - $22.88 2,707 6.70 18.92 1,371 18.71
23.33 - $33.63 3,107 7.87 31.19 1,069 30.62
33.75 - $56.88 4,325 8.83 44.98 943 43.72
- -------------------- ----------- ------------ --------- ------------ ---------
0.12 - $56.88 14,525 7.02 $ 26.70 7,117 $ 19.14
At March 31, 1997, 5.7 million options were exercisable.
Employee Qualified Stock Purchase Plan
Under the Company's 1990 Employee Qualified Stock Purchase Plan (Stock
Purchase Plan), qualified employees can elect to have up to 15 percent of
their annual earnings withheld, up to a maximum of $21,250, to purchase the
Company's common stock at the end of six-month enrollment periods. The
purchase price of the stock is 85% of the lower of the fair market value at
the beginning of the twenty-four month offering period or at the end of each
six-month purchase period. Almost all employees are eligible to participate.
Under this plan, 361,359 and 535,360 shares were issued during 1998 and 1997,
respectively, and 815,331 shares were available for issuance at March 31,
1998.
Stock-Based Compensation
As permitted under FASB Statement No. 123, "Accounting for Stock-Based
Compensation" (FASB 123), the Company has elected to continue to follow
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25) and related Interpretations in accounting for its
stock-based awards to employees. Under APB 25, the Company generally
recognizes no compensation expense with respect to such awards.
Pro forma information regarding net income and earnings per share is required
by FASB 123 and has been determined as if the Company had accounted for awards
to employees under the fair value method of FASB 123. The fair value of stock
options and stock purchase plan rights under the Option Plan and Stock
Purchase Plan was estimated as of the grant date using the Black-Scholes
option pricing model. The Black-Scholes model was originally developed for use
in estimating the fair value of traded options and requires the input of
highly subjective assumptions including expected stock price volatility. The
Company's stock options and stock purchase plan rights have characteristics
significantly different from those of traded options, and changes in the
subjective input assumptions can materially affect the fair value estimate.
The fair value of stock options and stock purchase plan rights granted in
fiscal years 1998, 1997 and 1996 was estimated at the date of grant assuming
no expected dividends and the following weighted average assumptions.
Stock Options Stock Purchase Plan Rights
Years ended March 31, 1998 1997 1996 1998 1997 1996
- -------------------------------- ----- ----- ----- ----- ----- -----
Expected Life (years) 3 4 4 .5 .5 .5
Expected Stock Price Volatility .62 .56 .56 .65 .56 .68
Risk-Free Interest Rate 6.0% 6.3% 6.0% 5.5% 5.4% 5.6%
For purposes of pro forma disclosures, the estimated fair value of stock-based
awards is amortized against pro forma net income over the stock-based awards'
vesting period. Because FASB 123 is applicable only to the Company's awards
granted subsequent to March 31, 1995, its pro forma effect will not be fully
reflected until approximately fiscal 2000. Had the Company accounted for
stock-based awards to employees under FASB 123, the Company's net income would
have been $95.6 million, $87.4 million and $86.2 million in 1998, 1997 and
1996, respectively. Basic net income per share would have been $1.30, $1.20
and $1.21 in 1998, 1997 and 1996, respectively, while diluted net income per
share would have been $1.25, $1.12 and $1.10, respectively.
Calculated under FASB 123, the weighted-average fair value of the stock
options granted during 1998, 1997 and 1996 was $21.38, $15.91 and $14.41 per
share, respectively. The weighted-average fair value of stock purchase rights
granted under the Stock Purchase Plan during 1998, 1997 and 1996 were $14.50,
$14.47 and $16.68 per share, respectively.
NOTE 9. INCOME TAXES
The provision for taxes on income consists of:
(In thousands) Years ended March 31,
1998 1997 1996
-------- -------- --------
Federal: Current $45,808 $40,901 $64,917
Deferred (3,880) (200) (7,004)
-------- -------- --------
41,928 40,701 57,913
-------- -------- --------
State: Current 9,285 12,073 10,343
Deferred (311) (1,483) (363)
-------- -------- --------
8,974 10,590 9,980
-------- -------- --------
Foreign: Current 5,826 4,091 1,555
-------- -------- --------
Total $56,728 $55,382 $69,448
======== ======== ========
The tax benefits associated with the disqualifying dispositions of stock
options or employee stock purchase plan shares reduce taxes currently payable
by $16.1 million, $16.7 million, and $7.9 million for 1998, 1997, and 1996,
respectively. Such benefits are credited to additional paid-in capital when
realized. Pretax income from foreign operations was $55.5 million, $36.1
million and $11.5 million for fiscal years 1998, 1997 and 1996, respectively.
Unremitted foreign earnings that are considered to be permanently invested
outside the United States and on which no deferred taxes have been provided,
accumulated to approximately $32.9 million as of March 31, 1998. The residual
US tax liability, if such amounts were remitted, would be approximately $8.2
million.
The provision for income taxes reconciles to the amount obtained by applying
the Federal statutory income tax rate to income before provision for taxes as
follows:
(In thousands) Years ended March 31,
1998 1997 1996
--------- --------- ---------
Income before provision for taxes $180,596 $165,758 $170,902
Federal statutory tax rate 35% 35% 35%
Computed expected tax $ 63,209 $ 58,016 $ 59,816
State taxes net of federal benefit 5,833 6,884 6,487
Tax exempt interest (4,003) (3,278) (2,552)
Write-off of NeoCAD in-process technology - - 7,069
Foreign earnings at lower tax rates (4,586) (2,478) (1,057)
Research and development tax credit (3,007) (2,522) -
Other (718) (1,240) (315)
--------- --------- ---------
Provision for taxes on income $ 56,728 $ 55,382 $ 69,448
========= ========= =========
The major components of deferred tax assets and liabilities consist of the
following:
(In thousands) Years ended March 31,
1998 1997 1996
--------- -------- --------
Deferred tax assets:
Inventory valuation differences $ 7,846 $12,471 $ 3,887
Deferred income on shipments to distributors 23,431 15,808 15,917
Nondeductible accrued expenses 6,904 7,568 7,778
Other 326 3,156 2,773
--------- -------- --------
Total 38,507 39,003 30,355
--------- -------- --------
Deferred tax liabilities:
Depreciation and amortization 763 (4,026) (3,082)
Unremitted foreign earnings (16,032) (7,601) (1,876)
Other (137) (716) (264)
--------- -------- --------
Total net deferred tax assets $ 23,101 $26,660 $25,133
========= ======== ========
NOTE 10. INDUSTRY AND GEOGRAPHIC INFORMATION
The Company operates in one single industry segment comprising the design,
development and marketing of programmable logic semiconductor devices and the
related software design tools.
Geographic information for fiscal years 1998, 1997 and 1996 is presented in
the tables below. Intercompany activity has been eliminated from amounts
shown.
(In thousands) 1998 1997 1996
------------------------------- -------------------------------- -------------------------------
Income Income Income
Net Before Identifiable Net Before Identifiable Net Before Identifiable
Revenues Taxes Assets Revenues Taxes Assets Revenues Taxes Assets
-------- -------- ---------- --------- -------- ------------ --------- -------- ----------
United States $449,053 $109,182 $833,701 $432,009 $115,800 $779,626 $482,615 $157,872 $650,979
Europe 164,540 71,052 106,543 136,134 49,680 66,893 78,187 12,854 68,861
Other - 362 994 - 278 1,174 - 176 1,040
--------- -------- ---------- --------- -------- ----------- --------- -------- ----------
$613,593 $180,596 $941,238 $568,143 $165,758 $847,693 $560,802 $170,902 $720,880
========= ======== ========== ========= ======== =========== ========= ======== ===========
Export revenues consisting of sales from the US to non-affiliated customers in
certain geographic areas were as follows:
(In thousands) Years ended March 31,
1998 1997 1996
------- ------- --------
US exports to Europe $41,961 $40,804 $ 70,124
US exports to Japan 26,137 26,496 50,957
US exports to Southeast Asia/Rest of World 15,013 10,676 18,288
------- ------- --------
$83,111 $77,976 $139,369
======= ======= ========
No single end customer accounted for more than 5% of revenues in 1998 or 1997
or 6% of revenues in 1996. Approximately 14%, 15% and 13% of net product
revenues were made through the Company's largest domestic distributor in 1998,
1997 and 1996, respectively. A second domestic distributor accounted for
approximately 11% of net product revenues in fiscal 1998 and a third
distributor accounted for approximately 10% of net product revenues in 1996.
NOTE 11. LITIGATION
On June 7, 1993, the Company filed suit against Altera Corporation (Altera) in
the United States District Court for the Northern District of California for
infringement of certain of the Company's patents. Subsequently, Altera filed
suit against the Company alleging that certain of the Company's products
infringe certain Altera patents. Fact and expert discovery have been
completed in both cases, which have been consolidated. In October 1997, the
Court held a hearing with respect to construction of the claims of the various
patents in suit.
On April 20, 1995, Altera filed an additional suit against the Company in
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.
Discovery has not begun.
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, and has not recorded a provision for the ultimate
outcome of these matters in its financial statements. The foregoing is a
forward looking statement subject to risks and uncertainties, and the future
outcome could differ materially due to the uncertain nature of the litigation
with Altera and because the lawsuits are still in the pre-trial stage.
In addition, in the normal course of business, the Company receives and makes
inquiries with regard to possible patent infringement. Where deemed
advisable, the Company may seek or extend licenses or negotiate settlements.
Outcomes of such negotiations may not be determinable at any point in time;
however, management does not believe that such licenses or settlements will,
individually or in the aggregate, have a material adverse effect on the
Company's financial position or results of operations.
NOTE 12. WRITE-OFF OF DISCONTINUED PRODUCT FAMILY
During fiscal 1997, the Company discontinued the XC8100 family of one-time
programmable antifuse devices. As a result, the Company recorded a pretax
charge against earnings of $5 million. This charge primarily related to the
write-off of inventory and for termination charges related to purchase
commitments to foundry partners for work-in-process wafers which had not
completed the manufacturing process.
SCHEDULE II - XILINX, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Description Beginning Charged to Deductions Balance at
of Year Income (a) End of Year
For the year ended March 31, 1996:
Allowances for doubtful accounts, pricing
adjustments and customer returns $4,863 $5,296 $4,960 $5,199
For the year ended March 31, 1997:
Allowances for doubtful accounts, pricing
adjustments and customer returns $5,199 $7,991 $7,456 $5,734
For the year ended March 31, 1998:
Allowance for doubtful accounts, pricing $5,734 $5,637 $2,963 $8,408
adjustments and customer returns
(a) Represents amounts written off against the allowance, customer returns or pricing
adjustments to international distributors.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Xilinx, Inc.
We have audited the accompanying consolidated balance sheets of Xilinx, Inc.
as of March 31, 1998 and 1997, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended March 31, 1998. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Xilinx, Inc. at March 31, 1998 and 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended March 31, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
/s/ Ernst & Young LLP
San Jose, California
April 22, 1998
SUPPLEMENTARY FINANCIAL DATA
QUARTERLY DATA (UNAUDITED)
Year Ended March 31, 1998
(In thousands except per share amounts) First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Net revenues $160,761 $150,272 $148,735 $153,825
Gross margin 99,855 94,224 93,067 95,757
Operating income 47,251 43,048 41,071 42,498
Net income 33,444 30,950 31,600 30,593
Net income per share:
Basic 0.46 0.42 0.43 0.42
Diluted $ 0.41 $ 0.38 $ 0.40 $ 0.39
Shares used in per share calculations:
Basic 73,495 73,921 74,196 73,350
Diluted 81,326 81,416 79,248 78,053
-------- -------- -------- --------
QUARTERLY DATA (UNAUDITED)
Year Ended March 31, 1997
(In thousands except per share amounts) First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Net revenues $150,200 $130,579 $135,587 $151,777
Gross margin 96,875 74,921* 83,431 93,579
Operating income 49,490 29,464* 36,903 43,204
Net income 32,492 21,218* 26,223 30,443
Net income per share:
Basic 0.45 0.29* 0.36 0.42
Diluted $ 0.41 $ 0.27* $ 0.33 $ 0.38
Shares used in per share calculations:
Basic 72,176 72,853 72,931 73,305
Diluted 78,944 79,378 79,791 80,586
-------- -------- -------- --------
*After write-off of discontinued product family of $5 million, $0.05 per basic
share and $0.04 per diluted share net of tax.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
--------
Certain information required by Part III is omitted from this Report in that
the Registrant will file a definitive proxy statement pursuant to Regulation
14A (the Proxy Statement) not later than 120 days after the end of the fiscal
year covered by this Report, and certain information included therein is
incorporated herein by reference. Only those sections of the Proxy Statement
which specifically address the items set forth herein are incorporated by
reference. Such incorporation does not include the Compensation Committee
Report or the Performance Graph included in the Proxy Statement.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors required by this Item is
incorporated by reference to the Company's Proxy Statement.
The information concerning the Company's executive officers required by this
Item is incorporated by reference to the section in Item 1 hereof entitled
"Executive Officers of the Registrant".
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The Financial Statements required by Item 14 (a) are filed as Item
8 of this annual report.
(2) The Financial Statement Schedule required by Item 14 (a) is filed
as Item 8 of this annual report.
Schedules not filed have been omitted because they are not applicable, are not
required or the information required to be set forth therein is included in
the financial statements or notes thereto.
(3) The exhibits listed below in (c) are filed or incorporated by
reference as part of this annual report.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
-------------------
fourth quarter of fiscal 1998.
(c) Exhibits.
--------
Exhibit Number Description
- ----------------- -------------------------------------------------------------------------------------
3.1 (1) Restated Certificate of Incorporation of the Company, as amended to date.
3.2 (2) Bylaws of the Company, as amended to date.
4.1 (3) Preferred Shares Rights Agreement dated as of October 4, 1991 between the Company
and The First National Bank of Boston, as Rights Agent.
10.1 (4) Lease dated March 27, 1995 for adjacent facilities at 2055 Logic Drive and 2065 Logic
Drive, San Jose, California.
10.2 (4) First Amendment to Master Lease dated April 27, 1995 for the Company's facilities at
2100 Logic Drive and 2101 Logic Drive, San Jose, California.
10.3 (5) Lease dated October 8, 1997 for an additional facility on Logic Drive, San Jose,
California.
10.4.1 (6) Agreement of Purchase and Sale of Land in Longmont Colorado, dated
November 24, 1997.
10.4.2 (6) First Amendment to Agreement of Purchase and Sale of Land in Longmont Colorado,
dated January 15, 1998.
10.5 (2) 1988 Stock Option Plan, as amended.
10.6 (2) 1990 Employee Qualified Stock Purchase Plan, as amended.
10.7 (7) 1997 Stock Option Plan
10.8 (2) Form of Indemnification Agreement between the Company and its officers and
directors.
10.9 (8) Letter Agreement dated as of January 22, 1996 of the Company to Willem P.
Roelandts.
10.10 (8) Separation Agreement dated as of April 8, 1996 between the Company and Curtis
Wozniak.
10.11.1 (8) Consulting Agreement dated as of June 1, 1996 between the Company and
Bernard V. Vonderschmitt.
10.11.2 (6) Amended Services and Compensation Exhibit to the Consulting Agreement dated as of
June 1, 1996 between the Company and Bernard Vonderschmitt.
10.11.3 (6) Second Amendment to the Consulting Agreement dated as of June 1, 1996 between the
Company and Bernard Vonderschmitt.
10.12 (7) Letter Agreement dated as of April 1, 1997 of the Company to Richard W. Sevcik.
10.13 (2) Technology Transfer Agreement and Preferred Shares and Warrant Purchase
Agreement for Series E Preferred Stock and Series F Preferred Stock dated June 9,
1986 between the Company and Monolithic Memories, Inc.
10.14 (2) Common Stock Purchase Agreement dated March 19, 1990 between the Company and
Advanced Micro Devices, Inc.
10.15 (9) (10) Patent Cross License Agreement dated as of April 22, 1993 between the Company and
Actel Corporation.
10.16.1 (11) Agreement and Plan of Reorganization dated as of March 29, 1995, among Registrant,
NeoCAD, Inc. and XNX Acquisition Corporation.
10.16.2 (11) Certificate of Merger filed on April 10, 1995 between NeoCAD, Inc. and XNX
Acquisition Corporation.
10.17.1 (10) (12) Foundry Venture Agreement dated as of September 14, 1995 between the Company
and United Microelectronics Corporation (UMC).
10.17.2 (10) (12) Fabven Foundry Capacity Agreement dated as of September 14, 1995 between the
Company and UMC.
10.17.3 (10) (12) Written Assurances Re Foundry Venture Agreement dated as of September 29,
1995 between UMC and the Company.
10.18.1 (8) (10) Advance Payment Agreement entered into on May 17, 1996 between Seiko
Epson Corporation and the Company.
10.18.2 (6) (10) Amended and Restated Advance Payment Agreement with Seiko Epson dated
December 12, 1997.
10.19 (8) Indenture dated November 1, 1995 between the Company and State Street
Bank and Trust Company.
12.1 Statement of Computation of Ratios of Earnings to Fixed Charges.
21.1 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney.
27.1 Financial Data Schedule for fiscal years ended March 31, 1998, 1997 and 1996.
27.2 Financial Data Schedule for quarters in the fiscal year ended March 31, 1998.
27.3 Financial Data Schedule for quarters in the fiscal year ended March 31, 1997.
(1) Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended March 30,
1991.
(2) Filed as an exhibit to the Company's Registration Statement on Form S-1 (File No. 33-34568) which was
declared effective June 11, 1990.
(3) Filed as an exhibit to the Company's Registration Statement on Form S-1 (File No. 33-43793) effective
November 26, 1991.
(4) Filed as an exhibit to the company's Annual Report on Form 10-K for the fiscal year ended April 1, 1995.
(5) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 27, 1997.
(6) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended
December 27, 1997.
(7) Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended
March 29, 1997.
(8) Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended
March 30, 1996.
(9) Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended April 3, 1993.
(10) Confidential treatment requested as to certain portions of these exhibits.
(11) Filed as an exhibit to the Company's Current Report on Form 8-K filed on April 18, 1995.
(12) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant, has duly caused this Annual Report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
San Jose, State of California, on the 16th day of June, 1998.
XILINX, INC.
By: /s/ Willem P. Roelandts
-------------------------------------
Willem P. Roelandts,
Chief Executive Officer and President