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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 31, 2001 or
[_] Transition report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File Number 0-18548
[XILINX LOGO]
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. [_]
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 May 15,
2001 as reported on the NASDAQ National Market was approximately
$12,911,138,000. 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 May 15, 2001, the registrant had 332,592,384 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Proxy Statement for the Registrant's 2001 Annual Meeting of
Stockholders are incorporated by reference in this Form 10-K Report (Part III).
1
Xilinx, Inc.
Fiscal Year 2001 Form 10-K Annual Report
Table of Contents
Page
----
PART I
Item 1 Business 3
Item 2 Properties 11
Item 3 Legal Proceedings 11
Item 4 Submission of Matters to a Vote of Security Holders 12
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters 13
Item 6 Selected Financial Data 14
Item 7 Management's Discussion and Analysis of Financial Condition and Results of 15
Operations
Item 7A Market Rate Risks 25
Item 8 Financial Statements and Supplementary Data 27
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial 48
Disclosure
PART III
Item 10 Directors and Executive Officers of the Registrant 49
Item 11 Executive Compensation 49
Item 12 Security Ownership of Certain Beneficial Owners and Management 49
Item 13 Certain Relationships and Related Transactions 49
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 49
Signatures 52
2
PART I
------
ITEM 1. BUSINESS
Items 1 and 3 of this 10-K contain forward-looking statements concerning our
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. 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.
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
design services and field engineering support. Our programmable logic devices
(PLDs) include field programmable gate arrays (FPGAs) and complex programmable
logic devices (CPLDs). These devices are standard products that our customers
program to perform desired logic functions. Our products are designed to provide
high integration and quick time-to-market for electronic equipment manufacturers
primarily in the telecommunications, networking, computing, industrial, and
consumer markets. Our products are sold globally through a network of
independent sales representatives, distributors, and to original equipment
manufacturers ("OEMs").
Competitive pressures compel manufacturers of electronic systems to accelerate
their products' introduction to market. Customer requirements for improved
functionality, performance, reliability and lower cost are addressed through the
use of components that integrate ever larger numbers of logic gates onto a
single integrated circuit. Such integration often results in greater speed,
smaller die size, lower power consumption and reduced costs. The rapid
proliferation of the Internet and wireless communications continues to fuel the
demand for faster integrated circuits. At the same time, tremendous pressure is
placed on electronic equipment manufacturers' product life cycles. Due to their
functionality and reprogrammability, our PLDs enable electronic equipment
manufacturers to effectively respond to these evolving market trends.
We were organized in California in February 1984 and in November 1985 were
reorganized to incorporate our research and development limited partnership. In
April 1990, we reincorporated in Delaware. Our corporate facilities and
executive offices are located at 2100 Logic Drive, San Jose, California 95124
and our website is www.xilinx.com.
Our 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. Fiscal 2001 ended on March 31, 2001 while fiscal 2000 and 1999 ended
on April 1, 2000 and April 3, 1999, respectively.
Products
Integral to the future success of our business is the timely introduction of new
products which address customer requirements and compete effectively on the
basis of price, functionality, and performance. Xilinx programmable logic
solutions help minimize risks for manufacturers of electronic equipment by
shortening the time required to develop products and introduce them to market.
Customers can design and verify their unique circuits in Xilinx programmable
devices much faster than they could by choosing traditional methods such as
mask-programmed, fixed logic gate arrays. Moreover, because Xilinx devices are
standard parts that need only to be programmed, customers are not required to
wait for prototypes or pay large non-recurring engineering costs. Xilinx silicon
products, software solutions, and technical support make up the total solution
delivered by Xilinx. The software component of this solution is critical to the
success of every design project. Our Software Solutions provide powerful tools
which make designing with programmable logic easy. Push button design flows,
integrated on-line help, multimedia tutorials, plus high performance automatic
and auto-interactive tools, help designers achieve optimum results. We offer the
industry's broadest array of programmable logic technology and EDA integration
options allowing us to deliver unparalleled design flexibility. Xilinx has also
developed a technology that enables the hardware in Xilinx-based systems to be
upgraded remotely over any kind of network including the Internet even after the
equipment has been shipped to a customer. Such Xilinx Online Upgradable Systems
allow equipment
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manufacturers to remotely add new features and capabilities to installed systems
or repair problems without having to physically exchange hardware.
Programmable Logic Devices
We currently classify our product offerings into four categories by
manufacturing process technology. Base products consist of our mature product
families that are currently manufactured on technologies of 0.6-micron and
greater; this includes the XC3000, XC3100, and XC4000 families. Mainstream
products are currently manufactured on 0.35 and 0.5-micron technologies and
include the XC4000E, XC4000EX, XC4000XL, XC5200, XC9500, XC9500XL, Spartan(TM)
and CoolRunner(TM) product lines. Advanced products include our newest
technologies manufactured on 0.25-micron and smaller, which include the
XC4000XV, XC4000XLA, XC9500XV, SpartanXL.(TM), Spartan-II(TM), Virtex(TM),
Virtex-E(TM), and Virtex-II(TM) product lines. Support products make up the
remainder of our product offerings and include configuration solutions,
software, design services, and support.
Virtex-II(TM) Platform FPGAs:
The Virtex-II Platform FPGA family, introduced in January 2001, is a complete
programmable solution that allows digital system designers to rapidly implement
a single-chip solution with densities from 40,000 up to 10 million system gates.
The Virtex-II family is the first Platform FPGA to incorporate the
IP-Immersion(TM) fabric that not only provide the ability to integrate a variety
of soft intellectual property (IP), but also has the capability of embedding
hard IP cores such as processors and Gigabit serial I/Os in future Virtex-II
families schedule for late 2001. The Virtex-II solution was developed to enable
rapid development of data communications and digital signal processing (DSP)
systems. The unique features of the revolutionary Virtex-II architecture make it
ideal for optical networking products, storage area networks (SANs),
voice-over-Internet-protocol(VoIP), video broadcasting, medical imaging,
cellular base-stations, and Internet infrastructure products. The Virtex-II
devices will be delivered on 0.15-micron process technology.
Virtex(TM) FPGAs:
The Virtex-EM Extended Memory (Virtex-EM) FPGA, introduced in March 2000,
extends the Virtex-E architecture. The Virtex-EM FPGA family consists of two
devices that have a high RAM-to-logic gate ratio, over 1 million bits of block
RAM, that is targeted for specific applications such as gigabit-per-second
network switches and high definition graphics. The Virtex-EM devices are the
first FPGAs to be manufactured using an advanced copper process.
The Virtex-E(TM) FPGA family, introduced in September 1999, includes a two
million system gate device and supports twice the system-gate density and has a
50 percent higher I/O performance than the original Virtex(TM) FPGAs. The
Virtex-E(TM) family consists of 11 members, from 50,000 system gates to 3.2
million system gates. The Virtex-E(TM) FPGAs, delivering new performance and
density attributes that were only previously addressed by ASIC solutions, are
targeted for next generation networking and telecommunication applications.
Virtex-E(TM) FPGAs with 1.8-volt operation are the first programmable logic
devices delivered on 0.18-micron process technology, which was jointly developed
by Taiwan's United Microelectronics Corporation (UMC) and Xilinx. The improved
process directly contributes to a substantial performance gain. The Virtex-E(TM)
family also represents the industry's first programmable logic architecture with
210 million transistors on a single device.
The Virtex(TM) FPGA series, announced in October 1998, includes the industry's
first million-gate FPGA. Nine Virtex(TM) devices are currently in production.
The Virtex(TM) devices with 2.5-volt operation are found in traditional
programmable logic applications such as networking or telecommunications, and in
applications like storage area networks, routers, high end servers, switching
equipment, cellular base stations, and High Definition Television (HDTV)
infrastructure. The Virtex(TM) devices range from 50,000 to 1,000,000 system
gate densities with 200 MHz chip-to-chip performance and offer system-level
integration capabilities. The Virtex(TM) family delivers the first fully
programmable alternative to high density system-level Application Specific
Integrated Circuits (ASIC) design.
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XC4000 FPGAs:
The XC4000 family, introduced in 1990, was the first FPGA offering on-board
distributed RAM. The XC4000 became the industry standard and was the fastest
growing programmable logic family in history until the Virtex family was
introduced in October 1998.
The XC4000XL family has 11 members shipping in volume ranging in density from
2,000 to 180,000 system gates. The XC4000XLA family expands on the XC4000XL
architecture with reduced power consumption and improved performance. The
XC4000XLA family has eight members shipping in volume and ranges in density from
30,000 to 180,000 system gates. The XC4000XV is a 2.5-volt FPGA family that
utilizes 0.25-micron technology. The family has four members with up to 500,000
system gates. The XC4000XV features system performance of over 100 MHz while
minimizing power consumption. The 2.5-volt XC4000XV family extends and builds on
the successes of the 5-volt XC4000 and the 3-volt XC4000XL series.
Spartan(TM) FPGAs:
The Xilinx Spartan(TM) and SpartanXL(TM) FPGA families are derived from the
XC4000 architecture. These families feature low-cost ASIC replacement with
densities ranging from 5,000 to 40,000 system gates. In January 2000, we
announced the Spartan-II(TM) family, our newest generation of high-volume FPGAs,
which is based on the Virtex architecture. Spartan-II(TM) devices are designed
to be low cost programmable replacements for ASICs and application specific
standard products (ASSPs). New features in the Spartan-II(TM) family address a
larger range of cost-sensitive high-volume applications and open up new consumer
market opportunities for programmable logic.
CPLDs:
The XC9500 and XC9500XL families offer in-system programmability for 5.0-volt
and 3.3-volt systems, respectively. The XC9500XV is a 2.5-volt in-system
programmable CPLD family with significantly reduced power consumption.
In August 1999 we acquired Philips Semiconductors' line of low power complex
programmable logic devices (CPLDs) called the CoolRunner(R) family of devices.
The CoolRunner line is the first family of CPLD products to combine very low
power with high speed, high density, and high I/O counts in a single device.
CoolRunner(R) CPLDs also use far less dynamic power during actual operation
compared to conventional CPLDs, an important feature for today's mobile
computing applications.
Software, Cores & Support
We offer complete software design tool solutions which enable customers to
implement their design specifications into our PLDs. These software design tools
combine a 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.
We offer three complementary software design tool solutions. Xilinx Foundation
Series software provides designers with a complete, ready-to-use design solution
based on industry-standard hardware description languages (HDLs). We offer this
fully integrated software solution for those customers new to designing with
PLDs or desiring a low cost approach. The Foundation ISE(TM) (Integrated
Synthesis Environment) software, introduced in the fourth quarter of fiscal year
2001, is Xilinx's next generation design environment. Foundation ISE software
provides a design environment which integrates the HDL design flow, synthesis,
and optimization to ensure a comprehensive integrated design flow for designers
to increase productivity. The Alliance Series is tailored for designers who want
maximum flexibility to integrate their programmable logic design into their
existing EDA environment and methodology. With interfaces to over fifty EDA
vendors, the Alliance Series Software allows users to select tools with which
they are most familiar, thereby increasing their productivity and shortening
their products design cycles.
Xilinx offers two Web-based Design solutions giving designers the ability to
engage in digital design activities on-line using either our application servers
or download design and implementation software modules for use in their own
design environment. The WebFITTER is a free Web-Based design tool that
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allows system designers to evaluate their designs using our XC9500/XL/XV and
CoolRunner Series CPLDs. WebPACK(TM) solutions are a collection of free
downloadable software modules. Customers can register and download any of the
WebPACK(TM) modules to complete designs using the Xilinx XC9500/XL/XV,
CoolRunner Series CPLD, the entire Spartan-II FPGA family designs and the
300,000 system gate Virtex XCV300E FPGA.
We also offer intellectual property, 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 Xilinx and third
party AllianceCORE partners, customers can shorten development time, reduce
design risk and obtain superior performance for their designs. Additionally, our
CORE Generator system allows customers to implement intellectual property cores
into our PLDs. It offers a simple user interface, complete cataloging of
available cores, easy selection of parameter-based cores optimized for our
FPGAs, and features an interface to third-party system level DSP design tools.
Further, Xilinx's IP Center Internet portal offers customers the ability to
purchase on line the latest intellectual property cores and reference design via
Smart Search for faster access.
To extend our customers' technical capabilities and accelerate our customers'
design time in the race to market, we offer Xilinx Global Services which
consists of education, product, and design services along with the
support.xilinx.com online. At Support.xilinx.com, customers can find training
courses, discussion forums access to an experienced Xilinx team for assistance
in troubleshooting and design issues. To grow the emerging home networking
market, we also introduced the Xilinx eSP website in the fourth quarter of
fiscal 2001. This web portal is a comprehensive resource offering designers
information such as reference designs and intellectual property. It is the
industry's first web portal dedicated to accelerating the design and development
of consumer products based upon emerging standards and protocols.
Our software design tools operate on desktop computer platforms, including
personal computers with Microsoft Windows '95, '98, 2000, and NT operating
systems, and on workstations from IBM, HP and Sun Microsystems.
The net revenues from Software, Cores & Support were $21.2 million, $15.3
million, and $13.0 million in fiscal 2001, 2000, and 1999, respectively.
Research and Development
Our research and development activities are primarily directed towards the
design of new integrated circuits, the development of new software design tools
and cores of logic, the development of advanced semiconductor manufacturing
processes, and ongoing cost reductions and performance improvements in existing
products. Our primary areas of focus have been: to introduce the industry's
first 10 million system gate programmable system solution (Virtex-II Platform
FPGA devices), a low-cost ASIC replacement FPGA solution (Spartan-II devices),
development of CPLD products (XC9500/XL/XV & CoolRunner families), and releasing
new versions of software design tools (Foundation Series ISE software) and cores
of logic.
Our research and development challenge is to continue to develop new products
that create cost-effective solutions for customers. In fiscal 2001, 2000, and
1999, our research and development expenses were $213.2 million, $123.6 million,
and $90.9 million, respectively. Excluding a $4.5 million amortization expense
of deferred stock compensation for acquiring RocketChips in fiscal 2001, the
research and development expenditures were $208.7 million in fiscal 2001. We
expect we will continue to make substantial investments in research and
development. We believe technical leadership is essential to our future success
and we are committed to continuing a significant level of research and
development effort. However, there can be no assurance that any of our research
and development efforts will be successful, timely or cost-effective.
Marketing and Sales
We sell our products through several industrial distributors, direct sales to
manufacturers by independent sales representative firms, sales through
franchised domestic distributors, and sales through foreign distributors. In
order to provide service to existing customers and reach potential customers, we
also utilize a direct sales management organization and field applications
engineers (FAEs). Our independent
6
representatives generally address larger OEM customers and act as a direct sales
force, while distributors serve the balance of our customer base. Our 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.
Avnet, Inc. and the Memec Group distribute our products worldwide and Nu
Horizons Electronics provides additional regional sales coverage. From time to
time, we may add or terminate distributors from our selling organization as we
deem appropriate given the level of business. We believe distributors provide a
cost-effective means of reaching a broad range of customers. Since our 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.
We changed our accounting method during fiscal 1999 for recognizing revenue on
all shipments to international distributors. While we previously deferred
revenue on shipments to domestic distributors until the product was sold to the
end user, we recognized revenue upon shipment to international distributors, net
of estimated reserves for returns and allowances. Following the accounting
change, revenue recognition on shipments to distributors worldwide is deferred
until the products are sold to the end customer. Distributors have certain
rights of return and price protection privileges on unsold product until the
product is sold to the end customers.
Backlog and Customers
As of March 31, 2001, our backlog of purchase orders scheduled for delivery
within the next three months was $126 million, after adjustments for estimated
discounts. Backlog as of March 31, 2000 was $174.3 million, after adjustments
for estimated discounts. Backlog amounts for both years include orders to
distributors, which may receive price adjustments upon sale to end customers.
Also, orders constituting our 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 end customer accounted for more than 10% of revenues in fiscal years 2001,
2000, or 1999. Approximately 27%, 27%, and 20% of net revenues were recognized
through our largest domestic distributor in 2001, 2000, and 1999, respectively.
A second domestic distributor accounted for approximately 24%, 24%, and 17% of
net revenues in fiscal 2001, 2000, and 1999, respectively. On a consolidated
basis, at March 31, 2001, two distributors accounted for 44.1% and 28.6% of
worldwide net revenues in fiscal 2001. (See Note 2 of Notes to Consolidated
Financial Statements in Item 8 for Concentration of Credit Risk; see also Note
11 of Notes to Consolidated Financial Statements in Item 8 for geographic sales
information.)
Wafer Fabrication
We do not directly manufacture processed wafers used for our products. Over the
last several years, the majority of our wafer purchases have been manufactured
by United Microelectronics Corporation, (UMC), UMC affiliated companies
including our former joint venture, USIC, Seiko Epson Corporation (Seiko), and
Taiwan Semiconductor Manufacturing Company (TSMC). Precise terms with respect to
the volume and timing of wafer production and the pricing of wafers produced by
the semiconductor foundries are determined by periodic negotiations between
Xilinx and these wafer foundry partners.
Our strategy is to focus our resources on creating new integrated circuits and
software design tools and on market development rather than on wafer
fabrication. We continuously evaluate opportunities to enhance foundry
relationships and/or obtain additional capacity from both our main suppliers as
well as other suppliers of leading-edge process technologies. As a result, we
have entered into agreements with UMC and Seiko as discussed below.
Xilinx, United Microelectronics Corporation (UMC) and other parties entered into
a joint venture to construct a wafer fabrication facility in Taiwan, known as
United Silicon Inc. (USIC). (See Note 4 of Notes to Consolidated Financial
Statements in Item 8.) We made a total cumulative investment of $107.1 million
in USIC. In January 2000, as a result of the merger of USIC into UMC, our equity
position in USIC was converted into shares of UMC which are publicly traded on
the Taiwan Stock Exchange. We retain
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monthly guaranteed wafer capacity rights in UMC as long as we retain a
percentage of our UMC shares. (See Note 4 of Notes to Consolidated Financial
Statements in Item 8.)
In fiscal 1997, we signed a wafer purchasing agreement with Seiko Epson. (See
Note 2 of Notes to Consolidated Financial Statements in Item 8.) This agreement
was amended in fiscal 1998 and provided for an advance to Seiko Epson for $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 made in the form of wafer deliveries, which began during the fourth
quarter of fiscal 1998 and ended during the second quarter of fiscal 2001.
Specific wafer pricing was in U.S. dollars and was based upon the prices of
similar wafers manufactured by other, specifically identified, leading-edge
foundry suppliers.
In fiscal 2001, we signed a Licensing and Marketing Agreement (LMA) with
International Business Machines Corporation (IBM), giving us the right to
purchase certain specified amounts of wafers from IBM on a monthly basis.
Presently, we are not purchasing a material number of wafers from IBM.
Sort, Assembly and Test
Wafers purchased by us are sorted by the wafer foundry, independent sort
subcontractors or by us. Sorted wafers are assembled by subcontractors in
facilities in South East Asian countries. During the assembly process, the
wafers are separated into individual die, which are then assembled into various
package types. Following assembly, the packaged units are tested by independent
test subcontractors or by Xilinx personnel at our San Jose or Dublin, Ireland
facilities.
Patents and Licenses
Through March 31, 2001, we held over 545 issued United States patents and we
maintain an active program of filing for additional patents in the areas of
software, IC architecture and design. We intend to vigorously protect our
intellectual property. We believe that failure to enforce our patents or to
effectively protect our trade secrets could have an adverse effect on our
financial condition and results of operations. In the future, we may incur
litigation expenses to enforce our intellectual property rights against third
parties. There is no assurance that any such litigation would be successful.
(See Legal Proceedings in Item 3 and Note 12 of Notes to Consolidated Financial
Statements in Item 8.)
We have acquired various software licenses that permit us to grant object code
sublicenses to our customers for certain third party software programs licensed
with our software design tools. In addition, we have licensed certain software
for internal use in product design.
Employees
Xilinx's employee population grew 38% during the past year. As of March 31,
2001, Xilinx had 2,678 employees compared to 1,939 at the end of the prior year.
None of our employees are represented by a labor union. We have not experienced
any work stoppages and believe we maintain good employee relations.
Competition
Our PLDs compete in the logic industry. The industries in which we compete are
intensely competitive and are characterized by rapid technological change,
product obsolescence, and continuous price erosion. We expect increased
competition, both from our primary competitors, Altera Corporation and Lattice
Semiconductor Corporation and from a number of new companies that may enter our
market. We believe that important competitive factors in the programmable logic
industry include:
. product pricing;
. product performance, reliability, power consumption, and density;
. the adaptability of products to specific applications;
. ease of use and functionality of software design tools;
. functionality of predefined cores of logic; and
. the ability to provide timely customer service and support.
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Our strategy for expansion in the logic market includes continued introduction
of new product architectures which address high volume, low cost applications as
well as high performance, leading-edge density applications. In addition, we
anticipate continued price reductions proportionate with our ability to lower
the manufacturing cost for established products. However, we cannot assure that
we will be successful in achieving these strategies.
Our major sources of competition are comprised of several elements:
. providers of high density programmable logic products characterized by
FPGA-type architectures;
. providers of high volume and low cost FPGAs as programmable replacement for
ASICs and application specific standard products (ASSPs).;
. providers of high speed, low density CPLD devices;
. the manufacturers of custom gate arrays;
. providers of competitive software development tools; and
. other providers of new or emerging programmable logic products.
We compete with high density programmable logic suppliers on the basis of device
performance, the ability to deliver complete solutions to customers, device
power consumption, and customer support by taking advantage of the primary
characteristics of our PLD product offerings which include: flexibility, high
speed implementation, quick time-to-market, and system level capabilities. We
compete with ASIC manufacturers on the basis of lower design costs, shorter
development schedules, and reduced inventory risk and field upgradability. The
primary attributes of ASICs are high density, high speed, and low production
costs in high volumes. We continue to develop lower cost architectures intended
to narrow the gap between current ASIC production costs (in high volumes) and
PLD production costs. As PLDs have increased in density and performance and
decreased in cost due to the advanced manufacturing processes, they have become
more directly competitive with ASICs. With the introduction of our Spartan
family, which is Xilinx's low cost programmable replacement for ASICs, we seek
to grow by directly competing with other companies in the ASIC segment. Many of
the companies in the ASIC segment have substantially greater financial,
technical, and marketing resources than Xilinx. Consequently, there can be no
assurance that we will be successful in competing in the ASIC segment.
Competition among PLD suppliers and manufacturers of new or emerging
programmable logic products is based primarily on price, performance, design,
customer support, software utility, and the ability to deliver complete
solutions to customers. Some of our current or potential competitors have
substantially greater financial, manufacturing, marketing, distribution, and
technical resources than we do. To the extent that our efforts to compete are
not successful, our financial condition and results of operations could be
materially adversely affected.
The benefits of programmable logic have attracted a number of companies to this
market. We recognize that different applications require different programmable
technologies, and we are developing architectures, processes, and products to
meet these varying customer needs. Recognizing the increasing importance of
standard software solutions, we have developed common software design tools that
support the full range of integrated circuit products. We believe that
automation and ease of design are significant competitive factors in the PLD
segment.
Several companies, both large and small, have introduced products that compete
with ours or have announced their intention to enter the PLD segment. Some of
our competitors may possess innovative technology, which could prove superior to
our technology in certain applications. In addition, we anticipate potential
competition from suppliers of logic products based on new technologies. Some of
our current or potential competitors have substantially greater financial,
manufacturing, marketing and technical resources than we do. This additional
competition could adversely affect our financial condition and results of
operations.
We could also face competition from our licensees. Under a license from us,
Lucent Technologies has rights to manufacture and market our XC3000 FPGA
products and also employ that technology to provide additional high density FPGA
products. Seiko Epson has rights to manufacture some of our products and market
them in Japan and Europe, but is not currently doing so. We granted a license to
use certain of our patents to Advanced Micro Devices (AMD). AMD produced certain
programmable logic devices under that license through its wholly owned
subsidiary, Vantis. In June 1999, AMD sold the Vantis subsidiary to Lattice
Semiconductor Corporation.
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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 56 President and Chief Executive Officer 1996
Kris Chellam 50 Senior Vice President, Finance and Chief Financial Officer 1998
Steven Haynes 50 Vice President, Worldwide Sales 1998
Randy Ong 51 Vice President, Worldwide Operations 2000
Dennis Segers 48 Senior Vice President and General Manager of Advanced Products Group 1995
Richard W. Sevcik 53 Senior Vice President, IP, Services and Software Group 1997
Sandeep S. Vij 35 Vice President, Marketing and General Manager of General Products Division 1996
Evert A. Wolsheimer 46 Vice President, and General Manager of CPLD Division 2000
There are no family relationships among the executive officers of the Company.
On the Board of Directors, Mr. Vonderschmitt, Chairman of the Board, is the
brother-in-law of Mr. Sanda, Director.
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 of 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.
Kris Chellam joined the Company in July 1998 as Senior Vice President, Finance
and Chief Financial Officer. Prior to joining the Company, he served at Atmel
Corporation as Senior Vice President and General Manager of a product group from
March to July 1998 and as Vice President, Finance and Administration, and Chief
Financial Officer from September 1991 through March 1998. Mr. Chellam also
serves as a director of At Road Inc.
Steven Haynes joined the Company in 1987 as the Regional Sales Manager of the
Northeast region, was promoted to Area Sales Director in 1988, and was appointed
Vice President, North American Sales in 1995. In November 1998, he was promoted
and now holds the position of Vice President, Worldwide Sales.
Randy Ong joined the Company in 1990 as Senior Staff Engineer, and was promoted
to Vice President of Worldwide Operations in 1997. He has overall responsibility
for manufacturing, quality assurance, testing, reliability, and package
development for Xilinx programmable logic devices. He also oversees strategic
management of the Company's semiconductor foundry partners. He earned his
bachelor's and master's degrees in electrical engineering at the University of
California, Berkeley.
Dennis Segers joined the Company in January 1994 as Director of Strategic
Products and was promoted to Vice President and General Manager in November
1995. In April 1998, he was appointed Senior Vice President, and General Manager
of the Advanced Products Group. Mr. Segers is also a member of the Company's
Board of Directors.
Richard W. Sevcik joined the Company in April 1997 as Senior Vice President, IP,
Services and 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. Mr. Sevcik is also a member of the Company's
Board of Directors.
Sandeep S. Vij joined the Company in April 1996 as Director, FPGA Marketing and
was promoted to Vice President, Marketing in October 1996. In October 1997, he
was appointed to the additional position of
10
General Manager of the General Products Division. From 1990 until April 1996, he
served at Altera Corporation, a semiconductor manufacturer, where he most
recently served as the Product Marketing Manager of High Volume FPGAs.
Evert A. Wolsheimer joined the Company in 1991 as Vice President, Product
Technology, with responsibility for process technology, wafer foundry, assembly,
reliability, and product engineering. He was promoted to Vice President and
General Manager of the CPLD Division in 1997. He has served on the Board of
Directors of the Fabless Semiconductor Association (FSA) since 1997. Dr.
Wolsheimer received his Ph.D. in Electrical Engineering from Delft University of
Technology, The Netherlands.
ITEM 2. PROPERTIES
Our 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
588,000 square feet of space which we own.
In addition, we have a 100,000 square foot administrative, research and
development and final testing facility in the metropolitan area of Dublin,
Ireland, a 60,000 square foot facility in Boulder, Colorado, and a 45,000 square
foot facility in Albuquerque, New Mexico. The Irish facility is being primarily
used to service our customer base outside of North America. The Boulder facility
is the primary location for our software efforts in the areas of research and
development, manufacturing and quality control while the New Mexico facility is
being used for the development of our CoolRunner CPLD product. Additionally, we
own a 59-acre parcel of land located in Longmont, Colorado, near our current
Boulder facility. Groundbreaking to develop a new 130,000 square foot facility
in Longmont was started in March 2000 and expected to be ready in September
2001. We also purchased another facility (200,000 sq. ft.) and 40 acres of land
adjacent to the Longmont facility for the future expansion. The expansion of our
Irish facility includes an additional 500,000 square feet of building and
manufacturing space. The first phase of 100,000 square feet started in July
2000. In February 2001, we announced the addition of approximately 128,000
square feet expansion to our current facility in Dublin, Ireland to be
constructed over a one-year period. This facility is currently under
construction and it is our plan to complete the facility expansion by March
2002. We purchased 87 acres of land in San Jose, California, near our corporate
facility in February 2000. Plans for infrastructure and the future development
of this land have not been finalized. In September 2000, we purchased office
buildings in San Jose due to the rapid growth of the Company. As of this time,
the building is still being remodeled and expected to be ready for occupancy in
fiscal 2002. We also lease, on a short-term basis, office facilities for our new
acquired subsidiary, RocketChips, in Ames, Iowa, Minneapolis, Minnesota, and
Austin, Texas.
We also maintain North American sales offices in various locations which include
the metropolitan areas of Atlanta, Chicago, Denver, Dallas, Los Angeles,
Minneapolis, Philadelphia, Raleigh, and San Jose as well as international sales
offices located in the metropolitan areas of London, Munich, Paris, Stockholm,
Milan, Brussels, Tel Aviv, Tokyo, Osaka, Taipei, Seoul, Hong Kong, and Shanghai.
ITEM 3. LEGAL PROCEEDINGS
On June 7, 1993, we filed suit against Altera Corporation (Altera) in the United
States District Court for the Northern District of California for infringement
of certain of our patents. Subsequently, Altera filed suit against Xilinx,
alleging that certain of our products infringe certain Altera patents. As a
result of certain motions and rulings in the case, Altera is left with one claim
against Xilinx, which remains the subject of a Company motion for summary
judgment. A ruling on this motion is pending. If the remaining claim against
Xilinx survives the motion for summary judgment, it will be decided at a trial,
which is unscheduled at this point. The Court's rulings also dismissed certain
claims by us, leaving intact claims of infringement by Altera under two Company
patents. The remaining claims against Altera were decided at a trial which began
on October 18, 2000. On November 17, 2000, a federal jury found that the two
Company patents in the case were valid and that Altera infringed both patents.
On May 10, 2001, the trial judge overturned the jury verdict, by granting
Altera's motion to enter Judgment as a Matter of Law. The judge found that the
Altera Flex 8000 product does not infringe one of the two Company patents, and
that the other Company patent is invalid. The Company has filed its notice of
appeal to reinstate the jury verdict, although no timetable for appeal has been
set.
11
On April 20, 1995, Altera filed an additional suit against Xilinx in the Federal
District Court in Delaware, alleging that our XC5200 family infringes an Altera
patent. We answered the Delaware suit denying that the XC5200 family infringes
the patent in suit, asserting certain affirmative defenses and counterclaiming
that the Altera Max 9000 family infringes certain of our patents. The Delaware
suit was transferred to the United States District Court for the Northern
District of California.
On July 22, 1998, Altera and Joseph Ward, a former Xilinx employee, filed suit
against Xilinx in Superior Court in Santa Clara County, California, arising out
of our efforts to prevent disclosure of certain Company confidential
information. Altera's suit requests declaratory relief and claims Xilinx engages
in unfair business practices and interference with contractual relations. On
September 10, 1998 we filed cross claims against Altera and Ward for unfair
competition and breach of contract, among other claims, in the California
action. On October 20, 1998, Altera and Ward filed crossclaims against Xilinx
for malicious prosecution of civil action and defamation. On September 15, 1999,
the Court dismissed all of our claims against Altera and Mr. Ward, finding that
we were unable to show any damages we suffered as a result of any actions by Mr.
Ward. On May 24, 2001, the Court dismissed all of Altera's claims against the
Company leaving only Mr. Ward's claims of defamation against the Company.
On May 31, 2000, Altera filed an additional suit against Xilinx in the Federal
District Court for the Northern District of California, alleging that certain
Xilinx products, including our Virtex FPGAs, infringe three Altera patents.
Altera's suit requests unspecified monetary damages as well as issuance of an
injunction to prevent Xilinx from selling allegedly infringing parts. Xilinx has
filed an amended answer and countercomplaint denying the allegations and
alleging that the Altera patents are invalid and unenforceable because Altera
engaged in inequitable conduct in acquiring the asserted patents. The
counterclaim also alleges that Altera is infringing three additional Company
patents. A claims construction hearing to determine the interpretation of
Altera's patent claims was held on April 26 and 27, 2001. No decision has been
rendered by the judge.
On November 16, 2000, we requested that the International Trade Commission
investigate alleged infringements by Altera of three Company patents, and if so,
to bar Altera from importing or selling such products into the United States. On
December 18, 2000, the International Trade Commission decided to investigate our
claims against Altera. A hearing has been set for June 25, 2001.
On March 9, 2001, the ITC at the request of Altera initiated an investigation
against Xilinx based on two additional Altera patents. The matter has been
assigned to Judge Harris, the same administrative law judge handling the ITC
action by Xilinx against Altera. A hearing has been set for September 24, 2001.
The ultimate outcome of these matters cannot be determined at this time.
Management believes that it has meritorious defenses to such claims and is
defending them vigorously. The foregoing is a forward-looking statement subject
to risks and uncertainties, and the future outcome of these matters could differ
materially due to the uncertain nature of each legal proceeding and because most
of the lawsuits are still in the pre-trial stages.
There are no other pending legal proceedings of a material nature to which we
are a party or of which any of our property is the subject. Other than the
petition filed by the Company with the Tax Court on March 26, 2001 (See
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Provision for Income Taxes), we know 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.
12
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, 2001, there were approximately 1,515 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
approximately 195,000.
Fiscal Year 2001 Fiscal Year 2000
High Low High Low
---- --- ---- ---
First Quarter $ 97.94 $ 55.75 $ 29.28 $ 20.28
Second Quarter 96.63 69.88 37.53 29.28
Third Quarter 89.63 39.00 47.81 33.25
Fourth Quarter 57.63 35.13 86.81 40.81
13
ITEM 6. SELECTED FINANCIAL DATA
Consolidated Statement of Income Data
(In thousands, except per share amounts) Years ended March 31,
--------------------------------------------------------------
2001(4) 2000(3) 1999(2) 1998 1997(1)
--------------------------------------------------------------
Net revenues $1,659,358 $1,020,993 $661,983 $613,593 $568,143
Operating income 384,053 322,192 181,974 173,868 159,061
Income before equity in joint venture and
cumulative effect of change in accounting
principle 61,103 1,024,272 189,399 180,596 165,758
Provision for income taxes 25,845 378,006 54,925 56,728 55,382
Net income 35,258 652,450 102,592 126,587 110,376
Net income per share:
Basic $ 0.11 $ 2.06 $ 0.35 $ 0.43 $ 0.38
Diluted $ 0.10 $ 1.90 $ 0.33 $ 0.40 $ 0.35
Shares used in per share calculations:
Basic 328,196 316,724 292,843 294,963 291,264
Diluted 353,345 343,479 308,620 320,041 318,700
Pro forma amounts with the change in
accounting principle related to revenue
recognition applied retroactively: (unaudited)
Net revenues -- -- $661,983 $598,065 $568,173
Net income -- -- 129,238 118,987 110,391
Net income per share:
Basic -- -- $ 0.44 $ 0.40 $ 0.38
Diluted -- -- $ 0.42 $ 0.37 $ 0.35
--------------------------------------------------------------
(1):After write-off of discontinued product family of $5,000, $0.02 per basic
and diluted shares net of tax.
(2):Net income includes a charge of $26,646 for the cumulative effect of change
in accounting principle.
(3):Net income includes pre-tax capital gain of $674,728 ($398,089 net of tax)
from UMC/USIC merger.
(4):Net income includes pre-tax write down loss of $362,124 on UMC investment.
Consolidated Balance Sheet Data
(In thousands) March 31,
-----------------------------------------------------------------
2001 2000 1999 1998 1997
-----------------------------------------------------------------
Working capital $ 751,469 $ 796,213 $ 490,512 $ 474,567 $ 504,302
Total assets 2,502,196 2,348,639 1,070,248 941,238 847,693
Long-term debt -- -- -- 250,000 250,000
Stockholders' equity 1,918,316 1,776,655 879,318 550,175 490,680
-----------------------------------------------------------------
14
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. You should not place undue reliance on these forward-looking
statements. Our actual results could differ materially from those anticipated in
these forward-looking statements for many reasons, including those risks
discussed under "Factors Affecting Future Operating Results" and elsewhere in
this document. 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,
design services, customer training, and field engineering support. Our
programmable logic ICs include field programmable gate arrays (FPGAs) and
complex programmable logic devices (CPLDs). These components are standard ICs
programmed by our customers to perform desired logic operations. Our products
are designed to provide high integration and quick time-to-market for electronic
equipment manufacturers primarily in communications, storage, servers,
instrumentation, industrial, and other markets. We market our products
throughout the world through a direct sales organization, direct sales to
original equipment manufacturers by independent sales representative firms,
sales through franchised domestic and foreign distributors.
Results of Operations
Net Revenue
(In thousands) 2001 Change 2000 Change 1999
------------------------------------------------------------------------
Net revenues $1,659,358 62.5% $1,020,993 54.2% $661,983
Xilinx's net revenue increased 62.5% in fiscal 2001 compared to fiscal 2000. The
increase was primarily due to the significant growth in Spartan and Virtex
product lines. Net revenue growth slowed substantially in the fourth quarter of
fiscal 2001 due to decelerating bookings and order cancellations resulting from
a softening economy and increased inventory levels experienced by a broad base
of customers. 54.2% increase in fiscal 2000 over 1999 was primarily due to the
significant growth in XC4000XL, XC4000XLA, XC9500, Spartan(TM), and Virtex
product lines, which was partially offset by decreased revenues in our mature
XC4000 family.
We classify our product offerings into four categories by semiconductor
manufacturing process technology. These four product categories are adjusted on
a regular basis to accommodate advances in our process technology. Advanced
products include our newest technologies manufactured on 0.25-micron and smaller
processes, which include the XC4000XV, XC4000XLA, Spartan XL(TM), Spartan-
II(TM), Virtex(TM), Virtex-E(TM) and Virtex II product lines. Advanced products
represented 51.0% and 26.7% of total revenues in fiscal 2001 and 2000. The
significant increases in revenues of advanced products were due to the
introduction and strong market acceptance of Virtex-E and Spartan II products.
Mainstream products are currently manufactured on 0.35 and 0.5-micron
technologies and include the XC4000E, XC4000EX, XC4000XL, XC5200, XC9500,
XC9500XL, Spartan(TM) and CoolRunner product lines. Mainstream products
represented 35.3% of total revenues in fiscal 2001 and 52.6% in fiscal 2000.
Mainstream products saw the heaviest revenue decline in the 4000XL and 9500
product families due to the combination of the softening economy, excess
inventory in the channel, and customer's migration to newer production
15
offerings. Base products consist of our mature product families that are
currently manufactured on technologies of 0.6-micron and older; this includes
the XC2000, XC3000, XC3100, and XC4000 families. Base products represented 6.3%
of total revenues in fiscal 2001, as compared to 12.3% in fiscal 2000. Our
Support products make up the remainder of our product offerings and include
configuration solutions, serial proms, HardWire, software and support. Support
products represented 7.4% and 8.4% of total revenues in fiscal 2001 and 2000,
respectively. No end customer accounted for more than 10% of revenues in fiscal
2001, 2000 or 1999. The revenue by technology for the years ended March 31,
2001, 2000 and 1999 was as follows:
(in millions) 2001 % 2000 % 1999 %
-------------------------------------------------------------------------
Advanced products $ 845.8 51.0 $ 272.8 26.7 $ 20.4 3.1
Mainstream products 585.6 35.3 537.0 52.6 417.1 63.0
Base products 104.5 6.3 125.5 12.3 146.8 22.2
Support products 123.5 7.4 85.7 8.4 77.7 11.7
--------- ------- --------- ------- -------- --------
Total revenue $ 1,659.4 100.0 $ 1,021.0 100.0 $ 662.0 100.0
========= ======= ========= ======= ======== ========
In order to compete effectively, we pass manufacturing cost reductions to our
customers in the form of reduced prices to the extent that we can maintain
acceptable returns. Price erosion has been common in the semiconductor industry,
as advances in both product architecture and manufacturing process technology
have permitted continual reductions in unit cost. We have historically been able
to offset much of the revenue declines of our mature technologies with increased
revenues from newer technologies, although no assurance can be given that we can
continue to do so in the future.
The revenue by geography for the years ended March 31, 2001, 2000, and 1999 was
as follows:
(in millions) 2001 % 2000 % 1999 %
------------------------------------------------------------------------
North America $ 1,028.2 62.0 $ 681.1 66.7 $ 447.2 67.5
Europe 334.0 20.1 201.8 19.8 139.8 21.1
Japan 163.6 9.9 82.6 8.1 47.5 7.2
Asia Pacific/Rest of World 133.6 8.0 55.6 5.4 27.5 4.2
--------- ------- --------- ------- -------- --------
Total revenue $ 1,659.4 100.0 $ 1,021.0 100.0 $ 662.0 100.0
========= ======= ========= ======= ======== ========
International revenues represented approximately 38%, 33%, and 32% of total
revenues for fiscal years 2001, 2000, and 1999, respectively. Europe, Japan, and
Asia Pacific/Rest of World experienced revenue growth in fiscal 2001 as compared
to fiscal 2000 due to wider adoption of our new products in consumer and
telecommunication applications.
During the fourth quarter of fiscal 1999, we changed our accounting method for
recognizing revenue on all shipments to international distributors. The change
was made retroactive to the beginning of fiscal 1999. While we previously
deferred revenue on shipments to domestic distributors until the products were
sold to the end user, we recognized revenue upon shipment to international
distributors, net of appropriate reserves for returns and allowances. Following
the accounting change, revenue recognition on shipments to distributors
worldwide is deferred until the products are sold to the end customer. We
believe that deferral of revenue on shipments to distributors until the product
is shipped by the distributor to an end customer is a more meaningful
measurement of results of operations, and is consistent with industry practice.
Accordingly, it is a preferable method of accounting for revenue. The cumulative
effect of the change in accounting method for prior years was a charge of $26.6
million, net of $12.0 million in taxes, or $0.09 net income per diluted share.
16
Gross Margin
(In thousands) 2001 Change 2000 Change 1999
----------------------------------------------------------------------------------------------------------
Gross margin $979,956 53.9% $636,955 55.1% $410,717
Percentage of net revenues 59.1% 62.4% 62.0%
During fiscal 2001, our gross margin percentage decreased from the prior year
primarily due to the write-down for inventory in excess of the demand and
backlog due to a slow down in business during the fourth quarter of fiscal 2001.
In addition, the gross margin percentage decreased from the prior year due to
lower margin new products such as Spartan II and Virtex-E and the decline in
revenue of our older more profitable product families. During fiscal 2000, our
gross margin percentage increased slightly from the prior year as efficiencies
from increased production volumes resulted in decreased costs as a percentage of
revenue.
Research and Development
(In thousands) 2001 Change 2000 Change 1999
----------------------------------------------------------------------------------------------------------
Research and development $213,195 72.5% $123,584 36.0% $90,893
Percentage of net revenues 12.8% 12.1% 13.7%
Research and development expenditures were $213.2 million ($208.7 million
excluding RocketChips deferred stock compensation. See Note 13 of Notes to
Consolidated Financial Statements) and $123.6 million for fiscal year 2001 and
2000, respectively. We increased our expenditures in research and development as
we have done each year during our seventeen-year history. The increase in
research and development expenditures from fiscal 2000 to 2001 was related to
designing new complex and high density devices, mask and wafer purchases,
development of advanced process technologies, software development, increased
labor-related costs associated with the development of new products along with
increased labor costs associated with the acquisition of RocketChips. (See Note
13 of Notes to Consolidated Financial Statements.) The increase in research and
development expenditures from fiscal 1999 to 2000 was related to designing new
complex and high density devices, wafer purchases, development of advanced
process technologies using 0.22-micron and 0.18-micron technologies, software
development, increased labor-related costs, along with increased costs
associated with the acquisition of the CoolRunner CPLD business. We remain
committed to a significant level of research and development effort in order to
extend our technology leadership in the programmable logic marketplace. Through
March 31, 2001, we have received over 545 issued U.S. patents and we maintain an
active program of filing for additional patents in the areas of circuit design
and software.
Sales, General and Administrative
(In thousands) 2001 Change 2000 Change 1999
------------------------------------------------------------------------------------------------------------
Sales, general and
administrative $274,093 46.9% $186,619 39.0% $134,250
Percentage of net revenues 16.5% 18.3% 20.3%
Selling, general and administrative expenses for the year ended March 31, 2001
were $274.1 million, or 16.5% of net revenues, compared to $186.6 million, or
18.3% of net revenues in the fiscal 2000 and $134.3 million, or 20.3% of net
revenues in the fiscal 1999. Although total selling, general and administrative
spending increased, they decreased as a percentage of net revenues because of
strong revenue growth and operational efficiencies. The 46.9% increase in sales,
general and administrative expenses in fiscal 2001 was primarily attributable to
increased personnel and facilities expenses, increased advertising and
promotional expenditures, increased outside sales commissions and sales
incentives on higher revenues and
17
legal expenses. Sales, general and administrative expenses increased 39.0% in
fiscal 2000 over 1999 due to increased personnel and facilities expenses,
increased marketing expenses and higher commission and incentive expenses
associated with increased sales. We remain committed to controlling
administrative expenses. However, the timing and extent of future legal costs
associated with the ongoing enforcement of our intellectual property rights are
not readily predictable and may increase in the future.
Write-Off of In- Process Technology
In connection with the acquisition of RocketChips in fiscal 2001, approximately
$90.7 million of in-process research and development costs were incurred. In
fiscal 2000, in connection with the acquisition of Philips Semiconductors' line
of low-power complex programmable logic devices (CPLDs), approximately $4.6
million was incurred for the research and development project in process and in
fiscal 1999 in the acquisition of MI Acquisition LLP, approximately $3.6 million
was related to research and development in process. The projects identified as
in-process will require additional effort in order to establish technological
feasibility. These projects have identifiable technological risk factors that
indicate that even though successful completion is expected, it is not assured.
If an identified project is not successfully completed there is no alternative
future use for the project and the expected future income will not be realized.
The acquired in-process technology represents the appraised value of
technologies in the development stage that had not yet reached technological
feasibility and do not have alternative future uses.
To determine the value of the in-process research and development, the expected
future cash flow attributable to the in-process technology was discounted,
taking into account the percentage of completion, utilization of preexisting
"core" technology, risks related to the characteristics and applications of the
technology, existing and future markets, and technological risk associated with
completing the development of the technology. We immediately expense this
non-recurring charge in the period of acquisition. (See Note 13 of Notes to
Consolidated Financial Statements.)
Capital Gain from Merger of USIC with UMC
In January 2000 United Silicon Inc. (USIC) was merged into United
Microelectronics Corp (UMC) and our equity position in USIC was converted into
shares of UMC which are publicly traded on the Taiwan Stock Exchange. We
recognized a non-cash gain of $674.7 million ($398.1 million net of taxes) in
fiscal 2000 as a result of the merger of USIC with UMC. The gain represents the
appreciation of our investment in USIC. As a result of this merger, we received
approximately 222 million UMC shares, which represent approximately 2% of the
combined UMC Group. In July 2000, we received a 20% stock dividend which
increased our investment holdings in UMC to approximately 266 million shares. We
retain equivalent wafer capacity rights in UMC as we previously had in USIC, as
long as we retain a defined percentage of our shares of UMC common stock. If our
holdings fall below that percentage, our wafer capacity rights would be prorated
by the UMC shares we hold.
Due to restrictions imposed by UMC and the Taiwan Stock Exchange, the majority
of our UMC shares could not be sold until July 2000. These regulatory
restrictions will gradually expire between July 2000 and January 2004.
Write-Down on UMC Investment Valuation
Due to the current weakness in the semiconductor industry, the value of our UMC
shares declined to $430.9 million as of March 31, 2001. The downturn in the
semiconductor industry and the economy in general, appears to be more severe
than previously anticipated, and there is a great deal of uncertainty regarding
when the semiconductor industry will recover from this down cycle. Because of
the continued downturn in the economy, we believe that the decline in the market
value of our investment in UMC as of March 31, 2001, was other than temporary as
defined by accounting principles generally accepted in the United States. In the
fourth quarter of fiscal 2001 we recognized a pre-tax loss of $362.1 million. If
the value our UMC shares declines further, we may be required to record
additional losses. In addition, in future periods, we may recognize a gain or
loss if we sell our UMC shares due to fluctuations in the market value of UMC
stock.
18
Interest and Other Income, net
(In thousands) 2001 Change 2000 Change 1999
---------------------------------------------------------------------------------------------------------
Interest income and other
income, net $39,174 43.2% $27,352 268.4% $7,425
Percentage of net revenues 2.4% 2.7% 1.1%
Interest and other income was $39.2 million, or 2.4% of net revenues in fiscal
2001 compared to $27.4 million, or 2.7% of net revenues in fiscal 2000 and $7.4
million, or 1.1% of net revenues in fiscal 1999. For fiscal 2001, interest and
other income included a pre-tax gain on our investment in Nuron LLC of $4.5
million due to Nuron being purchased by a public company. Excluding the Nuron
LLC gain, net interest and other income was $34.6 million, or 2.1% of sales.
Excluding the Nuron LLC gain, the dollar increase from fiscal year 2000 to 2001
was primarily due to an increase in the interest income related to higher
investment balances and higher interest rates offset by foreign exchange losses
due to the weaker Japanese Yen in fiscal 2001 compared to fiscal 2000.
The 268% increase in interest and other income in fiscal 2000 from fiscal 1999
was primarily due to the $11.2 million decrease in interest expense related to
the redemption in February 1999 of our previously outstanding convertible notes
in February 1999 and increased interest income on higher average cash and
investment balances. The amount of net interest and other income in the future
will continue to be impacted by the level of our average cash and investment
balances, prevailing interest rates, the balance of any debt outstanding, and
foreign currency exchange rates.
Provision for Income Taxes
(In thousands) 2001 Change 2000 Change 1999
----------------------------------------------------------------------------------------------------------
Provision for taxes on income $25,845 (93.2%) $378,006 588.2% $54,925
Effective tax rate 42.3% 36.9% 29.0%
The effective tax rate in fiscal 2001 is higher than fiscal 2000 principally due
to in-process research and development charges with no corresponding tax benefit
to the company. The effective tax rate in fiscal 2000 was higher than fiscal
1999 principally due to taxes of $277 million on a $675 million gain realized on
the UMC/USIC merger, which significantly offset tax benefits associated with tax
exempt interest and foreign earnings at lower tax rates which generally reduce
our effective tax rate. (See Note 10 of Notes to Consolidated Financial
Statements.)
On December 28, 2000, the Internal Revenue Service issued a statutory notice of
deficiency reflecting proposed audit adjustments for fiscal years 1996, 1997,
and 1998. We filed a petition with the Tax Court on March 26, 2001 contesting
this notice of deficiency. We believe we have meritorious defenses to the
proposed adjustments and sufficient taxes have been provided.
Joint Venture Equity Converted to UMC Shares
We recorded our proportional ownership of the net income (loss) of USIC, a wafer
fabrication joint venture located in Taiwan, as joint venture equity income
(loss) prior to the merger of USIC and UMC. In fiscal 2000, income was generated
as USIC began to realize volume wafer production and shipments. The fiscal 1999
net loss was a result of the continued ramp up in production of the wafer
fabrication facility.
As a result of the conversion of our equity position in USIC to shares of UMC in
January 2000, as discussed above, we no longer record joint venture equity
income.
19
Inflation
To date, the effects of inflation upon our financial results have not been
significant. We cannot assure, however, inflation will not affect us materially
in the future.
Financial Condition, Liquidity and Capital Resources
We have used a combination of equity and debt financing and cash flow from
operations to support on-going business activities, acquiring critical
technologies, and making investments in complementary technologies, purchase
facilities and capital equipment, and finance inventory and accounts receivable.
Additionally, our investment in UMC is available for future sale, subject to
restrictions.
Cash, Cash Equivalents and Short-term Investments
During fiscal 2001, we generated cash flow of $377.3 million from operating
activities, $44.7 million from investing activities, and consumed $298.8 million
from financing activities. Investing activities during fiscal 2001 included
$263.1 million in net proceeds from sales and purchases of investments, $4
million cash obtained from acquisition of Rocketchips, Inc, offset by $222.7
million expenditures for property, plant and equipment. Financing activities
during fiscal year 2001 included an increase of $104.0 million from issuance of
common stocks and sales of put warrants, offset by $402.8 million of stock
buyback.
During fiscal 2000, we generated cash flow of $341.1 million from operating
activities and $89.1 million from financing activities, offset by $398.2 million
of cash used for investing activities. Investing activities during fiscal 2000
included $231.7 million in net purchases of investments, $143.7 million
expenditures for property, plant and equipment, and $22.8 million for the
purchase of Philips' CPLD business. Financing activities during 2000 included
$84.3 million in proceeds from sales of common stock under employee option and
stock purchase plans and $10.0 million from sales of put warrants partially
offset by $5.3 million of stock buyback.
Receivables
Receivables increased 27.9 % from $135.0 million at the end of fiscal 2000 to
$172.8 million at the end of fiscal 2001. The increase was primarily
attributable to the increased level of sales.
Inventories
Inventories increased from $131.3 million at March 2000 to $342.5 million at
March 2001 due to the increased level of sales. In the fourth quarter of fiscal
2001, we wrote down inventory due to a decrease in forecasted demand. Given the
volatility of the market and the obsolescence in technology and shorter product
life cycles, we write down inventories to net realizable value based on backlog
and forecasted demand. However, backlog is subject to revisions, cancellations
and rescheduling. Actual demand may differ from forecasted demand and such
difference may have a material effect on our financial position and result of
operations.
We attempt to maintain sufficient levels of inventory in various product,
package and speed configurations to meet forecasted customer demand. On the
other hand, we also wish to minimize the handling costs associated with
maintaining higher inventory levels and to fully realize the opportunities for
cost reductions associated with architecture and manufacturing process
advancements. We continually strive to balance these two objectives to provide
excellent customer response at a competitive cost.
Property, Plant and Equipment
During 2001, we invested $222.7 million in property and equipment compared to
$143.7 million in 2000. Primary investments in fiscal 2001 were for land and
building purchases, software and semiconductor design tools, test and
manufacturing equipment at each of our manufacturing and test locations, and
workstations and network infrastructure to support the increased level of
business.
20
Current Liabilities
Current liabilities increased from $244.7 million at the end of fiscal 2000 to
$350.4 million at the end of fiscal 2001. The increase was primarily
attributable to the increase in accounts payable and deferred income on
shipments to distributors. The increase in accounts payable was a result of
business expansion and the increase in deferred income on shipments to
distributors was due to increased inventory build up at distributors, due to the
higher sales in fiscal 2001 compared to fiscal 2000.
Long-term Debt and Lines of Credit
In fiscal 1999, we converted in full $250.0 million 5 1/4% Convertible
Subordinated Notes due 2002 for a total of 19.6 million shares of common stock
at a price of $12.75 per share. We have credit facilities for $6.2 million to
meet occasional working capital requirements for our Ireland manufacturing
facility. The other $40.0 million revolving credit agreement expired on March
26, 2001 and we decided not to extend this line of credit. At March 31, 2000, no
borrowings were outstanding under the lines of credit. (See Note 5 of Notes to
Consolidated Financial Statements.)
Stockholders' Equity
Stockholders' equity grew by 8% in fiscal 2001 to $1,918.3 million. The increase
of $141.7 million was attributable to $35.3 million in net income, $241.8
million related to the issuance of common stock from employee stock plans and
the tax benefit from stock options, $268.6 million from the stock issuance in
connection with RocketChips acquisition (See Note 3 of Notes to Consolidated
Financial Statements), and $22.2 million related to the sale of put warrants.
The increases were offset by the $402.8 million used to acquire treasury stock
and $23.4 million from unrealized loss on available for sale securities and our
cumulative translation adjustment.
Summary of Liquidity
We anticipate that existing sources of liquidity and cash flow from operations
will be sufficient to satisfy our cash needs for the foreseeable future.
However, the risk factors discussed below could affect our cash positions
adversely. We will continue to evaluate opportunities for investments to obtain
additional wafer capacity, procurement of additional capital equipment and
facilities, development of new products, and potential acquisitions of
technologies or businesses that could complement our business. We may use
available cash or other sources of funding for such purposes.
Factors Affecting Future Operating Results
- ------------------------------------------
The semiconductor industry is characterized by rapid technological change,
intense competition and cyclical market patterns. Cyclical market patterns are
characterized by several factors, including:
. reduced product demand;
. limited visibility of demand for products beyond three months;
. accelerated erosion of average selling prices;
. tight capacity availability;
. shortages of other electronic components;
. excess inventory within the supply chain; and
. overbuilding of OEM products, including communication infrastructure.
Our results of operations are affected by several factors. These factors include
general economic conditions, conditions specific to technology companies and to
the semiconductor industry in particular, decreases in average selling prices
over the life of particular products and the timing of new product introductions
(by us, our competitors and others.) In addition, our results of operations are
affected by the ability to manufacture sufficient quantities of a given product
in a timely manner, the timely
21
implementation of new manufacturing technologies, the ability to safeguard
patents and intellectual property from competitors, the impact of new
technologies which result in rapid escalation of demand for some products in the
face of equally steep declines in demand for others, and the inability to
predict the success of our customers' products in their markets. Market demand
for our products, particularly for those most recently introduced, can be
difficult to predict, especially in light of customers' demands to shorten
product lead times and minimize inventory levels. Shortages of other electronic
components could lead to customers canceling orders for our products due to the
inability to complete their end system. Unpredictable market demand could lead
to revenue volatility if we were unable to provide sufficient quantities of
specified products or if our customers' reduced demand cause them to slow orders
of our products. In addition, any difficulty in achieving targeted wafer
production yields could adversely affect our financial condition and results of
operations. We attempt to identify changes in market conditions as soon as
possible; however, the dynamics of the market make prediction of and timely
reaction to such events difficult. Due to these and other factors, our past
results, including those described in this report, are much less reliable
predictors of the future than with companies in many older, more stable and
mature industries. Based on the factors noted herein, we may experience
substantial period-to-period fluctuations in future operating results.
Our future success depends in a large part on the continued service of our key
technical, sales, marketing and management personnel and on our ability to
continue to attract and retain qualified employees. Particularly important are
those highly skilled design, process, product, software and test engineers
involved in the manufacture of existing products and the development of new
products and processes. The competition for such personnel is intense, and the
loss of key employees could have a material adverse effect on our financial
condition and results of operations.
Sales and operations outside of the United States subject us to the risks
associated with conducting business in foreign economic and regulatory
environments. Our financial condition and results of operations could be
adversely affected by unfavorable economic conditions in countries in which we
do significant business and by changes in foreign currency exchange rates
affecting those countries. For example, we have sales and operations in Asia
Pacific and Japan. Past economic weakness in these markets adversely affected
revenues, and such conditions may occur in the future. While the recent weakness
of the Euro and Yen against the Dollar has had no material impact to our
business, continued weakness could lead to adverse conditions from our European
and Japanese customers. Customers may face reduced access to capital and
exchange rate fluctuations may adversely affect their ability to purchase our
products. In addition, our ability to sell at competitive prices may be
diminished. Currency instability may increase credit risks as the weak
currencies may impair our customers' ability to repay existing obligations. Any
or all of these factors could adversely affect our financial condition and
results of operations in the near future.
Our financial condition and results of operations are becoming increasingly
dependent on the global economy. Any instability in worldwide economic
environments could lead to a contraction of capital spending by our customers.
Additional risks to us include government regulation of exports, imposition of
tariffs and other potential trade barriers, reduced protection for intellectual
property rights in some countries and generally longer receivable collection
periods. Moreover, our financial condition and results of operations could be
affected in the event of political conflicts in Taiwan where our main foundry
partner, UMC, as well as a significant number of suppliers to the semiconductor
industry, end-customers and contract manufacturers who provide manufacturing
services worldwide, are located.
Our business is also subject to the risks associated with the imposition of
legislation and regulations relating specifically to the import or export of
semiconductor products. We cannot predict whether quotas, duties, taxes or other
charges or restrictions will be imposed by the United States or other countries
upon the import or export of our products in the future or what effect, if any,
such actions would have on our financial condition and results of operations.
We do not manufacture our own silicon wafers. Presently, all of our wafers are
manufactured by our foundry partners in Taiwan by UMC and in Japan by Seiko
Epson Corp (Seiko). We depend on our foundry partners to deliver reliable
silicon wafers, with acceptable yields, in a timely manner. If our
22
foundry partners are unable to produce and deliver silicon wafers that meet our
specifications, including acceptable yields, our results of operation could be
adversely affected.
Our foundry partners in Taiwan and Japan and many of our operations in
California are centered in areas that have been seismically active in the recent
past. Should there be a major earthquake in our operating locations in the
future, our operations, including our manufacturing activities, may be
disrupted. This type of disruption could result in our inability to ship
products in a timely manner, thereby materially adversely affecting our
financial condition and results of operations.
Our headquarters in San Jose, California, performs design and test services for
certain of the Company's products. These services require the continuous use of
electrical power and, at times of high usage, we are susceptible to the
electrical power outages occurring in California. Any prolonged periods of
electrical "blackouts" in California could have a material and adverse effect on
our ability to perform design and test services at our headquarters.
The securities of many high technology companies have historically been subject
to extreme price and volume fluctuations, which may adversely affect the market
price of our common stock.
Dependence Upon Independent Manufacturers and Subcontractors
We do not manufacture the semiconductor wafers used for our products. During the
past several years, most of our wafers have been manufactured by UMC and Seiko,
with recent wafers also manufactured by USIC until its merger into UMC. We are
dependent upon these suppliers and others to produce wafers with competitive
performance and cost attributes which include transitioning to advanced
manufacturing process technologies, producing wafers at acceptable yields and
delivering them in a timely manner. While the timeliness, yield and quality of
wafer deliveries have met our requirements to date, we cannot guarantee that our
wafer suppliers will not experience future manufacturing problems, including
delays in the realization of advanced manufacturing process technologies.
Additionally, disruption of operations at these foundries for any reason,
including natural disasters such as fires, floods, or earthquakes, as well as
disruptions in access to adequate supplies of electricity, natural gas or water
could cause delays in shipments of our products, and could have a material
adverse effect on our results of operations. We are also dependent on
subcontractors located in Asia to provide semiconductor assembly services. The
more complex product design also requires more advanced assembling and packaging
technology developed by our subcontractors. Any prolonged inability to obtain
wafers or assembly services with competitive performance and cost attributes,
adequate yields or timely delivery, or any other circumstance that would require
us to seek alternative sources of supply, could delay shipments and have a
material adverse effect on our financial condition and results of operations.
Our growth will depend in large part upon our ability to obtain additional wafer
fabrication capacity and assembly services from suppliers that are cost
competitive during a period of tight capacity availability. We consider various
alternatives in order to secure additional wafer capacity. These alternatives
include, without limitation, equity investments in, or loans, deposits, or other
financial commitments to independent wafer manufacturers. We also consider the
use of contracts which commit us to purchase specified quantities of wafers over
extended periods. We are currently able to obtain wafers from existing suppliers
in a timely manner. However, at times we have been unable, and may in the future
be unable, to fully satisfy customer demand because of production constraints,
including the ability of suppliers and subcontractors to provide materials and
services to satisfy customer delivery dates, as well as our ability to process
products for shipment. In addition, a significant increase in general industry
demand or any interruption of supply could reduce our supply of wafers or
increase our cost of such wafers. These events could have a material adverse
effect on our financial condition and results of operations.
Dependence on New Products
Our success depends in large part on our ability to develop and introduce new
products which address customer requirements and compete effectively on the
basis of price, density, functionality, and performance. The success of new
product introductions is dependent upon several factors, including:
23
. timely completion of new product designs;
. ability to utilize advanced manufacturing process technologies including
advanced mask making capability;
. achieving acceptable yields;
. ability to obtain advanced packaging;
. availability of supporting software design tools;
. utilization of predefined cores of logic;
. market acceptance; and
. successful deployment of systems by our customers.
We cannot assure that our product development efforts will be successful or that
our new products will achieve market acceptance. Revenues relating to our mature
products are expected to decline in the future. As a result, we will be
increasingly dependent on revenues derived from newer products along with cost
reductions on current products. We rely primarily on obtaining yield
improvements and corresponding cost reductions in the manufacture of existing
products and on introducing new products which incorporate advanced features and
other price/performance factors that enable us to increase revenues while
maintaining consistent margins. To the extent that such cost reductions and new
product introductions do not occur in a timely manner, or to the extent that our
products do not achieve market acceptance at prices with higher margins, our
financial condition and results of operations could be materially adversely
affected.
Competition
See "competition" discussed in Item 1.
Intellectual Property
We rely upon patent, copyright, trade secret, mask work and trademark law to
protect our intellectual property. We cannot assure that such intellectual
property rights can be successfully asserted in the future or will not be
invalidated, circumvented or challenged. From time to time, third parties,
including our competitors, have asserted patent, copyright, and other
intellectual property rights to technologies that are important to us. We cannot
assure that third parties will not assert infringement claims against us in the
future, that assertions by third parties will not result in costly litigation or
that we would prevail in such litigation or be able to license any valid and
infringed patents from third parties on commercially reasonable terms.
Litigation, regardless of its outcome, could result in substantial costs and
diversion of our resources. Any infringement claim or other litigation against
us or by us could materially adversely affect our financial condition and
results of operations. (See Part I - Other Information, Item 3 - Legal
Proceedings for a discussion of litigation between Xilinx and Altera
Corporation.)
Investment Company Act of 1940
The Investment Company Act of 1940 regulates mutual funds and closed-end
investment companies that are traded on the public stock markets. In January
2000, as a result of USIC's merger with UMC (see Note 4 to Consolidated
Financial Statements), we received approximately 222 million shares of UMC
stock, which are publicly traded on the Taiwan Stock Exchange. (Our current
holdings in UMC equal approximately 266 million shares as the result of a stock
dividend in July 2000 - See Note 4 to Consolidated Financial Statements). We
view this investment in UMC as an operating investment primarily intended to
secure adequate wafer manufacturing capacity. Although from time to time we
could be viewed as holding a larger portion of our assets in investment
securities than is presumptively permitted by the 1940 Act for a company not
registered as an investment company due to the success of our investments, in
particular UMC, we believe we should not be considered an investment company
under the Act. The 1940 Act, and rules issued under it, contain provisions and
set forth principles that are designed to differentiate "true" operating
companies from companies that may be considered to have sufficient investment
company-like characteristics to require regulation by the 1940 Act. At this
time, we believe
24
that we qualify as an operating company under these provisions. In the future,
however, our situation may change which might require us to seek an alternate
solution such as exemptive or no-action relief from the SEC.
Euro Currency
Beginning in 1999, 11 member countries of the European Union established fixed
conversion rates between their existing sovereign currencies and adopted the
Euro as their common legal currency. During the three-year transition, the Euro
will be available for non-cash transactions and legacy currencies will remain
legal tender. We are continuing to assess the Euro's impact on our business. We
are reviewing the ability of our accounting and information systems to handle
the conversion, the ability of foreign banks to report on dual currencies, the
legal and contractual implications of agreements, as well as reviewing our
pricing strategies. We expect that any additional modifications to our
operations and systems will be completed on a timely basis and do not believe
the conversion will have a material adverse impact on our operations. However,
we cannot assure that we will be able to successfully modify all systems and
contracts to comply with Euro requirements.
Litigation
We are currently engaged in several legal matters. See "Legal Proceedings" in
Part I.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
Our exposure to interest rate risk relates primarily to our investment
portfolio. Our primary aim with our investment portfolio is to invest available
cash while preserving principal and meeting liquidity needs. The portfolio
includes tax-advantaged municipal bonds, tax-advantaged auction rate preferred
municipal bonds, commercial paper, and U.S. Treasury securities. In accordance
with our investment policy, we place investments with high credit quality
issuers and limit the amount of credit exposure to any one issuer. These
securities are subject to interest rate risk and will decrease in value if
market interest rates increase. A hypothetical 10% increase in interest rates
would not materially affect the fair value of our available-for-sale securities.
25
Foreign Currency Risk
We enter into forward currency exchange contracts to reduce financial market
risks. Our sales to Japanese customers are denominated in yen while our
purchases of processed silicon wafers from Japanese foundries are primarily
denominated in U.S. dollars. Gains and losses on foreign currency forward
contracts that are designated and effective as hedges of anticipated
transactions, for which a firm commitment has been attained, are deferred and
included in the basis of the transaction in the same period that the underlying
transactions are settled. Gains and losses on any instruments not meeting the
above criteria would be recognized in income in the current period. A 15%
adverse change in yen exchange rates based on historical average rate
fluctuations would have had approximately a 1.85% adverse impact on revenue for
the twelve months ended in fiscal years 2001. We are also sharing the yen
exchange rate risk with some of our Japanese customers through risk sharing
agreements. As we will continue to have a net yen exposure in the near future,
we will continue to mitigate the exposure through yen hedging contracts.
However, no currency forward contracts were outstanding for Japanese Yen as of
March 31, 2001.
As we plan to expand our Ireland facility, we have four outstanding forward
currency exchange contracts against Euro with Bank of America. Total value of
contracts is US$10 million. The four contracts expire at various dates between
May and September 2001. Since we will continue to have Euro currency exposure
over the expansion period, we will continue to mitigate the exposure through
Euro hedging contracts.
Our investments in several subsidiaries and in the UMC securities are recorded
in currencies other than the U.S. dollar. As these foreign currency denominated
investments are translated at each month end during consolidation, fluctuations
of exchange rates between the foreign currency and the U.S. dollar increase or
decrease the value of those investments. If permanent changes occur in exchange
rates after an investment is made, the investment's value will increase or
decrease accordingly. These fluctuations are recorded within stockholders'
equity as a component of accumulated other comprehensive income. Also, as our
subsidiaries maintain investments denominated in other than local currencies,
exchange rate fluctuations will occur.
26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
XILINX, INC.
Consolidated Statements of Income
Years ended March 31,
(In thousands, except per share amounts) 2001 2000 1999
------------------------------------------------
Net revenues $ 1,659,358 $ 1,020,993 $ 661,983
Costs and expenses:
Cost of revenues 679,402 384,038 251,266
Research and development 213,195 123,584 90,893
Sales, general and administrative 274,093 186,619 134,250
Write-off of in-process research and development 90,700 4,560 3,600
Amortization of acquisition related items including
goodwill and other intangibles 17,915 -- --
------------ ----------- ---------
Total operating costs and expenses 1,275,305 698,801 480,009
------------ ----------- ---------
Operating income 384,053 322,192 181,974
Capital gain from merger of United Silicon Inc. with
United Microelectronics Corp -- 674,728 --
Write-down of the United Microelectronics Corp Investment (362,124) -- --
Interest income and other 39,339 27,361 19,341
Interest expense (165) (9) (11,916)
------------ ----------- ---------
Income before provision for taxes on income, equity in joint
venture and cumulative effect of change in accounting principle 61,103 1,024,272 189,399
Provision for taxes on income 25,845 378,006 54,925
------------ ----------- ---------
Income before equity in joint venture and cumulative effect
of change in accounting principle 35,258 646,266 134,474
Equity in income/(loss) of joint venture -- 6,184 (5,236)
------------ ----------- ---------
Income before cumulative effect of change in
accounting principle 35,258 652,450 129,238
Cumulative effect of change in accounting principle -- -- (26,646)
------------ ----------- ---------
Net income $ 35,258 $ 652,450 $ 102,592
============ =========== =========
Net income per share:
Basic
Income before cumulative effect of change in
accounting principle $ 0.11 $ 2.06 $ 0 44
Cumulative effect of change in accounting principle -- -- (0.09)
------------ ----------- ---------
Basic net income per share $ 0.11 $ 2.06 $ 0.35
============ =========== =========
Diluted
Income before cumulative effect of change in
accounting principle $ 0.10 $ 1.90 $ 0.42
Cumulative effect of change in accounting principle -- -- (0.09)
------------ ----------- ---------
Diluted net income per share $ 0.10 $ 1.90 $ 0.33
============ =========== =========
Shares used in per share calculations:
Basic 328,196 316,724 292,843
============ =========== =========
Diluted 353,345 343,479 308,620
============ =========== =========
Pro forma amounts with the change in accounting principle
related to revenue recognition applied retroactively (unaudited):
Net revenues -- -- $ 661,983
Net income -- -- $ 129,238
Net income per share:
Basic -- -- $ 0.44
Diluted -- -- $ 0.42
See accompanying notes
27
XILINX, INC.
Consolidated Balance Sheets
March 31,
(In thousands, except per share amounts) 2001 2000
--------------- ----------------
ASSETS
Current assets:
Cash and cash equivalents $ 208,693 $ 85,548
Short-term investments 162,091 522,202
Accounts receivable, net of allowances for doubtful accounts, pricing
adjustments and customer returns of $7,536 and $15,539 in 2001 and
2000, respectively 172,768 135,048
Inventories 342,453 131,307
Deferred income taxes 151,530 91,282
Advances for wafer purchases -- 22,485
Other current assets 64,344 53,053
------------ ------------
Total current assets 1,101,879 1,040,925
------------ ------------
Property, plant and equipment, at cost:
Land 86,742 49,944
Building 218,234 98,674
Machinery and equipment 222,687 168,973
Furniture and fixtures 26,961 19,351
------------- ------------
554,624 336,942
Accumulated depreciation and amortization (137,448) (96,568)
------------- ------------
Net property, plant and equipment 417,176 240,374
Long-term investments 288,972 185,073
Investment in United Microelectronics Corp 430,894 838,923
Developed technology and other assets 263,275 43,344
------------ ------------
Total Assets $ 2,502,196 $ 2,348,639
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 104,674 $ 56,361
Accrued payroll and related liabilities 28,776 29,796
Income tax payable 62,443 27,982
Deferred income on shipments to distributors 130,501 115,002
Interest payable and other accrued liabilities 24,016 15,571
------------ ------------
Total current liabilities 350,410 244,712
------------ ------------
Deferred tax liabilities 233,470 327,272
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 2,000 shares authorized;
none issued and outstanding -- --
Common stock, $.01 par value; 2,000,000 shares authorized; 331,140 shares
issued and outstanding at March 31, 2001; 325,512 shares issued and
Outstanding at March 31, 2000 3,311 3,255
Additional paid-in capital 725,626 487,634
Retained earnings 1,257,083 1,259,510
Treasury stock, at cost (70,584) --
Accumulated other comprehensive income 2,880 26,256
Total stockholders' equity ------------ ------------
1,918,316 1,776,655
------------ ------------
$ 2,502,196 $ 2,348,639
============ ============
See accompanying notes
28
XILINX, INC.
Consolidated Statements of Cash Flows
Years ended March 31,
(In thousands) 2001 2000 1999
-------------- --------------- --------------
Increase / (decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net income $ 35,258 $ 652,450 $ 102,592
Adjustments to reconcile net income to net cash provided
by operating activities:
Cumulative effect of change in accounting principle -- -- 26,646
Depreciation and amortization 93,451 44,191 32,112
Gain from available sales securities (7,414) -- --
Write-off of acquired in-process technology 90,700 4,560 3,600
Loss (gain) related to United Microelectronics Corp investment 362,124 (674,728) --
Provision for deferred income taxes -- 254,444 (6,607)
Undistributed earnings of joint venture -- (6,184) 5,236
Changes in assets and liabilities:
Accounts receivable (37,720) (68,578) (9,143)
Inventories (186,708) 2,160 58,328
Prepaid assets 1,222 (31,201) (4,556)
Deferred income taxes (9,010) 22,537 (1,837)
Other assets (54,056) (15,242) (957)
Accounts payable 44,244 33,035 (2,405)
Other accrued liabilities 3,592 13,054 33,509
Income taxes payable (132,939) (30,824) (18,943)
Tax benefit from stock options 159,025 112,143 34,856
Deferred income on shipments to distributors 15,498 29,293 (8,806)
----------- ----------- -----------
Total adjustments 342,009 (311,340) 141,033
----------- ----------- -----------
Net cash provided by operating activities 377,267 341,110 243,625
----------- ----------- -----------
Cash flows from investing activities:
Purchases of available-for-sale investments (2,389,366) (2,506,365) (1,177,948)
Proceeds from sale or maturity of available-for-sale investments 2,652,456 2,240,293 896,396
Purchases of held-to-maturity investments -- -- (36,228)
Proceeds from maturity of held-to-maturity investments 34,358 36,145
Proceeds from sale of held-to-maturity investments -- -- 36,202
Investments in property, plant and equipment (222,670) (143,746) (40,922)
Investment in joint venture -- -- (5,448)
Assets purchased/obtained with acquisitions 4,243 (22,750) (6,776)
----------- ----------- -----------
Net cash provided by / (used in) investing activities 44,663 (398,210) (298,579)
----------- ----------- -----------
Cash flows from financing activities:
Acquisition of treasury stock (402,796) (5,289) (113,804)
Proceeds from issuance of common stock 81,802 84,315 55,481
Proceeds from sale of put warrants 22,209 10,038 --
----------- ----------- -----------
Net cash provided by / (used in) financing activities (298,785) 89,064 (58,323)
----------- ----------- -----------
Net increase / (decrease) in cash and cash equivalents 123,145 31,964 (113,277)
Cash and cash equivalents at beginning of period 85,548 53,584 166,861
----------- ----------- -----------
Cash and cash equivalents at end of period $ 208,693 $ 85,548 $ 53,584
=========== =========== ===========
Schedule of non-cash transactions:
Issuance of treasury stock under employee stock plans $ 332,212 $ 10,400 $ 112,162
Issuance of treasury stock from debt conversion -- -- 53,503
Conversion of long term debt to common stock -- -- 250,322
Supplemental disclosures of cash flow information:
Interest paid 165 9 12,992
Income taxes paid $ 7,691 $ 11,881 $ 21,469
See accompanying notes
29
XILINX, INC.
Consolidated Statements of Stockholders' Equity
Accumulated
Three years ended March 31, 2001 Common Stock Additional Other Total
(In thousands) Outstanding Paid-in Retained Treasury Comprehensive Stockholders'
--------------------
Shares Amount Capital Earnings Stock Income Equity
-----------------------------------------------------------------------------------------
Balance at March 31, 1998 291,652 $2,916 $ 116,883 $ 504,468 ($56,973) ($17,119) $ 550,175
Components of comprehensive income:
Net income -- -- -- 102,592 -- -- 102,592
Unrealized gain on available-for-sale
securities, net of tax expense of $87 -- -- -- -- -- 130 130
Cumulative translation adjustment -- -- -- -- -- (434) (434)
--------
Total comprehensive income 102,288
--------
Issuance of common shares
under employee stock plans 12,458 208 55,273 -- -- -- 55,481
Issuance of common shares
from convertible debt 19,608 -- 250,322 -- -- -- 250,322
Acquisition of treasury stock (11,232) -- -- -- (113,804) -- (113,804)
Issuance of treasury stock
under employee stock plans -- -- (112,162) -- 112,162 -- --
Issuance of treasury stock
from debt conversion -- -- (53,503) -- 53,503 -- --
Tax benefit from exercise of
stock options -- -- 34,856 -- -- -- 34,856
-----------------------------------------------------------------------------------------
Balance at March 31, 1999 312,486 3,124 291,669 607,060 (5,112) (17,423) 879,318
Components of comprehensive income:
Net income -- -- -- 652,450 -- -- 652,450
Unrealized gain on available-for-sale
securities, net of tax expense of
$18,313 -- -- -- -- -- 26,073 26,073
Cumulative translation adjustment -- -- -- -- -- 17,606 17,606
--------
Total comprehensive income 696,129
--------
Issuance of common shares
under employee stock plans 13,272 131 84,184 -- -- -- 84,315
Acquisition of treasury stock (246) -- -- -- (5,288) -- (5,288)
Issuance of treasury stock
under employee stock plans -- -- (10,400) -- 10,400 -- --
Put option premiums -- -- 10,038 -- -- -- 10,038
Tax benefit from exercise of
stock options -- -- 112,143 -- -- -- 112,143
-----------------------------------------------------------------------------------------
Balance at March 31, 2000 325,512 3,255 487,634 1,259,510 -- 26,256 1,776,655
Components of comprehensive income:
Net income -- -- -- 35,258 -- -- 35,258
Unrealized loss on available-for-sale
securities, net of tax expense of
$2,316 -- -- -- -- -- (22,831) (22,831)
Cumulative translation adjustment -- -- -- -- -- (545) (545)
--------
Total comprehensive income 11,882
--------
Issuance of common shares
under employee stock plans 9,382 93 82,737 -- -- -- 82,830
Acquisition of treasury stock (6,373) (63) -- -- (402,797) -- (402,860)
Issuance of treasury stock
under employee stock plans -- -- (294,528) (37,685) 332,213 -- --
Issuance of shares for RocketChips 2,619 26 288,322 -- -- -- 288,348
Put option premiums -- -- 22,209 -- -- -- 22,209
Deferred Compensation-RocketChips -- -- (19,773) -- -- -- (19,773)
Tax benefit from exercise of
stock options -- -- 159,025 -- -- -- 159,025
-----------------------------------------------------------------------------------------
Balance at March 31, 2001 331,140 $3,311 $ 725,626 $1,257,083 $ (70,584) $ 2,880 $1,918,316
=========================================================================================
See accompanying notes
30
XILINX, INC.
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, design services, customer training, and
field engineering support. The wafers used to manufacture our products are
obtained from independent wafer manufacturers located in Taiwan and Japan. We
are dependent upon these manufacturers to produce and deliver wafers on a timely
basis. We are also dependent on subcontractors, located in the Asia Pacific
region, to provide semiconductor assembly services. Xilinx is a global company
with manufacturing and test facilities in the United States and Ireland and
sales offices throughout the world. We derive approximately one-third of our
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
Xilinx and our wholly owned subsidiaries after elimination of all significant
intercompany transactions. Our 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. Fiscal 2001 was a 52-week year ended on
March 31, 2001. Fiscal 2000 was a 52-week year ended on April 1, 2000 and Fiscal
1999 was a 53-week year ended on April 3, 1999.
Certain amounts from the prior years have been reclassified to conform to the
current year presentation.
Cash equivalents and investments
Cash and cash equivalents consist of cash on deposit with banks and investments
in money market instruments and U.S. Treasury notes with minimal interest rate
risk and original maturities of 90 days or less when acquired. Short-term
investments consist of tax-advantaged municipal bonds, commercial papers, and
tax-advantaged auction rate preferred municipal bonds with maturities greater
than 90 days but less than one year from the balance sheet date. Restricted
investments consisted of certificates of deposit held as collateral relating to
leases for our facilities. Long-term investments consist of equity investments,
U.S. Treasury notes, government agency bonds and tax-advantaged municipal bonds
with maturities greater than one year, unless funds are specifically identified
for current operations. We invest our cash, cash equivalents, short-term and
long-term investments through various banks and investment banking and asset
management institutions. This diversification of risk is consistent with our
policy to maintain liquidity and ensure the collectibility of principal.
Management classifies investments as available-for-sale or held-to-maturity at
the time of purchase and re-evaluates such designation at each balance sheet
date, although classification is not generally changed. Securities are
classified as held-to-maturity when we have 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. No investments were classified as held-to-maturity
at March 31, 2001. Available-for-sale securities are carried at fair value with
the unrealized gains or losses, net of tax, included as a component of
accumulated other comprehensive income in 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.
31
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,
2001 and 2000:
(In thousands) 2001 2000
------------------------------
Raw materials $ 26,245 $ 6,602
Work-in-progress 249,348 78,697
Finished goods 66,860 46,008
---------- ----------
$ 342,453 $ 131,307
========== ==========
Given the volatility of the market and the obsolescence in technology and
shorter product life cycles, we write down inventories to net realizable value
based on backlog and forecasted demand. However, backlog is subject to
revisions, cancellations and rescheduling. Actual demand may differ from
forecasted demand and such difference may have a material effect on our
financial position and result of operations.
Advances for wafer purchases
In fiscal 1997, we signed an agreement with Seiko Epson, a primary wafer
supplier. Repayment of this advance was received in the form of wafer
deliveries, which began during the fourth quarter of fiscal 1998. The advance
payment agreement also provided for interest to be paid to us in the form of
free wafers. The repayment of this advance was completed during the second
quarter of fiscal 2001.
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. Depreciation
expenses totaled $46.4 million, $33.3 million, and $27.5 million for fiscal year
2001, 2000, and 1999, respectively.
Revenue Recognition
We recognize revenue from product sales upon transfer of title to OEMs and end
users. Reserves for sales returns and allowances are recorded at the time of
shipment. As further explained in Note 3 of Notes to Consolidated Financial
Statements, commencing in fiscal 1999, revenue on shipments to all distributors
is deferred until products are sold by the distributors to end users. Prior to
fiscal 1999, revenue on shipments to domestic distributors was deferred until
resale to end users because arrangements with these distributors included
returns and price protection privileges which could not be reasonably estimated.
Revenue on all shipments to international distributors was recognized upon
shipment to the distributor, with appropriate provision of reserves for returns
and allowances.
Foreign currency translation
The U.S. dollar is the functional currency for our Ireland manufacturing
facility. Assets and liabilities that are not denominated in the functional
currency are remeasured into U.S. dollars, and the resulting gains or losses are
included in "Interest income and other." The functional currency is the local
currency for each of our other foreign subsidiaries. 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 accumulated other comprehensive
income in stockholders' equity.
Derivative financial instruments
As part of our ongoing asset and liability management activities, we
periodically enter into financial arrangements to reduce financial market risks.
These instruments are used to hedge foreign currency, equity
32
and interest rate market exposures of underlying assets and liabilities. We do
not enter into derivative financial instruments for trading purposes.
Our accounting policies for these instruments are based on whether such
instruments are designated as hedging transactions. The criteria we use for
designating an instrument as a hedge includes the instrument's effectiveness in
risk reduction and one-to-one matching of derivative instruments to underlying
transactions. Gains and losses on foreign currency forward and option contracts
that are designated and effective as hedges of anticipated transactions, for
which a firm commitment has been attained, are deferred and either recognized in
income or included in the basis of the transaction in the same period that the
underlying transactions are settled. Gains and losses on foreign currency
forward and option contracts and interest rate swap contracts that are
designated and effective as hedges of existing transactions are recognized in
income in the same period as losses and gains on the underlying transactions are
recognized and generally offset. Gains and losses on any instruments not meeting
the above criteria are recognized in income in the current period. If an
underlying hedged transaction is terminated earlier than initially anticipated,
the offsetting gain or loss on the related derivative instrument is recognized
in income in the same period. Subsequent gains or losses on the related
derivative instrument are recognized in income in each period until the
instrument matures, is terminated or is sold. Premiums paid for foreign currency
forward and option contracts are generally amortized over the life of the
contracts and are not material to our results of operations. Unamortized
premiums are included in prepaid expenses and other current assets.
Employee stock plans
We account for our 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, we disclose pro forma
information related to our stock plans according to Financial Accounting
Standards Board's Statement No. 123, "Accounting for Stock-Based Compensation"
(FASB 123).
Use of estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in United States 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,
inventory write-downs, allowances for doubtful accounts, pricing adjustments,
customer returns, 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 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, (FASB 133), "Accounting for Derivative
Instruments and Hedging Activities," which requires adoption by Xilinx beginning
April 2001. The effect of adopting the Standard will not be material to our
consolidated results of operations or financial position. FASB 133 will require
us to recognize all derivatives on the balance sheet at fair value. Derivatives
that are not hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in the fair
value of the derivative will either be offset against the change in fair value
of the hedged assets, liabilities, or firm commitments through earnings or
recognized in accumulated other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion, if any, of a derivative's
change in fair value will be immediately recognized in earnings.
In December 1999, the Securities and Exchange Commission (SEC) issued SEC Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements." SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
We adopted SAB 101 in the fourth quarter of fiscal 2001 and the adoption did not
have a material effect on our consolidated results of operations or financial
position.
33
In March 2000, the FASB issued FASB Interpretation No.44 ("FIN 44"), "Accounting
for Certain Transactions Involving Stock Compensation - an Interpretation of APB
Opinion No. 25." FIN 44 is intended to clarify the application of APB Opinion
No. 25 by providing guidance regarding among other issues: the definition of an
employee for purposes of applying APB Opinion No. 25; the criteria for
determining whether a plan qualifies as a noncompensatory plan; the accounting
consequence of various modifications to the terms of the previously fixed stock
options or awards; and the accounting for an exchange of stock compensation
awards in a business combination. FIN 44 was effective July 1, 2000 but certain
provisions covered specific events occurring after December 15, 1998 or January
12, 2000. The adoption of FIN 44 did not have a material impact on our
consolidated financial position or results of operations.
In November 2000, the FASB's Emerging Issues Task Force ("EITF") reached final
consensuses on EITF Issue No. 00-19, "Determination of Whether Share Settlement
is Within the Control of the Issuer" for purposes of applying EITF Issue No.
96-13, "Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company's Own Stock." EITF 00-19 addresses and
clarifies whether specific contract provisions or other circumstances cause a
net-share or physical settlement alternative to be within or outside the control
of the issuer. EITF 96-13 addresses accounting for equity derivative contracts
indexed to, and potentially settled in, a company's own stock by providing
guidance for distinguishing between permanent equity, temporary equity and
assets and liabilities. Under EITF 00-19, equity derivatives that were issued
prior to September 20, 2000, and classified as permanent equity must meet
certain criteria or be re-classified as temporary equity. To qualify as
permanent equity all the following criteria must be met: the equity derivative
contract must permit the company to settle in unregistered shares, the company
must have sufficient authorized but unissued shares available to settle the
contract, the contract must contain an explicit limit on the number of shares to
be delivered in a share settlement, there can be no requirement in the contract
to post collateral, there can be no "make whole" provisions in the contract
requiring cash settlement and there can be no provisions in the contract that
indicate the counterparty has rights that rank higher than those of a common
shareholder. Compliance with EITF 00-19 did not have a material impact on the
Company's consolidated financial position.
Concentrations of credit risk
We attempt to mitigate the concentration of credit risk in our trade receivables
with respect to the high-technology industry with our 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. We generally do not require collateral. Bad debt write-offs
have been insignificant for all years presented.
No end customer accounted for more than 10% of revenues in 2001, 2000, or 1999.
Approximately 27%, 27% and 20% of net revenues were recognized through our
largest domestic distributor in 2001, 2000, and 1999, respectively. A second
domestic distributor accounted for approximately 24%, 24%, and 17% of net
revenues in fiscal 2001, 2000 and 1999, respectively.
On a consolidated basis, at March 31, 2001, two distributors accounted for 59.3%
and 28.0% of total accounts receivable. These two distributors also accounted
for 44.1% and 28.6% of worldwide net revenues in fiscal 2001. (See ITEM 1.
Business: Marketing and Sales; Backlog and Customers)
Note 3. Accounting change - Deferred Revenue Recognition on Sales to
International Distributors
During the fourth quarter of fiscal 1999, we changed our accounting method for
recognizing revenue on all shipments to international distributors. The change
was made retroactive to the beginning of fiscal 1999. While we previously
deferred revenue on shipments to domestic distributors until the products were
sold to the end user, we recognized revenue upon shipment to international
distributors, net of appropriate reserves for returns and allowances. Following
the accounting change, revenue recognition on shipments to distributors
worldwide is deferred until the products are sold to the end customer. We
believe that deferral of revenue on shipments to distributors until the product
is shipped by the distributor to an end customer is a more meaningful
measurement of results of operations, and is consistent with industry practice.
The cumulative effect of the
34
change in accounting method for fiscal 1999 was a charge of $26.6 million, net
of $12.0 million in taxes, or $0.09 net income per diluted share.
Note 4. Joint Venture
Xilinx, UMC and other parties entered into a joint venture to construct a wafer
fabrication facility in Taiwan, known as USIC. We had a 20% equity ownership in
USIC and had the right to receive up to 31.25% of the wafer capacity from this
facility. We accounted for this investment using the equity method of accounting
with a one-month lag in recording our share of results for the entity. In fiscal
2000 net gains were generated as USIC entered volume wafer production and
shipment, while the fiscal 1999 net loss was a result of the continued ramp up
in production of the wafer fabrication facility.
In January 2000 USIC was merged into UMC and our equity position in USIC was
converted into shares of UMC which are publicly traded on the Taiwan Stock
Exchange. We recognized a non-cash gain of $674.7 million ($398.1 million net of
taxes) in our fiscal 2000 fourth quarter as a result of the merger of USIC into
UMC. The gain represents the appreciation of our investment in USIC. As a result
of this merger, we owned approximately 222 million shares of UMC common stock,
which represent approximately 2% of the combined UMC Group. In July 2000, we
received a 20% stock dividend, which increased our investment holdings in UMC to
approximately 266 million shares. We retain equivalent wafer capacity rights in
UMC as we previously had in USIC, as long as we retain a percentage of our
shares of UMC common stock. If our holdings fall below the specified level, our
wafer capacity rights would be decreased prorated by the UMC shares we hold.
Due to restrictions imposed by UMC and the Taiwan Stock Exchange, the majority
of our UMC shares could not be sold until July 2000. These regulatory
restrictions will gradually expire between July 2000 and January 2004. At March
31, 2001, the restricted portion of our UMC investment totaled $179.5 million.
The Company accounts for the portion (approximately 58% at March 31, 2001) of
its investment in UMC which becomes unrestricted within twelve months as
available-for-sale marketable security in accordance with SFAS 115. The portion
of the investment in UMC which is restricted beyond twelve months (approximately
42% of the Company's holdings at March 31, 2001) is accounted for as a cost
method investment classified as a long-term investment.
Due to the current weakness in the semiconductor industry, the value of our UMC
shares declined to $430.9 million as of March 31, 2001. The downturn in the
semiconductor industry, and the economy in general, appears to be more severe
than previously anticipated, and there is a great deal of uncertainty regarding
when the semiconductor industry will recover from this down cycle. Because of
the continued downturn in the economy, we believed that the decline in the
market value of our investment in UMC as of March 31, 2001, was other than
temporary as defined by accounting principles generally accepted in the United
States. In the fourth quarter of fiscal 2001 we recognized a pre-tax loss of
$362.1 million. If the value our UMC shares declines further, we may be required
to record additional losses. In addition, in future periods, we may recognized a
gain or loss if we sell our UMC shares due to fluctuations in the market value
of UMC stock.
35
Note 5. Financial Instruments
Cash and Investments
The following is a summary of available-for-sale securities:
March 31, 2001 March 31, 2000
----------------------------------------------------------------------------------------------
Gross Gross Estimated Gross Gross Estimated
(In thousands) Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
----------------------------------------------------------------------------------------------
Money market funds $ 160,093 $ -- $ -- $ 160,093 $ 93,172 $ -- $ -- $ 93,172
Commercial paper 127,142 -- -- 127,142 62,712 -- -- 62,712
U.S. Treasury notes -- -- -- -- 5,005 -- -- 5,005
Auction rate preferred 21,512 3 -- 21,515 335,039 1 (14) 335,026
Government agency bonds -- -- -- -- 9,925 -- (142) 9,783
Municipal bonds 339,691 5,610 (32) 345,269 300,897 370 (1,513) 299,754
Investment in UMC 251,355 -- -- 251,355 396,509 45,904 -- 442,413
--------- ---------- --------- ---------- ---------- ------- -------- ----------
$ 899,793 $ 5,613 $ (32) $ 905,374 $1,203,259 $46,275 $(1,669) $1,247,865
========= ========= ========= ========== ========== ======= ======= ==========
Included in:
Cash and cash equivalents $ 202,956 $ 98,177
Short-term investments 162,091 522,202
Long-term investments 288,972 185,073
Investment in UMC 251,355 442,413
---------- ----------
$ 905,374 $1,247,865
========== ==========
For fiscal 2001, interest and other income included a pre-tax gain on our
investment in Nuron LLC of $4.5 million. The gain was recorded under guidance
from Emerging Issues Task Force Bulletin 91-5 "Non-Monetary Exchange of Cost-
Method investments."
Derivatives
In fiscal 2001, we utilized forward currency contracts to protect against the
net yen exposure created when we began purchasing most of our wafers from
Japanese suppliers in U.S. dollars yet continued to invoice Japanese customers
in yen. Realized gain of $ 0.9 million in fiscal 2001 and loss of $0.5 million
in fiscal 2000 were offset against revenue when there was a firm commitment,
otherwise they were included in "Interest income and other. " At March 31, 2000,
no commitments under foreign currency forward or option contracts were
outstanding.
At March 31, 2001, we have four outstanding forward currency exchange contracts
against Irish Pounds with Bank of America. Total value of contracts is $10
million U.S. dollars. The four contracts expire at various dates: May 15, June
15, August 15, and September 14 in year 2001.
Lines of Credit
We had $40 million available under a syndicated bank revolving credit line
agreement, which expired in March 2001 and we decided not to extend this line of
credit. Additionally, our Ireland manufacturing facility has an additional $6.2
million available under a multicurrency credit line, which expires in November
2001. Under this agreement, borrowings bear interest at the bank's prime rate or
0.75% over the Euribor rate. At March 31, 2000, no borrowings were outstanding
under any credit lines. We are in full compliance with the agreement's required
covenants and financial ratios. The agreements prohibit the payment of cash
dividends without prior bank approval.
Subordinated Notes
36
In fiscal 1999, we converted in full $250.0 million of 5 1/4% Convertible
Subordinated Notes due 2002 for a total of 19.6 million shares of common stock
at a price of $12.75 per share.
Note 6. Commitments
We lease some of our 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)
---------------
2002 $ 3,389
2003 2,747
2004 1,277
2005 926
2006 485
Thereafter 3,547
--------
$ 12,371
========
Rent expense was approximately $2.5 million for fiscal 2001, $7.3 million for
fiscal year 2000, and $4.5 million for 1999. The decreased rent expense in
fiscal 2001 was due to the acquisition of buildings in San Jose, California
during fiscal year 2001.
During fiscal 1998, we entered into an agreement for a facility to be built on
property adjacent to our corporate facilities, which was completed in fiscal
2000. Upon signing the lease agreement, we paid the lessor $31.3 million for
prepaid rent and an option to purchase the facility. The rent prepayment covered
one year and was discounted to its present value. We exercised the lease
agreement's purchase option in fiscal 2000 and the prepaid purchase option was
considered payment in full.
In December 1999, we exercised another option to purchase three buildings
previously leased at our San Jose corporate facility. The restricted investment
of $34.4 million related to certain collateral requirements on the building
leases and was later used to purchase the three buildings.
Note 7. Net income per share
Basic net income per share is computed by dividing net income 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.
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 25.1 million, 26.8 million and 15.8 million
incremental common shares attributable to outstanding options for fiscal years
2001, 2000, and 1999, respectively.
Before the long-term debt was converted to equity in the amount of approximately
19.6 million shares in February 1999, they 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. Outstanding options to purchase
approximately 4.3 million, 0.3 million, and 9.6 million shares, for the fiscal
years 2001, 2000 and 1999, respectively, under the Company's Stock Option Plans
were not included in the treasury stock calculation to derive diluted net income
per share as their inclusion would have had an anti-dilutive effect. In
addition, the put warrants disclosed in
37
Note 9 did not have any impact on basic or diluted net income per share in
fiscal March 31, 2001 as their inclusion would have had an anti-dilutive effect.
Note 8. Comprehensive Income
FASB 130 established standards for the reporting and disclosure of comprehensive
income and its components; however, the disclosure has no impact on our
consolidated results of operations, financial position or cash flows.
Comprehensive income is defined as the change in equity of a company during a
period resulting from certain transactions and other events and circumstances,
excluding transactions resulting from investments by owners and distributions to
owners. The difference between net income and comprehensive income for Xilinx is
from foreign currency translation adjustments and unrealized gains or losses on
our available-for-sale securities.
The components of comprehensive income are as follows:
March 31,
(in thousands) 2001 2000 1999
-----------------------------------------------
Net income $ 35,258 $ 652,450 $ 102,592
Cumulative translation adjustment (545) 17,606 (434)
Unrealized gain(loss) on available for sale securities,
net of tax (22,831) 26,073 130
--------- ---------- ---------
Comprehensive income $ 11,882 $ 696,129 $ 102,288
========= ========== =========
The components of accumulated other comprehensive income (loss) are as follows:
March 31,
(in thousands) 2001 2000 1999
-----------------------------------------------
Cumulative translation adjustment $ (594) $ (49) $ (17,655)
Unrealized gain on available for sale securities,
net of tax 3,474 26,305 232
--------- ---------- ---------
Accumulated other comprehensive income (loss) $ 2,880 $ 26,256 $ (17,423)
========= ========== =========
Note 9. Stockholders' Equity
The Company's Certificate of Incorporation authorized 2 million shares of
undesignated preferred stock. The preferred stock may be issued in one or more
series. The Board of Directors is authorized to determine or alter the rights,
preferences, privileges and restrictions granted to or imposed upon any wholly
unissued series of preferred stock. As of March 31, 2001 and 2000 no preferred
shares were issued or outstanding.
Treasury stock and put options
We authorized a stock buyback program in September 1998 and June 2000 whereby up
to $100 million and $200 million dollars, respectively, of our common stock
could be purchased in the open market from time to time as market and business
conditions warranted. This program was completed in November 2000. In November
2000, additional stock repurchase programs were authorized to buyback up to $250
million dollars of our common stock. We have reissued treasury shares
repurchased in response to Employee Stock Option exercises and Employee
Qualified Stock Purchase Plan requirements as well as in conjunction with our
redemption of convertible debt. During fiscal 2001 and 2000, we repurchased a
total of 6.4 million and 0.2 million shares of common stock for $402.8 million
and $5.3 million, respectively. In fiscal 2001 and 2000, 5.0 million and 0.5
million shares were reissued, respectively. As of March 31, 2001, we held 1.4
million shares of treasury stock in conjunction with the stock repurchase
program. During fiscal 2001, we sold put warrants that entitle the holder of
each warrant to sell to us, by physical delivery, one share of common stock at a
specified price, ranging from $52 to $72 per share. The outstanding put warrants
will expire at various dates through
38
February 2002. As of March 31, 2001, we have 1.4 million shares subject to
future issuance under of outstanding put warrants.
Stockholder Rights Plan
In October 1991, we adopted a stockholder rights plan and declared a dividend
distribution of one preferred 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 preferred 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 Plans
Under existing stock option plans (Option Plans), options reserved for future
issuance to employees and directors of the Company total 54.4 million shares as
of March 31, 2001. Options to purchase shares of our common stock under the
Option Plans 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 our Option Plans activity, and related information are as follows:
Years ended March 31, 2001 2000 1999
-----------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
(000) Price (000) Price (000) Price
-----------------------------------------------------------------------
Outstanding at beginning of year 55,333 $ 12.19 63,158 $ 9.50 58,098 $ 6.67
Granted 7,813 63.51 4,149 37.24 18,560 15.04
Exercised (8,008) 7.41 (10,997) 6.03 (10,844) 3.98
Forfeited (714) 33.26 (977) 13.74 (2,656) 9.03
----------- ----------- ----------- ----------- ----------- -----------
Outstanding at end of year 54,425 $ 19.98 55,333 $ 12.19 63,158 $ 9.50
=========== =========== =========== =========== =========== ===========
Shares available for grant 35,569 28,564 5,624
----------- ----------- -----------
39
The following information relates to options outstanding and exercisable under
the Option Plan at March 31, 2001:
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
--------------- ----- ------------ ----- ----- -----
$ 0.57 - $ 8.25 16,000 3.95 $ 5.78 15,754 $ 5.76
$ 8.31 - $ 11.72 14,460 6.50 9.89 11,012 9.92
$ 11.97 - $ 34.03 4,523 7.32 18.51 9,085 16.77
$ 34.44 - $ 96.63 9,442 9.11 61.78 1,691 56.62
----------------- ----------------------------------------------------------------------
$ 0.57 - $ 96.63 54,425 6.42 $19.98 37,542 $11.94
----------------------------------------------------------------------
At March 31, 2000, 33.6 million options were exercisable at an average price of
$8.37.
Employee Qualified Stock Purchase Plan
Under our 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 our 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, 1.4 million and 2.3
million shares were issued during 2001 and 2000, respectively, and 8.0 million
shares were available for issuance at March 31, 2001.
Stock-Based Compensation
As permitted under FASB Statement No. 123, "Accounting for Stock-Based
Compensation" (FASB 123), we have 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 our 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 we 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 Plans 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. Our 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 2001, 2000 and 1999 were 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, 2001 2000 1999 2001 2000 1999
------------------------------------- ----------- ----------- ----------- ---------- ----------- ----------
Expected life (years) 3.50 3.50 3.00 0.50 0.50 0.50
Expected stock price volatility 0.71 0.65 0.65 0.79 0.67 0.64
Risk-free interest rate 5.9% 5.8% 5.0% 5.6% 5.3% 5.0%
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. Had we accounted for stock-based awards to
40
employees under FASB 123, our net income (loss) would have been $(100.2)
million, $560.3 million, and $65.2 million in 2001, 2000, and 1999,
respectively. Basic net income(loss) per share would have been $(0.31), $1.73,
and $0.22 in 2001, 2000, and 1999, respectively, while diluted net income(loss)
per share would have been $(0.31), $1.60, and $0.21, respectively.
Calculated under FASB 123, the weighted-average fair value of the stock options
granted during 2001, 2000, and 1999 was $37.91, $18.87, and $6.90 per share,
respectively. The weighted-average fair value of stock purchase rights granted
under the Stock Purchase Plan during 2001, 2000, and 1999 were $27.31, $18.19,
and $4.98 per share, respectively.
Note 10. Income Taxes
Years ended March 31,
(In thousands) 2001 2000 1999
-------------------------------------------------
Federal: Current $ 131,903 $ 97,019 $ 45,482
Deferred (124,263) 196,172 (3,558)
----------- ----------- ----------
7,640 293,191 41,924
----------- ----------- ----------
State: Current 21,678 15,851 9,187
Deferred (30,087) 58,272 (3,049)
----------- ----------- ----------
(8,409) 74,123 6,138
----------- ----------- ----------
Foreign: Current 26,614 10,692 6,863
----------- ----------- ----------
Total $ 25,845 $ 378,006 $ 54,925
=========== =========== ==========
The tax benefits associated with stock options exercises and the employee stock
purchase plan resulted in a tax benefit of $159.0 million, $112.1 million, and
$34.9 million, for fiscal years 2001, 2000, and 1999, respectively. Such
benefits are credited to additional paid-in capital when realized. The Company
has tax loss and credit carryforwards of approximately $36 million and $31
million respectively, if unused these carryforwards will expire in 2005 through
2021. Pretax income from foreign operations was $281.5 million, $106.4 million,
and $61.2 million for fiscal years 2001, 2000, and 1999, 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 $193 million as of March 31, 2001. The residual
U.S. tax liability, if such amounts were remitted, would be approximately $48.2
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:
Years ended March 31,
(In thousands) 2001 2000 1999
-----------------------------------------------
Income before provision for taxes $ 61,103 $ 1,024,272 $ 189,399
Federal statutory tax rate 35% 35% 35%
------------ ------------ ------------
Computed expected tax $ 21,386 $ 358,495 $ 66,290
State taxes net of federal benefit (5,468) 48,180 3,990
Tax exempt interest (6,734) (5,472) (3,822)
Foreign earnings at lower tax rates (9,488) (15,370) (4,415)
In-Process R&D Charge 31,745 - -
Amortization of Goodwill 4,143 - -
Tax Credits (10,640) (6,095) (5,574)
Other 901 (1,732) (1,544)
------------ ------------ ------------
Provision for taxes on income $ 25,845 $ 378,006 $ 54,925
============ ============ ============
41
The major components of deferred tax assets and liabilities consist of the
following:
Years ended March 31,
(In thousands) 2001 2000
---------------------------------
Deferred tax assets:
Inventory valuation differences $ 26,227 $ 10,725
Deferred income on shipments to distributors 83,701 76,262
Nondeductible accrued expenses 9,711 5,948
Tax carryforwards 29,445 -
Other 3,971 (1,453)
------------ ------------
Total 153,055 91,482
------------ ------------
Deferred tax liabilities:
Intangible and Fixed Assets (11,874) 4,023
Unremitted foreign earnings (83,932) (36,453)
Capital gain from merger of USIC with UMC (133,599) (276,638)
Current net value of investments (2,674) (18,313)
Other (1,391) 617
------------ ------------
Total net deferred tax liability (233,470) (326,764)
------------ ------------
Total net deferred tax (liabilities) assets $ (80,415) $ (235,282)
============ ============
On December 28, 2000, the Internal Revenue Service issued a statutory notice of
deficiency reflecting proposed audit adjustments for the fiscal years 1996,
1997, and 1998. We filed a petition with the Tax Court on March 26, 2001
contesting this notice of deficiency. We believe we have meritorious defenses to
the proposed adjustments and sufficient taxes have been provided.
Note 11. Segment Information
We operate and track our results in one operating segment. We design, develop,
and market programmable logic semiconductor devices and the related software
design tools.
Enterprise wide information is provided in accordance with FASB 131. Geographic
revenue information for the fiscal years 2001, 2000, and 1999 is based on the
shipment location. Long-lived assets include property, plant and equipment as
well as intangible assets including developed technology, assembled workforce,
and goodwill. Property, plant and equipment information is based on the physical
location of the asset at the end of each fiscal year while the intangible assets
are based on the location of the owning entity.
Net revenues from unaffiliated customers by geographic region were as follows:
Years ended March 31,
(In thousands) 2001 2000 1999
------------------------------------------------
North America $ 1,028,185 $ 681,078 $ 447,147
Europe 334,002 201,772 139,815
Japan 163,567 82,581 47,522
Asia Pacific 133,604 55,562 27,499
------------- ------------- -----------
$ 1,659,358 $ 1,020,993 $ 661,983
============= ============= ===========
42
Net long-lived assets by country were as follows:
Years ended March 31,
(In thousands) 2001 2000
----------------------------
North America $ 538,983 $ 207,769
Ireland 63,172 35,370
Other 22,346 26,375
----------- -----------
$ 624,501 $ 269,514
=========== ===========
Note 12. Litigation
On June 7, 1993, we filed suit against Altera Corporation (Altera) in the United
States District Court for the Northern District of California for infringement
of certain of our patents. Subsequently, Altera filed suit against Xilinx,
alleging that certain of our products infringe certain Altera patents. As a
result of certain motions and rulings in the case, Altera is left with one claim
against Xilinx, which remains the subject of a Company motion for summary
judgment. A ruling on this motion is pending. If the remaining claim against
Xilinx survives the motion for summary judgment, it will be decided at a trial,
which is unscheduled at this point. The Court's rulings also dismissed certain
claims by us, leaving intact claims of infringement by Altera under two Company
patents. The remaining claims against Altera were decided at a trial which began
on October 18, 2000. On November 17, 2000, a federal jury found that the two
Company patents in the case were valid and that Altera infringed both patents.
On May 10, 2001, the trial judge overturned the jury verdict, by granting
Altera's motion to enter Judgment as a Matter of Law. The judge found that the
Altera Flex 8000 product does not infringe one of the two Company patents, and
that the other Company patent is invalid. The Company has filed its notice of
appeal to reinstate the jury verdict, although no timetable for appeal has been
set.
On April 20, 1995, Altera filed an additional suit against Xilinx in the Federal
District Court in Delaware, alleging that our XC5200 family infringes an Altera
patent. We answered the Delaware suit denying that the XC5200 family infringes
the patent in suit, asserting certain affirmative defenses and counterclaiming
that the Altera Max 9000 family infringes certain of our patents. The Delaware
suit was transferred to the United States District Court for the Northern
District of California.
On July 22, 1998, Altera and Joseph Ward, a former Xilinx employee, filed suit
against Xilinx in Superior Court in Santa Clara County, California, arising out
of our efforts to prevent disclosure of certain Company confidential
information. Altera's suit requests declaratory relief and claims Xilinx engages
in unfair business practices and interference with contractual relations. On
September 10, 1998 we filed cross claims against Altera and Ward for unfair
competition and breach of contract, among other claims, in the California
action. On October 20, 1998, Altera and Ward filed crossclaims against Xilinx
for malicious prosecution of civil action and defamation. On September 15, 1999,
the Court dismissed all of our claims against Altera and Mr. Ward, finding that
we were unable to show any damages we suffered as a result of any actions by Mr.
Ward. On May 24, 2001, the Court dismissed all of Altera's claims against the
Company leaving only Mr. Ward's claims of defamation against the Company.
On May 31, 2000, Altera filed an additional suit against Xilinx in the Federal
District Court for the Northern District of California, alleging that certain
Xilinx products, including our Virtex FPGAs, infringe three Altera patents.
Altera's suit requests unspecified monetary damages as well as issuance of an
injunction to prevent Xilinx from selling allegedly infringing parts. Xilinx has
filed an amended answer and countercomplaint denying the allegations and
alleging that the Altera patents are invalid and unenforceable because Altera
engaged in inequitable conduct in acquiring the asserted patents. The
counterclaim also alleges that Altera is infringing three additional Company
patents. A claims construction hearing to determine the interpretation of
Altera's patent claims was held on April 26 and 27, 2001. No decision has been
rendered by the judge.
On November 16, 2000, we requested that the International Trade Commission
investigate alleged infringements by Altera of three Company patents, and if so,
to bar Altera from importing or selling such products into the United States. On
December 18, 2000, the International Trade Commission decided to investigate our
claims against Altera. A hearing has been set for June 25, 2001.
43
On March 9, 2001, the ITC at the request of Altera initiated an investigation
against Xilinx based on two additional Altera patents. The matter has been
assigned to Judge Harris, the same administrative law judge handling the ITC
action by Xilinx against Altera. A hearing has been set for September 24, 2001.
The ultimate outcome of these matters cannot be determined at this time.
Management believes that it has meritorious defenses to such claims and is
defending them vigorously. The foregoing is a forward-looking statement subject
to risks and uncertainties, and the future outcome of these matters could differ
materially due to the uncertain nature of each legal proceeding and because most
of the lawsuits are still in the pre-trial stages.
There are no other pending legal proceedings of a material nature to which we
are a party or of which any of our property is the subject. Other than the
petition filed by the Company with the Tax Court on March 26, 2001, we know of
no legal proceedings contemplated by any governmental authority or agency.
Note 13. Business Combination
On November 9, 2000, we completed the acquisition of RocketChips, Inc., a
privately held fabless semiconductor company. RocketChips is a developer of
ultra-high-speed CMOS mixed-signal transceivers serving the networking, wireless
and wired telecommunications, and enterprise storage markets.
In connection with the acquisition, we issued approximately 2,806,000 shares of
Common stock in exchange for all outstanding preferred and common stock of
RocketChips and reserved approximately 807,000 additional shares of Common stock
for issuance upon exercise of outstanding employee stock options of RocketChips.
Of the shares issued, approximately 380,000 shares of Xilinx's Common stock are
being held in escrow for a period of one year following the acquisition for the
purpose of providing a fund against which Xilinx may seek indemnification from
former RocketChips stockholders for any breaches of representations, warranties
or covenants under the Merger Agreement.
The acquisition was accounted for under the purchase method of accounting. The
purchase price of RocketChips was allocated to the fair value of the specific
tangible and intangible assets acquired and liabilities assumed from RocketChips
pursuant to an independent valuation. The total purchase price for RocketChips
was $291.2 million, consisting of $231.0 million of Xilinx Common stock, $57.3
million of options to purchase Xilinx common stock and $2.8 million of
acquisition related costs. Xilinx recorded a charge to operations upon
consummation of the transaction for acquired in-process research and development
of approximately $90.7 million. In addition, Xilinx recorded approximately
$218.9 million of intangible assets, goodwill, and deferred compensation on the
balance sheet, which resulted in amortization expense of approximately $22.4
million in fiscal 2001.
The projects identified as in-process will require additional effort in order to
establish technological feasibility. These projects have identifiable
technological risk factors that indicate that even though successful completion
is expected, it is not assured. If an identified project is not successfully
completed there is no alternative future use for the project and the expected
future income will not be realized. To determine the value of the in-process
research and development, the expected future cash flow attributable to the in-
process technology was discounted, taking into account the percentage of
completion, utilization of preexisting of "core" technology, risks related to
the characteristics and applications of the technology, existing and future
markets, and technological risk associated with completing the development of
the technology. The valuation approach used was a form of discounted cash flow
approach known as the "percentage of completion" approach. We immediately
expensed this in-process research and development upon consummation of the
acquisition in the third quarter of fiscal 2001.
Deferred compensation recorded in connection with the acquisition represents the
estimated intrinsic value of unvested RocketChips stock options assumed by
Xilinx in the merger agreement for which employee service is required after the
closing date of the merger in order for the options to vest. Deferred
compensation will be amortized to expense over the remaining vesting period of
the options.
44
Below is a table of the acquisition cost and amortization period of the
intangible assets.
Amount (in million) Amortization Life
------------------- -----------------
Deferred compensation $ 24.3 1 month-4 years
Goodwill 140.5 5 years
Developed technology 6.6 5 years
Noncompete agreement 23.6 3 years
Patents 13.2 7 years
Other intangibles 10.7 2-3 years
------------------
Total $218.9
------------------
We completed the acquisition of Philips Semiconductors' line of low-power
complex programmable logic devices (CPLDs) on August 2, 1999. The total cost,
including acquisition related fees, was approximately $22.8 million. The
purchase price allocation, based on an independent appraisal, resulted in a $4.6
million charge to research and development in the second quarter of fiscal 2000.
The acquired in-process technology represents the appraised value of
technologies in the development stage that had not yet reached technological
feasibility and does not have alternative future uses.
In January 1999, we acquired certain assets of MI Acquisition LLP, for a total
purchase price of $6.8 million. The purchase price allocation, based on an
independent appraisal, resulted in a $3.6 million charge to research and
development in the fourth quarter of fiscal 1999 for acquired in-process
technology. The acquired in-process technology represents the appraised value of
technology in the development stage that had not yet reached technological
feasibility and does not have alternative future uses.
In addition to the transactions described above, we purchased businesses in
smaller transactions. The total amount allocated to goodwill and identified
intangibles for these transactions was $15.4 million in fiscal 2001 ($2 million
in fiscal 2000), which represents a substantial majority of the consideration
for these transactions.
The unaudited pro forma information below assumes that companies acquired in
fiscal 2001 and 2000 had been acquired in at the beginning of fiscal 2000 and
includes the effect of amortization of goodwill and other identified intangibles
from that date. The impact of charges for in process research and development
has been excluded. This is presented for informational purposes only and is not
indicative of the results of future operations or results that would have been
achieved had the acquisitions taken place at the beginning of fiscal 2000.
In thousands, except per share Years Ended March 31,
-----------------------------------
amounts (unaudited) 2001 2000
- ----------------------------------------------------------------------------------------------------------
Net revenues $1,660,019 $1,021,738
Net income 24,143 639,927
Basic earnings per share $0.07 $2.00
Diluted earnings per share $0.07 $1.85
45
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, 2001 and 2000, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended March 31, 2001. Our audits also included the financial statement schedule
listed in the Index at Item 14(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Xilinx,
Inc. at March 31, 2001 and 2000, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended March 31,
2001, in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
As discussed in Notes 2 and 3 to the consolidated financial statements, in the
fiscal year ended March 31, 1999, the Company changed its method of recognizing
revenue on certain shipments to its distributors.
/s/ Ernst & Young LLP
San Jose, California
April 18, 2001, except for
the first paragraph of Note 12 as to which
the date is May 10, 2001
46
XILINX, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Beginning Charged to Deductions Balance at
Description of Year Income (a) End of Year
For the year ended March 31, 1999
Allowance for doubtful accounts: $ 3,524 $ 23 - $ 3,547
price adjustments and customer returns: $ 4,884 $ 2,106 $ 3,128 $ 3,862
For the year ended March 31, 2000
Allowance for doubtful accounts: $ 3,547 $ 35 $ 9 $ 3,573
price adjustments and customer returns: $ 3,862 $13,950 $ 5,846 $ 11,966
For the year ended March 31, 2001
Allowance for doubtful accounts: $ 3,573 $ 60 $ 8 $ 3,625
price adjustments and customer returns: $ 11,966 ($ 7,894) $ 161 $ 3,911
(a) Represents amounts written off against the allowance, customer
returns or pricing adjustments to international distributors.
Supplementary Financial Data
Quarterly Data (Unaudited)
(In thousands, except per share amounts) First Second Third Fourth
Year ended March 31, 2001 Quarter Quarter Quarter Quarter
------------------------------------------------------------
Net revenues $ 364,875 $ 437,360 $ 450,103 $ 407,020
Gross margin 227,946 269,035 270,904 212,071
Net income 93,826 114,056 (10,507) # (162,117) +/-
Net income per share:
Basic $ 0.29 $ 0.35 $ (0.03) $ (0.49) +/-
Diluted $ 0.27 $ 0.32 $ (0.03) $ (0.49) +/-
Shares used in per share calculations:
Basic 326,030 329,650 329,643 330,682
Diluted 353,448 356,046 329,643 330,682
------------------------------------------------------------
+/- Net income includes a pre-tax write down of $362,124 capital loss from the
UMC investment.
# Net income includes pre-tax in process R&D write off of $90,700 in
connection with RocketChips acquisition.
+/- and # Net income also includes pre-tax amortization of acquisition related
items including goodwill, other intangibles, and deferred compensation of $9.6
million and $12.8 million in the third quarter and fourth quarter, respectively.
47
(In thousands, except per share amounts) First Second Third Fourth
Year ended March 31, 2000 Quarter Quarter Quarter Quarter
-------------------------------------------------------------
Net revenues $ 211,403 $ 238,762 $ 264,259 $ 306,569
Gross margin 131,645 148,557 164,683 192,070
Net income 51,615 55,974 68,504 476,357 +/-
Net income per share:
Basic $ 0.16 $ 0.18 $ 0.21 $ 1.47 +/-
Diluted $ 0.15 $ 0.16 $ 0.20 $ 1.36 +/-
Shares used in per share calculations:
Basic 313,865 317,534 319,891 323,397
Diluted 336,825 343,007 346,162 351,461
-------------------------------------------------------------
+/- Net income includes a $398,089 capital gain (net of taxes) from the UMC/USIC
merger, or $1.23 per basic share and $1.13 per diluted share.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
48
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 2001.
(c) Exhibit
-------
49
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 (7) 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.
10.10.1 (8) Consulting Agreement dated as of June 1, 1996
between the Company and Bernard V. Vonderschmitt.
10.10.2 (6) Amended Services and Compensation Exhibit to the
Consulting Agreement dated as of June 1, 1996
between the Company and Bernard Vonderschmitt.
10.10.3 (6) Second Amendment to the Consulting Agreement dated
as of June 1, 1996 between the Company and Bernard
Vonderschmitt.
10.11 (9) Letter Agreement dated as of April 1, 1997 of the
Company to Richard W. Sevcik.
10.12.1 (10) (11) Foundry Venture Agreement dated as of September 14,
1995 between the Company and United
Microelectronics Corporation (UMC).
10.12.2 (10) (11) Fabven Foundry Capacity Agreement dated as of
September 14, 1995 between the Company and UMC.
10.12.3 (10) (11) Written Assurances Re Foundry Venture Agreement
dated as of September 29, 1995 between UMC and the
Company.
10.13.1 (8) (10) Advance Payment Agreement entered into on May 17,
1996 between Seiko Epson Corporation and the
Company.
50
10.13.2 (6) (10) Amended and Restated Advance Payment Agreement with
Seiko Epson dated December 12, 1997.
10.14 (8) Indenture dated November 1, 1995 between the
Company and State Street Bank and Trust Company.
10.15 (10) (12) Letter Agreement dated January 13, 2000 between the
Company and UMC.
21.1 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney.
(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 Quarterly Report on Form 10-Q for
the quarter 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 Registration Statement on Form S-
8 (File No. 333-62897) effective September 4, 1998.
(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 March 29, 1997.
(10) Confidential treatment requested as to certain portions of these
documents.
(11) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995.
(12) Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 2001.
51
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 7th day of June, 2001.
XILINX, INC.
By: /s/ Willem P. Roelandts
-------------------------------------
Willem P. Roelandts,
Chief Executive Officer and President
52