<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>FORM 10-Q FOR PERIOD ENDED 12/30/2001
<TEXT>
<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
(Mark One)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 30, 2000 or
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number: 0-18548
----------------
Xilinx, Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 77-0188631
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
2100 Logic Drive
San Jose, CA 95124
(Address of principal executive offices, including Zip Code)
(408) 559-7778
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES [X] NO [_]
<TABLE>
<CAPTION>
Class Shares Outstanding at January 31, 2001
----- --------------------------------------
<S> <C>
Common Stock, $.01 par value 329,989,993
</TABLE>
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
XILINX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------- -------------------
Dec. 30, Jan. 1, Dec. 30, Jan. 1,
2000 2000 2000 2000
(in thousands, except per share amounts) --------- -------- ---------- --------
<S> <C> <C> <C> <C>
Net revenues............................ $ 450,103 $264,259 $1,252,338 $714,424
Costs and expenses:
Cost of revenues....................... 179,199 99,576 484,453 269,539
Research and development............... 59,148 31,590 153,774 86,944
Sales, general and administrative...... 71,082 47,950 204,995 131,391
Write-off of in-process research and
development........................... 90,700 90,700 4,560
Amortization of acquisition related
items including goodwill and other
intangibles........................... 6,834 -- 6,834 --
--------- -------- ---------- --------
Operating costs and expenses.......... 406,963 179,116 940,756 492,434
--------- -------- ---------- --------
Operating income........................ 43,140 85,143 311,582 221,990
Interest income and other, net.......... 8,436 7,254 28,719 19,253
--------- -------- ---------- --------
Income before provision for taxes on
income and equity in net income of
joint venture.......................... 51,576 92,397 340,301 241,243
Provision for taxes on income........... 62,083 26,795 142,926 69,960
--------- -------- ---------- --------
Income (loss) before equity in net
income of joint venture................ (10,507) 65,602 197,375 171,283
Equity in net income of joint venture... -- 2,902 -- 4,810
--------- -------- ---------- --------
Net income (loss)....................... $ (10,507) $ 68,504 $ 197,375 $176,093
========= ======== ========== ========
Net income (loss) per share:
Basic.................................. $ (0.03) $ 0.21 $ 0.60 $ 0.56
========= ======== ========== ========
Diluted................................ $ (0.03) $ 0.20 $ 0.56 $ 0.52
========= ======== ========== ========
Shares used in per share calculations:
Basic.................................. 329,643 319,891 327,720 315,678
========= ======== ========== ========
Diluted................................ 329,643 346,162 353,863 341,068
========= ======== ========== ========
</TABLE>
(See accompanying Notes to Condensed Consolidated Financial Statements.)
2
<PAGE>
XILINX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Apr. 1,
Dec. 30, 2000 2000
------------- ----------
(in thousands) (Unaudited) (1)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 97,957 $ 85,548
Short-term investments............................... 304,161 522,202
Accounts receivable, net............................. 222,267 135,048
Inventories.......................................... 267,915 131,307
Deferred income taxes................................ 85,801 91,282
Advances for wafer purchases......................... -- 22,485
Other current assets................................. 43,921 53,053
---------- ----------
Total current assets.................................. 1,022,022 1,040,925
---------- ----------
Property, plant and equipment, at cost................ 509,654 336,942
Accumulated depreciation and amortization............. (124,470) (96,568)
---------- ----------
Net property, plant and equipment..................... 385,184 240,374
Long-term investments................................. 288,461 185,073
Investment in United Microelectronics Corp............ 551,502 838,923
Developed technology and other assets................. 256,785 43,344
---------- ----------
Total assets.......................................... $2,503,954 $2,348,639
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 124,983 $ 56,361
Accrued payroll and payroll related liabilities...... 36,531 29,796
Income tax payable................................... 16,683 27,982
Deferred income on shipments to distributors......... 157,169 115,002
Other accrued liabilities............................ 25,071 15,571
---------- ----------
Total current liabilities............................. 360,437 244,712
---------- ----------
Deferred tax liabilities.............................. 234,640 327,272
Stockholders' equity:
Preferred stock, $.01 par value (none issued)........ -- --
Common stock, $.01 par value......................... 3,287 3,255
Additional paid-in capital........................... 775,252 487,634
Retained earnings.................................... 1,456,884 1,259,510
Treasury stock, at cost.............................. (186,187) --
Accumulated other comprehensive (loss)/income........ (140,359) 26,256
---------- ----------
Total stockholders' equity.......................... 1,908,877 1,776,655
---------- ----------
Total liabilities and stockholders' equity............ $2,503,954 $2,348,639
========== ==========
</TABLE>
--------
(1) Derived from audited financial statements
(See accompanying Notes to Condensed Consolidated Financial Statements.)
3
<PAGE>
XILINX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
------------------------
Jan. 1,
Dec. 30, 2000 2000
(in thousands) ------------- ----------
<S> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net income.......................................... $ 197,375 $ 176,093
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 59,458 31,221
Undistributed earnings of joint venture........... -- (4,810)
Write-off of acquired in-process technology....... 90,700 4,560
Gain from sale of available for sale securities... (979) --
Tax benefit from stock options.................... 144,687 79,408
Changes in assets and liabilities:
Accounts receivable............................. (87,220) (22,857)
Inventories..................................... (112,170) 14,451
Other current assets............................ 3,855 (33,143)
Deferred income taxes........................... (35,994) (6,550)
Other assets.................................... (39,246) (4,658)
Accounts payable & other accrued liabilities.... 77,793 27,161
Income tax payable.............................. 36,187 (24,378)
Deferred income on shipments to distributors.... 42,167 (12,662)
---------- ----------
Total adjustments............................. 179,238 47,743
---------- ----------
Net cash provided by operating activities.... 376,613 223,836
Cash flows from investing activities:
Purchases of available-for-sale investments......... (2,109,991) (1,757,263)
Proceeds from sale or maturity of available-for-sale
investments........................................ 2,229,294 1,584,036
Proceeds from maturity of restricted held-to-
maturity investments............................... -- 34,359
Cash obtained from acquisition...................... 4,243 --
Purchases of property, plant and equipment.......... (177,453) (91,523)
Purchase of Philips' CPLD assets.................... -- (22,750)
---------- ----------
Net cash used in investing activities........ (53,907) (253,141)
Cash flows from financing activities:
Acquisition of treasury stock....................... (382,943) (5,289)
Proceeds from issuance of common stock.............. 52,814 51,520
Proceeds from sales of put warrants................. 19,832 10,038
---------- ----------
Net cash (used in)/provided by financing
activities.................................. (310,297) 56,269
---------- ----------
Net increase in cash and cash equivalents............ 12,409 26,964
Cash and cash equivalents at beginning of period..... 85,548 53,584
---------- ----------
Cash and cash equivalents at end of period........... $ 97,957 $ 80,548
========== ==========
Schedule of non-cash transactions:
Issuance of common stock in connection with
RocketChips acquisition............................ $ 259,869 --
Issuance of treasury stock under employee stock
plans.............................................. 195,561 10,400
Supplemental disclosures of cash flow information:
Interest paid....................................... $ 29 $ 6
Income taxes paid................................... 11,147 11,660
</TABLE>
(See accompanying Notes to Condensed Consolidated Financial Statements.)
4
<PAGE>
XILINX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying interim consolidated financial statements have been
prepared in conformity with generally accepted accounting principles and
should be read in conjunction with the Xilinx, Inc. (Xilinx or the Company)
consolidated financial statements filed on Form 10-K for the year ended
April 1, 2000. The balance sheet at April 1, 2000 is derived from the
audited financial statements. The interim financial statements are
unaudited but reflect all adjustments which are, in the opinion of
management, of a normal, recurring nature necessary to present fairly the
statements of financial position, results of operations and cash flows for
the interim periods presented. The results for the nine-month period ended
December 30, 2000 are not necessarily indicative of the results that may be
expected for the year ending March 31, 2001 or any future period.
2. Inventories are stated at the lower of cost (first-in, first-out) or market
(estimated net realizable value). Inventories at December 30, 2000 and
April 1, 2000 are as follows:
<TABLE>
<CAPTION>
Dec. 30, Apr. 1,
2000 2000
(in thousands) -------- --------
<S> <C> <C>
Raw materials.............................................. $ 23,198 $ 6,602
Work-in-process............................................ 176,193 78,697
Finished goods............................................. 68,524 46,008
-------- --------
$267,915 $131,307
======== ========
</TABLE>
3. The computation of basic net income (loss) per share for all periods
presented is derived from the information on the face of the statement of
operations, and there are no reconciling items to net income (loss). The
total shares used in the denominator of the diluted net income per share
calculation includes zero and 26.1 million incremental common shares
attributable to outstanding options and warrants for the third quarter and
first nine months of fiscal year 2001, respectively, as compared to 26.3
million and 25.4 million in the comparable fiscal 2000 periods,
respectively.
4.The changes in components of comprehensive income for the periods presented
are as follows:
<TABLE>
<CAPTION>
Three Months
Ended Nine Months Ended
----------------- ------------------
Dec. 30, Jan. 1, Dec. 30, Jan. 1,
2000 2000 2000 2000
(in thousands) -------- ------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss)................... $(10,507) $68,504 $197,375 $176,093
Cumulative translation adjustment... (194) 193 (508) 4,430
Unrealized losses on available for
sale securities arising during the
period, net of tax................. (57,051) (433) (165,937) (1,448)
Reclassification adjustment for
losses on available for sale
securities, net of tax, included in
earnings........................... (5) -- (170) --
-------- ------- -------- --------
Comprehensive income (loss)......... $(67,757) $68,264 $ 30,760 $179,075
======== ======= ======== ========
</TABLE>
The components of accumulated other comprehensive income (loss) at December
30, 2000 and April 1, 2000 are as follows:
<TABLE>
<CAPTION>
Dec. 30, Apr. 1,
2000 2000
(in thousands) ---------- -------
<S> <C> <C>
Cumulative translation adjustment..................... $ (557) $ (49)
Unrealized (loss)/gain on available for sale
Securities, net of tax............................... (139,802) 26,305
---------- -------
Accumulated other comprehensive (loss)/income......... $ (140,359) $26,256
========== =======
</TABLE>
5
<PAGE>
XILINX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. The Board of Directors has approved stock repurchase programs enabling the
Company to repurchase its common stock. During the quarter ended December
30, 2000, 4.3 million shares of common stock were repurchased for $253.2
million, and 1.3 million shares were issued during the period for Stock
Option exercises and Stock Purchase Plan requirements. During the nine
months ended December 30, 2000, 6.1 million shares of common stock were
repurchased for $382.9 million, and 2.8 million shares were issued during
the nine-month period for stock options exercised and Stock Purchase Plan
requirements. In conjunction with the stock repurchase program, during the
nine months ended December 30, 2000, we sold put warrants that entitle the
holder of each warrant to sell to us, by physical delivery, one share of
common stock at specified prices, ranging from $56 to $72 per share. The
cash proceeds from the sale of the put warrants of $19.8 million and $10.0
million for the nine months ended December 30, 2000 and January 1, 2000,
respectively have been included in capital in excess of par value. As of
December 30, 2000, 1.5 million put warrants were outstanding with
expiration dates ranging from January through November 2001.
6. In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, (FASB 133), "Accounting for
Derivative Instruments and Hedging Activities", which requires adoption in
fiscal years beginning after June 15, 2000 while earlier adoption is
permitted at the beginning of any fiscal quarter. We are required to adopt
it on April 1 2002. The effect of adopting the Standard is currently being
evaluated but is not expected to have a material effect on our consolidated
results of operations or financial position. FASB 133 will require us to
recognize all derivatives on the balance sheet at fair value. Derivatives
that are not hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in the
fair value of 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. The SEC has delayed the required
implementation date, which for Xilinx, is the fourth quarter of fiscal
2001. Previously reported unaudited fiscal year 2001 quarterly operating
results will be restated to reflect the impact, if any, of SAB 101 on our
revenue recognition policy. We continue assessing the impact of SAB 101 on
our consolidated reported results of operations based on the SEC's most
recently issued guidance but do not believe adoption will have a material
effect on our consolidated results of operations or financial position.
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. The adoption of FIN 44 did
not have a material impact on our consolidated financial position or
results of operations.
7. In 1996, Xilinx, United Microelectronics Corporation (UMC) and other
parties entered into a joint venture to construct a wafer fabrication
facility in Taiwan, known as United Silicon Inc. (USIC). We had a 20%
equity ownership in USIC and had the right to receive up to 31.25% of the
wafer capacity from this facility. We accounted for this investment using
the equity method of accounting with a one-month lag in recording our share
of results for the entity.
6
<PAGE>
XILINX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In January 2000, our equity position in USIC was converted into shares of
UMC which are publicly traded on the Taiwan Stock Exchange. As a result of
this merger, we received approximately 222 million shares of UMC common
stock, which represented 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 specified percentage of our shares of UMC
common stock. If our holdings fall below this level, our wafer capacity
rights would be decreased prorated by the UMC shares we hold. (See also,
Item 2, Managements' Discussion and Analysis of Financial Condition and
Results of Operations--Factors Affecting Future Operating Results -
Investment Company Act of 1940.)
Due to restrictions imposed by UMC and the Taiwan Stock Exchange, the
majority of our UMC shares could not be sold until July 2000. These
regulatory restrictions will gradually expire between July 2000 and January
2004.
The Company accounts for the portion (approximately 58.3% at December 30,
2000) of its investment in UMC which becomes unrestricted within twelve
months as available-for-sale marketable securities in accordance with SFAS-
115. The portion of the investment in UMC which is restricted beyond twelve
months (approximately 41.7% of the Company's holdings at December 30, 2000)
is accounted for as a cost method investment classified as a long-term.
During the first nine months of fiscal 2001, the Company recorded
approximately $241.5 million unrealized loss ($142.5 million after-tax )
due to a market decline of the non-restricted UMC shares owned by the
Company. The net unrealized loss through December 30, 2000 is recorded in
accumulated other comprehensive loss in stockholders' equity.
The Company has and will continue to evaluate the UMC investment to
determine whether there has been an other-than-temporary impairment. If in
future reporting periods it is determined that the UMC investment has
experienced an other-than-temporary impairment the Company will take a
write down in its Statement of Operations.
8. On June 7, 1993, we filed suit against Altera Corporation (Altera) in the
United States District Court for the Northern District of California for
infringement of certain of our patents. Subsequently, Altera filed suit
against Xilinx, alleging that certain of our products infringe certain
Altera patents. 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. Post-trial motions in the case will likely be heard in the
Company's fourth quarter of Fiscal Year 2001. Among the post-trial motions
are motions by Altera to overturn the jury verdict. The Company's motions
for injunctive relief will be heard following the post-trial motions. A
trial for monetary damages will take place at a later time.
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.
7
<PAGE>
XILINX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On July 22, 1998, Altera and Joseph Ward, a former Xilinx employee, filed
suit against Xilinx in Superior Court in Santa Clara County, California,
arising out of our efforts to prevent disclosure of certain Company
confidential information. Altera's suit requests declaratory relief and
claims Xilinx engages in unfair business practices and interference with
contractual relations. On September 10, 1998 we filed cross claims against
Altera and Ward for unfair competition and breach of contract, among other
claims, in the California action. On October 20, 1998, Altera and Ward
filed crossclaims against Xilinx for malicious prosecution of civil action
and defamation. On September 15, 1999, the Court dismissed all of our
claims against Altera and Mr. Ward, finding that we were unable to show any
damages we suffered as a result of any actions by Mr. Ward. Claims against
Xilinx are still pending.
On May 31, 2000, Altera filed an additional suit against Xilinx in the
Federal District Court for the Northern District of California, alleging
that certain Xilinx products, including our Virtex and Spartan FPGAs,
infringe three Altera patents. Altera's suit requests unspecified monetary
damages as well as issuance of an injunction to prevent Xilinx from selling
allegedly infringing parts. Xilinx has answered the complaint and denied
the allegations. The Company has filed a counterclaim alleging that Altera
is infringing additional Company patents. Altera's motion for expedited
discovery was denied by the Court. A claims construction hearing to
determine the interpretation of Altera's patent claims is scheduled for
April 26 and 27, 2001.
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. The hearing on the
alleged infringement has been set for June 21-29, 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 the lawsuits are still in the pre-trial stages.
There are no other pending legal proceedings of a material nature to which
we are a party or of which any of our property is the subject. We know of
no legal proceedings contemplated by any governmental authority or agency.
9. 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 an 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
8
<PAGE>
XILINX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
RocketChips was $310.4 million, consisting of $231.0 million of Xilinx
Common stock, $57.3 million of options to purchase
Xilinx common stock and $22.1 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 $9.6 million
for the three months period ended December, 30, 2000.
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.
10.Provision for Income Tax
We recorded a tax provision of $62.1 million and $142.9 million for the
third quarter and first nine months of fiscal 2001, respectively, achieving
a year-to-date effective tax rate of 42%. In fiscal 2000 a tax provision of
$26.8 million and $70.0 million was recorded for the third quarter and
first nine months, respectively, representing effective tax rates of 29%
for both periods. The higher tax rate is primarily due to the RocketChips
acquisition completed on November 9, 2000. A one-time retroactive tax
provision catch-up was made during the quarter.
On December 28, 2000, the Internal Revenue Service issued us a statutory
notice of deficiency reflecting their proposed audit adjustments for the
fiscal years of 1996, 1997, and 1998. We believe the Company has
meritorious defenses to the proposed adjustments and will contest this
deficiency. We believe that sufficient taxes have been provided and that
the ultimate resolution will not have a material adverse impact on the
Company's financial position or results of operations.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion contains forward-looking statements, which involve
numerous risks and uncertainties. Actual results may differ materially.
Certain of these risks and uncertainties are discussed under "Factors
Affecting Future Operating Results."
Results of operations: Third quarter and first nine months of fiscal 2001
compared to the third quarter and first nine months of fiscal 2000
Net Revenues
We currently classify our product offerings into four categories by process
technology. Base products consist of our mature product families that are
currently manufactured on technologies of 0.6-micron and older; this includes
the XC2000, XC3000, XC3100, XC4000 and XC7000 families. Mainstream products
are currently manufactured on 0.35 and 0.5-micron technologies and include the
XC4000E, XC4000EX, XC4000XL, XC5200, XC9500, XC9500XL, Spartan(TM) and
CoolRunner product lines. Advanced products include our newest technologies
manufactured on 0.25-micron and smaller, which include the XC4000XV,
XC4000XLA, SpartanXL(TM), SpartanII(TM), Virtex(TM), and Virtex-E(TM) product
lines. Our Support products make up the remainder of our product offerings and
include configuration solutions, HardWire, software and support.
Net revenues of $450.1 million in the third quarter of fiscal 2001 represented
a 70.3% increase from the comparable prior year quarter of $264.3 million.
Revenues for the first nine months of fiscal 2001 were $1,252.3 million, a
75.3% increase from the prior year comparable period. Product lines that
experienced significant growth during the nine-month period include the
Spartan, Virtex and Virtex-E families.
The increases in revenues of Advanced products are due to the introduction and
strong market acceptance of Spartan II and Virtex -E products. The revenue
increase of Mainstream products is attributable mainly to growth in the
Spartan, CoolRunner, XC9500 and XC9500XL product lines. Revenues of Base
products decreased as customers migrated to newer product offerings. Revenues
of Support products increased due to increased sale of configuration solutions
and software, because of the growth in the Spartan and Virtex families. We
have historically been able to offset much of the revenue declines of our
mature technologies with increased revenues from newer technologies, although
no assurance can be given that we can continue to do so in the future. The
revenue by technology for the three and nine month periods ended December 30,
2000 and January 1, 2000 are as follows:
<TABLE>
<CAPTION>
Nine Months
Three Months Ended Ended
------------------- ---------------
Jan.
Dec. 30, Jan. 1, Dec. 30, 1,
2000 2000 2000 2000
(in millions) --------- --------- -------- ------
<S> <C> <C> <C> <C>
Base products $ 24.5 $ 35.2 $ 83.1 $ 96.4
Mainstream products 152.4 136.0 467.1 386.4
Advanced products 239.5 71.5 610.0 169.4
Support products 33.7 21.6 92.1 62.2
--------- --------- -------- ------
Total revenue $ 450.1 $ 264.3 $1,252.3 $714.4
========= ========= ======== ======
</TABLE>
International revenues represented approximately 38%, and 36% of total
revenues in the third quarter and first nine months of fiscal 2001 as compared
to 35%, and 33% in the prior year periods due to the strong acceptance of
Virtex family products internationally particularly in Europe and Japan. The
revenue by geography for the three and nine month periods ended December 30,
2000 and January 1, 2000 are as follows:
<TABLE>
<CAPTION>
Nine Months
Three Months Ended Ended
------------------- ---------------
Jan.
Dec. 30, Jan. 1, Dec. 30, 1,
2000 2000 2000 2000
(in millions) --------- --------- -------- ------
<S> <C> <C> <C> <C>
North America $ 279.5 $ 171.7 $ 800.9 $479.9
Europe 80.8 51.6 240.6 139.4
Japan 47.7 26.6 115.2 56.6
Asia Pacific/Rest of World 42.1 14.4 95.6 38.5
--------- --------- -------- ------
Total revenue $ 450.1 $ 264.3 $1,252.3 $714.4
========= ========= ======== ======
</TABLE>
10
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Gross Margin
Gross margins were $270.9 million and $767.9 million for the third quarter and
first nine months of fiscal 2001, or 60.2% and 61.3% of net revenues,
respectively. Gross margins for the comparable periods of fiscal 2000 were
$164.7 million and $444.9 million, respectively, or 62.3% of net revenues for
both periods. The decrease in gross margin percentages compared to the
comparable quarter and nine month period last year was driven by product mix
shifts as the newly introduced Virtex-E family achieved very rapid revenue
growth while manufacturing efficiencies have not been fully realized. We
recognize that ongoing price reductions for our integrated circuits are a
significant element in expanding the market for our products. Management
believes that gross margin objectives of 60-62% of revenues are consistent
with expanding market share while realizing acceptable returns, although there
can be no assurance that future gross margins will remain in this range if
substantial changes in our mix occur within any given quarter.
Research and Development
Research and development expenditures were $59.1 million ($56.4 million
excluding RocketChips deferred stock compensation. See Note. 9) for the third
quarter and $151.0 million for the first nine months of fiscal 2001, or 13.1%
(or 12.5% excluding RocketChips deferred stock compensation) and 12.3% (or
12.1% excluding RocketChips deferred stock compensation) of net revenues,
respectively. Research and development expenditures for the comparable periods
in the prior year were $31.6 million and $86.9 million, or 12.0% and 12.2% of
net revenues, respectively. Although total expenditures on research and
development increased significantly, they remained about the same as a percent
of net revenues because of strong revenue growth. The 73.7% increase in
expenditures over the prior year's nine month period was primarily due to
designing and developing new product architectures of complex, high density
devices including wafer purchases, development of advanced process
technologies, and increased labor-related costs. We remain committed to a
significant level of research and development effort in order to maintain our
technology leadership in the programmable logic industry.
Sales, General and Administrative
Sales, general and administrative expenses were $71.1 million, or 15.8% of
revenues, and $205.0 million, or 16.4% of net revenues, for the third quarter
and first nine months of fiscal 2001, respectively. They were $48.0 million,
or 18.1% of net revenues, and $131.4 million, or 18.4% of net revenues, for
the comparable prior year periods. Although total sales, general and
administrative expenses increased, they decreased as a percent of revenue
because of improved operating efficiencies. The increases in sales, general
and administrative expenses were primarily attributable to increased marketing
expenses and increased commissions on higher revenues along with increased
personnel and litigation costs. We remain committed to controlling
administrative expenses. However, the timing and extent of future legal costs
associated with the ongoing enforcement of our intellectual property rights
are not readily predictable and may increase in the future.
Write-Off of In-Process Technology
In process research and development cost of approximately $90.7 million was
incurred on November 9, 2000 in connection with the acquisition of RocketChips
(see Note. 9) and approximately $4.6 million was incurred on August 2, 1999 in
connection with the acquisition of Philips semiconductors' line of low-power
complex programmable logice devices (CPLDs).
Interest Income and Other, Net
Interest and other income, net increased to $8.4 million in the third quarter
of fiscal 2001 from $7.3 million in the prior year quarter, and increased to
$28.7 million in the first nine months of fiscal 2001 from $19.3 million in
the prior year's comparable period. The increases were primarily due to the
increased average cash and investment balances in the third quarter and the
first nine months of fiscal 2001 as compared to the prior year periods
resulting in increased interest income of $2.7 million and $11.9 million over
the respective prior year
11
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periods. The amount of net interest and other income in the future will
continue to be impacted by the level of our average cash and investment
balance, prevailing interest rates, and foreign currency exchange rates.
Provision for Income Taxes
We recorded a tax provision of $62.1 million and $142.9 million for the third
quarter and first nine months of fiscal 2001, respectively, achieving a year-
to-date effective tax rate of 42%. In fiscal 2000 a tax provision of $26.8
million and $70.0 million was recorded for the third quarter and first nine
months, respectively, representing effective tax rates of 29% for both
periods. The higher tax rate is primarily due to the RocketChips acquisition
completed on November 9, 2000. A one-time retroactive tax provision catch-up
was made during the quarter.
On December 28, 2000, the Internal Revenue Service issued us a statutory
notice of deficiency reflecting their proposed audit adjustments for the
fiscal years of 1996, 1997, and 1998. We believe the Company has meritorious
defenses to the proposed adjustments and will contest this deficiency. We
believe that sufficient taxes have been provided and that the ultimate
resolution will not have a material adverse impact on the Company's financial
position or results of operations.
Joint Venture Equity Income
Prior to the conversion of USIC shares to UMC shares, we recorded our
proportional ownership of the net income of USIC, a wafer fabrication joint
venture located in Taiwan, as joint venture equity income. We recorded $1.3
million and $1.9 million of equity in the net income of the joint venture for
the second quarter and the first six months of fiscal 2000, respectively. As a
result of the conversion of our equity position in USIC to shares of UMC in
January 2000, as discussed in Note 7, we no longer record joint venture equity
income.
Hedging
We use forward currency exchange contracts to reduce financial market risks.
Our sales to Japanese customers are denominated in yen while our purchases of
processed silicon wafers from Japanese foundries are primarily denominated in
U.S. dollars. Gains and losses on foreign currency forward contracts that are
designated and effective as hedges of anticipated transactions, for which a
firm commitment has been attained, are deferred and included in the basis of
the transaction in the same period that the underlying transactions are
settled. Gains and losses on any instruments not meeting the above criteria
are recognized in income in the current period. We are also sharing the yen
exchange rate risk with some of our Japanese customers through risk sharing
agreements. As we will continue to have a net yen exposure in the near future,
we will continue to mitigate the exposure through yen hedging contracts. No
currency forward contracts were outstanding as of December 30, 2000.
Inflation
To date, the effects of inflation upon our financial results have not been
significant.
Financial Condition, Liquidity and Capital Resources
Our financial condition at December 30, 2000 remained strong. Total current
assets exceeded total current liabilities by 2.8 times, compared to 4.3 times
at April 1, 2000. We have used a combination of equity and cash flow from
operations to support on-going business activities, secure manufacturing
capacity from foundry partners, make acquisitions and investments in
complementary technologies, obtain facilities and capital equipment and
finance inventory and accounts receivable.
We continued to generate positive cash flows from operations during the first
nine months of fiscal 2001. As of December 30, 2000, we had cash, cash
equivalents and short-term investments of $402.1 million and working capital
of $661.6 million. Cash generated by operations of $376.6 million for the
first nine months of fiscal 2001
12
<PAGE>
was $152.8 million higher than the $223.8 million generated during the first
nine months of fiscal 2000. Increases in cash generated by operations resulted
primarily from the cash flow impact of increased net income, and increases in
accounts payable and other accrued liabilities, income taxes payable, tax
benefit from stock options, and deferred income on shipments to distributors
which were partially offset by increases in accounts receivable, inventories,
deferred income tax, and other assets.
Cash flows generated from investing activities during the first nine months of
fiscal 2001 included net investment proceeds of $119.3 million. Cash obtained
from our acquisition of RocketChips increased investing cash flows by $4.2
million. Cash flows used for the purchases of property, plant and equipment
were $177.5 million during the first nine months of fiscal 2001. During the
first nine months of fiscal 2000, investing activities included net investment
purchases of $138.8 million, $91.5 million in the acquisition of property,
plant and equipment and $22.8 million for assets purchased from Philips' CPLD
business.
Net cash flows used by financing activities were $310.3 million in the first
nine months of fiscal 2001 and were attributable to $382.9 million in
acquisitions of treasury stock, offset by $52.8 million of proceeds from the
issuance of common stock under employee stock plans and $19.8 million in
proceeds from sales of put warrants. For the comparable fiscal 2000 period,
cash provided by financing activities of $56.3 million included $51.5 million
of proceeds from issuance of common stock under employee stock plans and $10.1
million in proceeds from sales of put warrants, offset by the acquisition of
$5.3 million of treasury stock.
Stockholders' equity increased $132.2 million during the first nine months of
fiscal 2001, principally as a result of $197.4 million in net income for the
nine months ended December 30, 2000. In addition, the proceeds from the
issuance of common stock under employee stock plans of $52.8 million, related
tax benefits from stock options of $144.7 million, and $19.8 million in
proceeds from sales of put warrants, and issuance of shares in connection to
the RocketChips acquisition of $288.3 million contributed to the increase,
which were offset by $166.1 million in unrealized losses on available-for-sale
securities primarily from our investment in UMC stock and $0.5 million of
cumulative translation adjustments, $21.3 million in deferred compensation
related to the RocketChips acquisition, and $382.9 million for the acquisition
of treasury stock.
We have available credit facilities totaling $46.2 million of which $6.2
million is intended to meet occasional working capital requirements for our
wholly owned Irish subsidiary. No amounts were outstanding under credit
facilities at December 30, 2000.
We anticipate that existing sources of liquidity and cash flow from operations
will be sufficient to satisfy our cash needs for the foreseeable future. We
will continue to evaluate opportunities to obtain additional wafer capacity,
procure additional capital equipment and facilities, develop new products, and
acquire businesses, products or technologies that would complement our
businesses and may use available cash or other sources of funding for such
purposes.
Factors Affecting Future Operating Results
The semiconductor industry is characterized by rapid technological change,
intense competition and cyclical market patterns. Cyclical market patterns are
characterized by several factors, including:
. reduced product demand;
. limited visibility of demand for products beyond three months;
. accelerated erosion of average selling prices;
. tight capacity availability;
. shortages of other electronic components, and
. excess inventory within the supply chain.
13
<PAGE>
Our results of operations are affected by several factors. These factors
include general economic conditions, conditions specific to technology
companies and to the semiconductor industry in particular, decreases in
average selling prices over the life of particular products and the timing of
new product introductions (by us, our competitors and others.) In addition,
our results of operations are affected by the ability to manufacture
sufficient quantities of a given product in a timely manner, the timely
implementation of new manufacturing technologies, the ability to safeguard
patents and intellectual property from competitors, the impact of new
technologies which result in rapid escalation of demand for some products in
the face of equally steep declines in demand for others, and the inability to
predict the success of our customers' products in their markets. Market demand
for our products, particularly for those most recently introduced, can be
difficult to predict, especially in light of customers' demands to shorten
product lead times and minimize inventory levels. 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 less dynamic industries. Based on the factors noted
herein, we may experience substantial period-to-period fluctuations in future
operating results.
Our future success depends in a large part on the continued service of our key
technical, sales, marketing and management personnel and on our ability to
continue to attract and retain qualified employees. Particularly important are
those highly skilled design, process, software and test engineers involved in
the manufacture of existing products and the development of new products and
processes. The competition for such personnel is intense, and the loss of key
employees could have a material adverse effect on our financial condition and
results of operations.
Sales and operations outside of the United States subject us to the risks
associated with conducting business in foreign economic and regulatory
environments. Our financial condition and results of operations could be
adversely affected by unfavorable economic conditions in countries in which we
do significant business and by changes in foreign currency exchange rates
affecting those countries. For example, we have sales and operations in Asia
Pacific and Japan. Past economic weakness in these markets adversely affected
revenues, and such conditions may occur in the future. 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, is located.
Our business is also subject to the risks associated with the imposition of
legislation and regulations relating specifically to the import or export of
semiconductor products. We cannot predict whether quotas, duties, taxes or
other charges or restrictions will be imposed by the United States or other
countries upon the import or export of our products in the future or what
effect, if any, such actions would have on our financial condition and results
of operations.
14
<PAGE>
We do not directly manufacture our silicon wafers. Presently, all of our
wafers are manufactured by our foundry partners in Taiwan by UMC and in Japan
by Seiko. We depend on our foundry partners to deliver reliable silicon
wafers, with acceptable yields, in a timely manner. If our foundry partners
are unable to produce and deliver silicon wafers that meet our specifications,
including acceptable yields, our results of operation could be adversely
affected.
Our foundry partners in Taiwan and Japan and many of our operations in
California are centered in areas that have been seismically active in the
recent past. Should there be a major earthquake in our operating locations in
the future, our operations, including our manufacturing activities, may be
disrupted. This type of disruption could result in our inability to ship
products in a timely manner, thereby materially adversely affecting our
financial condition and results of operations.
The securities of many high technology companies have historically been
subject to extreme price and volume fluctuations, which may adversely affect
the market price of our common stock.
Dependence Upon Independent Manufacturers and Subcontractors
We do not manufacture the semiconductor wafers used for our products. During
the past several years, most of our wafers have been manufactured by UMC and
Seiko, with recent wafers also manufactured by USIC until its merger into UMC.
We are dependent upon these suppliers and others to produce wafers with
competitive performance and cost attributes which include transitioning to
advanced manufacturing process technologies, producing wafers at acceptable
yields and delivering them in a timely manner. While the timeliness, yield and
quality of wafer deliveries have met our requirements to date, we cannot
guarantee that our wafer suppliers will not experience future manufacturing
problems, including delays in the realization of advanced manufacturing
process technologies. Additionally, disruption of operations at these
foundries for any reason, including natural disasters such as fires, floods,
or earthquakes, as well as disruptions in access to adequate supplies of
electricity, natural gas or water could cause delays in shipments of our
products, and could have a material adverse effect on our results of
operations. We are also dependent on subcontractors to provide semiconductor
assembly services. Any prolonged inability to obtain wafers or assembly
services with competitive performance and cost attributes, adequate yields or
timely delivery, or any other circumstance that would require us to seek
alternative sources of supply, could delay shipments and have a material
adverse effect on our financial condition and results of operations.
Our growth will depend in large part upon our ability to obtain additional
wafer fabrication capacity and assembly services from suppliers that are cost
competitive. We consider various alternatives in order to secure additional
wafer capacity. These alternatives include, without limitation, equity
investments in, or loans, deposits, or other financial commitments to
independent wafer manufacturers. We also consider the use of contracts which
commit us to purchase specified quantities of wafers over extended periods. We
are currently able to obtain wafers from existing suppliers in a timely
manner. However, at times we have been unable, and may in the future be
unable, to fully satisfy customer demand because of production constraints,
including the ability of suppliers and subcontractors to provide materials and
services to satisfy customer delivery dates, as well as our ability to process
products for shipment. In addition, a significant increase in general industry
demand or any interruption of supply could reduce our supply of wafers or
increase our cost of such wafers. These events could have a material adverse
effect on our financial condition and results of operations.
Dependence on New Products
Our success depends in large part on our ability to develop and introduce new
products which address customer requirements and compete effectively on the
basis of price, density, functionality and performance. The success of new
product introductions is dependent upon several factors, including:
. timely completion of new product designs;
. ability to utilize advanced manufacturing process technologies;
15
<PAGE>
. achieving acceptable yields;
. availability of supporting software design tools;
. utilization of predefined cores of logic;
. market acceptance; and
. successful deployment of systems by our customers.
We cannot assure that our product development efforts will be successful or
that our new products will achieve market acceptance. Revenues relating to our
mature products are expected to decline in the future. As a result, we will be
increasingly dependent on revenues derived from newer products along with cost
reductions on current products. We rely primarily on obtaining yield
improvements and corresponding cost reductions in the manufacture of existing
products and on introducing new products which incorporate advanced features
and other price/performance factors that enable us to increase revenues while
maintaining consistent margins. To the extent that such cost reductions and
new product introductions do not occur in a timely manner, or to the extent
that our products do not achieve market acceptance at prices with higher
margins, our financial condition and results of operations could be materially
adversely affected.
Competition
Our PLDs compete in the logic industry. The industries in which we compete are
intensely competitive and are characterized by rapid technological change,
product obsolescence and continuous price erosion. We expect increased
competition, both from our primary competitors, Altera Corporation, and
Lattice Semiconductor Corporation and from a number of new companies that may
enter our market. We believe that important competitive factors in the
programmable logic industry include:
. product pricing;
. product performance, reliability and density;
. the adaptability of products to specific applications;
. ease of use and functionality of software design tools;
. functionality of predefined cores of logic; and
. the ability to provide timely customer service and support.
Our strategy for expansion in the logic market includes continued introduction
of new product architectures which address high volume, low cost applications
as well as high performance, leading-edge density applications. In addition,
we anticipate continued price reductions proportionate with our ability to
lower the manufacturing cost for established products. However, we cannot
provide assurance that we will be successful in achieving these strategies.
Our major sources of competition are comprised of several elements:
. providers of high density programmable logic products characterized by
FPGA-type architectures;
. providers of high volume and low cost FPGAs as programmable replacements
for ASICs and application specific standard products (ASSPs);
. providers of high speed, low density CPLD devices;
. the manufacturers of custom gate arrays;
. providers of competitive software development tools;
. other providers of new or emerging programmable logic products.
16
<PAGE>
We compete with high density programmable logic suppliers on the basis of
device performance, the ability to deliver complete solutions to customers,
device power consumption and customer support by taking advantage of the
primary characteristics of our PLD product offerings which include:
flexibility, high speed implementation, quick time-to-market and system level
capabilities. We compete with ASIC manufacturers on the basis of lower design
costs, shorter development schedules, reduced inventory risk and field
upgradability. The ASIC market segment has been declining, and ASICs are being
replaced by other logic options. The primary attributes of ASICs are high
density, high speed and low production costs in high volumes. We continue to
develop lower cost architectures intended to narrow the gap between current
ASIC production costs (in high volumes) and PLD production costs. As PLDs have
increased in density and performance and decreased in cost due to the advanced
manufacturing processes, they have become more directly competitive with
ASICs. With the introduction of our Spartan family, which is Xilinx's low cost
programmable replacement for ASICs, we seek to grow by directly competing with
other companies in the ASIC segment. Many of the companies in the ASIC segment
have substantially greater financial, technical and marketing resources than
Xilinx. Consequently, there can be no assurance that we will be successful in
competing in the ASIC segment. Competition among PLD suppliers and
manufacturers of new or emerging programmable logic products is based
primarily on price, performance, design, customer support, software utility
and the ability to deliver complete solutions to customers. Some of our
current or potential competitors have substantially greater financial,
manufacturing, marketing, distribution and technical resources than we do. To
the extent that our efforts to compete are not successful, our financial
condition and results of operations could be materially adversely affected.
The benefits of programmable logic have attracted a number of companies to
this market. We recognize that different applications require different
programmable technologies, and we are developing architectures, processes and
products to meet these varying customer needs. Recognizing the increasing
importance of standard software solutions, we have developed common software
design tools that support the full range of integrated circuit products. We
believe that automation and ease of design are significant competitive factors
in the PLD segment.
Several companies, both large and small, have introduced products that compete
with ours or have announced their intention to enter the PLD segment. Some of
our competitors may possess innovative technology, which could prove superior
to our technology in certain applications. In addition, we anticipate
potential competition from suppliers of logic products based on new
technologies. Some of our current or potential competitors have substantially
greater financial, manufacturing, marketing and technical resources than we
do. This additional competition could adversely affect our financial condition
and results of operations.
We could also face competition from our licensees. Under a license from us,
Lucent Technologies has rights to manufacture and market our XC3000 FPGA
products and also employ that technology to provide additional high density
FPGA products. Seiko Epson has rights to manufacture some of our products and
market them in Japan and Europe, but is not currently doing so. We granted a
license to use certain of our patents to Advanced Micro Devices (AMD). AMD
produced certain programmable logic devices under that license through its
wholly owned subsidiary, Vantis. In June 1999, AMD sold the Vantis subsidiary
to Lattice Semiconductor Corporation.
Intellectual Property
We rely upon patent, trademark, trade secret and copyright law to protect our
intellectual property. We cannot assure that such intellectual property rights
can be successfully asserted in the future or will not be invalidated,
circumvented or challenged. From time to time, third parties, including our
competitors, have asserted patent, copyright and other intellectual property
rights to technologies that are important to us. We cannot assure that third
parties will not assert infringement claims against us in the future, that
assertions by third parties will not result in costly litigation or that we
would prevail in such litigation or be able to license any valid and infringed
patents from third parties on commercially reasonable terms. Litigation,
regardless of its outcome, could result in substantial costs and diversion of
our resources. Any infringement claim or other litigation against us or by us
could materially adversely affect our financial condition and results of
operations. (See Part II--Other Information, Item 1--Legal Proceedings for a
discussion of litigation between Xilinx and Altera Corporation.)
17
<PAGE>
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 7 to Condensed
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 7 to Condensed 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 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 II.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Our exposure to interest rate risk relates primarily to our investment
portfolio. Our primary aim with our investment portfolio is to invest
available cash while preserving principal and meeting liquidity needs. The
portfolio includes tax-advantaged municipal bonds, tax-advantaged auction rate
preferred municipal bonds, commercial paper, and U.S. Treasury securities. In
accordance with our investment policy, we place investments with high credit
quality issuers and limit the amount of credit exposure to any one issuer.
These securities are subject to interest rate risk and will decrease in value
if market interest rates increase. A hypothetical 10% increase in interest
rates would not materially affect the fair value of our available-for-sale
securities.
Foreign Currency Risk
We use forward currency exchange contracts to reduce financial market risks.
Our sales to Japanese customers are denominated in yen while our purchases of
processed silicon wafers from Japanese foundries are primarily denominated in
U.S. dollars. Gains and losses on foreign currency forward contracts that are
designated and effective as hedges of anticipated transactions, for which a
firm commitment has been attained, are deferred and included in the basis of
the transaction in the same period that the underlying transactions are
settled. Gains and
18
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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
1.8% adverse impact on revenue for the nine months ended in fiscal years 2001
and 2000. We are also sharing the yen exchange rate risk with some of our
Japanese customers through risk sharing agreements. As we will continue to
have a net yen exposure in the near future, we will continue to mitigate the
exposure through yen hedging contracts. However, no currency forward contracts
were outstanding as of December 30, 2000.
Our investments in several subsidiaries and in the UMC securities are recorded
in currencies other than the U.S. dollar. As these foreign currency
denominated investments are translated at each month end during consolidation,
fluctuations of exchange rates between the foreign currency and the U.S.
dollar increase or decrease the value of those investments. If permanent
changes occur in exchange rates after an investment is made, the investment's
value will increase or decrease accordingly. These fluctuations are recorded
within stockholders' equity as a component of accumulated other comprehensive
income. Also, as our subsidiaries maintain investments denominated in other
than local currencies, exchange rate fluctuations will occur.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 7, 1993, we filed suit against Altera Corporation (Altera) in the
United States District Court for the Northern District of California for
infringement of certain of our patents. Subsequently, Altera filed suit
against Xilinx, alleging that certain of our products infringe certain Altera
patents.. 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. Post-trial motions in the case
will likely be heard in the Company's fourth quarter of Fiscal Year 2001.
Among the post-trial motions are motions by Altera to overturn the jury
verdict. The Company's motions for injunctive relief will be heard following
the post-trial motions. A trial for monetary damages will take place at a
later time.
On April 20, 1995, Altera filed an additional suit against Xilinx in the
Federal District Court in Delaware, alleging that our XC5200 family infringes
an Altera patent. We answered the Delaware suit denying that the XC5200 family
infringes the patent in suit, asserting certain affirmative defenses and
counterclaiming that the Altera Max 9000 family infringes certain of our
patents. The Delaware suit was transferred to the United States District Court
for the Northern District of California.
On July 22, 1998, Altera and Joseph Ward, a former Xilinx employee, filed suit
against Xilinx in Superior Court in Santa Clara County, California, arising
out of our efforts to prevent disclosure of certain Company confidential
information. Altera's suit requests declaratory relief and claims Xilinx
engages in unfair business practices and interference with contractual
relations. On September 10, 1998 we filed cross claims against Altera and Ward
for unfair competition and breach of contract, among other claims, in the
California action. On October 20, 1998, Altera and Ward filed crossclaims
against Xilinx for malicious prosecution of civil action and defamation. On
September 15, 1999, the Court dismissed all of our claims against Altera and
Mr. Ward, finding that we were unable to show any damages we suffered as a
result of any actions by Mr. Ward. Claims against Xilinx are still pending.
On May 31, 2000, Altera filed an additional suit against Xilinx in the Federal
District Court for the Northern District of California, alleging that certain
Xilinx products, including our Virtex FPGAs, infringe three Altera patents.
Altera's suit requests unspecified monetary damages as well as issuance of an
injunction to prevent
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Xilinx from selling allegedly infringing parts. Xilinx has answered the
complaint and denied the allegations. The Company has filed a counterclaim
alleging that Altera is infringing additional Company patents. Altera's motion
for expedited discovery was denied by the Court. A claims construction hearing
to determine the interpretation of Altera's patent claims is scheduled for
April 26 and 27, 2001.
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 21-29,
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 the lawsuits are still in the pre-trial stages.
There are no other pending legal proceedings of a material nature to which we
are a party or of which any of our property is the subject. We know of no
legal proceedings contemplated by any governmental authority or agency.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits None
(b) Reports on Form 8-K None
Items 2, 3, 4 and 5 are not applicable and have been omitted.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
XILINX, INC.
Date: February 1, 2001 /s/ Kris Chellam
Kris Chellam
Senior Vice President of Finance and
Chief Financial Officer
(as principal accounting and
financial officer and on behalf of
Registrant)
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