10-Q 1 d10q.htm FORM 10-Q FOR PERIOD ENDED DECEMBER 29, 2001 Prepared by R.R. Donnelley Financial -- Form 10-Q for period ended December 29, 2001
 
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 29, 2001 or
 
¨    Transition
 
report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from                         to                          .
 
Commission File Number 0-18548
 
Xilinx, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
(State or other jurisdiction of incorporation or organization)
 
77-0188631
(I.R.S. Employer Identification No.)
 
2100 Logic Drive, San Jose, CA 95124
(Address of principal executive offices, including Zip Code)
 
(408) 559-7778
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days.
 
YES     x                    NO    ¨
 
Class
   
Shares Outstanding at January 31, 2002
Common Stock, $.01 par value
   
335,516,698
 

 
Part I.    Financial Information
 
Item 1.    Financial Statements
 
XILINX, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
    
Three Months Ended
     
Nine Months Ended
    
Dec. 29, 2001
   
Dec. 30, 2000
     
Dec. 29, 2001
     
Dec. 30,
2000
    
(in thousands, except per share amounts)
Net revenues
   
$
228,110
   
$
450,103
 
   
$
742,081
 
   
$
1,252,338
Costs and expenses:
                                
Cost of revenues
   
 
101,868
   
 
179,199
 
   
 
442,567
 
   
 
484,453
Research and development
   
 
49,131
   
 
59,148
 
   
 
152,542
 
   
 
153,774
Sales, general and administrative
   
 
52,375
   
 
71,082
 
   
 
173,080
 
   
 
204,995
Write-off of acquired in-process research and development
   
 
—  
   
 
90,700
 
   
 
—  
 
   
 
90,700
Amortization of goodwill and other intangibles
   
 
10,750
   
 
6,834
 
   
 
32,250
 
   
 
6,834
Impairment loss on intangible assets and equipment
   
 
—  
   
 
—  
 
   
 
25,336
 
   
 
—  
    
  
  
  
Operating costs and expenses
   
 
214,124
   
 
406,963
 
   
 
825,775
 
   
 
940,756
    
  
  
  
Operating income (loss)
   
 
13,986
   
 
43,140
 
   
 
(83,694
)
   
 
311,582
Write-down of the United Microelectronics Corp. investment
   
 
—  
   
 
—  
 
   
 
(191,852
)
   
 
—  
Altera Corporation lawsuit settlement
   
 
—  
   
 
—  
 
   
 
19,400
 
   
 
—  
Interest income and other, net
   
 
4,478
   
 
8,436
 
   
 
18,154
 
   
 
28,719
    
  
  
  
Income (loss) before provision for (benefit from) taxes on income
   
 
18,464
   
 
51,576
 
   
 
(237,992
)
   
 
340,301
Provision for (benefit from) taxes on income
   
 
8,807
   
 
62,083
 
   
 
(90,107
)
   
 
142,926
    
  
  
  
Net income (loss)
   
$
9,657
   
$
(10,507
)
   
$
(147,885
)
   
$
197,375
    
  
  
  
Net income (loss) per share:
                                
Basic
   
$
0.03
   
$
(0.03
)
   
$
(0.44
)
   
$
0.60
    
  
  
  
Diluted
   
$
0.03
   
$
(0.03
)
   
$
(0.44
)
   
$
0.56
    
  
  
  
Shares used in per share calculations:
                                
Basic
   
 
334,363
   
 
329,643
 
   
 
333,223
 
   
 
327,720
    
  
  
  
Diluted
   
 
350,691
   
 
329,643
 
   
 
333,223
 
   
 
353,863
    
  
  
  
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.

2

 
XILINX, INC.
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
    
Dec. 29,
2001
     
March 31, 2001
  
    
(in thousands)
  
    
(Unaudited)
     
(1)
  
ASSETS
                  
Current assets:
                  
Cash and cash equivalents
   
$
204,438
 
   
$
208,693
 
Short-term investments
   
 
212,927
 
   
 
162,091
 
Accounts receivable, net
   
 
89,857
 
   
 
172,768
 
Inventories
   
 
146,719
 
   
 
342,453
 
Deferred income taxes
   
 
152,046
 
   
 
151,530
 
Other current assets
   
 
53,557
 
   
 
64,344
 
    
  
Total current assets
   
 
859,544
 
   
 
1,101,879
 
    
  
Property, plant and equipment, at cost
   
 
619,739
 
   
 
554,624
 
Accumulated depreciation and amortization
   
 
(185,389
)
   
 
(137,448
)
    
  
Net property, plant and equipment
   
 
434,350
 
   
 
417,176
 
Long-term investments
   
 
309,125
 
   
 
288,972
 
Investment in United Microelectronics Corp.
   
 
361,827
 
   
 
430,894
 
Other assets
   
 
263,224
 
   
 
263,275
 
    
  
Total assets
   
$
2,228,070
 
   
$
2,502,196
 
    
  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                  
Current liabilities:
                  
Accounts payable
   
$
31,335
 
   
$
104,674
 
Accrued payroll and related liabilities
   
 
35,088
 
   
 
28,776
 
Income taxes payable
   
 
46,273
 
   
 
62,443
 
Deferred income on shipments to distributors
   
 
62,400
 
   
 
130,501
 
Other accrued liabilities
   
 
18,291
 
   
 
24,016
 
    
  
Total current liabilities
   
 
193,387
 
   
 
350,410
 
    
  
Deferred tax liabilities
   
 
173,953
 
   
 
233,470
 
Commitments and contingencies
                  
Stockholders’ equity:
                  
Preferred stock, $.01 par value (none issued)
   
 
—  
 
   
 
—  
 
Common stock, $.01 par value
   
 
3,350
 
   
 
3,311
 
Additional paid-in capital
   
 
715,876
 
   
 
725,626
 
Retained earnings
   
 
1,075,957
 
   
 
1,257,083
 
Treasury stock, at cost
   
 
(7,199
)
   
 
(70,584
)
Accumulated other comprehensive income
   
 
72,746
 
   
 
2,880
 
    
  
Total stockholders’ equity
   
 
1,860,730
 
   
 
1,918,316
 
    
  
Total liabilities and stockholders’ equity
   
$
2,228,070
 
   
$
2,502,196
 
    
  
(1)
 
Derived from audited financial statements
 
See accompanying Notes to Condensed Consolidated Financial Statements.

3

 
XILINX, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
    
Nine Months Ended
  
    
Dec. 29, 2001
     
Dec. 30, 2000
  
    
(in thousands)
  
Increase (decrease) in cash and cash equivalents
                  
Cash flows from operating activities:
                  
Net income (loss)
   
$
    (147,885
)
   
$
197,375
 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
                  
Depreciation and amortization
   
 
96,938
 
   
 
59,458
 
Write-off of acquired in-process research and development
   
 
—  
 
   
 
90,700
 
Net gain on sale of available-for-sale securities
   
 
(1,343
)
   
 
(979
)
Impairment loss on intangible assets
   
 
14,925
 
   
 
—  
 
Impairment loss on equipment
   
 
10,411
 
   
 
—  
 
Write-down of the United Microelectronics Corp. investment
   
 
191,852
 
   
 
—  
 
Changes in assets and liabilities:
                  
Accounts receivable
   
 
98,266
 
   
 
(87,220
)
Inventories
   
 
195,734
 
   
 
(112,170
)
Deferred income taxes
   
 
26,998
 
   
 
(35,994
)
Other current assets
   
 
2,855
 
   
 
3,855
 
Other assets
   
 
(11,859
)
   
 
(39,246
)
Accounts payable
   
 
(73,339
)
   
 
64,553
 
Accrued liabilities
   
 
1,561
 
   
 
13,240
 
Income taxes payable
   
 
(142,820
)
   
 
180,874
 
Deferred income on shipments to distributors
   
 
(83,456
)
   
 
42,167
 
    
  
Total adjustments
   
 
326,723
 
   
 
179,238
 
    
  
Net cash provided by operating activities
   
 
178,838
 
   
 
376,613
 
Cash flows from investing activities:
                  
Purchases of available-for-sale securities
   
 
(736,426
)
   
 
(2,109,991
)
Proceeds from sale or maturity of available-for-sale securities
   
 
662,247
 
   
 
2,229,294
 
Cash obtained from acquisition
   
 
—  
 
   
 
4,243
 
Purchases of property, plant and equipment
   
 
(66,854
)
   
 
(177,453
)
    
  
Net cash used in investing activities
   
 
(141,033
)
   
 
(53,907
)
Cash flows from financing activities:
                  
Acquisition of treasury stock
   
 
(100,853
)
   
 
(382,943
)
Proceeds from issuance of common stock
   
 
55,823
 
   
 
52,814
 
Proceeds from sales of put options
   
 
2,970
 
   
 
19,832
 
    
  
Net cash used in financing activities
   
 
(42,060
)
   
 
(310,297
)
    
  
Net increase (decrease) in cash and cash equivalents
   
 
(4,255
)
   
 
12,409
 
Cash and cash equivalents at beginning of period
   
 
208,693
 
   
 
85,548
 
    
  
Cash and cash equivalents at end of period
   
$
204,438
 
   
$
97,957
 
    
  
Schedule of non-cash transactions:
                  
Issuance of common stock in connection with RocketChips acquisition
   
$
—  
 
   
$
259,869
 
Tax benefit from stock option exercises
   
 
53,731
 
   
 
144,687
 
Issuance of treasury stock under employee stock plans
   
 
163,959
 
   
 
195,561
 
Supplemental disclosure of cash flow information:
                  
Income taxes paid
   
 
14,518
 
   
 
11,147
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.

4

 
XILINX, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1.    Organization and Basis of Presentation
 
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 March 31, 2001. 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 29, 2001 are not necessarily indicative of the results that may be expected for the fiscal year ending March 30, 2002 or any future period.
 
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141, “Business Combinations,” (SFAS 141) and Statement No. 142, “Goodwill and Other Intangible Assets” (SFAS 142). SFAS 141 eliminates the pooling-of-interests method of accounting for business combinations and requires that business combinations initiated after June 30, 2001 be accounted for under the purchase method of accounting. SFAS 142 eliminates the systematic amortization of goodwill and requires that goodwill be reviewed for impairment annually, or more frequently if impairment indicators arise. The Company will adopt SFAS 142, which is effective for fiscal years beginning after December 15, 2001, on March 31, 2002. Amortization of goodwill attributable to acquisitions occurring prior to July 1, 2001 is approximately $7 million per quarter. At December 29, 2001, the unamortized balance of goodwill was $107.9 million.            
 
In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, which is effective January 1, 2002. SFAS 144 supercedes SFAS 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of”, and the accounting and reporting provisions relating to the disposal of a segment of a business of Accounting Principles Board Opinion No.30. The Company does not expect that the adoption of SFAS 144 will have a significant impact on its financial statements.
 
2.    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 periods presented.
 
On a consolidated basis, at December 29, 2001, two distributors accounted for 60.5% and 15.1% of total accounts receivable.
 
3.    Inventories
 
Inventories are stated at the lower of cost (first-in, first-out) or market (estimated net realizable value). Inventories at December 29, 2001 and March 31, 2001 are as follows:
 
    
Dec. 29, 2001
   
March 31, 2001
    
(in thousands)
Raw materials
   
$
24,535
   
$
26,245
Work-in-process
   
 
78,778
   
 
249,348
Finished goods
   
 
43,406
   
 
66,860
    
  
    
$
146,719
   
$
342,453
    
  

5

 
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 results of operations. Our standard cost reserve policy is to continuously review and monitor our standard costs based on current wafer costs. Once standard costs are created, gross inventories are re-evaluated based on the new standard costs. Our excess and obsolescence reserve policy is to reserve inventory in excess of nine months of forecasted demand. Our research and development reserve policy is to reserve new devices until the following criteria are met: Devices must be production released and we must have sufficient product in the hands of customers and distributors.
 
4.    Net Income (Loss) Per Share
 
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 incremental common shares attributable to outstanding options of 16.3 million and 26.1 million for the quarter ended December 29, 2001 and the nine months ended December 30, 2000, respectively. For the nine months ended December 29, 2001 and the quarter ended December 30, 2000, 18.2 million and 23.8 million common stock equivalents attributable to the Company’s stock option plans were excluded from the calculation of diluted net loss per share, as they would be antidilutive.
 
5.    Comprehensive Income (Loss)
 
The changes in components of comprehensive income (loss) for the periods presented are as follows:
 
    
Three Months Ended
     
Nine Months Ended
  
    
Dec. 29, 2001
     
Dec. 30, 2000
     
Dec. 29, 2001
     
Dec. 30, 2000
  
    
(in thousands)
  
Net income (loss)
   
$
9,657
 
   
$
(10,507
)
   
$
(147,885
)
   
$
197,375
 
Cumulative translation adjustment
   
 
(192
)
   
 
(194
)
   
 
(258
)
   
 
(508
)
Other comprehensive income-hedging
   
 
(39
)
   
 
—  
 
   
 
(39
)
   
 
—  
 
Unrealized gains (losses) on available-for-sale
                                    
securities arising during the period, net of tax
   
 
72,862
 
   
 
(57,051
)
   
 
72,886
 
   
 
(165,937
)
Reclassification adjustment for gains on available-for-sale securities, net of tax, included in earnings
   
 
(790
)
   
 
(5
)
   
 
(2,722
)
   
 
(170
)
    
  
  
  
Comprehensive income (loss)
   
$
81,498
 
   
$
(67,757
)
   
$
(78,018
)
   
$
30,760
 
    
  
  
  
 
The components of accumulated other comprehensive income (loss) at December 29, 2001 and March 31, 2001 are as follows:
 
    
Dec. 29, 2001
     
March 31, 2001
  
    
(in thousands)
  
Cumulative translation adjustment
   
$
(852
)
   
$
(594
)
Other comprehensive income-hedging
   
 
(38
)
   
 
—  
 
Unrealized gain on available-for-sale
                  
securities, net of tax
   
 
73,636
 
   
 
3,474
 
    
  
Accumulated other comprehensive income
   
$
72,746
 
   
$
2,880
 
    
  

6

 
6.    Stockholders’ Equity-Treasury Stock and Put Options
 
The Board of Directors has approved stock repurchase programs enabling the Company to repurchase its common stock. During the quarter ended December 29, 2001, 0.4 million shares of common stock were repurchased for $27.9 million, and 1.8 million shares were issued during the period for Stock Option exercises and Stock Purchase Plan requirements. During the nine months ended December 29, 2001, 1.6 million shares of common stock were repurchased for $100.6 million and 5.3 million shares were issued during the period for Stock Option exercises and Stock Purchase Plan requirements. In conjunction with the stock repurchase program, during the nine months ended December 29, 2001 and December 30, 2000, respectively, we sold .3 million and 1.6 million put options that entitle the holder of each option to sell to us, by physical delivery, one share of common stock at specified prices. The cash proceeds from the sale of put options of $3.0 million and $19.8 million for the nine months ended December 29, 2001 and December 30, 2000, respectively, have been included in additional paid-in capital following the provisions of Emerging Issues Task Force Issue No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”. As of December 29, 2001, 0.5 million shares of common stock were subject to future issuance under outstanding put options with expiration dates through August 2002, with strike prices ranging from $40 to $53 per share.
 
7.    Commitments
 
We lease some of our facilities and office buildings 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 (December 30, 2001 to March 31, 2002)
   
$
925
2003
   
 
3,341
2004
   
 
1,801
2005
   
 
1,033
2006
   
 
758
Thereafter
   
 
3,627
    
    
$
11,485
    
 
Rent expense was approximately $.6 million and $1.8 million for the three and nine months ended December 29, 2001, respectively. Rent expense for the three and nine months ended December 30, 2000 was approximately $.2 million and $2.2 million, respectively.
 
8.    Derivatives
 
On April 1, 2001 we adopted Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133). SFAS 133 requires that all derivatives be recorded on the balance sheet at fair value. Changes in the fair value of derivatives that do not qualify, or are not effective as hedges must be recognized currently in earnings. Upon adoption, we reflected all derivatives at fair value on the balance sheet but did not recognize a cumulative transition adjustment to earnings under the new standard.
 
We are expanding our Ireland facility and have entered into firm commitments with respect to specific project costs to be incurred over the next year. We enter into forward foreign exchange contracts to eliminate, reduce, or transfer selected foreign currency risks that have been identified. Designated and documented at inception as fair value hedges, the project development forward contracts are evaluated for effectiveness monthly. The critical terms of the forward contract and the firm commitments are matched at inception and subsequent forward contract effectiveness is calculated by comparing the fair value of the forward contract or cash balance to the cumulative change in value of the specified firm commitment. The derivative fair values are recognized currently in income and offset by the gains and losses on the contract commitments, which are also reflected on

7

the balance sheet and currently in income (loss). In connection with this expansion, we have seven outstanding forward currency exchange contracts against the Irish punt. The total value of these contracts is approximately US $8.3 million. These contracts expire at various dates between January 2002 and May 2002. We will continue to mitigate this exposure through Euro (Irish punt) hedging contracts.
 
9.    Investment in United Microelectronics Corporation
 
The value of our unrestricted United Microelectronics Corporation (UMC) shares increased in value by $122.8 million during the third quarter of fiscal 2002 to $361.8 million at December 29, 2001. The increase in value of $122.8 million was recorded within stockholders’ equity as a component of accumulated other comprehensive income. The value of our UMC shares had declined to $239.0 million as of September 29, 2001. Because of the continued downturn in the economy, we believed that the decline in the market value of our investment in UMC as of September 29, 2001 was other than temporary. During the second quarter of fiscal 2002 we recognized a pre-tax loss of $191.9 million to reflect this other-than-temporary decline in market value. We will continue to re-evaluate the UMC investment quarterly to determine whether there are incremental other-than-temporary impairments or increases in valuation in future periods.
 
We account for the unrestricted portion (approximately 76% at December 29, 2001) of our investment in UMC as available-for-sale marketable securities in accordance with SFAS 115. The portion of the investment in UMC that is restricted beyond twelve months (approximately 24% of the Company’s holdings at December 29, 2001) is accounted for as a cost method investment.
 
10.    Impairment Loss on Intangible Assets and Equipment
 
We evaluate the carrying value of certain long-lived assets and acquired intangibles, consisting primarily of testing equipment, goodwill, acquired technology, patents, and assembled workforce, recorded on the balance sheet, in accordance with SFAS 121 on a quarterly basis. SFAS 121 requires recognition of impairment losses on long-lived assets in the event that the carrying value of such assets exceeds the fair values. When we have indicators of impairment, we review our long-lived assets and acquired intangible assets for impairment based on estimated future undiscounted cash flows attributable to the assets. In the event such cash flows are not expected to be sufficient to recover the recorded value of the assets, the assets are written down to their estimated fair values based on the expected discounted future cash flows attributable to the assets.
 
Remaining goodwill and acquired intangibles will continue to be amortized through fiscal year 2002 using an estimated useful life of four to seven years. In July 2001, the FASB issued SFAS No. 141, “Business Combinations,” effective for business combinations initiated after June 30, 2001, and SFAS No. 142, “Goodwill and Other Intangible Assets,” effective for fiscal years beginning after December 15, 2001. Beginning in fiscal 2003, goodwill will no longer be amortized, but will be subject to annual impairment tests.
 
11.    Contingencies
 
The Company filed a petition with the Tax Court on March 26, 2001. (See Note 12). Other than this petition, we know of no legal proceedings contemplated by any governmental authority or agency against the Company.
 
On January 15, 2002, the Company served process against Bausch & Lomb claiming trademark infringement. At this point in time, it is premature to comment on the likely outcome of this case.
 
Except as stated above, there are no pending legal proceedings of a material nature to which we are a party or of which any of our property is the subject.
 
In July 2000, we purchased office buildings in San Jose due to the rapid growth of the Company at that time. Currently, the buildings are still being remodeled and are expected to be ready for occupancy in fiscal 2003. Additionally, groundbreaking to develop a new 130,000 square foot facility in Longmont, Colorado was started in March 2000 and we are planning on moving into this facility within the next six months.

8

 
12.    Income Taxes
 
We recorded a tax provision of $8.8 million and a tax benefit of $90.1 million for the third quarter and first nine months of fiscal 2002, respectively, representing effective tax rates of 47.7% and 37.9%, respectively. We recorded a provision of $62.1 million and $142.9 million for the third quarter and first nine months of fiscal 2001, respectively, representing effective tax rates of 120.4% and 42.0%, respectively. The fiscal 2002 effective tax rate is primarily due to the tax benefit of operating losses and U.S. tax credits. The prior year rates were significantly impacted by the acquisition of RocketChips in November 2000.
 
On December 28, 2000, the Internal Revenue Service issued a statutory notice of deficiency reflecting their proposed audit adjustments for the fiscal years of 1996, 1997, and 1998. We filed a petition with the Tax Court on March 26, 2001 contesting this notice of deficiency. We believe the Company has meritorious defenses to the proposed adjustments and sufficient taxes have been provided.
 
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 2002 compared to the third quarter and first nine months of fiscal 2001
 
Net Revenues
 
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, most recently as of June 30, 2001. Advanced products include our newest technologies manufactured on 0.18-micron and smaller processes, which include the Spartan™-II, Virtex™-E and Virtex-II™ product lines. Mainstream products are currently manufactured on 0.22 to 0.35-micron technologies and include the Virtex™, XC4000XL, XC4000XLA, XC4000XV, XC9500XL, SpartanXL™ and CoolRunner™ product lines. Base products consist of our mature product families that are currently manufactured on technologies of 0.5-micron and older; this includes the XC3000, XC3100, XC4000, XC5200, XC9500, XC4000E, XC4000EX and Spartan families. Our Support products make up the remainder of our product offerings and include configuration solutions, serial proms, HardWire™, software and support.
 
Net revenues of $228.1 million in the third quarter of fiscal 2002 represented a 49.3% decrease from the comparable prior year quarter of $450.1 million, as industry wide business conditions declined. Net revenues for the first nine months of fiscal 2002 were $742.1 million, a 40.7% decrease from the prior year comparable period of $1,252.3 million, also due to an industry wide business recession.
 
Advanced products represented 36.0% and 34.8% of total net revenues in the third quarter and first nine months of fiscal 2002, respectively, as compared to 20.5% and 14.3% in the prior year periods. The percentage increases in revenues of Advanced products were due to the introduction and strong market acceptance of Virtex-II and Spartan-II products. Mainstream and Base products represented 56.0% and 57.6% of total net revenues in the third quarter and first nine months of fiscal 2002, respectively, as compared to 72.0% and 78.3% in the prior year periods. Mainstream and Base products saw the largest revenue decline in the Virtex, 4000XL and 4000XLA product families due to the combination of the weak demand, excess inventories at end customers, and customer migration to newer product offerings. Support products represented 8.0% and 7.6% of total net revenues in the third quarter and first nine months of fiscal 2002, respectively, as compared to 7.5% and 7.4% in the prior year periods. Net

9

revenues by technology for the three and nine-month periods ended December 29, 2001 and December 30, 2000 are as follows:
 
    
Three Months Ended
   
Nine Months Ended
    
Dec. 29, 2001
   
Dec. 30, 2000
   
Dec. 29, 2001
   
Dec. 30, 2000
    
(in millions)
Advanced products
   
$
82.1
   
$
92.3
   
$
257.9
   
$
179.5
Mainstream products
   
 
80.1
   
 
208.8
   
 
265.9
   
 
601.2
Base products
   
 
47.7
   
 
115.3
   
 
161.5
   
 
379.5
Support products
   
 
18.2
   
 
33.7
   
 
56.8
   
 
92.1
    
  
  
  
Total net revenues
   
$
228.1
   
$
450.1
   
$
742.1
   
$
1,252.3
    
  
  
  
 
International revenues represented approximately 47.2% and 48.8% of total net revenues in the third quarter and first nine months of fiscal 2002, respectively, as compared to 37.9% and 36.0% in the prior year periods. Net revenues by geography for the three and nine-month periods ended December 29, 2001 and December 30, 2000 are as follows:
 
    
Three Months Ended
   
Nine Months Ended
    
Dec. 29, 2001
   
Dec. 30, 2000
   
Dec. 29, 2001
   
Dec. 30, 2000
    
(in millions)
North America
   
$
120.5
   
$
279.5
   
$
379.7
   
$
800.9
Europe
   
 
45.3
   
 
80.8
   
 
169.2
   
 
240.6
Japan
   
 
28.0
   
 
47.7
   
 
100.3
   
 
115.2
Asia Pacific/Rest of World
   
 
34.3
   
 
42.1
   
 
92.9
   
 
95.6
    
  
  
  
Total net revenues
   
$
228.1
   
$
450.1
   
$
742.1
   
$
1,252.3
    
  
  
  
 
Gross Margin
 
Gross margin was $126.2 million and $299.5 million for the third quarter and first nine months of fiscal 2002, or 55.3% and 40.4% of net revenues, respectively. Gross margin for the comparable periods of fiscal 2001 was $270.9 million and $767.9 million, or 60.2% and 61.3% of net revenues, respectively. The significant decrease in gross margin percentages compared to last year resulted from a write-down of inventories during the second quarter of fiscal 2002 and from product mix shifts away from Mainstream and Base products that generate higher margins. The inventory write-down related primarily to the Virtex and Virtex-E product families and was based on a significant decrease in backlog and forecasted demand for those products relative to the inventory levels. Advanced products represented 36.0% and 34.8% of total net revenues in the third quarter and first nine months of fiscal 2002, respectively, while they were only 20.5% and 14.3% in the comparable prior year periods. As the demand for our products shifts away from the older, more profitable product families, gross margin could come under further pressure. Margins for the Advanced products (Virtex-E, Virtex-II product families as well as Spartan-II products) are below our more mature Base and Mainstream product families, as the products have not yet achieved optimal manufacturing cost and yields.
 
Research and Development
 
Research and development expenses were $49.1 million for the third quarter and $152.5 million for the first nine months of fiscal 2002, or 21.5% and 20.5% of net revenues, respectively. Research and development expenses for the third quarter and the first nine months of fiscal 2002 include non-cash deferred stock compensation of $2.1 and $6.4 million, respectively, associated with the November 2000 acquisition of RocketChips, Inc. Excluding RocketChips’ deferred stock compensation, research and development expenses were $47.0 million for the third quarter and $146.1 million for the first nine months of fiscal 2002, or 20.6% and 19.7% of net revenues, respectively. Research and development expenses for the comparable periods in the prior year were $59.1 million and $153.8 million, or 13.1% and 12.3% of net revenues, respectively. Research and development expenses for the

10

third quarter and the first nine months of fiscal 2001 include non-cash deferred stock compensation of $2.7 million associated with the acquisition of RocketChips, Inc. Excluding RocketChips’ deferred stock compensation, research and development expenses were $56.4 million for the third quarter and $151.1 million for the first nine months of fiscal 2001, or 12.5% and 12.1% of net revenues, respectively. The decrease in research and development expenses over the prior year’s third quarter and nine-month period was primarily due to compensation reductions and a reduction of some projects. We remain committed to a significant level of research and development effort in order to extend our technology leadership in the programmable logic industry.
 
Sales, General and Administrative
 
Sales, general and administrative expenses were $52.4 million, or 23.0% of net revenues and $173.1 million or 23.3% of net revenues for the third quarter and first nine months of fiscal 2002, respectively. They were $71.1 million, or 15.8% of net revenues and $205.0 million or 16.4% of net revenues for the comparable prior year periods. The decreases in sales, general and administrative expenses were primarily attributable to lower commissions and marketing expenses as well as a reduction in legal expenses as a result of the settlement of the Altera litigation.
 
Amortization of Goodwill and Other Intangibles
 
Amortization of goodwill and other intangibles of $10.8 million and $32.2 million for the third quarter and first nine months of fiscal 2002, respectively, and $6.8 million for the third quarter and first nine months of fiscal 2001 relates to the November 2000 acquisition of RocketChips, Inc.
 
Impairment Loss on Intangible Assets and Equipment
 
We evaluate the carrying value of certain long-lived assets and acquired intangibles, consisting primarily of testing equipment, goodwill, acquired technology, patents, and assembled workforce, recorded on the balance sheet, in accordance with SFAS 121 on a quarterly basis. SFAS 121 requires recognition of impairment losses on long-lived assets in the event that the carrying value of such assets exceeds the fair values. When we have indicators of impairment, we review our long-lived assets and acquired intangible assets for impairment based on estimated future undiscounted cash flows attributable to the assets. In the event such cash flows are not expected to be sufficient to recover the recorded value of the assets, the assets are written down to their estimated fair values based on the expected discounted future cash flows attributable to the assets.
 
Remaining goodwill and acquired intangibles will continue to be amortized through fiscal year 2002 using an estimated useful life of four to seven years. In July 2001, the FASB issued SFAS No. 141, “Business Combinations,” effective for business combinations initiated after June 30, 2001, and SFAS No. 142, “Goodwill and Other Intangible Assets,” effective for fiscal years beginning after December 15, 2001. Beginning in fiscal 2003, goodwill will no longer be amortized, but will be subject to annual impairment tests.
 
UMC Investment Valuation
 
The value of our unrestricted United Microelectronics Corporation (UMC) shares increased in value by $122.8 million during the third quarter of fiscal 2002 to $361.8 million at December 29, 2001. The increase in value of $122.8 million was recorded within stockholders’ equity as a component of accumulated other comprehensive income. The value of our UMC shares had declined to $239.0 million as of September 29, 2001. Because of the continued downturn in the economy, we believed that the decline in the market value of our investment in UMC as of September 29, 2001 was other than temporary. During the second quarter of fiscal 2002 we recognized a pre-tax loss of $191.9 million to reflect this other-than-temporary decline in market value. We will continue to re-evaluate the UMC investment quarterly to determine whether there are incremental other-than-temporary impairments or increases in valuation in future periods.
 
Interest Income and Other, Net
 
Interest income and other, net decreased to $4.5 million in the third quarter of fiscal 2002 from $8.4 million in the prior year quarter, and decreased to $18.2 million in the first nine months of fiscal 2002 from $28.7 million in the

11

prior year’s comparable period. The decreases were primarily due to the lower average investment balances and lower interest rates in the third quarter and the first nine months of fiscal 2002 as compared to the prior year periods. The amount of interest income and other, net 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 $8.8 million and a tax benefit of $90.1 million for the third quarter and first nine months of fiscal 2002, respectively, representing effective tax rates of 47.7% and 37.9%, respectively. We recorded a provision of $62.1 million and $142.9 million for the third quarter and first nine months of fiscal 2001, respectively, representing effective tax rates of 120.4% and 42.0%, respectively. The fiscal 2002 effective tax rate is primarily due to the tax benefit of operating losses and U.S. tax credits. The prior year rates were significantly impacted by the acquisition of RocketChips in November 2000.
 
On December 28, 2000, the Internal Revenue Service issued 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.
 
Hedging
 
On April 1, 2001 we adopted Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133). SFAS 133 requires that all derivatives be recorded on the balance sheet at fair value. Changes in the fair value of derivatives that do not qualify, or are not effective as hedges must be recognized currently in earnings. Upon adoption, we reflected all derivatives at fair value on the balance sheet but did not recognize a cumulative transition adjustment to earnings under the new standard.
 
We use forward currency exchange contracts to reduce financial market risks. Our sales to Japanese customers had been denominated in yen while our purchases of processed silicon wafers from Japanese foundries are primarily denominated in U.S. dollars. Effective July 1, 2001, our sales to all Japanese customers were converted to U.S. dollars. Gains and losses on foreign currency forward contracts that are designated and effective as hedges of firm commitments are deferred and included in the basis of the transaction in the same period that the underlying transaction is recognized. Gains and losses on any instruments not meeting the above criteria are recognized in income (loss) in the current period.
 
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 29, 2001 remained healthy. Total current assets were 4.4 times larger than total current liabilities, compared to 3.1 times at March 31, 2001. We have used a combination of equity and cash flow from operations to support ongoing business activities, secure manufacturing capacity from foundries, make acquisitions and investments in complementary technologies, obtain facilities and capital equipment and finance inventories and accounts receivable.
 
We continued to generate positive cash flows from operations during the first nine months of fiscal 2002. As of December 29, 2001, we had cash, cash equivalents and short-term investments of $417.4 million and working capital of $666.2 million. Cash flows generated by operations of $178.8 million for the first nine months of fiscal 2002 were $197.8 million lower than the $376.6 million generated during the first nine months of fiscal 2001. Decreases in cash generated by operations resulted primarily from the net loss during the period and decreases in accounts payable, income taxes payable, and deferred income on shipments to distributors which were partially offset by decreases in accounts receivable and inventories.

12

 
Net cash used in investing activities of $141.0 million during the first nine months of fiscal 2002 included net purchases of investments of $74.1 million and $66.9 million for purchases of property, plant and equipment. During the first nine months of fiscal 2001, net cash used in investing activities of $53.9 million included $177.4 million for property, plant and equipment purchases, partially offset by $119.3 million of net proceeds from sales and purchases of investments and cash obtained from our acquisition of RocketChips of $4.2 million.
 
Net cash used in financing activities was $42.1 million in the first nine months of fiscal 2002 and consisted of $100.9 million for the acquisition of treasury stock, partially offset by $55.8 million of proceeds from the issuance of common stock under employee stock plans and $3.0 million in proceeds from sales of put options. For the comparable fiscal 2001 period, net cash used in financing activities of $310.3 million included $382.9 million for the acquisition of treasury stock, partially 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 options.
 
Stockholders’ equity decreased $57.6 million during the first nine months of fiscal 2002, principally as a result of the $147.9 million net loss for the nine months ended December 29, 2001. In addition, the acquisition of treasury stock of $100.6 million and $0.3 million of cumulative translation adjustments contributed to the decrease, which was partially offset by proceeds from the issuance of common stock under employee stock plans of $55.4 million, $70.2 million in unrealized gains on available-for-sale securities, related tax benefits associated with stock option exercises and the employee stock purchase plan of $53.7 million, $8.9 million in deferred compensation related to the RocketChips acquisition and $3.0 million in proceeds from sales of put options.
 
We anticipate that existing sources of liquidity and cash flows 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 secure advanced process technology and capacity, procurement of additional capital equipment and facilities, development of new products, and potential acquisitions of and investments in 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;
 
 
•
 
increased dependency on turns orders;
 
 
•
 
accelerated erosion of average selling prices;
 
 
•
 
shift in our product mix could negatively impact gross margins,
 
 
•
 
excess inventory within the supply chain;
 
 
•
 
reduced capital spending by telecommunications service providers;
 
 
•
 
overbuilding of original equipment manufacturers (OEM) products, including communication infrastructure;
 
 
•
 
further deterioration in demand could lead to further excess and obsolete inventories and corresponding write-downs;
 
 
•
 
reduction in volumes could cause lower gross margins due to higher overhead absorption costs and reduced manufacturing efficiency improvements;
 
 
•
 
a prolonged global economic recession could impact demand negatively for our products;
 
 
•
 
a faster than expected increase in demand could result in a shortage of capacity at our wafer providers; and
 
 
•
 
an extended increase in demand could lengthen cycle times and result in higher than anticipated inventory requirements.
 
Our results of operations are affected by several factors. These factors include general economic conditions, those 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

13

and others). In addition, our results of operations are affected by the ability to manufacture sufficient quantities of a given product in a timely manner, the timely implementation of new manufacturing technologies, the ability to safeguard patents and intellectual property from competitors, the impact of new technologies which result in rapid escalation of demand for some products in the face of equally steep declines in demand for others, and the inability to predict the success of our customers' products in their markets. Market demand for our products, particularly for those most recently introduced, can be difficult to predict, especially in light of customers’ demands to shorten product lead times and minimize inventory levels. Unpredictable market demand could lead to revenue volatility if we were unable to provide sufficient quantities of specified products or if our customers’ reduced demand causes them to slow orders of our products, thereby increasing dependency on turns orders. Changes in our product mix could adversely affect gross margins. In addition, any difficulty in achieving targeted wafer production yields could adversely affect our financial condition and results of operations. An increase in demand could result in longer lead times causing delays in customer production schedules. 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. For example, the recent overbuilding in the telecommunications industry resulted in a reduction in capital spending causing a slowdown in orders for our products. 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 fluctuations in future operating results.
 
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. Currently all of our customers are invoiced in U.S. dollars. While the recent weakness of the Euro and Yen against the Dollar 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, such as the terrorist attacks on September 11, 2001 and their aftermath, 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 wafer provider, 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.
 
Dependence on Independent Manufacturers and Subcontractors
 
We do not manufacture our own silicon wafers. Presently, all of our wafers are manufactured in Taiwan by UMC, in Japan by Seiko Epson Corp (Seiko) and in the U.S by International Business Machines Corporation (IBM). 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 foundries. We are dependent on these foundries 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

14

date, we cannot guarantee that the foundries that supply our wafers will not experience future manufacturing problems, including delays in the realization of advanced manufacturing process technologies.
 
UMC’s foundries in Taiwan and Seiko’s foundries in Japan as well as 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. Additionally, disruption of operations at these foundries for any reason, including other natural disasters such as fires or floods, 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 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.
 
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 on New Products
 
Our success depends in large part on our ability to develop and introduce new products that 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 including a transition to 300 millimeter wafers as well as circuit geometries smaller than 0.18 micron;
 
 
•
 
achieving acceptable yields;
 
 
•
 
ability to obtain advanced packaging;
 
 
•
 
availability of supporting software design tools;
 
 
•
 
utilization of predefined cores of logic;
 
 
•
 
industry acceptance; and
 
 
•
 
successful deployment of systems by our customers.
 
We cannot assure that our product development efforts will be successful, that our new products will achieve industry acceptance or that we will achieve the necessary volume of production that would lead to further per unit cost reductions. 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 programmable logic devices (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 and Lattice Semiconductor Corporation (Lattice) and from new companies that may enter the market. We believe that important competitive factors in the programmable logic industry include:

15

 
 
•
 
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.
 
Our strategy for expansion in the logic market includes continued introduction of new product architectures that 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 field programmable gate array (FPGA)-type architectures;
 
 
•
 
providers of high volume and low cost FPGAs as programmable replacements for standard cell or gate array based application specific integrated circuits (ASICs) and application specific standard products (ASSPs);
 
 
•
 
providers of high speed, low density complex programmable logic devices (CPLDs);
 
 
•
 
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 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. Several companies, both large and small, have introduced products that compete with ours or have announced their intention to enter the PLD segment. 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 the logic 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.
 
We could also face competition from our licensees. Under a license from us, Lucent Technologies (Lucent) had rights to manufacture and market our XC3000 FPGA products and also to employ that technology to provide additional high density FPGA products. In 2001, Lucent assigned its rights to Agere Systems, Inc. (Agere). Agere has subsequently sold a portion of its programmable logic business to Lattice. Under the terms of the Xilinx license grant, no rights of Agere are transferable to Lattice. Seiko has rights to manufacture some of our older products and market them in Japan and Europe, but is not currently doing so. We granted a license to use certain of our patents

16

to Advanced Micro Devices (AMD). AMD produced certain PLDs under that license through its wholly owned subsidiary, Vantis. In June 1999, AMD sold the Vantis subsidiary to Lattice. In conjunction with the settlement of the patent litigation with Altera in July 2001, both companies entered into a royalty-free patent cross license agreement.            
 
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.
 
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 was available for non-cash transactions and legacy currencies remained legal tender. We are continuing to assess the Euro’s impact on our business. We have reviewed 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 reviewed our pricing strategies. We have made the modifications to do business in the Euro should our customers desire. 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.
 
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 or decrease in interest rates would not materially affect the fair value of our available-for-sale securities.
 
Foreign Currency Risk            
 
We enter into forward currency exchange contracts to reduce financial market risks. 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. Effective July 1, 2001, we converted all Japanese customers to U.S. dollar invoicing and will have minimal yen currency exposure.
 
We are expanding our Ireland facility and we have seven outstanding forward currency exchange contracts against the Irish punt. The total value of these contracts is approximately U.S. $8.3 million. The seven contracts expire at

17

various dates between January 2002 and May 2002. We anticipate purchasing additional Euro (Irish punt) forward contracts to reduce exposures as construction commitments increase.            
 
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 quarter 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, other than a temporary impairment, 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            
 
The Company filed a petition with the Tax Court on March 26, 2001. Other than this petition, we know of no legal proceedings contemplated by any governmental authority or agency against the Company.
 
On January 15, 2002, the Company served process against Bausch & Lomb claiming trademark infringement. At this point in time, it is premature to comment on the likely outcome of this case.
 
Except as stated above, there are no pending legal proceedings of a material nature to which we are a party or of which any of our property is the subject.
 
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 12, 2002        
      
By:
  
/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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