SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended March 29, 1997 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
COMMISSION FILE NUMBER 0-18548
XILINX, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
77-0188631
(I.R.S. Employer Identification No.)
2100 LOGIC DRIVE, SAN JOSE, CA 95124
(Address of principal executive offices) (Zip Code)
(408) 559-7778
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such requirements for the past 90 days.
YES [ X ] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on June 9,
1997 as reported on the NASDAQ National Market was approximately
$3,172,929,753. Shares of Common Stock held by each executive officer and
director and by each person who owns 5% or more of the outstanding Common
Stock have been excluded in that such persons may be deemed affiliates. This
determination of affiliate status is not necessarily a conclusive
determination for other purposes.
At June 9, 1997, registrant had 73,534,737 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Proxy Statement for the Registrant's 1997 Annual Meeting of
Stockholders are incorporated by reference in this Form 10-K Report (Part
III).
PART I
------
ITEM 1. BUSINESS
GENERAL
Xilinx, Inc. (Xilinx or the Company) designs, develops and markets CMOS
(complementary metal-oxide-silicon) programmable logic devices and related
design software. The Company's programmable logic product lines include field
programmable gate arrays (FPGAs) and complex programmable logic devices
(CPLDs). These components are standard integrated circuits (ICs) programmed
by Xilinx's customers to perform desired logic operations. Xilinx introduced
the first FPGA device in 1985, holds patents on certain programmable logic
devices (PLD), architecture and technology, and continues to be the leading
supplier of programmable logic solutions. Xilinx also markets HardWire
Arrays, which are mask-programmed ICs functionally equivalent to programmed
FPGAs. The Company's products are designed to provide high integration and
quick time-to-market for electronic equipment manufacturers in the computer,
peripheral, telecommunications, networking, industrial control,
instrumentation, high-reliability/military and consumer markets.
Competitive pressures require manufacturers of electronic systems to bring
increasingly complex products to market rapidly. Customer requirements for
improved functionality, performance, reliability and lower cost are often
addressed through the use of components that integrate ever larger numbers of
logic gates onto a single integrated circuit because such integration often
results in faster speed, smaller size, lower power consumption and lower
costs. However, while global competition is increasing the demand for more
complex products, it is also shortening product life cycles and requiring more
frequent product enhancements.
Xilinx provides programmable logic solutions, which combine the high logic
density typically, associated with custom gate arrays with the time to market
advantages of programmable logic and the availability of a standard product.
The Company offers a broad product line of PLDs which serve a wide variety of
applications requiring high levels of integration and for which time to market
is critical, production volumes are unpredictable and/or frequent design
modifications are necessary to adapt a product to new markets. Xilinx CPLDs
complement the Company's FPGA products and contribute to the Company's efforts
to offer comprehensive programmable logic solutions. With FPGAs, which have
the advantages of higher density and lower power consumption, and CPLDs, which
are typically faster and have lower densities, the Company's products enable
electronic system manufacturers to rapidly bring complex products to market in
volume. Xilinx's products have provided effective solutions to a wide range
of customer logic requirements.
The Xilinx software strategy is to deliver an integrated design solution for a
broad customer base ranging from customers who are not familiar with designing
systems using PLDs to the most sophisticated customers accustomed to designing
high density, mask-programmed gate arrays. The objective is to deliver
strategic software advantages that combine ease of use with design
flexibility, effective silicon utilization and competitive performance.
System designers use proprietary Xilinx design software together with industry
standard electronic design automation (EDA) tools to design and develop Xilinx
programmable logic applications. Designers define the logic functions of the
circuit and revise such functions as necessary. Programmable logic can
typically be designed and verified in a few days, as opposed to several weeks
or months for gate arrays, which are customized devices that are defined
during the manufacturing process. Moreover, programmable logic design changes
can typically be implemented in as little as a few hours, as compared to
several weeks for a custom gate array. In addition, significant savings
result from the elimination of non-recurring engineering costs and the
reduction of expenses associated with the redesign and testing of custom gate
arrays. By reducing the cost and scheduling risks of design iterations, PLDs
allow greater designer creativity, including the consideration of design
alternatives that often lead to product improvements. Further, since PLDs are
standard products and production quantities are more readily available,
exposures to obsolete inventory can be significantly reduced.
Xilinx was organized in California in February 1984 and in November 1985 was
reorganized to incorporate its research and development limited partnership.
In April 1990, the Company reincorporated in Delaware. The Company's
corporate facilities and executive offices are located at 2100 Logic Drive,
San Jose, California 95124.
PRODUCTS
The timely introduction of new products which address customer requirements
and compete effectively on the basis of price and performance is a significant
factor in the future success of the Company's business. Delays in developing
new products with anticipated technological advances or delays in commencing
volume shipments of new products could have an adverse effect on the Company's
financial condition and results of operations. In addition, there can be no
assurance that such products, if introduced, will gain market acceptance or
respond effectively to new technological changes or new product introductions
by other companies.
Programmable Logic Devices
The Company's FPGA products include the XC2000, XC3000 and XC3100 families,
which represent first generation products, as well as the XC4000, XC4000X and
XC5000 families, which represent second generation products. The Company's
CPLD products include the XC7000 and XC9000 families. The Company's XC4000
product family includes both the XC4000 and XC4000E. The XC4000E family
increased performance over previous versions of the XC4000 family through
utilization of a new design, a new process technology and new on-chip RAM
features. The Company's XC4000X product family includes the XC4000EX,
XC4000XL and XC4000XV. The XC4000EX family utilizes the benefits of the
XC4000E architecture and provides additional routing resources that are
expected to meet the design requirements for ICs with high gate densities.
The XC4000X family is expected to offer a powerful solution for the
mask-programmed gate array replacement market. The XC4000XL family, which
utilizes leading-edge 0.35 micron technology, is an extremely low power device
at 3.3 volts due to Xilinx's segmented routing architecture. The Company
began shipping XC4000XL samples in the fourth quarter of fiscal 1997. The
XC4000XV, which is expected to utilize 0.25 micron technology requiring as
little as 2.5 volts, is currently being developed, and the Company expects to
begin shipping samples in fiscal 1998. The preceding sentence contains
forward-looking statements which are subject to risks and uncertainties
including those discussed in Item 7 in "Management's Discussion and Analysis
of Financial Condition and Results of Operation - Factors Affecting Future
Results." The XC5000 family represents the first FPGA specifically developed
as a cost effective, high volume production alternative to gate arrays. The
XC9000 family utilizes Flash-based CPLD architecture and offers in-system
programmability.
The XC6000 family is designed for reconfigurable processing using in-system
programmable devices that can be defined and redefined in real time while the
system is operating and are optimal for co-processing or embedded
applications.
PLDs are available in a wide variety of plastic and ceramic package types,
including pin-grid array, surface mount and quad flat pack configurations.
These devices meet the industry standard operating temperature ranges of
commercial, industrial and military users.
The Company's HardWire Arrays offer a low cost migration path for high volume
applications. Once a programmable logic design is finalized, customers can
take advantage of HardWire products, which are mask-programmed during the
manufacturing process. The Company's HardWire Arrays offer a complete
turn-key conversion solution, which eliminates the engineering and risk burden
normally associated with conventional gate arrays. For every Xilinx FPGA
family, there is a corresponding HardWire Array.
In order to minimize the printed circuit board area required for external
storage of the FPGA configuration program, the Company provides a family of
erasable programmable read-only memories (EPROMs). These devices are sold by
the Company in conjunction with its FPGAs.
Design Software
The Company's XACTstep software combines powerful technology with a flexible,
easy to use graphical interface to help achieve the best possible designs.
XACTstep provides all of the implementation technology required to design with
all Xilinx logic devices, including module generation, design optimization and
mapping, placement and routing, timing analysis, and program file generation.
The latest generation of XACTstep software, which incorporates software
technology acquired from NeoCAD, Inc., became available in fiscal 1997 and is
designed to satisfy the complete spectrum of FPGA and CPLD customer
requirements.
The Company offers two complementary design software solutions. The
Foundation Series provides designers with a complete, ready-to-use solution
that is easy to learn and use. For those customers that are new to designing
with PLDs or want a low cost approach, the Company offers this fully
integrated software solution. The Alliance Series is for designers who want
maximum flexibility to integrate programmable logic design into their existing
EDA environment and methodology. With interfaces to over 50 EDA vendors, this
product allows users to select tools with which they are most familiar and
therefore shortens their design cycle.
The Company also provides pre-implemented, fully-verified, drop-in LogiCORE
modules for commonly used, complex functions such as digital signal
processing. Using LogiCORE modules, customers can shorten development time,
reduce design risk and obtain superior performance for their designs.
Xilinx's XACTstep design software operates on desktop computer platforms,
including personal computers and workstations from IBM, IBM-compatible
manufacturers, HP, DEC and Sun Microsystems. Through March 31, 1997, the
Company had distributed over 35,500 design systems worldwide.
RESEARCH AND DEVELOPMENT
Xilinx's research and development activities are primarily directed towards
the design of new integrated circuits, the development of advanced
semiconductor manufacturing processes, the development of new design software
and ongoing cost reductions and performance improvements in existing products.
The Company's recent research and product development efforts have been
directed principally towards its XC4000X, XC5000, and XC6000 families of
FPGAs, CPLD products, design software and towards other proprietary new
architectures and processes.
Xilinx believes that design software is an important factor in expanding the
use of programmable logic devices. The Company's research and development
challenge is to continue to develop new products that create solutions for
customers. In fiscal 1997, 1996, and 1995, the Company's research and
development expenses were $71.1 million, $64.6 million and $45.3 million,
respectively. The Company expects that it will continue to spend substantial
funds on research and development. The Company believes that technical
leadership is essential to its future success and is committed to continuing a
significant level of research and development effort.
MARKETING AND SALES
Xilinx sells its products through several channels of distribution: direct
sales to manufacturers by independent sales representative firms, sales
through domestic distributors, and sales through foreign distributors. Xilinx
also utilizes a direct sales management organization, field applications
engineers (FAEs) as well as manufacturer's representatives and distributors to
reach a broad base of potential customers. The Company's independent
representatives generally address larger OEM customers and act as a direct
sales force, while distributors serve the balance of the Company's customer
base. All channels are supported by the Company's sales and customer support
personnel who consult with customers about their plans, ensuring that the
right software and devices are selected at the beginning of a project.
In North America, Hamilton-Hallmark, Marshall Industries, and Insight
Electronics, Inc. distribute the Company's products nationwide, and Nu
Horizons Electronics provides additional regional sales coverage. The Company
believes that distributors provide a cost effective means of reaching small
and medium-sized customers. Since the Company's PLDs are standard products,
they do not present many of the inventory risks to distributors of custom gate
arrays, and they simplify the requirements for distributor technical support.
Because the distributors have certain rights of product return and price
protection privileges, the Company defers recognition of revenues and related
cost of revenues for products sold through domestic distributors until the
distributors sell the product.
BACKLOG AND CUSTOMERS
As of March 29, 1997, the Company's backlog of purchase orders scheduled for
delivery within the next three months was $84.4 million. Based on the
Company's current inventory levels and wafer capacity availability, the
Company's lead times have shortened. As a result, many of the Company's
customers are currently placing orders for near-term delivery and providing
the Company relatively limited visibility to demand for products further out
than three months. Backlog as of March 30, 1996 was $106.4. Orders
constituting the Company's current backlog are subject to changes in delivery
schedule or to cancellation at the option of the purchaser without significant
penalty. Accordingly, although useful for scheduling production, backlog as
of any particular date may not be a reliable measure of revenues for any
future period.
No single end customer accounted for more than 5% of revenues in fiscal 1997,
or 6% in 1996 and 1995. See Note 9 of Notes to Consolidated Financial
Statements in Item 8 for Industry and Geographic Information.
WAFER FABRICATION
In 1997, the majority of wafers for PLDs shipped by the Company were
manufactured by Seiko Epson Corporation (Seiko Epson) and United
Microelectronics Corporation, (UMC). Precise terms with respect to the volume
and timing of wafer production and the pricing of wafers produced by Seiko
Epson and UMC are determined by periodic negotiations between the Company and
these foundry partners. From time to time, Xilinx may contract with other
suppliers to provide leading-edge process technology wafers for the Company's
products.
Xilinx's strategy is to focus its resources on creating new integrated
circuits and design software and on market development rather than on wafer
fabrication. The Company continuously evaluates opportunities to enhance
foundry relationships and/or obtain additional capacity. As a result, the
Company has entered into recent agreements with UMC and Seiko Epson as
discussed below.
The Company, UMC and other parties have entered into a joint venture to
construct a wafer fabrication facility in Taiwan, known as United Silicon Inc.
(USI). See Notes 4 and 6 of Notes to Consolidated Financial Statements in Item
8. Under the terms of the agreement, the Company invested approximately $34
million in fiscal 1996 and expects to invest additional amounts totaling
approximately $102 million, for a 25% equity interest in the venture. As a
result of its equity ownership, the Company has rights to purchase a
percentage of the facility's wafer production at competitive market prices.
During fiscal 1997, the Board of Directors of USI voted to delay the wafer
fabrication facility construction schedule. As a result, the additional
payments were also delayed and are now expected to be made in fiscal 1998.
The revised schedule for construction of the facility and the related payments
are subject to further change based on overall semiconductor industry
conditions and other factors. UMC has committed to and is supplying the
Company with wafers manufactured in an existing facility until capacity is
available in the new facility.
In fiscal 1997, the Company signed an agreement with Seiko Epson, a primary
wafer supplier. See Note 6 of Notes to Consolidated Financial Statements in
Item 8. The agreement provides for an advance to Seiko Epson of up to $200
million to be used in the construction in Japan of a wafer fabrication
facility, which will provide access to eight-inch, sub-micron wafers. In
conjunction with the agreement, $30 million installments were paid in May 1996,
November 1996 and May 1997 (subsequent to fiscal 1997), and further $30 million
installments are scheduled for November 1, 1997 and February 1, 1998 or upon
the start of mass production, whichever is later. The final installment for
the advance payment of $50 million is due on or after the later of April 1,
1998 or the date the outstanding balance of the advance payment is less than
$125 million. As a result, the maximum outstanding amount of the advance
payment at any time is $175 million. Repayment of this advance will be in the
form of wafer deliveries expected to begin in the first half of calendar 1998.
Specific wafer pricing will be based upon the prices of similar wafers
manufactured by other, specifically identified, leading-edge foundry
suppliers. The advance payment provision also provides for interest to be
paid to the Company in the form of free wafers. The Company may also provide
further funding to Seiko Epson in the amount of $100 million, which, if
provided, will be paid after the final installment of the advance, and its
terms and conditions will be negotiated at that time.
SORT, ASSEMBLY AND TEST
Wafers purchased by the Company are sorted by the foundry, independent sort
subcontractors or by the Company. Sorted wafers are assembled by a
subcontractor in facilities in Pacific Rim countries. During the assembly
process, the wafers are separated into individual integrated circuits which
are then assembled into various package types. Following assembly, the
packaged units are tested by independent test subcontractors or by Xilinx
personnel at the Company's San Jose or Ireland facilities.
PATENTS AND LICENSES
Through March 29, 1997, the Company held 143 United States patents and
maintains an active program of filing for additional patents in the areas of
software, IC architecture and design. The Company intends to vigorously
protect its intellectual property. The Company believes that failure to
enforce its patents or to effectively protect its trade secrets could have an
adverse effect on the Company's financial condition and results of operations.
See Legal Proceedings in Item 3 and Note 10 of Notes to Consolidated Financial
Statements in Item 8.
Xilinx has acquired various software licenses that permit the Company to grant
object code sublicenses to its customers for certain third party software
programs licensed with the Company's design software. In addition, the Company
has licensed certain software for internal use in product design.
EMPLOYEES
Xilinx's employee population has grown by 6% during the past year. As of
March 29, 1997, Xilinx had 1,277 employees compared to 1,201 at the end of the
prior year. None of the Company's employees are represented by a labor union.
The Company has not experienced any work stoppages and considers its relations
with its employees to be good.
COMPETITION
The Company's FPGA and CPLD products compete in the programmable logic
marketplace, with a substantial majority of the Company's revenues derived
from its FPGA product families. The industries in which the Company competes
are intensely competitive and are characterized by rapid technological change,
rapid product obsolescence and continuous price erosion. The Company expects
significant competition both from existing competitors and from a number of
companies that may enter its market.
Xilinx believes that important competitive factors in the programmable logic
market include price, product performance and reliability, adaptability of
products to specific applications, ease of use and functionality of design
software, and the provision of timely customer service and support. The
Company's strategy for expansion in the programmable logic market includes
continued price reductions commensurate with the ability to lower the cost of
manufacture for established products and continued introduction of new product
architectures which address high volume, low cost applications as well as high
performance, leading-edge density applications. However, there can be no
assurance that the Company will be successful in achieving these strategies.
The Company's major sources of competition are comprised of three elements:
the manufacturers of custom CMOS gate arrays, providers of high density
programmable logic products characterized by FPGA-type architectures, and
other providers of programmable logic products. The Company competes with
custom gate array manufacturers on the basis of lower design costs, shorter
development schedules and reduced inventory risks. The primary attributes of
custom gate arrays are high density, high speed and low production costs in
high volumes. The Company continues to develop lower cost architectures
intended to narrow the gap between current custom gate array production costs
(in high volumes) and FPGA production costs.
The Company competes with high density programmable logic suppliers on the
basis of performance, the ability to deliver complete solutions to customers
and customer support, taking advantage of the primary characteristics of
flexible, high speed implementation and quick time-to-market capabilities of
the Company's PLD product offerings. In addition, the Company competes with
manufacturers of other programmable logic products on the basis of price,
power, performance, design and software utility. To the extent that such
efforts to compete are not successful, the Company's financial condition and
results of operations could be materially adversely affected. The Company
believes that certain of its patents have been infringed by a competitor and
has initiated legal action to protect its intellectual property. See Legal
Proceedings in Item 3 and Note 10 of Notes to Consolidated Financial
Statements in Item 8.
The benefits of programmable logic have attracted a number of companies to
this market, competing primarily on the basis of speed, density or cost.
Xilinx recognizes that different applications require different programmable
technologies, and the Company is developing multiple architectures, processes
and products to meet these varying customer needs. Recognizing the increasing
importance of standard software solutions, Xilinx has developed common design
software that supports the full range of integrated circuit products. Xilinx
believes that automation and ease of design will be significant competitive
factors in the programmable logic market.
Several companies, both large and small, have introduced products competitive
with those of the Company or have announced their intention to enter this
market. Some of the Company's competitors may possess innovative technology,
which could prove superior to Xilinx's technology in some applications. In
addition, the Company anticipates potential competition from suppliers of
logic products based on new technologies. Some of the Company's current or
potential competitors have substantially greater financial, manufacturing,
marketing and technical resources than Xilinx. This additional competition
could adversely affect the Company's financial condition and results of
operations.
Xilinx also faces competition from its licensees. Under a license from the
Company, Lucent Technologies is manufacturing and marketing the Company's
non-proprietary XC3000 FPGA products and is employing that technology to
provide additional FPGA products offering higher density. Seiko Epson has
rights to manufacture the Company's products and market them in Japan and
Europe but is not currently doing so. Advanced Micro Devices is licensed to
use certain of the Company's patents to manufacture and market products other
than SRAM-based FPGAs and, as of March 1997, can also compete directly in this
market.
EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information regarding each of Xilinx's executive officers is set forth
below:
Name Age Position Officer Since
Willem P. Roelandts 52 Chief Executive Officer and President 1996
R. Scott Brown 56 Senior Vice President, Worldwide Sales 1985
Richard W. Sevcik 49 Senior Vice President, Software 1997
Gordon M. Steel 52 Senior Vice President, Finance and Chief Financial Officer 1987
Robert C. Hinckley 49 Vice President, Strategic Plans and 1991
Programs, General Counsel, and Secretary
C. Frank Myers 63 Vice President, Operations 1985
There is no family relationship between any director or executive officer of
the Company.
Willem P. "Wim" Roelandts joined the Company in January 1996 as Chief
Executive Officer and a member of the Company's Board of Directors. In April
1996 he was appointed as Xilinx's President. Previously, he was a 28-year
veteran of Hewlett-Packard Company, where he served as a senior vice president
and managed the company's Computer Systems Organization from November 1992
through January 1996. In this capacity, he was responsible for all aspects of
the computer systems business worldwide, including research and development,
manufacturing, marketing, professional services and sales. He also served as
vice president and general manager of the Network Systems Group from December
1990 to November 1992.
R. Scott Brown joined the Company in 1985 as Vice President of Sales and was
promoted to Senior Vice President, Worldwide Sales in 1995.
Richard W. Sevcik joined the Company in April 1997 as Senior Vice President of
Software. He was at Hewlett-Packard Company for 10 years where, since 1994,
he served as group general manager of the company's Systems Technology Group
and oversaw five divisions involved with product development for the Company's
servers, workstations, operating systems, microprocessors, networking and
security. In 1995 he was named vice president. From 1992 to 1994, he served
as group general manager of Computer Systems and Servers and was responsible
for four divisions. Prior to that, he was general manager of the Commercial
Systems Division, a division that develops, manufactures and markets the
company's business computers.
Gordon M. Steel joined the Company in 1987 as Vice President, Finance and
Chief Financial Officer and was promoted to Senior Vice President, Finance and
Chief Financial Officer in 1995.
Robert C. Hinckley joined the Company in 1991 as Vice President, Strategic
Plans and Programs and as the Company's General Counsel. He was appointed
Secretary in 1993. He acted as interim Chief Operating Officer from March
through August 1994.
C. Frank Myers has been Vice President, Operations since 1988. He joined the
Company in 1985 as Vice President of Manufacturing.
ITEM 2. PROPERTIES
Xilinx's corporate offices, which include the administrative, sales, customer
support, marketing, research and development and final testing groups are
located in San Jose, California. The site includes adjacent buildings
providing 335,000 square feet of available space which are leased through
1999. The Company has entered into lease agreements relating to these
facilities which would allow the Company to purchase these facilities on or
before the lease expiration dates in December 1999. In addition, the Company
has a 100,000 square foot administrative, research and development and final
testing facility in the metropolitan area of Dublin, Ireland and a 60,000
square foot facility in Boulder, Colorado. The Irish facility is being used
to service the Company's customer base outside of North America, while the
Boulder facility is the primary location for the Company's software efforts in
the areas of research and development, manufacturing and quality control. The
Company also maintains domestic sales offices in twenty-two locations which
include the metropolitan areas of Atlanta, Boston, Chicago, Denver, Dallas,
Los Angeles, Minneapolis, Philadelphia, Raleigh and San Jose as well as eight
international sales offices located in the metropolitan areas of London,
Munich, Paris, Stockholm, Tokyo, Taipei, Seoul and Hong Kong.
ITEM 3. LEGAL PROCEEDINGS
On June 7, 1993, the Company filed suit against Altera Corporation (Altera) in
the United States District Court for the Northern District of California for
infringement of certain of the Company's patents. Subsequently, Altera filed
suit against the Company, alleging that certain of the Company's products
infringe certain Altera patents. Fact and expert discovery has been completed
in both cases, which have been consolidated. On April 20, 1995, Altera filed
an additional suit against the Company in the Federal District Court in
Delaware, alleging that the Company's XC5000 family infringes an Altera
patent. The Company answered the Delaware suit denying that the XC5000 family
infringes the patent in suit, asserting certain affirmative defenses and
counterclaiming that the Altera Max 9000 family infringes certain of the
Company's patents. The Delaware suit was transferred to the United States
District Court for the Northern District of California and is also before the
same judge. 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 could
differ materially due to the uncertain nature of the litigation with Altera
and because the lawsuits are still in the pre-trial stage.
There are no other pending legal proceedings of a material nature to which the
Company is a party or of which any of its property is the subject. The
Company knows of no legal proceedings contemplated by any governmental
authority or agency.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
-------
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Xilinx's Common Stock is listed on the Nasdaq National Market under the symbol
XLNX. The table below reflects for the periods indicated the high and low
closing sales prices per share of the Common Stock, as reported on the Nasdaq
National Market. Xilinx has never paid a cash dividend on its Common Stock
and intends to continue this policy for the foreseeable future. As of March
29, 1997, there were approximately 650 stockholders of record. Since many
holders' shares are listed under their brokerage firms' names, the actual
number of stockholders is estimated by the Company to be over 21,000.
Fiscal Year 1997 Fiscal Year 1996
High Low High Low
------ ------ ------ ------
First Quarter $37.88 $29.88 $33.17 $21.25
Second Quarter 39.75 26.63 53.88 31.67
Third Quarter 44.50 31.63 48.38 24.75
Fourth Quarter 50.88 36.00 45.50 27.88
ITEM 6. SELECTED FINANCIAL DATA - (in thousands, except per share data)
CONSOLIDATED STATEMENT OF INCOME DATA:
Years ended March 31, 1997 1996 1995 1994 1993
- ------------------------------------- -------- -------- -------- -------- --------
Net revenues $568,143 $560,802 $355,130 $256,448 $177,998
Operating income 159,061* 165,756# 92,048& 65,168 41,586
Income before taxes 165,758* 170,902# 94,845& 67,436 43,610
Provision for income taxes 55,382 69,448 35,567 26,157 16,379
Net income 110,376* 101,454# 59,278& 41,279 27,231
Net income per share $ 1.39* $ 1.28# $ 0.80& $ 0.57 $ 0.38
- ------------------------------------- -------- -------- -------- -------- --------
Shares used in per share calculations 79,675 78,955 74,109 72,237 70,848
- ------------------------------------- -------- -------- -------- -------- --------
<FN>
*After write-off of discontinued product family of $5 million and $0.04 per share net of tax.
#After non-recurring charge for in-process technology related to the acquisition of NeoCAD
of $19,366 and $0.25 per share.
&After non-recurring charge for the write-off of a minority investment of $2,500 and $0.02
per share net of tax.
~ The Company's fiscal year ends on the Saturday nearest March 31. For ease of
presentation, March 31 has been utilized as the fiscal year-end for all
financial statement captions.
CONSOLIDATED BALANCE SHEET DATA:
Years ended March 31, 1997 1996 1995 1994 1993
- -------------------- -------- -------- -------- -------- --------
Working capital $504,302 $436,070 $180,064 $143,103 $101,100
Total assets 847,693 720,880 320,940 226,156 162,899
Long-term debt 250,000 250,000 867 2,195 3,911
Stockholders' equity 490,680 368,244 243,971 172,878 123,299
- ----------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement
The statements in this Management's Discussion and Analysis that are forward
looking involve numerous risks and uncertainties and are based on current
expectations. Actual results may differ materially. Such risks and
uncertainties are discussed under "Factors Affecting Future Results". Forward
looking statements can often be identified by the use of forward looking
words, such as "may," "will," "could," "should," "expect," "believe,"
"anticipate," "estimate," "continue," "plan," "intend," "project," or other
similar words.
Nature of Operations
Xilinx, Inc. (Xilinx or the Company) designs, develops and markets CMOS
(complementary metal-oxide-silicon) programmable logic devices and related
design software. The Company's programmable logic product lines include field
programmable gate arrays (FPGAs) and complex programmable logic devices
(CPLDs). These components are standard integrated circuits (ICs) programmed
by Xilinx's customers to perform desired logic operations. Xilinx introduced
the first FPGA device in 1985, holds patents on certain programmable logic
device (PLD) architecture and technology, and continues to be the leading
supplier of programmable logic solutions. Xilinx also markets HardWire
devices, which are mask-programmed ICs functionally equivalent to programmed
FPGAs. The Company's products are designed to provide high integration and
quick time-to-market for electronic equipment manufacturers in the computer,
peripheral, telecommunications, networking, industrial control,
instrumentation, high-reliability/military and consumer markets. The Company
markets its products throughout the world through a direct sales organization,
direct sales to manufacturers by independent sales representative firms, sales
through licensed domestic distributors and sales through foreign distributors.
Xilinx's products have provided effective solutions to a wide range of
customer logic requirements.
Results of Operations
The following table sets forth certain operational data both as percentages of
annual revenues and as percentage changes from the prior year's results.
Increase/(Decrease)
Years ended March 31, from Prior Year
1997 1996 1995 1997 1996
- -------------------------------------- ------- ------ ------ ------- -----
Revenues 100.0% 100.0% 100.0% 1.3% 57.9%
Cost of revenues 38.6%* 36.2% 39.0% 7.9% 46.7%
Gross margin 61.4%* 63.8% 61.0% (2.4%) 65.1%
Research and development 12.5% 11.5% 12.8% 10.0% 42.5%
Marketing, general and administrative 20.9% 19.2% 21.6% 10.0% 40.5%
Operating income before
non-recurring charges 28.0% 33.1% 26.6% (14.1%) 95.8%
Non-recurring charges - 3.5% 0.7% NM NM
Operating income 28.0% 29.6% 25.9% (4.0%) 80.1%
Interest income and other (net) 1.2% 0.9% 0.8% 30.1% 84.0%
Income before taxes 29.2% 30.5% 26.7% (3.0%) 80.2%
Provision for income taxes 9.8% 12.4% 10.0% (20.3%) 95.3%
Net income 19.4% 18.1% 16.7% 8.8% 71.1%
- -------------------------------------- ------- ------ ------ ------- -----
<FN>
* Includes write-off of discontinued product family of $5 million.
Revenue
Revenues for fiscal 1997 increased to $568.1 million, representing an increase
of 1.3% from $560.8 million for 1996 and 60% from the $355.1 million reported
for 1995. The level of revenues in fiscal 1997 was significantly impacted by
a semiconductor industry inventory correction which reduced customer demand.
The Company's revenue increase in 1997 was primarily attributable to the
revenue growth of the XC5200 product family, introduced in fiscal 1996, as
well as the growth of the Company's XC4000 product family, offset by decreased
revenues derived from the Company's first generation products including the
XC2000 family and non-proprietary products in the Company's XC3000 product
family, where there is a second source competitor. Revenues from the XC4000
and XC4000X family increased 5.9% between 1996 and 1997 to $264.5 million, and
revenues for the XC5200 family increased from $9.1 million in 1996 to $37.5
million in 1997.
Revenue contribution by programmable logic product line reflected a mix
between increased customer demand for low cost, medium range density
programmable logic devices and the functionality and performance provided by
the Company's higher density and higher speed programmable logic devices.
Revenues from proprietary products, for which there is no second source
competitor, increased from 84.9% of aggregate revenues in 1996 to 91% in 1997.
In the fourth quarter of 1997, proprietary products accounted for 93.3% of
total revenues as compared to 88.1% for the comparable 1996 quarter. Deriving
revenues from proprietary products has been emphasized by the Company as an
effective corporate pricing strategy that has as its aim to expand the market
for its products by reducing sales prices coincident with and commensurate
with reductions in the cost of manufacturing these products. The Company
currently intends to continue actively pursuing a strategy of broadening the
markets it serves through the enhancement of software design tools, the
introduction of architectures offering new functionality, and the reduction of
IC prices through continuous advancements in the silicon manufacturing
process.
Revenues for the Company's first generation products, which include the
XC2000, XC3000 and XC3100 families, represented 33.2% of aggregate component
revenues in fiscal 1997, as compared to 40.3% in fiscal 1996. The Company's
second generation products, including the XC4000, XC4000X and XC5200 families,
represented 54.8% of aggregate component revenues in fiscal 1997, as compared
to 47.8% in fiscal 1996. Revenues from other products, which include the CPLD
families, HardWire and serial proms, were relatively comparable between 1997
and 1996. During 1997, all second generation product families experienced
increases in unit volume. The average selling price for PLDs decreased
approximately 6% in 1997 relative to the previous year, although the average
selling price of a PLD product family decreased by up to 33% during the year.
Individual products within certain families decreased in price as much as 40%
during the past year, as prices were reduced in order to expand market share
while realizing acceptable returns. Price erosion of this magnitude has been
common in the semiconductor industry, as advances in both architecture and
manufacturing process technology have permitted continual reductions in cost.
The Company relies upon introducing new products which incorporate advanced
features and other price/performance factors such that higher average selling
prices and higher margins are achievable despite the price erosion on mature
product lines.
Xilinx's design software is used by the Company's customers to implement
designs in the Company's programmable logic devices. Software revenues
remained relatively comparable from 1996 to 1997 at $17.1 million as compared
to $12.6 million in 1995. Cumulative licenses for proprietary design software
distributed to customers through the end of 1997 totaled approximately 35,500
units, as compared to 26,700 and 21,000 units at the end of 1996 and 1995,
respectively. Software sales as a percentage of total revenues represented 3%
of revenues in 1997 and 1996 and 4% in 1995.
No single end customer accounted for more than 5% of revenues in 1997 or 6% of
revenues in 1996 or 1995.
International revenues constituted approximately 36%, 35% and 31% of total
revenues for 1997, 1996 and 1995, respectively. International revenues
continue to be primarily to customers in Europe and Japan. Revenue growth in
these international markets over the past year was 3.3% and 2.7%,
respectively. The Company's manufacturing facility in Dublin, Ireland,
continues to increase production levels and has enhanced the Company's ability
to meet the needs of its international customers. The Company believes that
international revenues will continue to grow at a faster rate in the future
than domestic sales, and projects that such revenues will eventually comprise
50% of the worldwide total. However, there can be no assurances that
international revenues will reach this level in the future. Sales to Pacific
Rim, Middle East and other regions outside North America, Europe and Japan
represented approximately 4% of revenues in 1997, 1996 and 1995.
The Company believes that the semiconductor industry inventory correction has
ended, as the Company experienced sequential quarterly increases in orders and
revenues during the last two quarters of fiscal 1997.
Gross Margin
Gross margin as a percentage of revenues was 62.3% for 1997, excluding the
impact of a $5 million write-off of the XC8100 product family of one-time
programmable antifuse devices (see below). Gross margins in 1996 and 1995 were
63.8% and 61%, respectively. The increase in the cost of revenues as a
percentage of revenues in 1997 was primarily attributable to selling price
reductions and increased inventory reserves relating to an expanded level of
inventory, partially offset by the favorable impact of lower wafer costs,
reflecting reduced prices from wafer suppliers and the impact of the
strengthened U.S. dollar exchange rate against the yen, and improved yields.
Over the past three years, Xilinx has also been able to offset much of the
erosion in gross margin percentages on more mature integrated circuits with
increased volumes of newer, proprietary, higher margin products, although no
assurance can be given that the Company will do so in the future. The Company
recognizes that ongoing price reductions for its integrated circuits are a
significant element in expanding the market for its products. Company
management believes that future gross margin objectives in the range of 60% to
62% of revenues are more consistent with expanding market share while
realizing acceptable returns, although there can be no assurance that future
gross margins will be in this range.
During fiscal 1997, the Company discontinued the XC8100 family of one-time
programmable antifuse devices. As a result, the Company recorded a pretax
charge against earnings of $5 million. This charge primarily related to the
write-off of inventory and for termination charges related to purchase
commitments to foundry partners for work-in-process wafers which had not
completed the manufacturing process.
Research and Development
The Company has increased the amount spent on research and development each
year in its thirteen year history. Research and development expenses in 1997
exceeded those of the prior year by 10% and those of 1995 by 56.8%. Research
and development expenses as a percentage of revenue increased from 11.5% in
1996 to 12.5% in 1997, and was impacted by the level of revenues experienced
in 1997. The increase in research and development expenses is primarily
attributable to increased headcount and labor expenses, increased purchases of
engineering wafers and increased facility and support costs associated with an
expanded scope of operations. The Company remains committed to a significant
level of research and development effort in order to continue to compete
aggressively in the programmable logic marketplace. Through March 31, 1997,
the Company has received 143 U.S. patents and maintains an active program of
filing for additional patents in the areas of software, IC architecture and
design. As of March 31, 1997, research and development personnel were split
approximately 40% for software development and 60% for IC design and process
development. Xilinx has not capitalized any of the costs associated with its
software development.
Marketing, General and Administrative
Marketing, general and administrative costs represented 20.9%, 19.2% and 21.6%
of revenues in 1997, 1996, and 1995, respectively. The increase in costs as a
percentage of revenue in 1997 over 1996 is a reflection of the level of
revenues experienced in 1997. Sales and support expenses have increased each
year due to increased personnel and labor costs and increased commissions due
to changes in the revenue channel mix. The Company has twenty-two sales
offices located throughout the United States and Canada, including the
metropolitan areas of San Jose, Los Angeles, Denver, Dallas, Chicago,
Minneapolis, Atlanta, Raleigh, Philadelphia and Boston as well as eight
international sales offices located in the metropolitan areas of London,
Munich, Paris, Stockholm, Tokyo, Taipei, Seoul and Hong Kong. There was a 10%
increase in marketing, general and administrative expenses during 1997, as
compared to 1996. This was primarily attributable to increases in headcount
and employee expenses, partially offset by reduced discretionary spending.
The Company remains committed to controlling administrative expenses.
However, the timing and extent of future legal costs associated with the
ongoing enforcement of the Company's intellectual property rights are not
readily predictable and may significantly increase the level of general and
administrative expenses in the future.
Non-recurring Charges
During fiscal 1996, the Company incurred a $19.4 million non-recurring
write-off of in-process technology relating to the acquisition of NeoCAD, Inc.
See Note 3 of Notes to Consolidated Financial Statements. During 1995, the
Company incurred a $2.5 million write-off of a minority investment in Star
Semiconductor Corporation.
Operating Income
Operating income of $159.1 million decreased from the prior year's $165.8
million but increased from 1995's $92 million. Operating income in 1997 was
$164.1 million before consideration of the write-off of the XC8100 product
family. Operating income as a percentage of revenues was 28%, 29.6% and 25.9%
in 1997, 1996 and 1995, respectively. Before consideration of non-recurring
charges and write-offs, operating income as a percentage of revenues was
28.9%, 33.1% and 26.6% in 1997, 1996 and 1995, respectively. The decrease in
1997 from 1996 is primarily a result of the 1.3% revenue growth in 1997 in
comparison to 10% increases year to year in research and development spending
and marketing, general and administrative spending. Operating income as a
percentage of revenues could be adversely impacted in future years by the
factors noted herein.
Interest, Net
The Company incurs interest expense on the $250 million of 5 1/4% convertible
subordinated notes issued in November 1995. The Company earns interest income
on its cash, cash equivalents, short-term investments and restricted
investments. The amount of interest earned is a function of the balance of
cash invested as well as prevailing interest rates. The Company also records
25% of the net income of United Silicon Inc. (USI) , a wafer fabrication joint
venture in which the Company participates, as joint venture equity income. To
date, USI's net income has resulted primarily from interest earned on its
investment portfolio. Net interest and other income for 1997 increased by
$1.6 million over 1996. In 1997, the increased interest and other income is
primarily attributable to higher investment portfolio balances and joint
venture equity income. The Company expects that the USI joint venture will
begin to ramp up operations over the next year, and that the Company may incur
joint venture equity losses during the start-up phase. The Company's
investment portfolio contains tax-advantaged municipal securities which have
pretax yields which are less than the interest rate on the convertible
subordinated notes. For financial reporting purposes, the Company effectively
records the difference between the pretax and tax-equivalent yields as a
reduction in provision for taxes on income. As a result of the difference in
yields, future uses of the investment portfolio and operating results for USI,
levels of net interest and other income could decrease in the future.
Provision for Income Taxes
Xilinx's effective tax rate was 33.4% for 1997 as compared to 40.6% and 37.5%
for 1996 and 1995, respectively. The tax rate for fiscal 1997 was favorably
impacted by legislation reinstating the R&D Tax Credit as well as increased
profits in foreign operations where the tax rate is lower than the U.S. rate.
Excluding the write-off of in-process technology, in fiscal 1996 the Company's
effective tax rate was 36.5%.
Inflation
To date, the effects of inflation upon the Company's financial results have
not been significant.
FACTORS AFFECTING FUTURE RESULTS
Dependence Upon Independent Manufacturers and Subcontractors
The Company does not manufacture the wafers used for its products. In 1997,
most of the Company's wafers were manufactured by Seiko Epson Corporation
(Seiko Epson) and United Microelectronics Corporation (UMC). The Company has
depended upon these suppliers and others to produce wafers with competitive
performance and cost attributes, including transitioning to advanced process
technologies, producing wafers at acceptable yields, and delivering them to
the Company in a timely manner. While the timeliness, yield and quality of
wafer deliveries have met the Company's requirements to date, there can be no
assurance that the Company's wafer suppliers will not experience future
manufacturing problems, including delays in the realization of advanced
process technologies. The Company is also dependent on subcontractors to
provide semiconductor assembly services. Any prolonged inability to obtain
wafers or assembly services with competitive performance and cost attributes,
adequate yields or timely deliveries from these manufacturers/subcontractors,
or any other circumstance that would require the Company to seek alternative
sources of supply, could delay shipments, and have an adverse effect on the
Company's financial condition and results of operations.
The Company's long-term growth will depend in large part on the Company's
ability to obtain increased wafer fabrication capacity from suppliers. A
significant increase in general industry demand or any interruption of supply
could reduce the Company's supply of wafers or increase the Company's cost of
such wafers, thereby materially adversely affecting the Company's financial
condition and results of operations.
In order to secure additional wafer capacity, the Company from time to time
considers alternatives, including, without limitation, equity investments in,
or loans, deposits, or other financial commitments to, independent wafer
manufacturers to secure production capacity, or the use of contracts which
commit the Company to purchase specified quantities of wafers over extended
periods. Although the Company is currently able to obtain wafers from
existing suppliers in a timely manner, the Company has at times been unable,
and may in the future be unable, to fully satisfy customer demand because of
production constraints, including the ability of suppliers and subcontractors
to provide materials and services in satisfaction of customer delivery dates,
as well as the ability of the Company to process products for shipment. The
Company's future growth will depend in part on its ability to locate and
qualify additional suppliers and subcontractors and to increase its own
capacity to ship products, and there can be no assurance that the Company will
be able to do so. Any increase in these constraints on the Company's
production could result in a material adverse impact on the Company's
financial condition and results of operations. In this regard, the Company
has entered into the USI joint venture with UMC and other parties to obtain
wafer capacity from a new wafer fabrication facility. See Notes 4 and 6 of
Notes to Consolidated Financial Statements and the 'Commitments' discussion
within "Financial Condition, Liquidity and Capital Resources." However, there
are many risks associated with the construction of a new facility, and there
can be no assurance that such facility will become operational and/or cost
effective in a timely manner. In addition, the Company has entered into an
agreement with Seiko Epson to obtain additional capacity from a facility
currently under construction and expected to provide wafers in calendar 1998.
See Note 6 of Notes to Consolidated Financial Statements in Item 8 and the
'Commitments' discussion within "Financial Condition, Liquidity and Capital
Resources," in Item 7. If the Company requires additional capacity and such
capacity is unavailable, or unavailable on reasonable terms, the Company's
financial condition and results of operations could be materially adversely
affected.
Impact of Currency
The Company's purchases of the processed silicon wafers used in its integrated
circuits from Japanese foundries have been denominated in yen. To reduce the
Company's exposure for yen denominated liabilities, the Company's sales into
Japan are denominated in yen. In the past, the Company has periodically
limited its net exposure to fluctuations in the yen-to-US dollar exchange
rates through the use of forward exchange or option contracts. Based on
existing agreements with wafer suppliers, which should result in decreased yen
denominated wafer receipts in the future, the Company believes that its net
exposure relating to fluctuations in the yen-to-US dollar exchange rate could
decline, although there can be no assurance that this will be the case. As a
result, the Company may need to adjust its future hedging strategy. In
addition, the Company has entered into foreign exchange forward contracts to
minimize the impact of future exchange fluctuations relating to the New Taiwan
dollar USI joint venture investment.
Litigation
The Company is currently involved in patent litigation with Altera Corporation
(see Note 10 of Notes to Consolidated Financial Statements and Item 3, Legal
Proceedings). The ultimate outcome of these matters cannot be determined at
this time. Management believes that it has meritorious defenses to the claims
asserted against it and is defending them vigorously. The foregoing is a
forward looking statement subject to risks and uncertainties, and the future
outcome could differ materially due to the uncertain nature of the litigation
with Altera and because the lawsuits are still in the pre-trial stage.
Other Factors Affecting Operating Results
The semiconductor industry is characterized by rapid technological change,
intense competitive pressure and cyclical market patterns. The Company's
results of operations are affected by a wide variety of factors, including
general economic conditions, conditions relating to technology companies,
conditions specific to the semiconductor industry, decreases in average
selling prices over the life of any particular product, the timing of new
product introductions (by the Company, its competitors and others), the
ability to manufacture in a timely manner sufficient quantities of a given
product, the timely implementation of new manufacturing technologies, the
ability to safeguard patents and intellectual property from competitors, and
the impact of new technologies resulting in rapid escalation of demand for
some products in the face of equally steep decline in demand for others.
Market demand for the Company's products, particularly for those most recently
introduced, can be difficult to predict, especially in light of customers'
demands to shorten product lead times and minimize inventory levels.
Unpredictable market demand could lead to revenue volatility if the Company
were unable to provide sufficient quantities of specified products in a given
quarter. In addition, any difficulty in achieving targeted wafer production
yields could adversely impact the Company's financial condition and results of
operations. The Company attempts to identify changes in market conditions as
soon as possible; however, the dynamics of the market make prediction of and
timely reaction to such events difficult. Due to the foregoing and other
factors, past results, including those described in this report, are a much
less reliable predictor of the future than is the case in many older, more
stable and less dynamic industries. Based on the factors noted herein, the
Company may experience substantial period-to-period fluctuations in future
operating results.
The Company's future success depends in large part on its ability to develop
and introduce on a timely basis new products which address customer
requirements and compete effectively on the basis of price and performance.
The success of new product introductions is dependent upon several factors,
including timely completion of new product designs, the ability to utilize
advanced process technologies, achievement of acceptable yields, availability
of supporting design software and market acceptance. No assurance can be
given that the Company's product development efforts will be successful or
that its new products will achieve market acceptance. Revenues relating to
the Company's first generation FPGA products are expected to continue to
decline in the future as a percentage of aggregate component revenues, and the
Company will be increasingly dependent on revenues derived from second
generation FPGAs and future generation products. In addition, the average
selling price for any particular product tends to decrease rapidly over the
product's life. To offset such decreases, the Company relies primarily on
obtaining yield improvements and corresponding cost reductions in the
manufacture of existing products and on introducing new products which
incorporate advanced features and other price/performance factors such that
higher average selling prices and higher margins are achievable relative to
mature product lines. To the extent that such cost reductions and new product
introductions do not occur in a timely manner, or the Company's products do
not achieve market acceptance at prices with higher margins, the Company's
financial condition and results of operations could be adversely affected.
The Company's FPGA and CPLD products compete in the programmable logic
marketplace, with a substantial majority of the Company's revenues derived
from its FPGA product families. The industries in which the Company competes
are intensely competitive and are characterized by rapid technological change,
rapid product obsolescence and continuous price erosion. The Company expects
significantly increased competition both from existing competitors and from a
number of companies that may enter its market.
Xilinx believes that important competitive factors in the programmable logic
market include price, product performance and reliability, adaptability of
products to specific applications, ease of use and functionality of design
software, and the ability to provide timely customer service and support. The
Company's strategy for expansion in the programmable logic market includes
continued price reductions commensurate with the ability to lower the cost of
manufacture for established products and continued introduction of new product
architectures which address high volume, low cost applications as well as high
performance, leading edge density applications. However, there can be no
assurance that the Company will be successful in achieving these strategies.
The Company's major sources of competition are comprised of three elements:
the manufacturers of custom CMOS gate arrays, providers of high density
programmable logic products characterized by FPGA-type architectures and other
providers of programmable logic products. The Company competes with custom
gate array manufacturers on the basis of lower design costs, shorter
development schedules and reduced inventory risks. The primary attributes of
custom gate arrays are high density, high speed and low production costs in
high volumes. The Company continues to develop lower cost architectures
intended to narrow the gap between current custom gate array production costs
(in high volumes) and FPGA production costs. The Company competes with high
density programmable logic suppliers on the basis of performance, the ability
to deliver complete solutions to customers and customer support, taking
advantage of the primary characteristics of flexible, high speed
implementation and quick time-to-market capabilities of the Company's PLD
product offerings. In addition, the Company competes with manufacturers of
other programmable logic products on the basis of price, performance, design
and software utility. To the extent that such efforts to compete are not
successful, the Company's financial condition and results of operations could
be materially adversely affected.
The Company relies upon patent, trademark, trade secret and copyright law to
protect its intellectual property. There can be no assurance that such
intellectual property rights can be successfully asserted in the future or
will not be invalidated, circumvented or challenged. From time to time, third
parties, including competitors of the Company, have asserted exclusive patent,
copyright and other intellectual property rights to technologies that are
important to the Company. There can be no assurance that third parties will
not assert infringement claims against the Company in the future, that
assertions by third parties will not result in costly litigation or that the
Company would prevail in such litigation or be able to license any valid and
infringed patents from third parties on commercially reasonable terms.
Litigation, regardless of its outcome, could result in substantial cost and
diversion of resources of the Company. Any infringement claim or other
litigation against or by the Company could materially, adversely affect the
Company's financial condition and results of operations.
The Company's future success depends in large part on the continued service of
its key technical, sales, marketing and management personnel and on its
ability to continue to attract and retain qualified employees. Particularly
important are those highly skilled design, process and test engineers involved
in the manufacture of existing products and the development of new products
and processes. The competition for such personnel is intense, and the loss of
key employees could have a material, adverse effect on the Company's financial
condition and results of operations.
Sales outside of the United States carry a number of inherent risks, including
risks of currency exchange fluctuations, government regulation of exports,
tariffs and other potential trade barriers, reduced protection for
intellectual property rights in some countries, the impact of recessionary
environments in economies outside the United States and generally longer
receivable collection periods. The Company's business is also subject to the
risks associated with the imposition of legislation and regulations relating
specifically to the import or export of semiconductor products. The Company
cannot predict whether quotas, duties, taxes or other charges or restrictions
will be imposed by the United States or other countries upon the importation
or exportation of the Company's products in the future or what, if any, effect
such actions would have on the Company's financial condition and results of
operations.
In order to expand international sales and service, the Company will need to
maintain and expand existing foreign operations or establish new foreign
operations. This entails hiring additional personnel and maintaining or
expanding existing relationships with international distributors and sales
representatives. This will require significant management attention and
financial resources and could adversely affect the Company's financial
condition and results of operations. There can be no assurance that the
Company will be successful in its maintenance or expansion of existing foreign
operations, in its establishment of new foreign operations or in its efforts
to maintain or expand its relationships with international distributors or
sales representatives.
The semiconductor industry has historically been cyclical and subject to, at
various times, significant economic downturns characterized by diminished
product demand, accelerated erosion of average selling prices and
overcapacity. The Company may experience substantial period-to-period
fluctuations in future operating results due to general semiconductor industry
conditions, overall economic conditions or other factors.
Many of the Company's operations are centered in an area of California that
has been seismically active. Should there be a major earthquake in this area,
the Company's operations may be disrupted resulting in the inability of the
Company to ship products in a timely manner, thereby materially adversely
affecting the Company's financial condition and results of operations.
In addition, the securities of many high technology companies have
historically been subject to extreme price and volume fluctuations which may
adversely affect the market price of the Company's common stock.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition at March 31, 1997 remained strong. Total
current assets exceeded total current liabilities by 6.2 times, compared to
5.2 times at March 31, 1996. Since its inception, the Company has used a
combination of equity and debt financing and cash flow from operations to
support on-going business activities, make acquisitions and investments in
complementary technologies, obtain facilities and capital equipment and
finance inventory and accounts receivable.
Total assets have grown from $720.9 million in 1996 to $847.7 million in 1997.
The percentage changes of selected balance sheet items from March 1996 to
March 1997 are shown below:
% Change from
Description 1996 to 1997
- ------------------------------ --------------
Cash, cash equivalents and
short-term investments 12.7%
Receivables (9.2%)
Inventories 58.9%
Total current assets 11.7%
Total assets 17.6%
Total current liabilities (5.2%)
Stockholder's equity 33.2%
- ------------------------------ --------------
Cash, Cash Equivalents and Short-term Investments
Xilinx's cash, cash equivalents and short-term investments increased by $47.9
million in 1997 to $425.8 million. The Company generated cash flow of
approximately $140 million from operating activities in 1997, offset by $30.3
million of cash used for investing activities, including the net proceeds from
maturity of investments, investments in property, plant and equipment and
advances for wafer purchases. In addition, the Company used $4.7 million for
financing activities, of which $32 million was used to acquire Treasury Stock
offset by $28.3 million in proceeds from sales of common stock under employee
option and stock purchase plans. At March 31, 1997, cash, cash equivalents
and short-term investments represented 50.2% of total assets.
Receivables
Receivables decreased 9.2% from $79.5 million at the end of 1996 to $72.2
million at the end of 1997. The decrease is primarily due to relatively even
product shipments throughout the fourth quarter of 1997. Days sales
outstanding decreased from 48 days in 1996 to 43 days in 1997.
Inventories
Inventories increased 58.9% from $39.2 million at March 1996 to $62.4 million
at March 1997. Inventory levels at March 31, 1997 represent 96 days of
inventory, which is higher than the Company's objective of 70 to 90 days,
compared to 69 days at March 31, 1996. The semiconductor industry inventory
correction contributed to the increase in inventory, as the Company's
customers focused on reducing their existing inventory levels. Additionally,
inventory levels were impacted by improved yields and planned build of
inventory to support the introduction of new product families. The Company
seeks to balance two contradictory objectives with regard to inventory
management. On the one hand, the Company believes that its standard,
off-the-shelf products should be available for prompt shipment to customers.
Accordingly, it attempts to maintain sufficient levels of inventory in various
product, package and speed configurations to meet estimates of customer
demand. At the same time, the Company also wishes to minimize the handling
costs associated with maintaining higher inventory levels and to realize fully
the opportunities for cost reductions associated with manufacturing process
advancements. The Company continually strives to balance these two objectives
so as to provide excellent customer response at a competitive cost.
Advances for wafer purchases
See discussion under 'Commitments', below.
Property, Plant and Equipment
During 1997, Xilinx invested $26.8 million in property and equipment, as
compared to $60.5 million in 1996. During 1997, the Company completed
construction of an $8.5 million facility in Boulder, Colorado and continues to
invest in software development tools and semiconductor design, test and
manufacturing equipment in each of its manufacturing locations. As the
Company's $32.3 million Ireland manufacturing facility was completed in fiscal
1996, capital expenditures in fiscal 1997 were significantly lower than in the
prior year.
Current Liabilities
Current liabilities decreased by 5.2% to $97.3 million at the end of 1997.
The decrease was primarily attributable to a decrease in trade payables due to
the timing of payments near year end.
Line of Credit
The Company has credit line facilities for up to $46.2 million (see Note 5 of
Notes to Consolidated Financial Statements), of which $6.2 million is intended
to meet occasional working capital requirements for the Company's Ireland
manufacturing facility. At March 31, 1997 and 1996, no borrowings were
outstanding under the lines of credit.
Long-term Debt
In November 1995, the Company issued $250 million in convertible subordinated
notes. See Note 5 of Notes to Consolidated Financial Statements.
Stockholders' Equity
Stockholders' equity grew by 33.2% in 1997 to $490.7 million. The increase of
$122.4 million was primarily attributable to $110.4 million in net income and
$45.1 million related to the issuance of common stock in accordance with the
Company's stock plans and the tax benefit from stock options, offset by the
$32 million used to acquire 877,500 shares of Treasury Stock. Stockholders'
equity as a percentage of total assets was 57.9% for 1997 and 51.1% for 1996.
Commitments
The Company entered into a series of agreements with UMC pursuant to which the
Company, UMC and other parties formed the USI joint venture for the purpose of
building and managing an advanced semiconductor manufacturing facility in
Taiwan. See Notes 4 and 6 of Notes to Consolidated Financial Statements.
Under the terms of the agreement, the Company invested approximately $34
million in fiscal 1996 and expects to invest additional amounts totaling
approximately $102 million, for a 25% equity interest in the venture. As a
result of its equity ownership, the Company has rights to purchase a
percentage of the facility's wafer production at current market prices.
During fiscal 1997, the Board of Directors of USI voted to delay the wafer
fabrication facility construction schedule. As a result, the additional
payments were also delayed and are now expected to be made in fiscal 1998.
The revised schedule for construction of the facility and the related payments
are subject to further change based on overall semiconductor industry
conditions and other factors. UMC has committed to and is supplying the
Company with wafers manufactured in an existing facility until capacity is
available in the new facility.
In fiscal 1997, the Company signed an agreement with Seiko Epson, a primary
wafer supplier. See Note 6 of Notes to Consolidated Financial Statements.
The agreement provides for an advance to Seiko Epson of up to $200 million to
be used in the construction of a wafer fabrication facility in Japan, which
will provide access to eight-inch sub-micron wafers. In conjunction with the
agreement, $30 million installments were paid in May 1996, November 1996 and
May 1997 (subsequent to fiscal 1997), and further $30 million installments are
scheduled for November 1, 1997 and February 1, 1998 or upon the start of mass
production, whichever is later. The final installment for the advance payment
of $50 million is due on or after the later of April 1, 1998 or the date the
outstanding balance of the advance payment is less than $125 million. As a
result, the maximum outstanding amount of the advance payment at any time is
$175 million. Repayment of this advance will be in the form of wafer
deliveries expected to begin in the first half of calendar 1998. Specific
wafer pricing will be based upon the prices of similar wafers manufactured by
other, specifically identified, leading-edge foundry suppliers. The advance
payment provision also provides for interest to be paid to the Company in the
form of free wafers. In addition to the advance payments, the Company may
also provide further funding to Seiko Epson in the amount of $100 million.
This additional funding would be paid after the final installment of the
advance and the form of the additional funding will be negotiated at that
time.
Employees
During 1997, Xilinx experienced a 6% increase in the number of employees. The
Company had 1,277 employees at the end of 1997 as compared to 1,201 at the end
of the prior year.
The Company anticipates that existing sources of liquidity and cash flow from
operations will be sufficient to satisfy the Company's cash needs for the
foreseeable future. The Company will continue to evaluate opportunities for
investments to obtain additional wafer supply capacity, procurement of
additional capital equipment and facilities, development of new products, and
potential acquisitions of businesses, products or technologies that would
complement the Company's businesses and may use available cash or other
sources of funding for such purposes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF INCOME
In thousands except per share amounts
Years ended March 31, 1997 1996 1995
- ------------------------------------------------- --------- --------- ---------
Net revenues $568,143 $560,802 $355,130
Costs and expenses:
Cost of revenues 214,337 203,192 138,492
Write-off of discontinued product family 5,000 - -
Research and development 71,075 64,600 45,318
Marketing, general and administrative 118,670 107,888 76,772
Non-recurring charges - 19,366 2,500
- ------------------------------------------------- --------- --------- ---------
Total costs and expenses 409,082 395,046 263,082
- ------------------------------------------------- --------- --------- ---------
Operating income 159,061 165,756 92,048
Interest income and other 21,258 10,791 13,083
Interest expense (14,561) (5,645) (10,286)
- ------------------------------------------------- --------- --------- ---------
Income before provision for taxes on income 165,758 170,902 94,845
Provision for taxes on income 55,382 69,448 35,567
- ------------------------------------------------- --------- --------- ---------
Net income $110,376 $101,454 $ 59,278
================================================= ========= ========= =========
Net income per share $ 1.39 $ 1.28 $ .80
================================================= ========= ========= =========
Weighted average common and common equivalent
shares used in computing per share amounts 79,675 78,955 74,109
================================================= ========= ========= =========
<FN>
See accompanying notes.
CONSOLIDATED BALANCE SHEETS
In thousands except per share amounts
March 31,
1997 1996
---- ----
ASSETS
Current assets:
Cash and cash equivalents $215,903 $110,893
Short-term investments 209,944 267,068
Accounts receivable, net of allowance for doubtful accounts and
customer returns of $5,734 and $5,199 in 1997 and 1996, respectively 72,248 79,528
Inventories 62,367 39,238
Deferred income taxes 36,420 28,146
Advances for wafer purchases - 9,034
Other current assets 4,673 4,799
- ----------------------------------------------------------------------------- --------- ---------
Total current assets 601,555 538,706
- ----------------------------------------------------------------------------- --------- ---------
Property, plant and equipment at cost:
Land 3,111 2,426
Building 26,840 18,029
Machinery and equipment 114,525 95,463
Furniture and fixtures 9,967 7,457
Construction in progress - 4,908
- ----------------------------------------------------------------------------- --------- ---------
154,443 128,283
Accumulated depreciation and amortization (67,863) (45,645)
- ----------------------------------------------------------------------------- --------- ---------
Net property, plant and equipment 86,580 82,638
Restricted investments 36,257 36,212
Investment in joint venture 35,286 34,316
Advances for wafer purchases 60,000 -
Other assets 28,015 29,008
- ----------------------------------------------------------------------------- --------- ---------
$847,693 $720,880
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 16,758 $ 30,673
Accrued payroll and payroll related liabilities 13,769 9,526
Interest payable 5,364 5,012
Income tax payable 10,858 5,175
Deferred income on shipments to distributors 36,355 37,568
Other accrued liabilities 14,149 14,682
- ----------------------------------------------------------------------------- --------- ---------
Total current liabilities 97,253 102,636
- ----------------------------------------------------------------------------- --------- ---------
Long-term debt 250,000 250,000
Deferred tax liabilities: 9,760 -
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 par value; 2,000 shares authorized;
none issued and outstanding - -
Common Stock, $.01 par value; 200,000 shares authorized; 73,383 and
71,933 shares issued; 73,342 and 71,933 shares outstanding at
March 31, 1997 and 1996, respectively 733 719
Additional paid-in capital 114,447 99,588
Retained earnings 377,881 267,505
Unrealized gain on available-for-sale securities, net of tax 83 432
Treasury Stock, at cost (1,847) -
Cumulative translation adjustment (617) -
- ----------------------------------------------------------------------------- --------- ---------
Total stockholders' equity 490,680 368,244
- ----------------------------------------------------------------------------- --------- ---------
$847,693 $720,880
========= =========
<FN>
See accompanying notes
CONSOLIDATED STATEMENT OF CASH FLOWS
In thousands
Years ended March 31,
1997 1996 1995
---- ---- ----
Increase (decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net income $110,376 $101,454 $59,278
Adjustments to reconcile net income to net cash provided
by operating activities:
Write-off of in-process technology - 19,366 -
Depreciation and amortization 27,997 22,464 12,241
Undistributed earnings of joint venture (1,336) - -
Changes in assets and liabilities net of effects of
NeoCAD acquisition:
Accounts receivable 7,280 (34,777) (7,959)
Inventories, including the impact of receipts against
advances for wafer purchases (14,095) 19,375 1,011
Deferred income taxes and other 14,134 (783) (1,685)
Accounts payable, accrued liabilities and income taxes payable (3,193) 7,408 21,959
Deferred income on shipments to distributors (1,213) 15,755 3,153
- --------------------------------------------------------------------------- ---------- ---------- ----------
Total adjustments net of effects of NeoCAD acquisition 29,574 48,808 28,720
- --------------------------------------------------------------------------- ---------- ---------- ----------
Net cash provided by operating activities 139,950 150,262 87,998
- --------------------------------------------------------------------------- ---------- ---------- ----------
Cash flows from investing activities:
Purchases of short-term available-for-sale investments (247,022) (292,013) (75,590)
Proceeds from sale or maturity of short-term available-for-sale investments 303,604 92,333 77,193
Purchases of held-to-maturity investments (72,227) (96,141) (362,625)
Proceeds from maturity of held-to-maturity investments 72,189 72,555 350,000
Advances for wafer purchases (60,000) - (42,000)
Acquisition of NeoCAD, net of cash acquired - (33,412) -
Acquisition of property, plant and equipment (26,803) (60,506) (26,227)
Investment in joint venture - (34,316) -
Other - (1,235) (6,647)
- --------------------------------------------------------------------------- ---------- ---------- ----------
Net cash used in investing activities (30,259) (352,735) (85,896)
- --------------------------------------------------------------------------- ---------- ---------- ----------
Cash flows from financing activities:
Net proceeds from issuance of long-term debt - 243,901 -
Acquisition of Treasury Stock (32,028) - -
Principal payments on capital lease obligations (977) (1,389) (1,421)
Proceeds from issuance of common stock 28,324 14,151 8,688
- --------------------------------------------------------------------------- ---------- ---------- ----------
Net cash (used)/provided by financing activities (4,681) 256,663 7,267
- --------------------------------------------------------------------------- ---------- ---------- ----------
Net increase in cash and cash equivalents 105,010 54,190 9,369
Cash and cash equivalents at beginning of period 110,893 56,703 47,334
- --------------------------------------------------------------------------- ---------- ---------- ----------
Cash and cash equivalents at end of period $ 215,903 $ 110,893 $ 56,703
=========================================================================== ========== ========== ==========
Schedule of non-cash transactions:
Tax benefit from stock options $ 16,730 $ 7,907 $ 3,456
Issuance of Treasury Stock under employee stock plans 30,181 8,223 9,195
Receipts against advances for wafer purchases 9,034 32,966 -
Supplemental disclosures of cash flow information:
Interest paid 13,309 201 10,286
Income taxes paid $ 34,426 $ 74,688 $ 34,730
=========================================================================== ========== ========== ==========
<FN>
See accompanying notes.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
In thousands
Unrealized
Three years ended March 31, 1997 Gain/(Loss)
Common Stock Additional On Available Cumulative Total
Outstanding Paid-in Retained For Sale Treasury Translation Stockholder's
Shares Amount Capital Earnings Securities Stock Adjustment Equity
BALANCE AT MARCH 31, 1994 71,658 $ 717 $ 82,806 $ 106,773 $ - $ (17,418) $ - $ 172,878
Reissuance of Treasury Stock
under employee stock plans - - (507) - - 9,195 - 8,688
Tax benefit from exercise
of stock options - - 3,456 - - - - 3,456
Unrealized loss on available-
for-sale securities, net of tax - - - - (329) - - (329)
Net income - - - 59,278 - - - 59,278
- -------------------------------- ------- ----- -------- ---------- ---------- --------- -------- ----------
BALANCE AT MARCH 31, 1995 71,658 717 85,755 166,051 (329) (8,223) - 243,971
Issuance of common shares
under employee stock plans 275 2 2,070 - - - - 2,072
Reissuance of Treasury Stock
under employee stock plans - - 3,856 - - 8,223 - 12,079
Tax benefit from exercise of
stock options - - 7,907 - - - - 7,907
Unrealized loss on available-
for-sale securities, net of tax - - - - 761 - - 761
Net income - - - 101,454 - - - 101,454
- -------------------------------- ------- ----- -------- ---------- --------- ---------- -------- ----------
BALANCE AT MARCH 31, 1996 71,933 719 99,588 267,505 432 - - 368,244
Issuance of common shares
under employee stock plans 1,409 14 28,310 - - - - 28,324
Acquisition of Treasury Stock - - - - - (32,028) - (32,028)
Reissuance of Treasury Stock
under employee stock plans - - (30,181) - - 30,181 - -
Tax benefit from exercise
of stock options - - 16,730 - - - - 16,730
Unrealized loss on available-
for-sale securities, net of tax - - - - (349) - - (349)
Cumulative translation
adjustment - - - - - - (617) (617)
Net income - - - 110,376 - - - 110,376
- ------------------------------- -------- ----- -------- ---------- --------- ----------- -------- ----------
BALANCE AT MARCH 31, 1997 73,342 $ 733 $114,447 $ 377,881 $ 83 $ (1,847) $ (617) $ 490,680
=============================== ======== ===== ======== ========== ========= =========== ======== ==========
<FN>
See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF OPERATIONS
Xilinx designs, develops and markets programmable logic semiconductor
devices and related design software. The Company's programmable logic product
lines include field programmable gate arrays and complex programmable logic
devices. The wafers used to manufacture the Company's products are obtained
from independent wafer manufacturers, located primarily in Japan and Taiwan.
The Company is dependent upon these manufacturers to produce and deliver
wafers on a timely basis. The Company is also dependent on subcontractors,
located in the Asia Pacific region, to provide semiconductor assembly
services. Xilinx is a global company with manufacturing facilities in the
United States and Ireland and sales offices throughout the world. The
Company's products are sold to customers in the computer, peripheral,
telecommunications, networking, industrial control, instrumentation, high
reliability/military and consumer markets. The Company derives more than
one-third of its revenues from international sales, primarily in Europe and
Japan.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CONCENTRATIONS OF RISK
Basis of presentation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries after elimination of all
intercompany accounts and transactions. The Company's fiscal year ends on the
Saturday nearest March 31. For ease of presentation, March 31 has been
utilized as the fiscal year-end for all financial statement captions. Fiscal
years 1997, 1996 and 1995 each consisted of 52 weeks.
Cash equivalents and investments
Cash and cash equivalents consists of cash on deposit with banks,
tax-advantaged municipal bonds, and investments in money market instruments
with insignificant interest rate risk and original maturities at date of
acquisition of 90 days or less. Short-term investments consist of
tax-advantaged municipal bonds and corporate bonds with maturities greater
than 90 days but less than one year. Restricted investments consist of U.S.
Treasury Securities held as collateral relating to leases for the Company's
facilities. See Note 6 of Notes to Consolidated Financial Statements. The
Company maintains its cash, cash equivalents and short-term investments in
several financial instruments with various banks and investment banking
institutions. This diversification of risk is consistent with Company policy
to maintain liquidity and ensure the safety of principal.
Management classifies investments as available-for-sale or
held-to-maturity at the time of purchase and re-evaluates such designation as
of each balance sheet date. Securities are classified as held-to-maturity
when the Company has the positive intent and the ability to hold the
securities until maturity. Held-to-maturity securities are carried at cost
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization, as well as any interest on the securities, is included in
interest income. Securities not classified as held to maturity are classified
as available-for-sale. Available-for-sale securities are carried at fair
value with the unrealized gains or losses, net of tax, included as a separate
component of stockholders' equity. Realized gains and losses and declines in
value judged to be other-than-temporary on available-for-sale securities are
included in other income. The fair values for marketable debt and equity
securities are based on quoted market prices. The cost of securities matured
or sold is based on the specific identification method.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
(estimated net realizable value) and are comprised of the following at March
31, 1997 and 1996:
(in thousands) 1997 1996
- ----------------- ------- -------
Raw materials $ 4,477 $ 5,886
Work-in-progress 43,553 21,927
Finished goods 14,337 11,425
- ----------------- ------- -------
$62,367 $39,238
------- -------
Advances for Wafer Purchases
During fiscal 1995, the Company advanced $42 million to Seiko Epson
Corporation (Seiko Epson), a primary wafer supplier. Repayment of this amount
was in the form of wafer deliveries and was completed during fiscal 1997. In
fiscal 1997, the Company signed an additional agreement with Seiko Epson. See
Note 6 of Notes to Consolidated Financial Statements.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is computed
for financial reporting purposes using the straight-line method over the
estimated useful lives of the assets of three to five years for machinery,
equipment, furniture and fixtures and up to thirty years for buildings.
Revenue Recognition
Net revenues are stated net of discounts and allowances. Revenue from product
sales direct to customers and foreign distributors is generally recognized
upon shipment. However, the Company defers the recognition of revenue and the
related cost of revenue on shipments to domestic distributors that have
certain rights of return and price protection privileges on unsold product
until the product is sold by the distributor.
Foreign currency translation
The US dollar is the functional currency for the Company's Ireland
manufacturing facility. Assets and liabilities that are not denominated in
the functional currency are remeasured into US dollars, and the resulting
gains or losses are included in net income. The functional currency is the
local currency for each of the Company's other foreign subsidiaries. Assets
and liabilities are translated at month-end exchange rates, and statements of
income are translated at the average exchange rates during the year. Exchange
gains or losses arising from translation of foreign currency denominated
assets and liabilities are included as a component of stockholders' equity.
Prior to fiscal 1997, translation adjustments were not material and therefore
were not disclosed as a separate component of stockholders' equity.
Derivative financial instruments
As part of its ongoing asset and liability management activities, the Company
enters into certain derivative financial arrangements to reduce financial
market risks. The Company does not enter into derivative financial
instruments for trading purposes. See Note 5 of Notes to Consolidated
Financial Statements.
Employee stock plans
The Company accounts for its stock option and employee stock purchase plans in
accordance with provisions of the Accounting Principles Board's Opinion No. 25
(APB 25), "Accounting for Stock Issued to Employees."
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Such
estimates relate to the useful lives of fixed assets and intangible assets,
allowances for doubtful accounts and customer returns, inventory reserves,
potential reserves relating to litigation matters and other reserves. Actual
results may differ from those estimates, and such differences may be material
to the financial statements.
Net income per share
Net income per common and common equivalent share is computed using the
weighted average number of common and dilutive common equivalent shares
outstanding during the period. Dilutive common equivalent shares consist of
stock options (using the treasury stock method). Fully diluted earnings per
share is computed using the weighted average common and dilutive common
equivalent shares outstanding, plus other dilutive shares which are not common
equivalent shares. The effect of the convertible subordinated notes was
antidilutive in the calculation of fully diluted earnings per share for the
periods presented. In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, Earnings per Share, which the Company will be
required to adopt during the quarter ending December 31, 1997. At that time,
the Company will be required to change the method currently used to compute
net income per share and to restate all prior periods. The new requirements
will include a calculation of "basic" net income per share, which will exclude
the dilutive effect of stock options. The calculation of basic net income per
share for fiscal years 1997, 1996 and 1995 results in net income per share of
$1.52, $1.43 and $.85, respectively. A calculation of "diluted" net income
per share will also be required. However, this calculation is not expected to
differ materially from the actual net income per share amounts reported for
the years presented.
Concentrations of credit risk
The Company believes that the concentration of credit risk in its trade
receivables with respect to the high-technology industry is substantially
mitigated by the Company's credit evaluation process, relatively short
collection terms, distributor agreements, and the geographical dispersion of
sales. The Company generally does not require collateral. Bad debt write-offs
have been insignificant for all years presented.
Concentration of other risks
The semiconductor industry is characterized by rapid technological change,
intense competitive pressure and cyclical market patterns. The Company's
results of operations are affected by a wide variety of factors, including
general economic conditions, conditions relating to technology companies,
conditions specific to the semiconductor industry, decreases in average
selling prices over the life of any particular product, the timing of new
product introductions (by the Company, its competitors and others), the
ability to manufacture in a timely manner sufficient quantities of a given
product, the timely implementation of new manufacturing technologies, the
ability to safeguard patents and intellectual property from competitors, and
the impact of new technologies resulting in rapid escalation of demand for
some products in the face of equally steep decline in demand for others. As a
result, the Company may experience substantial period-to-period fluctuations
in future operating results due to the factors mentioned above or other
factors.
NOTE 3. ACQUISITION
In April 1995, the Company acquired NeoCAD, Inc. (NeoCAD), a private company
engaged in the design, development and sale of FPGA software design tools for
programmable electronic technologies, for $35 million in cash. The
transaction was treated as a purchase for accounting purposes; accordingly,
the purchase price was allocated to the assets acquired and liabilities
assumed based on their estimated fair values. NeoCAD's financial results from
the date of acquisition are included in the Company's consolidated financial
results. The excess of the purchase price over the fair values of liabilities
assumed, net of tangible assets acquired, was allocated to in-process
technology ($19.4 million), developed technology ($15.7 million) and the
assembled workforce ($0.7 million). The amount of in-process technology was
written-off as a non-recurring item during fiscal 1996. The developed
technology and assembled workforce assets are being amortized over six and two
years, respectively. In fiscal 1997, the Company recorded amortization of
$2.6 million and $0.4 million relating to the developed technology and
assembled workforce assets, respectively, for a total amortization to date of
$5.2 million and $.7 million, respectively.
NOTE 4. JOINT VENTURE
The Company, United Microelectronics Corporation (UMC) and other parties have
entered into a joint venture to construct a wafer fabrication facility in
Taiwan, known as United Silicon Inc. (USI). The Company has agreed to invest
a total of 3.75 billion New Taiwan dollars (approximately $136 million), which
will result in a 25% equity ownership in the joint venture and the right to
receive 31.25% of the wafer capacity from this facility. In January 1996, the
Company invested 937.5 million New Taiwan dollars (approximately $34 million)
in the joint venture. UMC has committed to and is supplying the Company with
wafers manufactured in an existing facility until capacity is available in the
new facility. The USI joint venture is accounted for by the equity method.
See further discussion in Note 6 of Notes to Consolidated Financial
Statements.
NOTE 5. FINANCIAL INSTRUMENTS
Cash and Investments The following is a summary of available-for-sale
securities:
March 31, 1997 March 31, 1996
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value Cost Gains Losses Value
- ------------------------ ---------- --------- ---------- ---------- ---------- ---------- ---------- ----------
Cash and cash equivalents:
Municipal bond $ 210,203 $ - $ - $ 210,203 $ 101,850 $ - $ - $ 101,850
Short-term investments:
Corporate bonds - - - - 31,782 60 - 31,842
Municipal bonds 209,806 170 (32) 209,944 233,854 650 (30) 234,474
- ------------------------ ---------- ----------- ---------- ---------- ---------- ---------- --------- ----------
$ 420,009 $ 170 $ (32) $ 420,147 $ 367,486 $ 710 $ (30) $ 368,166
----------- ----------- ---------- ---------- ---------- ---------- --------- ----------
All investments classified as "available-for-sale securities" have maturities
due in one year or less. Realized gains or losses from sales of
available-for-sale securities were immaterial for all periods presented.
Held-to-maturity securities represent investments in US Treasury
Securities for which amortized cost equals estimated fair value at March 31,
1997 and March 31, 1996. Held-to-maturity securities relate to certain
collateral requirements for lease agreements associated with the Company's
corporate facilities and have maturities due in one year or less. See Note 6
of Notes to Consolidated Financial Statements.
Derivatives
The Company periodically enters into currency forward or option contracts to
minimize foreign exchange risk relating to the Company's purchase of wafers,
some of which are denominated in yen. At March 31, 1997, commitments under
option contracts to purchase yen in fiscal 1998 were outstanding in the
aggregate amount of $2.8 million. These contracts are accounted for as
identifiable hedges against wafer purchases. Realized gains or losses are
recognized upon maturity of the contracts and are included in cost of sales.
At March 31, 1997, the fair value of these option contracts was immaterial
based on market exchange rates. The maturities on these contracts is less
than twelve months.
The Company has entered into foreign exchange forward contracts to
minimize the impact of future exchange fluctuations on the US dollar cost of
investing in the USI joint venture. The contracts require the Company to
exchange US dollars for New Taiwan dollars and mature within one year. The
contracts are accounted for as a hedge of an identifiable foreign currency
commitment. Realized gains or losses will be recognized upon maturity of the
contracts and will be included in the USI joint venture investment. At March
31, 1997, the outstanding foreign exchange contracts related to the USI joint
venture were approximately $102 million and the fair value of these contracts
was immaterial, based on market exchange rates.
The Company has entered into an interest rate swap agreement with a third
party in order to reduce risk related to movements in interest rates. Under
the agreement, which was effective starting in May 1996 and terminates in
November 1998, the Company effectively converted the fixed rate interest
payments related to $125 million of the Company's convertible subordinated
notes to variable rate interest payments without the exchange of the
underlying principal amounts. The Company receives fixed interest rate
payments (equal to 5.935%) from the third party and is obligated to make
variable rate payments (equal to the three month LIBOR rate) to the third
party during the term of the agreement. The net amount of interest payments
received from the third party and interest payments made by the Company to the
third party is included in interest expense. The fair value of the interest
rate swap was immaterial based on market exchange rates.
During 1995, the Company completed a reverse repurchase transaction
relating to $350 million of U.S. Treasury Securities. The transaction was
entered into with the intent of generating net interest income in an
increasing interest rate environment and capital gains that could be used to
offset previously incurred capital losses relating to the non-recurring $2.5
million write-off of the investment in Star Semiconductor. As a result of
this transaction, the Company recorded approximately $9.7 million of interest
expense, $4.7 million of interest income and $4.8 million of bond premium
amortization in 1995. Although the Company has generally invested in more
conventional investments, such as municipal bonds, the Company believes that
the short sale of U.S. Treasury Securities met the Company's investment
objectives in 1995. Future investment strategies will be made in accordance
with investment policies designed to preserve and enhance corporate assets as
such strategies may be adopted from time to time by the Company's Board of
Directors.
Long-Term Debt and Lines of Credit
In November 1995, the Company completed a private placement of $250 million
aggregate principal convertible subordinated notes under Rule 144A of the
Securities Act of 1933. The notes, which mature in 2002, are convertible at
the option of the note holders into the Company's common stock at a conversion
price of $51 per share, subject to adjustment upon the occurrence of certain
events. The conversion price represented a 24.77% premium over the closing
price of the Company's stock on November 7, 1995. Interest is payable
semi-annually at 5.25% per annum. At any time on or after November 4, 1997,
the notes are redeemable at the option of the Company at an initial redemption
price of 103.75% of the principal amount, except that prior to November 3,
1998, the notes are not redeemable unless the closing price of the Company's
common stock has exceeded $71.40 (40% premium over the conversion price) per
share for twenty trading days within a period of thirty consecutive trading
days. Redemption prices as a percentage of the principal amount are 103%,
102.25%, 101.50% and 100.75% in the years beginning November 1, 1998, November
1, 1999, November 1, 2000 and November 1, 2001, respectively. Debt issuance
costs of $6.1 million incurred in conjunction with issuance of the convertible
subordinated notes are being amortized over the seven year life of the notes.
In 1997, the Company recorded debt issuance cost amortization of $.9 million.
At March 31, 1997, the fair value of the convertible subordinated notes was
approximately $291 million based on quoted market prices. The Company has
reserved 4,901,961 shares of common stock for the conversion of these notes.
The Company has $40 million available under a multicurrency revolving
credit line agreement which expires in March 1998. Under this agreement,
borrowings bear interest at the bank's reference rate or 0.75% over the bank's
interbank market rate depending on the currency borrowed. Additionally, the
Company's Ireland manufacturing facility has $6.2 million available under a
multicurrency credit line which expires in November 1997. Under this
agreement, borrowings bear interest at 0.79% over the bank's prime rate. At
March 31, 1997, no borrowings were outstanding under either credit line. The
agreements require the Company to comply with certain covenants and maintain
certain financial ratios. The agreements prohibit the payment of cash
dividends without prior bank approval.
NOTE 6. COMMITMENTS
The Company leases its manufacturing and office facilities under operating
leases that expire at various dates through December 2014. Lease agreements
for the Company's 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)
- --------------------- ---------------
1998 $ 4,016
1999 3,320
2000 2,653
2001 572
2002 499
Thereafter 2,263
- --------------------- ---------------
$ 13,323
---------------
Rent expense for the years ended March 31, 1997, 1996 and 1995 was
approximately $4.5 million, $4.3 million and $4 million, respectively.
The Company has entered into lease agreements relating to its corporate
facilities which would allow the Company to purchase the facilities on or
before the end of the lease term in December 1999. If at the end of the lease
term the Company does not purchase the property under lease or arrange a third
party purchase, then the Company would be obligated to the lessor for a
guarantee payment equal to a specified percentage of the Company's purchase
price for the property. The Company would also be obligated to the lessor for
all or some portion of this amount if the price paid by the third party is
below a specified percentage of the Company's purchase price. The Company is
also required to comply with certain covenants and maintain certain financial
ratios. As of March 31, 1997, the total amount related to the leased
facilities for which the Company is contingently liable is $39.8 million.
Under the terms of the agreements, the Company is required to maintain
collateral (restricted investments) of approximately $36 million during the
lease term.
In fiscal 1997, the Company signed an agreement with Seiko Epson, a
primary wafer supplier. The agreement provides for an advance to Seiko Epson
of up to $200 million to be used in the construction of a wafer fabrication
facility in Japan, which will provide access to eight-inch sub-micron wafers.
In conjunction with the agreement, $30 million installments were paid in May
1996, November 1996 and May 1997 (subsequent to fiscal 1997), and further $30
million installments are scheduled for November 1, 1997 and February 1, 1998
or upon the start of mass production, whichever is later. The final
installment for the advance payment of $50 million is due on or after the
later of April 1, 1998 or the date the outstanding balance of the advance
payment is less than $125 million. As a result, the maximum outstanding
amount of the advance payment at any time is $175 million. Repayment of this
advance will be in the form of wafer deliveries expected to begin in the first
half of calendar 1998. Specific wafer pricing will be based upon the prices
of similar wafers manufactured by other, specifically identified, leading-edge
foundry suppliers. The advance payment provision also provides for interest
to be paid to the Company in the form of free wafers. In addition to the
advance payments, the Company may also provide further funding to Seiko Epson
in the amount of $100 million. This additional funding would be paid after
the final installment of the advance and the form of the additional funding
will be negotiated at that time.
In addition, the Company expects to invest additional amounts, which
total 2.8 billion New Taiwan dollars (approximately $102 million), in the USI
joint venture discussed in Note 4 of Notes to Consolidated Financial
Statements. During fiscal 1997, the Board of Directors of USI voted to delay
the wafer fabrication facility construction schedule. As a result, the
additional payments were also delayed and are now expected to be made in
fiscal 1998. The revised timing of construction of the facility and the
related payments are subject to further change based on overall semiconductor
industry conditions and other factors.
NOTE 7. STOCKHOLDERS' EQUITY
The Company's Certificate of Incorporation provides for 200 million shares of
common stock and 2 million shares of undesignated preferred stock.
Treasury Stock
The Company authorized a stock buyback program in September 1996 whereby up to
2 million shares of the Company's common stock may be purchased in the open
market from time to time as market and business conditions warrant. The
Company has reissued Treasury Shares repurchased in response to Employee Stock
Option exercises and Employee Qualified Stock Purchase Plan requirements.
During fiscal 1997, the Company repurchased 877,500 shares of common stock for
$32 million, of which 837,000 shares were reissued.
Stock Split
In July 1995, the Company's stockholders approved a 3-for-1 stock split, in
the form of a 200% stock dividend, payable to stockholders of record on a
specified date. Shares, per share amounts, common stock at par value, and
additional paid in capital have been restated to reflect the stock split for
all periods presented.
Stockholder Rights Plan
In October 1991, the Company adopted a stockholder rights plan and declared a
dividend distribution of one common stock purchase right for each outstanding
share of common stock. The rights become exercisable based upon the
occurrence of certain conditions including acquisitions of Company stock,
tender or exchange offers and certain business combination transactions of the
Company. In the event one of the conditions is triggered, each right entitles
the registered holder to purchase a number of shares of common stock of the
Company or, under limited circumstances, of the acquirer. The rights are
redeemable at the Company's option, under certain conditions, for $.01 per
right and expire on October 4, 2001.
Employee Stock Option Plan
The Company adopted the 1988 Stock Option Plan (the Option Plan) under which a
total of 36,081,000 common shares have been reserved for issuance to
employees, directors, and consultants of the Company, after shareholder
approval of 3,300,000 additional shares in July 1996. Options to purchase
shares of the Company's common stock under the Option Plan are granted at 100%
of the fair market value of the stock on the date of grantOptions granted to
date expire ten years from date of grant and generally vest at varying rates
over five years.
A summary of the Company's Option Plan activity, and related information,
follows:
Years ended March 31, 1997 1996 1995
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
(000) Price (000) Price (000) Price
- -------------------------------- ------- --------- ------- --------- ------- ---------
Outstanding at beginning of year 13,888 $ 16.78 11,452 $ 10.81 9,441 $ 8.23
Granted 2,597 33.52 3,971 30.95 3,540 15.84
Exercised (1,752) 10.58 (1,169) 6.22 (962) 4.21
Forfeited (1,025) 19.49 (366) 17.18 (567) 10.64
------- ------- -------
Outstanding at end of year 13,708 $ 20.54 13,888 $ 16.78 11,452 $ 10.81
================================ ======= ======= =======
Shares available for grant 2,992 1,264 1,869
================================ ======= ======= =======
The following table summarizes information relating to options outstanding and
exercisable under the Option Plan at March 31, 1997:
Options Outstanding Options Exercisable
Weighted
Average Weighted Weighted
Options Remaining Average Options Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices (000) Life (Years) Price (000) Price
- ---------------- ------------ ------------ --------- ------------ ---------
$ 0.12 - $12.13 2,837 4.47 $ 5.82 2,674 $ 5.56
$12.58 - $13.33 2,290 6.68 12.93 995 12.93
$13.33 - $16.42 1,821 7.18 15.20 697 14.94
$16.67 - $24.75 2,079 7.89 21.54 644 20.98
$26.63 - $48.13 4,681 8.94 34.83 718 35.70
- ---------------- ------------ ------------ --------- ------------ ---------
$0.12 - $48.13 13,708 7.24 $ 20.54 5,728 $ 13.50
At March 31, 1996, 4.6 million options were exercisable.
Employee Qualified Stock Purchase Plan
Under the Company's 1990 Employee Qualified Stock Purchase Plan (the Stock
Purchase Plan), qualified employees can elect to have up to 15 percent of
their annual earnings withheld to purchase the Company's common stock at the
end of six-month enrollment periods. The purchase price of the stock is 85%
of the lower of the fair market value at the beginning of the twenty-four
month offering period or at the end of each six month purchase period. Almost
all employees are eligible to participate. Of the 3,385,000 shares authorized
to be issued under this plan, including the 460,000 shares that were approved
by shareholders in July 1996, 535,360 and 537,451 shares were issued during
1997 and 1996, respectively, and 176,690 shares were available for issuance at
March 31, 1997.
Stock-Based Compensation
As permitted under FASB Statement No. 123, "Accounting for Stock-Based
Compensation" (FASB 123), the Company has elected to continue to follow
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25) and related Interpretations in accounting for its
stock-based awards to employees. Under APB 25, the Company generally
recognizes no compensation expense with respect to such awards.
Pro forma information regarding net income and earnings per share is required
by FASB 123 and has been determined as if the Company had accounted for awards
to employees under the fair value method of FASB 123. The fair value of
options and stock purchase plan rights under the Option Plan and Stock
Purchase Plan was estimated as of the date of grant using the Black-Scholes
option pricing model. The Black-Scholes model was originally developed for
use in estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions including expected stock
price volatility. Because the Company's options and stock purchase plan
rights have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, the existing models, in
management's opinion, do not necessarily provide a reliable single measure of
the fair value of its stock-based awards to employees. The fair value of
options and stock purchase plan rights granted in fiscal years 1997 and 1996
was estimated at the date of grant assuming no expected dividends and the
following weighted average assumptions.
Stock Options Stock Purchase Plan Rights
Years ended March 31, 1997 1996 1997 1996
- -------------------------------- ----- ----- ----- -----
Expected Life (years) 4 4 .5 .5
Expected Stock Price Volatility .56 .56 .56 .68
Risk-Free Interest Rate 6.26% 5.97% 5.36% 5.61%
For purposes of pro forma disclosures, the estimated fair value of options is
amortized against pro forma net income over the options' vesting period.
Because FASB 123 is applicable only to the Company's awards granted subsequent
to March 31, 1995, its pro forma effect will not be fully reflected until
approximately fiscal 2000. Had the Company accounted for stock-based awards
to employees under FASB 123, the Company's net income would have been $87.4
million and $86.2 million in 1997 and 1996, respectively, and net income per
share would have been $1.12 and $1.10 in 1997 and 1996, respectively.
Calculated under FASB 123, the weighted-average fair value of the options
granted during 1997 and 1996 was $15.91 and $14.41 per share, respectively.
The weighted-average fair value of employee stock purchase rights granted
under the Stock Purchase Plan during 1997 and 1996 were $14.47 and $16.68 per
share, respectively.
NOTE 8. INCOME TAXES
The provision for taxes on income consists of:
(in thousands)
Years ended March 31, 1997 1996 1995
- --------------------- ------ ------ -------
Federal: Current $40,901 $64,917 $34,698
Deferred (200) (7,004) (5,009)
- -------- -------- -------- -------- --------
40,701 57,913 29,689
-------- -------- --------
State: Current 12,073 10,343 6,748
Deferred (1,483) (363) (1,167)
- -------- -------- -------- -------- --------
10,590 9,980 5,581
Foreign: Current 4,091 1,555 297
- -------- -------- -------- -------- --------
Total $55,382 $69,448 $35,567
- -------- -------- -------- -------- --------
The tax benefits associated with the disqualifying dispositions of stock
options or employee stock purchase plan shares reduce taxes currently payable
by $16.7 million, $7.9 million and $3.5 million for 1997, 1996, and 1995,
respectively. Such benefits are credited to additional paid-in capital when
realized. Pretax income from foreign operations was $36.1 million and $11.5
million for fiscal years 1997 and 1996 while fiscal year 1995 had a loss of
$.2 million. Unremitted foreign earnings that are considered to be
permanently invested outside the United States and on which no deferred taxes
have been provided, accumulated to approximately $14.8 million. The residual
US tax liability, if such amounts were remitted, would be approximately $3.7
million.
The provision for income taxes reconciles to the amount obtained by
applying the Federal statutory income tax rate to income before provision for
taxes as follows:
(in thousands)
--------------
Years ended March 31, 1997 1996 1995
- ----------------------------------------- --------- -------- --------
Income before provision for taxes $165,758 $170,902 $94,845
Federal statutory tax rate 35% 35% 35%
Computed expected tax $ 58,016 $ 59,816 $33,196
State taxes net of federal benefit 6,884 6,487 3,627
Tax exempt interest (3,278) (2,552) (1,155)
Write-off of NeoCAD in-process technology - 7,069 -
Foreign earnings at lower tax rates (2,478) (1,057) -
Research and development tax credit (2,522) - -
Other (1,240) (315) (101)
- ----------------------------------------- --------- --------- --------
Provision for taxes on income $ 55,382 $ 69,448 $35,567
- ----------------------------------------- --------- --------- --------
The major components of deferred tax assets and liabilities consist of the
following:
(in thousands)
---------------
Years ended March 31, 1997 1996 1995
- ------------------------------------------------- -------- -------- --------
Deferred tax assets:
Inventory valuation differences $12,471 $ 3,887 $ 3,393
Deferred income on shipments to distributors 15,808 15,917 9,232
Nondeductible accrued expenses 7,568 7,778 6,245
Other 3,156 2,773 1,000
- ------------------------------------------------- -------- -------- --------
Total 39,003 30,355 19,870
- ------------------------------------------------- -------- -------- --------
Deferred tax liabilities:
Depreciation and amortization (4,026) (3,082) 1,524
Unremitted foreign earnings (7,601) (1,876) -
Other (716) (264) (483)
- ------------------------------------------------- -------- -------- --------
Total net deferred tax assets $26,660 $25,133 $20,911
- ------------------------------------------------- -------- -------- --------
NOTE 9. INDUSTRY AND GEOGRAPHIC INFORMATION
The Company operates in one single industry segment comprising the design,
development and marketing of programmable logic semiconductor devices and the
related design software.
During fiscal 1996, the Company began operations in its Ireland
manufacturing facility. Geographic information for fiscal 1997 and 1996 is
presented in the tables below. Foreign operations prior to fiscal 1996 were
not material.
Years ended march 31, 1997 1996
------------------------------ ------------------------------
Income Income
Net Before Identifiable Net Before Identifiable
(in thousands) Revenues Taxes Assets Revenues Taxes Assets
- -------------- --------- -------- ------------- --------- -------- -------------
United States $ 432,009 $115,800 $ 779,626 $ 482,615 $157,872 $ 650,979
Europe 136,134 49,680 66,893 78,187 12,854 68,861
Other - 278 1,174 - 176 1,040
- -------------- --------- -------- ------------- --------- -------- -------------
$ 568,143 $165,758 $ 847,693 $ 560,802 $170,902 $ 720,880
--------- -------- ------------- --------- -------- -------------
Export revenues consisting of sales from the US to non-affiliated customers in
certain geographic areas were as follows:
(In thousands)
Years ended March 31, 1997 1996 1995
- --------------------------- ------- -------- --------
US exports to Europe $40,804 $ 70,124 $ 68,616
US exports to Japan 26,496 50,957 27,199
US exports to Rest of World 10,676 18,288 13,714
- --------------------------- ------- -------- --------
$77,976 $139,369 $109,529
------- -------- --------
No single end customer accounted for more than 5% of revenues in 1997 or
6% of revenues in 1996 or 1995. Approximately 15%, 13% and 14% of net product
revenues were made through the Company's largest domestic distributor in 1997,
1996 and 1995, respectively. Another domestic distributor accounted for 10%
of net product revenues in 1996 and 1995.
NOTE 10. LITIGATION
On June 7, 1993, the Company filed suit against Altera Corporation
(Altera) in the United States District Court for the Northern District of
California for infringement of certain of the Company's patents.
Subsequently, Altera filed suit against the Company alleging that certain of
the Company's products infringe certain Altera patents. Fact discovery has
been completed in both cases. The cases have been consolidated and are
currently scheduled for trial on September 15, 1997.
On April 20, 1995, Altera filed an additional suit against the Company in
Federal District Court in Delaware alleging that the Company's XC5000 family
infringes an Altera patent. The Company answered the Delaware suit denying
that the XC5000 family infringes the patent in suit, asserting certain
affirmative defenses and counterclaiming that the Altera Max 9000 family
infringes certain of the Company's patents. The Delaware suit was transferred
to the United States District Court for the Northern District of California
and is also before the same judge.
The ultimate outcome of these matters cannot be determined at this time.
Management believes that it has meritorious defenses to such claims and is
defending them vigorously, and has not recorded a provision for the ultimate
outcome of these matters in its financial statements. The foregoing is a
forward looking statement subject to risks and uncertainties, and the future
outcome could differ materially due to the uncertain nature of the litigation
with Altera and because the lawsuits are still in the pre-trial stage.
In addition, in the normal course of business, the Company receives and
makes inquiries with regard to possible patent infringement. Where deemed
advisable, the Company may seek or extend licenses or negotiate settlements.
Outcomes of such negotiations may not be determinable at any point in time;
however, management does not believe that such licenses or settlements will,
individually or in the aggregate, have a material adverse effect on the
Company's financial position or results of operations.
NOTE 11. WRITE-OFF OF DISCONTINUED PRODUCT FAMILY
During fiscal 1997, the Company discontinued the XC8100 family of one-time
programmable antifuse devices. As a result, the Company recorded a pretax
charge against earnings of $5 million. This charge primarily related to the
write-off of inventory and for termination charges related to purchase
commitments to foundry partners for work-in-process wafers which had not
completed the manufacturing process.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Xilinx, Inc.
We have audited the accompanying consolidated balance sheets of Xilinx, Inc.
as of March 31, 1997 and 1996, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended March 31, 1997. Our audits also included the financial statement
schedule listed in the Index at Item 14(a)(2). These financial statements and
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Xilinx, Inc. at March 31, 1997 and 1996, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended March 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
/s/ Ernst & Young LLP
San Jose, California
April 23, 1997
Supplementary Financial Data
(In thousands, except per share amounts)
QUARTERLY DATA (UNAUDITED)
Year Ended March 31, 1997 First Second Third Fourth
Quarter Quarter Quarter Quarter
- ------------------------------------- -------- -------- -------- --------
Net revenues $150,200 $130,579 $135,587 $151,777
Gross margin 96,875 74,921* 83,431 93,579
Operating income 49,490 29,464* 36,903 43,204
Net income 32,492 21,218* 26,223 30,443
- ------------------------------------- -------- --------- -------- --------
Net income per share $ 0.41 $ 0.27* $ 0.33 $ 0.38
- ------------------------------------- -------- --------- -------- --------
Shares used in per share calculations 78,944 79,378 79,791 80,586
===================================== ======== ========= ======== ========
<FN>
* After write-off of discontinued product family of $5 million and $0.04 per
share net of tax.
After write-off of discontinued product family of $5 million and $0.04 per
share net of tax.
Year Ended March 31, 1996 First Second Third Fourth
Quarter Quarter Quarter Quarter
- ------------------------------------- -------- -------- -------- --------
Net revenues $125,760 $141,212 $144,123 $149,707
Gross margin 77,254 89,598 92,451 98,307
Operating income 18,069* 45,675 49,318 52,694
Net income 5,548* 29,826 32,190 33,890
- ------------------------------------- --------- ------- -------- --------
Net income per share $ 0.07* $ 0.37 $ 0.41 $ 0.43
- ------------------------------------- --------- ------- -------- --------
Shares used in per share calculations 77,487 79,601 79,106 79,622
===================================== ========= ======= ======== ========
<FN>
*After non-recurring charge for in-process technology related to the
acquisition of NeoCAD of $19,366 and $0.25 per share.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
--------
Certain information required by Part III is omitted from this Report in that
the Registrant will file a definitive proxy statement pursuant to Regulation
14A (the Proxy Statement) not later than 120 days after the end of the fiscal
year covered by this Report, and certain information included therein is
incorporated herein by reference. Only those sections of the Proxy Statement
which specifically address the items set forth herein are incorporated by
reference. Such incorporation does not include the Compensation Committee
Report or the Performance Graph included in the Proxy Statement.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors required by this Item is
incorporated by reference to the Company's Proxy Statement.
The information concerning the Company's executive officers required by this
Item is incorporated by reference to the section in Item 1 hereof entitled
"Executive Officers of the Registrant".
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The Financial Statements required by Item 14 (a) are filed as
part of this annual report.
(2) The Financial Statement Schedule required by Item 14 (a) is
filed as part of this annual report.
Schedules not filed have been omitted because they are not applicable, are not
required or the information required to be set forth therein is included in
the financial statements or notes thereto.
(3) The exhibits listed below in (c) are filed or incorporated by
reference as part of this annual report.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
-------------------
fourth quarter of fiscal 1997.
(c) Exhibits.
--------
Exhibit Number Description
- --------------- -----------------------------------------------------------------------------------------------
3.1 (2) Restated Certificate of Incorporation of the Company, as amended to date.
3.2 (1) Bylaws of the Company, as amended to date.
4.1 (3) Preferred Shares Rights Agreement dated as of October 4, 1991 between
the Company and The First National Bank of Boston, as Rights Agent.
10.1 (1) Technology Transfer Agreement and Preferred Shares and Warrant Purchase
Agreement for Series E Preferred Stock and Series F Preferred Stock dated
June 9, 1986 between the Company and Monolithic Memories, Inc.
10.2 (1) Common Stock Purchase Agreement dated March 19, 1990 between
the Company and Advanced Micro Devices, Inc.
10.3 (7) Lease dated March 27, 1995 for adjacent facilities at 2055 Logic Drive and
2065 Logic Drive, San Jose, California.
10.4 (7) First Amendment to Master Lease dated April 27, 1995 for the Company's
facilities at 2100 Logic Drive and 2101 Logic Drive, San Jose, California.
10.5 (1) 1988 Stock Option Plan, as amended.
10.6 (1) 1990 Employee Qualified Stock Purchase Plan, as amended.
10.7 1997 Stock Option Plan
10.8 (1) Form of Indemnification Agreement between the Company and its officers
and directors.
10.9 (4) (6) Patent Cross License Agreement dated as of April 22, 1993 between
the Company and Actel Corporation.
10.10.1 (5) Agreement and Plan of Reorganization dated as of March 29, 1995, among
Registrant, NeoCAD, Inc. and XNX Acquisition Corporation.
10.10.2 (5) Certificate of Merger filed on April 10, 1995 between NeoCAD, Inc. and
XNX Acquisition Corporation.
10.11.1 (6) (8) Foundry Venture Agreement dated as of September 14, 1995 between
the Company and United Microelectronics Corporation (UMC).
10.11.2 (6) (8) Fabven Foundry Capacity Agreement dated as of September 14, 1995
between the Company and UMC.
10.11.3 (6) (8) Written Assurances Re Foundry Venture Agreement dated as of September 29,
1995 between UMC and the Company.
10.12 (9) Indenture dated November 1, 1995 between the Company and State Street
Bank and Trust Company.
10.13 (9) Letter Agreement dated as of January 22, 1996 of the Company to Willem P. Roelandts.
10.14 (9) Separation Agreement dated as of April 8, 1996 between the Company and Curtis Wozniak.
10.15 (9) Consulting Agreement dated as of June 1, 1996 between the Company and Bernard V. Vonderschmitt.
10.16 (6) (9) Advance Payment Agreement entered into on May 17, 1996 between Seiko
Epson Corporation and the Company.
10.17 Letter Agreement dated as of April 1, 1997 of the Company to Richard W. Sevcik.
11 Statement of Computation of Net Income Per Share.
12 Statement of Computation of Ratios of Earnings to Fixed Charges.
22.1 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP, Independent Auditors.
25.1 Power of Attorney.
26 Financial Statement Schedule - Schedule II.
(1) Filed as an exhibit to the Company's Registration Statement on Form S-1
(File No. 33-34568) which was declared effective June 11, 1990.
(2) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended March 30, 1991.
(3) Filed as an exhibit to the Company's Registration Statement on Form S-1
(File No. 33-43793) effective November 26, 1991.
(4) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended April 3, 1993.
(5) Filed as an exhibit to the Company's Current Report on Form 8-K filed on
April 18, 1995.
(6) Confidential treatment requested as to certain portions of these exhibits.
(7) Filed as an exhibit to the company's Annual Report on Form 10-K for the
fiscal year ended April 1, 1995.
(8) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995.
(9) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended March 30, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant, has duly caused this Annual Report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
San Jose, State of California, on the 18th day of June, 1997.
XILINX, INC.
By: /s/ Willem P. Roelandts
----------------------------
Willem P. Roelandts,
President and Chief Executive Officer