-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U0Kk7XD3sTo1ky5ehOGwORFKrPqO+5J3mpfp0m8A1BVy70C0ftkvpeNQM+ki4Bl+ Hb8JdDq9xKRTpHuXRCs1Hg== 0000703360-96-000006.txt : 19961111 0000703360-96-000006.hdr.sgml : 19961111 ACCESSION NUMBER: 0000703360-96-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961108 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LSI LOGIC CORP CENTRAL INDEX KEY: 0000703360 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 942712976 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10317 FILM NUMBER: 96656440 BUSINESS ADDRESS: STREET 1: 1551 MCCARTHY BLVD STREET 2: MS D 106 CITY: MILPITAS STATE: CA ZIP: 95035 BUSINESS PHONE: 4084334039 MAIL ADDRESS: STREET 1: 1551 MCCARTHY BLVD STREET 2: MS D 106 CITY: MILPITAS STATE: CA ZIP: 95035 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) [X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended September 29, 1996 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ____________ to ____________ Commission File Number: 0-11674 LSI LOGIC CORPORATION (Exact name of registrant as specified in its charter) Delaware 94-2712976 (State of Incorporation) (I.R.S. Employer Identification Number) 1551 McCarthy Boulevard Milpitas, California 95035 (Address of principal executive offices) (408) 433-8000 (Registrant's telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO As of October 25, 1996 there were 128,734,366 shares of registrant's Common Stock, $.01 par value, outstanding. LSI LOGIC CORPORATION Form 10-Q FOR THE QUARTER ENDED SEPTEMBER 29, 1996 INDEX Page No. PART I Financial Information Item 1 Financial Statements Consolidated Condensed Balance Sheets - September 30, 1996 and December 31, 1995 3 Consolidated Condensed Statements of Operations - Three-Month and Nine-Month Periods Ended September 30, 1996 and 1995 4 Consolidated Condensed Statements of Cash Flows - Nine-Month Periods Ended September 30, 1996 and 1995 5 Notes to Unaudited Consolidated Condensed Financial Statements 6 Item 2 Management's Discussion and Analysis of Results of Operations and Financial Condition 9 PART II Other Information Item 1 Legal Proceedings 14 Item 6 Exhibits and Reports on Form 8-K 14 PART I Item 1. Financial Statements
LSI LOGIC CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands, except per share amount) (Unaudited) September 30, December 31, 1996 1995 ASSETS Cash and cash equivalents $ 227,645 $ 172,780 Short-term investments 484,139 512,765 Accounts receivable, less allowance for doubtful accounts of $3,559 and $3,486 235,926 230,980 Inventories 109,695 139,857 Other current assets 55,567 80,348 Total current assets 1,112,972 1,136,730 Property and equipment, net 794,018 638,282 Other assets 92,527 74,575 Total assets $1,999,517 $1,849,587 LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 144,509 $ 165,725 Accrued salaries, wages and benefits 36,528 34,825 Accrued restructuring costs 4,000 22,700 Other accrued liabilities 67,192 42,315 Income taxes payable 103,012 73,649 Current portion of long-term obligations and short-term borrowings 10,028 56,569 Total current liabilities 365,269 395,783 Long-term obligations 341,524 222,388 Deferred income taxes 13,098 8,514 Minority interest in subsidiaries 6,047 6,656 Commitments and contingencies - - Stockholders' equity: Preferred shares; 2,000 shares authorized - - Common stock; $.01 par value; 250,000 shares authorized; 128,322 and 129,303 shares outstanding 1,283 1,293 Additional paid-in capital 817,596 853,538 Retained earnings 421,713 305,190 Cumulative translation adjustment 32,987 56,225 Total stockholders' equity 1,273,579 1,216,246 Total liabilities and stockholders' equity $1,999,517 $1,849,587 See accompanying notes to unaudited consolidated condensed financial statements.
LSI LOGIC CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 Revenues $300,195 $330,832 $936,906 $918,056 Costs and expenses: Cost of revenues 175,074 170,801 528,377 486,505 Research and development 48,472 34,263 134,276 86,624 Sales, general and administrative 40,827 39,325 124,022 118,803 Total costs and expenses 264,373 244,389 786,675 691,932 Income from operations 35,822 86,443 150,231 226,124 Interest expense (3,647) (4,379) (10,241) (12,679) Interest income and other 6,459 9,269 22,400 21,990 Income before income taxes and minority interest 38,634 91,333 162,390 235,435 Provision for income taxes 10,811 25,574 45,469 65,923 Income before minority interest 27,823 65,759 116,921 169,512 Minority interest in net income of subsidiaries 80 217 398 2,965 Net income $ 27,743 $ 65,542 $116,523 $166,547 Net income per share: Primary $ 0.21 $ 0.50 $ 0.89 $ 1.34 Fully diluted $ 0.21 $ 0.47 $ 0.85 $ 1.25 Common share and common share equivalents used in computing per share amounts: Primary 130,224 132,123 131,523 124,644 Fully diluted 142,100 144,128 143,259 137,232 See accompanying notes to unaudited consolidated condensed financial statements.
LSI LOGIC CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Nine Months Ended September 30, 1996 1995 Operating activities: Net income $ 116,523 $ 166,547 Adjustments: Depreciation and amortization 110,251 108,970 Minority interest in net income of subsidiaries 398 2,965 Change in: Accounts receivable (9,923) (51,338) Inventories 27,725 (30,615) Other assets 8,539 (33,683) Accounts payable (15,449) (12,736) Accrued and other liabilities 54,473 48,364 Net cash provided by operating activities 292,537 198,474 Investing activities: Purchases of debt and equity securities (935,681) (350,023) Maturities and sales of debt and equity securities 960,045 203,173 Purchase of restricted equity securities (6,252) (13,966) Purchases of property and equipment, net of retirements and refinancings (296,608) (165,053) Acquisition of stock from minority interest holders (688) (167,316) Net cash used for investing activities (279,184) (493,185) Financing activities: Proceeds from borrowings 133,921 52,971 Repayment of debt obligations (51,125) (70,045) Issuance of common stock 10,886 421,633 Repurchase of common stock (46,838) - Net cash provided by financing activities 46,844 404,559 Effect of exchange rate changes on cash and cash equivalents (5,332) (13,604) Increase in cash and cash equivalents 54,865 96,244 Cash and cash equivalents at beginning of period 172,780 224,503 Cash and cash equivalents at end of period $ 227,645 $ 320,747 See accompanying notes to unaudited consolidated condensed financial statements.
LSI LOGIC CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) Note 1-In the opinion of the Company, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial information included therein. While the Company believes that the disclosures are adequate to make the information not misleading, it is suggested that these financial statements be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. For financial reporting purposes, the Company reports on a 13 or 14 week quarter and a 52 or 53 week year ending on the Sunday closest to December 31. For presentation purposes, the consolidated condensed financial statements refer to the quarter's calendar month end for convenience. The results of operations for the quarter ended September 30, 1996 are not necessarily indicative of the results to be expected for the full year. Note 2 - Cash equivalents and short-term investments at September 30, 1996 consisted primarily of U.S. and foreign corporate debt securities, time deposits, U.S. and foreign government and agency securities, commercial paper, bank notes and auction rate preferred securities. Cash equivalents and short-term investments held at September 30, 1996 and at December 31, 1995 approximate fair market value and it is the Company's intention to hold these investments for one year or less. The Company currently does not actively trade securities. Realized gains and losses are based on book value of specific securities sold and were not material during the quarters ended September 30, 1996 and 1995. Note 3 - The Company has foreign subsidiaries which operate and sell the Company's products in various global markets. As a result, the Company is exposed to changes in foreign currency exchange rates and interest rates. The Company utilizes various hedge instruments, primarily forward exchange, currency swap and interest rate swap contracts, to manage its exposure associated with firm intercompany and third-party transactions. The Company does not speculate in these financial instruments for profit on exchange rate price fluctuations. As of September 30, 1996, the Company had an outstanding currency swap contract which hedged specific intercompany transactions and third party obligations. Outstanding foreign currency hedge instruments at December 31, 1995 consisted of forward exchange and currency swap contracts to manage the exposure associated with various intercompany loans, firm obligations to the Company's Japanese manufacturing subsidiary and third-party borrowings. As of September 30, 1996, the Company has several interest rate swap contracts outstanding, including one swap with forward start dates through October 1996, which convert the interest associated with 17.25 billion yen ($156.2 million) of borrowings by the Company's Japanese manufacturing subsidiary from adjustable to fixed rates (ranging from 2.65% to 3.24%). The interest rate swaps cover payments to be made under term borrowings through 2001. At September 30, 1996, unutilized credit line drawdowns of 5 billion yen ($55.2 million) remain under the forward swap agreement. The following table summarizes by major currency the forward exchange and currency swap contracts outstanding (in thousands). The "buy" amounts represent the U.S. dollar equivalent of commitments to purchase foreign currencies, and the "sell" amounts represent the U.S. dollar equivalent of commitments to sell foreign currencies. Foreign currency amounts are translated at rates current at the reporting date.
September 30, December 31, Buy/(Sell): 1996 1995 Japanese Yen $ 9,219 $ 18,474 U.S. Dollar (9,296) (25,492) Pound Sterling - 5,614 Deutschemark - (5,990) Singapore Dollar - 6,089
These forward exchange and currency swap contracts are considered identifiable hedges. Realized and unrealized gains and losses are deferred until settlement of the underlying commitments and are recorded in income as part of the purchase or sale transaction when it is recognized, or as other gains or losses when a hedged transaction is no longer expected to occur. Deferred foreign exchange gains and losses were not material at September 30, 1996 and December 31, 1995. Note 4 - Balance sheet and cash flow information (in thousands):
September 30, December 31, 1996 1995 Inventories: Raw materials $ 33,945 $ 44,758 Work-in-process 53,064 47,193 Finished Goods 22,686 47,906 Total $ 109,695 $ 139,857 September 30, September 30, 1996 1995 Cash Paid for: Income taxes $ 28,600 $ 25,700 Interest 14,300 14,471
Note 5 - During the second quarter of 1996, the Company shut down its Milpitas wafer manufacturing facility. During the third quarter of 1996, the Company determined that the majority of the equipment that had been used at the Milpitas facility was no longer needed for current or future capacity requirements of the Company at its other facilities. Accordingly, the equipment was made available for sale and was written down by $15 million to its estimated net realizable value. The Company utilized $15 million of its restructuring reserves, which became available as a result of a favorable court decision (see Notes 6 and 9), and, therefore, the write down did not necessitate a charge to the income statement. At September 30, 1996, assets held for sale totaled $15.6 million and included manufacturing equipment and two buildings. Note 6 - During the first nine months of 1996, $19.7 million was charged against the restructuring reserves. The charges were primarily for the shutdown of the Milpitas wafer fabrication facility (which had previously been delayed due to the Company's requirements for the facility's capacity having continued longer than anticipated when the restructuring charge was taken). These charges included a $15 million charge resulting from the writedown of the Milpitas wafer fabrication equipment (see Note 5),severance payments to employees ($1.5 million) and lease and other charges in connection with the Milpitas wafer manufacturing equipment ($2.5 million). Other restructuring charges were attributable to ongoing maintenance costs of the Company's vacant German facility ($.6 million) and a decrease in reserves due to translation adjustments as a result of the weakening Deutschemark ($.1 million). As a result of a favorable appellate court decision in September 1996 in connection with the Texas Instruments litigation (see Note 9), $15 million of restructuring reserves became available for the write down of the Milpitas wafer manufacturing equipment. Reserves at September 30, 1996 include approximately $4 million for remaining costs related to the closure of the Milpitas manufacturing facility and continued maintenance of the vacant Braunschweig facility. Management believes that the total reserves established are adequate to cover uncertainties in connection with these matters. See further discussion in Managements Discussion and Analysis of Results of Operations and Financial Condition, Part I, Item 2 of this Form 10-Q. Note 7 - The Company's effective tax rate of 28% is lower than the U.S. statutory rate primarily due to the Company's expected earnings mix in its foreign subsidiaries which are taxed at lower rates and anticipated utilization of prior loss carryovers and other tax credits. Note 8 - In February 1996, the Company's Board of Directors approved an action which authorizes management to acquire up to 4 million shares of its own stock in the open market at current market prices. During the first nine months of 1996, the Company repurchased and retired approximately two million shares of its common stock from the open market for approximately $47 million. The transactions were recorded as reductions to common stock and additional paid-in capital. Note 9 - A discussion of certain pending legal proceedings is included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995. As indicated therein, Texas Instruments (TI) filed an appeal in the United States Court of Appeals for the Federal Circuit (CAFC) challenging the United States District Court's decision that the Company's encapsulation process did not infringe the TI patents. In July 1996, the CAFC issued its decision affirming the U.S. District Court's holding in favor of the Company. In August 1996, TI filed a petition for reconsideration of the CAFC's decision and requested that the matter be heard inbanc by the CAFC. In September 1996, TI's petition was denied. The Company believes that the probability of a significant loss is remote and therefore, reallocated $15 million of its reserves during September 1996 (see Note 6). No assurance can be given, however, that this matter will be resolved without the payment of damages and other costs. Certain additional claims and litigation against the Company have also arisen in the normal course of business. The Company believes that it is unlikely that the outcome of these claims and lawsuits will have a materially adverse effect on the Company's consolidated financial position or results of operations. Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition The discussion in "Management's Discussion and Analysis of Results of Operations and Financial Condition" contains trend analysis and other forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results could differ materially from those set forth in such forward-looking statements as a result of qualifying information set forth herein, those factors set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 1995, which are incorporated herein by reference, and other risks detailed from time to time in the Company's reports filed with the Securities and Exchange Commission. General The Company believes that its future operating results are and will continue to be subject to quarterly variations based upon a wide variety of factors, including the cyclical nature of both the semiconductor industry and the markets addressed by the Company's products, the availability and extent of utilization of manufacturing capacity, fluctuations in manufacturing yields, price erosion, competitive factors, the timing of new product introductions, changes in product mix, product obsolescence and the ability to develop and implement new technologies. The Company's operating results could also be impacted by sudden fluctuations in customer requirements, currency exchange rate fluctuations and other economic conditions affecting customer demand and the cost of operations in one or more of the global markets in which the Company does business. As a participant in the semiconductor industry, the Company operates in a technologically advanced, rapidly changing and highly competitive environment. The Company predominantly sells custom products to customers operating in a similar environment. Accordingly, changes in the circumstances of the Company's customers may have a greater impact on the Company than if the Company offered standard products that could be sold to many purchasers. While the Company cannot predict what effect these various factors may have on its financial results, the aggregate effect of these and other factors could result in significant volatility in the Company's future performance and stock price. To the extent the Company's performance may not satisfy expectations published by external sources, public reaction could result in a sudden and significantly adverse impact on the market price of the Company's securities, particularly on a short-term basis. The Company currently has international subsidiaries which operate and sell the Company's products in various global markets. The Company purchases a substantial portion of its raw materials and equipment from foreign suppliers, and incurs labor and other operating costs, particularly at its Japanese manufacturing facility, in foreign currencies. As a result, the Company is exposed to international factors such as changes in foreign currency exchange rates or weak economic conditions of the respective countries in which the Company operates. The Company utilizes various instruments, primarily forward exchange and currency swap contracts, to manage its exposure associated with currency fluctuation on intercompany transactions and certain foreign currency denominated commitments (see Note 3 to the Unaudited Consolidated Condensed Financial Statements). The Company's corporate headquarters and manufacturing facilities are located near major earthquake faults. As a result, in the event of a major earthquake the Company could suffer damages which could materially and adversely affect the operating results and financial condition of the Company. While management believes that the discussion and analysis in this report is adequate for a fair presentation of the information, management recommends that this discussion and analysis be read in conjunction with Management's Discussion and Analysis included in the Company's 1995 Annual Report on Form 10-K for the year ended December 31, 1995. Results of Operations Revenues for the third quarter of 1996 decreased 9.3% to $300.2 million from $330.8 million in the same period in 1995. The decrease in revenues is primarily attributable to a slowdown in new orders for the Company's products during the first half of 1996, which the Company believes primarily resulted from customers utilizing inventories on hand at the end of 1995. Revenues for the first nine months of 1996 increased 2.1% to $936.4 million from $918.1 million in the same period in 1995. The increase in revenues for the nine month period was primarily due to increasing demand for the Company's products for consumer product applications during 1995 and 1996 offset in part by the slowdown in new orders for other applications during 1996. The Company's average selling prices did not fluctuate significantly during the third quarter and the first nine months of 1996 compared to the same periods of 1995. One customer accounted for 13% of revenues during the nine months ended September 30, 1996. Key elements of the statements of operations, expressed as a percentage of revenues, were as follows:
Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 Gross margin 41.7% 48.4% 43.6% 47.0% Research and development expenses 16.1% 10.4% 14.3% 9.4% Selling, general and administrative expenses 13.6% 11.9% 13.2% 12.9% Income from operations 11.9% 26.1% 16.0% 24.6%
Gross margin declined to 41.7% and 43.6% during the third quarter and first nine months of 1996, respectively from 48.4% and 47.0% in the same periods a year ago. The decline was primarily attributable to lower factory utilization. The Company has significantly increased its production capability from the same period a year ago resulting primarily from the installation of additional production equipment in the Company's Japanese wafer manufacturing facilities and improving manufacturing yields. However, due to expected levels of demand and factory utilization and anticipated flat revenues, gross margin during the fourth quarter of 1996 is not expected to change significantly from levels attained during the third quarter of 1996. The Company's operating environment, combined with the resources required to operate in the semiconductor industry, requires managing a wide variety of factors such as factory and capacity utilization, manufacturing yields, product mix, terms negotiated with third-party subcontractors, availability of certain raw materials and foreign currency exchange rate fluctuations. Gross profit margin for the first three quarters of 1996 may not be indicative of results that may be realized for the fiscal year. The Company has delayed completion of the first phase of its Gresham, Oregon manufacturing facility based on expected future capacity requirements and current capacity availability. This new facility is currently expected to become operational during the latter half of 1998. If demand does not increase sufficiently to absorb the Company's capacity, its gross margin and operating results could be negatively impacted in future periods. Changes in the relative strength of the yen may have a greater impact on the Company's gross margin than other foreign exchange fluctuations due to the Company's large wafer fabrication operations in Japan. Although the yen weakened (the average yen exchange rate for the third quarter and first nine months of 1996 decreased approximately 16% and 17%, respectively, from the same periods in 1995), the effect on gross margin and net income was not material as the Company's yen denominated sales offset a substantial portion of its yen denominated costs during those periods, and the Company hedged a portion of its remaining yen exposures. However, there can be no assurance that future changes in the strength of the yen relative to the U.S. dollar will not have a material effect on gross margin or operating results. Research and development (R&D) expenses increased $14.2 million and $47.7 million, respectively, in the third quarter and first nine months of 1996 compared to the same periods in 1995. As a percentage of revenue, R&D expenses increased to 16.1% and 14.3%, respectively, in the third quarter and first nine months of 1996 compared with 10.4% and 9.4% during the same periods a year ago. The increase in R&D expenses is primarily attributed to increased staffing levels as the Company continues to invest in the development of more advanced technology products and the related manufacturing, packaging and design processes. The increase resulted primarily from the Company's continued growth in its investment in future products and processes. The Company anticipates continuing its investment in R&D at a rate of 14% to 16% of revenues through the remainder of 1996. Selling, general and administrative (SG&A) expenses increased $1.5 million and $5.2 million, respectively, in the third quarter and first nine months of 1996 compared to the same periods in 1995. The increase in total SG&A expenses was primarily due to increased compensation levels. SG&A expenses increased as a percentage of revenues to 13.6% and 13.2%, respectively, in the third quarter and first nine months of 1996 compared to 11.9% and 12.9% for the same periods in 1995. The Company expects that SG&A expenses will remain relatively constant in absolute dollars. Interest expense for the third quarter and first nine months of 1996 decreased $.7 million and $2.4 million, respectively, as compared to the same periods in 1995. The decrease is primarily attributed to lower interest rates on yen-denominated borrowings during 1996. Interest income and other decreased $2.8 million during the third quarter of 1996 as compared to the third quarter of 1995. The decrease is primarily related to fixed asset disposals and foreign currency exchange losses. Interest income and other increased $.4 million during the first nine months of 1996 as compared to the same period in 1995. The increase is primarily attributable to increased interest income as a result of higher average cash and investment balances offset partially by foreign exchange losses and losses on disposals of fixed assets during the first nine months of 1996. The Company recorded a provision for income taxes for the first nine months of 1996 and 1995 with an effective rate of 28%. The Company's effective tax rate is lower than the U.S. statutory rate primarily due to the Company's expected earnings mix in its foreign subsidiaries which are taxed at lower rates and anticipated utilization of prior loss carryovers and other tax credits. Restructuring The Company implemented a restructuring plan in the third quarter of 1992 revising its global manufacturing strategy, streamlining operations, discontinuing certain commodity products and focusing its product strategy on high-end technology solutions. Specifically, it involved the shutdown of the Braunschweig, Germany test and assembly facility, the planned phase-out of the Milpitas, California wafer fabrication facility, the consolidation of certain U.S. manufacturing operations, the downsizing of the chipset operation of its former subsidiary, Headland Technology Inc., and severance costs for approximately 500 employees worldwide. The $102 million restructuring charge included: the write-down and write-off of manufacturing facilities, equipment and improvements; the estimated operating costs attributable to the phase-out, closure and consolidation of these manufacturing facilities; the write-down of commodity chipset product inventories; the severance of manufacturing and other personnel; the consolidation of certain U.S. and foreign sales offices, design centers and administrative organizations; and certain legal matters and other costs. By the end of 1995, the Company had completed the phase-out of the German test and assembly operation and written off the facility, discontinued the chipset business, completed a partial phase-down of its Milpitas wafer manufacturing facility and certain U.S. assembly and test operations, and completed consolidation of certain U.S. sales offices and design centers. These actions included termination of approximately 400 employees. The following table sets forth the remaining 1992 restructuring reserves at September 30, 1996 and December 31, 1995 (which are accounted for as components of fixed assets and current liabilities) and charges taken during the first nine months of 1996 (in thousands):
Balance Balance 12/31/95 Utilized* Adjusted 9/30/96 Fixed asset related charges $ 1,900 $(17,100) $15,200 $ - Other provisions for phase-down and con solidation of manu- facturing facilities 2,800 (1,100) 800 2,500 Payments to employees for severance (a) - (1,500) 1,500 - Relocation, lease terminations and other corporate matters 19,000 - (17,500) 1,500 Total $23,700 $(19,700) $ - $ 4,000
* Net of cumulative currency translation adjustments. Amounts utilized represent both cash and non-cash charges. Cash charges totaled approximately $2,500,000 during the first nine months of 1996. (a) Amounts utilized represent cash payments related to the severance of approximately 150 employees. During the first nine months of 1996, $19.7 million was charged against the restructuring reserves. The charges were primarily for the shutdown of the Milpitas wafer fabrication facility (which had previously been delayed due to the Company's requirements for the facility's capacity having continued longer than anticipated when the restructuring charge was taken). These charges included a $15 million charge resulting from the writedown of the Milpitas wafer fabrication equipment (see Note 5 of Notes to Unaudited Consolidated Condensed Financial Statements), severance payments to employees ($1.5 million) and lease and other charges in connection with the Milpitas wafer manufacturing equipment ($2.5 million). Other restructuring charges were attributable to ongoing maintenance costs of the Company's vacant German facility ($.6 million) and a decrease in reserves due to translation adjustments as a result of the weakening Deutschemark ($.1 million). As a result of a favorable appellate court decision in September 1996 in connection with the Texas Instruments litigation (see Note 9 of Notes to Unaudited Consolidated Condensed Financial Statements), $15 million of restructuring reserves became available for the write down of the Milpitas wafer manufacturing equipment. Reserves at September 30, 1996 include approximately $4 million for remaining costs related to the closure of the Milpitas manufacturing facility and continued maintenance of the vacant Braunschweig facility. Management believes that the total reserves established are adequate to cover uncertainties in connection with these matters. Financial Condition The Company's cash, cash equivalents and short-term investments increased $26.3 million during the first nine months of 1996 to $711.8 million from $685.5 million at the end of 1995. The increase is due to cash provided from operations and net proceeds from borrowings, offset partially by purchases of fixed assets and repurchases of common stock. Working capital increased $6.8 million to $747.7 million at September 30, 1996 from $740.9 million at December 31, 1995. During the first nine months of 1996, the Company generated $292.5 million of cash and cash equivalents from its operating activities, which is an increase of $94.1 million over cash and cash equivalents of $198.5 million that were provided from operating activities during the first nine months of 1995. The increase is primarily attributable to changes in cash invested in inventories, accounts receivable and other assets during the first nine months of 1996 compared to the first nine months of 1995. Cash and cash equivalents used for investing activities during the first nine months of 1996 were $279.2 million compared to $493.2 million during the same period in 1995. The decrease in cash used for investing activities was primarily attributable to an increase in the net maturities and sales of $171.2 million of short term investments in the first nine months of 1996, the repurchase of all the minority interest in the Company's manufacturing subsidiary and substantially all shares not already owned of its publicly traded Canadian subsidiary during the first nine months of 1995 for $125.9 million and $31.6 million, respectively. These increases were partially offset by $131.6 million increase in net purchases of property and equipment during the nine months ended September 30, 1996 compared to the same period a year ago. Cash and cash equivalents provided by financing activities during the first nine months of 1996 were $46.8 million compared to $404.6 million in the first nine months of 1995. The decrease is primarily attributed to proceeds of $404.6 million received by the Company from two stock offerings in February and July 1995 and the repurchase of approximately 2 million shares of the Company's stock for $46.8 million during 1996. These decreases were partially offset by an increase in net proceeds received from borrowings of $99.9 million during the first nine months of 1996 compared to the same period in 1995. Net property and equipment was $794 million at September 30, 1996, an increase of $155.7 million compared to $638.3 million at the end of 1995. The increase was primarily due to $296.6 million of fixed asset purchases, primarily equipment for the Company's Japanese manufacturing facilities and construction costs related to a new wafer fabrication facility in Oregon (see below), net of retirements and $11.8 million of equipment refinanced through operating leases by its Japanese manufacturing subsidiary. This increase was partially offset by $95.4 million of depreciation on fixed assets, the effect of translation (approximately $29 million related to the weakening of the yen) and the reclassification of the Milpitas wafer manufacturing equipment held for sale (see Note 5 of Notes to Unaudited Consolidated Condensed Financial Statements). Management expects net capital additions (excluding operating leases) to approximate $400 to $450 million for 1996. The Company is currently building a new 8-inch wafer manufacturing facility in Gresham, Oregon. The initial phase is expected to require capital spending of approximately $600 to $800 million and, when fully ramped, will have the capacity to run approximately 4,000 eight-inch wafers per week. During 1995, the Company's manufacturing subsidiary entered into a 25 billion yen credit line arrangement. As of September 30, 1996, the Company had 17.25 billion yen ($156.2 million) outstanding under the facility. Borrowings under the line of credit are for a term of five years with principle payments due semiannually beginning in July 1997. All borrowings under this credit line have been converted to fixed rates through the use of interest rate swaps (see Note 3 of Notes to Unaudited Consolidated Condensed Financial Statements). Each of the Company's significant foreign affiliates have lines of credit available for local currency borrowings. These foreign bank lines of credit were not material as of September 30, 1996. The Company believes that its level of financial resources is an important competitive factor in its industry. Accordingly, the Company may, from time to time, seek additional equity or debt financing. The Company believes that existing liquid resources and funds generated from operations combined with funds from such financing and its ability to borrow funds will be adequate to meet its operating and capital requirements and obligations through the foreseeable future. There can be no assurance that such additional financing will be available when needed or, if available, will be on favorable terms. Any future equity financing will decrease existing stockholders' percentage equity ownership and may, depending on the price at which the equity is sold, result in dilution. Part II Item 1 Legal Proceedings Reference is made to Item 3, Legal Proceedings, of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 for a discussion of certain pending legal proceedings. As indicated therein, Texas Instruments (TI) filed an appeal in the United States Court of Appeals for the Federal Circuit (CAFC) challenging the United States District Court's decision that the Company's encapsulation process did not infringe the TI patents. In July 1996, the CAFC issued its decision affirming the U.S. District Court's holding in favor of the Company. In August 1996, TI filed a petition for reconsideration of the CAFC's decision and requested that the matter be heard inbanc by the CAFC. In September 1996, TI's petition was denied. The Company believes that the probability of a significant loss is remote. No assurance can be given, however, that this matter will be resolved without the payment of damages and other costs. Item 6 Exhibits and Reports on Form 8-K (a) Exhibits 11.1 Calculation of Earnings Per Share 27.1 Financial Data Schedule (b) Reports on Form 8-K None Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LSI LOGIC CORPORATION (Registrant) Date: November 7, 1996 By /s/ R. Douglas Norby R. Douglas Norby Executive Vice President and Chief Financial Officer EX-11 2 EXHIBIT 11.1 Exhibit 11.1
LSI LOGIC CORPORATION CALCULATION OF EARNINGS PER SHARE (In thousands, except per share amounts) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 Primary Earnings Per Share Net income $ 27,743 $ 65,542 $116,523 $166,547 Average common and common equivalent shares: Average common shares outstanding 128,524 127,648 129,176 120,509 Dilutive options 1,700 4,475 2,347 4,135 130,224 132,123 131,523 124,644 Earnings per common and common equivalent share $ 0.21 $ 0.50 $ 0.89 $ 1.34 Fully Diluted Earnings Per Share Net income $ 27,743 $ 65,542 $116,523 $166,547 Interest expense on convertible subordinated debt, net of tax effect 1,542 1,542 4,625 4,625 Adjusted net income $ 29,285 $ 67,084 $121,148 $171,172 Average common and common equivalent shares on a fully diluted basis: Average common shares outstanding 128,524 127,648 129,176 120,509 Convertible subordinated debt 11,734 11,734 11,734 11,734 Dilutive options 1,842 4,746 2,349 4,989 142,100 144,128 143,259 137,232 Fully diluted earnings per common and common equivalent share $ 0.21 $ 0.47 $ 0.85 $ 1.25
EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1996 SEP-30-1996 227,645 484,139 239,485 3,559 109,695 1,112,972 1,319,895 525,877 1,999,517 365,269 143,750 1,283 0 0 1,272,296 1,999,517 936,906 936,906 528,377 528,377 258,298 0 10,241 162,390 45,469 116,523 0 0 0 116,523 0.89 0.85
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