-----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, JtC2ElCmINK1ioQYyto/VyBx/EWwCZyE6bfH8nygg0RQJRv5DHB9GZImW0THoV90 A63VFU2rAo/Vt/ytQxzYdw== 0000703360-96-000003.txt : 19960813 0000703360-96-000003.hdr.sgml : 19960813 ACCESSION NUMBER: 0000703360-96-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960812 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: 96608041 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 June 30, 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 July 31, 1996 there were 129,269,770 shares of registrant's Common Stock, $.01 par value, outstanding. LSI LOGIC CORPORATION Form 10-Q FOR THE QUARTER ENDED JUNE 30, 1996 INDEX Page No. PART I Financial Information Item 1 Financial Statements Consolidated Condensed Balance Sheets - June 30, 1996 and December 31, 1995 3 Consolidated Condensed Statements of Operations - Three-Month and Six-Month Periods Ended June 30, 1996 and 1995 4 Consolidated Condensed Statements of Cash Flows - Six-Month Periods Ended June 30, 1996 and 1995 5 Notes to 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 4 Submission of Matters to a Vote of Security Holders 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) June 30, December 31, 1996 1995 ASSETS Cash and cash equivalents $ 222,788 $ 172,780 Short-term investments 490,909 512,765 Accounts receivable, less allowance for doubtful accounts of $2,956 and $3,486 240,998 230,980 Inventories 123,894 139,857 Other current assets 55,994 80,348 Total current assets 1,134,583 1,136,730 Property and equipment, net 738,878 638,282 Other assets 86,807 74,575 Total assets $ 1,960,268 $1,849,587 LIABILITIES AND STOCKHOLDERS EQUITY Accounts payable $ 155,535 $ 165,725 Accrued salaries, wages and benefits 32,547 34,825 Accrued restructuring costs 18,600 22,700 Other accrued liabilities 43,724 42,315 Income taxes payable 85,604 73,649 Current portion of long-term obligations and short-term borrowings 10,111 56,569 Total current liabilities 346,121 395,783 Long-term obligations 328,181 222,388 Deferred income taxes 13,138 8,514 Minority interest in subsidiaries 6,165 6,656 Commitments and contingencies - - Stockholders equity: Preferred shares; 2,000 shares authorized - - Common stock; $.01 par value; 250,000 shares authorized; 129,233 and 129,303 shares outstanding 1,292 1,293 Additional paid-in capital 835,982 853,538 Retained earnings 393,970 305,190 Cumulative translation adjustment 35,419 56,225 Total stockholders equity 1,266,663 1,216,246 Total liabilities and stockholders equity $1,960,268 $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 Six Months Ended June 30, June 30, 1996 1995 1996 1995 Revenues $325,359 $307,066 $636,711 $587,224 Costs and expenses: Cost of revenues 176,454 162,305 353,303 315,704 Research and development 44,859 27,983 85,804 52,361 Sales, general and administrative 42,010 40,143 83,195 79,478 Total costs and expenses 263,323 230,431 522,302 447,543 Income from operations 62,036 76,635 114,409 139,681 Interest expense (3,386) (4,117) (6,594) (8,300) Interest income and other 6,165 7,240 15,941 12,721 Income before income taxes and minority interest 64,815 79,758 123,756 144,102 Provision for income taxes 18,150 22,333 34,658 40,349 Income before minority interest 46,665 57,425 89,098 103,753 Minority interest in net income of subsidiaries 169 1,680 318 2,748 Net income $ 46,496 $ 55,745 $ 88,780 $101,005 Net income per share: Primary $ 0.35 $ 0.44 $ 0.67 $ 0.82 Fully diluted $ 0.34 $ 0.42 $ 0.64 $ 0.77 Common share and common share equivalents used in computing per share amounts: Primary 131,624 125,855 131,747 123,313 Fully diluted 143,359 137,939 143,486 135,689 See accompanying notes to unaudited consolidated condensed financial statements.
LSI LOGIC CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Six Months Ended June 30, 1996 1995 Operating activities: Net income $ 88,780 $ 101,005 Adjustments: Depreciation and amortization 71,552 71,037 Minority interest in net income of subsidiaries 318 1,680 Change in: Accounts receivable (13,881) (20,881) Inventories 13,774 (13,180) Other assets 2,278 (14,389) Accounts payable (4,969) (11,957) Accrued and other liabilities 27,680 19,654 Accrued restructuring costs (1,882) 509 Net cash provided by operating activities 183,650 133,478 Investing activities: Purchases of debt and equity securities (611,596) (118,151) Maturities and sales of debt and equity securities 630,473 118,909 Purchase of restricted equity securities (6,252) (13,966) Purchases of property and equipment, net of retirements and refinancings (190,158) (110,344) Acquisition of stock from minority interest holders (664) (133,704) Net cash used for investing activities (178,197) (257,256) Financing activities: Proceeds from borrowings 117,592 16,726 Repayment of debt obligations (49,919) (13,628) Issuance of common stock 9,684 167,062 Repurchase of common stock (27,241) - Net cash provided by financing activities 50,116 170,160 Effect of exchange rate changes on cash and cash equivalents (5,561) 7,535 Increase (decrease) in cash and cash equivalents 50,008 53,917 Cash and cash equivalents at beginning of period 172,780 224,503 Cash and cash equivalents at end of period $ 222,788 $ 278,420 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 financial statements refer to the quarter's calendar month end for convenience. The results of operations for the quarter ended June 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 June 30, 1996, consisted primarily of U.S. and foreign corporate debt securities, time deposits, auction rate preferred stock, commercial paper, bank notes, and U.S. and foreign government and agency securities. Cash equivalents and short-term investments held at June 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 June 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 June 30, 1996, an outstanding currency swap contract, settling in September 1996, hedged an intercompany loan. 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. Additionally, the Company has several interest rate swap contracts outstanding which convert the interest associated with 15.5 billion yen ($141.6 million) of borrowings by the Company s Japanese manufacturing subsidiary from adjustable to fixed rates (ranging from 2.65% to 3.035%). The interest rate swaps cover payments to be made under term borrowings through 2001. In March 1996, the Company entered into an interest rate swap with various start dates through October 1996. The swap converts a total of 12 billion of current and future yen credit line drawdowns to fixed rates ranging from 2.90% to 3.24%. As of June 30, 1996, credit line drawdowns of 5.25 billion yen ($48.0 million) were covered under the 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.
June 30, December 31, Buy/(Sell): 1996 1995 Japanese Yen $ - $ 18,474 U.S. Dollar - (25,492) Pound Sterling 1,850 5,614 Deutschemark (1,869) (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 June 30, 1996 and December 31, 1995. Note 4 - Balance sheet and cash flow information (in thousands):
June 30, December 31, 1996 1995 Inventories: Raw materials $ 37,743 $ 44,758 Work-in-process 41,756 47,193 Finished Goods 44,395 47,906 Total $ 123,894 $ 139,857 June 30, June 30, 1996 1995 Cash Paid for: Income taxes $ 11,700 $ 17,600 Interest 7,900 8,600
Note 5 - During the first six months of 1996, $2.1 million was charged against the restructuring reserves. These charges were primarily for the shutdown of the Milpitas wafer fabrication facility (which had previously been delayed as the Company assessed its capacity requirements in response to favorable market conditions) and included severance payments to employees ($1.5 million) and charges in connection with owned and leased equipment ($300,000). Other restructuring charges were attributable to ongoing maintenance costs of its vacant German facility ($180,000), offset in part by a decrease in reserves due to translation adjustments as a result of the weakening Deutschemark ($120,000). Reserves at June 30, 1996 include approximately $4.6 million for remaining costs related to the closure of the Milpitas manufacturing facility and continued maintenance of the vacant Braunschweig facility and $17 million for legal and other corporate matters. Management believes that the total reserves established are adequate to cover uncertainties in connection with these matters. See further discussion in Management s Discussion and Analysis of Results of Operations and Financial Condition, Part I, Item 2 of this Form 10-Q. Note 6 - The Company's effective tax rate differs from the statutory rate due to the Company's expected earnings mix in its foreign subsidiaries taxed at lower rates and anticipated utilization of prior loss carryovers and other tax credits. Note 7- 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 quarter of 1996, the Company repurchased one million shares of its common stock from the open market for approximately $27 million. The transactions were recorded as reductions to common stock and additional paid-in capital. Subsequent to the end of the second quarter of 1996, the Company repurchased an additional one million shares of its common stock from the open market for approximately $18 million. It is the Company s intent to retire the common stock acquired in these transactions. Note 8 - 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 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 that the matter he heard inbanc by the CAFC. The Company continues to believe that the final outcome of such matter discussed will not have a material adverse effect on the Company s consolidated financial position or results of operations. No assurance can be given, however, that this matter will be resolved without the payment of damages and other costs or that damages will not be increased to an amount in excess of the Company s reserves with the potential for having an adverse effect on the Company. 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 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 second quarter and first half of 1996 increased 6.0% and 8.4% to $325.4 million and $636.7 million, respectively, as compared to the same periods in 1995. The increase in revenues was primarily due to increased demand for the Company's products for consumer product applications. Production volume grew during the first half of 1996 compared to the same period a year ago due to the Company's continued increase in manufacturing capacity and effectiveness in improving manufacturing yield ratios at its various manufacturing facilities throughout 1995 and during the first half of 1996. A slowdown in new orders during the second quarter of 1996 is likely to cause revenues in the third quarter of 1996 to decline from second quarter levels. Key elements of the statements of operations, expressed as a percentage of revenues, were as follows:
Three Months Ended Six Months Ended June 30, June 30, 1996 1995 1996 1995 Gross margin 45.8% 47.1% 44.5% 46.2% Research and development expenses 13.8% 9.1% 13.5% 8.9% Selling, general and administrative expenses 12.9% 13.1% 13.1% 13.5% Income from operations 19.1% 25.0% 18.0% 23.8%
Gross margin declined to 45.8% and 44.5% during the second quarter and first half of 1996, respectively from 47.1% and 46.2% in the same periods a year ago. The decline was primarily attributable to lower factory utilization. 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, availability of certain raw materials, terms negotiated with third-party subcontractors and foreign currency exchange rate fluctuations. Gross profit margin for the first two quarters of 1996 may not be indicative of expected results for the remainder of the fiscal year. The Company has significantly increased its volume production capability from operating levels in 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, lower factory utilization during the second quarter of 1996 coupled with the possibility of lower revenues may have a negative impact on gross margin during the third quarter of 1996. The Company has pushed out completion of the first phase of its Gresham manufacturing facility based on expected future capacity requirements and current capacity availability. This new facility is currently expected to become operational by the first quarter of 1998. If demand does not absorb the Company s available capacity at a sufficient rate, the Company's 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 second quarter and first half of 1996 decreased approximately 27% and 18%, 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 during the period. However, there is no assurance that future changes in the relative strength of the yen will not have a material effect on gross margin or operating results. Research and development (R&D) expenses increased $16.9 million and $33.4 million, respectively, in the second quarter and first half of 1996 compared to the same periods in 1995. The increase in R&D expenses is primarily attributed to increased staffing levels as the Company continues to invest in the development of higher technology products and the related manufacturing processes, packaging and design processes. As a percentage of revenue, R&D expenses increased to 13.8% and 13.5%, respectively, in the second quarter and first half of 1996 compared with the same periods a year ago. The increase resulted primarily from the Company's continued growth in its investment in future products and processes which outpaced the growth in revenues during these periods. The Company anticipates continuing its investment in R&D at a rate of 14% to 16% of revenues throughout the remainder of 1996. Selling, general and administrative (SG&A) expenses increased $1.9 million and $3.7 million, respectively, in the second quarter and first half of 1996 compared to the same periods in 1995. The increase in total SG&A expenses was primarily due to increased staffing levels. SG&A expenses declined as a percentage of revenues to 12.9% and 13.1%, respectively, in the second quarter and first half of 1996 compared to 13.1% and 13.5% for the same periods in 1995. The Company expects that SG&A expenses will continue to increase in absolute dollars although such expenses may fluctuate as a percentage of revenues on a quarterly basis. Interest expense for the second quarter and first half of 1996 decreased $.7 million and $1.7 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 $1.1 million during the second quarter of 1996 as compared to the second quarter of 1995. The decrease is primarily related to fixed asset disposals and foreign currency exchange losses offset in part by higher interest income during the second quarter. Interest income and other increased $3.2 million during the first half 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 during the first half of 1996. The Company recorded a provision for income taxes for the first half 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, substantially completed phased-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 June 30, 1996 and December 31, 1995 (which are accounted for as components of fixed assets and current liabilities) and charges taken during the first six months of 1996 (in thousands):
Balance Balance 12/31/95 Utilized* Adjusted 6/30/96 Fixed asset related charges $ 1,900 $ (300) $ - $ 1,600 Other provisions for phase-down and consolidation of manufacturing facilities 2,800 (300) - 2,500 Payments to employees for severance (a) - (1,500) 2,000 500 Relocation, lease terminations and other corporate matters 19,000 - (2,000) 17,000 Total $ 23,700 $ (2,100) $ - $21,600 * Net of cumulative currency translation adjustments. Amounts utilized represent both cash and non-cash charges. Cash charges totaled approximately $1,750,000 during the first half of 1996. (a) Amounts utilized represent cash payments related to the severance of approximately 150 employees.
During the first six months of 1996, $2.1 million was charged against the restructuring reserves. These charges were primarily for the shutdown of the Milpitas wafer fabrication facility (which had previously been delayed as the Company assessed its capacity requirements in reponse to favorable market conditions) and included severance payments to employees ($1.5 million) and charges in connection with owned and leased equipment ($300,000). Other restructuring charges were attributable to ongoing maintenance costs of its vacant German facility ($180,000), offset in part by a decrease in reserves due to translation adjustments as a result of the weakening Deutschemark ($120,000). Reserves at June 30, 1996 include approximately $4.6 million for remaining costs related to the closure of the Milpitas manufacturing facility and continued maintenance of the vacant Braunschweig facility and $17 million for legal and other corporate matters. 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 $28.2 million during the first half of 1996 to $713.7 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 $47.6 million to $788.5 million at June 30, 1996 from $740.9 million at December 31, 1995. During the first half of 1996, the Company generated $183.7 million of cash and cash equivalents from its operating activities, which is an increase of $50.2 million in cash and cash equivalents provided from operating activities during the first half of 1995. The increase is primarily attributable to changes in cash invested in inventories and other assets during the first half of 1996 compared to the first half of 1995. Cash and cash equivalents used for investing activities during the first half of 1996 were $178.2 million compared to $257.3 million during the same period in 1995. The decrease was primarily attributable to the repurchase of all the minority interest in the Company's manufacturing subsidiary during the first half of 1995 for $125.9 million and an increase in the net maturities and sales of short term investments of $18.9 million in the first half of 1996, partially offset by a $79.8 million increase in the net purchasing activity of property and equipment during the period. Cash and cash equivalents provided by financing activities during the first half of 1996 were $50.1 million compared to $170.1 million in the first half of 1995. The decrease is primarily attributed to proceeds of $157.6 million received by the Company from a stock offering in February 1995. Additionally, during the first half of 1996, the Company increased borrowings by $67.7 million relating primarily to financing capacity expansion at its Japanese manufacturing subsidiary and repurchased one million shares of the Company s common stock for $27.2 million. Net property and equipment was $738.9 million at June 30, 1996, an increase of $100.6 million compared to $638.3 million at the end of 1995. The increase was primarily due to $190.2 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, partially offset by $62.5 million of depreciation on fixed assets and the effect of translation (approximately $24.9 million), primarily related to the weakening of the yen. 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 June 30, 1996, the Company had 15.5 billion yen ($141.6 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 June 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 that the Companys 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 that the matter he heard inbanc by the CAFC. The Company continues to believe that the final outcome of this matter will not have a material adverse effect on the Company's consolidated financial position or results of operations. No assurance can be given, however, that this matter will be resolved without the payment of damages and other costs or that damages will not be increased to an amount in excess of the Company's reserves with the potential for having an adverse effect on the Company. Item 4 Submission of Matters to a Vote of Security Holders The Annual Meeting of Stockholders of LSI Logic Corporation was held on May 10, 1996 in New York, New York. Of the total 128,467,131 shares outstanding as of the record date, 115,310,922 shares (89.7%) were present or represented by proxy at the meeting. The table below presents the results of election of the Company's board of directors: Votes Votes For Withheld Wilfred J. Corrigan 115,019,295 291,627 Malcolm R. Currie 115,006,574 304,348 T.Z. Chu 115,012,159 298,763 James H. Keyes 115,030,502 280,420 R. Douglas Norby 115,022,757 288,165 The stockholders ratified the appointment of Price Waterhouse LLP as the Company's independent accountants for the fiscal year ended December 31, 1996. The proposal received 115,012,042 affirmative votes, 128,910 negative votes, 169,970 abstentions, and zero non-votes. 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: August 12, 1996 By /s/ Albert A. Pimentel Albert A. Pimentel Senior Vice President Finance & 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 Six Months Ended June 30, June 30. 1996 1995 1996 1995 Primary Earnings Per Share Net income $ 46,496 $ 55,745 $ 88,780 $101,005 Average common and common equivalent shares: Average common shares outstanding 129,019 121,824 129,106 119,530 Dilutive options 2,605 4,031 2,641 3,783 131,624 125,855 131,747 123,313 Earnings per common and common equivalent share $ 0.35 $ 0.44 $ 0.67 $ 0.82 Fully Diluted Earnings Per Share Net income $ 46,496 $ 55,745 $ 88,780 $101,005 Interest expense on convertible subordinated debt, net of tax effect 1,542 1,542 3,083 3,083 Adjusted net income $ 48,038 $ 57,287 $ 91,863 $104,088 Average common and common equivalent shares on a fully diluted basis: Average common shares outstanding 129,019 121,824 129,106 119,530 Convertible subordinated debt 11,735 11,735 11,735 11,735 Dilutive options 2,605 4,380 2,645 4,424 143,359 137,939 143,486 135,689 Fully diluted earnings per common and common equivalent share $ 0.34 $ 0.42 $ 0.64 $ 0.77
EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1996 JUN-30-1996 222,788 490,909 243,954 2,956 123,894 1,134,583 1,278,451 539,584 1,960,268 346,121 143,750 1,292 0 0 1,265,371 1,960,268 636,711 636,711 353,303 353,303 168,999 0 6,594 123,756 34,658 88,780 0 0 0 88,780 0.67 0.64
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