-----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, Nit3ci5xu4IUtNcxw29yKQA4oDBLAsbA9dzbwJNLW06qVrAeufFe94yTzviojtiV YgF/yqDQGQzkCm4ShwvyEw== 0000703360-97-000010.txt : 19970814 0000703360-97-000010.hdr.sgml : 19970814 ACCESSION NUMBER: 0000703360-97-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 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: 97659074 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 UNITED STATES 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 29, 1997 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 August 1, 1997 there were 141,939,241 shares of registrant's Common Stock, $.01 par value, outstanding. LSI LOGIC CORPORATION Form 10-Q FOR THE QUARTER ENDED JUNE 29, 1997 INDEX Page No. PART I Financial Information Item 1 Financial Statements Consolidated Condensed Balance Sheets - June 30, 1997 and December 31, 1996 3 Consolidated Condensed Statements of Operations - Three-Month and Six-Month Periods Ended June 30, 1997 and 1996 4 Consolidated Condensed Statements of Cash Flows - Six-Month Periods Ended June 30, 1997 and 1996 5 Notes to Consolidated Condensed Financial Statements 6 Item 2 Management's Discussion and Analysis of Results of Operations and Financial Condition 10 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 15 PART I Item 1. Financial Statements
LSI LOGIC CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands, except per share amount) (Unaudited) June 30, December 31, 1997 1996 ASSETS Cash and cash equivalents $177,035 $147,059 Short-term investments 558,946 570,223 Accounts receivable, less allowance for doubtful 207,237 184,977 accounts of $3,154 and $3,116 Inventories 94,106 90,410 Other current assets 71,071 58,385 Total current assets 1,108,395 1,051,054 Property and equipment, net 921,463 811,659 Other assets 103,173 90,001 Total assets $2,133,031 $1,952,714 LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 195,338 $ 104,109 Accrued salaries, wages and benefits 44,669 26,000 Other accrued liabilities 49,430 67,921 Income taxes payable 100,276 77,696 Current portion of long-term obligations and short-term borrowings 50,380 69,612 Total current liabilities 440,093 345,338 Long-term obligations 124,451 281,136 Deferred income taxes 8,479 4,907 Minority interest in subsidiaries 5,491 5,114 Commitments and contingencies - - Stockholders' equity: Preferred shares; 2,000 shares authorized - - Common stock; $.01 par value; 450,000 shares authorized; 141,913 and 129,006 shares outstanding 1,419 1,290 Additional paid-in capital 992,251 837,151 Retained earnings 536,580 452,374 Cumulative translation adjustment 24,267 25,404 Total stockholders' equity 1,554,571 1,316,219 Total liabilities and stockholders' $2,133,031 $1,952,714 equity 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, 1997 1996 1997 1996 Revenues $332,004 $325,359 $640,392 $636,711 Costs and expenses: Cost of revenues 168,999 176,454 333,119 353,303 Research and development 58,068 44,859 108,452 85,804 Sales, general and administrative 49,274 42,010 94,33 83,195 Total costs and expenses 276,341 263,323 535,903 522,302 Income from operations 55,663 62,036 104,489 114,409 Interest expense - (3,386) (1,497) (6,594) Interest income and other 7,993 5,996 14,080 15,623 Income before income taxes 63,656 64,646 117,072 123,438 Provision for income taxes 17,857 18,150 32,866 34,658 Net income $ 45,799 $ 46,496 $ 84,206 $ 88,780 Net income per share: Primary $ 0.32 $ 0.35 $ 0.61 $ 0.67 Fully diluted $ 0.32 $ 0.34 $ 0.60 $ 0.64 Common share and common share equivalents used in computing per share amounts: Primary 144,995 131,624 138,979 131,747 Fully diluted 144,998 143,359 144,468 143,486 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, 1997 1996 Operating activities: Net income $ 84,206 $ 88,780 Adjustments: Depreciation and amortization 79,558 71,552 Minority interest in net income of 380 318 subsidiaries Changes in: Accounts receivable (21,232) (13,881) Inventories (3,168) 13,774 Other assets (24,612) 2,278 Accounts payable 90,953 (4,969) Accrued and other liabilities 32,893 27,680 Accrued restructuring costs - (1,882) Net cash provided by operating activities 238,978 183,650 Investing activities: Purchases of debt and equity securities (692,099) (611,596) Maturities and sales of debt and equity 703,526 630,473 securities Purchase of restricted equity securities (6,681) (6,252) Purchases of property and equipment, net of retirements and refinancings (194,440) (190,158) Acquisition of stock from minority interest holders - (664) Net cash used for investing activities (189,694) (178,197) Financing activities: Proceeds from borrowings 34,193 117,592 Repayment of debt obligations (66,509) (49,919) Issuance of common stock 13,520 9,684 Repurchase of common stock - (27,241) Net cash provided by financing activities (18,796) 50,116 Effect of exchange rate changes on cash and cash equivalents (512) (5,561) Increase in cash and cash equivalents 29,976 50,008 Cash and cash equivalents at beginning of period 147,059 172,780 Cash and cash equivalents at end of period $ 177,035 $ 222,788 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, 1996. 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, 1997 are not necessarily indicative of the results to be expected for the full year. One customer represented 23 % and 21% of the Company's consolidated revenue during the second quarter and first half of 1997. Note 2 - Cash equivalents and short-term investments at June 30, 1997, consisted primarily of U.S. and foreign corporate debt securities, commercial paper,auction rate preferred stock, U.S. and foreign government and agency securities and time deposits. Cash equivalents and short-term investments held at June 30, 1997 and at December 31, 1996 approximate fair market value and it is the Company's intention to hold these investments for one year or less. As of June 30, 1997, contractual maturities of available-for-sale securities were $532 million maturing within one year and $27 million maturing between one to five years. 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, 1997 and 1996. 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, interest rate swap and currency option contracts, to manage its exposure associated with firm inter- company and third-party transactions and net asset and liability positions denominated in non-functional currencies. The Company does not hold derivative financial instruments for trading purposes. As of June 30, 1997, the Company had several interest rate swap contracts outstanding which convert the interest associated with 16.97 billion yen ($148 million) of borrowings by the Company's Japanese manufacturing subsidiary from adjustable to fixed rates (ranging from 2.62% to 2.86%). The interest rate swaps cover payments to be made under term borrowings through 2001. Current period gains and losses associated with the interest rate swaps are included in interest expense, or as other gains and losses at such time related borrowings are terminated. Additionally, as of June 30, 1997, a currency forward exchange contract, settling in July 1997 and a currency option contract to buy 12 million pound sterling expiring in September 1997, were outstanding. Both contracts were held to hedge the company's exposure associated with net asset and liability positions denominated in non-functional currencies. Premiums associated with option contracts are amortized over the life of the contracts. 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): 1997 1996 Japanese Yen $ 24,260 $ 7,337 U.S. Dollar 23,950 (7,398)
The currency swap contracts outstanding as of December 31, 1996 and June 30, 1997 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, 1997 and December 31, 1996. Note 4 - Balance sheet and cash flow information (in thousands):
June 30, December 31, 1997 1996 Inventories: Raw materials $ 21,380 $ 19,540 Work-in-process 53,269 53,785 Finished Goods 19,457 17,085 Total $ 94,106 $ 90,410
June 30, June 30, 1997 1996 Cash Paid for: Income taxes $ 13,200 $ 11,700 Interest 6,700 7,900
During the six month period ended June 30, 1997, the Company capitalized $10.8 million related to the preproduction engineering costs for its Gresham, Oregon manufacturing facility. Additionally, during the six-month period ended June 30, 1997, the Company capitalized $12.1 million for development and implementation of software for internal use which are included in other noncurrent assets. Note 5 - Statement of Financial Accounting Standards No. 128 (FAS 128), "Earnings Per Share (EPS)", was issued in February 1997. Under FAS 128, the Company is required to disclose basic EPS and diluted EPS for all periods for which an income statement is presented. This will replace the disclosure currently being made for primary EPS and fully- diluted EPS. FAS 128 requires adoption for fiscal periods ending after December 15, 1997. Pro forma disclosure of basic EPS and diluted EPS for the current reporting and comparable period in the prior year is as follows:
Three months ended Six months ended June 30, June 30, Earnings Per Share 1997 1996 1996 1997 Basic $0.32 $ 0.36 $ 0.65 $ 0.69 Diluted $0.32 $ 0.34 $ 0.60 $ 0.64
In June, 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130 (FAS 130), "Reporting Comprehensive Income", and Statement of Financial Accounting Standards No. 131 (FAS 131), "Disclosures about Segments of an Enterprise and Related Information". The adoption of the both statements are required for fiscal years beginning after December 15, 1997. Under FAS 130, the Company is required to report in the financial statements, in addition to net income, comprehensive income including, as applicable, foreign currency items, minimum pension liability adjustments, and unrealized gains and losses on certain investments in debt and equity securities. The Company expects that the effect of adoption of FAS 130 on the financial statements will be primarily from foreign currency translation adjustments. FAS 131 requires that the Company report separately, in the financial statements, certain financial and descriptive information about operating segments. This includes a measure of segment profit or loss, certain specific revenue and expense items, and segment assets. Additionally, the Company is required to report information about the revenues derived from its products and services groups, about geographic areas in which the Company earns revenues and holds assets, and about major customers. The adoption of FAS 131 will not have any impact on the Company's financial statements. Note 6 - During the first half of 1997, the Company's Japanese sales affiliate sold approximately $75.7 million of its accounts receivables through non-recourse financing programs with two Japanese banks. These receivables were discounted at short-term Yen borrowing rates (averaging approximately 0.4%) and related fees were not material. Note 7 - A discussion of certain pending legal proceedings is included in Item 3 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (1996 10-K). 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 September, 1996, the CAFC denied TI's motion for reconsideration en banc. In December, 1996, TI petitioned the U.S. Supreme Court for a writ of certiorari, seeking further review of the case. The petition was denied in May, 1997. The information provided in the Company's 1996 10-K regarding other matters remains unchanged. The Company continues to believe that the final outcome of such matters 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 these matters will be resolved without the Company becoming obligated to make payments or to pay other costs to the opposing parties, with the potential for having an adverse effect on the Company's financial position or its results of operations. 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. Note 8 - After the end of the second quarter, on July 22, 1997, the Company acquired all issued and outstanding shares of common stock of Mint Technology, Inc. (Mint). Mint provides engineering consulting services on a contract basis to help customers ensure timely and cost-effective completion of their design programs. Mint's consulting services specialize in the architectural specification, implementation and test of complex application specific integrated circuits and field programmable gate arrays based system designs. The acquisition will be accounted for as a purchase. The acquisition price consists of $9.5 million in cash and options to purchase approximately 700,000 shares of common stock with intrinsic value of $12.7 million. The intrinsic value will be included in goodwill or charged to expense over the vesting period of the options. Approximately $2.9 million of the purchase price will be allocated to in-process research and development and charged to the Company's operations during the third quarter. Total goodwill recorded as part of the acquisition is $5.6 million and will be amortized over four years. Pro forma results of operations have not been presented as the amounts would not significantly differ from the Company's historical results. Note 9 - On July 28, 1997, the Company announced that heCompany's Board of Directors approved an action which authorizes management to acquire up to 5 million shares of its common stock in the open market from time to time. 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 economic conditions of the respective countries in which the Company operates. The Company utilizes various instruments, primarily forward exchange, currency swap and currency option contracts, to manage exposure associated with firm intercompany and third party transactions and net asset and liability positions denominated in non-functional currencies. At June, 1997, the Company had currency forward exchange and currency option contracts outstanding (see Note 3 to the Unaudited Consolidated Condensed Financial Statements). Despite its hedging activities, the Company continues to be exposed to the risks associated with fluctuation of foreign currency exchange rates, particularly the Japanese yen. There can be no assurance that such fluctuation will not cause a material adverse effect on the Company=s financial position or results of operations. 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 1996 Annual Report on Form 10-K for the year ended December 31, 1996. Statements in this discussion and analysis contain forward looking information and involve known and unknown risks and uncertainties, which may cause the Company's actual results in future periods to be materially different from any future performance suggested herein. In addition to the factors discussed above, such factors may include, but may not necessarily be limited to fluctuations in customer demand, both in timing and volumes, and fluctuations in currency exchange rates. Also, the Company's ability to have available an appropriate amount of production capacity in a timely manner can significantly impact the Company's financial performance. The timing of new technology and product introductions and the risk of early obsolescence are also important factors. Further, the Company operates in an industry sector where securities values are highly volatile and may be influenced by economic and other factors beyond the Company's control. (See additional discussion contained in "Risk Factors", set forth in Part 1 of the Company's report on Form 10-K for the year ended December 31, 1996.) Results of Operations Revenues for the second quarter and first half of 1997 increased 2.0% and 0.6% to $332.0 million and $640.4 million, respectively, as compared to the same periods in 1996. The increase in revenues was primarily due to increased demand for the Company's products for consumer product applications, partially offset by lower average selling prices when expressed in dollars. One customer represented 23% and 21% of the Company's consolidated revenues during the second quarter and first half of 1997. 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, 1997 1996 1997 1996 Gross margin 49.1% 45.8% 48.0% 44.5% Research and development expenses 17.5% 13.8% 16.9% 13.5% Selling, general and 14.8% 12.9% 14.7% 13.1% administrative expenses Income from operations 16.8% 19.1% 16.3% 18.0%
Gross margin increased to 49.1% and 48.0% during the second quarter and first half of 1997, respectively, from 45.8% and 44.5% in the same periods a year ago. The increase was primarily related to increased manufacturing yields, largely attributable to the installation of chemical mechanical polishing equipment by the Company during the fourth quarter of 1996 and improvement in capacity utilization. Although the average yen exchange rate for the first half of 1997 weakened by approximately 10% from the same period in 1996, the effect on gross margin and net income was not material due to the Company's yen denominated sales offsetting a substantial portion of its yen denominated costs and the Company's hedging a portion of its remaining yen exposures during these periods. However, there can be no assurance that future changes in the relative strength of the yen or mix of foreign denominated revenues, as well as expenses, will not have a material effect on gross margin or operating results. 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 margin for the first two quarters of 1997 may not be indicative of expected results for the remainder of the fiscal year. The Company is currently constructing a new manufacturing facility in Gresham, Oregon. This new facility is expected to become operational during the first half of 1998 to accommodate anticipated future capacity requirements. If demand does not absorb the Company's available capacity at a sufficient rate, or if achieved, such demand is not sustained, the Company's gross margin and operating results could be negatively impacted in future periods. Research and development (R&D) expenses increased $13.2 million and $22.6 million, respectively, in the second quarter and first half of 1997 compared to the same periods in 1996. The increase in R&D expenses is primarily attributed to increased compensation and staffing levels and expansions of the Company's design centers as the Company continues to develop higher technology sub-micron products and the related manufacturing processes, packaging and design processes. As a percentage of revenue, R&D expenses increased to 17.5% and 16.9%, respectively, in the second quarter and first half of 1997 compared to 13.8% and 13.5% during the same periods a year ago. As the Company continues its commitment to technological leadership in the high performance semiconductor market, it anticipates to continue with an investment rate in R&D of approximately 16% to 18% of revenues throughout the remainder of 1997. Selling, general and administrative (SG&A) expenses increased $7.3 million and $11.1 million, respectively, in the second quarter and first half of 1997 compared to the same periods in 1996. SG&A expenses increased as a percentage of revenues to 14.8% and 14.7%, respectively, in the second quarter and first half of 1997 compared to 12.9% and 13.1% for the same periods in 1996. The increase in total SG&A expenses was primarily due to increased compensation levels and information technology costs relating to upgrading the Company's business systems and infrastructure. The Company expects that SG&A expenses will continue to increase in absolute dollars although such expenses may fluctuate as a percentage of revenue on a quarterly basis. Interest expense for the second quarter and first half of 1997 decreased $3.4 million and $5.1 million, respectively, as compared to the same periods in 1996. The decrease is primarily attributed to the conversion of all of the Company's $144 million, 5 1/2% Convertible Subordinated Notes to common stock on March 24, 1997 and interest capitalized as part of the construction at the new manufacturing facility in Gresham, Oregon. Interest income and other increased $2.0 million during the second quarter of 1997 as compared to the second quarter of 1996. The increase is primarily related to higher interest income resulting from higher average cash balances and foreign exchange gains during the second quarter of 1997. Interest income and other decreased $1.5 million during the first half of 1997 as compared to the same period in 1996. The decrease is primarily attributable to fixed asset disposals. The Company recorded a provision for income taxes for the first half of 1997 and 1996 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 available tax credits. Financial Condition and Liquidity The Company's cash, cash equivalents and short-term investments increased $18.7 million during the first half of 1997 to $736.0 million from $717.3 million at the end of 1996. The increase is primarily due to cash provided from operations and the fact that the Company did not repurchase its common stock as it did in 1996, offset partially by net fixed asset purchases and net repayment of debt obligations during the first half of 1997. Working capital decreased $37.4 million to $668.3 million at June 30, 1997 from $705.7 million at December 31, 1996. During the first half of 1997, the Company generated $239.0 million of cash and cash equivalents from its operating activities compared with $183.7 million during the first half of 1996. Cash and cash equivalents used for investing activities during the first half of 1997 were $189.7 million compared to $178.2 million during the same period in 1996. The increase was primarily attributable to $7.5 million increase in the net activity of short-term investments in the first half of 1997, and $4.3 million increase in the net purchasing activity of property and equipment during the period. Cash and cash equivalents used by financing activities during the first half of 1997 were $18.8 million compared to $50.1 million provided in the first half of 1996. The decrease is primarily attributed to $32.3 million repayment of debt obligations net of borrowings in the first half of 1997 compared to proceeds of $67.7 million from net borrowing in the first half of 1996 which was partially offset by the Company's repurchase of one million shares of common stock for $27.2 million. Net property and equipment was $921.5 million at June 30, 1997, an increase of $109.8 million compared to $811.7 million at the end of 1996. The increase was primarily due to a $194.4 million net increase in fixed assets, (primarily construction costs related to a new wafer fabrication facility in Gresham, Oregon) net of retirements. The increase was partially offset by $70.0 million of depreciation and $15.1 million due to the effect of translation and assets transferred to operating leases. Management expects net capital additions (excluding operating leases) to approximate $500 million for 1997. In December 1996, the Company entered into a credit arrangement with several banks for a $300 million revolving line of credit expiring in December 1999. The agreement allows for borrowings at an adjustable interest rate. Interest payments are due quarterly. The agreement includes financial covenants relating to senior debt ratio, quick ratio, debt service ratio, subordinated debt and tangible net worth. At June 30, 1997, the Company did not have any borrowings outstanding under this credit agreement. In addition, the Company=s Japanese manufacturing subsidiary has a 25 billion yen credit line arrangement with adjustable interest rates and covenants relating to profitability, tangible net worth, working capital, senior and total debt leverage and subordinated indebtedness. 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). As of June 30, 1997, the Company had 16.97 billion yen ($148 million) outstanding under the facility and the Company was in compliance with the covenants. Each of the Company's significant foreign affiliates has lines of credit available for local currency borrowings. These foreign bank lines of credit were not material as of June 30, 1997. In February 1997, the Company called its $144 million of 52% Convertible Subordinated Notes (Convertible Notes). The holders of the Convertible Notes elected to convert the Convertible Notes to common stock at a conversion price of $12.25 per share. The conversion resulted in the issuance of 11.7 million shares of common stock. The Company believes that existing liquid resources and funds generated from operations combined with its ability to borrow funds will be adequate to meet its operating and capital requirements and obligations through the foreseeable future. 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. However, 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, 1996 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 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 September, 1996, the CAFC denied TI's motion for reconsideration en banc. In December, 1996, TI petitioned the U.S. Supreme Court for a writ of certiorari, seeking further review of the case. The petition was denied in May, 1997. The information provided at such reference regarding other matters remains unchanged. The Company continues to believe that the final outcome of such matters 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 these matters will be resolved without the Company becoming obligated to make payments or to pay other costs to the opposing parties, with the potential for having an adverse effect on the Company's financial position or its results of operations. Item 4 Submission of Matters to a Vote of Security Holders The Annual meeting of Stockholders of LSI Logic Corporation was held on May 6, 1997 in Gresham, Oregon. Of the total 129,390,793 shares outstanding as of the record date, 118,994,800 shares (92%) were present or represented by proxy at the meeting. The table below presents the voting results of election of the Company's board of directors:
Votes For Votes Withheld Wilfred J. Corrigan 117,302,327 1,692,473 James H. Keys 117,298,586 1,696,214 Malcolm R. Currie 117,258,643 1,736,157 T.Z. Chu 117,295,787 1,699,013 R. Douglas Norby 117,287,662 1,707,138
The stockholders approved an amendment to the Employee Stock Purchase Plan (Purchase Plan) to increase the number of shares reserved for issuance thereunder by 500,000. The proposal received 63,123,123 affirmative votes, 22,581,088 negative votes, 1,462,386 abstentions, and 31,828,203 non-votes. The stockholders approved an amendment to the Purchase Plan to increase the number of shares reserved for issuance thereunder on the first day of each fiscal year, beginning fiscal 1998, by 1.15% of the shares of the Company's Common Stock issued and outstanding on the last day of the immediately preceding fiscal year less the number of shares available for future option grants under the Purchase Plan on the last day of the immediately preceding fiscal year. The proposal received 57,567,749 affirmative votes, 28,084,600 negative votes, 1,514,248 abstentions, and 31,828,203 non-votes. The stockholders approved an amendment to the 1991 Equity Incentive Plan (1991 Plan) to increase the number of shares reserved for issuance thereunder by 3,000,000. The proposal received 45,683,380 affirmative votes, 39,921,272 negative votes, 1,561,945 abstentions, and 31,828,203 non-votes. The stockholders did not approve an amendment to the 1991 Plan to increase the number of shares reserved for issuance thereunder on the first day of each fiscal year, beginning fiscal 1998 and ending fiscal 2004, by 3.75% of the shares of the Company's Common Stock issued and outstanding on the last day of the immediately preceding fiscal year less the number of shares available for future option grants under the 1991 Plan on the last day of the immediately preceding fiscal year. The proposal received 42,692,597 affirmative votes, 42,885,743 negative votes, 1,588,257 abstentions, and 31,828,203 non-votes. The stockholders approved an amendment to the Certificate of Incorporation to increase authorized number of shares of Common Stock to 450,000,000 shares. The proposal received 108,750,259 affirmative votes, 8,742,675 negative votes, 1,501,866 abstentions, and zero non-votes. The stockholders approved a Performance-Based Bonus Compensation Plan for the Chief Executive Officer. The proposal received 114,461,238 affirmative votes, 2,835,770 negative votes, 1,697,792 abstentions, and zero non-votes. The stockholders ratified the appointment of Price Waterhouse LLP as the Company's independent accountants for the fiscal year ended December 31, 1997. The proposal received 117,200,923 affirmative votes, 452,670 negative votes, 1,341,207 abstentions, and zero non- votes. Item 6 Exhibits and Reports on Form 8-K (a) Exhibits 11.1 Calculation of Earnings Per Share 27.1Financial 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 11, 1997 By /s/ R. Douglas Norby R. Douglas Norby Executive Vice President Finance & Chief Financial Officer 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 11, 1997 By R. Douglas Norby Executive 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, 1997 1996 1997 1996 Primary Earnings Per Share Net income $ 45,799 $ 46,496 $ 84,206 $ 88,780 Average common and common equivalent shares: Average commoon shares outstanding 141,418 129,019 129,506 129,106 Dilutive options 3,577 2,605 9,473 2,641 144,995 131,624 138,979 131,747 Earnings per common and common equivalent share $ 0.32 $ 0.35 $ 0.61 $ 0.67 Fully Diluted Earnings Per Share Net income $ 45,799 $ 46,496 $ 84,206 $ 88,780 Interest expense on convertible subordinated debt, net of tax effect - 1,542 1,279 3,083 Adjusted net income $ 45,799 $ 48,038 $ 85,485 $ 91,863 Average common and common equivalent shares on a fully diluted basis: Average common shares outstanding 141,418 129,019 129,506 129,106 Convertible subordinated debt - 11,735 11,735 11,735 Dilutive options 3,580 2,605 3,227 2,645 144,998 143,359 144,468 143,486 Fully diluted earnings per common and common equivalent share $ 0.32 $ 0.34 $ 0.60 $ 0.64
EX-27.1 3 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1997 JUN-30-1997 177,035 558,946 210,391 3,154 94,106 1,108,395 1,516,531 595,068 2,133,031 440,093 0 1,419 0 0 1,553,098 2,133,031 640,392 640,392 333,119 333,119 202,784 0 0 117,072 32,866 84,206 0 0 0 84,206 0.61 0.60 -----END PRIVACY-ENHANCED MESSAGE-----