-----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, HIFKPq0bd8fspwjiroGpA4Q8eXoOtC4TGeUyoO2clDDWUNpAZ59X4US7yB5eqzhh 4VIN4TQ4M4wkBn436unaqA== 0000891618-98-002352.txt : 19980514 0000891618-98-002352.hdr.sgml : 19980514 ACCESSION NUMBER: 0000891618-98-002352 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980329 FILED AS OF DATE: 19980513 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: SEC FILE NUMBER: 001-10317 FILM NUMBER: 98618829 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 FOR QUARTER ENDED MARCH 29, 1998 1 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 MARCH 29, 1998 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 May 7, 1998 there were 140,758,922 shares of registrant's Common Stock, $.01 par value, outstanding. 2 LSI LOGIC CORPORATION Form 10-Q FOR THE QUARTER ENDED MARCH 31, 1998 INDEX
Page No. ---- PART I FINANCIAL INFORMATION Item 1 Financial Statements Consolidated Condensed Balance Sheets - March 31, 1998 and December 31, 1997 3 Consolidated Condensed Statements of Operations - Three-Month Periods Ended March 31, 1998 and 1997 4 Consolidated Condensed Statements of Cash Flows - Three-Month Periods Ended March 31, 1998 and 1997 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 6 Exhibits and Reports on Form 8-K 14
2 3 PART I ITEM 1. FINANCIAL STATEMENTS LSI LOGIC CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands, except per share amounts) (Unaudited)
March 31, December 31, 1998 1997 ----------- ----------- ASSETS Cash and cash equivalents $ 128,930 $ 104,571 Short-term investments 328,828 386,369 Accounts receivable, less allowance for doubtful accounts of $2,325 and $2,597 228,259 210,141 Inventories 100,390 102,267 Other current assets 65,049 67,113 ----------- ----------- Total current assets 851,456 870,461 Property and equipment, net 1,143,819 1,123,909 Other assets 136,946 132,542 ----------- ----------- Total assets $ 2,132,221 $ 2,126,912 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 202,186 $ 211,135 Accrued salaries, wages and benefits 40,542 38,422 Other accrued liabilities 49,334 56,802 Income taxes payable 73,665 87,257 Current portion of long-term obligations and short-term borrowings 44,837 44,615 ----------- ----------- Total current liabilities 410,564 438,231 ----------- ----------- Long-term obligations and deferred income taxes 117,874 117,511 ----------- ----------- Minority interest in subsidiaries 5,283 5,197 ----------- ----------- Commitments and contingencies -- -- Stockholders' equity: Preferred shares; $.01 par value; 2,000 shares authorized -- -- Common stock; $.01 par value; 450,000 shares authorized; 140,303 and 140,161 shares outstanding 1,403 1,401 Additional paid-in capital 966,526 965,422 Retained earnings 642,065 611,622 Cumulative translation adjustment (11,494) (12,472) ----------- ----------- Total stockholders' equity 1,598,500 1,565,973 ----------- ----------- Total liabilities and stockholders' equity $ 2,132,221 $ 2,126,912 =========== ===========
See accompanying notes to unaudited consolidated condensed financial statements. 3 4 LSI LOGIC CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited)
Three Months Ended March 31, ------------------------ 1998 1997 -------- --------- Revenues $324,850 $ 308,388 -------- --------- Costs and expenses: Cost of revenues 183,106 164,120 Research and development 63,842 50,384 Selling, general and administrative 43,752 45,058 -------- --------- Total costs and expenses 290,700 259,562 -------- --------- Income from operations 34,150 48,826 Interest expense -- (1,497) Interest income and other 6,460 6,087 -------- --------- Income before income taxes 40,610 53,416 Provision for income taxes 10,167 15,009 Net income $ 30,443 $ 38,407 ======== ========= Net income per share: Basic $ 0.22 $ 0.30 ======== ========= Diluted $ 0.22 $ 0.28 ======== ========= Shares used in computing per share amounts: Basic 140,242 130,059 ======== ========= Dilutive 141,590 143,933 ======== =========
See accompanying notes to unaudited consolidated condensed financial statements. 4 5 LSI LOGIC CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Three Months Ended March 31, ------------------------ 1998 1997 --------- --------- Operating activities: Net income $ 30,443 $ 38,407 Adjustments: Depreciation and amortization 45,272 39,649 Minority interest in net income of subsidiaries 58 185 Changes in: Accounts receivable (17,635) (5,888) Inventories 2,257 7,094 Other assets (2,306) (9,553) Accounts payable (9,108) 32,659 Accrued and other liabilities (19,024) 3,582 --------- --------- Net cash provided by operating activities 29,957 106,135 --------- --------- Investing activities: Purchases of debt and equity securities (140,586) (252,544) Maturities and sales of debt and equity securities 197,995 278,283 Purchase of restricted equity securities (2,866) (4,395) Purchases of property and equipment, net of retirements and refinancings (60,758) (71,565) --------- --------- Net cash used for investing activities (6,215) (50,221) --------- --------- Financing activities: Proceeds from borrowings -- 34,193 Repayment of debt obligations (48) (20,308) Issuance of common stock 1,106 2,414 --------- --------- Net cash provided by financing activities 1,058 16,299 --------- --------- Effect of exchange rate changes on cash and cash (441) (4,895) --------- --------- equivalents Increase in cash and cash equivalents 24,359 67,318 Cash and cash equivalents at beginning of period 104,571 147,059 --------- --------- Cash and cash equivalents at end of period $ 128,930 $ 214,377 ========= =========
See accompanying notes to unaudited consolidated condensed financial statements. 5 6 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, 1997. For financial reporting purposes, the Company reports on a 13 or 14 week quarter with a year ending 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 March 31, 1998 are not necessarily indicative of the results to be expected for the full year. One customer represented 17% of the Company's consolidated revenue during the first quarter of 1998. Note 2 - Cash equivalents and short-term investments at March 31, 1998, 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 March 31, 1998 and at December 31, 1997 approximate fair market value and it is the Company's intention to hold these investments for one year or less. As of March 31, 1998, contractual maturities of available-for-sale securities were $328.8 million maturing within one year. 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 March 31, 1998 and 1997. 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 contract, currency swap, interest rate swap and currency option contracts, to manage its exposure associated with firm intercompany 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 March 31, 1998, the Company had several interest rate swap contracts outstanding which convert the interest associated with 14.187 billion yen ($110 million) of borrowings by the Company's Japanese manufacturing subsidiary from adjustable to fixed rates (ranging from 1.75% to 2.46%). 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 as related borrowings are terminated. The Company enters into forward contracts, currency swaps and currency options to hedge firm commitment, intercompany and third party exposures. There were no foreign exchange related 6 7 hedge contracts outstanding as of March 31, 1998 and December 31, 1997. The contracts hedging firm intercompany asset and liability positions denominated in non-functional currencies expired on the last day of the first quarter ended March 31, 1998 and year ended December 31, 1997. Premiums associated with option contracts are amortized over the life of the contracts. Currency swap contracts outstanding during the quarter are considered identifiable hedges and realized and unrealized gains and losses are deferred until settlement of the underlying commitments. They are recorded as other gains or losses when a hedged transaction is no longer expected to occur. Deferred foreign gains and losses were not material at March 31, 1998 and December 31, 1997. Foreign currency transaction gains and losses included in interest income and other were immaterial for first quarters ended March 31, 1998 and 1997, respectively. Note 4 - The following is a reconciliation of the numerators and denominators of the basic and diluted per share computations as required by Statement of Accounting Standards No. 128, "Earnings Per Share (EPS)." (In thousands, except per share data)
Three Months Ended March 31, ------------------------------------------------------------- 1998 1997 ------------------------------------------------------------- Per-Share Per-Share Income* Shares** Amount Income* Shares** Amount ------------------------------------------------------------- Basic EPS Net income available to common stockholders $30,443 140,242 $0.22 $38,407 130,059 $0.30 ----- ----- Effect of Dilutive Securities Common stock equivalents 1,348 2,913 5-1/2% convertible subordinated notes 1,279 10,961 Diluted EPS Net income available to common stockholders $30,443 141,590 $0.22 $39,686 143,933 $0.28 ----- -----
*Numerator **Denominator Options to purchase approximately 6,865,866 and 862,725 which were outstanding at March 31, 1998 and 1997 respectively, were not included in the calculation because the exercise prices were greater than the average market price of common shares in each respective quarter. The exercise price ranges of these options were $25.31 to $58.13 and $33.88 to $58.13 at March 31, 1998 and 1997, respectively. 7 8 Note 5 - Balance sheet and cash flow information (in thousands):
March 31, December 31, 1998 1997 -------- ------------ Inventories: Raw materials $ 25,746 $ 19,892 Work-in-process 51,878 58,621 Finished Goods 22,766 23,754 -------- -------- Total $100,390 $102,267 ======== ========
Three Months Ended March 31, ----------------------- 1998 1997 ------- ------- Cash Paid for: Income taxes $22,372 $22,000 Interest $ 847 $ 5,500
During the three-month period ended March 31, 1998, the Company capitalized $15.7 million related to the preproduction engineering costs for its Gresham, Oregon manufacturing facility. The unamortized preproduction balance at March 31, 1998 is $49.7 million. In April 1998, The Accounting Standards Executive Committee (AcSEC) released Statement of Position (SOP) No. 98-5, "Reporting on the Costs of Start-up Activities". The new SOP is effective for fiscal years beginning after December 15, 1998 and requires companies to expense all costs incurred or unamortized in connection with start-up activities as of January 1, 1999. The Company will expense the unamortized preproduction balance as of the effective date and present it as a cumulative effect of a change in accounting principle in accordance with SOP 98-5. Note 6 - During the first three months of 1998, the Company's Japanese sales affiliate sold approximately $35 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 0.46%) and related fees were not material. Note 7 - In January 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 130,"Reporting Comprehensive Income". Comprehensive income is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from investments by owners and distributions to owners. The primary difference between net income and comprehensive income, for the Company, is from foreign currency translation adjustments and gains and losses on a long-term intercompany loan with the Company's Japanese affiliate. Comprehensive income for the current reporting and comparable period in the prior year is as follows: 8 9 (In thousands)
Three Months Ended March 31, --------------------- 1998 1997 ------- ------- Comprehensive Income $31,088 $22,228 ======= =======
Note 8 - 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, 1997. The information provided therein 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. 9 10 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 predominantly 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 its exposure associated with currency fluctuations on intercompany and certain foreign currency denominated commitment. At March 31, 1998, the Company had no foreign currency hedge 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. There have been no significant changes in the year 2000 issue during the first three months of 1998 as compared to the discussion in the Company's 1997 Annual Report on Form 10-K for the year ended December 31, 1997. 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 1997 Annual Report on Form 10-K for the year ended December 31, 1997. Statements in this discussion and analysis contain forward looking information and involve known and 10 11 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, 1997.) RESULTS OF OPERATIONS Revenues for the first quarter of 1998 increased 5.3% to $324.9 million as compared to the same period in 1997. The increase in revenues was primarily due to increased demand for the Company's products for communications and consumer applications, partially offset by overall lower average selling prices when expressed in dollars. One customer represented 17% of the Company's consolidated revenues during the first quarter of 1998. Key elements of the statements of operations, expressed as a percentage of revenues, were as follows:
Three Months Ended March 31, ----------------------- 1998 1997 ---- ---- Gross margin 43.6% 46.8% Research and development expenses 19.7% 16.3% Selling, general and administrative expenses 13.5% 14.6% Income from operations 10.5% 15.8%
Gross margin decreased to 43.6% during the first quarter of 1998 from 46.8% in the same period in 1997. The decrease was primarily related to the combination of a change in product mix yielding lower margins and overall lower average selling prices when expressed in dollars, offset partially by improved capacity utilization. Although the average yen exchange rate for the first three months of 1998 weakened by approximately 6% from the same period in 1997, 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 of 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 the mix of foreign denominated revenues and 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. The gross margin in the first quarter of 1998 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 third quarter 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 11 12 in future periods. Research and development (R&D) expenses increased $13.5 million to $63.8 million during the first quarter of 1998 compared to the same period in 1997. The increase in R&D expenses is primarily attributable to the Company's continued development of advanced technology sub-micron products and the related manufacturing processes, packaging and design processes. As a percentage of revenues, R&D expenses increased to 19.7% in the first quarter of 1998 compared to 16.3% during the same period in 1997. 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 19% to 20% of revenues in the second quarter of 1998 and 15% to 18% throughout the second half of 1998. Selling, general and administrative (SG&A) expenses decreased $1.3 million to $43.8 million during the first quarter of 1998 compared to the same period in 1997. As a percentage of revenues, SG&A expenses decreased to 13.5% in the first quarter of 1998 compared to 14.6% during the same period in 1997. The decrease is primarily related to decreases in certain miscellaneous reserves resulting from the resolution of certain previously accrued contingencies. These decreases were offset in part by increased staffing and compensation levels and information technology costs relating to upgrading the Company's business systems and infrastructure. The Company expects that SG&A expenses will be higher in subsequent quarters in 1998 in absolute dollars, however such expenses may fluctuate as a percentage of revenue on a quarterly basis. Interest expense for the first quarter of 1998 decreased $1.5 million as compared to the same period in 1997. The decrease is primarily attributable 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 the capitalization of interest as part of the construction at the new manufacturing facility in Gresham, Oregon. The Company recorded a provision for income taxes for the first three months of 1998 and 1997 with an effective rate of 25% and 28%, respectively. The reduction in rate is a result of a change in earnings mix in its foreign subsidiaries which are taxed at lower rates. The Company's effective tax rate is lower than the U.S. statutory rate primarily due to the Company's anticipated utilization of available tax credits and the expected earnings mix in its foreign subsidiaries. Financial Condition and Liquidity The Company's cash, cash equivalents and short-term investments decreased $33.2 million during the first three months of 1998 to $457.8 million from $490.9 million at the end of 1997. The decrease is primarily due to purchases of property and equipment and repayment of debt obligations, offset in part by an increase in cash from operations and the issuance of common stock from employee stock option exercises. Working capital increased $8.7 million to $440.9 million at March 31, 1998 from $432.2 million at December 31, 1997. The increase is primarily attributable to a decrease in current liabilities during the first quarter of 1998. During the first three months of 1998, the Company generated approximately $30 million of cash and cash equivalents from its operating activities compared with $106.1 million during the same period in 1997. The decrease in cash and cash equivalents provided from operations during the first quarter of 1998 as compared to the same period a year ago is primarily attributable to decreases in net income before depreciation and amortization, decreases in accounts payable, decreases in accrued and other liabilities and increases in accounts receivable. The decrease in accounts payable is a reflection of quicker payment cycles during the first quarter as compared with the same period in the previous year. The decrease in accrued and other liabilities is primarily attributable to tax payments and decreases in various reserves. The increase in accounts receivable primarily reflects the combination of increased sales and timing of collection differences during the first quarter of 1998 as compared to the same period in 1997. 12 13 Cash and cash equivalents used for investing activities during the first three months of 1998 were $6.2 million compared to $50.2 million during the same period in 1997. The primary investing activities during the first quarter of 1998, other than short-term investments in available for sale debt and equity securities, included purchases of property and equipment and additional investment in non-marketable shares of other technology companies. The Company believes that maintaining technological leadership in the highly competitive worldwide semiconductor industry requires substantial ongoing investment in advanced manufacturing capacity. Capital additions were $60.7 million net of retirements and refinancings during the first three months of 1998. The additions were primarily for costs related to the new eight-inch wafer manufacturing facility in Gresham, Oregon. The Company expects to spend approximately $104 million during the remainder of 1998 to bring this facility to operational status. Cash and cash equivalents provided by financing activities during the first three months of 1998 totaled approximately $1.1 million. This is attributable primarily to the issuance of common stock from employee stock option exercises offset in part by the repayment of debt obligations. There were no repurchases of common stock by the Company during the quarter. 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 March 31, 1998, the Company did not have any borrowings outstanding under this credit agreement. In addition, the Company's Japanese manufacturing subsidiary, JSI, has a credit facility with adjustable interest rates. Borrowings outstanding under the credit facility are for a term of five years with principal payments due semiannually beginning July 1997. The Company must comply with certain financial covenants relating to profitability, tangible net worth, working capital, senior and total debt leverage and subordinated indebtedness. At March 31, 1998, the Company was in compliance with these covenants. As of March 31, 1998, JSI had 14 billion yen ($110 million) outstanding under the facility. 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 March 31, 1998. 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. Recent Accounting Pronouncements In April 1998, The Accounting Standards Executive Committee (AcSEC) released Statement of Position (SOP) No. 98-5, "Reporting on the Costs of Start-up Activities". The new SOP is effective for fiscal years beginning after December 15, 1998 and requires companies to expense all costs incurred or unamortized in connection with start-up activities as of January 1, 1999. The Company will expense the unamortized preproduction balance as of the effective date and present it as a cumulative effect of a change in accounting principle in accordance with SOP 98-5. 13 14 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, 1997 for a discussion of certain pending legal proceedings. 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 6 Exhibits and Reports on Form 8-K (a) Exhibits 27.1 Financial Data Schedule (b) Reports on Form 8-K None 14 15 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: May 7, 1998 By /s/ R. Douglas Norby ----------------------------- R. Douglas Norby Executive Vice President Finance & Chief Financial Officer 15 16 INDEX TO EXHIBITS
Exhibit Number Description - ------ ----------- 27.1 Financial Data Schedule 27.2 Restated Financial Data Schedule
EX-27.1 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 128,930 328,828 230,584 2,325 100,390 851,456 1,792,519 648,700 2,132,221 410,564 0 0 0 1,403 1,597,097 2,132,221 324,850 324,850 183,106 183,106 107,594 0 0 34,150 10,167 30,443 0 0 0 30,443 0.22 0.22
EX-27.2 3 RESTATED FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 214,377 544,210 189,589 3,961 80,723 1,094,446 1,347,137 543,713 1,991,237 344,164 0 0 0 1,411 1,472,825 1,991,237 308,388 308,388 164,120 164,120 95,442 0 1,497 53,416 15,009 38,407 0 0 0 38,407 0.30 0.28
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