-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, StlY+8NKINV6xOpTc+c1DUR0Tre8+u5fGkNVNMI61zk8pTZHo0Cptd0TuPPcjj4M 2SLqfmXX7w8VaatGBSL1EQ== 0000912057-94-000798.txt : 19940308 0000912057-94-000798.hdr.sgml : 19940308 ACCESSION NUMBER: 0000912057-94-000798 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19940102 FILED AS OF DATE: 19940307 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LSI LOGIC CORP CENTRAL INDEX KEY: 0000703360 STANDARD INDUSTRIAL CLASSIFICATION: 3674 IRS NUMBER: 942712976 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-10317 FILM NUMBER: 94514818 BUSINESS ADDRESS: STREET 1: 1551 MCCARTHY BLVD CITY: MILPITAS STATE: CA ZIP: 95035 BUSINESS PHONE: 4084338000 10-K 1 FORM 10K, INDEX TO EXHIBITS, EXHIBITS =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) /X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended January 2, 1994 / / Transition report pursuant to Section 13 or 15(d) of the Securities 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 or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1551 MCCARTHY BOULEVARD, MILPITAS, CALIFORNIA 95035 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (408) 433-8000 ------------------------- Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED -------------------- ----------------------------------------- COMMON STOCK, $0.01 PAR VALUE NEW YORK STOCK EXCHANGE PREFERRED SHARE PURCHASE RIGHTS NEW YORK STOCK EXCHANGE Securities registered pursuant to Section 12(g) of the Act: (TITLE OF CLASS) --------------- None --------------- 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 requirement for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. /X/ The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing price of the Common Stock on March 3, 1994 as reported on the New York Stock Exchange, was approximately $700,599,510. Shares of Common Stock held by each executive officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of March 3, 1994, registrant had 50,058,844 shares of Common Stock outstanding. ------------------------ DOCUMENTS INCORPORATED BY REFERENCE Parts of the following documents are incorporated by reference into Parts I, II, III and IV of this Form 10-K Report: (1) Proxy Statement for registrant's 1994 Annual Meeting of Stockholders, and (2) registrant's 1993 Annual Report to Stockholders. =============================================================================== PART I ITEM 1. BUSINESS GENERAL LSI Logic Corporation (the "Company") is a leader in the design, development, manufacture and marketing of application-specific integrated circuit ("ASIC") products. The Company provides computer aided engineering design and technology services and software design tools that utilize the Company's proprietary technologies for the design and development of ASICs by the Company and its customers. The Company's ASIC technologies and engineering design services enable its customers to reduce component design costs, improve product performance, retain control over proprietary logic and shorten product development cycles. The Company's ASIC technologies also are used in the design, manufacture and marketing of certain types of integrated circuits as standard products. The Company has focused its marketing efforts primarily on a broad base of manufacturers in the electronic data processing, telecommunications and certain office automation industries and, within these industries, emphasizes desktop and personal computing, networking and digital video applications. The Company increasingly directs its marketing and selling efforts towards customers that are acknowledged industry leaders in these markets. Customers include Alcatel NV, Digital Equipment Corporation, Intel Corporation, Siemens AG, Silicon Graphics, Inc. and Sun Microsystems, Inc. The Company's ASIC design methodology permits very high levels of function integration, thereby allowing implementation of systems-level solutions on a single chip. A key factor in this approach is the Company's CoreWare product library, which is comprised of predefined and characterized cells of industry standard functions, protocols and interfaces such as the R33000 MIPS microprocessor core family and DSPs implementing Ethernet, MPEG, JPEG, and ATM. Using the Company's proprietary software design tools, one or more CoreWare library elements may be combined with a customer's proprietary logic in an ASIC design, thereby allowing the customer to significantly shorten product development cycles when compared to traditional integrated circuit design approaches. An integral part of the Company's ability to deliver advanced integrated circuits is its sophisticated process technologies and manufacturing capabilities. The Company has developed and uses advanced manufacturing process technologies, including a 0.6-micron CMOS process for the Company's advanced products. The Company also has recently introduced a 0.5-micron CMOS process and has begun performing product engineering services for certain customers that are intended to result in products to be manufactured using this 0.5-micron process. The densities achieved by these process technologies allow the Company to implement systems-level designs on a single chip. The Company's proprietary design tools are highly integrated with the Company's manufacturing process requirements, thereby providing very high predictability that the product's 3 physical performance will mirror the computer simulation of the chip and afford very high predictability of performance of products developed through use of the Company's design methodology. The Company obtains substantially all of its wafers from a majority-owned subsidiary in Japan, Nihon Semiconductor Inc. ("NSI"). To date, the Company has purchased substantially all of the output of NSI. NSI commenced volume production at a second wafer fabrication facility in the first quarter of 1994. The Company markets its products and services on a worldwide basis through a direct sales, marketing and field technical staff of approximately 775 employees (including its majority-owned subsidiaries in Europe, Canada and Japan), and through independent sales representatives and distributors. The Company has over 30 design centers around the world to assist customers in product design activities. The Company was incorporated in California on November 6, 1980 and reincorporated in Delaware on June 11, 1987. Its principal offices are located at 1551 McCarthy Boulevard, Milpitas, California 95035, and its telephone number at that location is (408) 433-8000. Except where otherwise indicated, references to "the Company" shall mean LSI Logic Corporation and its majority- owned subsidiaries. PRODUCTS AND SERVICES STRATEGY The Company's strategy is to provide its customers with a comprehensive approach and a continuum of solutions for the design and manufacture of ASICs. This strategy is intended to maximize the advantages of the Company's ASIC design methodology while allowing customers substantial flexibility in how they wish to complete an ASIC design project for products to be purchased from the Company. The Company's design environment reflects a high level of technology integration from design concept through prototype manufacture to volume production. Within this environment, the customer has a number of choices to accomplish its design objective: - The customer may choose the degree of engineering involvement it will have in the design activities. The Company may provide advice for the partitioning of systems functions to be implemented in one or more ASICs for the customer's system. Alternatively, the customer may establish product specifications for implementation into a particular chip design by the its engineers, by the Company's engineers on a "turn-key" basis or through a collaborative effort. 4 - The customer may choose which ASIC software design tools to use for much of its ASIC design activities. The Company's design environment, which includes expanded interface capabilities to certain third party EDA software design tools from companies such as Cadence Designs Systems, Inc., Mentor Graphics Corporation, and Synopsys, Inc., allows for such third party tools to be used to perform substantial portions of an ASIC design for a customer. The Company has expertise in the use of these tools and can assist the customer if so desired. - The customer may choose the extent to which the customer's ASIC design is based upon the customer's proprietary logic and upon the Company's library elements of predetermined blocks of standard functions. The Company's CoreWare product library elements are the most complex of these predetermined blocks of functions. - The customer can choose the degree of functionality it wishes to integrate on a single chip. For example, the customer may integrate an entire electronic system on a single chip or may partition the system's functionality over two or more chips, depending upon a variety of factors. Upon completion of the activities that result in a fully computer-simulated ASIC design, the Company's design environment supports automated completion of the physical portions of the design activities such as chip layout and test tape generation. The Company's proprietary design tools are highly integrated with the Company's manufacturing process requirements, thereby providing very high predictability that the product's physical performance will mirror the computer simulation of the chip. The Company believes that prompt delivery of ASIC prototypes is an important element of full customer support in ASIC product development. Accordingly, the Company schedules its manufacturing operations to permit both timely delivery of engineering prototype ASICs and efficient volume production operations. ASICS DESIGN AND TECHNOLOGY SERVICES. The Company has developed and offers to customers its proprietary software design tools. These design tools comprise a computer aided engineering (CAE) design system consisting of a central design software module integrated with other software programs that, together, improve the circuit designer's productivity. The Company's capabilities in design automation are based upon its proprietary Concurrent Modular Design Environment System, also known as C-MDE design tools. The C-MDE design tools are a graphics-based suite of CAE tools that are interactive and provide the designer with the capability of performing design activities based on a single unified database. The Company's earlier design automation tools, known as Modular Design Environment software, or MDE software, continue to be supported by the Company. The Company's proprietary design tools (which operate on a variety of generally available advanced 5 computer workstation platforms) are used by the Company and its customers to design ASICs which meet the customer's specific functionality and performance requirements. The Company's proprietary software design tools include a basic set of library elements of semiconductor macrocells (these are the basic silicon structures used in the design of logic circuits and the larger predefined functional building blocks "megacells" and "megafunctions"), technology data bases and design automation software programs. In addition, the Company's CoreWare product library elements are designed for use with the Company's C-MDE design tools. Engineering resources required for development and productization of CoreWare elements are substantially greater than for megacells and megafunctions. The Company's engineering design service approach allows the customers to determine the level of participation which the customers will have in the design process. The Company may provide complete "turn-key" engineering support for design projects where the customer provides high-level functional objectives. This type of engineering support is well suited for a customer's system-level design project in which the Company is engaged to utilize one or more of its CoreWare library elements for delivering a system on a single chip. However, the customer may also perform substantial design activity on its own using either the Company's C-MDE design tools or any of a variety of third party EDA vendor's design tools. Access to the Company's C-MDE design tools is available at each of the Company's design centers and for installation at a customer's site pursuant to a licensing agreement with the Company. See "Properties." In addition, customers' designs that have originated through the use of certain third party EDA vendors' design tools are transferrable into the Company's ASIC design environment for manufacture of ASIC devices. The ultimate output of the Company's integrated circuit design system is a pattern generation tape from which the semiconductor "masks" or production tooling is made. The system also produces a test tape which is readable by standard industry semiconductor testing equipment. The Company's software design tools support and automatically perform key elements of the design process from circuit concept through physical layout of the circuit design and preparation of pattern generation tapes. After completion of the engineering design effort, the Company produces and tests prototype circuits for shipment to the customer. Thereafter, the Company will commence volume production of integrated circuits that have been developed through one or more of the arrangements described above in accordance with the customer's quantity and delivery requirements. The Company generally does not have volume production contracts with its customers for engineering design services. Therefore, whether any specific ASIC design will result in volume production orders and the quantities included in such orders are factors beyond the control of the Company. Insufficient orders will result in underutilization of the Company's factory which would adversely impact the Company's operating results. As part of its strategy, the Company has granted licenses to certain large customers for the right to use certain elements of its process technology know- how to enable the customer to manufacture certain products as an internal alternate source of supply. Generally, these licenses are 6 granted in connection with development projects of a customer that has licensed the Company's design tools and has selected the Company as its primary source of ASIC products. In addition, the Company has entered into alternate source license agreements pursuant to which the Company has granted to certain companies the non-exclusive right to utilize and market certain of the Company's logic array design and production technology in competition with the Company. The Company believes that these agreements are important for the long-term development of the logic array semiconductor market. COMPONENTS AND TECHNOLOGIES. The Company offers its customers ASIC solutions based upon metal programmable array, cell-based and Embedded Array architectures which utilize the Company's CoreWare product libraries, the customer's proprietary logic, or a combination of both approaches. The Company offers a wide variety of die sizes and functionality configurations, including both logic and memory elements, for its ASIC products. These products are available in different feature sizes and are based on different process technologies. A metal programmable array, also known as a gate array, is a matrix of uncommitted transistors contained on a single chip of silicon. The gate array is "programmed" (I.E., customized) only in the last steps of the fabrication process. This enables the manufacturer to produce large quantities of uncommitted gate arrays, known as "base arrays," and to benefit from the economies of volume chip production. These basic silicon substrates, sometimes referred to as "masterslices", are designed and manufactured in a fashion similar to standard integrated circuits. The individual elements are interconnected at the metallization step in the manufacturing process to implement user defined functions. Gate arrays, when compared to many standard logic circuits, provide the system manufacturer with lower cost, higher reliability, lower power consumption, increased performance and smaller end products. The Company emphasizes its proprietary Channel-Free gate array architecture for gate array designs. The Company's gate array products offer high levels of design complexity. Base arrays for the Company's different gate arrays are mass produced in a variety of die sizes and are held in inventory by the Company for customization at a later time. During customization, the array is programmed quickly by the interconnection of its logic elements into the exact circuit specified by the customer. The Company's cell-based technology allows the customer to combine standard cells, memories such as fully static random access memory (RAM), static multi- port RAM, metal programmable read only memory (ROM) and other dedicated very large scale integration (VLSI) building blocks called megacells on a single chip. Through combinations of these various cell-based structures, the Company can provide the customer with customized solutions to a wide variety of digital design problems. In addition, the Company offers its customers the opportunity to create proprietary masterslices by utilizing a combination of the Company's standard cell technology with metal programmable Channel-Free gate array technology. This Embedded Array option can provide the 7 customer with both high performance and density features normally associated with cell-based technology and with fast turnaround times resembling those available only for gate array-based designs. During 1992, the Company expanded its ASIC product lines with the addition of its CoreWare product library elements. CoreWare library elements are complex VLSI or large system-level pre-designed building blocks of integrated circuit logic functions. CoreWare elements may be either developed by the Company or acquired under technology transfer or licensing agreements between the Company and other developers. In addition, CoreWare elements are highly integrated for use with the Company's proprietary software design tools and those advanced manufacturing processes to which individual cores are targeted. The Company intends the CoreWare elements it offers to be based upon industry standard functions, protocols and interfaces, thereby positioning them to be useful in a wide variety of systems applications. The additional capability afforded by the Company's CoreWare product libraries allows customers to increase functional integration, including system-level applications on a single chip. The Company's CoreWare product libraries are designed to allow CoreWare elements to be used with the customer's proprietary logic in gate array, cell-based or Embedded Array designs based upon the Company's design methodology. Expansion of the Company's CoreWare library elements continued during 1993 and is expected to continue into the foreseeable future. The Company is increasingly emphasizing engineering development and acquisition of CoreWare products and integration of CoreWare libraries into its ASIC design capabilities in the Company's transition from manufacturing products substantially based on the customer's proprietary logic design to emphasizing ASIC opportunities that utilize the Company's CoreWare product libraries. There can be no assurance, however, that the cores selected for investment of the Company's financial and engineering resources will enjoy market acceptance or that such cores can be successfully integrated into the Company's ASIC design environment on a timely basis. See "Marketing and Customers." STANDARD PRODUCTS The Company's product engineering activities for its standard products operations employ the same proprietary computer aided design tools that are used in the Company's ASIC operations. As a result, many of the Company's standard integrated circuit products are available both as standard devices and as large building blocks, and as "cores" through the Company's CoreWare product library elements, that may be implemented into a customer's design with the Company's design tools. See "Products and Services -- ASICs." The Company believes that this use of its ASIC technologies affords its standard products operations many of the engineering benefits associated with ASIC designs and offers its customers added flexibility in their systems engineering. 8 The Company's principal microprocessor product focus is on the two 32-bit RISC (Reduced Instruction Set Computer) microprocessor architectures that have met with broad market acceptance. These are the MIPS and the SPARC architectures, which were originally developed by MIPS Computer Systems, Inc. ("Mips") and Sun Microsystems, Inc. ("Sun"), respectively. In 1992 as a result of a merger, Mips became part of Silicon Graphics, Inc. Both the Mips and Sun architectures are "open systems" designs, which various computer and systems companies have adopted for their new products. The Company offers several microprocessor products that implement the MIPS and the SPARC 32-bit RISC architectures. Currently, these microprocessor products are based on certain rights that the Company has received under license agreements from Mips and Sun, respectively. As part of its microprocessor product strategy, the Company also offers a number of peripheral chips that are designed for use in systems based on the two RISC architectures that the Company supports. These chips, which are offered as "chipsets", reduce the time required for complete systems design, thereby allowing a systems customer an enhanced opportunity for earlier market entry of its system-level products. To address the telecommunications market, in 1993 the Company announced a reprogrammable asynchronous transfer mode (ATM) termination device which features an on-chip RISC based ATM processing unit. The Company also announced its Compact and Scalable Dedicated Ethernet (CASCADE) product line for implementing single-chip network hubs and routers for internetworking applications. The Company offers a family of high-speed digital signal and image processing devices that perform a wide variety of common DSP operations. These components are designed to operate in stand-alone or in multi-processing configurations that offer flexibility and precision. In 1991, the Company introduced a set of devices which may be combined to allow customers to design high performance video compression "engines", such as in video-telephony and high-definition television. In addition, a chipset supporting the JPEG (Joint Photographic Experts Group) standard for still picture compression was introduced in 1991. In 1993, the Company introduced its second generation JPEG device. This JPEG co-processor is a single-chip device targeted at cost sensitive imaging and desktop video applications. Also in 1993, the Company introduced its MPEG2 (Motion Picture Experts Group) video decoder chip, used to create products for digital TV set-top decoders. Many of the DSP devices are available in both commercial and military versions and may be integrated as "cores" in a customer's ASIC designs. MANUFACTURING The Company's manufacturing operations convert a customer's design into packaged silicon chips and support customer volume production requirements. Manufacturing begins with fabrication of uncommitted ("masterslice") wafers (for gate array ASICs) or custom diffused wafers (for cell-based ASICs). Although base layers for cell-based designs are themselves customized, gate array 9 masterslices are not and therefore may be inventoried by the Company pending customization accomplished in the metallization stage of fabrication. In the next stage of manufacture, metallization, layers of metal interconnects are diffused onto the masterslice using customized masks. Wafers are then tested, cut into die and sorted. The die that have passed initial test are then assembled (embedded in and connected to one of a wide variety of packages) and encapsulated. The finished devices then undergo additional tests before shipment. In 1985, the Company and Kawasaki Steel Corporation ("Kawasaki") formed a Japanese subsidiary, Nihon Semiconductor Inc. ("NSI"), as part of a comprehensive business relationship, including licensing certain technology to Kawasaki. The Company maintains a majority ownership interest in NSI and is the customer for substantially all of NSI's production. The Company has licensed to NSI, on a non-exclusive basis, certain technology rights and is providing NSI related support services. NSI has been in commercial production since August of 1988. NSI commenced volume production at a second wafer fabrication facility in the first quarter of 1994. The Company manufactures substantially all of its wafers at the two NSI facilities in Tsukuba, Japan pursuant to an agreement with NSI and Kawasaki. The Company's ability to supply semiconductors currently depends on an adequate continued supply of wafers from NSI. If the supply of wafers from NSI were interrupted for any reason, including work stoppages, or natural disasters, or if such supplies of wafers were inadequate to meet the Company's demand, the Company would need to purchase wafers from one or more alternate suppliers. There can be no assurance that alternate supplies of wafers would be available on a timely basis or at all or that if available, they could be purchased on favorable terms. The Company continues to perform certain fabrication activities for metallization and for custom diffused wafers in its wafer fabrication facilities in California. The semiconductor industry is capital intensive. In order to remain competitive, the Company must continue to make significant investments in new facilities and capital equipment. In the last three years, the Company has expended over $300 million in property and equipment, net of retirements. In the first quarter of 1994, the Company commenced volume production at its Japanese affiliate's second wafer fabrication facility and anticipates incurring in excess of $100 million during 1994 for capital equipment and significant amounts thereafter to bring this facility to full capacity. The Company believes that in order to remain competitive, it will need to continue making significant capital expenditures. There can be no assurance that the Company will have the resources available when needed to meet these requirements. In addition, these significant capital expenditures result in a relatively high level of fixed costs. Accordingly, fluctuations in revenues may significantly affect profitability. Over the past four years, the Company has restructured its worldwide manufacturing operations. This process has included, among other things, the phase-down of older process technology facilities in Germany, the United Kingdom and Canada, the consolidation of certain manufacturing to facilities in the United States and Japan, the construction of a second wafer fabrication facility in Japan, and the transfer of certain packaging, assembly and final test operations to subcontractors in various locations. The Company continues to evaluate its worldwide manufacturing operations to effect additional cost- savings and technological improvements. 10 To remain competitive, the Company must be able to develop and implement new process technologies to reduce semiconductor die size, increase device performance, and manufacturing yields. The Company utilizes different high performance complementary metal oxide semiconductor ("CMOS") process technologies in the volume manufacture of its products, including a 0.6-micron "drawn" CMOS process for the Company's most advanced products. The Company also has recently introduced a 0.5-micron "drawn" CMOS process and has begun performing product engineering services for certain customers that are intended to result in products to be manufactured using this 0.5-micron process. The Company is currently implementing this new 0.5-micron process technology at NSI's second Japanese wafer manufacturing facility. If the Company is not able to successfully implement new process technologies and to achieve volume production of new products at acceptable yields using new manufacturing processes, the Company's operating results will be adversely affected. Development of advanced manufacturing technologies in the semiconductor industry frequently requires that critical selections be made as to those vendors from which essential equipment (including future enhancements) and after sales services and support will be purchased by the Company. Similarly, procurement of certain types of materials required by the Company's manufacturing technologies also are closely linked with certain equipment selections. When the Company implements specific technology choices, it may become dependent upon certain sole- or single- source vendors. Accordingly, the Company's capability to switch to other technologies and vendors may be substantially restricted and may involve significant expense and delay in the Company's technology advancements and manufacturing capabilities. The semiconductor equipment and materials industries also contain a number of vendors that are relatively small and have limited resources. Several of these vendors provide equipment and or services to the Company. The Company does not have long term supply or service agreements with vendors of certain critical items. Additionally, there can be no assurances that disruptions in these vendors' ability to perform will not occur. Should the Company experience such disruptions, the Company's operations could be adversely affected. The Company has in the past and will in the future, consider developing foundry relationships with certain other semiconductor manufacturers whereby the Company may purchase quantities of masterslices (both unmetallized and metallized) that are manufactured to the Company's specifications. The Company believes that the combination of the Company's own wafer fabrication facilities and these relationships will provide the Company with adequate sources for meeting its masterslice wafer and custom diffused wafer requirements for the foreseeable future. In the assembly process, the fabricated circuit is encapsulated into ceramic or plastic packages. Plastic packaging is normally associated with lower cost, commercially oriented products. Ceramic packaging is primarily utilized in applications involving the need to protect the circuit against a potentially harsh operating environment, such as in military applications. The Company performs ceramic package assembly for its products at its Fremont, California facility. This assembly line has been specially equipped to support both the packaging needs of military as well as selected commercial applications. The proportion of ceramic packaging being 11 done by independent assembly plants continues to increase and the Company intends to begin ceramic packaging offshore in the next year. The Company has subcontracted its plastic packaging requirements to several independent offshore assembly plants. Testing includes final test and final quality assurance acceptance. Dedicated computer systems are used in this comprehensive testing sequence. The test programs utilize the basic functional test criteria from the design simulation which was generated and approved by the customers' design engineers. Most product testing operations are currently conducted in close proximity to the particular facility where assembly activities are performed. The Company intends to continue increasing its use of independent assembly plants to test its products. Certain of the raw materials used in the manufacture of circuits are available from a limited number of suppliers in the United States and elsewhere. For example, for several types of the integrated circuit packages that are purchased by the Company, as well as by the majority of other companies in the semiconductor industry, the Company must rely on one vendor for the majority of its supply. The Company does not have long-term fixed supply contracts with its suppliers. Shortages could occur in various essential materials due to interruption of supply or increased demand in the industry. If the Company were unable to procure certain of such materials from any source, it would be required to reduce its manufacturing operations. To date, the Company has experienced no significant difficulty in obtaining the necessary raw materials. The Company's operations depend upon a continuing adequate supply of electricity, natural gas and water. The Company purchases substantially all of the semiconductor wafers used for its products from NSI, its Japanese affiliate. These transactions are denominated in Japanese yen. In addition, the Company purchases a substantial portion of its raw materials and equipment from foreign suppliers and incurs labor costs in foreign locations. A portion of these transactions are denominated in currencies other than in U.S. dollars, principally in Japanese yen. The Company also has borrowings denominated in yen, which totaled approximately 15 billion yen (approximately $136 million) at December 31, 1993. Such transactions and borrowings expose the Company to exchange rate fluctuations for the period of time from inception of the transaction until it is settled. In recent years, the yen has fluctuated substantially against the U.S. dollar. There can be no assurance that fluctuations in the currency exchange rates in the future will not have an adverse impact on the Company's results of operations. The Company has entered and will from time to time enter into hedging transaction in order to minimize exposure to currency rate fluctuations. In addition, there can be no assurance that inflation rates in countries where the Company conducts operations will not adversely affect the Company's operating results in the future. Both manufacturing and sales of the Company's products may be adversely affected by political and economic conditions abroad. Protectionist trade legislation in either the United States or foreign countries, such as a change in the current tariff structures, export compliance laws or other trade policies, could adversely affect the Company's ability to manufacture or sell in foreign markets. In countries in which the Company is conducting business in local currency, currency exchange fluctuations could adversely affect the Company's revenues or costs. 12 MARKETING AND CUSTOMERS The Company has focused its marketing efforts primarily on a broad base of manufacturers in the electronic data processing, telecommunications and certain office automation industries and, within these industries emphasizes desktop and personal computing, networking and digital video applications. An essential element of the Company's marketing strategy is to develop close working relationships with its major customers' engineers by using the Company's proprietary software design tools for design support and training services. The customers' product or system design engineers typically attend a training session at one of the Company's design centers. Alternatively, the customer may elect to have the Company design the circuit, or may design the circuit at its own facility through the licensing of the Company's proprietary design tools. The Company currently has regional design centers in Canada, Japan, other Asia Pacific countries and throughout the United States and Western Europe. See "Properties". The Company markets its products and services through its worldwide direct sales and marketing organization which consists of approximately 775 employees (including subsidiaries), and through independent sales representatives and distributors. All of the Company's design centers also include a direct sales office. See "Properties". For information concerning foreign operations, see Note 7 of Notes to Consolidated Financial Statements in the 1993 Annual Report to Stockholders and "Products and Services--Strategy." International sales are generally denominated in local currencies. International sales are subject to risks common to export activities, including governmental regulations, trade barriers, tariff increases and currency fluctuations. To date, the Company has not experienced any material difficulties because of these risks. In 1993, 1992 and 1991 Sun Microsystems, Inc. accounted for approximately 12%, 15% and 16%, respectively, of the Company's revenues. The Company has increasingly directed its efforts on developing strategic relationships with key technology leaders with differentiated products. This strategy provides the Company with access to leading technologies, some of which may be included in its CoreWare library. The Company, however, expects that this strategy will result in the Company becoming increasingly dependent on a limited number of customers for a substantial portion of its revenues. BACKLOG Generally, the Company's customers are not subject to long-term contracts, but to purchase orders which are accepted by the Company. Quantities of the Company's products to be delivered and delivery schedules under purchase orders outstanding from time to time are frequently revised to reflect changes in customer needs. In addition, the timing of the performance of design services 13 included in the Company's backlog at any particular time is generally within the control of the customer, not the Company. For these reasons, the Company's backlog as of any particular date is not a meaningful indicator of future sales. COMPETITION The semiconductor industry is intensely competitive and is characterized by rapid technological change, rapid product obsolescence and price erosion. The semiconductor industry has historically been characterized by wide fluctuations in product supply and demand. From time to time, the industry also has experienced significant downturns, often in connection, or in anticipation of maturing product cycles (of both the Company and its customers) and declines in general economic conditions. These downturns have been characterized by diminished product demand, production overcapacity and subsequent accelerated erosion of average selling prices, and in some cases have lasted for more than a year. Currently, the semiconductor industry in general, including the Company, is experiencing a period of increased demand. There is no assurance that these conditions will continue. The Company may experience substantial period-to- period fluctuations in future operating results due to general industry conditions or events occurring in the general economy and the Company's business could be materially and adversely affected by a significant industry-wide downturn in the future. The Company's competitors include many large domestic and foreign companies which have substantially greater financial, technical and management resources than the Company, as well as emerging companies attempting to sell products to specialized markets such as those addressed by the Company. Several major diversified electronics companies, including Fujitsu, Ltd., Toshiba Corporation, NEC Corporation and a number of United States semiconductor manufacturers offer ASIC products and/or offer products which are competitive to the product lines of the Company. In addition, there is no assurance that certain large customers, some of whom the Company has licensed to use elements of its process and product technologies, will not develop internal design and production operations to produce their own ASICs. The principal factors on which competition in the ASIC market is based include design capabilities (including both the software design tool features, compatibility with industry standard design tools, CoreWare library and the skills of the design team), quality, delivery time and price. The Company believes that it presently competes favorably on these bases, and that its success will depend on its continued ability to provide its customers with a complete range of design services and manufacturing capabilities. There can be no assurance, however, that other custom logic design approaches will not be developed which could have an adverse impact on the Company's business and results of operations. RESEARCH AND DEVELOPMENT The market for the Company's products is characterized by rapid changes in both product and process technologies. Because of continual improvements in these technologies, the Company 14 believes that its future success will depend, in part, upon its ability to continue to improve its product and process technologies and to develop new technologies in order to maintain the performance advantages of its products and processes relative to competitors, to adapt products and processes to technological changes and to adopt emerging industry standards. The Company's research and development emphasizes the design of new products, improvements in process technologies, enhancements of design tools, and cost reduction of existing products. During 1993, 1992 and 1991, the Company expended $78,995,000, $78,825,000, and $80,802,000, respectively, on its research and development activities. The Company expects to continue to make significant investments in research and development activities and believes such investments are critical to its ability to continue to compete with other ASIC manufacturers. See "Management's Discussion and Analysis" in the 1993 Annual Report to Stockholders. PATENTS, TRADEMARKS AND LICENSES The Company owns various United States and international patents and has additional patent applications pending relating to certain of its products and technologies. The Company also maintains trademarks on certain of its products and services. Although the Company believes that patent and trademark protection have value, the rapidly changing technology in the semiconductor industry makes the Company's future success dependent primarily upon the technical competence and creative skills of its personnel rather than on patent and trademark protection. As is typical in the semiconductor industry, the Company has from time to time received, and may in the future receive, communications from other parties asserting patent rights, mask work rights, copyrights or trademark rights that such other parties allege cover certain of the Company's products, processes, technologies or information. Several such assertions relating to patents are in various stages of evaluation. The Company is considering whether to seek licenses with respect to certain of these claims. Litigation has arisen with respect to one of these assertions. Based on industry practice, the Company believes that licenses or other rights, if necessary, could be obtained on commercially reasonable terms. Nevertheless, no assurance can be given that licenses can be obtained, or if obtained will be on acceptable terms or that litigation or other administrative proceedings will not occur. The inability to obtain licenses or other rights or to obtain licenses or rights on favorable terms, should such become necessary, or litigation arising out of such other parties' assertions, could have a material adverse effect on the Company's future operating results. See "Legal Proceedings." The Company has also entered into certain license agreements which generally provide for the non-exclusive licensing of design and product manufacturing rights and for cross-licensing of future improvements developed by either party. See "Products and Services--Strategy" and "Competition". 15 ENVIRONMENTAL REGULATION Federal, state and local regulations impose various environmental controls on the use and discharge of certain chemicals and gases used in semiconductor processing. The Company's facilities have been designed to comply with these regulations and the Company believes that its activities conform to present environmental regulations. Increasing public attention has, however, been focused on the environmental impact of electronics and semiconductor manufacturing operations. While the Company to date has not experienced any materially adverse effects on its business from environmental regulations, there can be no assurance that such regulations will not be amended so as to impose expensive obligations on the Company. In addition, violations of environmental regulations or unpermitted discharges of hazardous substances could result in the necessity for additional capital improvements to comply with such regulations or to restrict discharges, liability to Company employees and/or third parties, and business interruptions as a consequence of permit suspensions or revocations or as a consequence of the granting of injunctions requested by governmental agencies or private parties. EMPLOYEES At January 2, 1994, the Company and its subsidiaries had approximately 3,370 employees, including approximately 775 in field marketing and sales, approximately 425 in product marketing and support, approximately 525 in engineering and research and development activities, approximately 1,370 in manufacturing and approximately 275 in executive and administrative activities. Many of the Company's employees are highly skilled, and the Company's continued success will depend in part upon its ability to attract and retain such employees, who are in great demand. The Company has never had a work stoppage, slow-down or strike and no United States employees are represented by a labor organization. The Company considers its employee relations to be good. 16 ITEM 2. PROPERTIES The following table sets forth certain information concerning the Company's principal facilities.
PRINCIPAL LOCATIONS No. of Leased/ Total Buildings Location Owned Sq. Ft. Use - --------- ------------- ------ ------- ---------------------------------- 6 Milpitas, CA Leased 485,760 Corporate Offices, Administration, Engineering, Manufacturing 1 Fremont, CA Leased 74,000 Manufacturing 1 Fremont, CA Owned 65,000 Manufacturing 2 Santa Clara, CA Leased 83,290 Research and Development 1 Fremont, CA Leased 39,246 Shipping and Receiving 1 Bracknell, Leased 18,000 Executive Offices, Design Center United Kingdom Sales 2 Tokyo, Japan Leased 18,000 Executive Offices, Design Center Sales 2 Tsukuba, Japan Owned 221,000 Executive Offices, Manufacturing 1 Calgary, Canada Leased 15,000 Executive Offices, Design Center Sales
The Company maintains leased regional office space for its field sales offices at the locations described below, some of which also contain design centers as indicated. In addition, the Company maintains design centers at various distributor locations. 17 Regional Offices - ---------------- U.S. Locations: - -------------- *Encino, CA Grass Valley, CA *Irvine, CA Mountain View, CA San Diego, CA *San Jose, CA Boca Raton, FL *Melbourne, FL Atlanta, GA *Schaumburg, IL *Waltham, MA *Bethesda, MD Columbia, MD *Minneapolis, MN *Raleigh, NC *Edison, NJ Hopewell Junction, NY Victor, NY Beaverton, OR Hanover, PA Willow Grove, PA Austin, TX *Dallas, TX *Bellevue, WA Non-U.S. Locations: - ------------------ *Burnaby, British Columbia, Canada *Etobicoke, Ontario, Canada *Kanata, Ontario, Canada *Montreal, Quebec, Canada *Paris, France Berlin, Germany *Munich, Germany *Stuttgart, Germany *Ramat Hasharon, Israel *Milan, Italy Kanagawa, Japan *Osaka, Japan *Seoul, Korea *Livingstone, Scotland Madrid, Spain *Kista, Sweden *Taipei, Taiwan ___________________________ * Indicates location of Design Center as well as Sales Office Leased facilities described above are subject to operating leases which expire in 1994 through 2003. See Note 8 of Notes to Consolidated Financial Statements in the 1993 Annual Report to Stockholders. The Company believes that its existing facilities and equipment are well maintained, in good operating condition and are adequate to meet its current requirements. 18 ITEM 3. LEGAL PROCEEDINGS On July 9, 1990, Texas Instruments Incorporated ("TI") filed a complaint in the United States District Court in Dallas, Texas and with the International Trade Commission ("ITC") against the Company and four other defendants, Analog Devices, Inc., Integrated Device Technology, Inc., VLSI Technology, Inc. and Cypress Semiconductor Corporation. In these complaints, TI alleged that the Company's manufacturing processes relating to device encapsulation in certain types of plastic packages infringe certain of TI's patents. In the ITC action, TI sought to prohibit the importation into the U.S. of such plastic encapsulated devices assembled offshore and to enjoin the sale of any inventory of such devices which were previously imported. On October 15, 1991, the Administrative Law Judge ("ALJ") determined that the TI patent was valid and that the plastic encapsulation process used by the Company referred to as "opposite-side" gated encapsulation infringed the TI patent. The ALJ also determined that the plastic encapsulation process referred to as "same-side" gated encapsulation did not infringe the TI patent. On December 3, 1991, the ITC issued a notice of its intent not to review the ALJ's determination on non- infringement by the "same-side" gated process, thereby confirming the ALJ's determination. On February 19, 1992, the ITC issued its final order which confirmed the ALJ's determination regarding validity of the TI patent and infringement by the "opposite-side" gated process. Pursuant thereto, the ITC issued a limited exclusion order applicable to future imports of integrated circuits manufactured using the "opposite-side" gated process into the United States and a cease and desist order applicable to sales of previously imported integrated circuits manufactured using the "opposite-side" gated process. Since the beginning of 1992, the Company's plastic encapsulation operations have only used the non-infringing "same-sided" gating process. The Court of Appeals for the Federal Circuit has affirmed the ruling of the ITC in all respects in March 1993. In TI's United States District Court action, TI also seeks to enjoin the Company from assembling and selling plastic encapsulated integrated circuits in the U.S. and seeks damages in an unspecified amount for alleged prior patent infringement. Although at one point in the District Court proceedings a trial date was set for mid-1992, that date was taken off the calendar and no new trial date has been scheduled. The Company anticipates that the judge will consider and rule on a number of pretrial motions, including motions on what significance, if any, various elements of the prior ITC action should or should not have on trial proceedings in the District Court, before a new trial date is scheduled. The Company believes that it has meritorious defenses to the District Court action and intends to defend itself vigorously. The Company also believes that the ultimate outcome of this action will not result in 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 19 payment of damages and other costs, thereby having an adverse effect on the Company. The Company is a party to other litigation matters and claims which are normal in the course of its operations, and while the results of such litigation and claims cannot be predicted with certainty, the Company believes that the final outcome of such matters will not have a materially adverse effect on the Company's consolidated financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 20 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The information required by this Item is incorporated by reference to page 31 of the Company's 1993 Annual Report to Stockholders. ITEM 6. SELECTED FINANCIAL DATA The information required by this Item is incorporated by reference to pages 32-33 of the Company's 1993 Annual Report to Stockholders. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this Item is incorporated by reference to pages 13-16 of the Company's 1993 Annual Report to Stockholders. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item is incorporated by reference to pages 17-31 of the Company's 1993 Annual Report to Stockholders. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 21 PART III Certain information required by Part III is omitted from this Report in that the registrant will file a definitive proxy statement within 120 days after the end of its fiscal year pursuant to Regulation 14A (the "Proxy Statement") for its Annual Meeting of Stockholders to be held May 6, 1994, and certain of the information included therein is incorporated herein by reference. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information concerning the Company's directors required by this Item is incorporated by reference to "ELECTION OF DIRECTORS--Nominees" in the Company's Proxy Statement. The executive officers of the Company, who are elected by and serve at the discretion of the Board of Directors, are as follows: Employed Name Age Position Since - ---- --- -------- -------- Wilfred J. Corrigan 55 Chairman, Chief Executive Officer 1981 Bruce L. Entin 43 Vice President, Investor Relations 1984 and Corporate Communications Brian L. Halla 47 Executive Vice President, 1988 LSI Logic Products Cyril F. Hannon 55 Executive Vice President, 1984 Worldwide Operations Albert A. Pimentel 38 Senior Vice President, Finance 1992 and Chief Financial Officer David E. Sanders 46 Vice President, General Counsel and 1986 Secretary Horst G. Sandfort 51 Executive Vice President, 1984 Geographic Markets Lewis C. Wallbridge 50 Vice President, Human Resources 1984 22 Except as set forth below, all of the officers have been associated with the Company in their present position or other capacities for more than the past five years. Brian C. Halla joined the Company in August of 1988 as Vice President, Microprocessor Products. He was promoted to Executive Vice President, LSI Logic Products in May 1992. From January, 1975 to August, 1988, Mr. Halla was employed by Intel Corporation in positions of increasing responsibility, including posts in product marketing management for Intel's Development Systems Group and more recently as Director of Marketing for Intel's Microcomputer Group. Albert A. Pimentel joined the Company in July 1992 as Senior Vice President, Finance and Chief Financial Officer. From December 1990 until February 1991, Mr. Pimentel served as Vice President of Finance, Chief Financial Officer and Secretary of Momenta Corporation, a start up company in the pen computing business. As the result of a corporate reorganization, Momenta Corporation became a wholly-owned subsidiary of Momenta International Ltd. and Mr. Pimentel assumed the same positions for Momenta International Ltd. until July 1992. In August 1992, Momenta International Ltd. and its subsidiaries filed a petition for relief in Federal bankruptcy court. Mr. Pimentel served as Vice President, Finance of Conner Peripherals, Inc., a manufacturer of disk drives, from May of 1986 until December of 1990. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated by reference to "EXECUTIVE COMPENSATION" in the Company's Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated by reference to "SECURITY OWNERSHIP -- Principal Stockholders and Security Ownership of Management" in the Company's Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated by reference to "CERTAIN TRANSACTIONS" in the Company's Proxy Statement. 23 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this Report: 1. FINANCIAL STATEMENTS. The following Consolidated Financial Statements of LSI Logic Corporation and Report of Independent Accountants are incorporated by reference to the Company's 1993 Annual Report to Stockholders: Page in Annual Report ------------- Consolidated Balance Sheets - As of December 31, 1993 and 1992 17 Consolidated Statements of Operations - For the Three Years Ended December 31, 1993 18 Consolidated Statement of Stockholders' Equity - For the Three Years Ended December 31, 1993 19 Consolidated Statements of Cash Flows - For the Three Years Ended December 31, 1993 20 Notes to Consolidated Financial Statements 21 Report of Independent Accountants 30 Report of Independent Accountants on Financial Statement Schedules - See page 32 of this Report. Effective beginning 1990, the Company changed its fiscal year end from December 31 to the 52 or 53 week period which ends on the Sunday closest to December 31. For presentation purposes, the consolidated financial statements, notes and financial statement schedules will continue to refer to December 31 as the year end. Fiscal 1993 was a 53 week year that ended on January 2, 1994. 24 2. FINANCIAL STATEMENT SCHEDULES. For years ended December 31, 1993, 1992 and 1991: Schedule Page - -------- ---- II Amounts Receivable from Related Parties and Underwriters, Promoters and Employees other than Related Parties S-1 V Property and Equipment S-2 VI Accumulated Depreciation of Property and Equipment S-3 VIII Valuation and Qualifying Accounts and Reserves S-4 X Supplementary Income Statement Information S-5 All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. 3. EXHIBITS: 3.1 Restated Certificate of Incorporation of Registrant. (1) 3.2 By-laws of Registrant. (1) 4.1 Articles 4 and 9 of the Restated Certificate of Incorporation of Registrant (included in Exhibit 3.1). (1) 4.2 Indenture dated April 14, 1987 between LSI Logic Corporation and United States Trust Company of New York, Trustee, covering $125,000,000 principal amount of 6 1/4% Convertible Subordinated Debentures due 2002 (including form of Debenture). (2) 4.3 Stockholder Rights Plan dated November 16, 1988. (3) 10.1 Lease dated March 26, 1981 for 1601 McCarthy Boulevard between the Registrant and McCarthy Industrial Investors. (4) 10.1A First Amendment to Lease dated May 1, 1991 to Lease dated March 26, 1981 for 1601 McCarthy Boulevard between the Registrant and McCarthy Industrial Investors. (11) 25 10.2 Registrant's 1982 Incentive Stock Option Plan, as amended, and forms of Stock Option Agreement. (9) 10.3 Registrant's Employee Stock Purchase Plan, as amended, and form of subscription Agreement. 10.6 Series B Preferred Shares Purchase Agreement for 1,395,864 shares of Series B Preferred Stock dated as of February 8, 1982. (4) 10.7 Modification Agreement dated as of February 8, 1982 between the Registrant and holders of its Series A Preferred Stock. (4) 10.8 Lease Agreement dated November 22, 1983 for 48580 Kato Road, Fremont, California between the Registrant and Bankamerica Realty Investors. (6) 10.19 Registrant's 1985 Nonstatutory Stock Option Plan for Shares of LSI Logic Europe plc and form of Nonstatutory Stock Option Agreement. (5) 10.20 LSI Logic Europe plc 1984 Nonstatutory Stock Option Plan and form of Nonstatutory Share Option Agreement. (5) 10.21 Registrant's 1985 Nonstatutory Stock Option Plan for Shares of LSI Logic Corporation of Canada, Inc. and form of Nonstatutory Stock Option Agreement. (5) 10.24 Registrant's 1986 Directors' Stock Option Plan and forms of stock option agreements. (7) 10.25 LSI Logic Europe plc 1986 Share Option Scheme. (7) 10.26 LSI Logic Europe plc Share Acquisition Scheme. (7) 10.27 LSI Logic Corporation of Canada, Inc. 1985 Stock Option Plan and form of Stock Option Agreement. (7) 10.29 Form of Indemnification Agreement entered and to be entered into between Registrant and its officers, directors and certain key employees. (8) 10.35 LSI Logic Corporation 1991 Equity Incentive Plan. 26 10.36 Lease Agreement dated February 28, 1991 for 765 Sycamore Drive, Milpitas, California between the Registrant and the Prudential Insurance Company of America. (10) 11.1 Statement Re Computation of Earnings Per Share 13.1 Annual Report to Stockholders for the year ended January 2, 1994 (to be deemed filed only to the extent required by the instructions to exhibits for Reports on Form 10-K). 21.1 List of Subsidiaries. 23.1 Consent of Independent Accountants (see page 33). 24.1 Power of Attorney (included on page 30). ____________ (1) Incorporated by reference to exhibits filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 26, 1988. (2) Incorporated by reference to exhibits filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 27, 1988. (3) Incorporated by reference to exhibits filed with the Registrant's Form 8-A filed on November 21, 1988. (4) Incorporated by reference to exhibits filed with the Registrant's Registration Statement on Form S-1 (No. 2-83035) which became effective May 13, 1983. (5) Incorporated by reference to exhibits filed with the Registrant's Registration Statement on Form S-1 (No. 33-3612), and Amendment No. 1 thereto, which became effective March 20, 1986. (6) Incorporated by reference to exhibits filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1983. (7) Incorporated by reference to exhibits filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1986. (8) Incorporated by reference to exhibits filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1987. 27 (9) Incorporated by reference to exhibits filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1988. (10) Incorporated by reference to exhibits filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991. (11) Incorporated by reference to exhibits filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992. ____________ (b) Reports on Form 8-K. ------------------- None. 28 TRADEMARK ACKNOWLEDGMENTS - LSI Logic is a registered trademark of the Company and CoreWare is a trademark of the Company. All other brandnames or trademarks appearing in the Form 10-K are the property of their respective owners. - Channel-Free, Embedded Array, LDS, Modular Design Environment, MDE and Headland Technology are registered trademarks of the Company. C-MDE, CASCADE, Compacted Array and CoreWare are trademarks of the Company. 29 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 By: /s/ WILFRED J. CORRIGAN ------------------------------- Wilfred J. Corrigan, Chairman and Chief Executive Officer Dated: March 4, 1994 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Wilfred J. Corrigan and David E. Sanders, jointly and severally, his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. 30 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ Wilfred J. Corrigan Chairman of the Board and March 4, 1994 - ----------------------- Chief Executive Officer (Wilfred J. Corrigan) (Principal Executive Officer) /s/ Albert A. Pimentel Senior Vice President, Finance March 4, 1994 - ----------------------- and Chief Financial Officer (Albert A. Pimentel) (Principal Financial Officer and Principal Accounting Officer) /s/ T.Z. Chu Director March 4, 1994 - ----------------------- (T.Z. Chu) /s/ Malcolm R. Currie Director March 4, 1994 - ----------------------- (Malcolm R. Currie) /s/ James H. Keyes Director March 4, 1994 - ----------------------- (James H. Keyes) /s/ R. Douglas Norby Director March 4, 1994 - ----------------------- (R. Douglas Norby) 31 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES To the Board of Directors of LSI Logic Corporation Our audits of the consolidated financial statements referred to in our report dated January 25, 1994 appearing on Page 30 of the 1993 Annual Report to Stockholders of LSI Logic Corporation (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedules listed Item in 14(a) of this 10-K. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related financial statements. Price Waterhouse San Jose, California January 25, 1994 32 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 2-86474, No. 2-91907, No. 2-98732, No. 33-6188, No. 33-6203, No. 33-13265, No. 33-17720, No. 33-30385, No. 33-30386, No. 33-36249, No. 33-41999, No. 33-42000, No. 33-53054, No. 33-66548, No.33-66546) of LSI Logic Corporation of our report dated January 25, 1994 appearing on page 30 in the Annual Report to Stockholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedules, which appears on page 32 of this Annual Report on Form 10-K. PRICE WATERHOUSE San Jose, California March 4, 1994 33 SCHEDULE II
LSI LOGIC CORPORATION ACCOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (IN THOUSANDS) DEDUCTIONS BALANCE AT END OF PERIOD BALANCE AT ----------------------------- ------------------------ BEGINNING AMOUNTS AMOUNTS NOT NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED WRITTEN-OFF CURRENT CURRENT - -------------- ----------- --------- --------- ----------- ------- -------- 1993: James S. Koford $436 $395 (A) $436 (B) $ - $395 $ - Horst G. Sandfort 377 150 (C) - - - 527 Lewis C. Wallbridge 106 - 106 - - - Jack Ordway - 94 (D) - - 94 - William Hata - 25 (E) - - - 25 Frank Tornaghi - 100 (F) - - 20 80 Richard Mannherz - 25 (G) - - - 25 1992: James S. Koford $183 $436 (H) $183 $ - $436 $ - Horst G. Sandfort 366 11 (I) - - - 377 Lewis C. Wallbridge 80 106 (J) 80 - 106 - 1991: Perry Constantine $331 $ - $331 $ - $ - $ - John Dickson - 250 (K) 250 - - - James S. Koford 165 183 (K) 165 - 183 - Horst G. Sandfort - 366 (I) - - - 366 Lewis C. Wallbridge 100 80 (K) 100 - 80 - (A) Represents unsecured promissory note bearing interest at 8% per annum due in 1994, or upon Mr. Koford's departure from the Company. (B) Represents a $41 payment and a $395 rollover to a new note. See Note (A) above. (C) Represents unsecured promissory note bearing interest at 8% per annum due in 1996. Principal and interest will be forgiven in equal increments at the end of each annum as long as Mr. Sandfort maintains continuous employment with the Company. (D) Represents unsecured promissory note bearing interest at 8% per annum due in 1994, or upon Mr. Ordway's departure from the Company. (E) Represents unsecured promissory note bearing interest at 7.5% per annum due in 1996. (F) Represents unsecured promissory note bearing interest at 7% per annum payable in annual installments of $20 over 5 years. Interest is forgiven at the end of each annum as long as Mr. Tornaghi maintains continuous employment with the Company for the full term of the note. (G) Represents unsecured promissory note bearing interest at 7% per annum due in 1995. Principal and interest will be forgiven in equal increments at the end of each year as long as Mr. Mannherz maintains continuous employment with the Company. (H) Represents unsecured promissory note bearing interest at 8% per annum due in 1993. (I) Represents unsecured promissory note due in 1995, or upon Mr. Sandfort's departure from the Company. The note has a variable interest rate which is equal to the Lombard rate in the Federal Republic of Germany, which was 8% at December 31, 1993. (J) Represents unsecured promissory note bearing interest at 7% per annum, which was due and repaid in 1993. (K) Represents unsecured promissory note(s) bearing interest at 10% per annum due and repaid during 1992.
SCHEDULE V
LSI LOGIC CORPORATION PROPERTY AND EQUIPMENT YEAR ENDED DECEMBER 31, 1993, 1992 AND 1991 (In thousands) Balance at Additions Effect of Balance at Beginning & Transfers Exchange End of Classification of Period at Cost Retirements Other (1) Rate Changes Period - --------------------------------------------------------------------------------------------------------------------- 1993: Land $19,075 $ - $37 $ - $1,752 $20,790 Building 46,626 318 609 - 3,213 49,548 Equipment 380,684 43,182 38,339 - 13,267 398,794 Leasehold improvements 44,356 7,452 - - 2,242 54,050 Furniture and fixtures 17,045 1,402 451 - (124) 17,872 Preproduction engineering 15,290 27,461 15,312 - (22) 27,417 Construction in progress 154,400 10,020 - - 17,295 181,715 -------- -------- -------- --------- -------- -------- $677,476 $89,835 $54,748 $ - $37,623 $750,186 -------- -------- -------- --------- -------- -------- -------- -------- -------- --------- -------- -------- 1992: Land $35,918 $ - $ - ($17,232) $389 $19,075 Building 83,113 354 1,050 (34,878) (913) 46,626 Equipment 399,047 29,617 30,902 (16,430) (648) 380,684 Leasehold improvements 51,969 1,253 4,153 (4,807) 94 44,356 Furniture and fixtures 22,113 273 607 (4,205) (529) 17,045 Preproduction engineering 17,879 378 2,715 - (252) 15,290 Construction in progress 40,894 110,556 167 - 3,117 154,400 -------- --------- -------- --------- -------- -------- $650,933 $142,431 $39,594 ($77,552) $1,258 $677,476 -------- --------- -------- --------- -------- -------- -------- --------- -------- --------- -------- -------- 1991: Land $34,895 $ - $ - $ - $1,023 $35,918 Building 80,410 396 33 - 2,340 83,113 Equipment 410,408 33,999 59,574 - 14,214 399,047 Leasehold improvements 53,353 2,081 4,233 - 768 51,969 Furniture and fixtures 20,523 2,480 824 - (66) 22,113 Preproduction engineering 23,500 - 5,950 - 329 17,879 Construction in progress - 38,581 - 2,313 40,894 -------- --------- -------- --------- -------- -------- $623,089 $77,537 $70,614 $ - $20,921 $650,933 -------- --------- -------- --------- -------- -------- -------- --------- -------- --------- -------- -------- (1) As disclosed in the Company's 1992 Consolidation Financial Statements, in connection with the 1992 restructuring of operations, the Company identified certain facilities and equipment that are considered inconsistent with its new strategic focus. Such fixed assets were included in other assets at December 31, 1992.
Schedule VI
LSI LOGIC CORPORATION ACCUMULATED DEPRECIATION OF PROPERTY AND EQUIPMENT YEAR ENDED DECEMBER 31, 1993, 1992 AND 1991 (IN THOUSANDS) Balance at Additions Effect of Balance at Beginning & Transfers Exchange End of Classification of Period at Cost Retirements Other (1) Rate Changes Period - ------------------------------------------------------------------------------------------------------------------------------- 1993: Building $ 9,603 $ 1,239 $ 212 $ - $ 670 $ 11,300 Equipment 280,680 59,782 43,917 - 6,344 302,889 Leasehold improvements 31,356 2,673 - - 2,306 36,335 Furniture and fixtures 13,117 1,918 382 - (54) 14,599 Preproduction engineering 14,919 282 15,313 - 112 - ------- ------ ------ ------ ----- ------- $349,675 $65,894 $59,824 $ - $9,378 $365,123 ------- ------ ------ ------ ----- ------- ------- ------ ------ ------ ----- ------- 1992: Building $11,576 $3,084 $300 ($4,671) ($86) $9,603 Equipment 230,148 92,504 30,782 (8,626) (2,564) 280,680 Leasehold improvements 36,945 3,467 3,893 (4,807) (356) 31,356 Furniture and fixtures 14,005 3,013 416 (3,192) (293) 13,117 Preproduction engineering 17,145 858 2,975 - (109) 14,919 ------- ------- ------ ------ ----- ------- $309,819 $102,926 $38,366 ($21,296) ($3,408) $349,675 ------- ------ ------ ------ ----- ------- ------- ------ ------ ------ ----- ------- 1991: Building $7,833 $3,339 $ - $ - $404 $11,576 Equipment 221,963 62,513 57,274 - 2,946 230,148 Leasehold improvements 34,082 9,833 7,428 - 451 36,938 Furniture and fixtures 11,904 3,070 756 - (213) 14,005 Preproduction engineering 18,600 - 1,702 - 254 17,152 ------- ------ ------ ------ ----- ------- $294,382 $78,755 $67,160 $ - $3,842 $309,819 ------- ------ ------ ------ ----- ------- ------- ------ ------ ------ ----- ------- (1) As disclosed in the Company's 1992 Consolidation Financial Statements, in connection with the 1992 restructuring of operations, the Company identified certain facilities and equipment that are considered inconsistent with its new strategic focus. Such fixed assets were included in other assets at December 31, 1992.
SCHEDULE VIII
LSI LOGIC CORPORATION VALUATION AND QUALIFYING ACCOUNTS YEAR ENDED DECEMBER 31, 1993, 1992, AND 1991 (IN THOUSANDS) Balance at Additions Balance at Beginning Charged to Costs End of Period and Expenses Deductions of Period -------------- ---------------- -------------- -------------- Allowance for doubtful accounts: 1993 $2,141 $169 $632 $1,678 1992 $3,185 $1,740 $2,784 $2,141 1991 $3,996 $580 $1,391 $3,185
SCHEDULE X
LSI LOGIC CORPORATION SUPPLEMENTARY INCOME STATEMENT INFORMATIONe Years ended December 31, 1993, 1992 and 1991 (In thousands) CHARGED TO COSTS AND EXPENSES -------------------------------- 1993 1992 1991 Maintenance and repairs $23,578 $20,759 $19,312 Advertising $1,473 $1,515 $3,458 Taxes, other than payroll and income taxes: Property taxes $5,834 $5,474 $5,958
INDEX TO EXHIBITS EXHIBIT NUMBER 10.3 Employee Stock Purchase Plan and form of Subscription Agreement 10.35 LSI Logic Corporation 1991 Equity Incentive Plan 11.1 Statement Re Computation of Earnings Per Share 13.1 Annual Report to Stockholders for the year ended January 2, 1994 (to be deemed filed only to the extent required by the instructions to exhibits for Reports on Form 10-K) 21.1 List of Subsidiaries 23.1 Consent of Independent Accountants (see page 33) 24.1 Power of Attorney (included on page 30) EX-10 2 EXHIBIT 10.3 EXHIBIT 10.3 LSI LOGIC CORPORATION EMPLOYEE STOCK PURCHASE PLAN The following constitute the provisions of the Employee Stock Purchase Plan (herein called the "Plan") of LSI Logic Corporation (herein called the "Company".) 1. PURPOSE The purpose of the Plan is to provide employees of the Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company through accumulated payroll deductions. It is the intention of the Company to have the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Internal Revenue Code of 1986. The provisions of the Plan shall, accordingly, be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. 2. DEFINITIONS (a) "BOARD" shall mean the Board of Directors of the Company. (b) "CODE" shall mean the Internal Revenue Code of 1986, as amended. (c) "COMMON STOCK" shall mean the Common Stock, $.01 par value, of the Company. (d) "COMPANY" shall mean LSI Logic Corporation, a Delaware corporation. (e) "COMPENSATION" shall mean all regular straight time earnings, exclusive of payments for overtime, shift premium, incentive compensation, incentive payments, bonuses, commissions or other compensation. (f) "CONTINUOUS STATUS AS AN EMPLOYEE" shall mean the absence of any interruption or termination of service as an Employee. Continuous Status as an Employee shall not be considered interrupted in the case of a leave of absence agreed to in writing by the Company, provided that such leave is for a period of not more than 90 days or reemployment upon the expiration of such leave is guaranteed by contract or statute. (g) "DESIGNATED SUBSIDIARIES" shall mean the Subsidiaries which have been designated by the Board from time to time in its sole discretion as eligible to participate in the Plan. (h) "EMPLOYEE" shall mean any person, including an officer, who is customarily employed for at least twenty (20) hours per week and more than five (5) months in a calendar year by the Company or one of its Designated Subsidiaries. (i) "ENROLLMENT DATE" shall mean the first day of each Offering Period. (j) "EXERCISE DATE" shall mean each March 31 and September 30 of each Offering Period of the Plan. (k) "EXERCISE PERIOD" shall mean a period commencing on April 1 and terminating on the following September 30 or commencing on October 1 and terminating on the following March 31. (l) "OFFERING PERIOD" shall mean a period of twenty-four (24) months commencing on April 1 and October 1 of each year during which an option granted pursuant to the Plan may be exercised. (m) "PLAN" shall mean this Employee Stock Purchase Plan. (n) "SUBSIDIARY" shall mean a corporation, domestic or foreign, of which not less than 50% of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary. 3. ELIGIBILITY (a) Any Employee, as defined in paragraph 2, who shall be employed by the Company on a given Enrollment Date shall be eligible to participate in the Plan, subject to limitations imposed by Section 423(b) of the Code. (b) Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan (i) if, immediately after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 425(d) of the Code) would own stock and/or hold outstanding options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any subsidiary of the Company, or (ii) which permits such Employee's rights to purchase stock under all employee stock purchase plans of the Company and its Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) of fair market value of such stock (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time. -2- 4. OFFERING PERIODS The Plan shall be implemented by consecutive Offering Periods with a new Offering Period commencing on April 1 and October 1 of each year, commencing April 1, 1988, or as otherwise determined by the Board of Directors, and continuing thereafter until terminated in accordance with paragraph 19 hereof. The Board of Directors of the Company shall have the power to change the duration of Offering Periods with respect to future offerings without shareholder approval if such change is announced at least fifteen (15) days prior to the scheduled beginning of the first Offering Period to be affected. 5. PARTICIPATION (a) An eligible Employee may become a participant in the Plan by completing a subscription agreement authorizing payroll deductions on the form provided by the Company and filing it with the Company's payroll office prior to the applicable Enrollment Date, unless a later time for filing the subscription agreement is set by the Board for all eligible Employees with respect to a given Offering Period. An eligible Employee may participate in an Offering Period only if, as of the Enrollment Date of such Offering Period, such Employee is not participating in any prior Offering Period which is continuing at the time of such proposed enrollment. (b) Payroll deductions for a participant shall commence on the first payroll date following the Enrollment Date and shall end on the last payroll date in the Offering Period to which such authorization is applicable, unless sooner terminated by the participant as provided in paragraph 10. 6. PAYROLL DEDUCTIONS (a) At the time a participant files his subscription agreement, he shall elect to have payroll deductions made on each payday during the Offering Period in an amount not exceeding ten percent (10%) of the Compensation which he receives on each payday during the Offering Period, and the aggregate of such payroll deductions during the Offering Period shall not exceed ten percent (10%) of his aggregate Compensation during said Offering Period. (b) All payroll deductions made by a participant shall be credited to his account under the Plan. A participant may not make any additional payments into such account. (c) A participant may discontinue his participation in the Plan as provided in paragraph 10, may lower the rate of his payroll deductions effective immediately or may increase (but not above 10%) the rate of his payroll deductions effective as of the first date of the next Exercise Period within such Offering Period by completing or filing with the Company a new authorization for payroll deductions. -3- (d) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and paragraph 3(b) herein, a participant's payroll deductions may be decreased to 0% at such time during any Exercise Period which is scheduled to end during the current calendar year that the aggregate of all payroll deductions accumulated with respect to such Exercise Period and any other Exercise Period ending within the same calendar year equal $21,250. Payroll deductions shall recommence at the rate provided in such participant's subscription agreement at the beginning of the first Exercise Period which is scheduled to end in the following calendar year, unless terminated by the participant as provided in paragraph 10. 7. GRANT OF OPTION (a) On the Enrollment Date of each Offering Period, each eligible Employee participating in such Offering Period shall be granted an option to purchase on each Exercise Date during such Offering Period (at the per share option price) up to a number of shares of the Company's Common Stock determined by dividing such Employee's payroll deductions accumulated during such Exercise Period by eighty-five percent (85%) of the fair market value of a share of the Company's Common Stock on the Enrollment Date or on the Exercise Date, whichever is lower, provided that the number of shares subject to the option shall not exceed 200% of the number of shares determined by dividing 10% of the Employee's Compensation over the Offering Period (determined as of the Enrollment Date) by 85% of the fair market value of a share of the Company's Common Stock on the Enrollment Date, subject to the limitations set forth in Section 3(b) and 12 hereof. Fair market value of a share of the Company's Common Stock shall be determined as provided in Section 7(b) herein. (b) The option price per share of the shares offered in a given Offering Period shall be the lower of: (i) 85% of the fair market value of a share of the Common Stock of the Company on the Enrollment Date; or (ii) 85% of the fair market value of a share of the Common Stock of the Company on the applicable Exercise Date. The fair market value of the Company's Common Stock on a given date shall be determined by the Board in its discretion; provided, however, that where there is a public market for the Common Stock, the fair market value per share shall be the closing price of the Common Stock for such date, as reported by the National Association of Securities Dealers Automated Quotation (NASDAQ) National Market System (or, if not so reported, as otherwise reported by the NASDAQ National Market System), or, in the event the Common Stock is listed on a stock exchange, the fair market value per share shall be the closing price on such exchange on such date, as reported in the Wall Street Journal. In the event that a closing price is not available for an Enrollment Date or an Exercise Date, the fair market value of a share of the Common Stock of the Company on such date shall be the fair market value of a share of the Common Stock of the Company on the last business day prior to such date. -4- 8. EXERCISE OF OPTION Unless a participant withdraws from the Plan as provided in paragraph 10, his option for the purchase of shares will be exercised automatically on each Exercise Date of the Offering Period, and the maximum number of full shares subject to option will be purchased for him at the applicable option price with the accumulated payroll deductions in his account. During his lifetime, a participant's option to purchase shares hereunder is exercisable only by him. Any amount remaining in the participant's account after an Exercise Date shall be held in the account until the next Exercise Date in such Offering Period, unless the Offering Period has been over-subscribed or has terminated with such Exercise Date, in which event such amount shall be refunded to the participant. 9. DELIVERY As promptly as practicable after each Exercise Date, the Company shall arrange the delivery to each participant, as appropriate, of a certificate representing the shares purchased upon exercise of his option. 10. WITHDRAWAL; TERMINATION OF EMPLOYMENT (a) A participant may withdraw all but not less than all of the payroll deductions credited to his account under the Plan at any time by giving written notice to the Company. All of the participant's payroll deductions credited to his account will be paid to him promptly after receipt of his notice of withdrawal and his participation in the Plan will be automatically terminated, and no further payroll deductions for the purchase of shares will be made. Payroll deductions will not resume on behalf of a participant who has withdrawn from the Plan unless written notice is delivered to the Company within the open enrollment period preceding the commencement of an Exercise Period directing the Company to resume payroll deductions. (b) Upon termination of the participant's Continuous Status as an Employee prior to the Exercise Date of an Offering Period for any reason, including retirement or death, the payroll deductions credited to the participant's account will be returned to the participant or, in the case of death, to the person or persons entitled thereto under paragraph 14, and such participant's option will be automatically terminated. (c) In the event an Employee fails to maintain Continuous Status as an Employee for at least twenty (20) hours per week during an Offering Period in which the Employee is a participant, he will be deemed to have elected to withdraw from the Plan and the payroll deductions credited to his account will be returned to him and his option terminated. (d) A participant's withdrawal from an Offering Period will not have any effect upon his eligibility to participate in a succeeding Offering Period or in any similar plan which may hereafter be adopted by the Company. -5- 11. INTEREST No interest shall accrue on the payroll deductions of a participant in the Plan. 12. STOCK (a) The maximum number of shares of the Company's Common Stock which shall be made available for sale under the Plan shall be 6,275,000 shares (after adjustment for the three-for-two stock splits effected by the Company in April 1983 and February 1986), subject to adjustment upon changes in capitalization of the Company as provided in paragraph 18. If on a given Exercise Date the number of shares with respect to which options are to be exercised exceeds the number of shares then available, the Company shall make a pro rata allocation of the shares remaining available for option grant in as uniform a manner as shall be practicable and as it shall determine to be equitable. In such event, the Company shall give written notice of such reduction of the number of shares subject to the option to each Employee affected thereby and shall similarly reduce the rate of payroll deductions, if necessary. (b) The participant will have no interest or voting right in shares covered by his option until such option has been exercised. (c) Shares to be delivered to a participant under the Plan will be registered in the name of the participant or in the name of the participant and his or her spouse. 13. ADMINISTRATION The Plan shall be administered by the Board of Directors of the Company or a committee appointed by the Board. The administration, interpretation or application of the Plan by the Board or its committee shall be final, conclusive and binding upon all participants. Members of the Board who are eligible Employees are permitted to participate in the Plan, provided that: (a) Members of the Board who are eligible to participate in the Plan may not vote on any matter affecting the administration of the Plan or the grant of any option pursuant to the Plan. (b) If a committee is established to administer the Plan, no member of the Board who is eligible to participate in the Plan may be a member of the committee. 14. DESIGNATION OF BENEFICIARY (a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant's account under the Plan in the event of such participant's death subsequent to the end of the Offering Period but prior to delivery to him of such shares and cash. In addition, a participant may file a written designation of a beneficiary -6- who is to receive any cash from the participant's account under the Plan in the event of such participant's death prior to the exercise of the option. (b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. 15. TRANSFERABILITY Neither payroll deductions credited to a participant's account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in paragraph 14 hereof) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with paragraph 10. 16. USE OF FUNDS All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions. 17. REPORTS Individual accounts will be maintained for each participant in the Plan. Statements of account will be given to participating Employees semi-annually promptly following each Exercise Date, which statements will set forth the amounts of payroll deductions, the per share purchase price, the number of shares purchased and the remaining cash balance, if any. 18. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each option under the Plan which has not yet been exercised and the number of shares of Common Stock which have been authorized for issuance under the Plan but have not yet been placed under option (collectively, the "Reserves"), as well as the price per share of Common Stock covered by each option under the Plan which has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split or the payment of a stock dividend (but only on the Common Stock) or any other increase or decrease in the number of shares of -7- Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration". Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option. In the event of the proposed dissolution or liquidation of the Company, the Offering Period will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each option under the Plan shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation, unless the Board determines, in the exercise of its sole discretion and in lieu of such assumption or substitution, that the participant shall have the right to exercise the option as to all of the optioned stock, including shares as to which the option would not otherwise be exercisable. If the Board makes an option fully exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Board shall notify the participant that the option shall be fully exercisable for a period of thirty (30) days from the date of such notice, and the option will terminate upon the expiration of such period. The Board may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per share of Common Stock covered by each outstanding option, in the event that the Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of shares of its outstanding Common Stock, and in the event of the Company being consolidated with or merged into any other corporation. 19. AMENDMENT OR TERMINATION The Board of Directors of the Company may at any time terminate or amend the Plan. No such termination can affect options previously granted, nor may an amendment make any change in any option theretofore granted which adversely affects the rights of any participant, nor may an amendment be made without prior approval of the shareholders of the Company if such amendment would: (a) Increase the number of shares that may be issued under the Plan; (b) Permit payroll deductions at a rate in excess of ten percent (10%) of the participants' Compensation; (c) Modify the requirements concerning which employees (or class of employees) are eligible for participation in the Plan; or -8- (d) Materially increase the benefits which may accrue to participants under the Plan. 20. NOTICES All notices or other communications by a participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 21. SHAREHOLDER APPROVAL Continuance of the Plan shall be subject to approval by the shareholders of the Company within twelve months before or after the date the Plan is adopted. If such shareholder approval is obtained at a duly held shareholders' meeting, it may be obtained by the affirmative vote of the holders of a majority of the outstanding shares of the Company present or represented and entitled to vote thereon, which approval shall be: (a) (i) solicited substantially in accordance with Section 14(a) of the Securities Exchange Act of 1934, as amended (the "Act") and the rules and regulations promulgated thereunder, or (ii) solicited after the Company has furnished in writing to the holders entitled to vote substantially the same information concerning the Plan as that which would be required by the rules and regulations in effect under Section 14(a) of the Act at the time such information is furnished; and (b) obtained at or prior to the first annual meeting of shareholders held subsequent to the first registration of Common Stock under Section 12 of the Act. In the case of approval by written consent, it must be obtained by the unanimous written consent of all shareholders of the Company. 22. CONDITIONS UPON ISSUANCE OF SHARES Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. -9- As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law. - 10 - LSI LOGIC CORPORATION EMPLOYEE STOCK PURCHASE PLAN SUBSCRIPTION AGREEMENT ENROLLMENT DATE: October 1, 1993 (For new enrollees only) NAME: DEPT NO.: ---------------------------- ------------- Check all that apply: Original Enrollment Application . . . . . . . . . . . . . _________ Change in Rate of Payroll Deductions . . . . . . . . . . _________ Change of Beneficiary(ies) or Registration. . . . . . . . _________ Suspension of Payroll Deductions . . . . . . . . . . . . _________ Resumption of Participation following Suspension . . . . _________ Must include original Enrollment Date . . . . _______________ 1. I hereby elect to participate in the LSI Logic Corporation Employee Stock Purchase Plan (the "Purchase Plan") and subscribe to purchase shares of the Company's Common Stock, $0.01 par value, in accordance with this Subscription Agreement and the Purchase Plan. 2. Check one: _______ I hereby authorize payroll deductions from each paycheck at the rate of _________% (CHOOSE A WHOLE NUMBER FROM 1 TO 10) of my eligible compensation on each payday during the Offering Period in accordance with provisions of the Purchase Plan. (or) _______ I hereby suspend all further payroll deductions, but wish to remain enrolled in the Plan for the remainder of the Offering Period in which I currently participate. 3. I understand that said payroll deductions shall be accumulated for the purchase of shares of LSI Logic Corporation Common Stock, $0.01 par value, at the applicable purchase price determined in accordance with the Purchase Plan. I further understand that, except as otherwise set forth in the Purchase Plan, shares will be purchased for me automatically on each Exercise Date of the Offering Period unless I withdraw from the Purchase Plan by giving written notice of withdrawal to the Company prior to any such purchase. 4. Shares purchased for me under the Purchase Plan should be issued as follows (Please Print): 1 Name(s):__________________________________________________________________ Your name or the names of you and your spouse only Specify Ownership: ________________________________________________________________ Fill in only if your spouse's name is to be included on certificate. For example: "As Joint Tenants with Right of Survivorship", "As Community Property"(if applicable). If you DO NOT specify a form of joint ownership the certificate will be issued "As Joint Tenants with Right of Survivorship". 5. In the event of my death, I hereby designate the following person(s) as my beneficiary(ies) to receive all payments and shares due me or my estate under the Purchase Plan (Please Print): Name: ________________________________________________________________ (First) (Middle) (Last) Address: ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ Relationship: ___________________________________________________________ Name: ________________________________________________________________ (First) (Middle) (Last) Address: ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ Relationship: ___________________________________________________________ 6. I understand that I may review a copy of the Purchase Plan by contacting the LSI Logic Corporation Payroll Department. I further understand that, upon written or oral request to the LSI Logic Corporation Payroll Department, I may obtain, without charge, copies of any or all of the following documents: the Company's most recent Annual Report to Security Holders; the Company's most recent Annual Report on Form 10-K; the Company's Proxy Statement for the Company's most recent Annual Meeting of Stockholders; the Company's most recent Quarterly Report(s) on Form 10-Q; the description of the Company's Common Stock contained in the Company's Registration Statement on Form 8-A filed with the Securities and Exchange Commission on August 29, 1989; and all documents filed by the Company pursuant to Sections 13, 14 and 15(d) of the Securities Exchange Act of 1934 during any Offering Period in which I am a participant. 7. I HEREBY AGREE TO NOTIFY THE COMPANY IN WRITING WITHIN 30 DAYS AFTER THE DATE OF DISPOSITION OF ANY SHARES RECEIVED BY ME PURSUANT TO THE PURCHASE PLAN. I understand that if I dispose of any shares received by me pursuant to the Purchase Plan within less than 2 years after the Enrollment Date of the Offering Period (the first 2 day of a 24-month period during which I may purchase shares) or within less than 1 year after the Exercise Date (the date upon which shares are purchased for me), I may be treated for Federal income tax purposes as having received ordinary income at the time of such disposition in an amount equal to the excess of the fair market value of the shares at the time such shares were purchased over the price which I paid for the shares. After notifying the Company in writing of my disposition, I understand that the described gain realized on the sale of the shares will be included in my W-2 as ordinary income. However, if I dispose of such shares at any time after the expiration of the 2-year and 1-year holding periods, I understand that I may be treated for Federal income tax purposes as having received income only at the time of such disposition, and that such income will be taxed as ordinary income only to the extent of the amount equal to the lesser of (a) the excess of the fair market value of the shares at the time of such disposition over the price which I paid for the shares (i.e., the Exercise Price), or (b) the excess of the fair market value of the shares on my Enrollment Date over an amount equal to what the purchase price (i.e. Exercise Price) would have been if it had been computed as of my Enrollment Date. Any further gain in either instance is taxed as capital gain. 8. I hereby agree to be bound by the terms of the Purchase Plan. The effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Purchase Plan. 9. I hereby authorize the Company to enroll me in each succeeding Offering Period following termination of any Offering Period in which I was enrolled as of the last Exercise Date of such terminated Offering Period. I further authorize the Company to retain any excess payroll deduction accumulations remaining in my account after the last Exercise Date within an Offering Period and apply them to purchase stock for me under the Purchase Plan during the next Offering Period in which I am enrolled. 10. I hereby authorize the Company to terminate my participation in any Offering Period as of the last day of any Exercise Period and enroll me in a new Offering Period at the same payroll deduction rate as authorized above if the Exercise Price as determined in accordance with the terms of the Purchase Plan for such new Offering Period is lower than the Exercise Price calculated on the Enrollment Date for the Offering Period in which my participation is to be terminated. Dated:__________________________ ______________________________ Signature of Employee ______________________________ Print Name 3 EX-10 3 EXHIBIT 10.35 EXHIBIT 10.35 LSI LOGIC CORPORATION 1991 EQUITY INCENTIVE PLAN 1. PURPOSE OF THE PLAN. The purpose of the LSI Logic Corporation 1991 Equity Incentive Plan (the "Plan") is to enable LSI Logic Corporation (the "Company") to provide an incentive to eligible employees, including officers, and consultants whose present and potential contributions are important to the continued success of the Company, to afford them an opportunity to acquire a proprietary interest in the Company, and to enable the Company to enlist and retain in its employ the best available talent for the successful conduct of its business. It is intended that this purpose will be effected through the granting of (a) stock options, (b) stock purchase rights, (c) stock appreciation rights, and (d) stock bonus awards. 2. DEFINITIONS. As used herein, the following definitions shall apply: (a) "AWARD" means any Option, Right or Stock Bonus Award granted. (b) "BOARD" means the Board of Directors of the Company. (c) "CODE" means the Internal Revenue Code of 1986, as amended. (d) "COMMITTEE" means the Committee or Committees referred to in Sec- tion 5 of the Plan. If at any time no Committee shall be in office, then the functions of the Committee specified in the Plan shall be exercised by the Board. (e) "COMMON STOCK" means the Common Stock, $0.01 par value (as adjusted from time to time), of the Company. (f) "COMPANY" means LSI Logic Corporation, a corporation organized under the laws of the state of Delaware, or any successor corporation. (g) "CONSULTANT" means any person, including an advisor, who is engaged by the Company or any Parent or Subsidiary to render services and is compensated for such services, provided the term Consultant shall not include directors who are not compensated for their services or are paid only a director's fee by the Company. (h) "DIRECTOR" means a member of the Board. (i) "DISABILITY" means a disability, whether temporary or permanent, partial or total, as defined in Section 22(e)(3) of the Code. (j) "EMPLOYEE" means any person, including officers and directors, employed by the Company or any Subsidiary. The payment of directors' fees by the Company shall not be sufficient to constitute "employment" by the Company. (k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (l) "FAIR MARKET VALUE" means, as of any date, the value of Common Stock determined as follows: (i) if such Common Stock shall then be listed on a national securities exchange, the closing sales price (or the closing bid, if no sales were reported) as quoted on the principal national securities exchange on which the Common Stock is listed or admitted to trading, or (ii) the closing sales price (or the closing bid, if no sales were reported) as quoted on the NASDAQ National Market System, or (iii) if such Common Stock shall not be quoted on such National Market System nor listed or admitted to trading on a national securities exchange, then the average of the closing bid and asked prices, as reported by THE WALL STREET JOURNAL for the over-the-counter market, or (iv) if none of the foregoing is applicable, then the Fair Market Value of a share of Common Stock shall be determined by the Board of Directors of the Company in its discretion. (m) "INCENTIVE STOCK OPTION" means an Option intended to be and designated as an "Incentive Stock Option" within the meaning of Section 422 of the Code. (n) "NONSTATUTORY STOCK OPTION" means any Option that is not an Incentive Stock Option. (o) "OPTION" means any option to purchase shares of Common Stock granted pursuant to Section 7 below. (p) "OPTIONEE" means any holder of an Option or a Stock Appreciation Right, as the context requires. (q) "OUTSIDE DIRECTOR" means a Director who is not an Employee of the Company. (r) "PLAN" means this 1991 Equity Incentive Plan, as hereinafter amended from time to time. (s) "RESTRICTED STOCK" means shares of Common Stock acquired pursuant to -2- a grant of Stock Purchase Rights under Section 9 below. (t) "RIGHT" means and includes Stock Appreciation Rights and Stock Purchase Rights granted pursuant to the Plan. (u) "STOCK APPRECIATION RIGHT" means an Award made pursuant to Section 8 below, which right permits the recipient to receive cash or stock equal in value to the difference between the Fair Market Value of Common Stock on the date of grant of the Option and the Fair Market Value of Common Stock on the date of exercise of the Stock Appreciation Right. (v) "STOCK BONUS AWARD" means an Award under Section 10 below. A Stock Bonus Award shall permit the recipient to receive a stock bonus (as determined by the Committee) upon satisfaction of such conditions as are set out in the recipient's individual grant. The receipt of a Stock Bonus Award will be based upon any employment or performance-related criteria as the Committee may deem appropriate. (w) "STOCK PURCHASE RIGHT" means the right to purchase Common Stock pursuant to a restricted stock purchase agreement entered into between the Company and the purchaser under Section 9 below. (x) "SUBSIDIARY" means a corporation, domestic or foreign, of which not less than 50% of the voting shares are held by the Company or by a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or by a Subsidiary. In addition, the terms "Tax Date" and "Insiders" shall have meanings set forth in Section 11. 3. ELIGIBLE PARTICIPANTS. Any Employee or Consultant of the Company or of a Subsidiary whom the Committee deems to have the potential to contribute to the future success of the Company shall be eligible to receive Awards under the Plan; provided, however, that any Options intended to qualify as Incentive Stock Options shall be granted only to Employees of the Company or its Subsidiaries. 4. STOCK SUBJECT TO THE PLAN. Subject to Sections 12 and 13, the total number of shares of Common Stock reserved and available for distribution pursuant to the Plan shall be 3,000,000 shares. Subject to Sections 12 and 13 below, if any shares of Common Stock that have been optioned under an Option cease to be subject to such Option, or if any shares of Restricted Stock or other shares that are subject to any Right, Option or Stock Bonus Award granted hereunder are forfeited or repurchased or any such award otherwise terminates without a payment being made to the participant in the form of Common Stock, such shares shall again be available for distribution in connection with future Awards under the Plan. 5. ADMINISTRATION. -3- (a) PROCEDURE. The Plan shall be administered by (i) the Board if the Board may administer the Plan in compliance with Rule 16b-3 promulgated under the Exchange Act, or any successor rule thereto ("Rule 16b-3"), with respect to a plan intended to qualify under Rule 16b-3 as a discretionary plan, or (ii) a Committee designated by the Board to administer the Plan, which Committee shall be constituted to permit the Plan to comply with Rule 16b-3 with respect to a plan intended to qualify thereunder as a discretionary plan. If permitted by Rule 16b-3, the Plan may be administered by different bodies with respect to Employees who are directors, non-director officers, Employees who are neither directors nor officers and Consultants. Once appointed, the Committee shall continue to serve until otherwise directed by the Board. From time to time the Board may change the size of the Committee, appoint additional members thereof, remove members (with or without cause), appoint new members in substitution therefor, fill vacancies, however caused and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder as a discretionary plan. As used herein, except in Sections 13, 15 and 21, reference to the Committee shall mean such Committee or the Board, whichever is then acting with respect to the Plan. (b) AUTHORITY. Subject to the general purposes, terms, and conditions of the Plan, and to the direction of the Board, the Committee, if there be one, shall have full power to implement and carry out the Plan including, but not limited to, the following: (i) to select the Employees and Consultants of the Company and/or its Subsidiaries to whom Options, Rights and/or Stock Bonus Awards may from time to time be granted hereunder; (ii) to determine whether and to what extent Options, Rights and/or Stock Bonus Awards, or any combination thereof, are to be granted hereunder; (iii) to determine the number of shares of Common Stock to be covered by each such Award granted hereunder; (iv) to approve forms of agreement for use under the Plan; (v) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder (including, but not limited to, the share price and any restriction or limitation, or any vesting acceleration or waiver of forfeiture restrictions regarding any Option or other Award and/or the shares of Common Stock relating thereto, based in each case on such factors as the Committee shall determine, in its sole discretion); (vi) to determine whether and under what circumstances an Option may -4- be settled in cash or Restricted Stock under Section 7(j) instead of Common Stock; (vii) to determine the form of payment that will be acceptable consideration for exercise of an Option or Right granted under the Plan; (viii) to determine whether, to what extent and under what circumstances Common Stock and other amounts payable with respect to an Award under this Plan shall be deferred either automatically or at the election of the participant (including providing for and determining the amount (if any) of any deemed earnings on any deferred amount during any deferral period); (ix) to reduce the exercise price of any Option or Right; (x) to determine the terms and restrictions applicable to Stock Purchase Rights and the Restricted Stock purchased by exercising such Rights. The Committee shall have the authority to construe and interpret the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan, and to make all other determinations necessary or advisable for the administration of the Plan. 6. DURATION OF THE PLAN. The Plan shall remain in effect until terminated by the Board under the terms of the Plan, provided that in no event may Incentive Stock Options be granted under the Plan later than March 8, 2001, 10 years from the date the Plan was adopted by the Board. 7. STOCK OPTIONS. The Committee, in its discretion, may grant Options to eligible participants and shall determine whether such Options shall be Incentive Stock Options or Nonstatutory Stock Options. Each Option shall be evidenced by a written Option agreement which shall expressly identify the Option as an Incentive Stock Option or as a Nonstatutory Stock Option, and be in such form and contain such provisions as the Committee shall from time to time deem appropriate. Without limiting the foregoing, the Committee may, at any time, or from time to time, authorize the Company, with the consent of the respective recipients, to issue new Options including Options in exchange for the surrender and cancellation of any or all outstanding Options or Rights. Option agreements shall contain the following terms and conditions: (a) OPTION PRICE; NUMBER OF SHARES. The Option price, which shall be approved by the Committee, may be less than the Fair Market Value of the Common Stock at the time the Option is granted; provided, however, that in the case of an Incentive Stock Option, the price shall be no less than 100% of the Fair Market Value of the Common Stock on the date the Option is granted, subject to any additional conditions set out in Section 7(g) below and further provided that the price shall be no less than 50% of the Fair Market Value of the Common Stock on the date the Option is granted. -5- The Option agreement shall specify the number of shares of Common Stock to which it pertains. (b) WAITING PERIOD AND EXERCISE DATES. At the time an Option is granted, the Committee will determine the terms and conditions to be satisfied before shares may be purchased, including the dates on which shares subject to the Option may first be purchased. The Committee may specify that an Option may not be exercised until the completion of the waiting period specified at the time of grant. (Any such period is referred to herein as the "waiting period.") At the time an Option is granted, the Committee shall fix the period within which such Option may be exercised, which shall not be less than the waiting period, if any, nor, in the case of an Incentive Stock Option, more than 10 years from the date of grant. (c) FORM OF PAYMENT. The consideration to be paid for the shares of Common Stock to be issued upon exercise of an Option, including the method of payment, shall be determined by the Committee (and, in the case of an Incentive Stock Option, shall be determined at the time of grant) and may consist entirely of (i) cash, (ii) check, (iii) promissory note, (iv) other shares of Common Stock (including, in the discretion of the Committee, Restricted Stock) which (x) either have been owned by the Optionee for more than six months on the date of surrender or were not acquired, directly or indirectly, from the Company, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the shares as to which said Option shall be exercised, (v) delivery of a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company the amount of sale or loan proceeds required to pay the exercise price, (vi) delivery of an irrevocable subscription agreement for the shares which obligates the option holder to take and pay for the shares not more than 12 months after the date of delivery of the subscription agreement, (vii) any combination of the foregoing methods of payment, or (viii) such other consideration and method of payment for the issuance of shares to the extent permitted under the Delaware General Corporation Law. (d) EFFECT OF TERMINATION OF EMPLOYMENT OR DEATH OF EMPLOYEE PARTICIPANTS. In the event that an Optionee during his or her lifetime ceases to be an Employee of the Company or of any Subsidiary for any reason, including retirement, any Option, including any unexercised portion thereof, which was otherwise exercisable on the date of termination of employment, shall expire within such time period as is determined by the Committee; provided, however, that in the case of an Incentive Stock Option the Option shall expire unless exercised within a period of 90 days from the date on which the Optionee ceased to be an Employee (or such lesser period as is set out in Option agreement), but in no event after the expiration of the term of such Option as set forth in the Option agreement. If in any case the Committee shall determine that an Employee shall have been discharged for Just Cause (as defined below) such Employee shall not thereafter have any rights under the Plan or any Option that shall have been granted to him or her under the Plan. For purposes of this Section, "Just Cause" means the termination of employment of an Employee shall have taken place as a result of (i) willful breach or neglect of duty; (ii) failure or refusal to work or to comply with the Company's rules, -6- policies, and practices; (iii) dishonesty; (iv) insubordination; (v) being under the influence of drugs (except to the extent medically prescribed) or alcohol while on duty or on Company premises; (vi) conduct endangering, or likely to endanger, the health or safety of another Employee; or (vii) conviction of a felony. In the event of the death of an Optionee, that portion of the Option which had become exercisable as of the date of death shall be exercisable by his or her personal representatives, heirs, or legatees within six months of the date of death or such time period as is determined by the Committee (but in the case of an Incentive Stock Option, in no event after the expiration of the term of such Option as set forth in the Option agreement.) In the event of the death of an Optionee within one month after termination of employment, that portion of the Option which had become exercisable as of the date of termination shall be exercisable by his or her personal representatives, heirs, or legatees within six months of the date of death or such time period as is determined by the Committee (but in the case of an Incentive Stock Option, in no event after the expiration of the term of such Option as set forth in the Option agreement.) In the event that an Optionee ceases to be an Employee of the Company or of any Subsidiary for any reason, including death or retirement, prior to the lapse of the waiting period, if any, his or her Option shall terminate and be null and void. (e) LEAVE OF ABSENCE. The employment relationship shall not be considered interrupted in the case of: (i) sick leave, military leave or any other leave of absence approved by the Board; provided that any such leave is for a period of not more than 90 days, unless reemployment upon the expiration of such leave is guaranteed by contract, statute or pursuant to formal policy adopted from time to time by the Company and issued and promulgated to Employees in writing, or (ii) in the case of transfer between locations of the Company or between the Company, its Subsidiaries or its successor. In the case of any Employee on an approved leave of absence, the Committee may make such provisions respecting suspension of vesting of the Option while on leave from the employ of the Company or a Subsidiary as it may deem appropriate, if any, except that in no event shall an Option be exercised after the expiration of the term set forth in the Option agreement. (f) ACCELERATION OF VESTING OR WAITING PERIOD. The Committee may accelerate the earliest date on which outstanding Options (or any installments thereof) are exercisable. (g) SPECIAL INCENTIVE STOCK OPTION PROVISIONS. In addition to the foregoing, Options granted to Employees under the Plan which are intended to be Incentive Stock Options under Section 422 of the Code shall be subject to the following terms and conditions: (i) DOLLAR LIMITATION. To the extent that the aggregate Fair Market Value of the shares of Common Stock with respect to which Options designated as Incentive Stock Options become exercisable for the first time by any individual during any calendar year (under all plans of the Company) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of the preceding sentence, -7- (i) Options shall be taken into account in the order in which they were granted and (ii) the Fair Market Value of the shares shall be determined as of the time the Option with respect to such shares was granted. (ii) 10% STOCKHOLDER. If any person to whom an Incentive Stock Option is to be granted pursuant to the provisions of the Plan is, on the date of grant, the owner of Common Stock (as determined under Section 425(d) of the Code) possessing more than 10% of the total combined voting power of all classes of stock of the Company or of any Subsidiary, then the following special provisions shall be applicable to the Option granted to such individual: (A) The Option price per share of the Common Stock subject to such Incentive Stock Option shall not be less than 110% of the Fair Market Value of the Common Stock on the date of grant; and (B) The Option shall not have a term in excess of five years from the date of grant. Except as modified by the preceding provisions of this Subsection 7(g) and except as otherwise required by Section 422 of the Code, all of the provisions of the Plan shall be applicable to the Incentive Stock Options granted hereunder. (h) OTHER PROVISIONS. Each Option granted under the Plan may contain such other terms, provisions, and conditions not inconsistent with the Plan as may be determined by the Committee. (i) OPTIONS TO CONSULTANTS. Options granted to consultants shall not be subject to Sections 7(b) and 7(d) of the Plan, but shall have such terms and conditions pertaining to waiting period (if any), exercise date, and effect of termination of the consulting relationship as the Committee shall determine in each case. (j) BUYOUT PROVISIONS. The Committee may at any time offer to buy out for a payment in cash or Common Stock (including Restricted Stock), an Option previously granted, based on such terms and conditions as the Committee shall establish and communicate to the Optionee at the time that such offer is made. (k) RULE 16B-3. Options granted to persons subject to Section 16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions. -8- 8. STOCK APPRECIATION RIGHTS. (a) GRANTS WITH OPTIONS. At the sole discretion of the Committee, Stock Appreciation Rights may be granted in connection and concurrently with all or any part of an Option. The following provisions apply to Stock Appreciation Rights that are granted in connection with Options: (i) The Stock Appreciation Right shall entitle the Optionee to exercise the rights by surrendering to the Company unexercised a portion of the underlying Option. The Optionee shall receive in exchange from the Company an amount equal to the excess of (x) the Fair Market Value on the date of exercise of the Common Stock covered by the surrendered portion of the underlying Option over (y) the exercise price of the Common Stock covered by the surrendered portion of the underlying Option. Notwithstanding the foregoing, the Committee may place limits on the amount that may be paid to the Optionee upon exercise of an Stock Appreciation Right; provided, however, that such limit shall not restrict the exercisability of the underlying Option. (ii) When a Stock Appreciation Right is exercised, the underlying Option, to the extent surrendered, shall no longer be exercisable. (iii) A Stock Appreciation Right shall be exercisable only when and to the extent that the underlying Option is exercisable and shall expire no later than the date on which the underlying Option expires. (iv) A Stock Appreciation Right may only be exercised at a time when the Fair Market Value of the Common Stock covered by the underlying Option exceeds the exercise price of the Common Stock covered by the underlying Option. Notwithstanding the foregoing, neither a Stock Appreciation Right nor any related Option shall be exercisable within the first six (6) months of their terms; provided, however, that this limitation shall not apply in the event that death or Disability of the Optionee occurs prior to the expiration of the six-month period. (v) In the event that a Stock Appreciation Right is granted that relates to an Incentive Stock Option, such Right shall contain such additional or different terms as may be necessary under applicable regulations to preserve treatment of the Incentive Stock Option under Section 422 of the Code. (b) GRANTS WITHOUT OPTIONS. At the sole discretion of the Committee, Stock Appreciation Rights may be granted without related Options. The following provisions apply to Stock Appreciation Rights that are granted other than in connection with Options: (i) The Stock Appreciation Right shall entitle the Optionee, by exercising the Stock Appreciation Right, to receive from the Company an amount equal -9- to the excess of (x) the Fair Market Value of the Common Stock covered by the exercised portion of the Stock Appreciation Right, as of the date of such exercise, over (y) the Fair Market Value of the Common Stock covered by the exercised portion of the Stock Appreciation Right, as of the date on which the Stock Appreciation Right was granted, provided, however, that the Committee may place limits on the amount that may be paid to the Optionee upon exercise of a Stock Appreciation Right by the grantee. (ii) Stock Appreciation Rights shall be exercisable, in whole or in part, at such times as the Committee shall specify in the Optionee's Stock Appreciation Rights agreement. Notwithstanding the foregoing, a Stock Appreciation Right shall not be exercisable within the first six (6) months of its term; provided, however, that this limitation shall not apply in the event that death or Disability of the Optionee occurs prior to the expiration of the six-month period. (c) FORM OF PAYMENT. The Company's obligation arising upon the exercise of a Stock Appreciation Right may be paid currently or on a deferred basis with such interest or earnings equivalent as may be determined by the Committee, and may be paid in Common Stock or in cash, or in any combination of Common Stock and cash, as the Committee in its sole discretion may determine. Shares of Common Stock issued upon the exercise of a Stock Appreciation Right shall be valued at the Fair Market Value as of the date of exercise. (d) COMPLIANCE WITH SECTION 16(B). A person who is subject to Section 16(b) of the Exchange Act may only exercise a Stock Appreciation Right during such time or times as are permitted by paragraph (e) of Rule 16b-3 or any successor provision. 9. STOCK PURCHASE RIGHTS. (a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other Awards granted under the Plan and/or cash awards made outside of the Plan. After the Committee determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing of the terms, conditions and restrictions related to the offer, including the number of shares of Common Stock that such person shall be entitled to purchase, the price to be paid, which price in the case of Insiders (as defined in Section 11) shall not be more than the par value of the Company's Common Stock, as adjusted from time to time, and the minimum price permitted by the Delaware General Corporation Law and the time within which such person must accept such offer, which shall in no event exceed 60 days from the date the Stock Purchase Right was granted. The offer shall be accepted by execution of a Restricted Stock purchase agreement in the form determined by the Committee. Shares purchased pursuant to the grant of a Stock Purchase Right shall be referred to herein as "Restricted Stock." (b) REPURCHASE OPTION. Unless the Committee determines otherwise, the Restricted Stock purchase agreement shall grant the Company a repurchase option exercisable -10- upon the voluntary or involuntary termination of the purchaser's employment with the Company for any reason (including death or Disability). The purchase price for shares repurchased pursuant to the Restricted Stock purchase agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at such rate as the Committee may determine. (c) OTHER PROVISIONS. The Restricted Stock purchase agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Committee in its sole discretion. In addition, the provisions of Restricted Stock purchase agreements need not be the same with respect to each purchaser. 10. STOCK BONUS AWARDS. (a) ADMINISTRATION. Stock Bonus Awards may be granted either alone or in addition to other Awards granted under the Plan. Such awards shall be granted for no cash consideration. The Committee shall determine, in its sole discretion, the terms for each Stock Bonus Award, and shall determine the performance or employment-related factors to be considered in the granting of Stock Bonus Awards and the extent to which such Stock Bonus Awards have been earned. Stock Bonus Awards may vary from participant to participant and between groups of participants. Each Stock Bonus Award shall be confirmed by, and be subject to the terms of, a Stock Bonus Award agreement. (b) ADJUSTMENT OF AWARDS. The Committee may adjust the factors applicable to the Stock Bonus Awards to take into account changes in law and accounting and tax rules and to make such adjustments as the Committee deems necessary or appropriate to reflect the inclusion or exclusion of the impact of extraordinary or unusual items, events or circumstances in order to avoid windfalls or hardships. (c) TERMINATION. Unless otherwise provided in the applicable Stock Bonus Award agreement, if a participant terminates his or her employment or his or her consultancy prior to full vesting of a Stock Bonus Award which is subject to vesting, the Committee may provide for an earlier payment in settlement of such Award in such amount and under such terms and conditions as the Committee deems appropriate. (d) FORM OF PAYMENT. The earned portion of a Stock Bonus Award may be paid currently or on a deferred basis with such interest or earnings equivalent as may be determined by the Committee. Payment shall be made in the form of whole shares of Common Stock, including Restricted Stock, or a combination thereof, either in a lump sum payment or in installments, all as the Committee shall determine. If and to the extent the full amount of a Stock Bonus Award is not paid in Common Stock, then the shares of Common Stock representing the portion of the value of the Stock Bonus Award not paid in Common Stock shall again become available for award under the Plan. -11- 11. STOCK WITHHOLDING TO SATISFY WITHHOLDING TAX OBLIGATIONS. When a participant incurs tax liability in connection with the exercise or vesting of any Option, Right or Stock Bonus Award, which tax liability is subject to tax withholding under applicable tax laws, and the participant is obligated to pay the Company an amount required to be withheld under applicable tax laws, the participant may satisfy the withholding tax obligation by electing to have the Company withhold from the shares to be issued that number of shares having a Fair Market Value equal to the amount required to be withheld determined on the date that the amount of tax to be withheld is to be determined (the "Tax Date"). All elections by participant to have shares withheld for this purpose shall be made in writing in a form acceptable to the Committee and shall be subject to the following restrictions: (i) the election must be made on or prior to the applicable Tax Date; (ii) once made, the election shall be irrevocable as to the particular shares as to which the election is made; (iii) all elections shall be subject to the disapproval of the Committee; (iv) if the participant is an officer or Director of the Company or other person whose transactions in Common Stock are subject to Section 16(b) of the Exchange Act (collectively "Insiders"), the election may not be made within six months of the date of grant of the Option, Right or Stock Bonus Award; provided, however, that this limitation shall not apply in the event that death or Disability of the Optionee occurs prior to the expiration of the six-month period; and (v) if the participant is an Insider, the election must be made either six months prior to the Tax Date (as determined in accordance with Section 83 of the Code) or in the 10-day period beginning on the third day following the release of the Company's quarterly or annual summary statement of sales or earnings. 12. RECAPITALIZATION. In the event that dividends are payable in Common Stock or in the event there are splits, subdivisions, or combinations of shares of Common Stock, the number of shares available under the Plan shall be increased or decreased proportionately, as the case may be, and the number of shares of Common Stock deliverable in connection with any Option, Right or Stock Bonus Award theretofore granted shall be increased or decreased proportionately, as the case may be, without change in the aggregate purchase price (where applicable). 13. REORGANIZATION. In case the Company is merged or consolidated with another corporation and the Company is not the surviving corporation, or in case the property or stock of the Company is acquired by another corporation, or in case of separation, reorganization, or liquidation of the Company, then the Board, or the board of directors of any corporation -12- assuming the obligations of the Company hereunder, shall, as to outstanding Options, Rights or Stock Bonus Awards either (a) make appropriate provision for the protection of any such outstanding Options, Rights or Stock Bonus Awards by the assumption or substitution on an equitable basis of appropriate stock of the Company or of the merged, consolidated, or otherwise reorganized corporation which will be issuable in respect to the shares of Common Stock, provided that in the case of Incentive Stock Options, such assumption or substitution comply with Section 424 of the Code, or (b) upon written notice to the participant, provide that the Option or Right must be exercised within 30 days of the date of such notice or it will be terminated. In any such case, the Board or the Committee may, in its discretion, advance the lapse of vesting periods, waiting periods, and exercise dates. 14. EMPLOYMENT RELATIONSHIP. Nothing in the Plan or any Award made here- under shall interfere with or limit in any way the right of the Company or of any Subsidiary to terminate any recipient's employment or consulting relationship at any time, with or without cause, nor confer upon any recipient any right to continue in the employ or service of the Company or any Subsidiary. 15. GENERAL RESTRICTION. Each Award shall be subject to the requirement that, if, at any time, the Board shall determine, in its discretion, that the listing, registration, or qualification of the shares subject to such Award upon any securities exchange or under any state or federal law, or the consent or approval of any government regulatory body, is necessary or desirable as a condition of, or in connection with, such Award or the issue or purchase of shares thereunder, such Award may not be exercised in whole or in part unless such listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Board. 16. RIGHTS AS A STOCKHOLDER. The holder of an Option, Right or Stock Bonus Award shall have no rights as a stockholder with respect to any shares covered by the Option, Right or Stock Bonus Award until the date of exercise. Once an Option, Right or Stock Bonus Award is exercised by the holder thereof, the participant shall have the rights equivalent to those of a stockholder, and shall be a stockholder when his or her holding is entered upon the records of the duly authorized transfer agent of the Company. Except as otherwise expressly provided in the Plan, no adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. 17. NONASSIGNABILITY OF AWARDS. Awards made hereunder shall be assignable or transferable by the recipient in accordance with their terms to the extent permitted by the tax and securities laws, including by will or by the laws of descent and distribution, and as otherwise consistent with the specific Plan provisions relating thereto. 18. WITHHOLDING TAXES. Whenever, under the Plan, shares are to be issued in satisfaction of Options, Rights or Stock Bonus Awards granted hereunder, the Company shall have the right to require the recipient to remit to the Company an amount sufficient to satisfy -13- federal, state, and local withholding tax requirements prior to the delivery of any certificate or certificates for such shares. Whenever, under the Plan, payments are to be made in cash, such payment shall be net of an amount sufficient to satisfy federal, state, and local withholding tax requirements. 19. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the Board, the submission of the Plan to the stockholders of the Company for approval, nor any provision of the Plan shall be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases. 20. AMENDMENT, SUSPENSION, OR TERMINATION OF THE PLAN. The Board may at any time amend, alter, suspend, or discontinue the Plan, but no amendment, alteration, suspension, or discontinuation shall be made which would impair the rights of any participant in the Plan without his or her consent. In addition, to the extent necessary and desirable to comply with Rule 16b-3 under the Exchange Act or under Section 423 of the Code (or any other applicable law or regulation), the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required. 21. EFFECTIVE DATE OF THE PLAN. The Plan shall become effective upon adoption by the Board and shall be subject to stockholder approval within 12 months of adoption by the Board. Options, Rights and Awards may be granted and exercised under the Plan only after there has been compliance with all applicable federal and state securities laws. -14- EX-11 4 EXHIBIT 11.1 EXHIBIT 11.1
LSI LOGIC CORPORATION COMPUTATION OF NET INCOME PER SHARE (In thousands, except per share amounts) Year ended December 31, 1993 ----------------- PRIMARY Weighted average number of shares of common stock outstanding during the period 47,819 Incremental shares of common stock attributable to exercise of outstanding options (using the treasury stock method) 1,712 ----------- Total shares 49,531 ----------- ----------- Net Income: Amount $ 53,750 ----------- ----------- Per Share $1.09 ----------- ----------- FULLY DILUTED Weighted average number of shares of common stock outstanding during the period 47,819 Incremental shares of common stock attributable to exercise of outstanding options (using the treasury stock method) 1,878 Incremental shares of common stock attributable to the conversion of 6 1/4% convertible subordinated debentures at an assumed conversion price of $20 5,116 ----------- Total Shares 54,813 ----------- ----------- Net Income: Amount 53,750 Add 6 1/4% convertible subordinated debentures interest, net of income tax effect 3,961 ----------- Total $57,711 ----------- ----------- Per share $1.05 ----------- -----------
EX-13 5 EXHIBIT 13.1 MANAGEMENT'S DISCUSSION AND ANALYSIS OVERVIEW Revenues for LSI Logic increased 16% to $719 million in 1993 compared to $617 million in 1992. Income from operations was $84 million in 1993 compared to an operating loss of $101 million in 1992 which resulted primarily from a restructuring charge taken in 1992. The current year's operating income resulted primarily from increased product demand, greater factory utilization, improved plant efficiencies, and lower overall production costs combined with management's continuing cost containment efforts. The 1992 operating loss resulted primarily from a $102 million restructuring charge as well as lower revenues. Net income was $54 million in 1993 compared to a net loss of $110 million in 1992. Earnings per share increased to $1.09 in 1993 from a $2.48 loss per share in 1992. The year saw LSI Logic benefit from increased demand for its products, increased factory utilization and continued cost containment efforts. In addition, in 1993 the Company's Japanese manufacturing affiliate completed its new wafer fabrication facility and began volume production in the first quarter of 1994. The restructuring actions which the Company began in 1992 - phaseout of older technology manufacturing capacity and discontinuance of certain commodity products - lowered operating costs and focused the Company's efforts on key, strategic products resulting in higher profitability on increased revenues for each quarter throughout 1993. However, the Company's future operating results are, and will continue to be, subject to continual variations based upon a wide variety of factors, many of which are beyond the Company's control, including sudden fluctuations in customer requirements, rapid price declines, unexpected product obsolescence, currency exchange rate fluctuations and other economic conditions affecting customer demand and the Company's 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 conditions of any 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. To the extent the Company's performance may not meet 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. 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 the Company's Annual Report on Form 10K for the year ended January 2, 1994. The Company operates on a 52-53 week fiscal year which ends on the Sunday closest to December 31. Fiscal 1993 was a 53-week year, whereas 1992 and 1991 were 52-week years. RESULTS OF OPERATIONS REVENUES The Company operates in one industry segment and designs, develops, manufactures and markets application-specific integrated circuit (ASIC) technology and related products. The Company's design and services revenues include revenue from engineering design services, licensing of LSI Logic's advanced design tools software, and technology transfer and support services. Component sales generally are preceded by customers' purchases of the Company's various design services. LSI Logic customers have used these services in the design of increasingly advanced integrated circuits characterized by increased functionality and performance. The proportion of revenues from ASIC design and related services compared to component product sales varies among customers depending upon their specific requirements. The following table presents components of revenue as a percentage of total revenue:
1993 1992 1991 Component products 87% 83% 85% Design and services 13 17 15 --- --- --- 100% 100% 100% --- --- --- --- --- ---
Total revenues grew to $719 million in 1993 from $617 million in 1992. Total revenue growth and the increase in component product revenues as a percentage of total revenues in 1993 was primarily attributable to expanded component product offerings and increasingly complex ASIC designs. Other factors contributing to the increase in 1993 revenues were increased demand for the Company's ASIC and Reduced Instruction Set Computing (RISC) 13 products and a slight increase in average selling prices (ASPs), partially offset by lower demand in the military market and the discontinuance of certain commodity products. The decline in 1992 component revenues was primarily attributable to lower demand, especially in the military market, decreased ASIC and RISC product ASPs, and discontinuance of certain commodity products. OPERATING COSTS AND EXPENSES Key elements of the consolidated statements of operations, expressed as a percentage of revenues, were as follows:
1993 1992 1991 Gross profit margin 39.0% 33.9% 34.4% Research and development expense 11.0 12.8 11.6 Selling, general and administrative expense 16.3 20.9 19.6 ---- ---- ---- Income (loss) from operations 11.7% (16.3%) 2.4% ---- ---- ---- ---- ---- ----
GROSS MARGIN The gross margin percentage for 1993 increased to the highest level in five years primarily as a result of increased product demand, greater factory utilization and improved plant efficiencies. Gross margins declined slightly in 1992 in comparison to 1991 primarily as a result of the decline in ASIC product ASPs combined with lower commodity chipset product sales prices and margins. The 1992 decrease was partially offset by higher utilization of manufacturing capacity and savings experienced in the fourth quarter through the closure of the German manufacturing facility and a transition to the use of third-party subcontractors. The Company's operating environment combined with the resources required to operate in the semiconductor industry requires managing a variety of factors such as product mix, factory capacity and utilization, manufacturing yields, availability of certain raw materials, terms negotiated with third-party subcontractors and foreign exchange fluctuations. Changes in the relative strength of the yen may have a greater impact on the Company's gross profit margins than other foreign exchange fluctuations due to the Company's large wafer fabrication operations in Japan. The Company commenced volume production in a second wafer fabrication facility in Japan in the first quarter of 1994. Volume production capability is expected to increase throughout 1994, thereby significantly increasing factory utilization by the end of 1994. A new wafer fabrication facility initially operates at higher fixed costs. In the event that demand for the Company's products does not absorb this additional capacity at a sufficient rate or delays occur in the ramp up of the second wafer fabrication facility in Japan, the Company's gross margins could be negatively impacted in 1994. RESEARCH AND DEVELOPMENT Research and development (R&D) expenses in 1993 remained at approximately the same dollar level as in 1992, and decreased as a percentage of revenues primarily due to higher revenues in 1993. LSI Logic is committed to technological leadership in the ASIC and RISC markets and anticipates continued investment in R&D at a rate of between 10-12% of revenues in future years. This investment will primarily be for enhancements of the Company's design automation software capability, development of advanced manufacturing processes and the development of new advanced products. In 1992, R&D expenses decreased $2 million, or 2% from 1991, and increased slightly as a percentage of revenues primarily due to lower revenues in 1992. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative (SG&A) expenses decreased $12 million, or 9% from 1992 to 1993 primarily as a result of the 1992 restructuring and continued cost containment measures. SG&A expenses for 1992 decreased $8 million, or 6% from the prior year. Approximately half of the 1992 decrease occurred in the fourth quarter of 1992, reflecting the implementation of restructuring activities. However, 1992 expenses increased slightly as a percentage of revenues primarily due to lower revenues. RESTRUCTURING During 1993, the Company continued its strategic consolidation of worldwide operations that was contemplated by the Company's 1992 restructuring plan. In 1993, the Company sold certain assets from its discontinued German assembly and test operations, transferred certain Canadian manufacturing equipment to its U.S. operations, continued the phase-down of its older process technology manufacturing facility in the U.S. and began consolidation of its other U.S. manufacturing facilities. Management believes remaining reserves are adequate to cover expected costs. In the third quarter of 1992, the Company recorded a $102 million restructuring charge which consisted primarily of estimated costs associated with consolidations of the Company's worldwide manufacturing operations, write-down and discontinuance of certain commodity standard product inventories, severance and other costs. The Company's planned strategic consolidation of worldwide manufacturing operations and facilities encompassed the phase-out and closure of the Company's German assembly and test operations; the write-down of U.S. manufacturing assets pertaining to older process technologies which, in certain instances, had become redundant; and estimated operating losses attributable to the period of the phase-out and closure of such operations or the write-down of such assets. 14 During 1991 the Company completed certain restructuring activities which began in prior years. In addition, the Company determined it would transfer its Canadian CMOS manufacturing operations to alternative locations. This decision resulted in a $5.6 million charge at LSI Logic Canada in the fourth quarter of 1991, which was substantially offset by a benefit to cost of revenues from the favorable resolution of prior uncertainties. The charge consisted principally of the write-down of certain manufacturing and production facilities and related severance costs. INTEREST EXPENSE Interest expense decreased $2 million in 1993 and $8 million in 1992 due primarily to a reduction in the average interest rate of debt outstanding and increased capitalization of interest expense in 1993 compared to 1992. Interest expense of $5.8 million, $3.1 million and $.7 million was capitalized in 1993, 1992 and 1991, respectively, in connection with financing for the construction of the Company's wafer fabrication facility in Japan. Additional savings were experienced in 1993 and 1992 by repaying certain European borrowings and repaying debt with higher interest rates. The effect of decreased average interest rates on interest expense in 1993 and 1992 was partially offset by the effect of an increased average debt outstanding in both 1993 and 1992 in connection with financing of the new facility in Japan. INTEREST AND OTHER INCOME Interest and other income decreased $6 million in 1993 from 1992 due principally to declining interest rates and lower foreign exchange gains in 1993 and a 1992 benefit from the resolution of certain claims. Interest and other income decreased $2 million in 1992 from 1991 due principally to declining interest rates and lower foreign currency gains offset by the resolution of certain claims. PROVISION FOR INCOME TAXES In 1993, the Company's effective tax rate was 30% as a result of taxable profits partially offset by net operating loss carryforwards and other tax credits. In 1992, the Company recorded an income tax provision with an effective rate of 9%, due to the composition of worldwide earnings and losses combined with the inability to obtain a tax benefit for certain losses. The Company's effective rate in 1991 was 50%. Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes." Previously, the Company used the SFAS 96 asset and liability approach which gave no recognition to future events other than the recovery of assets and settlements of liabilities at their carrying amounts. The adoption of SFAS 109 did not materially affect the Company's consolidated financial statements. MINORITY INTEREST The change in minority interest between periods was primarily attributable to the composition of earnings and losses among certain of the Company's international affiliates and the repurchase of some of the LSI Logic K.K minority-owned common stock. FINANCIAL CONDITION AND LIQUIDITY CURRENT ASSETS Cash, cash equivalents and short-term investments rose to $202 million at December 31, 1993 from $153 million at December 31, 1992. The major factors leading to this significant increase were $74 million cash flows generated from operations, $51 million additional bank financing (net of repayments) by the Company's Japanese manufacturing affiliate, and $29 million from the issuance of common stock under stock option and stock purchase plans. The proceeds from the Japanese affiliate's bank financing and a portion of cash flows from operations were used to purchase $88 million in fixed assets during 1993. Although the Company returned to profitability in 1993, cash flow generated from operating activities decreased to $74 million in 1993 from $109 million in 1992 primarily attributable to a $52 million reduction in trade payables during 1993 compared to a $34 million increase in 1992. Receivables grew 15% to $124 million at December 31, 1993 from $108 million at December 31, 1992. The increase is primarily attributable to an increase in sales. Inventories increased 9% to $69 million at December 31, 1993 from $63 million a year ago. The increase is primarily attributable to work-in-process at the Japanese wafer fabrication facility in preparation for the commencement of volume production in the first quarter of 1994. Year-end inventories as a percentage of the fourth quarter's cost of revenues decreased to 60% at December 31, 1993 from 62% at December 31, 1992. PROPERTY AND EQUIPMENT LSI Logic believes that maintaining technological leadership in the highly competitive worldwide semiconductor industry requires ongoing substantial investment in advanced manufacturing capacity. Net capital expenditures were $88 million in 1993 and $143 million in 1992. These capital investments were primarily for the construction of the new wafer fabrication facility in Japan and upgrading of certain U.S. research and development facilities with state-of-the-art equipment. In 1993, costs of $27 million were capitalized as preproduction engineering in connection with the development of production capabilities, qualification of production processes and carrying costs of the new facility. The expenditures were primarily funded by bank borrowings and cash flow from operations. These costs will be amortized 15 over four years, the expected useful life of the manufacturing process utilized in the plant. Normal production (which is generally characterized by meeting certain reliability, defect density and service cycle time criteria defined by management) began in the first quarter of 1994. All prior preproduction engineering costs were fully amortized as of December 31, 1993. Management expects net capital expenditures to be approximately $120 million in 1994. The Company expects to fund its 1994 capital expenditures from its current operating activities, cash balances, investments and borrowing capability. OTHER ASSETS Other assets decreased 28% to $42 million from $58 million at December 31, 1993 and 1992, respectively. The decrease is primarily due to the sale of certain equipment relating to the closure of the Company's German assembly and test operations, identified as part of the Company's 1992 strategic plan for consolidation of its worldwide operations. Goodwill of approximately $5.7 million and $5.5 million is included in other assets at December 31, 1993 and 1992, respectively, and was derived from the purchase of common stock from minority interest holders of two subsidiaries during 1993 and 1991. CURRENT LIABILITIES Current liabilities decreased 10% to $189 million from $211 million at December 31, 1993 and 1992, respectively. The decrease is primarily due to a significant reduction in accounts payable and restructuring liabilities partially offset by an increase in income taxes payable and other current liabilities. LONG-TERM DEBT The increase in long-term debt from December 31, 1992 to 1993 is primarily due to an increase in borrowings by the Japanese manufacturing affiliate to $135 million at December 31, 1993 from $75 million at December 31, 1992 under certain yen borrowing arrangements partially offset by a $5 million repurchase of convertible debentures. These borrowings were obtained to fund the Japanese manufacturing affiliate's construction of the new wafer fabrication facility and acquisition of production equipment. These borrowings are secured by both the facility and production equipment. MINORITY INTEREST To provide the significant amount of financing required in developing international operations, LSI Logic historically followed a policy of establishing self-financing foreign affiliates. Accordingly, near the times of each of their formation, certain foreign affiliates completed equity offerings denominated in their local currencies. During 1993, the Company repurchased a portion of the LSI Logic K.K. common stock from minority shareholders for approximately $1 million. In 1991, the Company repurchased a significant portion of the LSI Logic Europe plc common stock from minority shareholders for approximately $5 million. The acquisitions were accounted for as purchases, and the excess of the purchase price over the fair value was allocated to goodwill which is being amortized over seven years. As of December 31, 1993, the Company owned 59% and 97% of LSI Logic K.K. and LSI Logic Europe plc, respectively. In January 1994, the Company repurchased an additional $3.8 million of common stock from minority shareholders of LSI Logic K.K. OFF-BALANCE SHEET RISK The Company has entered into forward exchange contracts to hedge some of its foreign currency exposures. At December 31, 1993, the Company had forward exchange contracts to purchase 2 billion yen ($17.9 million at December 31, 1993) maturing January through March 1994. In December 1993, the Company entered into eleven-month back-to-back currency swap contracts to hedge a loan of $12 million Canadian dollars ($9 million at December 31, 1993) from its Canadian affiliate to its European affiliate. At December 31, 1992 the Company had no significant off-balance sheet risk. The Company's risk that the counterparties to these contracts may be unable to perform is minimized by limiting the counterparties to major international banks and financial institutions. LIQUIDITY Working capital was $237 million in 1993, an increase from $142 million in 1992. During 1993, the Company entered into a credit agreement with a group of banks which provided for an unsecured $25 million revolving credit facility. The agreement calls for certain financial and non-financial covenants, with which the Company was in compliance at December 31, 1993. The Company has never borrowed under the credit facility. Each of the Company's significant foreign affiliates have lines of credit available for local currency borrowings. Foreign bank lines of credit as of December 31, 1993 were not significant. The Company has guaranteed the majority of the borrowings by its European affiliates. 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 requirements, obligations and payment of restructuring liabilities in the foreseeable future. 16
CONSOLIDATED BALANCE SHEETS YEAR ENDED DECEMBER 31, (In thousands, except per share amounts) 1993 1992 ASSETS Cash and cash equivalents $121,319 $ 87,103 Short-term investments 80,764 65,434 Accounts receivable, less allowance for doubtful accounts of $2,470 and $2,141 124,384 108,448 Inventories 69,066 63,493 Prepaid expenses and other current assets 30,165 28,379 ------- ------- Total current assets 425,698 352,857 Property and equipment, at cost less accumulated depreciation and amortization 385,063 327,801 Other assets 41,945 58,417 ------- ------- Total assets $852,706 $739,075 ------- ------- ------- ------- LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 66,822 $113,875 Accrued salaries, wages and benefits 24,397 16,452 Accrued restructuring costs 29,503 38,925 Other accrued liabilities 28,353 24,422 Income taxes payable 17,079 311 Current portion of long-term debt, capital lease obligations and short-term borrowings 22,727 16,869 ------- ------- Total current liabilities 188,881 210,854 ------- ------- Long-term debt, capital lease obligations and other long-term liabilities 246,314 218,837 ------- ------- Deferred income taxes 6,337 7,406 ------- ------- Minority interest in subsidiaries 118,740 104,250 ------- ------- Commitments and contingencies - - ------- ------- Stockholders' equity: Preferred shares; 2,000 shares authorized - - Common stock; $.01 par value; 73,500 shares authorized; 49,728 and 45,410 shares outstanding 497 454 Additional paid-in capital 273,933 245,179 Accumulated deficit (41,673) (95,423) Cumulative translation adjustment 59,677 47,518 ------- ------- Total stockholders' equity 292,434 197,728 ------- ------- Total liabilities and stockholders' equity $852,706 $739,075 ------- ------- ------- -------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 17
CONSOLIDATED STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, (In thousands, except per share amounts) 1993 1992 1991 REVENUES $718,812 $ 617,468 $697,838 ------- ------- ------- Costs and expenses: Cost of revenues 438,523 408,318 457,692 Research and development 78,995 78,825 80,802 Selling, general and administrative 117,452 129,254 136,811 Restructuring of operations - 101,785 5,626 ------- ------- ------- Total costs and expenses 634,970 718,182 680,931 ------- ------- ------- INCOME (LOSS) FROM OPERATIONS 83,842 (100,714) 16,907 Interest expense (9,621) (11,567) (19,371) Interest income and other 6,500 12,413 14,722 ------- ------- ------- Income (loss) before income taxes and minority interest 80,721 (99,868) 12,258 Provision for income taxes 24,221 8,521 6,129 ------- ------- ------- Income (loss) before minority interest 56,500 (108,389) 6,129 Minority interest in net income (loss) of subsidiaries 2,750 1,819 (2,212) ------- ------- ------- NET INCOME (LOSS) $ 53,750 $(110,208) $ 8,341 ------- ------- ------- ------- ------- ------- INCOME (LOSS) PER SHARE Primary $ 1.09 $ (2.48) $ 0.19 ------- ------- ------- ------- ------- ------- Fully-dilutive $ 1.05 ------- ------- COMMON SHARE AND COMMON SHARE EQUIVALENTS USED IN COMPUTING PER SHARE AMOUNTS Primary 49,531 44,478 43,376 ------- ------- ------- ------- ------- ------- Fully-dilutive 54,813 ------- -------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 18
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY RETAINED ADDITIONAL EARNINGS CUMULATIVE COMMON STOCK PAID-IN (ACCUMULATED TRANSLATION (In thousands) SHARES AMOUNT CAPITAL DEFICIT) ADJUSTMENT TOTAL BALANCE AT DECEMBER 31, 1990 42,063 $ 421 $225,678 $ 6,444 $35,186 $ 267,729 Issuance to employees under stock option and purchase plans 1,664 16 9,568 9,584 Aggregate adjustment from translation of financial statements into U.S. dollars 7,421 7,421 Net income 8,341 8,341 ------ ----- ------- ------- ------ -------- BALANCE AT DECEMBER 31, 1991 43,727 437 235,246 14,785 42,607 293,075 Issuance to employees under stock option and purchase plans 1,683 17 9,933 9,950 Aggregate adjustment from translation of financial statements into U.S. dollars 4,911 4,911 Net loss (110,208) (110,208) ------ ----- ------- ------- ------ -------- BALANCE AT DECEMBER 31, 1992 45,410 454 245,179 (95,423) 47,518 197,728 Issuance to employees under stock option and purchase plans 4,318 43 28,754 28,797 Aggregate adjustment from translation of financial statements into U.S. dollars 12,159 12,159 Net income 53,750 53,750 ------ ----- ------- ------- ------ -------- BALANCE AT DECEMBER 31, 1993 49,728 $ 497 $273,933 $ (41,673) $59,677 $ 292,434 ------ ----- ------- ------- ------ -------- ------ ----- ------- ------- ------ --------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 19
CONSOLIDATED STATEMENTS OF CASH Flows YEAR ENDED DECEMBER 31, (In thousands) 1993 1992 1991 OPERATING ACTIVITIES Net Income (loss) $ 53,750 $(110,208) $ 8,341 Adjustments: Depreciation and amortization 65,417 71,063 77,316 Non-cash restructuring costs - 100,853 5,626 Minority interest in net income (loss) of subsidiaries 2,750 1,819 (2,212) Change in: Accounts receivable (14,121) (11,290) 17,550 Inventories (3,596) 13,422 36,961 Prepaid expenses and other assets 7,045 8,737 (8,175) Accounts payable (52,136) 33,732 (5,469) Accrued and other liabilities 23,648 8,076 878 Accrued restructuring costs (9,167) (7,568) (6,784) -------- -------- ------- Net cash provided by operating activities 73,590 108,636 124,032 -------- -------- ------- INVESTING ACTIVITIES Change in short-term investments (15,476) 32,004 (76,956) Purchases of property and equipment, net of retirements (87,899) (142,714) (73,650) Acquisition of stock from minority interest holders (970) - (5,024) -------- -------- ------- Net cash used in investing activities (104,345) (110,710) (155,630) -------- -------- ------- FINANCING ACTIVITIES Repayment of short-term debt, net (3,695) (9,640) (24,628) Long-term debt borrowings 57,588 52,470 - Repayment of long-term debt and capital lease obligations (23,172) (27,508) (27,620) Repurchase of convertible debentures (5,000) - - Issuance of common stock, net 28,798 9,950 9,584 -------- -------- ------- Net cash provided (used) by financing activities 54,519 25,272 (42,664) -------- -------- ------- Effect of exchange rate changes on cash and cash equivalents 10,452 4,402 (6,505) -------- -------- ------- Increase (decrease) in cash and cash equivalents 34,216 27,600 (80,767) Cash and cash equivalents at beginning of period 87,103 59,503 140,270 -------- -------- ------- Cash and cash equivalents at end of period $ 121,319 $ 87,103 $ 59,503 -------- -------- ------- -------- -------- ------- SUPPLEMENTAL DISCLOSURE Cash paid (refunded) during the period for: Interest $ 4,008 $ 10,504 $ 19,289 -------- -------- ------- -------- -------- ------- Income taxes $ (1,641) $ (2,517) $ 16,538 -------- -------- ------- -------- -------- -------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 SIGNIFICANT ACCOUNTING POLICIES LSI Logic Corporation (LSI Logic or the Company) has adopted accounting policies which are generally accepted in the industry in which it operates. Following are the Company's more significant accounting policies: BASIS OF PRESENTATION The consolidated financial statements include the accounts of LSI Logic and all of its subsidiaries. Intercompany transactions and balances have been eliminated in consolidation. Accounts denominated in foreign currencies have been translated using the foreign currencies as the functional currencies. Minority interest in subsidiaries represents the minority shareholders' proportionate share of the net assets and results of operations of LSI Logic's majority-owned subsidiaries. Sales of common stock of LSI Logic subsidiaries and repurchases of such shares result in changes in the Company's proportionate share in the subsidiaries' net assets. LSI Logic reflects such changes as an element of additional paid-in capital. The Company's fiscal year ends on the Sunday closest to December 31. For presentation purposes, the consolidated financial statements and notes refer to December 31 as year end. Fiscal 1993 was a 53-week year, whereas 1992 and 1991 were 52-week years. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS All highly liquid investments purchased with an original maturity of ninety days or less are considered to be cash equivalents. Cash equivalents and short-term investments consist primarily of time deposits, certificates of deposit, government debt obligations, mutual funds and short-term commercial paper, recorded at unamortized cost, which approximates market value. CONCENTRATION OF CREDIT RISK OF FINANCIAL INSTRUMENTS Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash equivalents, short-term investments and accounts receivable. Cash equivalents and short-term investments are maintained with high quality institutions, the composition and maturities of which are regularly monitored by management. A majority of the Company's trade receivables are derived from sales to large multinational computer, telecommunication and electronics manufacturers, with the remainder distributed across other industries. Amounts due from the Company's largest customer accounted for approximately 9% and 16% of trade receivables at December 31, 1993 and 1992, respectively. Concentrations of credit risk with respect to trade receivables are considered to be limited due to the quantity of customers comprising the Company's customer base, and their dispersion across industries and geographies. The Company performs ongoing credit evaluations of its customers' financial condition and requires collateral as considered necessary. OFF-BALANCE SHEET RISK The Company has entered into forward exchange contracts to hedge certain liabilities payable in Japanese yen. At December 31, 1993, the Company had forward exchange contracts to purchase 2 billion yen ($17.9 million at December 31, 1993) maturing January through March, 1994. In December 1993, the Company entered into eleven-month back-to-back foreign currency swap contracts to hedge a loan of $12 million Canadian dollars ($9 million at December 31, 1993) from its Canadian subsidiary to its European subsidiary. At December 31, 1992 the Company had no significant off-balance sheet risk. The Company's risk that the counterparties to these contracts may be unable to perform is minimized by limiting the counterparties to major international banks and financial institutions. These foreign currency swaps and forward exchange contracts are considered identifiable hedges and realized and unrealized gains and losses are deferred until settlement of the underlying commitments. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS The following disclosures of the estimated fair value of financial instruments are made in accordance with the requirements of Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments." The estimated fair value amounts have been determined by the Company, using available market information and valuation methodologies considered to be appropriate. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies could have a material effect on the estimated fair value amounts. The amounts reported for cash and cash equivalents, short-term investments, accounts receivable, accounts payable, accrued compensation and benefits and other accrued liabilities were considered to be a reasonable estimate of their fair value at December 31, 1993 and 1992. 21 The fair value of the forward exchange contracts and foreign currency swaps, based upon current market rates, totaled approximately $17.9 million and $9 million at December 31, 1993. The fair values of short-term and long-term debt were based upon interest rates available to the Company for issuance of debt with similar terms and remaining maturities for debt issues that were not quoted on an exchange. The estimated fair value of the Company's short-term debt was $22.3 million and $15.4 million at December 31, 1993 and 1992, respectively. The estimated value of the Company's long-term debt was $220 and $170.5 million at December 31, 1993 and 1992, respectively. The fair value estimates presented herein were based upon information available to management as of December 31, 1993 and 1992. Although management is not aware of any factors that would materially affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of the consolidated financial statements since that date, and current estimates of fair value may differ significantly from the amounts presented herein. INVENTORIES Inventories are stated at the lower of cost or market. Cost is on a first-in, first-out basis for raw materials and is computed on a currently adjusted standard basis (which approximates first-in, first-out) for work-in-process and finished goods. PROPERTY AND EQUIPMENT Property and equipment is recorded at cost and includes interest on funds borrowed to finance construction of the Japanese manufacturing subsidiary's new wafer fabrication facility which is expected to begin production in the first quarter of 1994. The Company capitalized interest of $5.8 million, $3.1 million and $.7 million during 1993, 1992 and 1991, respectively. LSI Logic uses the straight-line method of computing its depreciation and amortization. Depreciation of equipment and buildings, in general, is computed using the assets' estimated useful lives of five years and twenty years, respectively. Amortization of leasehold improvements is computed using the shorter of the remaining term of the Company's facilities leases or the estimated useful lives of the improvements. Depreciation for income tax purposes is computed using accelerated methods. PREPRODUCTION ENGINEERING COSTS Incremental costs incurred in connection with developing major production capabilities at new manufacturing plants, including facility carrying costs and costs to qualify production processes,are capitalized and amortized over the expected useful lives of the manufacturing processes utilized in the manufacturing plants, generally four years. Amortization commences when the manufacturing plant is capable of normal production, which is generally characterized by meeting certain reliability, defect density and service cycle time criteria defined by management. OTHER ASSETS Goodwill of approximately $5.7 million and $5.5 million is included in other assets at December 31, 1993 and 1992, respectively, and was derived primarily from the purchase of common stock from minority interest holders of two subsidiaries during 1993 and 1991. The acquisitions were accounted for as purchases, and the excess of the purchase price over the fair value of assets acquired was allocated to goodwill which is being amortized over seven years. In connection with the 1992 restructuring of operations described in Note 2, the Company identified certain facilities and equipment for disposition in its 1992 strategic plan for consolidation of its worldwide operations. Remaining assets held for sale are included in other assets with an estimated realizable value of $24 million and $39 million at December 31, 1993 and 1992, respectively. INCOME TAXES During 1993, the Company adopted Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes." The Statement requires that the Company follow the liability method of accounting for income taxes and requires an adjustment to the provision for income taxes for the effect on deferred income taxes of any change in corporate income tax rates. The effect of adopting SFAS 109 did not have a significant impact on the results of operations or the financial position of the Company and has been reflected for all periods presented. During 1993 the Internal Revenue Service (IRS) began an examination of the Company's 1991 and 1992 federal income tax returns. The Company believes that adequate income tax accruals have been provided for all years. No provision for income taxes is made for the undistributed earnings of LSI Logic's foreign subsidiaries since it is the Company's intention to permanently reinvest such earnings in its foreign operations. REVENUE RECOGNITION Revenue from component products is recognized upon shipment to the final customer. Revenue resulting from the licensing of LSI Logic's design and manufacturing technology to other companies is recognized when the significant contractual obligations have been fulfilled. Royalty revenue is recognized upon the sale of products subject to royalties. The Company uses the percentage-of-completion method for recognizing revenues on fixed-fee design arrangements, which in some cases can require several months to complete. Recognition of distributor revenues and related cost of sales are deferred until the merchandise is sold by the distributors. 22 During 1993, 1992 and 1991, one customer accounted for 12%, 15% and 16% of consolidated revenues, respectively. INCOME (LOSS) PER SHARE Primary income (loss) per common and common equivalent share is computed using the weighted average number of common shares outstanding during the respective periods, including dilutive stock options. Fully-dilutive income per common and common equivalent share is computed by adjusting net income and primary shares outstanding for the potential effect of the conversion of the weighted average subordinated debentures outstanding during the year. Fully dilutive earnings per share computations are based on the most advantageous (to the security holder) conversion or exercise rights that become effective within ten years following the period reported upon. RECLASSIFICATIONS Certain reclassifications have been made to the 1992 consolidated financial statements to conform to the 1993 presentation. Such reclassifications had no effect on results of operations or the accumulated deficit. NOTE 2 RESTRUCTURING During 1993, the Company continued its strategic consolidation of worldwide operations that was contemplated by the Company's 1992 restructuring. In 1993, the Company sold certain assets from its discontinued German assembly and test operation, transferred certain Canadian manufacturing equipment to its U.S. operations, continued phase-down of its older process technology manufacturing facility in the U.S. and began consolidation of some of its other U.S. manufacturing facilities. In the third quarter of 1992, the Company recorded a $102 million restructuring charge which consisted primarily of estimated costs associated with consolidations in the Company's worldwide manufacturing operations, write-down and discontinuance of certain commodity standard product inventories, severance and other costs. The Company's planned strategic consolidation of worldwide manufacturing operations and facilities encompassed the phase-out and closure of the Company's German assembly and test operations, the writedown of U.S. manufacturing assets pertaining to older process technologies which, in certain instances, had become redundant, and estimated operating losses attributable to the period of the phase-out and closure of such operations or the write-down of such assets. During 1991 the Company completed certain restructuring activities which began in prior years. In addition, the Company determined it would transfer its Canadian CMOS manufacturing operations to alternative locations. This decision resulted in a $5.6 million charge in LSI Logic Canada in the fourth quarter of 1991, which was substantially offset by a benefit to cost of revenues from the favorable resolution of prior uncertainties. The charge consisted principally of the write-down of certain manufacturing and production facilities and related severance costs. NOTE 3 BALANCE SHEET DETAIL
DECEMBER 31 (In thousands) 1993 1992 Inventories: Raw materials $ 11,667 $ 24,961 Work-in-process 34,997 28,244 Finished goods 22,402 10,288 ------- ------- $ 69,066 $ 63,493 ------- ------- ------- ------- Property and equipment: Land $ 20,790 $ 19,075 Buildings and improvements 49,548 46,626 Equipment 398,794 380,684 Leasehold improvements 54,050 44,356 Preproduction engineering 27,417 15,290 Furniture and fixtures 17,872 17,045 Construction in progress 181,715 154,400 ------- ------- 750,186 677,476 Accumulated depreciation and amortization (365,123) (349,675) ------- ------- $385,063 $327,801 ------- ------- ------- -------
Equipment includes $1.7 million and $6 million of equipment under capitalized leases at December 31, 1993 and 1992, respectively. Accumulated depreciation for such equipment was $1.3 million and $4.1 million at December 31, 1993 and 1992, respectively. Accumulated amortization of preproduction engineering costs was $14.9 million at December 31, 1992. There was no preproduction engineering accumulated amortization at December 31, 1993 because prior years' capitalized preproduction engineering had been fully amortized as of December 31, 1993. the new wafer fabrication facility is expected to achieve normal production in the first quarter of 1994. Capitalized interest attributable to the Japanese wafer fabrication facility is included within property and equipment and totaled $9.6 million and $3.8 million at December 31, 1993 and 1992, respectively. 23 NOTE 4 DEBT
DECEMBER 31 (In thousands) 1993 1992 Senior: Notes payable to banks $144,026 $103,224 Capital lease obligations 456 1,922 Subordinated: 6 1/4% convertible subordinated debentures, due 2002 98,250 103,250 ------- ------- 242,732 208,396 Current portion of long-term debt, capital lease obligations and short-term borrowings (22,727) (16,869) ------- ------- Long-term debt and capital lease obligations $220,005 $191,527 ------- ------- ------- -------
In 1987, LSI Logic received the proceeds from a $125 million offering of 61/4% convertible subordinated debentures. The debentures are subordinated to all senior debt; are convertible into the Company's common stock at a conversion price of $20 per share; and, subject to certain conditions, are redeemable by the Company. During 1993, the Company repurchased and retired $5 million of such debentures in the open market at a price that was approximately equal to the carrying value of the debt. The Company's Japanese manufacturing subsidiary has borrowed 15 billion yen (approximately $136 million at December 31, 1993) to fund the construction of a new wafer fabrication facility and acquisition of manufacturing equipment. The borrowings, which are secured by the facility and production equipment, have fixed and variable interest rates averaging 4.96% at December 31, 1993, and are payable in semi-annual installments through 2007. In addition, the Company's European subsidiaries have borrowings of approximately $8 million outstanding with banks at December 31, 1993. These funds were used to finance operations, construct the German manufacturing facility and purchase equipment. The terms of these credit agreements require quarterly principal payments and expire at varying dates through December 1996. Borrowings are secured by the facility and Company guarantees. As discussed in Notes 1 and 2, in connection with the 1992 restructuring, the German facility was identified as an asset requiring disposition. In accordance with the banking agreements, proceeds from the sale of the facility are required to be used to repay outstanding borrowings. At December 31, 1993, borrowings under these agreements bore interest rates varying from 6.5% to 9%. In January 1994, the Company repaid a substantial portion of these borrowings. Aggregate principal payments required on long-term debt are as follows: 1994 - - $22.3 million; 1995 -$16.5 million; 1996 - $16.5 million; 1997 - $16.5 million; 1998 - $16.5; 1999 and thereafter $154 million. Capitalized leases consist principally of leases for machinery and are secured by such equipment. Future minimum lease payments under capitalized leases at December 31, 1993 are approximately $.5 million in 1994 and $.1 million in 1995. Of these amounts, approximately $.1 million represents interest. During 1993, the Company entered into a credit agreement with a group of banks which provided for an unsecured $25 million revolving credit facility. The Company must meet certain financial covenants relating to profitability, liquidity, working capital, leverage and tangible net worth. The Company is in compliance with all covenants. There have been no borrowings under this credit facility, which expires in July 1994. NOTE 5 COMMON STOCK The following summarizes all shares of common stock reserved for issuance as of December 31, 1993:
(In thousands) NUMBER OF SHARES Issuable upon: Conversion of subordinated debentures 4,913 Exercise of stock options, including options available for grant 5,120 Purchases under Employee Stock Purchase Plan 1,096 ------ 11,129
STOCK OPTION PLANS LSI Logic's 1982 Incentive Stock Option Plan (1982 Option Plan) is administered by the Board of Directors. Terms of the 1982 Option Plan required that the exercise price of options be no less than the fair value at the date of grant and required that options be granted only to employees or consultants of the Company. Options granted vest in annual increments of 25% per year commencing one year from the date of grant. During 1992, the 1982 Option Plan expired by its terms, accordingly, no further options may be granted thereunder. Certain previous grants under the 1982 Option Plan remain outstanding at December 31, 1993. 24 During 1991, the stockholders approved the 1991 Equity Incentive Plan reserving 2,000,000 shares of common stock for sale or award to officers, employees or consultants of the Company as stock options, stock appreciation rights, stock purchase rights or stock bonuses. An additional 1,000,000 shares were authorized in 1993. Incentive stock options may be granted at a price no less than the fair value of the stock on the date the option is granted. Nonstatutory stock options may be granted at an exercise price no less than 50% of the fair market value of the stock on the date the option is granted. The term of each option is determined by the Board of Directors. Options generally vest in annual increments of 25% per year commencing one year from the date of grant. Shares available for grant under the 1991 Equity Incentive Plan totaled 578,000 and 683,000 at December 31, 1993 and 1992, respectively. Upon exercise of a stock appreciation right, the holder will receive cash, common stock, or a combination thereof, as determined by the form of the grant made by the Board of Directors, equal to the increase in market value over the underlying option price times the number of shares to which the right applies. A stock appreciation right granted in connection with an option shall be exercisable only when and to the extent that the related option expires. During 1993, 1992 and 1991, no stock appreciation rights, stock purchase rights or stock bonuses were granted under the 1991 Equity Incentive Plan. The following table summarizes option activity under the 1982 Option Plan and the 1991 Equity Incentive Plan:
OPTIONS OUTSTANDING ------------------------------------------ (In thousands, except per share amounts) SHARES PRICE PER SHARE AMOUNT BALANCE AT DECEMBER 31, 1990 6,827 $ .22 - $14.88 $ 50,423 Options cancelled (2,263) 5.63 - 14.88 (20,681) Options granted 3,014 6.13 - 10.88 24,143 Options exercised (660) .22 - 10.17 (4,552) ------ -------------- ------- BALANCE AT DECEMBER 31, 1991 6,918 .22 - 13.17 49,333 Options cancelled (1,004) .22 - 12.88 (7,368) Options granted 1,412 5.50 - 9.38 10,592 Options exercised (664) .22 - 8.33 (4,661) ------ -------------- ------- BALANCE AT DECEMBER 31, 1992 6,662 .22 - 13.17 47,896 Options cancelled (293) .22 - 17.88 (2,375) Options granted 1,275 11.00 - 17.88 16,287 Options exercised (3,235) 5.50 - 13.17 (23,007) ------ -------------- ------- BALANCE AT DECEMBER 31, 1993 4,409 $ 5.50 - $17.88 $ 38,801 ------ -------------- ------- ------ -------------- ------- Options exercisable at December 31, 1993 1,769 $ 12,693 ------ ------- ------ -------
During 1986, the Company's directors and stockholders approved the 1986 Directors' Stock Option Plan (Directors' Plan) and reserved 150,000 shares of common stock for issuance thereunder. Terms of the Directors' Plan provide for the automatic grant of options to the Company's independent directors as of the date of adoption of the Directors' Plan and in annual increments commencing in 1988. The exercise price of options granted is the fair market value at the date of grant. Shares available for grant under the Directors' Plan were 53,750 and 66,000 at December 31, 1993 and 1992, respectively. 25 The following table summarizes option activity under the Directors' Plan:
OPTIONS OUTSTANDING ------------------------------------------ (In thousands, except per share amounts) SHARES PRICE PER SHARE AMOUNT BALANCE AT DECEMBER 31, 1990 90 $7.88 - $11.25 $876 Options cancelled (65) 8.50 - 11.25 (619) Options granted 30 8.50 - 9.69 290 -- ------------- --- BALANCE AT DECEMBER 31, 1991 55 7.88 - 11.25 547 Options cancelled (15) 7.88 (118) Options granted 40 7.13 - 8.63 307 -- ------------- --- BALANCE AT DECEMBER 31, 1992 80 7.13 - 11.25 736 Options cancelled (17) 7.13 - 11.25 (178) Options granted 30 7.13 - 12.38 371 Options exercised (13) 7.13 - 11.13 (128) -- ------------- --- BALANCE AT DECEMBER 31, 1993 80 $7.13 - $12.38 $801 -- ------------- --- -- ------------- --- Options exercisable at December 31, 1993 20 $187 -- --- -- ---
STOCK PURCHASE PLAN Since 1983, LSI Logic has offered an Employee Stock Purchase Plan (Employee Plan) under which rights are granted to purchase shares of common stock at 85% of the lesser of the fair value of such shares at the beginning of a 24-month offering period or the end of each six-month segment within such offering period. Employee Plan activity in 1993 and 1992 comprised the sale of 1,070,000 and 1,019,000 shares of common stock at an average price of $5.33 and $5.19 per share, respectively. Shares available for purchase under the Employee Plan were 1,096,000 and 2,167,000 at December 31, 1993 and 1992, respectively. STOCK PURCHASE RIGHTS In November 1988, the Company implemented a plan to protect stockholders' rights in the event of a proposed takeover of the Company. Under the plan, each share of the Company's outstanding common stock carries one Preferred Share Purchase Right (Right). The Right entitles the holder, under certain circumstances, to purchase one one-thousandth of a share of Preferred stock of the Company or its acquiror at a discounted price. The Rights are redeemable by the Company and expire in 1998. NOTE 6 INCOME TAXES During 1993, the Company adopted Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes." The effect of adopting SFAS 109 did not have a significant impact on 1992 or 1991 results of operations or financial position. SFAS 109 requires that a deferred tax asset be recognized for the tax benefit of deductible temporary differences, net operating losses and tax credit carryforwards. A valuation allowance is recognized if it is "more likely than not" that some or all of the deferred tax asset will not be realized. Deferred tax assets recognized as of December 31, 1993 and January 1, 1993, aggregated approximately $71.3 million and $79.5 million, respectively. Management believes that, as of December 31, 1993 and January 1, 1993, the expected future reversal of existing taxable temporary differences provides evidence that approximately $9.1 million of deferred tax assets will be realized. A valuation allowance of $62.2 million and $70.4 million as of December 31, 1993 and January 1, 1993, respectively, has been established for the remaining deferred tax assets. 26 The domestic and foreign components of income (loss) before income taxes and minority interest are as follows:
(In thousands) 1993 1992 1991 Domestic $ 48,815 $(88,752) $ (89) Foreign 31,906 (11,116) 12,347 ------- ------- ------- Income (loss) before income taxes and minority interest $ 80,721 $(99,868) $ 12,258 ------- ------- ------- ------- ------- -------
Undistributed earnings of the Company's foreign subsidiaries for which no U.S. income taxes have been provided aggregate to approximately $44 million at December 31, 1993. The provision for income taxes consists of:
(In thousands) 1993 1992 1991 Current: Federal $ 19,687 $ (3,647) $ (2,955) State - (1,249) - Foreign 10,925 9,188 7,508 ------- ------- ------- Total 30,612 4,292 4,553 ------- ------- ------- Deferred (prepaid): Federal 89 5,222 3,040 State - - 881 Foreign (1,145) - 758 ------- ------- ------- Total (1,056) 5,222 4,679 ------- ------- ------- Benefit of net operating loss carryforwards (5,335) (993) (3,103) ------- ------- ------- Total $ 24,221 $ 8,521 $ 6,129 ------- ------- ------- ------- ------- -------
Deferred income taxes reflect the tax effects of differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. Significant components of the Company's deferred tax liabilities and assets as of December 31, 1993 and January 1, 1993 are as follows:
December 31, January 1, (In thousands) 1993 1993 Deferred tax assets: Net operating loss carryforwards $ 8,504 $ 13,839 Tax credit carryovers 18,161 21,187 Nondeductible reserves 36,716 37,387 Other 7,884 7,099 ------- ------- Total deferred tax assets 71,265 79,512 Valuation allowance (62,169) (70,403) ------- ------- Net deferred tax assets 9,096 9,109 ------- ------- Deferred tax liabilities: Depreciation 6,337 6,257 Other - 1,149 ------- ------- Total deferred tax liabilities 6,337 7,406 ------- ------- Total net deferred tax assets $ 2,759 $ 1,703 ------- ------- ------- -------
27 Differences between the Company's effective tax rate (benefit) and the federal statutory rate are as follows:
(In thousands) 1993 1992 1991 Federal statutory rate $ 28,253 35% $(33,956) (34%) $ 4,168 34% State taxes, net of federal benefit 4,036 5 - - 581 5 Difference between U.S. and foreign tax rates (242) (1) 1,383 1 1,347 11 Foreign losses with no benefit - - 10,953 11 2,669 22 Benefit of net operating loss carryforwards (5,335) (7) (993) (1) (3,103) (25) Research and development tax credit (2,020) (3) - - (874) (7) Goodwill - - 234 1 - - Foreign tax credits (1,006) (1) - - (216) (2) Effect of temporary differences limited due to: Tax credits - - - - 1,170 9 Carryback limitations - - 23,896 24 - - Other 535 2 7,004 7 387 3 ------- -- ------- -- ------ --- Effective tax rate $ 24,221 30% $ 8,521 9% $ 6,129 50% ------- -- ------- -- ------ --- ------- -- ------- -- ------ ---
The Company's tax credit carryforward will expire in varying amounts through the year 2008. NOTE 7 SEGMENT REPORTING AND FOREIGN OPERATIONS LSI Logic operates in one industry segment and designs develops, manufactures and markets application-specific integrated circuit technology and related products. Revenues from affiliates, which are eliminated in consolidation, consist of sales between geographic areas and include products and services similar to those sold to unaffiliated customers. Such sales are primarily recorded at amounts which are in excess of cost and consistent with rules and regulations of governing tax authorities. General corporate expenses include certain administrative expenses. Corporate assets include all cash, short-term investments and prepaid income taxes. LSI Logic's operations outside the United States include manufacturing facilities, design centers and sales offices in Europe, Japan and Canada. The following is a summary of operations by entities located within the indicated geographic areas for 1993, 1992 and 1991. United States revenues include export sales.
(In thousands) 1993 1992 1991 Revenues: United States $ 589,455 $ 507,634 $ 603,755 Europe 143,928 142,254 143,820 Canada 44,006 42,641 51,562 Japan 163,684 140,065 136,435 Affiliates (222,261) (215,126) (237,734) -------- -------- -------- Consolidated $ 718,812 $ 617,468 $ 697,838 -------- -------- -------- -------- -------- -------- Operating income (loss): United States $ 48,787 $ (88,532) $ 17,104 Europe 21,651 (17,248) 9,937 Canada 1,720 1,103 (7,746) Japan 13,416 7,383 724 General corporate expenses (1,732) (3,420) (3,112) -------- -------- -------- Consolidated $ 83,842 $(100,714) $ 16,907 -------- -------- -------- -------- -------- -------- Identifiable assets: United States $ 220,737 $ 201,784 $ 265,646 Europe 40,687 46,595 89,762 Canada 11,786 21,011 21,681 Japan 367,135 301,228 204,398 General corporate 212,361 168,457 166,969 -------- -------- -------- Consolidated $ 852,706 $ 739,075 $ 748,456 -------- -------- -------- -------- -------- --------
28 NOTE 8 COMMITMENTS AND CONTINGENCIES LSI Logic leases the majority of its facilities and certain equipment under non-cancelable operating leases which expire in 1994 through 2003. The facilities lease agreements typically provide the base rental rates which are increased at various times during the terms of the leases and for renewal options at the fair market rental value. Future minimum payments under these lease agreements are as follows: 1994 - $18.8 million; 1995 - $14.9 million; 1996 - $10 million; 1997 - $4.3 million; 1998 - $2.9 million; 1999 and thereafter $6 million. Total rental expense, including month-to-month rentals was $29.7 million, $29.7 million, $32.3 million in 1993, 1992 and 1991, respectively. On July 9, 1990, Texas Instruments Incorporated (TI) filed a complaint in the United States District Court in Dallas, Texas and with the International Trade Commission (ITC), alleging that the Company's manufacturing process related to device encapsulation in certain types of plastic packages infringes upon certain TI patents. In the ITC action, TI sought to prohibit the importation into the U.S. of such plastic encapsulated devices assembled offshore and to enjoin the sale of any inventory of such devices which were previously imported. The ITC determined that the plastic encapsulation process used by the Company known as "same-sided" gating does not infringe the TI patent, while the process previously used by the Company known as "opposite-sided" gating does infringe. Since the beginning of 1992 the Company's plastic encapsulation operations have only used the non-infringing "same-sided" gating process. The Court of Appeals for the Federal Circuit affirmed the ruling of the ITC in all respects in March 1993. In TI's United States District Court action, TI also seeks to enjoin the Company from assembling such plastic encapsulated devices in the U.S. and seeks damages in an undetermined amount for alleged prior patent infringement. Although, at one point in the District Court proceedings a trial date was set for mid-1992, that date was taken off of the calendar and no new trial date has been scheduled. The Company anticipates that the judge will consider and rule on a number of pretrial motions, including motions on what significance, if any, various elements of the prior ITC action should or should not have on trial proceedings before the District Court, before a new trial date is scheduled. The Company believes that it has meritorious defenses to these actions and intends to defend itself vigorously. The Company also believes that the ultimate outcome of these actions will not result in a material adverse effect on the Company's consolidated financial position or results of operations. In the event the final outcome in either or both actions is unfavorable to the Company, management believes that licenses could be negotiated. However, no assurances can be given that the terms, including fees, of any offered license will be favorable or that these matters will be resolved without the payment of damages and other costs, thereby 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 financial position or results of operations. 29 REPORT OF INDEPENDENT ACCOUNTANTS TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF LSI LOGIC CORPORATION In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, stockholders' equity, and cash flows present fairly, in all material respects, the financial position of LSI Logic Corporation and its subsidiaries at December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Price Waterhouse San Jose, California January 25, 1994 30 INTERIM FINANCIAL INFORMATION (UNAUDITED)
FIRST SECOND THIRD FOURTH (In thousands, except per share amounts) QUARTER QUARTER QUARTER QUARTER YEAR ENDED DECEMBER 31, 1993 Revenues $168,928 $177,080 $183,761 $189,043 Gross profit 65,009 68,834 71,760 74,688 Net income 10,611 13,070 14,375 15,694 Net income per share $ .22 $ .27 $ .29 $ .31 YEAR ENDED DECEMBER 31, 1992 Revenues $150,521 $151,836 $153,962 $161,149 Gross profit 54,718 46,069 49,311 59,052 Net income (loss) 309 (5,854) (111,359) 6,696 Net income (loss) per share $ .01 $ (.13) $ (2.51) $ .15
The Company's fiscal year ends on the Sunday closest to December 31. For presentation purposes, the consolidated financial statements refer to December 31 as year end. The fourth quarter of 1993 was a 14-week quarter, whereas the first, second and third quarters were 13-week quarters. STOCK INFORMATION SYMBOL: LSI Stock Price Range: WHERE TRADED: NYSE 1993 1992 SHARES OUTSTANDING: 49,728,169 First Quarter $10.25 - $14.12 $7.50 - $ 9.88 AVERAGE DAILY VOLUME FOR 1993: 399,033 Second Quarter 10.50 - 15.50 5.88 - 8.12 12-MONTH PRICE RANGE: 10 1/4 - 19 1/4 Third Quarter 14.25 - 19.25 4.88 - 6.88 INVESTOR CONTACT: Bruce Entin, Vice President Fourth Quarter 13.00 - 17.12 5.38 - 11.12 Investor Relations and -------------- ------------- Corporate Communications Year $10.25 - $19.25 $4.88 - $11.12 Tel: 408.433.4067 -------------- ------------- -------------- -------------
STOCK PRICE MOVEMENT TRADING VOLUME ($ per share) (millions of shares) [The diagram is a graph showing the [The diagram is a graph showing the months of the years 1992 and 1993 months of the years 1992 and 1993 on the X-axis and dollars on the on the X-axis and numbers of shares Y-axis, ranging from $0 to $20 and on the Y-axis, ranging from 0 to 14 the movement of the price of the million shares and the volume of the common stock during those periods.] shares of the common stock traded during those periods.] LSI LOGIC LOGO DESIGN AND EMBEDDED ARRAY ARE REGISTERED TRADEMARKS, AND COREWARE, ATMIZER AND CASCADE ARE TRADEMARKS OF LSI LOGIC CORPORATION. ALL OTHER BRAND AND PRODUCT NAMES MAY BE TRADEMARKS OF THEIR RESPECTIVE COMPANIES. 31 ELEVEN YEAR CONSOLIDATED SUMMARY
FOR THE YEARS ENDED DECEMBER 31, (In thousands, except per share amounts) 1993 1992 1991 REVENUES $ 718,812 $ 617,468 $ 697,838 -------- -------- -------- Costs and expenses: Cost of revenues 438,523 408,318 457,692 Research and development 78,995 78,825 80,802 Selling, general and administrative 117,452 129,254 136,811 Restructuring of operations and other non-recurring charges - 101,785 5,626 -------- -------- -------- Total costs and expenses 634,970 718,182 680,931 -------- -------- -------- INCOME (LOSS) FROM OPERATIONS 83,842 (100,714) 16,907 Interest expense (9,621) (11,567) (19,371) Interest income and other 6,500 12,413 14,722 -------- -------- -------- Income (loss) before income taxes, minority interest and extraordinary credit 80,721 (99,868) 12,258 Provision for income taxes 24,221 8,521 6,129 -------- -------- -------- Income (loss) before minority interest and extraordinary credit 56,500 (108,389) 6,129 Minority interest in net income (loss) of subsidiaries 2,750 1,819 (2,212) -------- -------- -------- Income (loss) before extraordinary credit 53,750 (110,208) 8,341 -------- -------- -------- Extraordinary credits resulting from gain on retirement of debt - - - NET INCOME (LOSS) $ 53,750 $(110,208) $ 8,341 -------- -------- -------- -------- -------- -------- PRIMARY INCOME (LOSS) PER SHARE Income (loss) before extraordinary credit $ 1.09 $ (2.48) $ .19 Extraordinary credit - - - -------- -------- -------- Net income (loss) $ 1.09 $ (2.48) $ .19 -------- -------- -------- -------- -------- -------- FULLY DILUTIVE INCOME PER SHARE $ 1.05 -------- -------- -------- -------- -------- -------- YEAR-END STATUS Total assets $ 852,706 $ 739,075 $ 748,456 Long-term debt $ 220,005 $ 191,527 $ 166,107 Stockholders' equity $ 292,434 $ 197,728 $293,075 * AMOUNTS HAVE BEEN RESTATED TO REFLECT RETROACTIVE ADOPTION OF FINANCIAL ACCOUNTING STANDARDS NO. 96, "ACCOUNTING FOR INCOME TAXES," DURING 1991, THE IMPACT OF RETROACTIVE ADOPTION TO PERIODS TO 1986 WAS NOT MATERIAL. CERTAIN RECLASSIFICATIONS HAVE BEEN MADE TO THE 1991, 1990, 1989 AND 1988 CONSOLIDATED STATEMENTS OF OPERATIONS TO CONFORM TO THE 1992 PRESENTATION.
32
FOR THE YEARS ENDED DECEMBER 31, (In thousands, except per share amounts) 1990* 1989* 1988* 1987* REVENUES $ 655,491 $ 546,870 $ 378,908 $ 262,131 -------- -------- -------- -------- Costs and expenses: Cost of revenues 443,759 381,544 226,625 168,403 Research and development 60,196 52,457 36,964 28,919 Selling, general and administrative 117,318 99,885 80,145 55,726 Restructuring of operations and other non-recurring charges 44,000 43,000 9,046 - -------- -------- -------- -------- Total costs and expenses 665,273 576,886 352,780 253,048 -------- -------- -------- -------- INCOME (LOSS) FROM OPERATIONS (9,782) (30,016) 26,128 9,083 Interest expense (21,256) (17,341) (11,347) (9,903) Interest income and other 12,517 12,494 16,421 18,114 -------- -------- -------- -------- Income (loss) before income taxes, minority interest and extraordinary credit (18,521) (34,863) 31,202 17,294 Provision for income taxes 11,685 1,476 18,322 7,031 -------- -------- -------- -------- Income (loss) before minority interest and extraordinary credit (30,206) (36,339) 12,880 10,263 Minority interest in net income (loss) of subsidiaries 1,065 (5,085) (5,623) (483) -------- -------- -------- -------- Income (loss) before extraordinary credit (31,271) (31,254) 18,503 10,746 Extraordinary credits resulting from gain on retirement of debt 955 - 859 594 -------- -------- -------- -------- NET INCOME (LOSS) $ (30,316) $ (31,254) $ 19,362 $ 11,340 -------- -------- -------- -------- -------- -------- -------- -------- PRIMARY INCOME (LOSS) PER SHARE Income (loss) before extraordinary credit $ (.74) $ (.76) $ .45 $ .27 Extraordinary credit .02 - .02 .01 -------- -------- -------- -------- Net income (loss) $ (.72) $ (.76) $ .47 $ .28 -------- -------- -------- -------- -------- -------- -------- -------- FULLY DILUTIVE INCOME PER SHARE YEAR-END STATUS Total assets $ 771,682 $ 755,109 $ 783,751 $ 699,398 Long-term debt $ 189,795 $ 204,443 $ 191,857 $ 187,909 Stockholders' equity $ 267,729 $ 286,660 $ 327,277 $ 309,243
FOR THE YEARS ENDED DECEMBER 31, (In thousands, except per share amounts) 1986* 1985 1984 1983* REVENUES $ 194,335 $ 140,012 $ 84,486 $ 34,835 -------- -------- -------- -------- Costs and expenses: Cost of revenues 129,150 88,508 47,470 19,264 Research and development 21,558 14,386 11,851 4,372 Selling, general and administrative 40,200 26,759 15,579 5,875 Restructuring of operations and other non-recurring charges - - - -------- -------- -------- -------- Total costs and expenses 190,908 129,653 74,900 29,511 -------- -------- -------- -------- INCOME (LOSS) FROM OPERATIONS 3,427 10,359 9,586 5,324 Interest expense (6,883) (8,141) (6,059) (1,171) Interest income and other 11,991 13,168 16,973 9,816 -------- -------- -------- -------- Income (loss) before income taxes, minority interest and extraordinary credit 8,535 15,386 20,500 13,969 Provision for income taxes 3,103 4,739 4,888 1,397 -------- -------- -------- -------- Income (loss) before minority interest and extraordinary credit 5,432 10,647 15,612 12,572 Minority interest in net income (loss) of subsidiaries 564 533 155 - -------- -------- -------- -------- Income (loss) before extraordinary credit 4,868 10,114 15,457 12,572 Extraordinary credits resulting from gain on retirement of debt - - - - -------- -------- -------- -------- NET INCOME (LOSS) $ 4,868 $ 10,114 $ 15,457 $ 12,572 -------- -------- -------- -------- -------- -------- -------- -------- PRIMARY INCOME (LOSS) PER SHARE Income (loss) before extraordinary credit $ .12 $ .26 $ .40 $ .37 Extraordinary credit - - - - -------- -------- -------- -------- Net income (loss) $ .12 $ .26 $ .40 $ .37 -------- -------- -------- -------- -------- -------- -------- -------- FULLY DILUTIVE INCOME PER SHARE YEAR-END STATUS Total assets $ 451,404 $ 372,456 $ 317,748 $ 210,620 Long-term debt $ 106,908 $ 81,887 $ 67,190 $ 21,422 Stockholders' equity $ 252,002 $ 231,527 $ 205,517 $ 176,010
33 EX-21 6 EXHIBIT 21.1 EXHIBIT 21.1
LIST OF SUBSIDIARIES Name of Jurisdiction of Ownership Subsidiary Incorporation Percentage - ---------------------- --------------- ---------- LSI Logic Europe plc United Kingdom 97% LSI Logic Corporation Canada 55% of Canada, Inc. LSI Logic K.K. Japan 64% Nihon Semiconductor Inc. Japan 55% Headland Technology Ltd. United Kingdom 100% Headland Technology GmbH Germany 100% LSI Logic Foreign U.S. Virgin Islands 100% Sales Corporation LSI Logic Asia, Inc. Delaware 100% LSI Logic International California 100% Services, Inc.
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