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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
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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
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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.
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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.
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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
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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.
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- 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
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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
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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
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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.
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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
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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.
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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
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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.
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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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
ITEM 2. PROPERTIES
The following table sets forth certain information concerning the Company's
principal facilities.
<TABLE>
<CAPTION>
PRINCIPAL LOCATIONS
No. of Leased/ Total
Buildings Location Owned Sq. Ft. Use
- --------- ------------- ------ ------- ----------------------------------
<S> <C> <C> <C> <C>
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
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
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
- -------------- ----------- --------- --------- ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
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 -
<FN>
(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.
</TABLE>
<PAGE>
SCHEDULE V
<TABLE>
<CAPTION>
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
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
-------- --------- -------- --------- -------- --------
-------- --------- -------- --------- -------- --------
<FN>
(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.
</TABLE>
<PAGE>
Schedule VI
<TABLE>
<CAPTION>
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
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
------- ------ ------ ------ ----- -------
------- ------ ------ ------ ----- -------
<FN>
(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.
</TABLE>
<PAGE>
SCHEDULE VIII
<TABLE>
<CAPTION>
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
-------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE>
SCHEDULE X
<TABLE>
<CAPTION>
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
<S> <C> <C> <C>
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
</TABLE>
<PAGE>
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)
<PAGE>
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.
<PAGE>
(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-
<PAGE>
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-
<PAGE>
(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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
(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-
<PAGE>
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 -
<PAGE>
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):
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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
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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
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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
<PAGE>
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
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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.
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(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
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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.
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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,
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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,
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(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.
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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
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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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
EXHIBIT 11.1
<TABLE>
<CAPTION>
LSI LOGIC CORPORATION
COMPUTATION OF NET INCOME PER SHARE
(In thousands, except per share amounts)
Year ended
December 31, 1993
-----------------
<S> <C>
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
-----------
-----------
</TABLE>
<PAGE>
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:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Component products 87% 83% 85%
Design and services 13 17 15
--- --- ---
100% 100% 100%
--- --- ---
--- --- ---
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
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%
---- ---- ----
---- ---- ----
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
YEAR ENDED DECEMBER 31,
(In thousands, except per share amounts) 1993 1992
<S> <C> <C>
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
------- -------
------- -------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
(In thousands, except per share amounts) 1993 1992 1991
<S> <C> <C> <C>
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
-------
-------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
RETAINED
ADDITIONAL EARNINGS CUMULATIVE
COMMON STOCK PAID-IN (ACCUMULATED TRANSLATION
(In thousands) SHARES AMOUNT CAPITAL DEFICIT) ADJUSTMENT TOTAL
<S> <C> <C> <C> <C> <C> <C>
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
------ ----- ------- ------- ------ --------
------ ----- ------- ------- ------ --------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH Flows
YEAR ENDED DECEMBER 31,
(In thousands) 1993 1992 1991
<S> <C> <C> <C>
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
-------- -------- -------
-------- -------- -------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20
<PAGE>
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
<PAGE>
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
<PAGE>
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
<TABLE>
<CAPTION>
DECEMBER 31
(In thousands) 1993 1992
<S> <C> <C>
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
------- -------
------- -------
</TABLE>
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
<PAGE>
NOTE 4 DEBT
<TABLE>
<CAPTION>
DECEMBER 31
(In thousands) 1993 1992
<S> <C> <C>
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
------- -------
------- -------
</TABLE>
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:
<TABLE>
<CAPTION>
(In thousands) NUMBER
OF SHARES
<S> <C>
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
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------
(In thousands, except per share amounts) SHARES PRICE PER SHARE AMOUNT
<S> <C> <C> <C>
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
------ -------
------ -------
</TABLE>
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
<PAGE>
The following table summarizes option activity under the Directors' Plan:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------
(In thousands, except per share amounts) SHARES PRICE PER SHARE AMOUNT
<S> <C> <C> <C>
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
-- ---
-- ---
</TABLE>
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
<PAGE>
The domestic and foreign components of income (loss) before income taxes and
minority interest are as follows:
<TABLE>
<CAPTION>
(In thousands) 1993 1992 1991
<S> <C> <C> <C>
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
------- ------- -------
------- ------- -------
</TABLE>
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:
<TABLE>
<CAPTION>
(In thousands) 1993 1992 1991
<S> <C> <C> <C>
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
------- ------- -------
------- ------- -------
</TABLE>
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:
<TABLE>
<CAPTION>
December 31, January 1,
(In thousands) 1993 1993
<S> <C> <C>
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
------- -------
------- -------
</TABLE>
27
<PAGE>
Differences between the Company's effective tax rate (benefit) and the federal
statutory rate are as follows:
<TABLE>
<CAPTION>
(In thousands) 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
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%
------- -- ------- -- ------ ---
------- -- ------- -- ------ ---
</TABLE>
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.
<TABLE>
<CAPTION>
(In thousands) 1993 1992 1991
<S> <C> <C> <C>
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
-------- -------- --------
-------- -------- --------
</TABLE>
28
<PAGE>
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
<PAGE>
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
<PAGE>
INTERIM FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
(In thousands, except per share amounts) QUARTER QUARTER QUARTER QUARTER
YEAR ENDED DECEMBER 31, 1993
<S> <C> <C> <C> <C>
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
</TABLE>
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
<TABLE>
<S> <C> <C> <C>
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 - $11.12
Tel: 408.433.4067 -------------- -------------
-------------- -------------
</TABLE>
STOCK PRICE MOVEMENT TRADING VOLUME
($ 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
<PAGE>
ELEVEN YEAR CONSOLIDATED SUMMARY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(In thousands, except per share amounts) 1993 1992 1991
<S> <C> <C> <C>
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
<FN>
* 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.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(In thousands, except per share amounts) 1990* 1989* 1988* 1987*
<S> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(In thousands, except per share amounts) 1986* 1985 1984 1983*
<S> <C> <C> <C> <C>
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
</TABLE>
33
<PAGE>
EXHIBIT 21.1
<TABLE>
<CAPTION>
LIST OF SUBSIDIARIES
Name of Jurisdiction of Ownership
Subsidiary Incorporation Percentage
- ---------------------- --------------- ----------
<S> <C> <C>
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.
</TABLE>
