SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] Quarterly Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarter Ended April 2, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _______________ to
_______________
Commission File Number: 0-11674
LSI LOGIC CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-2712976
(State of Incorporation) (I.R.S. Employer
Identification Number)
1551 McCarthy Boulevard
Milpitas, California 95 035
(Address of principal ex ecutive offices)
(408) 433-8000
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES x NO
As of May 1, 1995 there were 60,839,465 shares of registrant's
Common Stock, $.01 par value, outstanding.
LSI LOGIC CORPORATION
Form 10-Q
FOR THE QUARTER ENDED APRIL 2, 1995
INDEX
Page
No.
PART I Financial Information
Item 1 Financial Statements
Consolidated Condensed Balance Sheets -
March 31, 1995 and December 31, 1994 3
Consolidated Condensed Statements of Operations -
Three-Month Periods
Ended March 31, 1995 and 1994 4
Consolidated Condensed Statements of Cash Flows -
Three-Month Periods
Ended March 31, 1995 and 1994 5
Notes to Consolidated Condensed Financial Statements6
Item 2 Management's Discussion and Analysis of Results of
Operations and Financial Condition 10
PART II Other Information
Item 1 Legal Proceedings 15
Item 4 Submission of Matters to a Vote of Security Holders 15
Item 6 Exhibits and Reports on Form 8-K 15
PART I
Item 1. Financial Statements
<TABLE>
<CAPTION>
LSI LOGIC CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except per share amounts)
(Unaudited)
March 31, December 31,
1995 1994
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 299,611 $ 224,503
Short-term investments 188,615 204,008
Accounts receivable, less allowance
for doubtful accounts of $4,850 and
$4,044 161,008 152,244
Inventories 119,416 107,824
Prepaid expenses and other current
assets 44,484 42,275
Total current assets 813,134 730,854
Property and equipment, net 630,052 495,549
Other assets 61,959 43,971
Total assets $1,505,145 $1,270,374
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 199,991 $ 165,612
Accrued salaries, wages and benefits 27,636 29,251
Accrued restructuring costs 25,277 19,800
Other accrued liabilities 33,419 30,192
Income taxes payable 52,183 38,916
Current portion of long-term debt,
capital lease obligations and short-
term borrowings 44,013 24,167
Total current liabilities 382,519 307,938
Long-term debt, capital lease
obligations and other long-term
liabilities 295,806 288,496
Deferred income taxes 6,951 6,861
Minority interest in subsidiaries 29,009 122,173
Commitments and contingencies - -
Stockholders' equity:
Preferred shares; 2,000 shares
authorized - -
Common stock; $.01 par value;
73,500 shares authorized;
60,703 and 57,144 shares
outstanding 607 571
Additional paid-in capital 565,437 401,840
Retained earnings 112,329 67,070
Cumulative translation adjustment 112,487 75,425
Total stockholders' equity 790,860 544,906
Total liabilities and
stockholders' equity $1,505,145 $1,270,374
</TABLE>
See accompanying notes to unaudited consolidated
condensed financial statements.
<TABLE>
<CAPTION>
LSI LOGIC CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
1995 1994
<S> <C> <C>
Revenues $280,158 $193,812
Costs and expenses:
Cost of revenues 153,399 115,387
Research and development 24,378 23,141
Selling, general and administrative 39,335 29,457
Total costs and expenses 217,112 167,985
Income from operations 63,046 25,827
Interest expense (4,183) (3,788)
Interest income and other 5,481 4,798
Income before income taxes and minority
interest 64,344 26,837
Provision for income taxes 18,016 7,514
Income before minority interest 46,328 19,323
Minority interest in net income
(loss) of subsidiaries 1,068 (32)
Net income $ 45,260 $ 19,355
Net income per share:
Primary $ .37 $ .19
Fully diluted $ .35 $ .18
Common share and common share equivalents
used in computing per share amounts:
Primary 120,770 103,262
Fully diluted 132,640 115,164
</TABLE>
See accompanying notes to unaudited consolidated
condensed financial statements.
<TABLE>
<CAPTION>
LSI LOGIC CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
1995 1994
<S> <C> <C>
Operating activities:
Net income $ 45,260 $ 19,355
Adjustments:
Depreciation and amortization 30,750 24,278
Minority interest in net income
(loss) of subsidiaries 1,068 (32)
Change in:
Accounts receivable (2,809) (13,794)
Inventories (4,378) (12,379)
Prepaid and other assets (6,278) (14,065)
Accounts payable 21,749 35,184
Accrued and other liabilities 5,681 10,872
Accrued restructuring costs (334) (1,872)
Net cash provided by operating activities 90,709 47,547
Investing activities:
Purchases of debt and equity securities
available-for-sale (56,139) (25,089)
Maturities and sales of debt and equity
securities available-for-sale 71,750 19,884
Purchase of restricted equity
securities (13,966) -
Change in other short-term investments - 2,157
Purchases of property and equipment,
net of retirements (71,598) (24,102)
Acquisition of stock from minority
interest holders (129,134) (5,350)
Net cash used for investing activities (199,087) (32,500)
Financing activities:
Issuance of Convertible Subordinated
Notes - 143,750
Proceeds from borrowings 16,608 -
Repayment of debt obligations (4,186) (10,687)
Issuance of common stock 163,633 3,736
Tax benefit from employee stock plans - 1,400
Net cash provided by financing activities 176,055 138,199
Effect of exchange rate changes on cash
and cash equivalents 7,431 (1,457)
Increase in cash and cash equivalents 75,108 151,789
Cash and cash equivalents at beginning of
period 224,503 121,319
Cash and cash equivalents at end of
period $ 299,611 $273,108
</TABLE>
See accompanying notes to unaudited consolidated
condensed financial statements.
LSI LOGIC CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1- In the opinion of the Company, the accompanying unaudited
consolidated condensed financial statements contain all
adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial information included
therein. While the Company believes that the disclosures are
adequate to make the information not misleading, it is suggested
that these financial statements be read in conjunction with the
audited consolidated financial statements and accompanying notes
included in the Company's Annual Report on Form 10-K for the year
ended January 1, 1995.
For financial reporting purposes, the Company reports on a 13 or
14 week quarter and a 52 or 53 week year ending on the Sunday
closest to December 31. For presentation purposes, the
consolidated financial statements refer to the quarter's calendar
month end for convenience. The results of operations for the
three month periods ended March 31, 1995 are not necessarily
indicative of the results to be expected for the full year.
Note 2 - Effective January 3, 1994, the Company adopted the
Statement of Financial Accounting Standards No. 115 (SFAS 115),
"Accounting for Certain Investments in Debt and Equity
Securities." The cumulative effect of adopting SFAS No. 115 in
the first quarter of 1994 was not material.
At March 31, 1995, the Company's cash equivalents and short-term
investments consisted primarily of corporate debt securities,
commercial paper, overnight deposits, auction rate preferred
stock, time deposits, U.S. government and agency securities, and
bank notes. Cash equivalents and short-term investments held at
March 31, 1995 and 1994 approximate fair market value and mature
in one year or less. The Company currently does not actively
trade securities. Realized gains and losses are based on book
value of specific securities sold and were not material during
the quarters ended March 31, 1995 and 1994.
In February 1995, the Company subscribed to purchase shares in
Chartered Semiconductor Manufacturing Pte. Ltd. for approximately
$20 million, of which approximately $14 million has been paid and
approximately $6 million will be paid in March 1996. Transfer of
the shares is restricted for five years. The Company recorded
the investment as a long-term asset at cost, which approximates
fair market value at March 31, 1995.
Note 3 - The Company has foreign subsidiaries which operate and
sell the Company's products in various global markets. As a
result, the Company is exposed to changes in interest rates and
foreign currency exchange rates. The Company utilizes various
hedge instruments, primarily forward exchange and currency swap
contracts, to manage its exposure associated with firm and
anticipated intercompany transactions. The Company does not
speculate in these financial instruments for profit on exchange
rate price fluctuations.
As of March 31, 1995, outstanding foreign currency hedge
instruments, settling April 1995 through September 1996,
consisted of forward exchange and currency swap contracts to
hedge various intercompany loans and Yen denominated purchases
from the Company's Japanese manufacturing facility for the second
and third quarters of 1995. Outstanding foreign currency hedge
instruments at December 31, 1994 consisted of forward exchange
and currency swap contracts to manage its exposure associated
with various intercompany loans. Foreign currency amounts are
translated at rates current at the reporting date.
The following table summarizes by major currency the forward
exchange and currency swap contracts outstanding (in thousands).
The "buy" amounts represent the U.S. dollar equivalent of
commitments to purchase foreign currencies, and the "sell"
amounts represent the U.S. dollar equivalent of commitments to
sell foreign currencies.
<TABLE>
<CAPTION>
March 31, December 31,
Buy/(Sell): 1995 1994
<S> <C> <C>
Japanese Yen $ 55,994 $(10,351)
Japanese Yen (11,943) -
Pound Sterling 9,669 9,447
Deutschemark (10,393) (9,312)
Canadian Dollar 12,194 13,836
U.S. Dollar (56,946) (3,200)
</TABLE>
These forward exchange and currency swap contracts are
considered identifiable hedges. Realized and unrealized gains
and losses are deferred until settlement of the underlying
commitments and are recorded in income as part of the purchase or
sale transaction when it is recognized, or as other gains or
losses when a hedged transaction is no longer expected to occur.
Deferred foreign exchange gains and losses were $1.5 million and
$1.7 million, respectively, at March 31, 1995, and were not
material at December 31, 1994.
Subsequent to March 31, 1995, in order to hedge additional Yen
denominated purchase commitments from the Company's Japanese
manufacturing facility, the Company entered into forward exchange
contracts to purchase 2.6 billion Yen for $31.3 million settling
April through December 1995. The Company also entered into a
forward exchange contract to purchase $8.7 million (Singapore
Dollars) for approximately $6.5 million (U.S. Dollars) in order
to hedge its remaining commitment under a stock subscription
agreement (see Note 2).
Note 4 - Balance sheet and cash flow detail (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
<S> <C> <C>
Inventories:
Raw materials $ 26,897 $ 14,275
Work-in-process 46,326 58,303
Finished goods 46,193 35,246
Total $ 119,416 $ 107,824
Cash Paid for:
Income taxes $ 4,400 $ 4,016
Interest 6,006 1,633
</TABLE>
Note 5 - During the first quarter of 1995, the Company's Japanese
affiliate sold $8.7 million of its accounts receivables to two
financing companies in Japan. The receivables were sold without
recourse and the related losses on the transactions were not
material.
Note 6 - During the first quarter of 1995, $26,000 was charged
against the restructuring reserves. These charges were for the
disposition of equipment as the Company continued phase-down of
its U.S. manufacturing facilities ($258,000), and for ongoing
maintenance costs of its vacant German facility ($93,000), offset
in part by an increase in reserves due to translation adjustments
as a result of the strengthening Deutschemark ($325,000).
Remaining reserves at March 31, 1995 include approximately
$14.6 million for the continued phase-down of the California
manufacturing facilities, $2.7 million for continued maintenance
of the vacant Braunschweig facility and $8 million for other
corporate matters. The Company is currently operating the
Milpitas facility and continues to evaluate either the
feasibility of future operations at such facility or whether the
facility should be phased out by the end of 1995. See further
discussion in Management's Discussion and Analysis of Results of
Operations and Financial Condition in Part I, Item 2 of this form
10-Q.
Note 7 - During January 1995, the Company acquired all minority
owned shares (a 45% interest) of its Japanese manufacturing
subsidiary, Nihon Semiconductor, Inc. (NSI), from Kawasaki Steel
Corporation (KSC) for a total of $175 million to be paid to KSC
over eight years. The Company has defeased this obligation
through payment of $125.9 million to an unrelated party and has
been legally released from the obligation by KSC. The
acquisition was accounted for as a purchase. The excess of the
total acquisition cost over the recorded value of assets acquired
was allocated to property and equipment ($33.1 million) based on
fair value.
Note 8 - During February 1995, the Company completed a secondary
stock offering of 3,162,500 shares of common stock. The net
proceeds were approximately $157 million.
Note 9 - The Company's effective tax rate differs from the
statutory rate due to the Company's ability to partially utilize
prior loss carryovers and due to the mix of expected earnings in
its foreign subsidiaries.
Note 10 - In February 1995, the Board of Directors approved an
increase in the number of common shares authorized for issuance
to 250,000,000.
On May 12, 1995, the Company 's Board of Directors approved a
stock dividend in the form of a two-for-one stock split which
will be effective May 23, 1995. Share information for all
periods presented has been retroactively adjusted to reflect this
stock dividend.
Primary income per common share and common equivalent share is
computed using the weighted average number of common shares
outstanding during the respective periods, including dilutive
stock options, as applicable. Fully diluted income per common
share 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 convertible subordinated
debt outstanding during the period. Fully diluted earnings per
share computations are based on the most advantageous conversion
or exercise rights to the security holder that become effective
within ten years following the period reported upon.
Note 11 - On May 2, 1995, the Company announced plans to offer to
acquire the approximately 11 million remaining shares it does not
already own of its Canadian subsidiary. Under terms of the
offer, the Company intends to pay $4.00 (Canadian dollars) per
share to stockholders of LSI Logic Corporation of Canada, Inc.
On May 10, 1995, the jury returned a verdict against the Company
in an action brought by Texas Instruments (TI) alleging patent
infringement in the United States District Court in Dallas,
Texas. The jury found that the two patents in the suit were
valid and that the Company had wilfully infringed the patents.
The jury award is for $14.6 million for which the Company has
adequate reserves. Because the patents involved in the
litigation have both expired, the verdict will have no effect
upon the manufacture or sale of the Company's present or future
products. The Company anticipates making various post-trial
motions, which, if granted, could reduce the jury award or set
aside the jury verdict entirely. The jury finding of wilful
infringement permits TI to ask the District Court that the jury
award be trebled. The Company believes the verdict was in error
and, pending rulings on post-trial motions, intends to appeal.
The Company continues to believe that the final outcome of this
matter will not result in a material adverse effect on the
Company's consolidated financial position or results of
operations.
Certain additional claims and litigation against the Company have
also arisen in the normal course of business. The Company
believes that it is unlikely that the outcome of these claims and
lawsuits will have a materially adverse effect on the Company's
consolidated financial position or results of operations.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
General
The Company believes that its future operating results are and
will continue to be subject to quarterly variations based upon a
wide variety of factors, including the cyclical nature of both
the semiconductor industry and the markets addressed by the
Company's products, price erosion, competitive factors,
fluctuations in manufacturing yields, the timing of new product
introductions, changes in product mix, the availability and
extent of utilization of manufacturing capacity, product
obsolescence and the ability to develop and implement new
technologies. The Company's operating results could also be
impacted by sudden fluctuations in customer requirements,
currency exchange rate fluctuations and other economic conditions
affecting customer demand and the cost of operations in one or
more of the global markets in which the Company does business.
As a participant in the semiconductor industry, the Company
operates in a technologically advanced, rapidly changing and
highly competitive environment. The Company predominately sells
custom products to customers operating in a similar environment.
Accordingly, changes in the circumstances of the Company's
customers may have a greater impact on the Company than if the
Company offered standard products that could be sold to many
purchasers. While the Company cannot predict what effect these
various factors may have on its financial results, the aggregate
effect of these and other factors could result in significant
volatility in the Company's future performance and stock price.
To the extent the Company's performance may not satisfy
expectations published by external sources, public reaction could
result in a sudden and significantly adverse impact on the market
price of the Company's securities, particularly on a short-term
basis.
The Company currently has international subsidiaries which
operate and sell the Company's products in various global
markets. The Company purchases a substantial portion of its raw
materials and equipment from foreign suppliers, and incurs labor
and other operating costs, particularly at its Japanese
manufacturing facility, in foreign currencies. As a result, the
Company is exposed to international factors such as changes in
foreign currency exchange rates or weak economic conditions of
the respective countries in which the Company operates. The
Company utilizes various instruments, primarily forward exchange
and currency swap contracts, to manage its exposure associated
with currency fluctuation on intercompany transactions and
certain foreign currency denominated commitments. At March 31,
1995, the Company had various forward exchange and currency swap
contracts outstanding (see Note 3). These contracts hedge all
significant intercompany loans, substantially all of the
Company's Yen related exposures for the second quarter of 1995,
and a significant portion of its Yen exposures for the third and
fourth quarters of 1995.
The Company's corporate headquarters and manufacturing facilities
are located near major earthquake faults. As a result, in the
event of a major earthquake the Company could suffer damages
which could materially and adversely affect the operating results
and financial condition of the Company.
While management believes that the discussion and analysis in
this report is adequate for a fair presentation of the
information, management recommends that this discussion and
analysis be read in conjunction with Management's Discussion and
Analysis included in the Company's 1994 Annual Report on Form
10-K for the year ended January 1, 1995.
Results of Operations
Revenues for the first quarter of 1995 increased 45% to $280.2
million from first quarter of 1994 revenues of $193.8 million.
The composition of revenues by major element was as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1994
<S> <C> <C>
Component products 94% 87%
Design and services 6% 13%
100% 100%
</TABLE>
Total component revenues grew 56% to $262.5 million in the first
quarter of 1995 from $167.8 million in the first quarter of 1994.
The increase in revenue dollars and the increase in component
revenues as a percentage of total revenues were primarily due to
the increased customer demand and volume production of the
Company's application specific integrated circuit (ASIC)
products. Volume production grew as the Company continued to
increase manufacturing capacity at its Japanese and U.S.
manufacturing facilities. Design and services decreased in total
revenue dollars and as a percentage of revenue to approximately
$17.7 million in the first quarter of 1995 compared to $26.0
million in the first quarter of 1994. The decrease is primarily
attributed to a decline in nonrecurring engineering (NRE) revenue
as the Company refocused its engineering efforts on large
production volume opportunities and more complex CoreWare
designs.
Key elements of the statements of operations, expressed as a
percentage of revenues, were as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1994
<S> <C> <C>
Gross margin 45.2% 40.5%
Research and development expenses 8.7% 11.9%
Selling, general and administrative expenses 14.0% 15.2%
Income from operations 22.5% 13.3%
</TABLE>
Gross margin continued to improve in the first quarter of 1995
compared to the same quarter a year ago primarily as a result of
greater manufacturing utilization, improved plant efficiencies
and a shift in the Company's product mix.
The Company's operating environment combined with the resources
required to operate in the semiconductor industry requires
managing a wide variety of factors such as factory capacity and
utilization, manufacturing yields, product mix, availability of
certain raw materials, terms negotiated with third-party
subcontractors and foreign exchange fluctuations. Volume
production capability is expected to increase throughout 1995,
thereby significantly increasing factory capacity by the end of
1995. In the event that demand for the Company's products does
not absorb this additional capacity at a sufficient rate, the
Company's gross margins could be negatively impacted in future
periods. Changes in the relative strength of the Yen may have a
greater impact on the Company's gross margin than other foreign
exchange fluctuations due to the Company's large wafer
fabrication operations in Japan. Although the Yen appreciated
approximately 12% during the first quarter of 1995, the effect on
gross margin was not significant as the Company's Yen denominated
sales offset a substantial portion of Yen denominated costs
during the quarter. Accordingly, gross profit margins for the
first quarter of 1995 may not be indicative of expected results
for the remainder of the fiscal year.
Research and development (R&D) expenses for the first quarter of
1995 increased approximately $1.2 million compared to the same
period in 1994. However, as a percentage of revenue, R&D
expenses decreased in the first quarter of 1995 compared to the
same period a year ago primarily due to increased utilization of
the Company's R&D facility for volume production to meet customer
demand. The Company anticipates continuing its investment in R&D
at a rate between 8-10% of revenues in future periods. The
Company's R&D investments are primarily for advanced product
development, advanced manufacturing processes development,
package development and enhancements of the Company's design
automation software capability.
Selling, general and administrative (SG&A) expenses increased
$9.9 million to $39.3 million in the first quarter of 1995
compared to $29.4 million in the same quarter in 1994, and
decreased as a percentage of revenues to 14.0% in the first
quarter of 1995 compared to 15.2% for the same period in 1994.
The increase in total SG&A expenses was primarily due to higher
sales costs, the implementation of a new advertising campaign,
and higher legal and consulting costs associated with the
acquisition of the NSI minority interest shares, the planned
acquisition of the Canadian minority interest shares, and legal
costs in connection with the Texas Instruments lawsuit (see Part
II, Item 1 of this Form 10-Q). The decline in SG&A expenses as a
percentage of revenue was primarily the result of increased
revenues.
In summary, total operating costs and expenses for the first
quarter of 1995 were $217.1 million, a $49.1 million increase
over $168.0 million for the same quarter in 1994. However,
operating income as a percentage of revenues increased to 22.5%
in the first quarter of 1995 from 13.3% for the comparable
quarter in 1994.
Interest expense for the first quarter of 1995 and 1994 remained
flat at approximately $4 million.
Interest income and other for the first quarter of 1995 increased
$.7 million as compared to the same quarter in 1994. The
majority of this increase is attributable to increased interest
earnings due to higher cash and investment balances and interest
rates in the first quarter of 1995 and a decrease in net foreign
currency exchange gains as a result of increased hedging activity
(see Note 3) and continued devaluation of the dollar against the
Yen, the Deutschemark and other European currencies.
The Company recorded a provision for income taxes for the first
quarter of 1995 and 1994 with an effective rate of 28%. The
Company's effective tax rate was lower than the U.S. statutory
rate primarily due to reductions in the valuation allowance
provided under SFAS 109 and other credits.
Restructuring
The Company implemented a restructuring plan in the third quarter
of 1992 revising its global manufacturing strategy, streamlining
operations, discontinuing certain commodity products and focusing
its product strategy on high-end technology solutions.
Specifically, it involved the shutdown of the Braunschweig,
Germany test and assembly facility, the planned phase-out of the
Milpitas, California wafer fabrication facility, the
consolidation of certain U.S. manufacturing operations, the
downsizing of the chipset operation of its former subsidiary,
Headland Technology Inc., and severance costs for approximately
500 employees worldwide. The $101.8 million restructuring charge
included: the write-down and write-off of manufacturing
facilities, equipment and improvements; the estimated operating
costs attributable to the phase-out, closure and consolidation of
these manufacturing facilities; the write-down of commodity
chipset product inventories; the severance of manufacturing and
other personnel; the consolidation of certain U.S. and foreign
sales offices, design centers and administrative organizations;
and certain legal and other costs.
By the end of 1994, the Company had completed phased-out of the
German test and assembly operation and written off the facility,
discontinued the chipset business, completed partial phased-down
of its Milpitas wafer manufacturing facility and certain
U.S. assembly and test operations, and completed consolidation of
certain U.S. sales offices and design centers. These actions
included termination of approximately 350 employees.
The following table sets forth the remaining 1992 restructuring
reserves at March 31, 1995 and December 31, 1994 (which are
accounted for as components of fixed assets, inventories and
current liabilities) and charges taken during the first quarter
of 1995 (in thousands):
<TABLE>
<CAPTION>
Balance Balance
12/31/94 Utilized* 3/31/95
<S> <C> <C> <C>
Fixed asset related charges $ 11,100 $ (258) $ 10,842
Other provisions for phase-down
and consolidation of manu-
facturing facilities 3,500 232 3,732
Payments to employees for severance 1,500 - 1,500
Relocation, lease terminations and
other 9,200 - 9,200
Total $25,300 $ ( 26) $25,274
</TABLE>
* Net of cumulative currency translation adjustments. All
charges were cash charged during the first quarter of 1995.
During the first quarter of 1995, $26,000 was charged against the
restructuring reserves. These charges were for the disposition
of equipment as the Company continued phase-down of its U.S.
manufacturing facilities ($258,000), and for ongoing maintenance
costs of its vacant German facility ($93,000), offset in part by
an increase in reserves due to translation adjustments as a
result of the strengthening Deutschemark ($325,000). Remaining
reserves at March 31, 1995 include approximately $14.6 million
for the continued phase-down of the California manufacturing
facilities, $2.7 million for continued maintenance of the vacant
Braunschweig facility and $8 million for other corporate matters.
The Company is currently operating the Milpitas facility and
continues to evaluate either the feasibility of future operations
at such facility or whether the facility should be phased out by
the end of 1995. Management believes that the total reserves
established are adequate to cover uncertainties in connection
with these matters.
Financial Condition
The Company's cash, cash equivalents and short-term investments
increased $59.7 million during the first quarter of 1995 to
$488.2 million from $428.5 at the end of 1994. The increase is
primarily due to net proceeds from a secondary stock offering of
approximately $157.6 million and cash from operations of $90.7
million, partially offset by the acquisition of all minority
owned stock in NSI for $125.9 million and the purchase of fixed
assets of approximately $71.6 million. Working capital increased
$7.7 million to $430.6 million at March 31, 1995 from $422.9
million at December 31, 1994.
During the first quarter of 1995, the Company generated $90.7
million of cash and equivalents from its operating activities,
compared to $47.5 million during the first quarter of 1994. The
increased net cash provided from operations as compared to the
comparable 1994 period was primarily attributable to an increase
in net income before depreciation and an increase in accounts
payable.
Growing sales and increased manufacturing in response to rising
customer demand contributed to increases in accounts receivable,
inventories, accounts payable and accrued liabilities. In
addition, the continued strengthening of the Yen added
approximately $12 million to accounts receivable and inventory
and $18 million to accounts payable and accrued liabilities
during the first quarter of 1995.
Net property and equipment was $630 million at March 31, 1995, an
increase of $134.5 million compared to $495.5 million at the end
of 1994. The increase was primarily due to $71.6 million of net
purchases of equipment for the Company's Japanese and U.S.
manufacturing facilities, $53 million associated with the
strengthening of the Yen and a $33.1 million step-up of property
and equipment as a result of the acquisition of the minority
owned stock of NSI, partially offset by $28.8 million of
depreciation. Management expects net capital expenditures to
approximate $200 to $250 million for 1995.
In February 1995, the Company subscribed to purchase shares in
Chartered Semiconductor Manufacturing Pte. Ltd. (CMS) for
approximately $20 million, of which approximately $14 million has
been paid and approximately $6 million will be paid in March
1996. Transfer of the shares is restricted for five years. The
Company also entered into an agreement with CMS which guarantees
specific capacity in connection with 0.6 micron wafer
manufacturing technology. The Company expects to begin receiving
output from this facility in the second half of 1995.
During 1994, the Company entered into a credit agreement with a
group of banks which provide for an unsecured $60 million
revolving credit facility. The agreement includes certain
financial and non-financial covenants, with which the Company was
in compliance at March 31, 1995. 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 March
31, 1995 were not significant.
The increase in debt and other long-term liabilities was
primarily attributable to $18 million associated with the
strengthening Yen and $12.6 million of net borrowings by the
Company's Japanese manufacturing subsidiary.
On May 10, 1995, the jury returned a verdict against the Company
in an action brought by Texas Instruments (TI) alleging patent
infringement in the United States District Court in Dallas,
Texas. The jury found that the two patents in the suit were
valid and that the Company had wilfully infringed the patents.
The jury award is for $14.6 million for which the Company has
adequate reserves. See additional discussion at Note 11.
The Company believes that its level of financial resources is an
important competitive factor in its industry. Accordingly, the
Company may, from time to time, seek additional equity or debt
financings. The Company believes that existing liquid resources
and funds generated from operations combined with funds from such
financing and its ability to borrow funds will be adequate to
meet its operating and capital requirements and obligations for
the next 12 months. There can be no assurance that such
additional financing will be available when needed or, if
available, will be on favorable terms. Any future equity
financings will decrease existing stockholders' percentage equity
ownership and may, depending on the price at which the equity is
sold, result in dilution.
Part II
Item 1 Legal Proceedings
Reference is made to Item 3, Legal Proceedings, of the Company's
Annual Report on Form 10K for the fiscal year ended January 1,
1995 for a discussion of certain pending legal proceedings. The
information provided at such reference remains unchanged except
as follows. On May 10, 1995, the jury returned a verdict against
the Company in an action brought by Texas Instruments (TI)
alleging patent infringement in the United States District Court
in Dallas, Texas. The jury found that the two patents in the
suit were valid and that the Company had wilfully infringed the
patents. The jury award is for $14.6 million for which the
Company has adequate reserves. Because the patents involved in
the litigation have both expired, the verdict will have no effect
upon the manufacture or sale of the Company's present or future
products. The Company anticipates making various post-trial
motions, which, if granted, could reduce the jury award or set
aside the jury verdict entirely. The jury finding of wilful
infringement permits TI to ask the District Court that the jury
award be trebled. The Company believes the verdict was in error
and, pending rulings on post-trial motions, intends to appeal.
The Company continues to believe that the final outcome of this
matter will not result in a material adverse effect on the
Company's consolidated financial position or results of
operations.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Calculation of Earnings Per Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On January 26, 1995, the Company filed a Current Report
on Form 8-K reporting its purchase
of the 45% minority interest in its Japanese subsidiary.
On May 3, 1995, the Company filed a Current Report on
Form 8-K reporting the public notice of its intent to
acquire all outstanding shares of its subsidiary, LSI
Logic Corporation of Canada, Inc. which it does not
already own.
On May 15, 1995, the Company filed a Current Report on
Form 8-K reporting the public notice of a 100% stock
dividend in the form of a two-for-one stock split.
Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
LSI LOGIC CORPORATION
(Registrant)
Date: May 12, 1995 By /s/ Albert A. Pimentel
Albert A. Pimentel
Senior Vice President
Finance & Chief Financial
Officer
Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
LSI LOGIC CORPORATION
(Registrant)
Date: May 12, 1995 By
Albert A. Pimentel
Senior Vice President
Finance & Chief Financial
Officer
Exhibit 11.1
<TABLE>
<CAPTION>
LSI LOGIC CORPORATION
CALCULATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
1995 1994
<S> <C> <C>
Primary Earnings Per Share
Net income $ 45,260 $ 19,355
Average common and common equivalent
shares:
Average common shares outstanding 117,222 100,050
Dilutive options 3,548 3,212
120,770 103,262
Earnings per common and common
equivalent share $ 0.37 $ 0.19
Fully Diluted Earnings Per share
Net income $ 45,260 $19,355
Interest expense on convertible
subordinated debt, net of tax effect 1,525 1,292
Adjusted net income $ 46,785 $20,647
Average common and common equivalent
shares on a fully diluted basis:
Average common shares outstanding 117,223 100,052
Convertible subordinated note 11,735 11,780
Dilutive options 3,682 3,333
132,630 115,165
Fully diluted earnings per common and
common equivalent share $ 0.31 $ 0.18
</TABLE>
On May 12, 1995, the Company's Board of Directors approved a
stock dividend in the form of a two-for-one stock split which
will be effective May 23, 1995. Share information for all
periods presented has been retroactively adjusted to reflect this
stock split.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-30-1995
<CASH> 299,611
<SECURITIES> 188,615
<RECEIVABLES> 161,008
<ALLOWANCES> 4,850
<INVENTORY> 119,416
<CURRENT-ASSETS> 813,134
<PP&E> 1,099,848
<DEPRECIATION> 469,796
<TOTAL-ASSETS> 1,505,145
<CURRENT-LIABILITIES> 382,519
<BONDS> 143,750
<COMMON> 607
0
0
<OTHER-SE> 790,253
<TOTAL-LIABILITY-AND-EQUITY> 1,505,145
<SALES> 280,158
<TOTAL-REVENUES> 280,158
<CGS> 153,399
<TOTAL-COSTS> 153,399
<OTHER-EXPENSES> 63,713
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,183
<INCOME-PRETAX> 64,344
<INCOME-TAX> 18,016
<INCOME-CONTINUING> 45,260
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,260
<EPS-PRIMARY> .37
<EPS-DILUTED> .35
</TABLE>
