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 September 29, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ____________ to ____________
Commission File Number: 0-11674
LSI LOGIC CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-2712976
(State of Incorporation) (I.R.S. Employer
Identification Number)
1551 McCarthy Boulevard
Milpitas, California 95035
(Address of principal executive offices)
(408) 433-8000
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES x NO
As of October 25, 1996 there were 128,734,366 shares of
registrant's Common Stock, $.01 par value, outstanding.
<PAGE>
LSI LOGIC CORPORATION
Form 10-Q
FOR THE QUARTER ENDED SEPTEMBER 29, 1996
INDEX
Page
No.
PART I Financial Information
Item 1 Financial Statements
Consolidated Condensed Balance Sheets -
September 30, 1996 and December 31, 1995 3
Consolidated Condensed Statements of
Operations - Three-Month and Nine-Month
Periods Ended September 30, 1996 and 1995 4
Consolidated Condensed Statements of Cash Flows -
Nine-Month Periods Ended September 30, 1996
and 1995 5
Notes to Unaudited Consolidated Condensed
Financial Statements 6
Item 2 Management's Discussion and Analysis of Results
of Operations and Financial Condition 9
PART II Other Information
Item 1 Legal Proceedings 14
Item 6 Exhibits and Reports on Form 8-K 14
<PAGE>
PART I
Item 1. Financial Statements
<TABLE>
<CAPTION>
LSI LOGIC CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except per share amount)
(Unaudited)
September 30, December 31,
1996 1995
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 227,645 $ 172,780
Short-term investments 484,139 512,765
Accounts receivable, less
allowance for doubtful
accounts of $3,559 and
$3,486 235,926 230,980
Inventories 109,695 139,857
Other current assets 55,567 80,348
Total current assets 1,112,972 1,136,730
Property and equipment, net 794,018 638,282
Other assets 92,527 74,575
Total assets $1,999,517 $1,849,587
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 144,509 $ 165,725
Accrued salaries, wages and
benefits 36,528 34,825
Accrued restructuring costs 4,000 22,700
Other accrued liabilities 67,192 42,315
Income taxes payable 103,012 73,649
Current portion of long-term
obligations and
short-term borrowings 10,028 56,569
Total current
liabilities 365,269 395,783
Long-term obligations 341,524 222,388
Deferred income taxes 13,098 8,514
Minority interest in
subsidiaries 6,047 6,656
Commitments and
contingencies - -
Stockholders' equity:
Preferred shares;
2,000 shares authorized - -
Common stock; $.01 par value;
250,000 shares authorized;
128,322 and 129,303 shares
outstanding 1,283 1,293
Additional paid-in capital 817,596 853,538
Retained earnings 421,713 305,190
Cumulative translation
adjustment 32,987 56,225
Total stockholders'
equity 1,273,579 1,216,246
Total liabilities and
stockholders' equity $1,999,517 $1,849,587
See accompanying notes to unaudited consolidated condensed
financial statements.</TABLE>
<TABLE>
<CAPTION>
LSI LOGIC CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues $300,195 $330,832 $936,906 $918,056
Costs and expenses:
Cost of revenues 175,074 170,801 528,377 486,505
Research and
development 48,472 34,263 134,276 86,624
Sales, general and
administrative 40,827 39,325 124,022 118,803
Total costs and
expenses 264,373 244,389 786,675 691,932
Income from
operations 35,822 86,443 150,231 226,124
Interest expense (3,647) (4,379) (10,241) (12,679)
Interest income and
other 6,459 9,269 22,400 21,990
Income before income
taxes and minority
interest 38,634 91,333 162,390 235,435
Provision for income
taxes 10,811 25,574 45,469 65,923
Income before
minority interest 27,823 65,759 116,921 169,512
Minority interest in
net income of
subsidiaries 80 217 398 2,965
Net income $ 27,743 $ 65,542 $116,523 $166,547
Net income per share:
Primary $ 0.21 $ 0.50 $ 0.89 $ 1.34
Fully diluted $ 0.21 $ 0.47 $ 0.85 $ 1.25
Common share and
common share
equivalents used
in computing per
share amounts:
Primary 130,224 132,123 131,523 124,644
Fully diluted 142,100 144,128 143,259 137,232
See accompanying notes to unaudited consolidated condensed
financial statements.
</TABLE>
<TABLE>
<CAPTION>
LSI LOGIC CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended September 30,
1996 1995
<S> <C> <C>
Operating activities:
Net income $ 116,523 $ 166,547
Adjustments:
Depreciation and
amortization 110,251 108,970
Minority interest in net
income of subsidiaries 398 2,965
Change in:
Accounts receivable (9,923) (51,338)
Inventories 27,725 (30,615)
Other assets 8,539 (33,683)
Accounts payable (15,449) (12,736)
Accrued and other
liabilities 54,473 48,364
Net cash provided by
operating activities 292,537 198,474
Investing activities:
Purchases of debt and
equity securities (935,681) (350,023)
Maturities and sales of
debt and equity
securities 960,045 203,173
Purchase of restricted
equity securities (6,252) (13,966)
Purchases of property
and equipment, net of
retirements and
refinancings (296,608) (165,053)
Acquisition of stock
from minority interest
holders (688) (167,316)
Net cash used for investing
activities (279,184) (493,185)
Financing activities:
Proceeds from borrowings 133,921 52,971
Repayment of debt
obligations (51,125) (70,045)
Issuance of common stock 10,886 421,633
Repurchase of common
stock (46,838) -
Net cash provided by
financing activities 46,844 404,559
Effect of exchange rate
changes on cash and cash
equivalents (5,332) (13,604)
Increase in cash and cash
equivalents 54,865 96,244
Cash and cash equivalents
at beginning of period 172,780 224,503
Cash and cash equivalents
at end of period $ 227,645 $ 320,747
See accompanying notes to unaudited consolidated condensed
financial statements.
</TABLE>
LSI LOGIC CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1-In the opinion of the Company, the accompanying unaudited
consolidated condensed financial statements contain all
adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial information included
therein. While the Company believes that the disclosures are
adequate to make the information not misleading, it is suggested
that these financial statements be read in conjunction with the
audited consolidated financial statements and accompanying notes
included in the Company's Annual Report on Form 10-K for the year
ended December 31, 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 condensed financial statements refer to the
quarter's calendar month end for convenience. The results of
operations for the quarter ended September 30, 1996 are not
necessarily indicative of the results to be expected for the full
year.
Note 2 - Cash equivalents and short-term investments at September
30, 1996 consisted primarily of U.S. and foreign corporate debt
securities, time deposits, U.S. and foreign government and agency
securities, commercial paper, bank notes and auction rate
preferred securities. Cash equivalents and short-term
investments held at September 30, 1996 and at December 31, 1995
approximate fair market value and it is the Company's intention to
hold these investments for 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 September 30, 1996 and 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 foreign currency
exchange rates and interest rates. The Company utilizes various
hedge instruments, primarily forward exchange, currency swap and
interest rate swap contracts, to manage its exposure associated
with firm intercompany and third-party transactions. The Company
does not speculate in these financial instruments for profit on
exchange rate price fluctuations.
As of September 30, 1996, the Company had an outstanding
currency swap contract which hedged specific intercompany
transactions and third party obligations. Outstanding foreign
currency hedge instruments at December 31, 1995 consisted of
forward exchange and currency swap contracts to manage the
exposure associated with various intercompany loans, firm
obligations to the Company's Japanese manufacturing subsidiary
and third-party borrowings.
As of September 30, 1996, the Company has several interest rate
swap contracts outstanding, including one swap with forward start
dates through October 1996, which convert the interest associated
with 17.25 billion yen ($156.2 million) of borrowings by the
Company's Japanese manufacturing subsidiary from adjustable to
fixed rates (ranging from 2.65% to 3.24%). The interest rate
swaps cover payments to be made under term borrowings through
2001. At September 30, 1996, unutilized credit line drawdowns of
5 billion yen ($55.2 million) remain under the forward swap
agreement.
The following table summarizes by major currency the forward
exchange and currency swap contracts outstanding (in thousands).
The "buy" amounts represent the U.S. dollar equivalent of
commitments to purchase foreign currencies, and the "sell"
amounts represent the U.S. dollar equivalent of commitments to
sell foreign currencies. Foreign currency amounts are translated
at rates current at the reporting date.
<TABLE>
<CAPTION>
September 30, December 31,
Buy/(Sell): 1996 1995
<S> <C> <C>
Japanese Yen $ 9,219 $ 18,474
U.S. Dollar (9,296) (25,492)
Pound Sterling - 5,614
Deutschemark - (5,990)
Singapore Dollar - 6,089
</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 not material at
September 30, 1996 and December 31, 1995.
Note 4 - Balance sheet and cash flow information (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
<S> <C> <C>
Inventories:
Raw materials $ 33,945 $ 44,758
Work-in-process 53,064 47,193
Finished Goods 22,686 47,906
Total $ 109,695 $ 139,857
September 30, September 30,
1996 1995
<S> <C> <C>
Cash Paid for:
Income taxes $ 28,600 $ 25,700
Interest 14,300 14,471
</TABLE>
Note 5 - During the second quarter of 1996, the Company shut
down its Milpitas wafer manufacturing facility. During the third
quarter of 1996, the Company determined that the majority of the
equipment that had been used at the Milpitas facility was no
longer needed for current or future capacity requirements of the
Company at its other facilities. Accordingly, the equipment was
made available for sale and was written down by $15 million to
its estimated net realizable value. The Company utilized $15
million of its restructuring reserves, which became available as
a result of a favorable court decision (see Notes 6 and 9), and,
therefore, the write down did not necessitate a charge to the
income statement. At September 30, 1996, assets held for sale
totaled $15.6 million and included manufacturing equipment and
two buildings.
Note 6 - During the first nine months of 1996, $19.7 million was
charged against the restructuring reserves. The charges were
primarily for the shutdown of the Milpitas wafer fabrication
facility (which had previously been delayed due to the Company's
requirements for the facility's capacity having continued longer
than anticipated when the restructuring charge was taken). These
charges included a $15 million charge resulting from the
writedown of the Milpitas wafer fabrication equipment (see Note
5),severance payments to employees ($1.5 million) and lease and
other charges in connection with the Milpitas wafer manufacturing
equipment ($2.5 million). Other restructuring charges were
attributable to ongoing maintenance costs of the Company's vacant
German facility ($.6 million) and a decrease in reserves due to
translation adjustments as a result of the weakening Deutschemark
($.1 million). As a result of a favorable appellate court
decision in September 1996 in connection with the
Texas Instruments litigation (see Note 9), $15 million of
restructuring reserves became available for the write down of the
Milpitas wafer manufacturing equipment. Reserves at September
30, 1996 include approximately $4 million for remaining costs
related to the closure of the Milpitas manufacturing facility and
continued maintenance of the vacant Braunschweig facility.
Management believes that the total reserves established are
adequate to cover uncertainties in connection with these matters.
See further discussion in Managements Discussion and Analysis of
Results of Operations and Financial Condition, Part I, Item 2 of
this Form 10-Q.
Note 7 - The Company's effective tax rate of 28% is lower than
the U.S. statutory rate primarily due to the Company's expected
earnings mix in its foreign subsidiaries which are taxed at lower
rates and anticipated utilization of prior loss carryovers and
other tax credits.
Note 8 - In February 1996, the Company's Board of Directors
approved an action which authorizes management to acquire up to 4
million shares of its own stock in the open market at current
market prices. During the first nine months of 1996, the Company
repurchased and retired approximately two million shares of its
common stock from the open market for approximately $47 million.
The transactions were recorded as reductions to common stock and
additional paid-in capital.
Note 9 - A discussion of certain pending legal proceedings is
included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995. As indicated therein, Texas
Instruments (TI) filed an appeal in the United States Court of
Appeals for the Federal Circuit (CAFC) challenging the United
States District Court's decision that the Company's encapsulation
process did not infringe the TI patents. In July 1996, the CAFC
issued its decision affirming the U.S. District Court's holding
in favor of the Company. In August 1996, TI filed a petition for
reconsideration of the CAFC's decision and requested that the
matter be heard inbanc by the CAFC. In September 1996, TI's
petition was denied. The Company believes that the probability
of a significant loss is remote and therefore, reallocated $15
million of its reserves during September 1996 (see Note 6). No
assurance can be given, however, that this matter will be
resolved without the payment of damages and other costs. 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
The discussion in "Management's Discussion and Analysis of
Results of Operations and Financial Condition" contains trend
analysis and other forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended.
Actual results could differ materially from those set forth in
such forward-looking statements as a result of qualifying
information set forth herein, those factors set forth in the
Company's Annual Report on Form 10-K for the year ended December
31, 1995, which are incorporated herein by reference, and other
risks detailed from time to time in the Company's reports filed
with the Securities and Exchange Commission.
General
The Company believes that its future operating results are and
will continue to be subject to quarterly variations based upon a
wide variety of factors, including the cyclical nature of both
the semiconductor industry and the markets addressed by the
Company's products, the availability and extent of utilization of
manufacturing capacity, fluctuations in manufacturing yields,
price erosion, competitive factors, the timing of new product
introductions, changes in product mix, product obsolescence and
the ability to develop and implement new technologies. The
Company's operating results could also be impacted by sudden
fluctuations in customer requirements, currency exchange rate
fluctuations and other economic conditions affecting customer
demand and the cost of operations in one or more of the global
markets in which the Company does business. As a participant in
the semiconductor industry, the Company operates in a
technologically advanced, rapidly changing and highly competitive
environment. The Company predominantly sells custom products to
customers operating in a similar environment. Accordingly,
changes in the circumstances of the Company's customers may have
a greater impact on the Company than if the Company offered
standard products that could be sold to many purchasers. While
the Company cannot predict what effect these various factors may
have on its financial results, the aggregate effect of these and
other factors could result in significant volatility in the
Company's future performance and stock price. To the extent the
Company's performance may not satisfy expectations published by
external sources, public reaction could result in a sudden and
significantly adverse impact on the market price of the Company's
securities, particularly on a short-term basis.
The Company currently has international subsidiaries which
operate and sell the Company's products in various global
markets. The Company purchases a substantial portion of its raw
materials and equipment from foreign suppliers, and incurs labor
and other operating costs, particularly at its Japanese
manufacturing facility, in foreign currencies. As a result, the
Company is exposed to international factors such as changes in
foreign currency exchange rates or 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 (see Note 3 to
the Unaudited Consolidated Condensed Financial Statements).
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 1995 Annual Report on Form
10-K for the year ended December 31, 1995.
Results of Operations
Revenues for the third quarter of 1996 decreased 9.3% to $300.2
million from $330.8 million in the same period in 1995. The
decrease in revenues is primarily attributable to a slowdown in
new orders for the Company's products during the first half of
1996, which the Company believes primarily resulted from
customers utilizing inventories on hand at the end of 1995.
Revenues for the first nine months of 1996 increased 2.1% to
$936.4 million from $918.1 million in the same period in 1995.
The increase in revenues for the nine month period was primarily
due to increasing demand for the Company's products for consumer
product applications during 1995 and 1996 offset in part by the
slowdown in new orders for other applications during 1996. The
Company's average selling prices did not fluctuate significantly
during the third quarter and the first nine months of 1996
compared to the same periods of 1995. One customer accounted for
13% of revenues during the nine months ended September 30, 1996.
Key elements of the statements of operations, expressed as a
percentage of revenues, were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Gross margin 41.7% 48.4% 43.6% 47.0%
Research and
development
expenses 16.1% 10.4% 14.3% 9.4%
Selling, general
and administrative
expenses 13.6% 11.9% 13.2% 12.9%
Income from
operations 11.9% 26.1% 16.0% 24.6%
</TABLE>
Gross margin declined to 41.7% and 43.6% during the third quarter
and first nine months of 1996, respectively from 48.4% and 47.0%
in the same periods a year ago. The decline was primarily
attributable to lower factory utilization. The Company has
significantly increased its production capability from the same
period a year ago resulting primarily from the installation of
additional production equipment in the Company's Japanese wafer
manufacturing facilities and improving manufacturing yields.
However, due to expected levels of demand and factory utilization
and anticipated flat revenues, gross margin during the fourth
quarter of 1996 is not expected to change significantly from
levels attained during the third quarter of 1996. The Company's
operating environment, combined with the resources required to
operate in the semiconductor industry, requires managing a wide
variety of factors such as factory and capacity utilization,
manufacturing yields, product mix, terms negotiated with
third-party subcontractors, availability of certain raw materials
and foreign currency exchange rate fluctuations. Gross profit
margin for the first three quarters of 1996 may not be indicative
of results that may be realized for the fiscal year.
The Company has delayed completion of the first phase of its
Gresham, Oregon manufacturing facility based on expected future
capacity requirements and current capacity availability. This
new facility is currently expected to become operational during
the latter half of 1998. If demand does not increase
sufficiently to absorb the Company's capacity, its gross margin
and operating results 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 weakened (the average yen
exchange rate for the third quarter and first nine months of 1996
decreased approximately 16% and 17%, respectively, from the same
periods in 1995), the effect on gross margin and net income was
not material as the Company's yen denominated sales offset a
substantial portion of its yen denominated costs during those
periods, and the Company hedged a portion of its remaining yen
exposures. However, there can be no assurance that future
changes in the strength of the yen relative to the U.S. dollar
will not have a material effect on gross margin or operating
results.
Research and development (R&D) expenses increased $14.2 million
and $47.7 million, respectively, in the third quarter and first
nine months of 1996 compared to the same periods in 1995. As a
percentage of revenue, R&D expenses increased to 16.1% and 14.3%,
respectively, in the third quarter and first nine months of 1996
compared with 10.4% and 9.4% during the same periods a year ago.
The increase in R&D expenses is primarily attributed to increased
staffing levels as the Company continues to invest in the
development of more advanced technology products and the related
manufacturing, packaging and design processes. The increase
resulted primarily from the Company's continued growth in its
investment in future products and processes. The Company
anticipates continuing its investment in R&D at a rate of 14% to
16% of revenues through the remainder of 1996.
Selling, general and administrative (SG&A) expenses increased
$1.5 million and $5.2 million, respectively, in the third quarter
and first nine months of 1996 compared to the same periods in
1995. The increase in total SG&A expenses was primarily due to
increased compensation levels. SG&A expenses increased as a
percentage of revenues to 13.6% and 13.2%, respectively, in the
third quarter and first nine months of 1996 compared to 11.9% and
12.9% for the same periods in 1995. The Company expects that
SG&A expenses will remain relatively constant in absolute
dollars.
Interest expense for the third quarter and first nine months of
1996 decreased $.7 million and $2.4 million, respectively, as
compared to the same periods in 1995. The decrease is primarily
attributed to lower interest rates on yen-denominated borrowings
during 1996.
Interest income and other decreased $2.8 million during the third
quarter of 1996 as compared to the third quarter of 1995. The
decrease is primarily related to fixed asset disposals and
foreign currency exchange losses. Interest income and other
increased $.4 million during the first nine months of 1996 as
compared to the same period in 1995. The increase is primarily
attributable to increased interest income as a result of higher
average cash and investment balances offset partially by foreign
exchange losses and losses on disposals of fixed assets during
the first nine months of 1996.
The Company recorded a provision for income taxes for the first
nine months of 1996 and 1995 with an effective rate of 28%. The
Company's effective tax rate is lower than the U.S. statutory
rate primarily due to the Company's expected earnings mix in its
foreign subsidiaries which are taxed at lower rates and
anticipated utilization of prior loss carryovers and other tax
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 $102 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 matters and other costs.
By the end of 1995, the Company had completed the phase-out of
the German test and assembly operation and written off the
facility, discontinued the chipset business, completed a partial
phase-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 400
employees.
The following table sets forth the remaining 1992
restructuring reserves at September 30, 1996 and December 31,
1995 (which are accounted for as components of fixed assets and
current liabilities) and charges taken during the first nine
months of 1996 (in thousands):
<TABLE>
<CAPTION>
Balance Balance
12/31/95 Utilized* Adjusted 9/30/96
<S> <C> <C> <C> <C>
Fixed asset related
charges $ 1,900 $(17,100) $15,200 $ -
Other provisions for
phase-down and con
solidation of manu-
facturing facilities 2,800 (1,100) 800 2,500
Payments to employees
for severance (a) - (1,500) 1,500 -
Relocation, lease
terminations and
other corporate
matters 19,000 - (17,500) 1,500
Total $23,700 $(19,700) $ - $ 4,000
</TABLE>
* Net of cumulative currency translation adjustments.
Amounts utilized represent both cash and non-cash charges. Cash
charges totaled approximately $2,500,000 during the first nine
months of 1996.
(a) Amounts utilized represent cash payments related to the
severance of approximately 150 employees.
During the first nine months of 1996, $19.7 million was charged
against the restructuring reserves. The charges were primarily
for the shutdown of the Milpitas wafer fabrication facility
(which had previously been delayed due to the Company's
requirements for the facility's capacity having continued longer
than anticipated when the restructuring charge was taken). These
charges included a $15 million charge resulting from the
writedown of the Milpitas wafer fabrication equipment (see Note 5
of Notes to Unaudited Consolidated Condensed Financial
Statements), severance payments to employees ($1.5 million) and
lease and other charges in connection with the Milpitas wafer
manufacturing equipment ($2.5 million). Other restructuring
charges were attributable to ongoing maintenance costs of the
Company's vacant German facility ($.6 million) and a decrease in
reserves due to translation adjustments as a result of the
weakening Deutschemark ($.1 million). As a result of a favorable
appellate court decision in September 1996 in connection with the
Texas Instruments litigation (see Note 9 of Notes to Unaudited
Consolidated Condensed Financial Statements), $15 million of
restructuring reserves became available for the write down of the
Milpitas wafer manufacturing equipment. Reserves at September
30, 1996 include approximately $4 million for remaining costs
related to the closure of the Milpitas manufacturing facility
and continued maintenance of the vacant Braunschweig facility.
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 $26.3 million during the first nine months of 1996 to
$711.8 million from $685.5 million at the end of 1995. The
increase is due to cash provided from operations and net proceeds
from borrowings, offset partially by purchases of fixed assets
and repurchases of common stock. Working capital increased $6.8
million to $747.7 million at September 30, 1996 from $740.9
million at December 31, 1995.
During the first nine months of 1996, the Company generated
$292.5 million of cash and cash equivalents from its operating
activities, which is an increase of $94.1 million over cash and
cash equivalents of $198.5 million that were provided from
operating activities during the first nine months of 1995. The
increase is primarily attributable to changes in cash invested in
inventories, accounts receivable and other assets during the
first nine months of 1996 compared to the first nine months of
1995. Cash and cash equivalents used for investing activities
during the first nine months of 1996 were $279.2 million compared
to $493.2 million during the same period in 1995. The decrease
in cash used for investing activities was primarily attributable
to an increase in the net maturities and sales of $171.2 million
of short term investments in the first nine months of 1996, the
repurchase of all the minority interest in the Company's
manufacturing subsidiary and substantially all shares not already
owned of its publicly traded Canadian subsidiary during the first
nine months of 1995 for $125.9 million and $31.6 million,
respectively. These increases were partially offset by $131.6 million
increase in net purchases of property and equipment during the nine
months ended September 30, 1996 compared to the same period a year ago.
Cash and cash equivalents provided by financing activities during
the first nine months of 1996 were $46.8 million compared to
$404.6 million in the first nine months of 1995. The decrease is
primarily attributed to proceeds of $404.6 million received by
the Company from two stock offerings in February and July 1995
and the repurchase of approximately 2 million shares of the
Company's stock for $46.8 million during 1996. These decreases
were partially offset by an increase in net proceeds received
from borrowings of $99.9 million during the first nine months of
1996 compared to the same period in 1995.
Net property and equipment was $794 million at September 30,
1996, an increase of $155.7 million compared to $638.3 million at
the end of 1995. The increase was primarily due to $296.6
million of fixed asset purchases, primarily equipment for the
Company's Japanese manufacturing facilities and construction
costs related to a new wafer fabrication facility in Oregon (see
below), net of retirements and $11.8 million of equipment
refinanced through operating leases by its Japanese manufacturing
subsidiary. This increase was partially offset by $95.4 million
of depreciation on fixed assets, the effect of translation
(approximately $29 million related to the weakening of the yen)
and the reclassification of the Milpitas wafer manufacturing
equipment held for sale (see Note 5 of Notes to Unaudited
Consolidated Condensed Financial Statements). Management expects
net capital additions (excluding operating leases) to approximate
$400 to $450 million for 1996. The Company is currently building
a new 8-inch wafer manufacturing facility in Gresham, Oregon.
The initial phase is expected to require capital spending of
approximately $600 to $800 million and, when fully ramped, will
have the capacity to run approximately 4,000 eight-inch wafers
per week.
During 1995, the Company's manufacturing subsidiary entered into
a 25 billion yen credit line arrangement. As of September 30,
1996, the Company had 17.25 billion yen ($156.2 million)
outstanding under the facility. Borrowings under the line of
credit are for a term of five years with principle payments due
semiannually beginning in July 1997. All borrowings under this
credit line have been converted to fixed rates through the use of
interest rate swaps (see Note 3 of Notes to Unaudited
Consolidated Condensed Financial Statements). Each of the
Company's significant foreign affiliates have lines of credit
available for local currency borrowings. These foreign bank
lines of credit were not material as of September 30, 1996.
The Company believes that its level of financial resources is
an important competitive factor in its industry. Accordingly,
the Company may, from time to time, seek additional equity or
debt financing. 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 through the foreseeable future. There can be no
assurance that such additional financing will be available when
needed or, if available, will be on favorable terms. Any future
equity financing will decrease existing stockholders' percentage
equity ownership and may, depending on the price at which the
equity is sold, result in dilution.
Part II
Item 1 Legal Proceedings
Reference is made to Item 3, Legal Proceedings, of
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995 for a discussion of certain pending legal
proceedings. As indicated therein, Texas Instruments (TI) filed
an appeal in the United States Court of Appeals for the Federal
Circuit (CAFC) challenging the United States District Court's
decision that the Company's encapsulation process did not
infringe the TI patents. In July 1996, the CAFC issued its
decision affirming the U.S. District Court's holding in favor of
the Company. In August 1996, TI filed a petition for
reconsideration of the CAFC's decision and requested that the
matter be heard inbanc by the CAFC. In September 1996, TI's
petition was denied. The Company believes that the probability
of a significant loss is remote. No assurance can be given,
however, that this matter will be resolved without the payment of
damages and other costs.
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
None
Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly
authorized.
LSI LOGIC CORPORATION
(Registrant)
Date: November 7, 1996 By /s/ R. Douglas Norby
R. Douglas Norby
Executive Vice
President and
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 Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Primary Earnings
Per Share
Net income $ 27,743 $ 65,542 $116,523 $166,547
Average common
and common equivalent
shares:
Average common
shares outstanding 128,524 127,648 129,176 120,509
Dilutive options 1,700 4,475 2,347 4,135
130,224 132,123 131,523 124,644
Earnings per common
and common equivalent
share $ 0.21 $ 0.50 $ 0.89 $ 1.34
Fully Diluted Earnings
Per Share
Net income $ 27,743 $ 65,542 $116,523 $166,547
Interest expense
on convertible
subordinated debt,
net of tax effect 1,542 1,542 4,625 4,625
Adjusted net income $ 29,285 $ 67,084 $121,148 $171,172
Average common and
common equivalent
shares on a fully
diluted basis:
Average common
shares outstanding 128,524 127,648 129,176 120,509
Convertible
subordinated debt 11,734 11,734 11,734 11,734
Dilutive options 1,842 4,746 2,349 4,989
142,100 144,128 143,259 137,232
Fully diluted
earnings per
common and common
equivalent share $ 0.21 $ 0.47 $ 0.85 $ 1.25
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 227,645
<SECURITIES> 484,139
<RECEIVABLES> 239,485
<ALLOWANCES> 3,559
<INVENTORY> 109,695
<CURRENT-ASSETS> 1,112,972
<PP&E> 1,319,895
<DEPRECIATION> 525,877
<TOTAL-ASSETS> 1,999,517
<CURRENT-LIABILITIES> 365,269
<BONDS> 143,750
<COMMON> 1,283
0
0
<OTHER-SE> 1,272,296
<TOTAL-LIABILITY-AND-EQUITY> 1,999,517
<SALES> 936,906
<TOTAL-REVENUES> 936,906
<CGS> 528,377
<TOTAL-COSTS> 528,377
<OTHER-EXPENSES> 258,298
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,241
<INCOME-PRETAX> 162,390
<INCOME-TAX> 45,469
<INCOME-CONTINUING> 116,523
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 116,523
<EPS-PRIMARY> 0.89
<EPS-DILUTED> 0.85
</TABLE>
