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 June 30, 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 July 31, 1996 there were 129,269,770 shares of registrant's
Common Stock, $.01 par value, outstanding.
LSI LOGIC CORPORATION
Form 10-Q
FOR THE QUARTER ENDED JUNE 30, 1996
INDEX
Page
No.
PART I Financial Information
Item 1 Financial Statements
Consolidated Condensed Balance Sheets -
June 30, 1996 and December 31, 1995 3
Consolidated Condensed Statements of
Operations - Three-Month and Six-Month
Periods Ended June 30, 1996 and 1995 4
Consolidated Condensed Statements of
Cash Flows - Six-Month Periods
Ended June 30, 1996 and 1995 5
Notes to 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 4 Submission of Matters to a Vote of
Security Holders 14
Item 6 Exhibits and Reports on Form 8-K 14
PART I
Item 1. Financial Statements
<TABLE>
<CAPTION>
LSI LOGIC CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except per share amount)
(Unaudited)
June 30, December 31,
1996 1995
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 222,788 $ 172,780
Short-term investments 490,909 512,765
Accounts receivable, less
allowance for doubtful
accounts of $2,956 and $3,486 240,998 230,980
Inventories 123,894 139,857
Other current assets 55,994 80,348
Total current assets 1,134,583 1,136,730
Property and equipment, net 738,878 638,282
Other assets 86,807 74,575
Total assets $ 1,960,268 $1,849,587
LIABILITIES AND STOCKHOLDERS EQUITY
Accounts payable $ 155,535 $ 165,725
Accrued salaries, wages
and benefits 32,547 34,825
Accrued restructuring costs 18,600 22,700
Other accrued liabilities 43,724 42,315
Income taxes payable 85,604 73,649
Current portion of long-term
obligations and short-term
borrowings 10,111 56,569
Total current liabilities 346,121 395,783
Long-term obligations 328,181 222,388
Deferred income taxes 13,138 8,514
Minority interest in subsidiaries 6,165 6,656
Commitments and contingencies - -
Stockholders equity:
Preferred shares; 2,000 shares
authorized - -
Common stock; $.01 par value;
250,000 shares authorized;
129,233 and 129,303 shares
outstanding 1,292 1,293
Additional paid-in capital 835,982 853,538
Retained earnings 393,970 305,190
Cumulative translation adjustment 35,419 56,225
Total stockholders equity 1,266,663 1,216,246
Total liabilities and
stockholders equity $1,960,268 $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 Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues $325,359 $307,066 $636,711 $587,224
Costs and expenses:
Cost of revenues 176,454 162,305 353,303 315,704
Research and
development 44,859 27,983 85,804 52,361
Sales, general
and administrative 42,010 40,143 83,195 79,478
Total costs
and expenses 263,323 230,431 522,302 447,543
Income from
operations 62,036 76,635 114,409 139,681
Interest expense (3,386) (4,117) (6,594) (8,300)
Interest income
and other 6,165 7,240 15,941 12,721
Income before income
taxes and minority
interest 64,815 79,758 123,756 144,102
Provision for
income taxes 18,150 22,333 34,658 40,349
Income before
minority interest 46,665 57,425 89,098 103,753
Minority interest
in net income
of subsidiaries 169 1,680 318 2,748
Net income $ 46,496 $ 55,745 $ 88,780 $101,005
Net income per share:
Primary $ 0.35 $ 0.44 $ 0.67 $ 0.82
Fully diluted $ 0.34 $ 0.42 $ 0.64 $ 0.77
Common share and common share equivalents
used in computing per share amounts:
Primary 131,624 125,855 131,747 123,313
Fully diluted 143,359 137,939 143,486 135,689
See accompanying notes to unaudited consolidated condensed
financial statements.
</TABLE>
<TABLE>
<CAPTION>
LSI LOGIC CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
June 30,
1996 1995
<S> <C> <C>
Operating activities:
Net income $ 88,780 $ 101,005
Adjustments:
Depreciation and amortization 71,552 71,037
Minority interest in net income
of subsidiaries 318 1,680
Change in:
Accounts receivable (13,881) (20,881)
Inventories 13,774 (13,180)
Other assets 2,278 (14,389)
Accounts payable (4,969) (11,957)
Accrued and other liabilities 27,680 19,654
Accrued restructuring costs (1,882) 509
Net cash provided by operating
activities 183,650 133,478
Investing activities:
Purchases of debt and equity
securities (611,596) (118,151)
Maturities and sales of
debt and equity securities 630,473 118,909
Purchase of restricted equity
securities (6,252) (13,966)
Purchases of property and
equipment, net of retirements
and refinancings (190,158) (110,344)
Acquisition of stock from
minority interest holders (664) (133,704)
Net cash used for investing
activities (178,197) (257,256)
Financing activities:
Proceeds from borrowings 117,592 16,726
Repayment of debt obligations (49,919) (13,628)
Issuance of common stock 9,684 167,062
Repurchase of common stock (27,241) -
Net cash provided by financing
activities 50,116 170,160
Effect of exchange rate changes
on cash and cash equivalents (5,561) 7,535
Increase (decrease) in cash and
cash equivalents 50,008 53,917
Cash and cash equivalents at
beginning of period 172,780 224,503
Cash and cash equivalents
at end of period $ 222,788 $ 278,420
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 financial statements refer to the quarter's calendar
month end for convenience. The results of operations for the
quarter ended June 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 June 30,
1996, consisted primarily of U.S. and foreign corporate debt
securities, time deposits, auction rate preferred stock,
commercial paper, bank notes, and U.S. and foreign government and
agency securities. Cash equivalents and short-term investments
held at June 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 June 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 June 30, 1996, an outstanding currency swap contract,
settling in September 1996, hedged an intercompany loan.
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.
Additionally, the Company has several interest rate swap
contracts outstanding which convert the interest associated with
15.5 billion yen ($141.6 million) of borrowings by the Company s
Japanese manufacturing subsidiary from adjustable to fixed rates
(ranging from 2.65% to 3.035%). The interest rate swaps cover
payments to be made under term borrowings through 2001. In March
1996, the Company entered into an interest rate swap with various
start dates through October 1996. The swap converts a total of
12 billion of current and future yen credit line drawdowns to
fixed rates ranging from 2.90% to 3.24%. As of June 30, 1996,
credit line drawdowns of 5.25 billion yen ($48.0 million) were
covered under the 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>
June 30, December 31,
Buy/(Sell): 1996 1995
<S> <C> <C>
Japanese Yen $ - $ 18,474
U.S. Dollar - (25,492)
Pound Sterling 1,850 5,614
Deutschemark (1,869) (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
June 30, 1996 and December 31, 1995.
Note 4 - Balance sheet and cash flow information (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
<S> <C> <C>
Inventories:
Raw materials $ 37,743 $ 44,758
Work-in-process 41,756 47,193
Finished Goods 44,395 47,906
Total $ 123,894 $ 139,857
June 30, June 30,
1996 1995
Cash Paid for:
Income taxes $ 11,700 $ 17,600
Interest 7,900 8,600
</TABLE>
Note 5 - During the first six months of 1996, $2.1 million was
charged against the restructuring reserves. These charges were
primarily for the shutdown of the Milpitas wafer fabrication
facility (which had previously been delayed as the Company
assessed its capacity requirements in response to favorable
market conditions) and included severance payments to employees
($1.5 million) and charges in connection with owned and leased
equipment ($300,000). Other restructuring charges were
attributable to ongoing maintenance costs of its vacant German
facility ($180,000), offset in part by a decrease in reserves due
to translation adjustments as a result of the weakening
Deutschemark ($120,000). Reserves at June 30, 1996 include
approximately $4.6 million for remaining costs related to the
closure of the Milpitas manufacturing facility and continued
maintenance of the vacant Braunschweig facility and $17 million
for legal and other corporate matters. Management believes that
the total reserves established are adequate to cover
uncertainties in connection with these matters. See further
discussion in Management s Discussion and Analysis of Results of
Operations and Financial Condition, Part I, Item 2 of this Form
10-Q.
Note 6 - The Company's effective tax rate differs from the
statutory rate due to the Company's expected earnings mix in its
foreign subsidiaries taxed at lower rates and anticipated
utilization of prior loss carryovers and other tax credits.
Note 7- 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 quarter of 1996, the Company
repurchased one million shares of its common stock from the open
market for approximately $27 million. The transactions were
recorded as reductions to common stock and additional paid-in
capital. Subsequent to the end of the second quarter of 1996,
the Company repurchased an additional one million shares of its
common stock from the open market for approximately $18 million.
It is the Company s intent to retire the common stock acquired in
these transactions.
Note 8 - 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 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 that the matter he
heard inbanc by the CAFC. The Company continues to believe that
the final outcome of such matter discussed will not have a
material adverse effect on the Company s consolidated financial
position or results of operations. No assurance can be given,
however, that this matter will be resolved without the payment of
damages and other costs or that damages will not be increased to
an amount in excess of the Company s reserves with the potential
for 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
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, 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 second quarter and first half of 1996 increased
6.0% and 8.4% to $325.4 million and $636.7 million, respectively,
as compared to the same periods in 1995. The increase in
revenues was primarily due to increased demand for the Company's
products for consumer product applications. Production volume
grew during the first half of 1996 compared to the same period a
year ago due to the Company's continued increase in manufacturing
capacity and effectiveness in improving manufacturing yield
ratios at its various manufacturing facilities throughout 1995
and during the first half of 1996. A slowdown in new orders
during the second quarter of 1996 is likely to cause revenues in
the third quarter of 1996 to decline from second quarter levels.
Key elements of the statements of operations, expressed as a
percentage of revenues, were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Gross margin 45.8% 47.1% 44.5% 46.2%
Research and development
expenses 13.8% 9.1% 13.5% 8.9%
Selling, general and
administrative
expenses 12.9% 13.1% 13.1% 13.5%
Income from operations 19.1% 25.0% 18.0% 23.8%
</TABLE>
Gross margin declined to 45.8% and 44.5% during the second
quarter and first half of 1996, respectively from 47.1% and 46.2%
in the same periods a year ago. The decline was primarily
attributable to lower factory utilization. The Company's
operating environment, combined with the resources required to
operate in the semiconductor industry, requires managing a wide
variety of factors such as factory and capacity utilization,
manufacturing yields, product mix, availability of certain raw
materials, terms negotiated with third-party subcontractors and
foreign currency exchange rate fluctuations. Gross profit margin
for the first two quarters of 1996 may not be indicative of
expected results for the remainder of the fiscal year.
The Company has significantly increased its volume production
capability from operating levels in 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, lower factory utilization during the second quarter of
1996 coupled with the possibility of lower revenues may have a
negative impact on gross margin during the third quarter of 1996.
The Company has pushed out completion of the first phase of its
Gresham manufacturing facility based on expected future capacity
requirements and current capacity availability. This new
facility is currently expected to become operational by the first
quarter of 1998. If demand does not absorb the Company s
available capacity at a sufficient rate, the Company's 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 second quarter and first half of 1996
decreased approximately 27% and 18%, 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 during the period. However, there is no assurance
that future changes in the relative strength of the yen will not
have a material effect on gross margin or operating results.
Research and development (R&D) expenses increased $16.9 million
and $33.4 million, respectively, in the second quarter and first
half of 1996 compared to the same periods in 1995. The increase
in R&D expenses is primarily attributed to increased staffing
levels as the Company continues to invest in the development of
higher technology products and the related manufacturing
processes, packaging and design processes. As a percentage of
revenue, R&D expenses increased to 13.8% and 13.5%, respectively,
in the second quarter and first half of 1996 compared with the
same periods a year ago. The increase resulted primarily from
the Company's continued growth in its investment in future
products and processes which outpaced the growth in revenues
during these periods. The Company anticipates continuing its
investment in R&D at a rate of 14% to 16% of revenues throughout
the remainder of 1996.
Selling, general and administrative (SG&A) expenses increased
$1.9 million and $3.7 million, respectively, in the second
quarter and first half of 1996 compared to the same periods in
1995. The increase in total SG&A expenses was primarily due to
increased staffing levels. SG&A expenses declined as a
percentage of revenues to 12.9% and 13.1%, respectively, in the
second quarter and first half of 1996 compared to 13.1% and 13.5%
for the same periods in 1995. The Company expects that SG&A
expenses will continue to increase in absolute dollars although
such expenses may fluctuate as a percentage of revenues on a
quarterly basis.
Interest expense for the second quarter and first half of 1996
decreased $.7 million and $1.7 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 $1.1 million during the
second quarter of 1996 as compared to the second quarter of 1995.
The decrease is primarily related to fixed asset disposals and
foreign currency exchange losses offset in part by higher
interest income during the second quarter. Interest income and
other increased $3.2 million during the first half 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 during the first half of 1996.
The Company recorded a provision for income taxes for the first
half 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, substantially
completed 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 400
employees.
The following table sets forth the remaining 1992
restructuring reserves at June 30, 1996 and December 31,
1995 (which are accounted for as components of fixed assets and
current liabilities) and charges taken during the first six
months of 1996 (in thousands):
<TABLE>
<CAPTION>
Balance Balance
12/31/95 Utilized* Adjusted 6/30/96
<S> <C> <C> <C> <C>
Fixed asset related
charges $ 1,900 $ (300) $ - $ 1,600
Other provisions for
phase-down and
consolidation of
manufacturing
facilities 2,800 (300) - 2,500
Payments to employees
for severance (a) - (1,500) 2,000 500
Relocation, lease
terminations and
other corporate
matters 19,000 - (2,000) 17,000
Total $ 23,700 $ (2,100) $ - $21,600
* Net of cumulative currency translation adjustments. Amounts
utilized represent both cash and non-cash charges. Cash charges
totaled approximately $1,750,000 during the first half of 1996.
(a) Amounts utilized represent cash payments related to the
severance of approximately 150 employees.
</TABLE>
During the first six months of 1996, $2.1 million was charged
against the restructuring reserves. These charges were primarily
for the shutdown of the Milpitas wafer fabrication facility
(which had previously been delayed as the Company assessed its
capacity requirements in reponse to favorable market conditions)
and included severance payments to employees ($1.5 million) and
charges in connection with owned and leased equipment ($300,000).
Other restructuring charges were attributable to ongoing
maintenance costs of its vacant German facility ($180,000),
offset in part by a decrease in reserves due to translation
adjustments as a result of the weakening Deutschemark ($120,000).
Reserves at June 30, 1996 include approximately $4.6 million for
remaining costs related to the closure of the Milpitas
manufacturing facility and continued maintenance of the vacant
Braunschweig facility and $17 million for legal and other
corporate matters. 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 $28.2 million during the first half of
1996 to $713.7 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 $47.6 million to $788.5 million at June 30, 1996 from
$740.9 million at December 31, 1995.
During the first half of 1996, the Company generated $183.7
million of cash and cash equivalents from its operating
activities, which is an increase of $50.2 million in cash and
cash equivalents provided from operating activities during the
first half of 1995. The increase is primarily attributable to
changes in cash invested in inventories and other assets during
the first half of 1996 compared to the first half of 1995. Cash
and cash equivalents used for investing activities during the
first half of 1996 were $178.2 million compared to $257.3
million during the same period in 1995. The decrease was
primarily attributable to the repurchase of all the minority
interest in the Company's manufacturing subsidiary during the
first half of 1995 for $125.9 million and an increase in the net
maturities and sales of short term investments of $18.9 million
in the first half of 1996, partially offset by a $79.8 million
increase in the net purchasing activity of property and equipment
during the period. Cash and cash equivalents provided by
financing activities during the first half of 1996 were $50.1
million compared to $170.1 million in the first half of 1995.
The decrease is primarily attributed to proceeds of $157.6
million received by the Company from a stock offering in February
1995. Additionally, during the first half of 1996, the Company
increased borrowings by $67.7 million relating primarily to
financing capacity expansion at its Japanese manufacturing
subsidiary and repurchased one million shares of the Company s
common stock for $27.2 million.
Net property and equipment was $738.9 million at June 30, 1996,
an increase of $100.6 million compared to $638.3 million at the
end of 1995. The increase was primarily due to $190.2 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,
partially offset by $62.5 million of depreciation on fixed assets
and the effect of translation (approximately $24.9 million),
primarily related to the weakening of the yen. 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 June 30, 1996,
the Company had 15.5 billion yen ($141.6 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 June 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 that
the Companys 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 that the matter he heard inbanc by the CAFC.
The Company continues to believe that the final outcome of this
matter will not have a material adverse effect on the Company's
consolidated financial position or results of operations. No
assurance can be given, however, that this matter will be
resolved without the payment of damages and other costs or that
damages will not be increased to an amount in excess of the
Company's reserves with the potential for having an adverse
effect on the Company.
Item 4 Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of LSI Logic Corporation
was held on May 10, 1996 in New York, New York. Of the total
128,467,131 shares outstanding as of the record date, 115,310,922
shares (89.7%) were present or represented by proxy at the
meeting. The table below presents the results of election of the
Company's board of directors:
Votes Votes
For Withheld
Wilfred J. Corrigan 115,019,295 291,627
Malcolm R. Currie 115,006,574 304,348
T.Z. Chu 115,012,159 298,763
James H. Keyes 115,030,502 280,420
R. Douglas Norby 115,022,757 288,165
The stockholders ratified the appointment of Price
Waterhouse LLP as the Company's independent accountants for the
fiscal year ended December 31, 1996. The proposal received
115,012,042 affirmative votes, 128,910 negative votes, 169,970
abstentions, and zero non-votes.
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: August 12, 1996 By /s/ Albert A. Pimentel
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 Six Months Ended
June 30, June 30.
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Primary Earnings
Per Share
Net income $ 46,496 $ 55,745 $ 88,780 $101,005
Average common and
common equivalent
shares:
Average common
shares outstanding 129,019 121,824 129,106 119,530
Dilutive options 2,605 4,031 2,641 3,783
131,624 125,855 131,747 123,313
Earnings per common
and common
equivalent share $ 0.35 $ 0.44 $ 0.67 $ 0.82
Fully Diluted
Earnings Per Share
Net income $ 46,496 $ 55,745 $ 88,780 $101,005
Interest expense
on convertible
subordinated debt,
net of tax effect 1,542 1,542 3,083 3,083
Adjusted net income $ 48,038 $ 57,287 $ 91,863 $104,088
Average common
and common
equivalent shares
on a fully diluted
basis:
Average common
shares
outstanding 129,019 121,824 129,106 119,530
Convertible
subordinated
debt 11,735 11,735 11,735 11,735
Dilutive options 2,605 4,380 2,645 4,424
143,359 137,939 143,486 135,689
Fully diluted earnings
per common and
common
equivalent share $ 0.34 $ 0.42 $ 0.64 $ 0.77
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 222,788
<SECURITIES> 490,909
<RECEIVABLES> 243,954
<ALLOWANCES> 2,956
<INVENTORY> 123,894
<CURRENT-ASSETS> 1,134,583
<PP&E> 1,278,451
<DEPRECIATION> 539,584
<TOTAL-ASSETS> 1,960,268
<CURRENT-LIABILITIES> 346,121
<BONDS> 143,750
<COMMON> 1,292
0
0
<OTHER-SE> 1,265,371
<TOTAL-LIABILITY-AND-EQUITY> 1,960,268
<SALES> 636,711
<TOTAL-REVENUES> 636,711
<CGS> 353,303
<TOTAL-COSTS> 353,303
<OTHER-EXPENSES> 168,999
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,594
<INCOME-PRETAX> 123,756
<INCOME-TAX> 34,658
<INCOME-CONTINUING> 88,780
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 88,780
<EPS-PRIMARY> 0.67
<EPS-DILUTED> 0.64
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