<PAGE> 1
UNITED STATES
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 MARCH 29, 1998 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 May 7, 1998 there were 140,758,922 shares of registrant's Common Stock,
$.01 par value, outstanding.
<PAGE> 2
LSI LOGIC CORPORATION
Form 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998
INDEX
<TABLE>
<CAPTION>
Page
No.
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Condensed Balance Sheets - March 31, 1998 and
December 31, 1997 3
Consolidated Condensed Statements of Operations - Three-Month
Periods Ended March 31, 1998 and 1997 4
Consolidated Condensed Statements of Cash Flows - Three-Month
Periods Ended March 31, 1998 and 1997 5
Notes to Consolidated Condensed Financial Statements 6
Item 2 Management's Discussion and Analysis of Results of Operations
and Financial Condition 10
PART II OTHER INFORMATION
Item 1 Legal Proceedings 14
Item 6 Exhibits and Reports on Form 8-K 14
</TABLE>
2
<PAGE> 3
PART I
ITEM 1. FINANCIAL STATEMENTS
LSI LOGIC CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 128,930 $ 104,571
Short-term investments 328,828 386,369
Accounts receivable, less allowance for doubtful
accounts of $2,325 and $2,597 228,259 210,141
Inventories 100,390 102,267
Other current assets 65,049 67,113
----------- -----------
Total current assets 851,456 870,461
Property and equipment, net 1,143,819 1,123,909
Other assets 136,946 132,542
----------- -----------
Total assets $ 2,132,221 $ 2,126,912
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 202,186 $ 211,135
Accrued salaries, wages and benefits 40,542 38,422
Other accrued liabilities 49,334 56,802
Income taxes payable 73,665 87,257
Current portion of long-term obligations and
short-term borrowings 44,837 44,615
----------- -----------
Total current liabilities 410,564 438,231
----------- -----------
Long-term obligations and deferred income taxes 117,874 117,511
----------- -----------
Minority interest in subsidiaries 5,283 5,197
----------- -----------
Commitments and contingencies -- --
Stockholders' equity:
Preferred shares; $.01 par value; 2,000 shares
authorized -- --
Common stock; $.01 par value; 450,000 shares
authorized; 140,303 and 140,161 shares outstanding 1,403 1,401
Additional paid-in capital 966,526 965,422
Retained earnings 642,065 611,622
Cumulative translation adjustment (11,494) (12,472)
----------- -----------
Total stockholders' equity 1,598,500 1,565,973
----------- -----------
Total liabilities and stockholders' equity $ 2,132,221 $ 2,126,912
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements.
3
<PAGE> 4
LSI LOGIC CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1998 1997
-------- ---------
<S> <C> <C>
Revenues $324,850 $ 308,388
-------- ---------
Costs and expenses:
Cost of revenues 183,106 164,120
Research and development 63,842 50,384
Selling, general and administrative 43,752 45,058
-------- ---------
Total costs and expenses 290,700 259,562
-------- ---------
Income from operations 34,150 48,826
Interest expense -- (1,497)
Interest income and other 6,460 6,087
-------- ---------
Income before income taxes 40,610 53,416
Provision for income taxes 10,167 15,009
Net income $ 30,443 $ 38,407
======== =========
Net income per share:
Basic $ 0.22 $ 0.30
======== =========
Diluted $ 0.22 $ 0.28
======== =========
Shares used in computing per share amounts:
Basic 140,242 130,059
======== =========
Dilutive 141,590 143,933
======== =========
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements.
4
<PAGE> 5
LSI LOGIC CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
Operating activities:
Net income $ 30,443 $ 38,407
Adjustments:
Depreciation and amortization 45,272 39,649
Minority interest in net income of subsidiaries 58 185
Changes in:
Accounts receivable (17,635) (5,888)
Inventories 2,257 7,094
Other assets (2,306) (9,553)
Accounts payable (9,108) 32,659
Accrued and other liabilities (19,024) 3,582
--------- ---------
Net cash provided by operating activities 29,957 106,135
--------- ---------
Investing activities:
Purchases of debt and equity securities (140,586) (252,544)
Maturities and sales of debt and equity securities 197,995 278,283
Purchase of restricted equity securities (2,866) (4,395)
Purchases of property and equipment, net of retirements
and refinancings (60,758) (71,565)
--------- ---------
Net cash used for investing activities (6,215) (50,221)
--------- ---------
Financing activities:
Proceeds from borrowings -- 34,193
Repayment of debt obligations (48) (20,308)
Issuance of common stock 1,106 2,414
--------- ---------
Net cash provided by financing activities 1,058 16,299
--------- ---------
Effect of exchange rate changes on cash and cash (441) (4,895)
--------- ---------
equivalents
Increase in cash and cash equivalents 24,359 67,318
Cash and cash equivalents at beginning of period 104,571 147,059
--------- ---------
Cash and cash equivalents at end of period $ 128,930 $ 214,377
========= =========
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements.
5
<PAGE> 6
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, 1997.
For financial reporting purposes, the Company reports on a 13 or 14
week quarter with a year ending 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 March 31, 1998 are not necessarily
indicative of the results to be expected for the full year.
One customer represented 17% of the Company's consolidated revenue
during the first quarter of 1998.
Note 2 - Cash equivalents and short-term investments at March 31, 1998,
consisted primarily of U.S. and foreign corporate debt securities,
commercial paper, auction rate preferred stock, U.S. and foreign
government and agency securities and time deposits. Cash equivalents
and short-term investments held at March 31, 1998 and at December 31,
1997 approximate fair market value and it is the Company's intention
to hold these investments for one year or less. As of March 31, 1998,
contractual maturities of available-for-sale securities were $328.8
million maturing within one year. 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, 1998 and 1997.
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 contract, currency swap, interest rate swap and
currency option contracts, to manage its exposure associated with
firm intercompany and third-party transactions and net asset and
liability positions denominated in non-functional currencies. The
Company does not hold derivative financial instruments for trading
purposes.
As of March 31, 1998, the Company had several interest rate swap
contracts outstanding which convert the interest associated with
14.187 billion yen ($110 million) of borrowings by the Company's
Japanese manufacturing subsidiary from adjustable to fixed rates
(ranging from 1.75% to 2.46%). The interest rate swaps cover payments
to be made under term borrowings through 2001. Current period gains
and losses associated with the interest rate swaps are included in
interest expense, or as other gains and losses at such time as
related borrowings are terminated.
The Company enters into forward contracts, currency swaps and
currency options to hedge firm commitment, intercompany and third
party exposures. There were no foreign exchange related
6
<PAGE> 7
hedge contracts outstanding as of March 31, 1998 and December 31,
1997. The contracts hedging firm intercompany asset and liability
positions denominated in non-functional currencies expired on the
last day of the first quarter ended March 31, 1998 and year ended
December 31, 1997. Premiums associated with option contracts are
amortized over the life of the contracts.
Currency swap contracts outstanding during the quarter are considered
identifiable hedges and realized and unrealized gains and losses are
deferred until settlement of the underlying commitments. They are
recorded as other gains or losses when a hedged transaction is no
longer expected to occur. Deferred foreign gains and losses were not
material at March 31, 1998 and December 31, 1997. Foreign currency
transaction gains and losses included in interest income and other
were immaterial for first quarters ended March 31, 1998 and 1997,
respectively.
Note 4 - The following is a reconciliation of the numerators and denominators
of the basic and diluted per share computations as required by
Statement of Accounting Standards No. 128, "Earnings Per Share
(EPS)."
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------------------------------
1998 1997
-------------------------------------------------------------
Per-Share Per-Share
Income* Shares** Amount Income* Shares** Amount
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net income available
to common stockholders $30,443 140,242 $0.22 $38,407 130,059 $0.30
----- -----
Effect of Dilutive
Securities
Common stock equivalents 1,348 2,913
5-1/2% convertible
subordinated notes 1,279 10,961
Diluted EPS
Net income available
to common stockholders $30,443 141,590 $0.22 $39,686 143,933 $0.28
----- -----
</TABLE>
*Numerator **Denominator
Options to purchase approximately 6,865,866 and 862,725 which were
outstanding at March 31, 1998 and 1997 respectively, were not
included in the calculation because the exercise prices were greater
than the average market price of common shares in each respective
quarter. The exercise price ranges of these options were $25.31 to
$58.13 and $33.88 to $58.13 at March 31, 1998 and 1997, respectively.
7
<PAGE> 8
Note 5 - Balance sheet and cash flow information (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------- ------------
<S> <C> <C>
Inventories:
Raw materials $ 25,746 $ 19,892
Work-in-process 51,878 58,621
Finished Goods 22,766 23,754
-------- --------
Total $100,390 $102,267
======== ========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1998 1997
------- -------
<S> <C> <C>
Cash Paid for:
Income taxes $22,372 $22,000
Interest $ 847 $ 5,500
</TABLE>
During the three-month period ended March 31, 1998, the Company
capitalized $15.7 million related to the preproduction engineering
costs for its Gresham, Oregon manufacturing facility. The unamortized
preproduction balance at March 31, 1998 is $49.7 million. In April
1998, The Accounting Standards Executive Committee (AcSEC) released
Statement of Position (SOP) No. 98-5, "Reporting on the Costs of
Start-up Activities". The new SOP is effective for fiscal years
beginning after December 15, 1998 and requires companies to expense
all costs incurred or unamortized in connection with start-up
activities as of January 1, 1999. The Company will expense the
unamortized preproduction balance as of the effective date and
present it as a cumulative effect of a change in accounting principle
in accordance with SOP 98-5.
Note 6 - During the first three months of 1998, the Company's Japanese sales
affiliate sold approximately $35 million of its accounts receivables
through non-recourse financing programs with two Japanese banks.
These receivables were discounted at short-term Yen borrowing rates
(averaging approximately 0.46%) and related fees were not material.
Note 7 - In January 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130,"Reporting Comprehensive Income".
Comprehensive income is defined as the change in equity of a company
during a period from transactions and other events and circumstances
excluding transactions resulting from investments by owners and
distributions to owners. The primary difference between net income
and comprehensive income, for the Company, is from foreign currency
translation adjustments and gains and losses on a long-term
intercompany loan with the Company's Japanese affiliate.
Comprehensive income for the current reporting and comparable period
in the prior year is as follows:
8
<PAGE> 9
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1998 1997
------- -------
<S> <C> <C>
Comprehensive Income $31,088 $22,228
======= =======
</TABLE>
Note 8 - A discussion of certain pending legal proceedings is included in Item
3 of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997. The information provided therein remains
unchanged. The Company continues to believe that the final outcome of
such matters 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 these matters will be
resolved without the Company becoming obligated to make payments or
to pay other costs to the opposing parties, with the potential for
having an adverse effect on the Company's financial position or its
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.
9
<PAGE> 10
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
predominantly 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 economic conditions of the respective countries in which the Company
operates. The Company utilizes various instruments, primarily forward exchange,
currency swap and currency option contracts, to manage its exposure associated
with currency fluctuations on intercompany and certain foreign currency
denominated commitment. At March 31, 1998, the Company had no foreign currency
hedge contracts outstanding (see Note 3 to the Unaudited Consolidated Condensed
Financial Statements). Despite its hedging activities, the Company continues to
be exposed to the risks associated with fluctuation of foreign currency exchange
rates, particularly the Japanese yen. There can be no assurance that such
fluctuation will not cause a material adverse effect on the Company's financial
position or results of operations.
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.
There have been no significant changes in the year 2000 issue during the first
three months of 1998 as compared to the discussion in the Company's 1997 Annual
Report on Form 10-K for the year ended December 31, 1997.
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 1997 Annual Report on Form 10-K for the
year ended December 31, 1997.
Statements in this discussion and analysis contain forward looking information
and involve known and
10
<PAGE> 11
unknown risks and uncertainties, which may cause the Company's actual results in
future periods to be materially different from any future performance suggested
herein. In addition to the factors discussed above, such factors may include,
but may not necessarily be limited to fluctuations in customer demand, both in
timing and volumes, and fluctuations in currency exchange rates. Also, the
Company's ability to have available an appropriate amount of production capacity
in a timely manner can significantly impact the Company's financial performance.
The timing of new technology and product introductions and the risk of early
obsolescence are also important factors. Further, the Company operates in an
industry sector where securities values are highly volatile and may be
influenced by economic and other factors beyond the Company's control. (See
additional discussion contained in "Risk Factors", set forth in Part 1 of the
Company's report on Form 10-K for the year ended December 31, 1997.)
RESULTS OF OPERATIONS
Revenues for the first quarter of 1998 increased 5.3% to $324.9 million as
compared to the same period in 1997. The increase in revenues was primarily due
to increased demand for the Company's products for communications and consumer
applications, partially offset by overall lower average selling prices when
expressed in dollars. One customer represented 17% of the Company's consolidated
revenues during the first quarter of 1998.
Key elements of the statements of operations, expressed as a percentage of
revenues, were as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1998 1997
---- ----
<S> <C> <C>
Gross margin 43.6% 46.8%
Research and development expenses 19.7% 16.3%
Selling, general and administrative expenses 13.5% 14.6%
Income from operations 10.5% 15.8%
</TABLE>
Gross margin decreased to 43.6% during the first quarter of 1998 from 46.8% in
the same period in 1997. The decrease was primarily related to the combination
of a change in product mix yielding lower margins and overall lower average
selling prices when expressed in dollars, offset partially by improved capacity
utilization. Although the average yen exchange rate for the first three months
of 1998 weakened by approximately 6% from the same period in 1997, the effect on
gross margin and net income was not material due to the Company's yen
denominated sales offsetting a substantial portion of its yen denominated costs
and the Company's hedging of a portion of its remaining yen exposures during
these periods. However, there can be no assurance that future changes in the
relative strength of the yen, or the mix of foreign denominated revenues and
expenses, will not have a material effect on gross margin or operating results.
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. The gross margin
in the first quarter of 1998 may not be indicative of expected results for the
remainder of the fiscal year.
The Company is currently constructing a new manufacturing facility in Gresham,
Oregon. This new facility is expected to become operational during the third
quarter of 1998 to accommodate anticipated future capacity requirements. If
demand does not absorb the Company's available capacity at a sufficient rate, or
if achieved, such demand is not sustained, the Company's gross margin and
operating results could be negatively impacted
11
<PAGE> 12
in future periods.
Research and development (R&D) expenses increased $13.5 million to $63.8 million
during the first quarter of 1998 compared to the same period in 1997. The
increase in R&D expenses is primarily attributable to the Company's continued
development of advanced technology sub-micron products and the related
manufacturing processes, packaging and design processes. As a percentage of
revenues, R&D expenses increased to 19.7% in the first quarter of 1998 compared
to 16.3% during the same period in 1997. As the Company continues its commitment
to technological leadership in the high performance semiconductor market, it
anticipates to continue with an investment rate in R&D of approximately 19% to
20% of revenues in the second quarter of 1998 and 15% to 18% throughout the
second half of 1998.
Selling, general and administrative (SG&A) expenses decreased $1.3 million to
$43.8 million during the first quarter of 1998 compared to the same period in
1997. As a percentage of revenues, SG&A expenses decreased to 13.5% in the first
quarter of 1998 compared to 14.6% during the same period in 1997. The decrease
is primarily related to decreases in certain miscellaneous reserves resulting
from the resolution of certain previously accrued contingencies. These decreases
were offset in part by increased staffing and compensation levels and
information technology costs relating to upgrading the Company's business
systems and infrastructure. The Company expects that SG&A expenses will be
higher in subsequent quarters in 1998 in absolute dollars, however such expenses
may fluctuate as a percentage of revenue on a quarterly basis.
Interest expense for the first quarter of 1998 decreased $1.5 million as
compared to the same period in 1997. The decrease is primarily attributable to
the conversion of all of the Company's $144 million, 5 1/2% Convertible
Subordinated Notes to common stock on March 24, 1997 and the capitalization of
interest as part of the construction at the new manufacturing facility in
Gresham, Oregon.
The Company recorded a provision for income taxes for the first three months of
1998 and 1997 with an effective rate of 25% and 28%, respectively. The reduction
in rate is a result of a change in earnings mix in its foreign subsidiaries
which are taxed at lower rates. The Company's effective tax rate is lower than
the U.S. statutory rate primarily due to the Company's anticipated utilization
of available tax credits and the expected earnings mix in its foreign
subsidiaries.
Financial Condition and Liquidity
The Company's cash, cash equivalents and short-term investments decreased $33.2
million during the first three months of 1998 to $457.8 million from $490.9
million at the end of 1997. The decrease is primarily due to purchases of
property and equipment and repayment of debt obligations, offset in part by an
increase in cash from operations and the issuance of common stock from employee
stock option exercises. Working capital increased $8.7 million to $440.9 million
at March 31, 1998 from $432.2 million at December 31, 1997. The increase is
primarily attributable to a decrease in current liabilities during the first
quarter of 1998.
During the first three months of 1998, the Company generated approximately $30
million of cash and cash equivalents from its operating activities compared with
$106.1 million during the same period in 1997. The decrease in cash and cash
equivalents provided from operations during the first quarter of 1998 as
compared to the same period a year ago is primarily attributable to decreases in
net income before depreciation and amortization, decreases in accounts payable,
decreases in accrued and other liabilities and increases in accounts receivable.
The decrease in accounts payable is a reflection of quicker payment cycles
during the first quarter as compared with the same period in the previous year.
The decrease in accrued and other liabilities is primarily attributable to tax
payments and decreases in various reserves. The increase in accounts receivable
primarily reflects the combination of increased sales and timing of collection
differences during the first quarter of 1998 as compared to the same period in
1997.
12
<PAGE> 13
Cash and cash equivalents used for investing activities during the first three
months of 1998 were $6.2 million compared to $50.2 million during the same
period in 1997. The primary investing activities during the first quarter of
1998, other than short-term investments in available for sale debt and equity
securities, included purchases of property and equipment and additional
investment in non-marketable shares of other technology companies. The Company
believes that maintaining technological leadership in the highly competitive
worldwide semiconductor industry requires substantial ongoing investment in
advanced manufacturing capacity. Capital additions were $60.7 million net of
retirements and refinancings during the first three months of 1998. The
additions were primarily for costs related to the new eight-inch wafer
manufacturing facility in Gresham, Oregon. The Company expects to spend
approximately $104 million during the remainder of 1998 to bring this facility
to operational status.
Cash and cash equivalents provided by financing activities during the first
three months of 1998 totaled approximately $1.1 million. This is attributable
primarily to the issuance of common stock from employee stock option exercises
offset in part by the repayment of debt obligations. There were no repurchases
of common stock by the Company during the quarter.
In December 1996, the Company entered into a credit arrangement with several
banks for a $300 million revolving line of credit expiring in December 1999. The
agreement allows for borrowings at an adjustable interest rate. Interest
payments are due quarterly. The agreement includes financial covenants relating
to senior debt ratio, quick ratio, debt service ratio, subordinated debt and
tangible net worth. At March 31, 1998, the Company did not have any borrowings
outstanding under this credit agreement. In addition, the Company's Japanese
manufacturing subsidiary, JSI, has a credit facility with adjustable interest
rates. Borrowings outstanding under the credit facility are for a term of five
years with principal payments due semiannually beginning July 1997. The Company
must comply with certain financial covenants relating to profitability, tangible
net worth, working capital, senior and total debt leverage and subordinated
indebtedness. At March 31, 1998, the Company was in compliance with these
covenants. As of March 31, 1998, JSI had 14 billion yen ($110 million)
outstanding under the facility. 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 March 31, 1998.
The Company believes that existing liquid resources and funds generated from
operations combined with its ability to borrow funds will be adequate to meet
its operating and capital requirements and obligations through the foreseeable
future. 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. However, 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.
Recent Accounting Pronouncements
In April 1998, The Accounting Standards Executive Committee (AcSEC) released
Statement of Position (SOP) No. 98-5, "Reporting on the Costs of Start-up
Activities". The new SOP is effective for fiscal years beginning after December
15, 1998 and requires companies to expense all costs incurred or unamortized in
connection with start-up activities as of January 1, 1999. The Company will
expense the unamortized preproduction balance as of the effective date and
present it as a cumulative effect of a change in accounting principle in
accordance with SOP 98-5.
13
<PAGE> 14
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,
1997 for a discussion of certain pending legal proceedings. The
information provided at such reference regarding other matters
remains unchanged. The Company continues to believe that the final
outcome of such matters 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 these matters
will be resolved without the Company becoming obligated to make
payments or to pay other costs to the opposing parties, with the
potential for having an adverse effect on the Company's financial
position or its results of operations.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
14
<PAGE> 15
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 7, 1998 By /s/ R. Douglas Norby
-----------------------------
R. Douglas Norby
Executive Vice President Finance &
Chief Financial Officer
15
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 128,930
<SECURITIES> 328,828
<RECEIVABLES> 230,584
<ALLOWANCES> 2,325
<INVENTORY> 100,390
<CURRENT-ASSETS> 851,456
<PP&E> 1,792,519
<DEPRECIATION> 648,700
<TOTAL-ASSETS> 2,132,221
<CURRENT-LIABILITIES> 410,564
<BONDS> 0
0
0
<COMMON> 1,403
<OTHER-SE> 1,597,097
<TOTAL-LIABILITY-AND-EQUITY> 2,132,221
<SALES> 324,850
<TOTAL-REVENUES> 324,850
<CGS> 183,106
<TOTAL-COSTS> 183,106
<OTHER-EXPENSES> 107,594
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 34,150
<INCOME-TAX> 10,167
<INCOME-CONTINUING> 30,443
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,443
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 214,377
<SECURITIES> 544,210
<RECEIVABLES> 189,589
<ALLOWANCES> 3,961
<INVENTORY> 80,723
<CURRENT-ASSETS> 1,094,446
<PP&E> 1,347,137
<DEPRECIATION> 543,713
<TOTAL-ASSETS> 1,991,237
<CURRENT-LIABILITIES> 344,164
<BONDS> 0
0
0
<COMMON> 1,411
<OTHER-SE> 1,472,825
<TOTAL-LIABILITY-AND-EQUITY> 1,991,237
<SALES> 308,388
<TOTAL-REVENUES> 308,388
<CGS> 164,120
<TOTAL-COSTS> 164,120
<OTHER-EXPENSES> 95,442
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,497
<INCOME-PRETAX> 53,416
<INCOME-TAX> 15,009
<INCOME-CONTINUING> 38,407
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,407
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.28
</TABLE>
