<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 2
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): AUGUST 6, 1998
LSI LOGIC CORPORATION
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
DELAWARE 0-11674 94-2712976
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<S> <C> <C>
(STATE OR OTHER JURISDICTION OF (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
1551 MCCARTHY BOULEVARD
MILPITAS, CALIFORNIA 95035
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(ADDRESS, INCLUDING ZIP CODE, OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(408) 433-8000
NOT APPLICABLE
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(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
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<PAGE> 2
AMENDMENT NO. 2
The undersigned Registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K,
originally filed with the Securities Exchange Commission on August 21, 1998,
reporting the acquisition by Registrant from Hyundai Electronics America, a
California corporation ("HEA"), of all of the outstanding capital stock of
Symbios, Inc. ("Symbios"), a Delaware corporation and the wholly-owned
subsidiary of HEA, as set forth in the pages attached hereto:
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
The Registrant funded the purchase through a combination of cash
reserves and credit facilities by and among the Registrant, LSI Logic Japan
Semiconductor, Inc., a wholly-owned subsidiary of Registrant ("LLJS"), ABN AMRO
Bank N.V., as agent for the syndicate of lenders ("ABN AMRO"), and a syndicate
of lenders to be determined by ABN AMRO (the "Lenders"), pursuant to a credit
agreement, dated as of August 5, 1998, by and among the Registrant, LLJS, ABN
AMRO and the Lenders, which credit agreement was amended and restated and
superseded by the Amended and Restated Credit Agreement dated as of September
22, 1998.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
The required financial statements of the business acquired are set forth
below.
SYMBIOS, INC.
Consolidated Financial Statements
December 31, 1997
With Report of Independent Accountants Thereon
Unaudited Condensed Consolidated Financial Statements as outlined below:
Condensed Consolidated Balance Sheet as of June 30, 1998
Condensed Consolidated Statements of Operations-Six months ended
June 30, 1998 and 1997
Condensed Consolidated Statements of Cash Flows -
Six months ended June 30, 1998 and 1997
Notes to Condensed Consolidated Financial Statements
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SYMBIOS, INC.
Table of Contents
<TABLE>
<CAPTION>
PAGE
<S> <C>
Consolidated Financial Statements:
Report of Independent Accountants 1
Consolidated Balance Sheet-December 31, 1997 2
Consolidated Statement of Operations- year ended 3
December 31, 1997
Consolidated Statement of Cash Flows- year ended 4
December 31, 1997
Consolidated Statement of Shareholder's Equity- 6
December 31, 1997
Notes to Consolidated Financial Statements 7
Unaudited Condensed Consolidated Balance Sheet - June 30, 1998 36
Unaudited Condensed Consolidated Statements of Operations - Six months ended 37
June 30, 1998 and June 30, 1997
Unaudited Condensed Consolidated Statement of Cash 38
Flows-Six months ended June 30, 1998 and 1997
Notes to Unaudited Condensed Consolidated Financial Statements 39
</TABLE>
<PAGE> 4
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Symbios, Inc.:
We have audited the accompanying consolidated balance sheet of Symbios, Inc. as
of December 31, 1997, and the related consolidated statements of operations,
cash flows and shareholder's equity for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
As discussed in Note 18 to the consolidated financial statements, the Company's
ultimate parent, Hyundai Electronics Industries Co., Ltd. ("HEI") is located in
the Republic of Korea. The Republic of Korea has recently experienced
instability in its currency and interest rates which have affected the
operations of most Korean companies, including HEI. HEI is a guarantor of the
debt of Hyundai Electronics America (HEA), the Company's immediate parent.
Subsequent to December 31, 1997, HEA has pledged the Symbios, Inc. stock it owns
as collateral for Symbios, Inc. debt and has borrowed $150 million from Symbios,
Inc.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Symbios, Inc. as
of December 31, 1997, and the consolidated results of their operations and their
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
/s/ PricewaterhouseCoopers LLP
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Denver, Colorado
January 24, 1998, except for Note 21, as
to which the date is August 6, 1998.
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SYMBIOS, INC.
CONSOLIDATED BALANCE SHEET
December 31, 1997
(Dollars in thousands)
-------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 57,118
Accounts receivable, net of allowance for doubtful accounts of $1,323 70,233
Inventory, net 62,312
Income taxes receivable from HEA 843
Deferred income taxes 5,963
Other current assets 3,828
---------
Total current assets 200,297
Property, plant and equipment, net 286,081
Intangible assets, net 10,035
Other assets 3,454
---------
Total assets $ 499,867
=========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 43,152
Accrued compensation and other liabilities 34,480
Capital leases, current portion 18,112
Deferred revenue 8,862
---------
Total current liabilities 104,606
---------
Capital leases, noncurrent portion 79,445
Deferred income taxes 5,006
Other 797
---------
Total liabilities 189,854
---------
Commitments (Note 16)
Redeemable common stock, $0.02 par value, 40 million shares authorized;
83,996 shares outstanding at December 31, 1997 2
Additional paid-in capital 484
Notes receivable, employees (34)
---------
452
---------
Shareholder's equity:
Convertible, noncumulative, voting, Series A preferred stock,
$0.10 par value, 40 million shares authorized and 34 million
shares outstanding (liquidation preference of $340,000) 3,400
Common stock, $.02 par value, 40 million shares authorized --
Additional paid-in capital 332,120
Note receivable from HEA (30,000)
Retained earnings 4,041
---------
Total shareholder's equity 309,561
---------
Total liabilities and shareholder's equity $ 499,867
=========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
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<PAGE> 6
SYMBIOS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
for the year ended December 31, 1997
(Dollars in thousands, except per share)
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Sales, external $ 618,132
Sales, parent and affiliates 1,337
---------
Total sales 619,469
---------
Cost of sales, external 368,094
Cost of sales, parent and affiliates 877
---------
Total cost of sales 368,971
---------
Gross profit 250,498
---------
Operating expenses:
Research and development 88,188
Selling and marketing 64,276
General and administrative 19,025
Amortization of intangibles 8,468
Stock compensation expense 22,931
Fab closure costs 11,547
Other expense (273)
---------
Total operating expenses 214,162
---------
Operating income 36,336
Interest expense (8,488)
Interest income 7,657
Other expense (379)
---------
Income before income taxes 35,126
Taxes on income (18,900)
---------
Net income $ 16,226
=========
Basic earnings per share:
Net loss per common share $ (11.28)
=========
Diluted earnings per share:
Net loss per common equivalent share $ (11.28)
=========
The accompanying notes are an integral part of these consolidated financial
statements.
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SYMBIOS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended December 31, 1997
(Dollars in thousands)
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<TABLE>
<S> <C>
Operating activities:
Net income $ 16,226
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 74,826
Amortization of intangibles 8,468
Reduction in doubtful accounts (299)
Reduction in excess and obsolete inventory (2,665)
Loss on sales of property, plant and equipment 1,257
Interest income on notes receivable from HEA (266)
Interest income on notes receivable from employees (174)
Deferred income benefit 3,300
Stock compensation expense 22,931
Fab closure costs 11,547
Changes in operating assets and liabilities:
Accounts receivable (4,221)
Inventory 6,889
Other current assets 238
Other assets (156)
Accounts payable 8,293
Deferred revenue (1,011)
Accrued compensation and other liabilities 2,694
Income taxes receivable from HEA (22,144)
---------
Net cash provided by operating activities 125,733
---------
Investing activities:
Loans to HEA (90,000)
Payments received on loans to HEA 30,000
Acquisition of property, plant and equipment (73,121)
Proceeds from sales of property, plant and equipment 1,322
---------
Net cash used in investing activities (131,799)
---------
Financing activities:
Cash paid for employee stock buyback (23,235)
Payments for stock options 6
Repayment of capital lease obligations (17,025)
Payment received on notes receivable from employees 88
---------
Net cash used in financing activities (40,166)
---------
Net change in cash and cash equivalents (46,232)
Cash and cash equivalents, beginning of year 103,350
---------
Cash and cash equivalents, end of year $ 57,118
=========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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SYMBIOS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS, Continued
for the year ended December 31, 1997
(Dollars in thousands)
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<TABLE>
<S> <C>
Noncash transactions and supplemental disclosures:
Acquisition of equipment through the assumption of
capital lease obligations $ 1,408
Accounts payable incurred for purchase of equipment 3,097
Issuance of common stock for notes receivable to employees 21
Non-cash dividend to HEA 30,266
Interest paid 7,978
Income taxes paid to HEA 37,745
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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SYMBIOS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
December 31, 1997
(Amounts in thousands)
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<TABLE>
<CAPTION>
Preferred Preferred Additional Note Retained
Stock Stock Paid-in Receivable Earnings Total
Shares Amount Capital From HEA (Deficit) Amounts
------ --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1997 34,000 $ 3,400 $ 341,246 $ -- $ 8,955 $ 353,601
Net income -- -- -- -- 16,226 16,226
Dividend to HEA -- -- (9,126) -- (21,140) (30,266)
Note receivable from HEA -- -- -- (30,000) -- (30,000)
------ --------- --------- --------- --------- ---------
Balances, December 31, 1997 34,000 $ 3,400 $ 332,120 $ (30,000) $ 4,041 $ 309,561
====== ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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SYMBIOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
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1. Basis of Presentation and Defining the Entity:
Symbios, Inc. ("the Company") was acquired by Hyundai Electronics
America ("HEA") on February 15, 1995. HEA is a majority owned subsidiary
of Hyundai Electronics Industries Co., Ltd. ("HEI"), a Korean
corporation. HEI is a member of the Hyundai Group of companies (see Note
18). The Company previously operated as the Microelectronic Products
Division ("MPD" or "Predecessor") of AT&T Global Information Solutions
("AT&T GIS"). MPD was incorporated as Symbios, Inc. immediately prior to
its acquisition by HEA.
The Company designs, manufactures, markets and supports ASICs for
peripheral and storage systems connectivity, peripheral controller
electronics, host adapter integrated circuits and boards and a complete
line of RAID storage systems, subsystems and related software.
The Company's financial statements include the consolidated accounts of
the Company's two divisions and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Effective February 16, 1995, HEA, its parent company, HEI and the
Company entered into a Patent Agreement. Pursuant to the agreement, HEA
assigned to the Company a joint ownership interest in certain patents
and patent applications acquired by HEA from AT&T GIS for $40,000. In
exchange, the Company issued to SLSI, a subsidiary of HEA, 4 million
additional preferred shares and granted HEA a joint ownership interest
in the Company's patent applications and patents issued after February
16, 1995, and before the termination date of the agreement. HEI also
granted the Company a license to its patents and the patents of its
subsidiaries. HEA and HEI agreed to pay to the Company certain royalties
received from third-party licensees of the co-owned patents. In
exchange, the Company agreed to pay HEA any royalties it received from
third-party licensees of its co-owned patents. The agreement is
effective until the later of (a) February 16, 2005, or (b) such time as
the Company is no longer a direct or indirect subsidiary of HEA. The
Company has accounted for the $40,000 of preferred stock as receipt of
patents and technology since the applicable intellectual property (i) is
used by the Company to generate revenues, (ii) was previously used by
the Company and (iii) the acquisition of the rights were made in
connection with the acquisition of the Company (See also Note 21).
2. Summary of Significant Accounting Policies:
Cash and Cash Equivalents:
Cash and cash equivalents include highly liquid investments with
original maturities of three months or less. Cash equivalents are
principally composed of money market mutual fund investments and
certificates of deposit. Money market mutual fund investments of
approximately $14,300 as of December 31, 1997, are classified as
available-for-sale investments. Certificates of deposit of approximately
$40,000 as of December 31, 1997 are classified as held-to-maturity
investments. Book value approximates fair value for both types of
investments and there are no unrealized gains or losses as of December
31, 1997. All investments are included in cash and cash equivalents for
financial statement purposes.
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SYMBIOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
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2. Summary of Significant Accounting Policies, continued:
Cash and Cash Equivalents, continued:
Available cash is held on deposit at three federally insured
financial institutions. The Company has not experienced any
material losses relating to any short term financial instruments.
Inventory:
Inventory is stated at the lower of cost or market. Cost is
determined by using the average cost on a first-in, first-out
basis.
Property, Plant and Equipment:
Property, plant and equipment are stated at cost. Depreciation is
computed for financial reporting purposes principally by use of the
straight-line method over the estimated useful lives of the assets.
Buildings and their components are depreciated over 25 years.
Office furniture, fixtures and equipment are depreciated over five
years, except for computer equipment which is depreciated over
three years.
Gains or losses on the sale of property, plant and equipment are
recognized in the period of disposition of the asset. Betterments
which extend the useful lives of assets are capitalized. Repairs
and maintenance are expensed as incurred.
Preoperating and Start-up Costs:
The Company expenses preoperating and start-up costs.
Software:
The Company capitalizes the cost of software acquired from vendors.
The Company also capitalizes certain costs of developing software
for internal use. Such costs are amortized over their estimated
useful lives of five years on a straight line basis. Costs totaling
$4,665 were capitalized during the year ended December 31, 1997,
related to software for internal use.
The Company incurs costs to develop software used in hardware
products sold to customers. The software development costs incurred
subsequent to the establishment of technological feasibility are
immaterial to the financial statements.
Intangible Assets:
Intellectual property rights, including patents and trademarks, are
amortized over their estimated useful lives of five years using the
sum of the years digit method. Goodwill arising from the
acquisition of the Company in 1995 represents the excess of cost
over fair value of net assets acquired and is being amortized over
seven years using the straight-line method.
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<PAGE> 12
SYMBIOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
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2. Summary of Significant Accounting Policies, continued:
Long-Lived Assets:
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") Statement No.
121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets Disposed Of," which requires
impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets
are less than the assets' carrying amounts.
Warranties:
A provision has been recorded for expected costs to be incurred as
a result of customer product warranties at the time the sale is
recognized. The Company warrants that products will be free from
defects in workmanship and materials for one to five years from the
date of shipment.
Deferred Revenue and Revenue Recognition:
Revenue from direct product sales to customers is recognized upon
shipment. Certain of the Company's sales are made to distributors
under agreements with stock rotation provisions, price protection
on inventory held by distributors and contract termination clauses.
Accordingly, the Company defers recognition of such sales until the
merchandise is sold by the distributors to a third party.
The Company accrues for the estimated loss on sales commitments for
which the anticipated production costs of sales exceed the related
selling price.
Research and Development Expenses:
Expenditures incurred for research and development of products are
expensed as incurred.
Stock-Based Compensation:
The Company uses the intrinsic value method of Accounting
Principles Board Opinion No. 25 to account for all of its employee
stock-based compensation plans.
Accounting for Income Taxes:
Under the asset and liability method of SFAS No. 109, "Accounting for
Income Taxes," deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts and the tax bases of existing
assets and liabilities, and are measured using the enacted tax rates
expected to apply to taxable income in the years in which the temporary
differences are expected to reverse.
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SYMBIOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
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2. Summary of Significant Accounting Policies, continued:
Accounting for Income Taxes, continued:
The currently payable and deferred income taxes in the accompanying
financial statements have been calculated as if the Company was a
separate entity, except for the research and experimentation credit
(see Note 8).
Earnings Per Share:
In February 1997, the Financial Accounting Standards Board issued
SFAS No. 128, "Earnings Per Share," which is effective for periods
ending after December 15, 1997. The Company adopted SFAS 128 in
1997. SFAS 128 requires presentation of both basic and diluted
earnings per share. The basic earnings per share are computed using
the weighted-average number of common shares outstanding. Dilutive
earnings per share include the weighted-average of common shares
outstanding, outstanding convertible preferred stock and
outstanding stock options which have dilutive potential. The net
income used to calculate the basic and diluted earnings per share
has been reduced by the $30,266 preferred stock dividend.
Derivative Financial Instruments:
The Company uses derivative financial instruments, including
interest rate swaps and forward exchange contracts, as part of an
overall risk-management strategy. These instruments are used as a
means of hedging exposure to foreign currency and interest rate
risk connected to firm commitments or capital lease obligations.
The Company does not hold or issue derivative financial instruments
for trading or speculative purposes.
Hedge accounting is applied if the derivative reduces the risk of
the underlying hedged item and is designated at inception as a
hedge. Additionally, changes in the value of the derivative must
result in payoffs that are highly correlated to the changes in
value of the hedged item. Derivatives are measured for
effectiveness both at inception and on an ongoing basis. The
Company enters into foreign exchange contracts that are designated
as and effective as hedges for firmly committed purchases.
The Company uses interest rate swaps to synthetically change its
variable-rate capital lease obligations to fixed rate obligations.
These derivatives are designated and effective as hedges at
inception and on an ongoing basis, and their terms are aligned with
the capital lease.
Gains and losses on foreign exchange contracts accounted for as
hedges are deferred in other current assets or liabilities. The
deferred gains and losses are recognized as adjustments to the
underlying hedged transaction when the future sales or purchases
are recognized. Interest rate swap payments and receipts are
recorded as part of interest expense. The fair value of the swap
contracts is not recognized in the financial statements (see Note
11 for fair values). Cash flows from derivatives are recognized in
the consolidated statement of cash flows in the same category as
the item being hedged.
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SYMBIOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
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2. Summary of Significant Accounting Policies, continued:
Derivative Financial Instruments, continued:
If a derivative instrument ceases to meet the criteria for
deferral, any subsequent gains or losses are recognized in
operations. If a firm commitment does not occur, the foreign
exchange contract is terminated and any gain or loss is recognized
in operations. If a hedging instrument is sold or terminated prior
to maturity, gains or losses continue to be deferred until the
hedged item is recognized. Should a swap be terminated while the
underlying capital lease obligation remains outstanding, the gain
or loss is capitalized as part of the underlying lease obligation
and amortized into interest expense over the remaining term of the
lease obligation.
Comprehensive Income:
In June 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard ("SFAS") No. 130,
"Reporting Comprehensive Income," which is effective for periods
beginning after December 15, 1997. SFAS 130 establishes standards
for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements.
The Company adopted SFAS 130 in 1997.
Estimates and Industry Factors:
The preparation of these financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and the reported amounts of revenues and
expenses during the reporting period. Significant estimates are
required with respect to the ultimate realization of accounts
receivable and inventories, as well as amounts of revenue to be
deferred, among others. Actual results could differ from those
estimates.
The market for the Company's products is characterized by rapidly
changing technology, evolving industry standards and marketing
channels and changing customer needs. Seasonality, fluctuating
market pricing, inventory obsolescence, changes in availability of
critical components, the ability to implement new manufacturing
technologies, the effect of product reviews and industry awards and
the timing of new product introductions by the Company and its
competitors all play a significant role in determining operating
results for a given period of time. The Company's success
therefore, will depend in part on current products, development of
new products and systems on a timely and cost-effective basis and
the Company's ability to continue to respond to changing customer
needs and rapid paced technological developments.
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SYMBIOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
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3. Inventory:
The major classes of inventory as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
Raw materials $ 16,128
Work-in-process 32,627
Finished goods 18,057
Demonstration equipment 2,176
--------
68,988
Allowance for excess and obsolete inventory (6,676)
--------
Inventory, net $ 62,312
========
</TABLE>
4. Property, Plant and Equipment:
The major classes of property, plant and equipment as of December 31,
1997 are as follows:
<TABLE>
<S> <C>
Land $ 8,275
Buildings 79,806
Machinery and equipment 337,205
Construction in progress 34,778
Office furniture and equipment 12,064
---------
472,128
Less accumulated depreciation and amortization (186,047)
---------
Property, plant and equipment, net $ 286,081
=========
</TABLE>
Included in the property, plant and equipment balances as of December 31,
1997 above, the following assets are held under capital lease
arrangements:
<TABLE>
<S> <C>
Land $ 2,069
Buildings 9,063
Machinery and equipment 109,980
Office furniture and equipment 1,937
---------
123,049
Less accumulated depreciation and amortization (43,167)
---------
Property, plant and equipment, net $ 79,882
=========
</TABLE>
Interest capitalized in the year ended December 31, 1997 was $-0-.
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<PAGE> 16
SYMBIOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
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5. Intangible Assets:
Intangible assets as of December 31, 1997 consist of the following:
<TABLE>
<S> <C>
Intellectual property rights $ 39,234
Goodwill 2,023
--------
41,257
Less accumulated amortization (31,222)
--------
Intangible assets, net $ 10,035
========
</TABLE>
6. Accrued Compensation and Other Liabilities:
Accrued compensation and other liabilities as of December 31, 1997
consist of the following:
<TABLE>
<S> <C>
Accrued compensation and bonuses $15,995
Non-income taxes 3,382
Warranty provision 2,642
Fab closure accrual 2,626
Other 9,835
-------
$34,480
=======
</TABLE>
7. Capital Leases:
On December 28, 1995, the Company entered into a $57,049 sale-leaseback
arrangement with respect to semiconductor production equipment. On March
11, 1996, the Company entered into a $16,982 sale-leaseback arrangement
for semiconductor equipment purchased prior to December 31, 1995. On
November 11, 1996, the Company entered into a $34,403 sale-leaseback
arrangement for semiconductor equipment. These sale-leaseback
arrangements are collateralized by the aforementioned semiconductor
equipment and have a five year term, with an option to renew for one
year.
On December 22, 1995, the Company entered into a $12,000 office building
Lease Agreement and Construction Loan Agreement maturing on April 30,
2000. At December 31, 1996, the Company had borrowed the full $12,000
permitted under these agreements. This lease is collateralized by an
office building.
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<PAGE> 17
SYMBIOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
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7. Capital Leases, continued:
On May 23, 1997, the Company entered into an agreement for software
licenses and related technical support for $3,108 payable in three
annual installments beginning June 30, 1997.
Rent payments with respect to the capital lease obligations are
dependent on the stated interest rates in the lease agreements which are
variable. The future minimum lease payments are based on the interest
rate in effect at December 31, 1997. Stated interest rates on the
capital lease obligations ranged from 3.8% to 8.5% at December 31, 1997.
See Note 11 for information on the related interest rate swaps used by
the Company to effectively fix the effective interest rates on these
leases. The Company's operating lease commitments, expiring in various
years through 2002, are summarized in Note 16.
The approximate future minimum lease payments under these capital leases
for the four years subsequent to December 31, 1997 and in the aggregate
are:
<TABLE>
<S> <C>
1998 $ 24,415
1999 36,413
2000 33,864
2001 17,611
Thereafter --
---------
112,303
Less amount representing interest (14,746)
---------
Present value of minimum lease payments 97,557
Less current portion of capital lease obligations (18,112)
---------
Noncurrent portion of capital lease obligations $ 79,445
=========
</TABLE>
See Note 21 for a discussion of the repayment of the capital leases.
8. Income Taxes:
The Company is a member of the HEA affiliated group of corporations
which files a consolidated federal income tax return and various
consolidated and separate state income tax returns. All members of the
group have entered into a tax allocation agreement which provides for
the allocation of federal and state consolidated income tax liability
based upon each members proportionate share of taxable income
contributing to such liability. To the extent that any member of the
group currently utilizes the tax benefits of another member, the member
utilizing those benefits shall currently reimburse such other member for
those benefits. To the extent that HEA currently utilizes any other
member's tax benefits, HEA is obligated to reimburse such member only
when HEA would have been
-14-
<PAGE> 18
SYMBIOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
-------
8. Income Taxes, continued:
able to utilize such benefits giving consideration to any separate HEA
tax benefit carryforwards. The tax sharing agreement with HEA does not
permit the Company to take a benefit for a research and experimentation
credit ("R&E") and the income tax expense does not reflect an R&E
credit. During the fourth quarter of 1995, the tax allocation agreement
was amended to provide the Company with an additional $20,000 of tax
benefits related to the intellectual property rights acquired from AT&T
GIS.
The Company records a valuation allowance based, in part, upon filing
taxes as a member of this affiliated group.
Significant components of the Company's deferred tax accounts as of
December 31, 1997 are detailed below:
<TABLE>
<S> <C>
Deferred tax assets:
Receivables $ --
Inventory 3,289
Intellectual property 9,040
Vacation accrual 133
Warranty accrual 976
Other accrued liabilities 647
Employee benefits 104
Fab shutdown 3,778
Stock compensation 447
Net operating loss --
--------
18,414
Less valuation allowance (6,122)
--------
12,292
Deferred tax liabilities:
Property, plant and equipment (11,335)
--------
Net deferred tax asset $ 957
========
</TABLE>
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets for financial reporting purposes
and the amounts used for income tax purposes. Due to uncertainties about
the recoverability of the deferred tax asset at December 31, 1997, the
Company recorded a deferred tax asset valuation allowance in the amount
of $6,122.
-15-
<PAGE> 19
SYMBIOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
-------
8. Income Taxes, continued:
The effective income tax rate on income before income taxes differed
from the federal statutory rate for the year ended December 31, 1997 for
the following reasons for the periods described below:
<TABLE>
<S> <C>
Federal statutory rate 35%
State and local taxes, net of federal benefit 5
Nondeductible stock compensation expense 15
Other (1)
------
54%
======
</TABLE>
The provision for income tax expense for the year ended December 31,
1997 is as follows:
<TABLE>
<S> <C>
Federal $16,600
State 2,300
-------
$18,900
=======
</TABLE>
The components of income tax expense for the year ended December 31,
1997 are as follows:
<TABLE>
<S> <C>
Current $15,600
Deferred 3,300
-------
$18,900
=======
</TABLE>
9. Long-Term Credit Facility:
On December 28, 1995, the Company entered into a $70 million Credit
Facility which matures on December 28, 1998. Effective June 30, 1997,
the Company amended its Credit Facility which included increasing the
credit line by $30 million to $100 million, changing from a
collateralized to uncollateralized line, lowering the interest rate, and
changing the due date to January 31, 1999. The revised loan agreement
permits the Company to make advances to HEA of up to $30 million. At
December 31, 1997, the Company had no borrowings under the agreement. As
of December 31, 1997, the variable interest rate on this agreement
(London InterBank Offered Rate "LIBOR" plus .75%,) was approximately
6.4%. Commitment fees accrue on the unused portion of the revolving line
of credit and the Lease Agreement and Construction Loan Agreement
discussed in Note 7. Commitment and agency fees of $227 were paid in
1997.
The terms of the credit and capital lease agreements (see Note 7)
require the Company to maintain minimum levels of tangible net worth,
working capital and capitalization ratios. In addition, payments of
dividends and expenditures for property, plant and equipment and loans
to affiliates are restricted. The Company obtained the necessary lender
and lessor approvals for loans and dividends made during 1997. See Note
21 for a discussion of the subsequent collateralized credit facility
entered into on February 26, 1998.
-16-
<PAGE> 20
SYMBIOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
-------
10. Intercompany Credit Agreements:
On March 20, 1997, the Company loaned $30 million to HEA at 7.55%
interest. The loan plus accrued interest was repaid in full on April 9,
1997. On August 22, 1997 and August 28, 1997, the Company loaned $20
million and $10 million, respectively, to HEA at 7.7% interest per annum
and due on December 30, 1997. In October 1997, the Company and HEA
entered into discussions regarding the structure for an initial public
offering. Those discussions resulted in the Board of Directors approving
on November 11, 1997, the Company making a dividend of the note to HEA.
Of the $30.266 million dividend declared, $20.4 million was paid in 1997
by dividending that amount of the note to HEA with the remainder paid in
1998 by dividending the remaining balance of the note. On December 12,
1997, the Company loaned $30 million to HEA at an interest rate of LIBOR
plus 200 basis points (approximately 7.9% at December 31, 1997). The
loan is due March 8, 1998. Because of the uncertainty as to repayment of
this loan, the Company has shown it as a reduction of shareholder's
equity in the accompanying financial statements. See Note 21 for a
discussion regarding the subsequent dividend of this amount to HEA on
March 6, 1998.
11. Interest Rate and Foreign Currency Risk Management:
Interest Rate Swap Contracts:
The Company uses interest rate swap contracts to adjust a
proportion of the capital leases that are subject to variable
interest rates. This protects the Company from increases in the
variable rate indices and locks in a constant interest rate on the
capital leases.
Under interest rate swap contracts, the Company agrees with another
party to exchange interest payments monthly. Interest payments are
calculated by reference to the notional amount based on the
fixed-rate and variable-rate terms of the swap agreements. The net
interest received or paid as part of the interest rate swap is
accounted for as an adjustment to interest expense.
The counterparties to these interest rate contracts are major U.S.
and International financial institutions. The Company is exposed to
credit loss in the event of nonperformance by these counterparties.
The Company manages this risk by monitoring the credit standing and
reviewing the financial statements of the counterparty. Risk of
nonperformance by the counterparties does not appear to be probable
and no loss due to nonperformance is currently anticipated.
At December 31, 1997, the Company had interest rate swap contracts
to pay fixed-rates of interest (weighted average of 6.3%) and
receive floating-rates of interest (average 30-day LIBOR plus 135
basis points - 5.8%) on $82.7 million notional amount of
indebtedness. Approximately 12.3% or $12,000 of the Company's
underlying capital lease indebtedness is still subject to variable
interest rates.
-17-
<PAGE> 21
SYMBIOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
-------
11. Interest Rate and Foreign Currency Risk Management, continued:
Interest Rate Swap Contracts, continued:
Based on the level of interest rates prevailing at December 31,
1997, the Company would have had a $403 unrealized loss on the
termination of its interest rate swaps. Unrealized gains or losses
on debt or interest rate swaps are not recognized for financial
reporting purposes unless the debt is retired or the swap contracts
are terminated prior to their maturity.
<TABLE>
<CAPTION>
Notional Termination
Amount Cost
December 31, December 31,
1997 Maturities 1997
----------- ----------------- ------------
<S> <C> <C> <C>
Variable to fixed (Swap I) $40,762 December 28, 2000 $ 161
Variable to fixed (Swap II) 12,746 March 28, 2001 62
Variable to fixed (Swap III) 29,196 November 28, 2001 180
</TABLE>
The following table summarizes the terms of interest rate swaps at
December 31, 1997. The lease variable interest rates are indexed to the
30-day LIBOR, while the fixed swap rates were originally indexed to the
five-year constant Treasury maturity at the time of the swap.
<TABLE>
<CAPTION>
Weighted
Average
Variable
Notional Actual Fixed Rates
Amount Rates Paid Received
December 31, December 31, December 31,
1997 Maturities 1997 1997
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Variable to fixed
(Swap I) $40,762 December 28, 2000 6.1% 5.6%
Variable to fixed
(Swap II) 12,746 March 28, 2001 7.5% 7.0%
Variable to fixed
(Swap III) 29,196 November 28, 2001 6.2% 5.6%
</TABLE>
-18-
<PAGE> 22
SYMBIOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
-------
11. Interest Rate and Foreign Currency Risk Management, continued:
Foreign Currency Exchange Contracts:
Foreign currency exchange contracts are used to manage exposure to
changes in currency exchange rates. The use of foreign currency
exchange contracts allows the Company to reduce its exposure to the
risk that the eventual dollar net cash inflows and outflows
resulting from the sale of products to foreign customers and
purchases from foreign suppliers will be adversely affected by
changes in exchange rates. The foreign currency exchange contracts
are designated as hedges for firmly committed purchases. These
transactions are generally expected to occur in one year or less.
However, due to the long lead times in ordering semiconductor
manufacturing equipment certain exchange contracts may exceed one
year.
The Company also funds foreign operations with foreign currencies
and may from time to time enter into exchange contracts to control
currency risk associated with funding foreign operations.
At December 31, 1997, the Company had fixed rate contracts of
foreign currencies for the sale of $4,978 and purchase of $5,615.
<TABLE>
<CAPTION>
U.S. Dollar Gain
Value at (Loss) at
December 31, December 31,
Currency Delivery Date Buy/Sell 1997 1997
-------- ------------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Dutch Guilders January 30, 1998 Sell $(4,424) $ (574)
Dutch Guilders January 30, 1998 Buy 4,998 --
Dutch Guilders February 27, 1998 Buy 617 --
Dutch Guilders February 27, 1998 Sell (554) (63)
------- -------
$ 637 $ (637)
======= =======
</TABLE>
The net increase in the above contract values of $637 offset a similar
decrease in the actual cost of the equipment purchased due to the change
in the exchange ratio for the dollar and guilder.
During 1996, the Company entered into a March 14, 1997 "buy" contract in
connection with an agreement to purchase a specific piece of equipment.
At the time the Company elected not to purchase this particular piece of
equipment, the Company entered into offsetting "sell" contracts for
March 14, 1997. The related net loss of $149 on these offsetting
contracts was recorded as a reduction of net income in 1997.
-19-
<PAGE> 23
SYMBIOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
-------
12. Employee Benefit Plans:
The Company provides a voluntary 401(k) plan (the "401(k) Plan") in
which all U.S. employees of the Company may participate. Employees may
make any combination of pre-tax and after-tax contributions up to 15% of
their annual compensation subject to an annual dollar limitation
provided by the Internal Revenue Code. The Company provides 150%
employer matching contribution on the first 2% of employee
contributions, provides 75% employer matching contribution on the next
1% of employee contributions and 50% employer matching contribution on
the next 3% of employee contributions. Maximum employer matching
contribution is therefore 5.25% on employee contributions of 6% of pay
or more. Vesting of employer contributions is 25% per year at the end of
each year of full time service. Additionally, employees who have at
least four full years of continuous service with NCR, AT&T GIS and/or
the Company are fully vested in their account. Contributions are
therefore fully vested after four years. For the year ended December 31,
1997, employer matching contributions to the 401(k) Plan were $4,400.
During year ended December 31, 1996, the Company began providing a
Retirement Performance Account plan (the "RPA") for all of its U.S.
employees. Under the RPA, depending on the level of financial
performance of the Company, a certain portion of the Company's annual
profits will be allocated to employee 401(k) Plan accounts as a
discretionary employer contribution. For the 1997 fiscal year, employees
may receive a discretionary contribution equal to up to 3% of their
annual compensation if the Company achieves its financial objectives in
1997. Vesting of employer contributions under the RPA is the same as for
the 401(k) Plan described above. For the year ended December 31, 1997,
employer matching contributions of $2,277 were made to the 401(k) Plan
on behalf of the RPA.
The Company has a discretionary management bonus and employee profit
sharing arrangement with its management and employees. The Board of
Directors approves the bonus formula on an annual basis. For 1997, the
Company recognized expense of $11,687 related to the arrangement.
13. Shareholder's Equity:
Authorized Stock:
Effective February 15, 1995, the Board of Directors adopted a
resolution pursuant to which the Company authorized 40 million
shares and issued 30 million shares of its $0.10 par value $0.60
per share noncumulative, voting, convertible Series A preferred
stock to a subsidiary of HEA (SLSI) in exchange for all the common
stock of the Company held by SLSI (see Note 1). The Company has
issued an additional 4 million shares of the Series A preferred
stock to SLSI in exchange for HEA granting the Company a joint
ownership interest in certain patents and patent applications
acquired
-20-
<PAGE> 24
SYMBIOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
-------
13. Shareholder's Equity, continued:
Authorized Stock, continued:
from AT&T GIS for $40,000. In December 1997, SLSI was merged into
HEA and as a result, HEA now directly owns the preferred stock of
the Company. The preferred stock has a liquidation preference of
$10.00 per share. Each share of the preferred stock is convertible
into one share of common stock at the option of the shareholder or
automatically converts into common stock upon an initial public
offering ("IPO"). The preferred stock has voting rights equal to
those of the common stock. In addition, the Company has authorized
40 million shares of common stock with a par value of $0.02 per
share. Of this amount, 34 million shares of the common stock are
reserved for the conversion of the Series A preferred stock to
common stock. The Company must fully pay any outstanding declared
dividends on the preferred stock before paying any dividend on
common stock.
1995 Stock Plan:
The Company has adopted an incentive stock plan ("the Plan") under
which the Company's directors are authorized to grant either
restricted common stock purchase rights or common stock options to
management, employees, consultants and outside directors of the
Company ("each Grantee"). The Plan is authorized to grant 10% of
the Company's outstanding equity stock (3,777,777 shares as of
December 31, 1997).
The Company is obligated pursuant to agreements with the holders of
the restricted common stock to provide a stock liquidity event
contingent upon the Company attaining a predetermined market
valuation. If at any time on or before August 31, 1998, the Company
receives advice from an investment banking firm that it is possible
for the Company to successfully complete a public offering of its
common stock at a valuation in excess of $550 million, or at any
time after August 31, 1998 but before August 31, 1999, the Company
receives advice from an investment banking firm that it is possible
for the Company to successfully complete a public offering of its
common stock at a valuation in excess of $680 million, then the
Company can either commence an initial public offering or it will
have the obligation to buy back the restricted common stock at a
price equal to the fair market value of the stock at that time. At
the Company's option, the Company can purchase both the vested and
unvested shares at the current fair market value, or alternatively,
purchase only the currently vested shares with future annual
purchases of newly vested shares at the then current fair market
value. The Company records a charge to earnings over the vesting
period of the awards, beginning with the date it becomes probable
the Company will achieve the valuations noted above, for the
difference between the exercise price or purchase price of the
options or stock awards and the IPO price.
-21-
<PAGE> 25
SYMBIOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
-------
13. Shareholder's Equity, continued:
1995 Stock Plan, continued:
If the aforementioned valuations are not attained by the specified
dates, then the Company may offer to buy back the common stock at a
price equal to the fair market value of the stock at that time. Any
vested shares not reacquired by August 31, 2005 must be repurchased
at each Grantee's initial purchase price plus accrued interest at
that date.
The shares of issued restricted common stock vest 10% upon issue,
with the balance vesting ratably over the following 48 months. The
restricted common stock will continue to vest only so long as each
Grantee continues to be employed by the Company. Twenty-five
percent of the options vest on the first anniversary date of the
grant and the remainder of the options vest ratably over a
three-year period. All restricted common stock is held in escrow
with the Company's Secretary who is authorized by each Grantee to
vote the shares in accordance with the instructions of the Company.
Stock Buyback Program:
In August 1997, the Board of Directors approved the Company making
an offer to all employees and directors to purchase their vested
and unvested restricted stock and stock options. The Board of
Directors set the purchase price at the fair market value of $13
per share. The Company also agreed to reimburse certain employees
approximately $1.2 million in 1998, for the incremental income
taxes they incur in excess of the applicable capital gains rate.
Employees with stock options exercised their options, and then sold
the restricted stock to the Company. In September 1997, 2,231,941
shares of common stock were purchased pursuant to the voluntary
program.
The directors and employees who accepted the Company's voluntary
offer were granted replacement stock options equal in number to the
number of shares of stock they sold to the Company. The new options
were granted at the fair market value of $13. The replacement stock
options do not include the terms in the original restricted stock
and stock options that required the Company to repurchase the
restricted stock or stock options under certain liquidity events.
The replacement stock options vest 33% on June 30, 1998 and 22% on
each six-month anniversary date thereafter and will be fully vested
as of December 31, 1999.
-22-
<PAGE> 26
SYMBIOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
----------
13. Shareholder's Equity, continued:
Summary of Restricted Common Stock Rights and Common Stock Option
Activity:
The restricted stock rights and common stock option activity are
summarized as follows:
<TABLE>
<CAPTION>
Restricted Common
Stock Rights Common Stock Options
------------------------------- -------------------------------
Weighted Weighted
Average Average
Shares Exercise Shares Exercise
(in thousands) Price (in thousands) Price
-------------- -------- -------------- ---------
<S> <C> <C> <C> <C>
Outstanding at January 1, 1997 1,634 $ 2.00 597 $ 2.00
Granted 21 6.00 2,946 12.98
Exercised -- -- (3) 2.00
Repurchased (1,544) 2.05 (688) 3.27
Canceled (30) 2.00 (89) 7.19
------ ------ ------ ------
Outstanding at December 31, 1997 81 $ 2.00 2,763 $ 13.14
====== ====== ======
Common stock from exercise of
common stock options 3
------
Common stock shares 84
======
</TABLE>
-23-
<PAGE> 27
SYMBIOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
----------
The restricted common stock rights outstanding at December 31, 1997 have
a weighted average remaining contractual life of 7.6 years and a
weighted average price of $2.00. The following table summarizes
information about the common stock options outstanding at December 31,
1997.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- ---------------------------
Weighted
Number Average Weighted Number Weighted
Outstanding at Remaining Average Exercisable at Average
Exercise December 31, Contractual Exercise December 31, Exercise
Prices 1997 Life Price 1997 Price
------------ -------------- ----------- --------- ------------- --------
(Shares in (Shares in
thousands) thousands)
<S> <C> <C> <C> <C> <C>
$ 2.00 6 8.4 years $ 2.00 2 $ 2.00
$ 10.00 2 9.3 years $ 10.00 -- $ 10.00
$ 13.00 2,689 9.6 years $ 13.00 -- $ 13.00
$ 20.00 66 9.8 years $ 20.00 -- $ 20.00
-------- -----
2,763 9.6 years $ 13.14 2 $ 2.00
======== =====
</TABLE>
13. Shareholder's Equity, continued:
Summary of Restricted Common Stock Rights and Common Stock Option
Activity, continued:
As of December 31, 1997, 75,355 restricted common stock shares were
vested.
At December 31, 1997, 2,309 common stock options were vested.
The weighted average grant date fair value of options granted
during the year ended December 31, 1997 for purposes of calculating
compensation expense was $13.16. Compensation expense of $22,931
has been recorded for the year ended December 31, 1997.
-24-
<PAGE> 28
SYMBIOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
-------
Had compensation cost for options granted in 1997 been determined based
on the fair value at the grant dates, as prescribed by SFAS 123, the
Company's pro forma net income (loss) and pro forma net income (loss)
per share for the year ended December 31, 1997, would have been as
follows:
<TABLE>
<S> <C>
Net income (loss):
As reported $ 16,226
Pro forma 16,393
Basic earnings per share:
Net income (loss) per common share:
As reported $ (11.28)
Pro forma (11.14)
Diluted earnings per share:
Net income (loss) per common equivalent share:
As reported $ (11.28)
Pro forma (11.14)
</TABLE>
The fair value of each option grant is estimated annually using the
minimum value method with the following assumptions for the year ended
December 31, 1997:
<TABLE>
<S> <C>
Expected dividend yield 0.0 %
Risk-free interest rate 5.8 - 6.6 %
Expected life (in years) 2 - 4
</TABLE>
-25-
<PAGE> 29
SYMBIOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
-------
13. Shareholders' Equity, continued:
Because the determination of the fair value of all options granted if
the Company becomes a public entity will include an expected volatility
factor in addition to the factors described in the preceding paragraph
and, because additional option grants are expected to be made each year,
the above pro forma disclosures are not representative of pro forma
effects of reported net income for future years.
The changes in the redeemable common stock issued under the restricted
stock purchase rights are as follows:
<TABLE>
<CAPTION>
Redeemable
Common Common Additional Notes
Stock Stock Paid-in Receivable, Total
Shares Amounts Capital Employees Amounts
----- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1997 1,634 $ 33 $ 5,536 $ (3,446) $ 2,123
Common stock granted to employees
for notes receivable 21 1 128 (129) --
Cancellation of common stock granted
and notes receivable from employees (30) (1) (61) 62 --
Payments for notes receivable from
employees -- -- -- 88 88
Payments for purchase of incentive
stock options 3 -- 6 -- 6
Additional paid-in capital for stock
compensation -- -- 21,605 -- 21,605
Interest on notes receivable from
employees -- -- -- (174) (174)
Purchase of stock from directors and
employees and cancellation of notes
receivable (1,544) (31) (26,730) 3,565 (23,196)
----- -------- -------- -------- --------
Balances, December 31, 1997 84 $ 2 $ 484 $ (34) $ 452
===== ======== ======== ======== ========
</TABLE>
14. Net Income (Loss) Per Share:
The net income available to common shareholders for the year ended
December 31, 1997, consists of the following:
<TABLE>
<S> <C>
Net income $ 16,226
Less preferred dividends declared (30,266)
--------
Net loss available to common shareholders $(14,040)
========
</TABLE>
-26-
<PAGE> 30
SYMBIOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
-------
14. Net Income (Loss) Per Share, continued:
The weighted average shares for the year ended December 31, 1997,
consist of the following:
<TABLE>
<S> <C>
Weighted average common shares used for
basic earnings per share 1,244,570
Convertible preferred stock --
Stock options --
---------
Adjusted weighted average common shares
used for diluted earnings per share 1,244,570
=========
</TABLE>
The convertible preferred stock and stock options are not included in
the 1997 calculations because they would be antidilutive.
15. Fab Closure Costs:
In August 1997, the Board of Directors approved and the Company
announced to its employees its intention to phase out the Fort Collins
fabrication plant with final closure occurring by December 31, 1997. The
shutdown is a result of the low utilization levels experienced and the
older technology of the plant. The fab closure charges of $11,547
reflected in the year ended December 31, 1997 are directly related to
the closure of the Fort Collins fabrication facility. There were 157
employees, primarily manufacturing employees, working in the Fort
Collins facility were terminated when the plant closed in 1997. Another
37 employees are expected to be relocated to the Company's Colorado
Springs facility. The estimated relocation and other costs totaling
approximately $1.5 million will be charged to operations when incurred.
Relocation and other costs totaling $600 were charged to operations
during the year ended December 31, 1997.
-27-
<PAGE> 31
SYMBIOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
-------
15. Fab Closure Costs, continued:
The components of the fab shutdown charges to operations in the year
ended December 31, 1997 are summarized as follows:
<TABLE>
<CAPTION>
Recorded in
Year Ended Total
December 31, Expected
1997 Charges
----------- -------
<S> <C> <C>
Charges to operations
Noncash charges:
Write-down to fair value for certain
equipment in accordance with SFAS 121 $ 7,972 $ 7,972
Cash related charges and liabilities:
Dismantling costs 1,277 1,277
Employee severance and termination benefits 2,298 2,298
------- -------
Fab shutdown charges 11,547 11,547
Employee relocation costs 200 1,000
Other 400 500
------- -------
Total fab shutdown charges $12,147 $13,047
======= =======
</TABLE>
The activity in the liability for the fab closure costs is as follows:
<TABLE>
<S> <C>
Original liability, September 28, 1997 $ 3,575
Cash payments (949)
-------
Liability, December 31, 1997 $ 2,626
=======
</TABLE>
The Company has estimated the costs associated with the decision to
close the Fort Collins facility and these other matters based on the
best information available when the decision was made to close the
facility. The liability will be utilized when specific criteria are met
indicating the planned action has occurred. Although the Company
believes its estimates to be reasonable, actual costs associated with
these plans may differ. Therefore, the Company may, in future periods,
need to change its estimated costs associated with the fab closure as
more information becomes available.
-28-
<PAGE> 32
SYMBIOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
-------
16. Commitments:
The Company leases certain office facilities and equipment under
noncancelable operating lease agreements which expire at various dates
through fiscal 2002. The approximate future minimum lease payments under
these leases for the five years immediately subsequent to December 31,
1997 and in the aggregate are:
<TABLE>
<S> <C>
1998 $2,574
1999 798
2000 437
2001 200
2002 97
------
Total $4,106
======
</TABLE>
In December 1997, the Company entered into a contract for construction
of a new engineering center building in Fort Collins, Colorado. This
building is expected to be completed by December 31, 1998 at a cost of
approximately $17 million.
Rent expense for the year ended December 31, 1997 was $3,437.
17. Related Parties:
The Company enters into transactions with HEA, HEI and Maxtor
Peripherals, in which HEA is an investor. These related party
transactions are principally comprised of the purchase of assembly
services and foundered wafers from HEI, sales of storage systems
products to HEI, and sales of drive electronic semiconductors to Maxtor
Peripherals. Related party purchases for the year ended December 31,
1997 were $4,501. Sales to related parties for the year ended December
31, 1997 were $1,337. The related party cost of sales for the same
period was $877.
18. Concentrations of Credit Risk and Geographic Information:
The Company sells its products to original equipment manufacturers and
distributors in North America, Europe and Asia. The Company regularly
sells to financially secure and creditworthy customers on open account.
Based upon a customer's credit history, the Company may require payment
in advance or the issuance of a letter of credit in favor of the Company
prior to shipment. The Company maintains adequate reserves for potential
credit losses and performs ongoing credit evaluations.
-29-
<PAGE> 33
SYMBIOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
-------
18. Concentrations of Credit Risk and Geographic Information, continued:
For the year ended December 31, 1997, the Company's export shipments and
sales to geographic regions approximated the following:
<TABLE>
<S> <C>
Sales to:
Europe $ 80,740
Asia Pacific 168,395
Other international 27,090
--------
Total export sales $276,225
========
</TABLE>
For the year ended December 31, 1997, $233,404 of the above export sales
related to Symbios Semiconductors and the remaining $42,821 related to
the Storage Systems Division. Sales to Singapore represented over $103
million of Symbios Semiconductors export sales and sales to Ireland
represented over $15 million of Storage Systems Division export sales.
Sales and shipments of approximately $135.7 million to Asia Pacific in
1997 were made to foreign locations or foreign subcontractors of
U.S.-based companies.
The Company's ultimate parent is HEI, a Korean corporation. HEI is a
guarantor of the debt of HEA, the Company's immediate parent. Subsequent
to December 31, 1997, HEA pledged the stock of the Company it owns as
collateral for the Company's debt, and has borrowed $150 million from
the Company. Subsequent to year end, the Company negotiated a new credit
agreement with a new lender and loaned $150 million to HEA (see Note
21). The new agreement contains limited cross-default provisions with
respect to HEA. Asian country economies, including Korea, have recently
experienced economic instability including significant devaluations in
currencies, increases in interest rates, declines in public equity
markets and a lack of liquidity in the financial institutions and
businesses. The International Monetary Fund has agreed, subject to
certain conditions, to provide financial assistance to certain Asian
countries, including Korea. It is reasonably possible that further
deteriorations in the Korean economy and the value of the Korean
currency could have an adverse effect on the ability of the ultimate
parent to continue to guarantee the debt of HEA. The ultimate effect of
the economic instability in the Asian marketplace on HEI, Asian
businesses and the U.S. semiconductor and storage industries is not
determinable at this time.
As of December 31, 1997, two customers accounted for the following
percentages of accounts receivable:
<TABLE>
<S> <C>
Customer A 12 %
Customer B 11 %
</TABLE>
-30-
<PAGE> 34
SYMBIOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
-------
18. Concentrations of Credit Risk and Geographic Information, continued:
For the year ended December 31, 1997, four customers accounted for the
following percentages of sales:
<TABLE>
<S> <C>
Customer A 15 %
Customer B 11 %
Customer C 10 %
Customer D 10 %
</TABLE>
Customer A accounted for 52% of sales for the Storage Systems Division
for the year ended December 31, 1997.
The Company's storage systems division currently relies on one vendor as
the Company's primary disk drive supplier.
19. Fair Values of Financial Instruments:
Cash and cash equivalents are carried at a cost plus accrued interest
which approximates market value. The carrying value of the Company's
debt approximates fair market value of the instrument based on the
variable interest rate nature of the debt and management's best estimate
of what interest rates would be available for similar debt obligations
as of December 31, 1997. The fair value of interest rate swaps and other
derivatives are based on quoted amounts the Company would receive or pay
to terminate such swap agreements taking into account the current
interest rate environment and the creditworthiness of each counterparty
(see Note 11).
20. Segment Information:
In June 1997, the FASB issued SFAS 131, "Disclosures About Segments of
an Enterprise and Related Information," which is effective for periods
beginning after December 15, 1997. SFAS 131 establishes standards for
the way that public business enterprises report information about
operating segments. The Company adopted SFAS 131 in 1997.
The Company's operations are conducted through its two divisions:
Symbios Semiconductors and the Storage Systems Division. Symbios
Semiconductors designs, manufactures and markets the Company's
semiconductor products including host adapter ICs and boards, peripheral
ICs and other non-I/O ASIC products. The Storage Systems Division
designs, manufactures, and markets a complete line of storage system
products, including controller boards, RAID storage systems, subsystems
and related software. There are no differences between the measurement
of these two segments' assets, profits or losses and those of the
Company. All significant long-lived assets are located in the United
States. The basis for accounting for any transactions between Symbios
Semiconductors and the Storage Systems Division is cost.
-31-
<PAGE> 35
SYMBIOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
-------
20. Segment Information, continued:
In 1997, bonus plan liabilities and expense were allocated to each
division. Cash, income tax liabilities and interest income have
continued to be principally allocated to Symbios Semiconductors in 1997.
<TABLE>
<S> <C>
Capital expenditures:
Symbios Semiconductors $68,651
Storage Systems 4,470
-------
Total capital expenditures $73,121
=======
Interest expense:
Symbios Semiconductors $ 8,488
Storage Systems --
-------
Total interest expense $ 8,488
=======
Interest income:
Symbios Semiconductors $ 7,657
Storage Systems --
-------
Total interest income $ 7,657
=======
Income tax expense:
Symbios Semiconductors $15,988
Storage Systems 2,912
-------
Total income tax expense $18,900
=======
</TABLE>
-32-
<PAGE> 36
SYMBIOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
-------
20. Segment Information, continued:
The segment information with respect to the two divisions for the year
ended December 31, 1997, is as follows:
<TABLE>
<S> <C>
Sales:
Symbios Semiconductors $450,419
Storage Systems 169,050
--------
Total sales $619,469
========
Operating income:
Symbios Semiconductors $ 30,443
Storage Systems 5,893
--------
Total operating income $ 36,336
========
Depreciation and amortization:
Symbios Semiconductors $ 79,017
Storage Systems 4,277
--------
Total depreciation and amortization $ 83,294
========
Identifiable assets:
Symbios Semiconductors $381,500
Storage Systems 55,286
Nonallocated assets (1) 63,081
--------
Total identifiable assets $499,867
========
</TABLE>
(1) Primarily cash and cash equivalents.
21. Subsequent Events:
On August 6, 1998, the Company was sold to LSI Logic, Corporation.
Pursuant to the sale agreement between HEA and LSI Logic, Corporation,
upon the closing of the sale, the vesting of Director options was
accelerated and they were repurchased for net cash of approximately $4.7
million.
In February 1998, the Board of Directors approved the reacquisition of
the outstanding common stock of the Company at a price of $20.65 per
share. The Company reacquired 83,996 shares at a cost of $1.7 million in
March 1998.
In February 1998, the Board of Directors approved employment agreements
for a limited number of employees of the Company. The terms of the
employment agreements vary by employee and provide for various lump sum
payments and in some limited instances, vesting of common stock options
upon the occurrence of certain triggering events.
-33-
<PAGE> 37
SYMBIOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
-------
21. Subsequent Events, continued:
On March 6, 1998, the Company's Board of Directors declared a dividend
of $30 million to HEA, which will offset the $30 million intercompany
loan to HEA at December 31, 1997.
The Company terminated its $100 million unsecured line of credit
effective February 20, 1998. On February 26, 1998, the Company entered
into a new $300 million collateralized credit facility with a new
lender, comprised of a $245 million term loan and a $55 million
revolving line of credit, with a maturity date of February 25, 1999. The
facility is collateralized by substantially all of the assets of the
Company. HEA has pledged the stock of the Company it owns as additional
collateral for the loan. On February 26, 1998, the Company borrowed the
$245 million term loan and used the proceeds to (a) pay off the GE
Capital capital leases of $82.7 million and the Credit Lyonnais capital
lease of $12 million and (b) make a term loan of $150 million to HEA
under the same terms and conditions that the Company received from its
new lender. Under the new facility, the Company is obligated to maintain
certain covenants, including minimum net worth, EBITDA and consolidated
fixed charge ratios, as well as restrictions on transactions with
related parties including dividends, limitations on capital spending and
incurrence of additional debt.
Effective February 19, 1998, HEI, HEA and the Company entered into a
termination and license agreement. This agreement terminated the patent
agreement entered into in 1995 by the three companies. It also resulted
in HEA granting the Company an irrevocable, nonexclusive, worldwide,
royalty-free license on any products covered by any issued or pending
HEA patents for the life of those patents. The Company granted HEA an
irrevocable, nonexclusive, worldwide, royalty-free license to any
products covered by issued or pending patents of the Company, or any
patent issued or pending prior to February 15, 2005. HEI granted the
Company an irrevocable, nonexclusive, worldwide, royalty-free license to
any products covered by any HEI patent owned as of February 19, 1998 or
acquired prior to December 31, 2010. The license between HEI and the
Company shall terminate on December 31, 2010.
-34-
<PAGE> 38
SYMBIOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
-------
22. Year 2000:
In 1996, the Company commenced an evaluation of its software systems to
identify potential Year 2000 software issues. In 1997, the Company
commenced an upgrade of its financial and management reporting systems,
as well as its Storage Systems Division manufacturing systems. This
project is currently scheduled to be completed in 1998 at a cost of
approximately $10 million. Approximately $5.5 million had been expended
on the project through December 31, 1997. The Company must also upgrade
its semiconductor manufacturing software. This is expected to be
completed in December 1998 at a cost that is not currently anticipated
to be material to the financial statements. However, due to the
complexity of the systems, there can be no assurance that the projects
will be completed on schedule or within budget. If the projects are not
successfully completed, it could potentially have a material adverse
affect on the operations of the business.
Certain of the Company's software products are not currently compliant
with Year 2000 requirements. The Company is in the process of
redesigning such products. There can be no assurance that the Company
will be able to redesign such products on a timely basis or without
incurring significant expense. Even after such modifications have been
completed, there can be no assurance that the Company's software
products, particularly when such products incorporate third party
software, will contain all necessary date code changes. The Company
currently believes the cost of making such upgrades will not be material
to the financial statements. However, if the Company's products cannot
be successfully modified, the Company's business, operating results and
financial condition could be materially and adversely affected.
-35-
<PAGE> 39
SYMBIOS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
Unaudited
---------
June 30,
ASSETS 1998
---------
<S> <C>
Current assets:
Cash and cash equivalents $ 42,327
Accounts receivable, net 76,023
Inventory, net 68,979
Other current assets 9,533
---------
Total current assets 196,862
Property, plant and equipment, net 289,207
Other assets 9,096
---------
Total assets $ 495,165
=========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current liabilities $ 70,281
Current portion of long-term obligations and other 246,266
---------
Total current liabilities 316,547
Long-term obligations and other 5,181
---------
Total liabilities 321,728
---------
Shareholder's equity:
Stock 316,117
Notes receivable from HEA (151,647)
Retained earnings 8,967
---------
Total shareholder's equity 173,437
---------
Total liabilities and shareholder's equity $ 495,165
=========
</TABLE>
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
-36-
<PAGE> 40
SYMBIOS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Unaudited Unaudited
---------- ---------
Six Months Six Months
Ended Ended
June 30, June 30,
1998 1997
--------- ---------
<S> <C> <C>
Sales $ 300,107 $ 303,165
Cost of sales 171,044 176,951
--------- ---------
Gross profit 129,063 126,214
--------- ---------
Operating expenses:
Research and development 47,239 40,191
Selling and marketing 31,909 31,655
General, administrative and other 12,669 8,191
Amortization of intangibles 3,091 4,401
Stock compensation expense 106 1,774
Fab closure costs (1,166) --
--------- ---------
Total operating expenses 93,848 86,212
--------- ---------
Operating income 35,215 40,002
Interest expense (15,475) (4,305)
Interest income and other 7,302 4,093
--------- ---------
Income before income taxes 27,042 39,790
Taxes on income (10,275) (15,914)
--------- ---------
Net income $ 16,767 $ 23,876
</TABLE>
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
37
<PAGE> 41
SYMBIOS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Unaudited Unaudited
---------- ----------
Six Months Six Months
Ended Ended
June 30, June 30,
1998 1997
--------- ---------
<S> <C> <C>
Net cash provided by operating activities $ 37,146 $ 47,016
--------- ---------
Investing activities:
Property, plant and equipment net of
proceeds from sales (44,332) (27,435)
Loans to HEA (150,427) (30,000)
Payments received on loans to HEA 30,000 30,000
--------- ---------
Net cash used in investing activities (164,759) (27,435)
--------- ---------
Financing activities:
Repayment of long-term obligations (95,811) (7,793)
Dividends paid (30,000) --
Cash paid for employee stock buyback (1,700) --
Credit facility, net of issuance costs 240,333 --
--------- ---------
Net cash provided by / (used in) financing activities 112,822 (7,793)
--------- ---------
Net change in cash and cash equivalents (14,791) 11,788
Cash and cash equivalents, beginning of period 57,118 103,350
--------- ---------
Cash and cash equivalents, end of period $ 42,327 $ 115,138
========= =========
</TABLE>
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
38
<PAGE> 42
SYMBIOS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)
Note 1- BASIS OF PRESENTATION
In the opinion of Symbios, Inc. (the "Company"), the accompanying
unaudited condensed consolidated 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 herein for the year ended December 31, 1997.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in
the consolidated condensed financial statements and accompanying
notes. Actual results could differ from those estimates.
For financial reporting purposes, the Company reports on 13 or 14
week quarters with a year ending December 31. For presentation
purposes, the unaudited condensed consolidated financial statements
refer to the calendar month end for convenience. LSI Logic's and
Symbios's month end were both June 28. The results of operations
for the six months ended June 30, 1998 are not necessarily
indicative of the results to be expected for the full year.
On August 6, 1998, LSI Logic Corporation ("LSI Logic") completed
the acquisition of all of the outstanding capital stock of the
Company from Hyundai Electronics America ("HEA"). The transaction
was completed pursuant to (a) the Stock purchase Agreement dated as
of June 28, 1998 by and among LSI Logic, HEA and Hyundai
Electronics Industries Co., Ltd. ("HEI") and (b) the First
Amendment to the Stock Purchase Agreement dated August 6, 1998 by
and among LSI Logic, HEA and HEI and (c) the Supplementary
Liability Agreement dated August 6, 1998 by and among LSI Logic,
HEA and HEI.
SELF-INSURANCE RESERVES
The Company retains certain exposures in its insurance plan under
self-insurance programs. Reserves for claims made and reserves for
estimated claims incurred but not yet reported are recorded as
current liabilities.
-39-
<PAGE> 43
Note 2- Balance sheet information
<TABLE>
<CAPTION>
June 30,
1998
---------
<S> <C>
Inventories:
Raw materials $15,532
Work-in-process 29,434
Finished Goods 22,089
Demonstration equipment 1,924
-------
Total $68,979
=======
</TABLE>
Note 3- Credit Facility
Effective February 20, 1998, the Company terminated its $100
million unsecured line of credit. On February 26, 1998, the Company
entered into a new $300 million collateralized credit facility with
a new lender, consisting of a $245 million term loan and a $55
million revolving line of credit, with a maturity date of February
25, 1999. On July 16, 1998, the term loan was increased to $275
million. The facility is collateralized by substantially all of the
assets of the Company. HEA has pledged the Company's stock as
additional collateral for the loan. Borrowings against the credit
facility accrues interest at LIBOR plus 3.5% (9.2% at June 30,
1998). Under the new facility, the Company is obligated to maintain
certain covenants and is in compliance with these covenants as of
June 30, 1998. The Company had $245 million outstanding under the
term loan at June 30, 1998.
The Company loaned a portion of the proceeds of this credit
facility to HEA under the same terms and conditions that the
Company received from its lender. The principal amount of this note
receivable was $150 million at June 30, 1998. The Company has shown
the note receivable as a reduction of shareholder's equity in the
accompanying financial statements due to collectibility concerns.
Additionally, the Company used a portion of the proceeds of the
term loan to repay two capital leases with a balance of
approximately $95 million.
Note 4- Financial Instruments
During the first half of 1998, the Company terminated its interest
rate swap and foreign currency exchange contracts. The related
effects were insignificant to the financial statements for the six
months ended June 30, 1998. The Company does not plan to enter
into such contracts in the future.
-40-
<PAGE> 44
Note 5- On March 6, 1998, the Company's Board of Directors declared a
dividend of $30 million to HEA, which offset the $30 million
intercompany loan to HEA at December 31, 1997.
Note 6- On August 6, 1998, LSI Logic Corporation ("LSI Logic") acquired all
of the outstanding capital stock of the Company from HEA. As a
result of the transaction, the Company is now a wholly owned
subsidiary of LSI Logic and all agreements between the Company and
HEA have been terminated. LSI Logic paid approximately $767 in cash
for all of the outstanding capital stock of the Company, which
included assumed liabilities of the Company. The final purchase
price is subject to certain post-closing requirements. In addition,
LSI Logic assumed all of the options outstanding under the
Company's 1995 Stock Plan and has terminated the 401(k) savings
plan and the RPA plan, subject to IRS approval.
On August 7, 1998, HEA paid approximately $230 million to the
Company to repay their note including interest plus additional
obligations in accordance with the Stock Purchase Agreement, the
First Amendment to the Stock Purchase Agreement and the
Supplementary Liability Agreement. The Company then repaid the
lender of the credit facility the term loan balance including
interest and commitment fees on the unused portion of the term
loan.
-41-
<PAGE> 45
(b) Pro Forma Financial Information.
-------------------------------
The following unaudited pro forma condensed consolidated financial statements
are presented for illustrative purposes only and are not necessarily indicative
of the consolidated financial position or results of operations for future
periods or the results that actually would have been realized had LSI Logic and
Symbios been a consolidated company during the specified periods. The unaudited
pro forma condensed consolidated financial statements, including the notes
thereto, are qualified in their entirety by reference to, and should be read in
conjunction with the historical consolidated financial statements and the notes
thereto of LSI Logic which were previously reported in LSI Logic's Annual Report
on Form 10-K for the year ended December 31, 1997 and the Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998, which are hereby incorporated by
reference, and the consolidated financial statements and the notes thereto for
the year ended December 31, 1997 and the Unaudited Condensed Consolidated
Statements and the notes thereto for the six month period ended June 30, 1998,
of Symbios included elsewhere in this Current Report on Form 8-K/A.
The following unaudited pro forma condensed consolidated financial statements
are based on the respective historical unaudited and audited consolidated
financial statements and the notes thereto of Symbios and LSI Logic after giving
effect to the acquisition of Symbios using the purchase method of accounting and
the assumptions and adjustments described below. The purchase price was
allocated to the estimated fair value of assets acquired and liabilities
assumed. The preliminary purchase price allocation is based on an independent
appraisal and management estimates. The purchase price allocation is subject to
further refinement and change over the next year. Management is in the final
process of completing its restructuring plans related to Symbios, and
accordingly, the amounts recorded related to Symbios are based on management's
current estimate of those costs.
This Current Report on Form 8-K/A contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. In particular, the assumptions set forth below
regarding revenue growth, gross margin increases, cost decreases and cost of
capital which underlie the Company's calculation of the in-process research and
development expenses contain forward-looking statements and are qualified by the
risks associated with "Dependence on New Process Technologies and Products,"
"Manufacturing Risks," "Capital Needs," "Fluctuations in Operating Results,"
"Competition," "Currency Risks," "Customer Concentration," "Cyclical Nature of
the Semiconductor Business" and "Acquisitions and Investment Alliances" and
other risks detailed in LSI Logic's Annual Report on Form 10-K for the year
ended December 31, 1997 and its
42
<PAGE> 46
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998 and June
30, 1998 and other reports filed by LSI Logic with the Securities Exchange
Commission from time to time. Actual results could differ materially from those
projected in these forward-looking statements as a result of the risks described
above as well as other risk factors set forth in LSI Logic's periodic reports
both previously and hereafter filed with the Securities Exchange Commission.
The required pro forma unaudited financial information is set forth below.
43
<PAGE> 47
PRO FORMA FINANCIAL INFORMATION
Table of Contents
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Unaudited Pro Forma Condensed Consolidated balance sheet -
June 30, 1998 1
Unaudited Pro Forma Condensed Consolidated Statement of Operations -
Year ended December 31, 1997 2
Unaudited Pro Forma Condensed Consolidated Statement of Operations -
Six months ended June 30, 1998 3
Unaudited Notes to Pro Forma Condensed Consolidated Financial Statements 4
</TABLE>
<PAGE> 48
LSI LOGIC CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET - UNAUDITED
JUNE 30, 1998
(in thousands)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
LSI LOGIC SYMBIOS ADJUSTMENTS COMBINED
--------- ------- ----------- --------
<S> <C> <C> <C> <C>
Assets
Cash and short term investments $ 409,230 $ 42,327 $(178,732)(B,J) $ 272,825
Accounts receivable, net 231,461 76,023 307,484
Inventories 101,379 68,979 5,000 (C) 175,358
Other current assets 82,132 9,533 (4,276)(D) 87,389
----------- --------- --------- ----------
Total current assets 824,202 196,862 (178,008) 843,056
Property, plant and equipment, net 1,165,206 289,207 (39,020)(E) 1,415,393
Other assets 142,664 9,096 328,773(F,G) 480,533
----------- --------- --------- ----------
Total assets $ 2,132,072 $ 495,165 $ 111,745 $2,738,982
=========== ========= ========= ==========
Liabilities and Stockholders' Equity
Current liabilities 357,896 70,281 19,321 (B,I,Q) 447,498
Current portion of long-term
obligations and other 40,955 246,266 (95,000)(B,J) 192,221
----------- --------- --------- ----------
Total current liabilities 398,851 316,547 (75,679) 639,719
Long-term obligations and other 111,810 5,181 481,214 (D,J) 598,205
----------- --------- --------- ----------
Total liabilities 510,661 321,728 405,535 1,237,924
----------- --------- --------- ----------
Minority interest in subsidiaries 4,920 4,920
----------- --------- --------- ----------
Stockholders' equity:
Stock 978,825 316,117 (290,970)(O,P) 1,003,972
Note receivable from HEA (151,647) 151,647(B)
Retained Earnings 674,099 8,967 (154,467)(A,O) 528,599
Cumulative translation adjustment (36,433) (36,433)
----------- --------- --------- ----------
Total stockholders' equity 1,616,491 173,437 (293,790) 1,496,138
----------- --------- --------- ----------
Total liabilities and
stockholders' equity $ 2,132,072 $ 495,165 $ 111,745 $2,738,982
=========== ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
1
<PAGE> 49
LSI LOGIC CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS - UNAUDITED
YEAR ENDED DECEMBER 31, 1997
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
LSI LOGIC SYMBIOS ADJUSTMENTS COMBINED
--------- ------- ----------- --------
<S> <C> <C> <C> <C>
Revenues $ 1,290,275 $ 619,469 $ -- $ 1,909,744
----------- --------- -------- -----------
Costs and expenses:
Cost of revenues 675,153 368,971 (14,720)(E) 1,029,404
Research and development 226,219 88,188 -- 314,407
Selling, general and administrative 190,680 83,301 407 (E) 274,388
Amortization of intangibles 4,472 8,468 33,307 (H) 46,247
Stock compensation expense -- 22,931 -- 22,931
Fab closure costs -- 11,547 -- 11,547
Acquired in-process research
and development 2,850 -- -- 2,850
----------- --------- -------- -----------
Total Operating expenses 1,099,374 583,406 18,994 1,701,774
Income/(loss) from operations 190,901 36,063 (18,994) 207,970
Interest expense (1,497) (8,488) (38,100)(J) (48,085)
Interest income and other 34,759 7,551 (8,765)(K,M) 33,545
----------- --------- -------- -----------
Income/(loss) before income taxes, minority
interest and cumulative effect of
change in accounting principle 224,163 35,126 (65,859) 193,430
Provision/(benefit) for income taxes 62,748 18,900 (20,679)(N) 60,969
----------- --------- -------- -----------
Net income/(loss) before minority interest
and cumulative effect of change
in accounting principle 161,415 16,226 (45,180) 132,461
Minority interest 727 -- -- 727
----------- --------- -------- -----------
Net income/(loss) before cumulative effect
of change in accounting principle 160,688 16,226 (45,180) 131,734
Cumulative effect of change in
accounting principle (1,440) -- -- (1,440)
----------- --------- -------- -----------
Net income/(loss) $ 159,248 $ 16,226 $(45,180) $ 130,294
=========== ========= ======== ===========
Basic earnings per share $ 1.15 $ 0.94
======== ===========
Diluted earnings per share $ 1.11 $ 0.91
======== ===========
Shares used in computing basic
net income per share 138,576 138,576
======== ===========
Shares used in computing
diluted net income per share 144,027 144,780
======== ===========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
2
<PAGE> 50
LSI LOGIC CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS - UNAUDITED
SIX MONTHS ENDED JUNE 30, 1998
(in thousands, except per share Amounts)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
LSI LOGIC SYMBIOS ADJUSTMENTS COMBINED
--------- ------- ----------- --------
<S> <C> <C> <C> <C>
Revenues $654,951 $ 300,107 $ -- $ 955,058
-------- --------- --------- ---------
Costs and expenses:
Cost of revenues 358,951 171,044 (7,360)(E) 522,635
Research and development 128,688 47,239 -- 175,927
Selling, general, administrative
and other 94,342 44,578 203(E) 139,123
Amortization of intangibles 2,772 3,091 17,797(H) 23,660
Stock compensation expense -- 106 -- 106
Fab closure costs -- (1,166) -- (1,166)
-------- --------- --------- ---------
584,753 264,892 10,640 860,285
Income/(loss) from operations 70,198 35,215 (10,640) 94,773
Interest expense -- (15,475) (11,355)(J,L) (26,830)
Interest income and other 13,157 7,302 (8,605)(K,M) 11,854
-------- --------- --------- ---------
Income/(loss) before income taxes 83,355 27,042 (30,600) 79,797
Provision for income taxes 20,878 10,275 (8,634)(N) 22,519
-------- --------- --------- ---------
Net income/(loss) $ 62,477 $ 16,767 $ (21,966) $ 57,278
======== ========= ========= =========
Basic earnings per share $ 0.44 $ 0.41
========= =========
Diluted earnings per share $ 0.44 $ 0.40
========= =========
Shares used in computing basic
net income per share 140,540 140,540
========= =========
Shares used in computing diluted
net income per share 141,949 142,443
========= =========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
3
<PAGE> 51
LSI LOGIC CORPORATION
UNAUDITED NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
Note 1. Basis of Presentation
On August 6, 1998, LSI Logic Corporation ("LSI Logic") completed the acquisition
of all of the outstanding capital stock of Symbios, Inc. ("Symbios") from
Hyundai Electronics America ("HEA"). HEA is a majority owned subsidiary of
Hyundai Electronics Industries Co.,Ltd. ("HEI"), a Korean corporation. The
transaction was completed pursuant to (a) the Stock Purchase Agreement dated as
of June 28, 1998 by and among LSI Logic, HEA and HEI and (b) the First Amendment
to the Stock Purchase Agreement dated August 6, 1998 by and among LSI Logic, HEA
and HEI and (c) the Supplementary Liability Agreement dated August 6, 1998 by
and among LSI Logic, HEA and HEI. LSI Logic paid approximately $767 million in
cash for all of the outstanding capital stock of Symbios. In addition, LSI Logic
assumed all of the options outstanding under Symbios' 1995 Stock Plan.
The components of purchase price are as follows:
<TABLE>
<S> <C>
Bank line of credit bearing interest at $ 635
adjustable rates
Liability to HEA and other (1) 16
Direct acquisition costs 6
Fair value of options assumed 25
Cash 122
--------
Total purchase price $ 804
========
</TABLE>
(1) LSI Logic, in accordance with its agreement with HEA, withheld $10
million in payment to HEA pending resolution of the liabilities subject
to the supplementary liability agreement dated August 6, 1998. This
amount is ultimately payable to HEA or to satisfy other liabilities and
has accordingly been reflected as a component of the purchase price. In
addition, the Company accrued an additional $6 million as payable to HEA
relating to the resolution of certain obligations outlined in the Stock
Purchase Agreement.
The total purchase price was allocated to the estimated fair value of assets
acquired and liabilities assumed. The estimate of fair value of the assets
acquired is based on an independent appraisal and management estimates.
Management is in the final process of completing its integration plans related
to Symbios, and accordingly, the amounts recorded related to Symbios are based
on management's current estimate of those costs. The allocation of purchase
price is discussed further in Note 2.
The pro forma unaudited condensed consolidated statement of operations is
presented using LSI Logic's unaudited condensed consolidated statement of
operations for the six months ended June 30, 1998 combined with Symbios's
unaudited condensed consolidated statement of operations for the six months
ended June 30, 1998 assuming the transaction occurred on January 1, 1998.
Additionally, the presentation includes LSI Logic's condensed consolidated
statement of operations for the year ended December 31, 1997 combined with
Symbios's condensed consolidated statement of operations for the year ended
December 31, 1997 as if the transaction had taken place on January 1, 1997.
The pro forma unaudited condensed consolidated balance sheet gives effect to the
acquisition as if the transaction had taken place on June 30, 1998 and combines
LSI Logic's unaudited June 30, 1998 condensed consolidated balance sheet amounts
with Symbios's unaudited June 30, 1998 condensed consolidated balance sheet
amounts.
For financial reporting purposes, LSI Logic and Symbios report on 13 or 14 week
quarters with their years ending December 31. For pro forma presentation
purposes, the unaudited pro forma condensed consolidated financial statements
refer to the calendar month end for convenience. LSI Logic's and Symbios's month
end were both June 28. The results of operations for the six months ended June
30, 1998 are not necessarily indicative of the results to be expected for the
full year.
There were no transactions between LSI Logic and Symbios during the period
presented and there are no significant differences between the accounting
policies of LSI Logic and Symbios.
4
<PAGE> 52
The pro forma unaudited condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes thereto
of LSI Logic, which were previously reported in LSI Logic's Annual Report on
10-K for the year ended December 31, 1997 and its Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998, incorporated herein by reference, and with
the combined financial statements and notes thereto of Symbios included
elsewhere as exhibits in the Form 8-K. These pro forma statements are based on
such consolidated financial statements after giving effect to the transaction
under the purchase method of accounting and the assumptions and adjustments
described below. The pro forma information does not purport to be indicative of
the results which would have been reported if the purchase had been in effect
for the periods presented or which may result in the future.
Note 2. Pro Forma Adjustments
The pro forma adjustments are based on a preliminary allocation of the purchase
price to the assets acquired and liabilities assumed. The allocation of the
purchase price is based on an independent appraisal of certain assets as well as
management estimates of fair value. It also reflects the results of an
integration plan, which includes employee separations, elimination of
duplicative facilities, employee relocation and other restructuring actions. The
accruals recorded related to the restructuring of Symbios operations are in
accordance with Emerging Issue Task Force No. 95-3 "Recognition of Liabilities
in Connection with a Purchase Business Combination."
This Current Report on Form 8-KA contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. In particular, the assumptions set forth below
regarding revenue growth and cost of capital which underlie the Company's
calculation of the in-process research and development expenses contain
forward-looking statements and are qualified by the risks associated with
"Dependence on New Process Technologies and Products," "Manufacturing Risks,"
"Capital Needs," "Fluctuations in Operating Results," "Competition," "Currency
Risks," "Customer Concentration," "Cyclical Nature of the Semiconductor
Business" and "Acquisitions and Investment Alliances" and other risks detailed
in LSI Logic's Annual Report on Form 10-K for the year ended December 31, 1997
and its Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998 and
June 30, 1998 and other reports filed by LSI Logic with the Securities Exchange
Commission from time to time. Actual results could differ materially from those
projected in these forward-looking statements as a result of the risks described
above as well as other risk factors set forth in LSI Logic's periodic reports
both previously and hereafter filed with the Securities Exchange commission.
(A) To reflect the allocation of purchase price to net assets acquired and
liabilities assumed. The purchase price was allocated as follows (in
millions):
<TABLE>
<S> <C>
Fair value of property, plant and equipment $ 252
Fair value of other tangible net assets 72
In-process research and development 146
Current technology 214
Assembled workforce and trademarks 37
Excess of purchase price over net assets assumed 83
--------
$ 804
========
</TABLE>
LSI Logic reduced the estimate of the amount allocated to in-process research
and development ("IPR&D") by $79.3 million from the $224.8 million amount
previously reported in the 8-K/A filed on October 20, 1998 to $145.5 million.
LSI Logic allocated amounts to IPR&D and intangible assets as of August 6, 1998
in a manner consistent with widely recognized appraisal practices at the date of
acquisition of Symbios. Subsequent to the acquisition, in a letter to the
American Institute of Certified Public Accountants, the Chief Accountant of the
Securities and Exchange Commission ("SEC") expressed views of the SEC staff that
took issue with certain appraisal practices generally employed in determining
the fair value of the IPR&D that was the basis for the measurement of the IPR&D
charge. The charge of $224.8 million, as first reported, was based upon
assumptions and appraisal methodologies the SEC has since announced it does not
consider appropriate.
As a result of computing IPR&D using the SEC preferred methodology, LSI Logic
has revised the amount originally allocated to IPR&D and accordingly has
amended the report on Form 8-K/A previously filed with the Securities Exchange
Commission.
5
<PAGE> 53
The value assigned to IPR&D was determined by identifying research projects in
areas for which technological feasibility had not been established. These
include semiconductor projects of $ 94.6 million and storage systems projects of
$50.9 million. The value was determined by estimating the expected cash flows
from the projects once commercially feasible, discounting the net cash flows
back to their present value and then applying a percentage of completion to the
calculated value as defined below.
Net cash flows. The net cash flows from the identified projects are based on
estimates of revenues, cost of sales, research and development costs, selling,
general and administrative costs, and income taxes from those projects. These
estimates are based on the assumptions mentioned below. The research and
development costs included in the model reflect costs to sustain projects, but
exclude costs to bring in-process projects to technological feasibility.
The estimated revenues are based on management projections of each in-process
project for semiconductor and storage systems products and the aggregated
business projections were compared and found to be in line with industry
analysts' forecasts of growth in substantially all of the relevant markets.
Estimated total revenues from the IPR&D product areas are expected to peak in
the year 2001 and decline from 2002 to 2005 as other new products are expected
to become available. These projections are based on estimates of market size and
growth, expected trends in technology, and the nature and expected timing of new
product introductions by LSI Logic and its competitors.
Projected gross margins approximate Symbios' recent historical performance and
are in-line with industry margins in the semiconductor and storage systems
industry sectors. The estimated selling, general and administrative costs are
consistent with Symbios' historical cost structure which is in-line with
industry averages at approximately 15% of revenues. Research and development
costs are consistent with Symbios' historical cost structure.
Royalty rate. The Company applied a royalty charge of 25% of operating income
for each in-process project to attribute value for dependency on predecessor
core technologies.
Discount rate. Discounting the net cash flows back to their present value is
based on the industry weighted average cost of capital ("WACC"). The industry
WACC is approximately 15% for semiconductors and 16% for storage systems. The
discount rate used in discounting the net cash flows from IPR&D is 20% for
semiconductor and 21% for storage systems, a 500 basis point increase from the
respective industry WACC's. This discount rate is higher than the industry WACC
due to inherent uncertainties surrounding the successful development of the
IPR&D, market acceptance of the technology, the useful life of such technology,
the profitability levels of such technology and the uncertainty of technological
advances which could potentially impact the estimates described above.
Percentage of completion. The percentage of completion for each project was
determined using milestones representing management's estimate of effort, value
added, and degree of difficulty of the portion of each project completed as of
August 6, 1998, as compared to the remaining research and development to be
completed to bring each project to technical feasibility. The development
process is grouped into three phases with each phase containing between one and
five milestones. The three phases are:
o Researching the market requirements and the engineering
architecture and feasibility studies;
o Design and verification milestones; and
o Prototyping and testing the product (both internal and customer
testing).
Each of these phases has been subdivided into milestones, and then the status of
each of the projects was evaluated as of August 6, 1998. The percentage of
completion varied by individual project ranging from 15% to 90% for
semiconductors and from 5% to 85% for storage systems.
If the projects discussed above are not successfully developed, the sales and
profitability of the combined company may be adversely affected in future
periods. Additionally, the value of other intangible assets acquired may become
impaired. LSI Logic management believes that the restated IPR&D charge of $145.5
million is valued consistently with the SEC staff's current views regarding
valuation methodologies. There can be no assurances, however, that the SEC staff
will not take issue with any assumptions used in the Company's valuation model
and require the Company to further revise the amount allocated to IPR&D.
(B) Adjustment to reflect repayment by HEA of $152 million for their note
including interest to Symbios and payment for additional obligations
of $44 million outlined in the Stock Purchase Agreement, the First
Amendment to the Stock Purchase Agreement and the
6
<PAGE> 54
Supplementary Liability Agreement and to record the Symbios repayment of
$245 million of the term loan balance with $2 million of outstanding
interest and commitment fees on the unused portion of the term loan to
the lender of the credit facility.
(C) Adjustment to reflect the fair value of inventories.
(D) Adjustment to eliminate Symbios' deferred tax assets ($4 million) and
deferred tax liabilities ($4 million) to post- acquisition values.
(E) Adjustment to reflect fair value of property, plant and equipment in the
unaudited pro forma condensed consolidated balance sheet and the
corresponding change in depreciation in the unaudited pro forma
condensed consolidated statements of operations for the periods
presented.
(F) Adjustment to eliminate intangible assets previously recorded by Symbios
in the amount of approximately $5 million.
(G) Adjustment to record fair value of intangible assets for current
technology, assembled workforce, trademarks and goodwill with values as
outlined in (A) above. The estimated weighted average useful life of the
intangible assets is approximately 8 years.
(H) Adjustment to reverse amortization of intangibles previously recorded by
Symbios ($8.5 million for the year ended December 31, 1997 and $3.1
million for six months ended June 30, 1998) and to record amortization
expense of intangible assets straight-line over the estimated weighted
average useful life as outlined in (G) above ($41.8 million for the year
ended December 31, 1997 and $20.9 million for six months ended June 30,
1998).
(I) Adjustment to reflect estimate of accrued integration charges related to
Symbios to be incurred in connection with the acquisition. The
integration plans include initiatives to integrate the operations of
Symbios and LSI Logic and consolidate duplicative operations.
Adjustments to accrued restructuring costs related to Symbios were
recorded as an adjustment to the purchase price allocation. Accrued
integration charges include $4 million related to involuntary employee
separation and relocation benefits related to approximately 300 Symbios
employees and $1.4 million in other exit costs primarily relating to the
closing of Symbios sales offices and the termination of certain
contractual relationships. The Symbios integration related accruals are
based upon management's current estimate of integration costs and are in
accordance with EITF No. 95-3, "Recognition of Liabilities in Connection
with a Purchase Business Combination."
(J) Adjustment to record the current ($150 million) and long-term ($485
million) portion of the term loan entered into on August 5, 1998 on the
unaudited pro forma condensed consolidated balance sheet as of June 30,
1998 and the related receipt of funds. The term loan bears interest at
adjustable rates and an increase or decrease in the interest rate by
.125% would have an insignificant effect to the unaudited pro forma
condensed consolidated statements of operations presented. The unaudited
pro forma condensed consolidated statements of operations include an
adjustment to record interest expense for the periods presented related
to the incremental borrowing entered into by LSI to finance the Symbios
acquisition using an assumed rate of 6%. Amortization of capitalized
debt issuance costs are considered immaterial for the periods presented.
Adjustment also reflects the payment to HEA in the amount of $763
million including cash reserves used by LSI Logic as outlined in
Note 1.
(K) Adjustment to reflect the reversal of interest income on the pro forma
adjustment to cash resulting from the acquisition ($7.1 million for the
year ended December 31, 1997 and $3.5 million for six months ended June
30, 1998). The assumed rate of return on the cash balance was
approximately 5.8% which is based upon the estimated rate of return on
short-term investments for LSI Logic.
(L) Adjustment to eliminate interest expense of $7.7 million related to the
Symbios term loan assumed to be repaid as of the beginning of the
periods presented.
(M) Adjustment to eliminate interest income associated with the HEA note
assumed to be repaid as of the beginning of the periods presented ($1.7
million for the year ended December 31, 1997 and $5.1 million for six
months ended June 30, 1998).
(N) Adjustment to reflect the tax effect of the pro forma adjustments at the
combined rate of Symbios and LSI Logic during the periods presented.
(O) Adjustment to eliminate $316 million of common stock and $9 million of
retained earnings previously recorded by Symbios.
(P) Adjustment to stockholders' equity to record $25 million of the
Black-Scholes value of the Symbios stock options assumed as a result of
the transaction.
7
<PAGE> 55
(Q) Adjustment to accrue for $16 million payable to HEA and others as
discussed in Note 1.
Note 3. Pro Forma Earnings Per Share
Basic pro forma earnings per share was calculated based on shares of LSI Logic's
Common Stock outstanding at June 30, 1998 and December 31, 1997. Diluted
earnings per share included equivalent LSI Logic's common shares of which 494
and 753 were included in diluted shares for the periods ended June 30, 1998 and
December 31, 1997 attributable to Symbios stock options assumed as part of the
transaction.
(c)Exhibits.
2.1(1) Stock Purchase Agreement, dated as of June 28, 1998, by and
among the Registrant, HEA and HEI.
2.2(1) First Amendment to Stock Purchase Agreement, dated as of August
6, 1998, by and among Registrant, HEA and HEI.
10.43(2) Amended and Restated Credit Agreement, dated as of September 22,
1998 by and among Registrant, LLJS, ABN AMRO and Lenders.
23.1 Consent of Independent Accountants
23.2 Consent of Independent Accountants
99.1(1) Text of Press Release dated August 7, 1998
================================================================================
(1) Incorporated by reference to Current Report on Form 8-K filed on
August 21, 1998
(2) Incorporated by reference to Current Report on Form 8-K/A filed on
October 20, 1998.
<PAGE> 56
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 hereunto duly authorized.
LSI LOGIC CORPORATION
a Delaware corporation
Dated: March 31, 1998 By: /s/ R. Douglas Norby
--------------------------------------
R. Douglas Norby
Executive Vice President, Finance and
Chief Financial Officer
<PAGE> 57
EXHIBIT INDEX
Exhibit Number Description
2.1(1) Stock Purchase Agreement, dated as of June 28, 1998, by and
among the Registrant, HEA and HEI.
2.2(1) First Amendment to Stock Purchase Agreement, dated as of
August 6, 1998, by and among Registrant, HEA and HEI.
10.43(2) Amended and Restated Credit Agreement, dated as of September
22, 1998, by and among Registrant, LLJS, ABN AMRO and Lenders.
23.1 Consent of Independent Accountants
23.2 Consent of Independent Accountants
99.1(1) Text of Press Release dated August 7, 1998
================================================================================
(1) Incorporated by reference to Current Report on Form 8-K filed on
August 21, 1998
(2) Incorporated by reference to Current Report on Form 8-K/A filed on
October 20, 1998.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
LSI Logic Inc. on Form S-8 of our report dated January 24, 1998, except for
Note 21, as to which the date is August 6, 1998, on our audit of the
consolidated financial statements of Symbios, inc. as of December 31, 1997 and
for the year then ended which report is included in this Form 8-K/A.
/s/ Pricewaterhouse Coopers LLP
- ------------------------------------
Denver, Colorado
May 28, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 2-86474, No. 2-91907, No. 2-98732, No. 33-6188, No.
33-6203, No. 33-13265, No. 33-17720, No. 33-30385, No. 33-66546, No. 33-30386,
No. 33-36249, No. 33-41999, No. 33-42000, No. 33-53054, No. 33-66548, No.
33-66546, No. 33-55631, No. 33-55633, No. 33-55697, No. 33-59981, No. 33-59987,
No. 333-12887, No. 333-34285, No. 333-62159, No. 333-57563, No. 333-74627) of
LSI Logic Corporation of our report dated January 22, 1998 appearing on page 36
of the Annual Report to Stockholders, which is incorporated in this Form 8-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Jose, California
May, 28 1999
