<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
MARK ONE:
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 28, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO ______
COMMISSION FILE NUMBER 0-11879
VLSI TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-2597282
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1109 MCKAY DRIVE, SAN JOSE, CALIFORNIA 95131
(Address of principal executive offices) (Zip Code)
(408) 434-3100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X) No ( )
Shares outstanding of the Registrant's Common Stock as of June 28, 1996:
45,860,893
1
<PAGE> 2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
VLSI TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME - unaudited
(thousands except share and per share amounts)
Three Months Ended Six Months Ended
--------------------------- ------------------------------
June 28, June 30, June 28, June 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues $ 182,526 $ 184,389 $ 350,238 $ 347,424
Cost of sales 111,370 109,806 216,349 208,767
----------- ----------- ----------- -----------
Gross profit 71,156 74,583 133,889 138,657
----------- ----------- ----------- -----------
Operating expenses
Research and development 25,609 22,268 49,980 42,936
Marketing, general and
administrative 34,061 31,159 69,058 58,934
----------- ----------- ----------- -----------
Operating income 11,486 21,156 14,851 36,787
Litigation charge -- (19,400) -- (19,400)
Interest income and other
expenses, net 2,833 1,544 6,828 2,425
Interest expense (2,856) (1,455) (5,336) (3,317)
----------- ----------- ----------- -----------
Income before provision for
taxes on income 11,463 1,845 16,343 16,495
Provision for taxes on income 3,190 550 4,900 4,950
----------- ----------- ----------- -----------
Net income $ 8,273 $ 1,295 $ 11,443 $ 11,545
=========== =========== =========== ===========
Net income per share $ .18 $ .03 $ .25 $ .29
=========== =========== =========== ===========
Weighted average common
and common equivalent
shares outstanding 46,868,504 40,714,215 46,636,954 39,579,378
=========== =========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
2
<PAGE> 3
PART I (CONTINUED)
Item 1. Financial Statements (continued)
VLSI TECHNOLOGY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(thousands)
<TABLE>
<CAPTION>
June 28, December 29,
1996 1995
(unaudited)
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 129,271 $ 183,165
Liquid investments 70,841 182,416
Accounts receivable, net of allowance for doubtful
accounts and customer returns of $1,900
($2,100 at December 29, 1995) 115,400 119,638
Inventories:
Raw materials 6,682 4,683
Work-in-process 47,220 47,069
Finished goods 8,855 9,096
--------- ---------
Total inventories 62,757 60,848
Deferred and refundable income taxes 45,489 47,706
Prepaid expenses and other current assets 6,602 4,362
--------- ---------
Total current assets 430,360 598,135
Property, plant and equipment, at cost 859,385 698,213
Accumulated depreciation and amortization (388,724) (346,172)
--------- ---------
Net property, plant and equipment 470,661 352,041
Other assets 11,951 9,711
--------- ---------
TOTAL ASSETS $ 912,972 $ 959,887
========= =========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
3
<PAGE> 4
PART I (CONTINUED)
Item 1. Financial Statements (continued)
VLSI TECHNOLOGY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS - (continued)
(thousands except per share amounts)
<TABLE>
<CAPTION>
June 28, December 29,
1996 1995
(unaudited)
----------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 70,922 $100,099
Accrued compensation and benefits 23,163 24,802
Deferred income 7,202 9,067
Litigation reserve 18,527 18,543
Other accrued liabilities 37,498 36,367
Current capital lease obligations 1,065 1,552
Current portion of long-term debt 7,553 7,608
-------- --------
Total current liabilities 165,930 198,038
Non-current capital lease obligations 2,919 3,465
Long-term debt 211,595 215,382
Deferred income taxes 12,373 12,373
Stockholders' equity:
Preferred Shares, $.01 par value -- --
Common Shares, $.01 par value 472 472
Treasury Common Shares, at cost (21,838) --
Additional paid-in capital 460,949 461,028
Retained earnings 80,572 69,129
-------- --------
Total stockholders' equity 520,155 530,629
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $912,972 $959,887
======== ========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
4
<PAGE> 5
PART I (CONTINUED)
Item 1. Financial Statements (continued)
VLSI TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - unaudited
(thousands)
<TABLE>
<CAPTION>
Six Months Ended
---------------------------
June 28, June 30,
1996 1995
--------- --------
Increase (decrease) in cash
and cash equivalents
<S> <C> <C>
Operating activities:
Net income $ 11,443 $ 11,545
Adjustments to reconcile net income
to net cash generated by operations:
Litigation charge -- 19,400
Depreciation and amortization 50,419 34,251
Changes in operating assets and liabilities:
Accounts receivable 4,238 (13,661)
Inventories (1,909) 6,974
Prepaid and refundable income taxes 2,217 --
Accounts payable, accrued liabilities
and deferred income (15,773) 11,057
Other (2,119) (1,298)
--------- ---------
Cash generated by operations 48,516 68,268
--------- ---------
Investing activities:
Purchases of liquid investments (101,606) (81,927)
Proceeds from maturities of liquid investments 213,076 22,804
Purchases of property, plant and equipment (186,841) (44,088)
Other (300) (300)
Net cash flow used for investing activities --------- ---------
(75,671) (103,511)
--------- ---------
Financing activities:
Payments on debt and capital lease obligations (4,875) (8,949)
Repurchase Treasury Shares (27,181) --
Issuance of Common and Treasury Shares, net 5,317 102,378
Net cash flow provided by --------- ---------
(used for) financing activities (26,739) 93,429
--------- ---------
Net increase (decrease) in cash and cash equivalents (53,894) 58,186
Cash and cash equivalents, beginning of period 183,165 93,310
--------- ---------
Cash and cash equivalents, end of period $ 129,271 $ 151,496
========= =========
Supplemental disclosures:
Cash outflows for property, plant and equipment $ 186,841 $ 44,088
Add: Secured equipment loans -- 18,281
Less: Decrease in accrual for property, plant
and equipment additions (19,635) --
--------- ---------
Property, plant and equipment additions $ 167,206 $ 62,369
========= =========
Interest paid $ 10,846 $ 3,428
========= =========
Income taxes paid, net $ 2,294 $ 5,045
========= =========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
5
<PAGE> 6
PART I (CONTINUED)
Item 1. Financial Statements (continued)
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The accompanying interim consolidated condensed financial statements have
been prepared in conformance with generally accepted accounting
principles, consistent with those applied in the VLSI Technology, Inc.
Annual Report on Form 10-K for the year ended December 29, 1995 (the 1995
Annual Report). This Quarterly Report on Form 10-Q (Form 10-Q) should be
read in conjunction with the 1995 Annual Report. The interim financial
statements are unaudited, but reflect all normal recurring adjustments
that are, in the opinion of management, necessary to a fair statement of
results for the interim periods presented. The results for the quarter
and six-month period ended June 28, 1996 are not necessarily indicative of
the results that may be expected for the year ending December 27, 1996.
2. The Company's tax provision of 30% for the first six months of 1996
primarily reflects benefits from the utilization of state tax credits and
foreign taxes that are less than the U.S. statutory rate. The Company's
tax provision of 30% for the first six months of 1995 primarily reflects
benefits from the utilization of tax credits and a valuation allowance.
3. The Company is a named defendant in a lawsuit filed by Texas Instruments
Incorporated (TI) in 1990 claiming patent infringement. For more
information, see Note 4 of Notes to Consolidated Financial Statements on
pages 32 and 33 of the Company's 1995 Annual Report and Item 1 in Part II
of this Form 10-Q.
4. In January 1996, the Board of Directors (Board) authorized the Company to
repurchase shares of the Company's Common Stock on the open market or in
privately negotiated transactions. The Board authorized the Company to
re-issue these shares at a later date through certain of its employee
stock plans and/or to fund stock or asset acquisitions authorized by the
Board. The Company repurchased 1.8 million shares at an average per share
price of $15.10 during January and February 1996. No additional shares had
been repurchased as of June 28, 1996. During the second quarter of 1996,
approximately 440,000 of the repurchased shares were re-issued through
certain of the Company's employee stock plans.
5. The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" (FAS 121) and Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123)
with the commencement of fiscal 1996. Initial adoption of FAS 121 did not
have a material effect on the Company's consolidated financial statements.
The Company has elected to adopt the disclosure requirements of FAS 123
rather than the accounting requirements of FAS 123.
6. On April 30, 1996, the Company elected to terminate its committed Credit
Agreement, which otherwise was due to expire on June 7, 1996. There were
no borrowings outstanding at the termination date.
6
<PAGE> 7
PART I (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS - FIRST SIX MONTHS OF 1996 COMPARED TO THE FIRST SIX
MONTHS OF 1995
This Management's Discussion and Analysis of Financial Condition and Results of
Operations (MDA) should be read in conjunction with the MDA in the 1995 Annual
Report.
This MDA 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. Actual results could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth below in
this MDA and in the 1995 Annual Report.
The following table summarizes the Company's operating results for the six-month
period ended June 28, 1996 as compared to the six-month period ended June 30,
1995 (dollars in thousands):
<TABLE>
<CAPTION>
SIX MONTHS
-------------------------------------------------------------------
1996 1995
--------------------------------------- ------------------------
PERCENT PERCENT PERCENT
OF NET CHANGE OF NET
AMOUNTS REVENUES FROM 1995 AMOUNTS REVENUES
------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Net revenues $350,238 100.0% 0.8% $347,424 100.0%
Cost of sales 216,349 61.8 3.6 208,767 60.1
-------- -------- -----
Gross profit 133,889 38.2 (3.4) 138,657 39.9
Research & development 49,980 14.3 16.4 42,936 12.3
Marketing, general & administrative 69,058 19.7 17.2 58,934 17.0
-------- ----- -------- -----
Operating income 14,851 4.2 (59.6) 36,787 10.6
Litigation charge -- -- * (19,400) 5.6
Interest income (expense), net
1,492 0.5 * (892) 0.3
Income taxes 4,900 1.4 (1.0) 4,950 1.4
-------- ----- -------- -----
Net income $ 11,443 3.3 (0.9) $ 11,545 3.3
======== ===== ======== =====
</TABLE>
* Not meaningful
The Company earned net income of $11.4 million for the first half of 1996,
compared to net income of $11.5 million in the first half of 1995. Although the
Company's net income has remained relatively unchanged, the first half of 1995
includes a non-recurring charge of $19.4 million for the TI litigation reserve
recorded in the second quarter of 1995. Net income in the first half of 1996
reflects the effects of decreased gross profit in dollars and as a percentage of
net revenues (gross margin) due to increased depreciation costs for
underutilized capacity that was put in place in anticipation of a significant
revenue increase that did not materialize. Additionally, there were
significantly higher operating expenses in the first half of 1996.
Net revenues in the first half of 1996 remained relatively flat from the
comparable 1995 period. Increases in revenues from the Company's communications
and consumer digital entertainment products in the first half of 1996 were
offset by decreases in revenues from the Company's X86-based personal computer
(PC) devices and devices for incorporation into Apple products. In the first
half of 1996, revenues from the Company's X86-based PC and Apple devices
represented approximately 20% of total Company revenue, down from approximately
45% of total Company revenue in the same period of 1995. For the remaining six
months of 1996
7
<PAGE> 8
PART I (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
RESULTS OF OPERATIONS - FIRST SIX MONTHS OF 1996 COMPARED TO THE FIRST SIX
MONTHS OF 1995 (continued)
X86-based revenue is anticipated to represent less than 10% of total Company
revenue. This decline in revenue is the result of a decrease of the Company's
market share in the PC chip set market primarily as a result of Intel's
expansion in scope of its business from microprocessors to motherboards and core
logic chip sets. The decrease in the Company's X86-based revenue led to
underutilization at the Company's San Jose, California fabrication facility,
which in turn led to certain manufacturing inefficiencies. In order to respond
to the loss of a substantial portion of its X86 business, the Company instituted
a reduction in force in March 1996 in both the San Jose fabrication facility and
in the Company's Tempe, Arizona test facility. However, with the prospect for a
further decline in the business, these actions may prove to be inadequate. These
manufacturing inefficiencies are expected to adversely impact the second half of
1996. The underutilization, expenses relating to the reduction in force and
inventory charges for certain X86 devices negatively affected gross margins in
the first half of 1996 significantly. See the discussions of gross margins and
"Factors Affecting Future Results" below.
International net revenues (including export sales) decreased, accounting for
44.2% of net revenues in the first half of 1996 compared to 52.0% of net
revenues in the first half of 1995, primarily due to decreases in export sales
to the Asia-Pacific region. Export sales to the Asia-Pacific area in the first
half of 1996 decreased from the first half of 1995, due to the decrease in
shipments of devices for the PC market, in particular Apple and X86-based
devices. European net revenues increased from the comparable 1995 period due to
growth in the Company's shipments of communications and consumer digital
entertainment devices in that region.
Gross margins decreased from 39.9% in the first half of 1995 to 38.2% in the
first half of 1996. This result was driven in large part by inventory charges
taken during the first quarter of 1996 for certain X86 devices as a result of
the change in the business outlook for those products as well as manufacturing
inefficiencies in the first half of 1996 associated with underutilization of the
San Jose facility and a March 1996 reduction in force. For further discussion of
these issues, see "Factors Affecting Future Results".
R&D expenditures increased $7.0 million (16.4%) in the first half of 1996 over
expenditures in the same 1995 period and increased as a percentage of net
revenues from 12.3% to 14.3%, reflecting continuing investment in new products
and package and process technologies. R&D expenditures in the first half of 1996
focused on design environment, process development and product development for
the consumer digital entertainment and communications markets.
Marketing, general and administrative expenses for the first half of 1996
increased $10.1 million (17.2%) from the first half of the prior year and
increased as a percentage of net revenues from 17.0% to 19.7%. The increase is
due primarily to higher sales and marketing expenses relating to the Company's
shift in product markets away from the X86-based products and towards the
communications and consumer digital entertainment markets.
As discussed in Note 3 to the Consolidated Condensed Financial Statements and in
Item 1 of Part II hereof, VLSI recorded a charge in the second quarter of 1995
of $19.4 million for the jury verdict in the TI litigation.
Interest income (expense), net shows income of $1.5 million in the first half of
the current year as compared to $0.9 million of net expense in the same period a
year ago, reflecting higher interest income on higher average cash balances than
in the first half of 1995 primarily resulting from the Company's issuance of
Common Stock and debt in the second half of 1995.
8
<PAGE> 9
PART I (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
RESULTS OF OPERATIONS - FIRST SIX MONTHS OF 1996 COMPARED TO THE FIRST SIX
MONTHS OF 1995 (continued)
Interest expense increased in the first half of 1996 over the first half of 1995
due to a higher amount of debt outstanding, partially offset by a higher level
of capitalized interest.
The Company's tax provision of 30% for the first six months of 1996 primarily
reflects benefits from the utilization of state tax credits and foreign taxes
that are less than the U.S. statutory rate. The Company's tax provision of 30%
for the first six months of 1995 primarily reflects benefits from the
utilization of tax credits and a valuation allowance.
9
<PAGE> 10
PART I (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
RESULTS OF OPERATIONS - SECOND QUARTER OF 1996 COMPARED TO THE SECOND QUARTER OF
1995
The following table summarizes the Company's operating results for the
three-month period ended June 28, 1996 as compared to the three-month period
ended June 30, 1995 (dollars in thousands):
<TABLE>
<CAPTION>
SECOND QUARTER
------------------------------------------------------------------------------
1996 1995
------------------------------------------- --------------------------
PERCENT PERCENT PERCENT
OF NET CHANGE OF NET
AMOUNTS REVENUES FROM 1995 AMOUNTS REVENUES
------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Net revenues $182,526 100.0% (1.0)% $184,389 100.0%
Cost of sales 111,370 61.0 1.4 109,806 59.6
-------- ----- -------- -----
Gross profit 71,156 39.0 (4.6) 74,583 40.4
Research & development 25,609 14.0 15.0 22,268 12.0
Marketing, general & administrative 34,061 18.7 9.3 31,159 16.9
-------- ----- -------- -----
Operating income 11,486 6.3 (45.7) 21,156 11.5
Litigation charge - - * (19,400) 10.5
Interest income (expense), net
(23) ** * 89 **
Income taxes 3,190 1.8 480.0 550 0.3
-------- ----- -------- -----
Net income $ 8,273 4.5 538.8 $ 1,295 0.7
======== ===== ======== =====
</TABLE>
* Not meaningful
** Less than 0.1%
The Company earned net income of $8.3 million in the second quarter of 1996
compared to net income of $1.3 million in the second quarter of 1995, which
includes the effect of the $19.4 million charge taken for the TI litigation.
Excluding the effect of the 1995 litigation charge, the 1996 change in net
income reflects decreased gross profit in dollars and as a percentage of net
revenues (gross margin) and higher operating expenses.
Net revenues in the second quarter of 1996 decreased 1.0% from the comparable
1995 period. This reflects decreases in revenues from the Company's X86-based PC
devices and devices for incorporation into Apple products as discussed earlier,
partially offset by increased revenues during the second quarter of 1996 to the
communications and consumer digital entertainment markets. Software net revenues
decreased slightly in the second quarter of 1996 from the second quarter of
1995.
Second quarter 1996 international revenues decreased in terms of both amount and
percentage of revenues from the second quarter of 1995, primarily due to a 63.6%
decrease in sales to the Asia-Pacific region. This decrease reflects reduced
sales to the PC market, in particular the X86-based devices and devices for
incorporation into Apple products.
Gross margins in the second quarter of 1996 decreased from the second quarter of
1995 primarily as a result of certain manufacturing inefficiencies. The
manufacturing inefficiencies were primarily associated with the
underutilization of the San Jose facility. For further discussion of
manufacturing issues, see "Factors Affecting Future Results".
10
<PAGE> 11
PART I (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
RESULTS OF OPERATIONS - SECOND QUARTER OF 1996 COMPARED TO THE SECOND QUARTER OF
1995 (continued)
Both research and development expenditures and marketing, general and
administrative expenses in the second quarter of 1996 were higher in dollar
amount (and as a percentage of net revenues) compared to expenditures in the
same 1995 period, reflecting increased costs as previously described for the
first half of 1996.
As discussed in Note 3 to the Consolidated Condensed Financial Statements and in
Item 1 of Part II hereof, VLSI recorded a charge in the second quarter of 1995
of $19.4 million for the jury verdict in the TI litigation.
Interest income (expense), net for the second quarter of both 1996 and 1995
netted approximately to $0. The second quarter of 1996 interest income
(expense), net changed from that of the second quarter of 1995 by showing higher
interest income from higher average cash balances, and higher interest expense
due to a higher amount of debt outstanding, partially offset by higher
capitalized interest balances.
FACTORS AFFECTING FUTURE RESULTS
As described by the following factors, past financial performance should not be
considered to be a reliable indicator of future performance, and investors
should not use historical trends to anticipate results or trends in future
periods.
In late 1995, Apple announced delays to certain of its products in development
as well as excessive amounts of inventories. This reduction in Apple's
operations resulted in lower than expected VLSI revenues from Apple in the
fourth quarter of 1995, which has continued through the first half of 1996. VLSI
anticipates this will continue into at least the third quarter of 1996, as the
likelihood, timing and extent of an Apple recovery cannot be determined. In
addition, Apple has not yet fully disclosed its intentions regarding certain of
its products that contain VLSI devices. Any actions taken by Apple to further
reduce or eliminate those products could materially impact the Company.
Approximately two-thirds of the Company's net revenues for the second quarter
and first half of 1996 were derived from sales to its top 20 customers. As a
result of the concentration of the Company's customer base, loss or cancellation
of business from any of these customers, significant changes in scheduled
deliveries to any of these customers or decreases in the prices of products sold
to any of these customers could materially adversely affect the Company's
results of operations. Shipments to a single customer in the communications
business accounted for 13% of net revenues in the second quarter of 1996 and 12%
of net revenues in the first half of 1996, as compared to less than 10% in the
second quarter of 1995 and first half of 1995. Due to the continued decline in
the Company's X86 chip set business, the Company has experienced a shift in its
top 20 customers in the first half of 1996 away from the high concentration of
personal computer industry companies that was seen in 1995. The Company expects
this shift towards customers in the communications and consumer digital
entertainment markets to continue.
The semiconductor industry has a history of cyclicality and is characterized by
short product life cycles, continuous evolution of process technology, high
fixed costs, additions of manufacturing capacity in large increments and wide
fluctuations in product supply and demand. These product supply and demand
fluctuations have historically been characterized
11
<PAGE> 12
PART I (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
FACTORS AFFECTING FUTURE RESULTS
(continued)
by periods of manufacturing capacity shortages immediately followed by periods
of excess capacity, which are caused by the previously mentioned additions of
manufacturing capacity in large increments. Due to the high fixed costs of the
industry, profitability can drop sharply as utilization drops during periods of
overcapacity. The Company believes that the semiconductor industry is in the
early stages of a period of overcapacity, during which profit margins may be
depressed.
To the extent customer needs and markets served by the Company have shifted to
require advanced process technologies, there are no assurances that the Company
will have sufficient demand to fully utilize the San Jose fabrication facility
or have ultimate use for its trailing edge technology. In the first half of
1996, inefficiencies caused by underutilization of the San Jose fabrication
facility had a negative effect on the Company's overall gross profit. In an
attempt to increase utilization of the San Jose fabrication facility during the
first half of 1996, the Company attempted to act as a foundry to various
customers. However, to date the foundry business has not been successful and
there can be no assurance that such foundry activities will be successful in the
future.
Due to the industry-wide manufacturing capacity shortage experienced during
1995, the Company accelerated the expansion and upgrading of its manufacturing
capacity. These activities require substantial investments in capital equipment
and facilities. Significant lead time is required to acquire and install
additional wafer fabrication equipment. Any significant expansion or upgrade of
semiconductor manufacturing capacity has attendant risks. Specifically, the
Company has recently completed the facilitization of the third and fourth
modules at its San Antonio, Texas facility and steps to equip those modules are
in process. Additionally, in late 1995 the Company expanded and upgraded its
manufacturing facility in San Jose by converting production to a 6-inch CMOS
wafer process and is currently converting its San Jose facility to accommodate
0.6-micron process technology. The work efforts associated with these
facilities, along with the previously mentioned underutilization of the
facilities, has resulted in lower wafer yields and could cause further
disruption to manufacturing output, negatively impacting the Company's revenues
and gross profit for the balance of 1996. With the progression of 1996, the
Company is manufacturing a higher percentage of its products in its own
facilities (in the first half of 1996, VLSI produced more than 90% of its wafer
requirements internally as compared to approximately 80% of its entire year 1995
wafer requirements). With the continued reliance on internal capacity, any
further declines in business will have a more significant impact on internal
high fixed cost manufacturing capacity utilization, with associated drops in
profit margins.
The Company's products are susceptible to severe pricing pressures and the
Company continually pursues cost reductions, including process enhancements, in
order to maintain favorable gross profit margins. Future gross margins will also
vary with the general condition of the economy, customer acceptance of new
technologies and products, product functionality and capabilities, shifts in
product mix, manufacturing yields, utilization of high fixed cost fabrication
capacity and the effect of ongoing manufacturing cost reduction activities. The
Company's COMPASS subsidiary, like other companies in the electronic design
automation business, is particularly subject to significant fluctuations in
revenues due to limited backlog and its reliance on large orders placed late in
quarters.
12
<PAGE> 13
PART I (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
FACTORS AFFECTING FUTURE RESULTS
(continued)
The Company's future success depends on its ability to continue to develop and
introduce new products that compete effectively on the basis of price and
performance and that satisfy customer requirements. The Company expects to
continue to invest in the research and development of new products for all of
its market segments in 1996. New product development often requires long-term
forecasting of markets, market trends, development and implementation of new
processes and technologies and substantial capital commitments. No assurance can
be given that the Company's product and process development efforts will be
successful, that new product introductions will achieve market acceptance or
that the markets in question will develop. Management believes that the future
success of VLSI will depend in part on its ability to attract and retain
qualified employees, including technical and design personnel. In particular,
the Company currently has numerous open positions, specifically in the
engineering arena. Any lengthy delays in filling these positions will lead to
delays in the introduction of various products currently being developed, as
well as the research and development associated with potential new products.
Periodically, the Company is made aware that technology used by the Company in
the manufacture of some or all of its products may infringe on product or
process technology rights held by others. Resolution of whether the Company's
manufacture of products has infringed on valid rights held by others may have a
material adverse effect on the Company's financial position or results of
operations, and may require material changes in production processes and
products. Several companies have individually contacted the Company concerning
its alleged use of intellectual property belonging to them. In addition, VLSI
has also entered into licensing agreements and technology exchange agreements
with various strategic partners and other third parties in order to allow VLSI
limited access to third party technology, or to allow third parties limited
access to VLSI's technology. The Company is unable to predict whether license
agreements can be obtained or renewed on terms acceptable to the Company or the
magnitude of the costs associated with such terms. Failure to obtain or renew
such licenses could have a material effect on the Company's financial position
or results of operations.
The status of the Company's pending material legal proceeding is set forth in
Item 1, Part II of this Form 10-Q. The Company cannot accurately predict the
final outcome of this matter with TI. As part of its appeal, TI has requested
that it be awarded enhanced damages, pre-judgment interest and attorneys' fees.
An unfavorable outcome could have an adverse effect on VLSI's future operations
and/or liquidity and could be material to any particular quarter's results of
operations. Additionally, the ongoing effort of defending the Company against
lawsuits utilizes cash and management resources.
Other factors that may adversely effect VLSI's future results include pending
litigation and contingencies, environmental regulations and earthquakes. (See
the 1995 Annual Report for a more detailed discussion of Factors Affecting
Future Results).
13
<PAGE> 14
PART I (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
LIQUIDITY AND CAPITAL RESOURCES
VLSI generates cash from operations, debt and equipment financings and sales of
its securities. Principal uses of cash include purchases of capital equipment
needed for semiconductor manufacturing and engineering and payments of debt and
lease obligations.
At June 28, 1996, total cash, cash equivalents and liquid investments decreased
$165.5 million from the 1995 fiscal year-end balance due primarily to the
ongoing capital expansion of the Company's San Antonio fabrication facilities
and the repurchase of Common Stock in the first half of 1996. Working capital
decreased to $264.4 million at June 28, 1996 from $400.1 million at December 29,
1995.
During the six-month period ended June 28, 1996, the Company generated $48.5
million of cash from operations, a 28.9% decrease from the $68.3 million of cash
generated for the six-month period ended June 30, 1995. Accounts receivable were
$4.2 million lower at June 28, 1996 than at December 29, 1995. Concurrently,
inventory levels increased $1.9 million from December 29, 1995 levels. Accounts
payable and accrued liabilities at June 28, 1996 decreased by $15.8 million from
December 29, 1995 due to less volume with outside wafer suppliers and assembly
and test operations.
Cash used for investing activities was $75.7 million for the six-month period
ended June 28, 1996, as compared to $103.5 million for the six-month period
ended June 30, 1995. The decrease is a result of the Company using the majority
of the proceeds from its maturing liquid investments to fund the significant
increase in property, plant and equipment. VLSI invested $167.2 million in
property, plant and equipment during the first six months of 1996 compared to
$62.4 million in the comparable 1995 period. Capital additions during 1996 were
financed by cash. The 1996 six-month investments in property, plant and
equipment included, for the most part, equipment for sub-micron wafer
fabrication. The 1995 six-month investments in property, plant and equipment
included acquisition of equipment for sub-micron wafer fabrication, upgrades to
manufacturing and office facilities and computers and software to support
research and development activity. VLSI currently estimates that total capital
expenditures budgeted for 1996 will approximate $300 million, which will
primarily be used in equipping the third and fourth modules of the Company's San
Antonio fabrication facility. The Company expects to utilize cash from
operations and equipment financing for its 1996 capital expenditures.
Cash used for financing activities was $26.7 million in the first six months of
1996 compared to cash provided by financing activities of $93.4 million in the
same 1995 period. This change in cash reflects the Company's repurchase of its
Common Stock in January and February of 1996, as well as proceeds from the
issuance of Common Shares in 1995, the majority of which were proceeds from the
Company's June 1995 public offering.
Due to the previously mentioned expected continued use of cash for capital
expenditures, the Company's cash balances are expected to further decline
throughout 1996. On April 30, 1996, the Company elected to terminate its
committed credit facility, which otherwise was to expire on June 7, 1996. The
Company is in the process of negotiating additional credit facilities. While the
Company believes that its current capital resources are sufficient to meet its
near-term needs, in order to meet its longer-term needs, VLSI continues to
investigate the possibility of generating financial resources through technology
or manufacturing partnerships, as well as from equity or debt financing based on
market conditions. There can be no assurance that the Company will be able to
obtain future financing when needed or on favorable terms.
14
<PAGE> 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Item 3 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 29, 1995 (the 1995 Form 10-K) and to Item 1 of Part
II of the Company's Quarterly Report on Form 10-Q for the quarter ended March
29, 1996 (the March 1996 Form 10-Q) for a discussion of certain pending legal
proceedings. Except as discussed below, there have been no material developments
in any of such matters since the filing of the Company's March 1996 Form 10-Q.
Texas Instruments
The Company is a named defendant in a lawsuit filed by TI in 1990 claiming
patent infringement of now expired U.S. patents. In May 1995, a jury found
against the Company in the amount of $19.4 million. Although contesting the jury
verdict, the Company recorded a charge to earnings of $19.4 million in the
second quarter of 1995. The trial judge subsequently issued an order overturning
and setting aside the jury verdict. TI pursued an appeal before the Court of
Appeals for the Federal Circuit seeking reversal of the trial judge's order as
well as enhanced damages, pre-judgment interest and attorneys' fees. On July 23,
1996, the Court of Appeals handed down an opinion holding that the Company had
not infringed the subject patents and affirming the trial judge's order. The
litigation charge originally recorded in the second quarter of 1995 is shown as
a separate liability on the balance sheet, net of TI litigation expenditures
incurred, pending resolution of this and related intellectual property matters.
In the event that TI successfully appeals the decision of the Court of Appeals
and enhanced damages (which by statute may be as high as treble damages),
pre-judgment interest and/or attorney's fees are awarded, such a judgment could
result in a material reduction in liquidity, as well as an adverse impact on the
Company's reported results of operations. For more information, refer to the
Company's 1995 Form 10-K page 10 and Note 4 of Notes to Consolidated Financial
Statements on pages 32 and 33 and to the Company's March 1996 Form 10-Q.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders of the Company was held on May 31,
1996 (the Meeting).
(b) The following directors were elected at the Meeting:
Pierre S. Bonelli
Robert P. Dilworth
William G. Howard, Jr.
Paul R. Lowe
Alfred J. Stein
Horace H. Tsiang
15
<PAGE> 16
PART II (CONTINUED)
Item 4. Submission of Matters to a Vote of Security Holders (continued)
(c) The results of the vote on the matters voted upon at the Meeting are:
<TABLE>
<CAPTION>
(i) Election of Directors For Withheld
--------------------- ---------- ---------
<S> <C> <C>
Pierre S. Bonelli 39,570,304 2,693,842
Robert P. Dilworth 40,341,053 1,923,093
William G. Howard, Jr. 40,531,825 1,732,321
Paul R. Lowe 40,531,907 1,732,239
Alfred J. Stein 40,502,567 1,761,579
Horace H. Tsiang 40,590,426 1,673,720
</TABLE>
<TABLE>
<CAPTION>
Broker
For Against Abstained Non-Votes
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
(ii) Approval of an amendment
to the 1992 Stock Plan 30,960,831 8,949,918 298,874 2,054,523
</TABLE>
<TABLE>
<CAPTION>
For Against Abstained
---------- ------- ---------
<S> <C> <C> <C>
(iii) Ratification of the selection of
Ernst & Young LLP to serve as
auditors for fiscal 1996 41,908,049 171,508 184,589
</TABLE>
The foregoing matters are described in more detail in the Registrant's
definitive proxy statement dated May 3, 1996 relating to the Meeting.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - See Index to Exhibits on Page 18.
(b) Reports on Form 8-K - None.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VLSI TECHNOLOGY, INC.
(Registrant)
Date August 9, 1996 By: Gregory K. Hinckley
-----------------------------
Gregory K. Hinckley
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date August 9, 1996 By: John C. Batty
-----------------------------
John C. Batty
Vice President and Treasurer
17
<PAGE> 18
VLSI TECHNOLOGY, INC.
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
10.1 Form of Change In Control Agreement by and between the
Company and each of the following officers or employees of
the Company: Bernd U. Braune, Gregory K. Hinckley, Thierry
Laurent, L. Don Maulsby, Dieter J. Mezger and Alfred J. Stein
11.1 Calculation of Earnings Per Share
27.1 Financial Data Schedule
18
<PAGE> 1
EXHIBIT 10.1
EXECUTIVE
CHANGE IN CONTROL
SEVERANCE BENEFITS AGREEMENT
THIS EXECUTIVE CHANGE IN CONTROL SEVERANCE BENEFITS AGREEMENT (the
"AGREEMENT") is entered into this___ day of___ , 1996 between ("Executive") and
VLSI TECHNOLOGY, INC., a Delaware corporation (the "COMPANY"). This Agreement is
intended to provide Executive with the compensation and benefits described
herein upon the occurrence of specific events.
Certain capitalized terms used in this Agreement are defined in Article
VI.
The Company and Executive hereby agree as follows:
ARTICLE I
EMPLOYMENT BY THE COMPANY
1.1 Executive is currently employed as an executive of the Company.
1.2 This Agreement shall remain in full force and effect so long as
Executive is employed by Company; provided, however, that the rights and
obligations of the parties hereto contained in Articles II through VII shall
survive any termination for the longer of (i) years from the date of the
Agreement or (ii) years following a Covered Termination (as hereinafter
defined).
1.3 The Company and Executive wish to set forth the compensation and
benefits which Executive shall be entitled to receive in the event that there is
a Change in Control or Executive's employment with the Company terminates
following a Change in Control under the circumstances described in Article II of
this Agreement.
1.4 The duties and obligations of the Company to Executive under this
Agreement shall be in consideration for Executive's past services to the
Company, Executive's continued employment with the Company and Executive's
execution of the general waiver and release described in Section 3.2.
1.5 This Agreement shall not supersede or affect any other agreements
relating to Executive's employment or severance, or a change in control of the
Company, excepting only the Management Continuity Agreement between the Company
and Executive.
<PAGE> 2
ARTICLE II
SEVERANCE BENEFITS
2.1 ENTITLEMENT TO SEVERANCE BENEFITS. If Executive's employment
terminates due to an Involuntary Termination or a Voluntary Termination for Good
Reason within twenty-four (24) months following a Change in Control, the
termination of employment will be a Covered Termination and the Company shall
pay Executive the compensation and benefits described in this Article II. If
Executive's employment terminates, but not due to an Involuntary Termination or
a Voluntary Termination for Good Reason within twenty-four (24) months following
a Change in Control, then the termination of employment will not be a Covered
Termination and Executive will not be entitled to receive any payments or
benefits under this Article II.
Payment of any benefits described in this Article II shall be subject
to the restrictions and limitations set forth in Article III.
2.2 LUMP SUM SEVERANCE PAYMENT. Within thirty (30) days following a
Covered Termination, Executive shall receive a lump sum payment equal to ___
______________________ of the sum of Annual Base Pay and Annual Bonus, subject
to any applicable withholding of federal, state or local taxes.
2.3 STOCK OPTIONS. In accordance with Section 4. 3, certain stock
options held by the Executive may become fully vested and exercisable upon a
Change in Control (regardless of whether a Covered Termination occurs) and the
period of time following a Covered Termination may be extended.
2.4 WELFARE BENEFITS. Following a Covered Termination, Executive and
his covered dependents will be eligible to continue their Welfare Benefit
coverage under any Welfare Benefit plan or program maintained by the Company on
the same terms and conditions (including cost to Executive) as in effect
immediately prior to the Covered Termination, for the years following the
Covered Termination.
With respect to any Welfare Benefits provided through an insurance
policy, the Company's obligation to provide such Welfare Benefits following a
Covered Termination shall be limited by the terms of such a policy; provided
that (i) the Company shall make reasonable efforts to amend such policy to
provide the continued coverage described in this Section 2.4, and (ii) if a
policy providing health benefits is not amended to provide the continued
benefits described in this Section 2.4, the Company shall pay for the cost of
comparable replacement coverage (or Medigap insurance if Executive qualifies for
Medicare) until the end of the year period following the Covered Termination.
The Company shall reimburse Executive for any income tax liability due
as a result of the provision of Welfare Benefits under this Article II (and as a
result of any payments due under this paragraph) in order to put Executive in
the same after-tax position as if no taxable Welfare Benefits had been provided.
<PAGE> 3
This Section 2.4 is not intended to affect, nor does it affect, the rights of
Executive, or Executive's covered dependents, under any applicable law with
respect to health insurance continuation coverage.
2.5 MITIGATION. Except as otherwise specifically provided herein,
Executive shall not be required to mitigate damages or the amount of any payment
provided under this Agreement by seeking other employment or otherwise, nor
shall the amount of any payment provided for under this Agreement be reduced by
any compensation earned by Executive as a result of employment by another
employer or by retirement benefits after the date of the Covered Termination, or
otherwise.
ARTICLE III
LIMITATIONS AND CONDITIONS ON BENEFITS
3.1 WITHHOLDING OF TAXES. The Company shall withhold appropriate
federal, state or local income and employment taxes from any payments hereunder.
3.2 EMPLOYEE AGREEMENT AND RELEASE PRIOR TO RECEIPT OF BENEFITS. Upon
the occurrence of a Covered Termination, and prior to the receipt of any
benefits under this Agreement on account of the occurrence of a Covered
Termination, Executive shall, as of the date of a Covered Termination, execute
an employee agreement and release in the form attached hereto as Exhibit A. Such
employee agreement and release shall specifically relate to all of Executive's
rights and claims in existence at the time of such execution and shall confirm
Executive's obligations under the Company's standard form of proprietary
information agreement. It is understood that Executive has twenty-one (21) days
to consider whether to execute such employee agreement and release and Executive
may revoke such employee agreement and release within seven (7) business days
after execution of such employee agreement and release. In the event Executive
does not execute such employee agreement and release within the twenty-one (21)
day period, or if Executive revokes such employee agreement and release within
the seven (7) business day period, no benefits shall be payable under this
Agreement and this Agreement shall be null and void.
ARTICLE IV
OTHER RIGHTS AND BENEFITS
4.1 NONEXCLUSIVITY. Nothing in the Agreement shall prevent or limit
Executive's continuing or future participation in any benefit, bonus, incentive
or other plans, programs, policies or practices provided by the Company and for
which Executive may otherwise qualify, nor shall anything herein limit or
otherwise affect such rights as Executive may have under any stock option or
other agreements with the Company. Except as otherwise expressly provided
herein, amounts which are vested benefits or which Executive is otherwise
entitled to receive under any plan, policy, practice or program of the Company
at or subsequent to the date of a Covered Termination shall be payable in
accordance with such plan, policy, practice or program.
<PAGE> 4
4.2 PARACHUTE PAYMENTS. In the event that any amount or benefit
received or to be received by Executive pursuant to this Agreement (other than
payment pursuant to this Section 4.2) would constitute an "excess parachute
payment" subject to excise tax under Section 4999 of the Code, the Company shall
pay to Executive the amount of any such excise tax; provided, however, that no
payment shall be made under this Section 4.2 to the extent that it would reduce
Executive's after-tax income.
4.3 STOCK OPTIONS. Company shall take all actions necessary to amend
all stock option agreements evidencing outstanding stock options granted to
Executive: (i) to provide for full vesting of stock options upon a Change in
Control, (ii) to permit Executive to exercise any vested options following his
termination of service to the Company as an employee or consultant for up to
three (3) months (or such longer period as may currently apply) and (iii) to
permit Executive to exercise the options for at least the twelve (12) months
following a Covered Termination. Notwithstanding the foregoing, the Company
shall not amend a stock option agreement to the extent that an amendment would
result in a charge to earnings for the Company, would adversely affect
Executive's financial position, or cause Executive to be subject to liability
under Section 16(b) of the Securities Exchange Act of 1934, as amended.
ARTICLE V
NON-ALIENATION OF BENEFITS
No benefit hereunder shall be subject to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance or charge, and any attempt to so
subject a benefit hereunder shall be void.
ARTICLE VI
DEFINITIONS
For purposes of the Agreement, the following terms shall have the meanings set
forth
6.1 "AGREEMENT" means this Executive Change in Control Severance
Benefits Agreement.
6.2 "ANNUAL BASE PAY" means Executive's annual base pay at the rate in
effect during the last regularly scheduled payroll period immediately preceding
(i) the Change in Control or (ii) the Covered Termination, whichever is greater.
6.3 "ANNUAL BONUS" means the greater of (i) Executive's most recent
actual annual cash incentive bonus for fiscal years of the Company preceding the
year in which the Change in Control occurs or in which Executive's employment
terminates following the occurrence of a Change in Control, whichever is
greater, or (ii)
<PAGE> 5
Executive's projected or estimated annual cash incentive bonus for the fiscal
year of the Company in which termination of employment occurs.
6.4 "CHANGE IN CONTROL" means the consummation of any of the following
transactions:
(a) the stockholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than a merger of consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least fifty percent (50%) of the total voting power represented by
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of liquidation or dissolution of the Company or an
agreement for the sale, lease, exchange or other transfer or disposition by the
Company of all or substantially all (more than fifty percent (50%)) of the
Company's assets;
(b) any person (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), is or becomes
the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act)
directly or indirectly of 25% or more of the Company's outstanding Common Stock;
or
(c) a change in the composition of the Board of Directors of the
Company within a three (3) year period, as a result of which fewer than a
majority of the directors are Incumbent Directors. "Incumbent Directors" shall
mean directors who either:
(A) are directors of the Company as of the date hereof;
(B) are elected, or nominated for election, to the Board of Directors
of the Company with the affirmative votes of at least a majority of the
directors of the Company who are Incumbent Directors described in (A) above at
the time of such election or nomination; or
(C) are elected, or nominated for election, to the Board of Directors
of the Company with the affirmative votes of at least a majority of the
directors of the Company who are Incumbent Directors described in (A) or (B)
above at the time of such election or nomination.
Notwithstanding the foregoing, "Incumbent Directors" shall not include
an individual whose election or nomination is in connection with an actual or
threatened proxy contest relating to the election of directors to the Company.
6.5 "COMPANY" means VLSI Technology, Inc., a Delaware corporation, and
any successor thereto.
<PAGE> 6
6.6 "COVERED TERMINATION" means an Involuntary Termination or a
Voluntary Termination for Good Reason within twenty-four (24) months following a
Change in Control. No other event shall be a Covered Termination for purposes of
this Agreement.
6.7 "INVOLUNTARY TERMINATION" means Executive's dismissal or discharge
by the Company (or, if applicable, by the successor entity) for reasons other
than fraud, misappropriation or embezzlement on the part of Executive which
resulted in material loss, damage or injury to the Company. Notwithstanding the
foregoing, Executive shall not be deemed to have been terminated for one of
these reasons, unless and until there shall have been delivered to Executive a
copy of a resolution, duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Company's Board of Directors at a
meeting of the Board called and held for the purpose (after reasonable notice to
Executive and an opportunity for the Executive, together with Executive's
counsel, to be heard before the Board of Directors), finding that in the good
faith opinion of the Board of Directors, Executive was guilty of conduct set
forth in the immediately preceding sentence and specifying the particulars
thereof in detail.
The termination of an Executive' s employment would not be deemed to be
an "Involuntary Termination" if such termination occurs as a result of the death
or disability of Executive.
6.8 "VOLUNTARY TERMINATION FOR GOOD REASON" means that the Executive
voluntarily terminates his employment after any of the following are undertaken
without Executive's express written consent:
(a) the assignment to Executive of any duties or responsibilities which
result in any diminution or adverse change of Executive's position, status or
circumstances of employment as in effect immediately prior to a Change in
Control of the Company; a change in Executive's titles or offices as in effect
immediately prior to a Change in Control of the Company; any removal of
Executive from or any failure to reelect Executive to any of such positions,
except in connection with the termination of his employment for death,
disability, retirement, fraud, misappropriation, embezzlement or any other
voluntary termination of employment by Executive other than Voluntary
Termination for Good Reason;
(b) a reduction by the Company in Executive's Annual Base Pay;
(c) any failure by the Company to continue in effect any benefit plan
or arrangement, including incentive plans or plans to receive securities of the
Company, in which Executive is participating at the time of a Change in Control
of the Company (hereinafter referred to as "Benefit Plans"), or the taking of
any action by the Company which would adversely affect Executive's participation
in or reduce Executive's benefits under any Benefit Plans or deprive Executive
of any fringe benefit enjoyed by Executive at the time of a Change in Control of
the Company, provided, however, that Executive may not terminate for Good Reason
following a Change in Control of the Company if the Company offers a range of
benefit plans
<PAGE> 7
and programs which, taken as a whole, are comparable to the Benefit Plans as
determined in good faith by Executive;
(d) a relocation of Executive, or the Company's principal executive
offices if Executive's principal office is at such offices, to a location more
than fifteen (15) miles from the location at which Executive performed
Executive's duties prior to a Change in Control of the Company, except for
required travel by Executive on the Company's business to an extent
substantially consistent with Executive's business travel obligations at the
time of a Change in Control of the Company;
(e) any breach by the Company of any provision of this agreement; or
(f) any failure by the Company to obtain the assumption of this
agreement by any successor or assign of the Company.
6.9 "WELFARE BENEFITS" means benefits providing for coverage or payment
in the event of Executive's death, disability, illness or injury that were
provided to Executive immediately before a Change in Control, whether taxable or
nontaxable and whether funded through insurance or otherwise.
ARTICLE VII
GENERAL PROVISIONS
7.1 EMPLOYMENT STATUS. This Agreement does not constitute a contract of
employment or impose on Executive any obligation to remain as an employee, or
impose on the Company any obligation (i) to retain Executive as an employee,
(ii) to change the status of Executive as an at-will employee, or (iii) to
change the Company's policies regarding termination of employment.
7.2 NOTICES. Any notices provided hereunder must be in writing and such
notices or any other written communication shall be deemed effective upon the
earlier of personal delivery (including personal delivery by telex or facsimile)
or the third day after mailing by first class mail, to the Company at its
primary office location and to Executive at his address as listed in the
Company's payroll records. Any payments made by the Company to Executive under
the terms of this Agreement shall be delivered to Executive either in person or
at his address as listed in the Company's payroll records.
7.3 SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provisions had never been contained herein.
7.4 WAIVER. If either party should waive any breach of any provisions
of this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
<PAGE> 8
7.5 COMPLETE AGREEMENT. This Agreement, including Exhibit A and other
written agreements referred to in this Agreement, constitutes the entire
agreement between Executive and the Company and it is the complete, final, and
exclusive embodiment of their agreement with regard to this subject matter. It
is entered into without reliance on any promise or representation other than
those expressly contained herein.
7.6 AMENDMENT OR TERMINATION OF AGREEMENT. This Agreement may be
changed or terminated only upon the mutual written consent of the Company and
Executive. The written consent of the Company to a change or termination of this
Agreement must be signed by an executive officer of the Company after such
change or termination has been approved by the Compensation Committee of the
Company's Board of Directors.
7.7 COUNTERPARTS. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.
7.8 HEADINGS. The headings of the Articles and Sections hereof are
inserted for convenience only and shall not be deemed to constitute a part
hereof nor to affect the meaning thereof.
7.9 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive and the Company, and
their respective successors, assigns, heirs, executors and administrators,
except that Executive may not assign any of his duties hereunder and he may not
assign any of his rights hereunder without the written consent of the Company,
which consent shall not be withheld unreasonably.
7.10 ATTORNEY FEES. If Executive brings any action to enforce his
rights hereunder, Executive shall be entitled to recover his reasonable
attorneys' fees and costs incurred in connection with such action, regardless of
the outcome of such action.
7.11 CHOICE OF LAW. All questions concerning the construction, validity
and interpretation of this Agreement will be governed by the law of the State of
California.
7.12 NON-PUBLICATION. The parties mutually agree not to disclose
publicly the terms of this Agreement except to the extent that disclosure is
mandated by applicable law.
7.13 CONSTRUCTION OF PLAN. In the event of a conflict between the text
of the Agreement and any summary, description or other information regarding the
Agreement, the text of the Agreement shall control.
<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year
written above.
VLSI TECHNOLOGY, INC., A DELAWARE CORPORATION
By:
--------------------------
Name:
------------------------ ------------------------------
Title:
-----------------------
Exhibit A: Employee Agreement and Release
<PAGE> 10
EXHIBIT A
EMPLOYEE AGREEMENT AND RELEASE
I UNDERSTAND AND AGREE COMPLETELY TO THE TERMS SET FORTH IN THE
FOREGOING-AGREEMENT.
I hereby confirm my obligations under the Company's standard form of
proprietary information agreement.
I acknowledge that I have read and understand Section 1542 of the
California Civil Code which reads as follows: "A GENERAL RELEASE DOES NOT EXTEND
TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT
THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR." I hereby expressly waive and
relinquish all rights and benefits under that section and any law of any
jurisdiction of similar effect with respect to my release of any claims I may
have against the Company.
Except as otherwise set forth in this Agreement, I hereby release,
acquit and forever discharge the Company, its parents and subsidiaries, and
their officers, directors, agents, servants, employees, shareholders,
successors, assigns and affiliates, of and from any and all claims, liabilities,
demands, causes of action, costs, expenses, attorneys fees, damages, indemnities
and obligations of every kind and nature, in law, equity, or otherwise, known
and unknown, suspected and unsuspected, disclosed and undisclosed (other than
any claim for indemnification I may have as a result of any third party action
against me based on my employment with the Company), arising out of or in any
way related to agreements, events, acts or conduct at any time prior to and
including the Effective Date of this Agreement, including but not limited to:
all such claims and demands directly or indirectly arising out of or in any way
connected with my employment with the Company or the termination of that
employment, including but not limited to, claims of intentional and negligent
infliction of emotional distress, any and all tort claims for personal injury,
claims or demands related to salary, bonuses, commissions, stock, stock options,
or any other ownership interests in the Company, vacation pay, fringe benefits,
expense reimbursements, severance pay, or any other form of compensation; claims
pursuant to any federal, state or local law or cause of action including, but
not limited to, the federal Civil Rights Act of 1964, as amended; the federal
Age Discrimination in Employment Act of 1967, as amended ("ADEA"); the federal
Americans with Disabilities Act of 1990; the California Fair Employment and
Housing Act, as amended; tort law; contract law; wrongful discharge;
discrimination; fraud; defamation; emotional distress; and breach of the implied
covenant of good faith and fair dealing; provided, however, that nothing in this
paragraph shall be construed in any way to release the Company from its
obligation to indemnify you pursuant to the Company's Indemnification Agreement.
I acknowledge that I am knowingly and voluntarily waiving and releasing any
rights I may have under ADEA. I also acknowledge that the consideration given
for the waiver and release in the preceding paragraph hereof is in addition to
anything of value to which I was already entitled. I further acknowledge that I
have been advised by this writing, as required by the ADEA, that: (A) my waiver
and release do
<PAGE> 11
not apply to any rights or claims that may arise after the Effective Date of
this Agreement; (B) I have the right to consult with an attorney prior to
executing this Agreement; (C) I have twenty-one (21) days to consider this
Agreement (although I may choose to voluntarily execute this Agreement earlier);
(D) I have seven (7) days following the execution of this Agreement by the
parties to revoke the Agreement; and (E) this Agreement shall not be effective
until the date upon which the revocation period has expired, which shall be the
eighth day after this Agreement is executed by me, provided that the Company has
also executed this Agreement by that date ("Effective Date").
By:
---------------------------
Date:
-------------------------
<PAGE> 1
Exhibit 11.1
VLSI TECHNOLOGY, INC.
CALCULATION OF EARNINGS PER SHARE - unaudited
(thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------- ----------------------
June 28, June 30, June 28, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary Earnings per Share
Net income $ 8,273 $ 1,295 $11,443 $11,545
======= ======= ======= =======
Average number of common and
common equivalent shares:
Average common shares outstanding 45,672 37,738 45,687 37,241
Dilutive options 1,197 2,976 950 2,338
------- ------- ------- -------
Average number of common and
common equivalent shares 46,869 40,714 46,637 39,579
======= ======= ======= =======
Earnings per common and common
equivalent share $ .18 $ .03 $ .25 $ .29
======= ======= ======= =======
Fully Diluted Earnings per Share
Net income $ 8,273 $ 1,295 $11,443 $11,545
Add interest expense on convertible
debt, net of tax effect (1) -- -- -- --
------- ------- ------- -------
Adjusted net income $ 8,273 $ 1,295 $11,443 $11,545
======= ======= ======= =======
Average number of common and
common equivalent shares on a fully
diluted basis:
Average common shares outstanding 45,672 37,738 45,687 37,241
Dilutive options 1,197 3,389 950 2,914
Conversion of convertible debt (1) -- -- -- --
------- ------- ------- -------
Average number of common and
common equivalent shares on a fully
diluted basis 46,869 41,127 46,637 40,155
======= ======= ======= =======
Fully diluted earnings per common
and common equivalent share $ .18 $ .03 $ .25 $ .29
======= ======= ======= =======
</TABLE>
(1) The convertible debt is not included in the calculation of fully diluted
earnings per share since their inclusion would have had an antidilutive
effect.
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements in the Quarterly Report on Form 10-Q of VLSI Technology,
Inc. for the quarter ended June 28, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000704386
<NAME> VLSI TECHNOLOGY, INC.
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-27-1996
<PERIOD-START> DEC-30-1995
<PERIOD-END> JUN-28-1996
<EXCHANGE-RATE> 1
<CASH> 129,271
<SECURITIES> 70,841
<RECEIVABLES> 117,300
<ALLOWANCES> (1,900)
<INVENTORY> 62,757
<CURRENT-ASSETS> 430,360
<PP&E> 859,385
<DEPRECIATION> (388,724)
<TOTAL-ASSETS> 912,972
<CURRENT-LIABILITIES> 165,930
<BONDS> 214,514
0
0
<COMMON> 472
<OTHER-SE> 519,683
<TOTAL-LIABILITY-AND-EQUITY> 912,972
<SALES> 350,238
<TOTAL-REVENUES> 350,238
<CGS> 216,349
<TOTAL-COSTS> 216,349
<OTHER-EXPENSES> 49,980
<LOSS-PROVISION> (100)
<INTEREST-EXPENSE> 5,336
<INCOME-PRETAX> 16,343
<INCOME-TAX> 4,900
<INCOME-CONTINUING> 11,443
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,443
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
