** Excludes acquisition-related amortization, restructuring and other special items, and stock-based compensation expense. The Company adopted the provisions of SFAS No. 123(R) "Share-Based Payment" on January 1, 2006, using the modified prospective transition method.
Third quarter 2006 GAAP* net income was $44 million or 11 cents per diluted share, compared to third quarter 2005 GAAP net loss of $73 million or 19 cents loss per diluted share. Third quarter 2006 GAAP results compare to second quarter 2006 GAAP net income of $54 million or 13 cents per diluted share. Third quarter GAAP net income included $11 million of stock-based compensation expense and a net charge of $10 million from special items, acquisition-related amortization, restructuring and their related tax effect.
Third quarter 2006 non-GAAP** net income was $65 million or 16 cents per diluted share, an increase of 43% compared to third quarter 2005 non-GAAP net income of $45 million or 11 cents per diluted share. Second quarter non-GAAP 2006 net income was $57 million or 14 cents per diluted share.
Cash and short-term investments grew 6% sequentially to $1.3 billion, from $1.2 billion in the second quarter and up 50% from the year-ago period.
"Revenues increased modestly during the quarter, with strong growth in storage semiconductors partially offset by expected lower demand for our portable media player products," said Abhi Talwalkar, LSI Logic president and chief executive officer. "Total storage revenues were 17% higher than the year-ago period, fueled in part by increasing demand for SAS-enabled storage solutions. We further strengthened investments in our storage business, entering into a definitive agreement to acquire StoreAge Networking Technologies, a privately held maker of storage management applications software."
"Higher gross margins and improved operating performance contributed to solid third quarter results, with net income significantly exceeding guidance," said Bryon Look, LSI Logic chief financial officer. "SG&A expenditures as compared to second quarter 2006 declined on both a percentage and an absolute basis. Our balance sheet also strengthened, with a $68 million increase in cash and short-term investments."
LSI Logic Fourth Quarter 2006 Business Outlook
GAAP* Special Items Non-GAAP**
Revenue $500 million to $500 million to
$525 million $525 million
Gross Margin 43.0 - 44.0% Approximately 43.5 - 44.5%
$2 million
Operating
Expenses $177 million to Approximately $155 million to
$181 million $22 million $159 million
Net Other Income $5 million $5 million
Tax Provision Approximately Approximately Approximately
$3 million ($4 million) $7 million
Net Income Per
Share $0.10 to $0.13 Approximately $0.15 to $0.18
($0.05)
Diluted Share Count 409 million 432 million
Capital spending is projected to be around $8 million in the fourth quarter and approximately $45 million in total for 2006.
Fourth quarter depreciation and software amortization is expected to be approximately $13 million.
* Generally Accepted Accounting Principles.
** Excludes special items defined as acquisition-related amortization, restructuring and other special items, and approximately $12.1 million in stock-based compensation expense. The Company adopted the provisions of SFAS No. 123(R) "Share-Based Payment" on January 1, 2006, using the modified prospective transition method.
NOTE: The Company's financial guidance will be limited to the comments made on today's public conference call and contained in the Fourth Quarter 2006 Business Outlook section of this news release.
LSI Logic Conference Call Information
LSI Logic will hold a conference call today at 2 pm PDT to discuss third quarter financial results and the fourth quarter 2006 business outlook. The number is 1-303-262-2191. Internet users can access the conference call at http://www.lsi.com/investors . A replay of the call will be available today at approximately 5 pm PDT and will be available for 48 hours. The replay access numbers are 1-800-405-2236 within the U.S. and 1-303-590-3000 for all other locations, passcode 11073169#.
Safe Harbor for Forward Looking Statements: This news release contains forward-looking statements, which include the following: projected revenues for the fourth quarter of 2006, projected GAAP net income for the fourth quarter of 2006, projected non-GAAP net income for the fourth quarter of 2006, projected capital spending in the fourth quarter of 2006 and for the year and expected fourth quarter of 2006 depreciation and software amortization. Forward-looking statements also include projections of gross margins, operating expenses, net other income, tax provisions, net income per share and diluted share count. These forward-looking statements are based on the opinions and estimates of management at the time the statements are made and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that could cause LSI Logic's actual results to differ materially from those set forth in the forward-looking statements include, but are not limited to: fluctuations in the timing and volumes of customer demand; the company's inability to achieve revenue objectives; the company's inability to meet financial targets and failure to execute on its financial plan; the company's inability to generate positive operating cash flow or control operating expenses; and the unavailability of appropriate levels of manufacturing capacity. For additional information, readers are referred to the documents filed by LSI Logic with the SEC, and specifically the risk factors set forth in the company's most recent reports on Form 10-K, 10-Q and 8-K. LSI Logic is not obligated to update these forward-looking statements to reflect events or circumstances after the date of this document.
About LSI Logic
LSI Logic Corporation is a leading provider of silicon-to-systems solutions that are used at the core of products that create, store and consume digital information. LSI offers a broad portfolio of capabilities including custom and standard product ICs, host bus and RAID adapters, storage area network solutions and software applications. LSI products enable leading technology companies in the Storage and Consumer markets to deliver some of the most advanced and well-known electronic systems in the market today. More information is available at www.lsi.com.
LSI LOGIC CORPORATION
Consolidated Condensed Statements of Operations (GAAP)
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
October 1, July 2, October 2,
2006 2006 2005
Revenues $492,978 $489,635 $481,716
Cost of revenues 276,725 277,970 271,511
Stock-based compensation expense* 1,719 2,458 186
Total cost of revenues 278,444 280,428 271,697
Gross profit 214,534 209,207 210,019
Research and development 98,625 95,719 100,524
Stock-based compensation expense* 3,908 4,643 503
Total research and development 102,533 100,362 101,027
Selling, general and
administrative 54,878 58,439 58,342
Stock-based compensation expense* 5,398 6,197 624
Total selling, general and
administrative 60,276 64,636 58,966
Restructuring of operations and
other items, net 2,614 (21,648) 99,986
Amortization of acquisition
related intangibles 6,436 10,801 15,693
Income/(loss) from operations 42,675 55,056 (65,653)
Interest expense (6,556) (6,428) (6,058)
Interest income and other, net 13,066 10,319 4,567
Income/(loss) before income taxes 49,185 58,947 (67,144)
Provision for income taxes 5,575 5,100 6,250
Net income/(loss) $43,610 $53,847 $(73,394)
Income/(loss) per share:
Basic $0.11 $0.14 $(0.19)
Diluted $0.11 $0.13 $(0.19)
Shares used in computing per share
amounts:
Basic 399,613 397,790 391,017
Diluted 403,715 405,613 391,017
October 1, October 2,
2006 2005
Revenues $1,458,497 $1,413,015
Cost of revenues 824,565 800,782
Stock-based compensation expense* 5,702 511
Total cost of revenues 830,267 801,293
Gross profit 628,230 611,722
Research and development 292,096 299,420
Stock-based compensation expense* 13,073 1,908
Total research and development 305,169 301,328
Selling, general and
administrative 176,411 176,354
Stock-based compensation expense* 17,379 1,521
Total selling, general and
administrative 193,790 177,875
Restructuring of operations and
other items, net (13,384) 108,675
Amortization of acquisition
related intangibles 28,453 50,919
Income/(loss) from operations 114,202 (27,075)
Interest expense (19,314) (19,088)
Interest income and other, net 32,912 21,500
Income/(loss) before income taxes 127,800 (24,663)
Provision for income taxes 17,175 18,750
Net income/(loss) $110,625 $(43,413)
Income/(loss) per share:
Basic $0.28 $(0.11)
Diluted $0.27 $(0.11)
Shares used in computing per share
amounts:
Basic 397,408 389,247
Diluted 403,779 389,247
*The Company adopted the provisions of SFAS No. 123( R ) "Share-Based
Payment" on January 1, 2006, using the modified prospective transition
method.
A reconciliation between net income on a GAAP basis and non-GAAP net
income including items a)-i) is provided in the following table:
Reconciliation of GAAP to Three Months Ended Nine Months Ended
Non-GAAP net income: Oct. 1, July 2, Oct. 2, Oct. 1, Oct. 2,
2006 2006 2005 2006 2005
GAAP net income/(loss) $43,610 $53,847 $(73,394) $110,625 $(43,413)
Special items:
a) Stock-based
compensation expense -
Cost of revenues 1,719 2,458 186 5,702 511
b) Stock-based
compensation expense -
R&D 3,908 4,643 503 13,073 1,908
c) Stock-based
compensation expense -
SG&A 5,398 6,197 624 17,379 1,521
d) Amortization of
acquisition related
intangibles 6,436 10,801 15,693 28,453 50,919
e) Restructuring of
operations and other
items, net 2,614 (21,648) 99,986 (13,384) 108,675
f) Gain on sale of
certain equity
securities (787) - - (2,216) (2,358)
g) Gain on repurchase of
convertible Subordinated
Notes - - - - (4,123)
h) Loss on impairment on
certain equity securities - - 1,487 - 1,487
i) Income tax effect 1,738 453 - 1,421 -
Total special
items 21,026 2,904 118,479 50,428 158,540
Non-GAAP net income $64,636 $56,751 $45,085 $161,053 $115,127
Non-GAAP income per share:
Basic $0.16 $0.14 $0.12 $0.41 $0.30
Diluted** $0.16 $0.14 $0.11 $0.40 $0.29
Shares used in computing
Non-GAAP per share
amounts:
Basic 399,613 397,790 391,017 397,408 389,247
Diluted 431,713 435,312 402,664 406,791 395,406
** In computing diluted earnings per share for the three month period
ended October 1, 2006 and July 2, 2006, net income was increased by
$3,500 for interest, net of taxes, on the $350 million convertible notes
considered dilutive common stock equivalents, respectively.
Reconciliation of shares used
in the calculation of GAAP to
Non-GAAP diluted net income
per share: Three Months Ended Nine Months Ended
Oct. 1, July 2, Oct. 2, Oct. 1, Oct. 2,
2006 2006 2005 2006 2005
Diluted shares used in per-
share calculation - GAAP 403,715 405,613 391,017 403,779 389,247
Effect of SFAS (R) 1,918 3,619 - 3,012 -
Effect of dilutive common
stock equivalents - - 11,647 - 6,159
Effect of $350 million
convertible notes considered
dilutive** 26,080 26,080 - - -
Diluted shares used in per-
share calculation - Non-GAAP 431,713 435,312 402,664 406,791 395,406
LSI LOGIC CORPORATION
Consolidated Condensed Balance Sheets
(In millions)
(Unaudited)
October 1, July 2, December 31,
Assets 2006 2006 2005
Current assets:
Cash and short-term
investments $1,268.1 $1,200.6 $938.9
Accounts receivable, net 320.3 310.8 323.3
Inventories 183.7 173.8 194.8
Prepaid expenses and other
current assets 64.0 85.6 163.1
Total current assets 1,836.1 1,770.8 1,620.1
Property and equipment, net 83.3 94.1 98.3
Goodwill and other intangibles 941.4 949.1 974.5
Other assets 118.1 108.0 103.2
Total assets $2,978.9 $2,922.0 $2,796.1
Liabilities and Stockholders' Equity
Current liabilities:
Other current liabilities $470.2 $482.9 $468.9
Current portion of
long-term debt 272.0 272.6 273.9
Total current liabilities 742.2 755.5 742.8
Long-term debt 350.0 350.0 350.0
Tax related liabilities
and other 82.5 73.5 75.1
Total liabilities 1,174.7 1,179.0 1,167.9
Minority interest in
subsidiary 0.2 0.2 0.2
Stockholders' equity:
Common stock and
additional paid-in
capital 3,070.2 3,055.4 3,000.0
Accumulated deficit (1,279.3) (1,322.9) (1,389.9)
Accumulated other
comprehensive income 13.1 10.3 17.9
Total stockholders'
equity 1,804.0 1,742.8 1,628.0
Total liabilities and
stockholders' equity $2,978.9 $2,922.0 $2,796.1
LSI LOGIC CORPORATION
Statement of Cash Flows
(In thousands, except where noted)
(Unaudited)
Three Months Ended Nine Months Ended
Oct. 1, July 2, Oct. 2, Oct. 1, Oct. 2,
2006 2006 2005 2006 2005
Operating Activities:
Net income/(loss) $43,610 $53,847 $(73,394) $110,625 $(43,413)
Adjustments:
Depreciation
& amortization * 17,527 22,831 38,175 65,693 120,468
Stock-based
compensation expense 11,025 13,298 1,313 36,154 3,940
Non-cash restructuring
and other items 173 209 85,311 (2,576) 86,661
Gain on sale of
intellectual property - (15,000) - (15,000) -
Gain on sale of
Gresham manufacturing
facility and
associated
intellectual
property - (12,553) - (12,553) -
Write-off of intangible
assets acquired in a
purchase business
combination - 3,325 - 3,325 -
Non-cash foreign
exchange
(gain)/loss (941) 1,057 - (472) -
(Gain)/loss on sale
of equity securities/
loss on write-down (787) 218 1,487 (1,998) (824)
Gain on repurchase of
Convertible Subordinated
Notes - - - - (4,123)
(Gain)/Loss on sales
of property and
equipment (240) (5) (88) (245) (91)
Changes in deferred
tax assets and
liabilities 4 23 58 24 112
Changes in assets and
liabilities, net of
assets acquired and
liabilities assumed
in business
combinations:
Accounts
receivable (9,460) (44,366) (13,615) 3,063 (26,468)
Inventories (10,148) 8,613 (3,393) 7,158 29,767
Prepaid expenses
and other assets (7,403) (15,381) 6,070 (13,380) (2,090)
Accounts payable (9,904) 31,751 8,496 (1,161) 6,118
Accrued and other
liabilities 13,303 1,575 27,120 17,104 26,627
Net cash provided
by operating
activities 46,759 49,442 77,540 195,761 196,684
Investing activities:
Purchases of debt
securities
available-
for-sale (116,196) (216,019) (134,708) (498,408)(397,240)
Proceeds from
maturities and
sales of debt
securities available-
for-sale 96,494 97,747 82,045 302,407 365,228
Purchases of equity
securities (3,000) (5,000) - (8,150) -
Proceeds from
sales of equity
securities 2,511 2,026 - 6,092 3,871
Purchases of
property, equipment
and software (15,587) (12,679) (15,906) (44,244) (35,326)
Proceeds from sale
of property and
equipment 49 40 184 89 3,399
Proceeds from sale
of intellectual
property 7,670 15,000 - 22,670 -
Proceeds from sale
of Fort Collins
facility - 10,998 - 10,998 -
Proceeds from sale
of Colorado Springs
facility - 7,029 - 7,029 -
Proceeds from sale
of Gresham
manufacturing
facility 15,000 81,426 - 96,426 -
Proceeds from sale
of Gresham
manufacturing
facility associated
intellectual property - 5,100 - 5,100 -
Adjustment to
goodwill acquired in
a prior year for
resolution of a
pre-acquisition
income tax
contingency 1,373 - - 1,373 7,662
Net cash used in
investing
activities (11,686) (14,332) (68,385) (98,618) (52,406)
Financing activities:
Issuance of
common stock 3,868 20,149 7,247 36,005 20,073
Repurchase of
Convertible
Subordinated Notes - - - - (148,126)
Repayment of
debt obligations - - - - (129)
Net cash provided by/
(used in) financing
activities 3,868 20,149 7,247 36,005 (128,182)
Effect of exchange
rate changes on
cash and cash
equivalents 15 365 (2,204) 613 (9,165)
Increase in cash
and cash
equivalents 38,956 55,624 14,198 133,761 6,931
Cash and cash
equivalents at
beginning of
period 359,454 303,830 211,456 264,649 218,723
Cash and cash
equivalents at
end of period $398,410 $359,454 $225,654 $398,410 $225,654
* Depreciation of fixed assets, amortization of intangible assets,
software, capitalized intellectual property, debt issuance costs
and deferred gains on cancelled interest rate swaps.
LSI LOGIC CORPORATION
Selected Financial Information (GAAP)
(In millions, except where noted)
(Unaudited)
Three Months Ended
October 1, July 2, October 2,
2006 2006 2005
Semiconductor revenues $313.3 $307.4 $311.7
Storage Systems revenues $179.7 $182.2 $170.0
Total revenues $493.0 $489.6 $481.7
Percentage change in revenues-
qtr./qtr. (a) 0.7% 2.9% 0.1%
Percentage change in revenues-
yr./yr. (b) 2.3% 1.7% 26.7%
Days sales outstanding 58 57 56
Days of inventory 59 56 63
Current ratio 2.5 2.3 3.5
Quick ratio 2.1 2.0 2.7
Gross margin as a percentage of
revenues 43.5% 42.7% 43.6%
R&D as a percentage of revenues 20.8% 20.5% 20.9%
SG&A as a percentage of revenues 12.2% 13.2% 12.1%
Employees (c) 3,884 3,867 4,415
Revenues per employee (in
thousands) (d) $507.7 $506.5 $436.4
Selected Cash Flow information
Purchases of property and
equipment (e) $6.0 $7.6 $14.8
Depreciation / amortization (f) $10.5 $10.8 $20.6
(a) Represents sequential quarter growth in revenues.
(b) Represents growth in revenues in the quarter presented as compared to
the same quarter of the previous year.
(c) Actual number of employees at the end of each period presented.
(d) Revenue per employee is calculated by annualizing revenue for each
quarter presented and dividing it by the number of employees.
(e) Excludes purchases of software.
(f) Represents depreciation of fixed assets and amortization of software.
Editor's Notes:
1. All LSI Logic news releases (financial, acquisitions, manufacturing,
products, technology etc.) are issued exclusively by PR Newswire and
are immediately thereafter posted on the company's external website,
http://www.lsi.com.
2. The LSI Logic logo design is a registered trademark of LSI Logic
Corporation.
3. All other brand or product names may be trademarks or registered
trademarks of their respective companies.
Web site: http://www.lsilogic.com/