** 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.
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