Strong Year-Over-Year Revenue Growth in Storage Semiconductors and Systems
Fourth quarter 2006 GAAP* net income was $59 million or 14 cents per diluted share, compared to fourth quarter 2005 GAAP net income of $38 million or 9 cents per diluted share. Fourth quarter 2006 GAAP results compare to third quarter 2006 GAAP net income of $44 million or 11 cents per diluted share. Fourth quarter 2006 GAAP net income included $10.9 million of stock- based compensation expense and a net charge of $5.2 million from special items, acquisition-related amortization, restructuring and their related tax effect.
Fourth quarter 2006 non-GAAP** net income was $75 million or 18 cents per diluted share, an increase of 47% compared to fourth quarter 2005 non-GAAP net income of $51 million or 13 cents per diluted share. Third quarter 2006 non-GAAP net income was $65 million or 16 cents per diluted share.
Cash and short-term investments totaled $1.01 billion at quarter end, with $272 million in repayment of convertible notes completed during the quarter.
"Our solid fourth quarter performance was fueled by the seasonally-strong demand for storage products, with 22% sequential growth and record quarterly revenue in our Engenio systems business," said Abhi Talwalkar, LSI Logic president and chief executive officer. "For the full year, storage semiconductor and system revenues grew at healthy, double-digit rates of 14% and 12% respectively. During the quarter, we also agreed to merge with Agere Systems Inc. to create a storage, networking and consumer powerhouse that we anticipate will better serve our customers, shareholders and employees."
LSI recorded full year 2006 revenues of $1.98 billion, a 3% increase compared to $1.92 billion in 2005. The company reported 2006 GAAP net profit of $170 million or 42 cents per diluted share, which includes $47 million of stock-based compensation expense and a net charge of $19.5 million from special items, acquisition-related amortization, restructuring and their related tax effect. Full year 2006 GAAP results compare to full year 2005 GAAP net loss of $6 million or 1 cent per diluted share which included a $91 million non-cash charge associated with the sale of the company's former Gresham, Oregon manufacturing facility.
Non-GAAP net income for 2006 grew to $236 million or 58 cents per diluted share compared to 2005 non-GAAP net income of $166 million or 42 cents per diluted share.
"GAAP net income for the quarter grew 35% sequentially and 56% compared to the same quarter in 2005," said Bryon Look, LSI Logic chief financial officer. "Our balance sheet remained strong with a net cash position of $659 million. The company generated operating cash flows of $51 million for the quarter and $247 million for the full year."
LSI Logic First Quarter 2007 Business Outlook GAAP* Special Items Non-GAAP** Revenue $460 million to $460 million to $480 million $480 million Gross Margin 40.5 - 42.5% Approximately 41.0 - 43.0% $1 million Operating Expenses $178 million to Approximately $158 million to $182 million $20 million $162 million Net Other Income $5 million $5 million Effective Tax Rate 21% Approximately 15% ($3 million) Net Income Per Share $0.03 to $0.05 Approximately $0.08 to $0.10 ($0.05) Diluted Share Count 415 million 419 million
Capital spending is projected to be around $15 million in the first quarter and approximately $55 million in total for 2007.
First quarter depreciation and software amortization is expected to be approximately $12 million.
* Generally Accepted Accounting Principles. ** Excludes special items defined as acquisition-related amortization, restructuring and other special items, and approximately $10.2 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 First Quarter 2007 Business Outlook section of this news release.
LSI Logic Conference Call Information
LSI Logic will hold a conference call today at 2 p.m. PST to discuss fourth quarter financial results and the first quarter 2007 business outlook. The number is 1-303-262-2051. 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 p.m. PST 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 11081403#.
Safe Harbor for Forward Looking Statements: This news release contains forward-looking statements, which include the following: projected revenues for the first quarter of 2007, projected GAAP net income for the first quarter of 2007, projected non-GAAP net income for the first quarter of 2007, projected capital spending in the first quarter of 2007 and for the year and expected first quarter of 2007 depreciation and software amortization. Forward-looking statements also include projections of gross margins, operating expenses, net other income, tax provisions, net income per share, diluted share count and statements about the benefits that we anticipate from our pending merger with Agere Systems to customers, shareholders and employees. 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: any failure of the LSI or Agere stockholders to approve our proposed merger with Agere or any other failure of the completion of the proposed merger; the challenges and costs of closing of the proposed merger with Agere and integrating and restructuring our operations and achieving anticipated synergies; 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, 8-K and in the Registration Statement on Form S-4 that LSI Logic has filed in connection with the pending merger with Agere Systems. 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 .
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. LSI LOGIC CORPORATION Consolidated Condensed Statements of Operations (GAAP) (In thousands, except per share amounts) (Unaudited) Three Months Ended Year Ended Dec. 31, Oct. 1, Dec. 31, Dec. 31, Dec. 31, 2006 2006 2005 2006 2005 Revenues $523,651 $492,978 $506,235 $1,982,148 $1,919,250 Cost of revenues 295,426 276,725 286,032 1,119,991 1,086,814 Stock-based compensation expense* 1,201 1,719 233 6,903 744 Total cost of revenues 296,627 278,444 286,265 1,126,894 1,087,558 Gross profit 227,024 214,534 219,970 855,254 831,692 Research and development 103,939 98,625 97,892 396,035 397,312 Stock-based compensation expense* 4,324 3,908 465 17,397 2,373 Total research and development 108,263 102,533 98,357 413,432 399,685 Selling, general and administrative 56,409 54,878 59,579 232,820 235,933 Stock-based compensation expense* 5,370 5,398 811 22,749 2,332 Total selling, general and administrative 61,779 60,276 60,390 255,569 238,265 Restructuring of operations and other items, net 4,957 2,614 10,377 (8,427) 119,052 Acquired in-process research and development 4,284 -- -- 4,284 -- Amortization of acquisition related intangibles 3,636 6,436 11,565 32,089 62,484 Income from operations 44,105 42,675 39,281 158,307 12,206 Interest expense (4,949) (6,556) (6,195) (24,263) (25,283) Interest income and other, net 18,364 13,066 12,494 51,276 33,994 Income before income taxes 57,520 49,185 45,580 185,320 20,917 (Benefit)/provision for income taxes (1,493) 5,575 7,790 15,682 26,540 Net income/(loss) $59,013 $43,610 $37,790 $169,638 $(5,623) Income/(loss) per share: Basic $0.15 $0.11 $0.10 $0.43 $(0.01) Diluted ** $0.14 $0.11 $0.09 $0.42 $(0.01) Shares used in computing per share amounts: Basic 401,992 399,613 392,850 398,551 390,135 Diluted 434,434 403,715 401,171 405,163 390,135 * The Company adopted the provisions of SFAS No. 123 (R) "Share-Based Payment" on January 1, 2006, using the modified prospective transition method. ** In computing diluted earnings per share for the three month period ended December 31, 2006, net income was increased by $3,500 for interest, net of taxes, on the $350 million convertible notes considered dilutive common stock equivalents. A reconciliation between net income on a GAAP basis and non-GAAP net income including items a)-j) is provided in the following table: Reconciliation of GAAP to Non-GAAP net income: Three Months Ended Year Ended Dec. 31, Oct. 1, Dec. 31, Dec. 31, Dec. 31, 2006 2006 2005 2006 2005 GAAP net income/ (loss) $59,013 $43,610 $37,790 $169,638 $(5,623) Special items: a) Stock-based compensation expense - Cost of revenues 1,201 1,719 233 6,903 744 b) Stock-based compensation expense - R&D 4,324 3,908 465 17,397 2,373 c) Stock-based compensation expense - SG&A 5,370 5,398 811 22,749 2,332 d) Amortization of acquisition related intangibles 3,636 6,436 11,565 32,089 62,484 e) Restructuring of operations and other items, net 4,957 2,614 10,377 (8,427) 119,052 f) Acquired in-process research and development 4,284 -- -- 4,284 -- g) Gain on sale of certain equity securities (4,729) (787) (6,566) (6,945) (8,924) h) Gain on repurchase of convertible Subordinated Notes -- -- -- -- (4,123) i) Loss on impairment on certain equity securities -- -- 900 -- 2,387 j) Income tax effect (2,950) 1,738 (4,365) (1,529) (4,365) Total special items 16,093 21,026 13,420 66,521 171,960 Non-GAAP net income $75,106 $64,636 $51,210 $236,159 $166,337 Non-GAAP income per share: Basic $0.19 $0.16 $0.13 $0.59 $0.43 Diluted*** $0.18 $0.16 $0.13 $0.58 $0.42 Shares used in computing Non-GAAP per share amounts: Basic 401,992 399,613 392,850 398,551 390,135 Diluted 437,216 431,713 401,171 434,193 396,936 *** In computing diluted earnings per share for the three month period ended December 31, 2006 and October 1, 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. In computing diluted earnings per share for the year ended December 31, 2006, net income was increased by $14,000 for interest, net of taxes, on the $350 million convertible notes considered dilutive common stock equivalents. Reconciliation of shares used in the calculation of GAAP to Non-GAAP diluted net income per share: Three Months Ended Year Ended Dec. 31, Oct. 1, Dec. 31, Dec. 31, Dec. 31, 2006 2006 2005 2006 2005 Diluted shares used in per-share calculation - GAAP 434,434 403,715 401,171 405,163 390,135 Effect of SFAS (R) 2,782 1,918 -- 2,950 -- Effect of dilutive common stock equivalents -- -- -- -- 6,801 Effect of $350 million convertible notes considered dilutive*** -- 26,080 -- 26,080 -- Diluted shares used in per-share calculation - Non-GAAP 437,216 431,713 401,171 434,193 396,936 LSI LOGIC CORPORATION Consolidated Condensed Balance Sheets (In millions) (Unaudited) December 31, October 1, December 31, Assets 2006 2006 2005 Current assets: Cash and short-term investments $1,008.9 $1,268.1 $938.9 Accounts receivable, net 348.6 320.3 323.3 Inventories 209.5 183.7 194.8 Prepaid expenses and other current assets 68.7 64.0 163.1 Total current assets 1,635.7 1,836.1 1,620.1 Property and equipment, net 86.0 83.3 98.3 Goodwill and other intangibles 991.8 941.4 974.5 Other assets 138.6 118.1 103.2 Total assets $2,852.1 $2,978.9 $2,796.1 Liabilities and Stockholders' Equity Current liabilities: Other current liabilities $526.8 $470.2 $468.9 Current portion of long-term debt -- 272.0 273.9 Total current liabilities 526.8 742.2 742.8 Long-term debt 350.0 350.0 350.0 Tax related liabilities and other 79.4 82.5 75.1 Total liabilities 956.2 1,174.7 1,167.9 Minority interest in subsidiary 0.2 0.2 0.2 Stockholders' equity: Common stock and additional paid-in capital 3,106.2 3,070.2 3,000.0 Accumulated deficit (1,220.3) (1,279.3) (1,389.9) Accumulated other comprehensive income 9.8 13.1 17.9 Total stockholders' equity 1,895.7 1,804.0 1,628.0 Total liabilities and stockholders' equity $2,852.1 $2,978.9 $2,796.1 LSI LOGIC CORPORATION Statement of Cash Flows (In thousands, except where noted) (Unaudited) Three Months Ended Year Ended Dec. 31, Oct. 1, Dec. 31, Dec. 31, Dec. 31, 2006 2006 2005 2006 2005 Operating Activities: Net income/(loss) $59,013 $43,610 $37,790 $169,638 $(5,623) Adjustments: Depreciation & amortization * 16,570 17,527 25,701 82,263 146,169 Stock-based compensation expense 10,895 11,025 1,509 47,049 5,449 Non-cash restructuring and other items 1,863 173 1,563 (713) 88,224 Acquired in-process research and development 4,284 -- -- 4,284 -- Gain on sale of intellectual property -- -- -- (15,000) -- Gain on sale of Gresham manufacturing facility and associated intellectual property -- -- -- (12,553) -- Write-off of intangible assets acquired in a purchase business combination -- -- -- 3,325 -- Non-cash foreign exchange gain (617) (941) -- (1,089) (11,491) Gain on sale of equity securities (4,729) (787) (5,651) (6,727) (6,475) Gain on repurchase of Convertible Subordinated Notes -- -- -- -- (4,123) (Gain)/loss on sales of property and equipment (7) (240) 118 (252) 27 Changes in deferred tax assets and liabilities (122) 4 14,108 (98) 14,220 Changes in assets and liabilities, net of assets acquired and liabilities assumed in business combinations: Accounts receivable (27,680) (9,460) (24,839) (24,617) (51,305) Inventories (25,220) (10,148) (5,681) (18,062) 24,086 Prepaid expenses and other assets (11,478) (7,403) (20,275) (24,858) (22,582) Accounts payable 24,499 (9,904) 40,861 23,338 46,998 Accrued and other liabilities 4,119 13,303 (2,083) 21,223 25,129 Net cash provided by operating activities 51,390 46,759 63,121 247,151 248,703 Investing activities: Purchases of debt securities available-for- sale (105,216) (116,196) (153,672) (603,624) (550,912) Proceeds from maturities and sales of debt securities available-for- sale 292,728 96,494 97,302 595,135 462,530 Purchases of equity securities -- (3,000) (150) (8,150) (150) Proceeds from sales of equity securities 5,784 2,511 7,234 11,876 11,105 Purchases of property, equipment and software (14,427) (15,587) (12,729) (58,671) (48,055) Proceeds from sale of property and equipment 29 49 1,495 118 4,894 Proceeds from sale of intellectual property -- 7,670 -- 22,670 -- Proceeds from sale of Fort Collins facility -- -- -- 10,998 -- Proceeds from sale of Colorado Springs facility -- -- -- 7,029 -- Proceeds from sale of Gresham manufacturing facility -- 15,000 -- 96,426 -- Proceeds from sale of Gresham manufacturing facility associated intellectual property -- -- -- 5,100 -- Acquisitions of companies, net of cash acquired (55,328) -- -- (55,328) -- Adjustment to goodwill acquired in a prior year for resolution of a pre-acquisition income tax contingency 909 1,373 28,645 2,282 36,307 Net cash provided by/(used in) investing activities 124,479 (11,686) (31,875) 25,861 (84,281) Financing activities: Issuance of common stock 25,009 3,868 10,789 61,014 30,862 Repurchase of Convertible Subordinated Notes -- -- -- -- (148,126) Repayment of debt obligations (271,848) -- -- (271,848) (129) Net cash (used in)/ provided by financing activities (246,839) 3,868 10,789 (210,834) (117,393) Effect of exchange rate changes on cash and cash equivalents 360 15 (3,040) 973 (1,103) (Decrease)/increase in cash and cash equivalents (70,610) 38,956 38,995 63,151 45,926 Cash and cash equivalents at beginning of period 398,410 359,454 225,654 264,649 218,723 Cash and cash equivalents at end of period $327,800 $398,410 $264,649 $327,800 $264,649 * 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 December 31, October 1, December 31, 2006 2006 2005 Semiconductor revenues $304.1 $313.3 $303.3 Storage Systems revenues $219.6 $179.7 $202.9 Total revenues $523.7 $493.0 $506.2 Percentage change in revenues-qtr./qtr. (a) 6.2% 0.7% 5.1% Percentage change in revenues-yr./yr. (b) 3.4% 2.3% 20.6% Days sales outstanding 60 58 57 Days of inventory 64 59 61 Current ratio 3.1 2.5 2.2 Quick ratio 2.6 2.1 1.7 Gross margin as a percentage of revenues 43.4% 43.5% 43.5% R&D as a percentage of revenues 20.7% 20.8% 19.3% SG&A as a percentage of revenues 11.8% 12.2% 11.8% Employees (c) 4,010 3,884 4,324 Revenues per employee (in thousands) (d) $522.3 $507.7 $468.3 Selected Cash Flow information Purchases of property and equipment (e) $10.3 $6.0 $10.1 Depreciation / amortization (f) $10.5 $10.5 $12.1 (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.
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