LSI Reports Second Quarter 2007 Results First Full Quarter of Combined Operations with Agere Systems Completed

Second Quarter News Release Summary

- Second quarter 2007 revenues of $670 million

- Second quarter 2007 GAAP* net loss of 50 cents per diluted share

- Second quarter 2007 non-GAAP** net loss of 2 cents per diluted share

- Cash and short-term investments of $1.2 billion

Third Quarter 2007 Business Outlook

- Projected revenues of $675 million to $705 million

- GAAP* net loss range of 9 - 15 cents per diluted share

- Non-GAAP** net income in the range of 2 - 5 cents per diluted share

* Generally Accepted Accounting Principles.

** Excludes stock-based compensation, amortization of acquisition-related

intangibles, restructuring of operations and other items, net, purchase

accounting effect on inventory, loss on write-down of equity securities and

acquired in-process research and development. It also excludes the income

tax effect associated with the above mentioned items.

SIGNIFICANT PROGRESS ON MERGER INTEGRATION ACHIEVED



    MILPITAS, Calif., July 25 /PRNewswire-FirstCall/ -- LSI Corporation
 (NYSE:   LSI) today reported second quarter 2007 revenues of $670 million,
 compared to $490 million in the second quarter of 2006 and $465 million in
 the first quarter of 2007. LSI second quarter financial results reflect the
 integration of the former Agere Systems. The company's merger transaction
 with Agere closed on April 2, 2007.
     Second quarter 2007 GAAP* net loss was $378 million or 50 cents per
 diluted share, compared to second quarter 2006 GAAP net income of $54
 million or 13 cents per diluted share. Second quarter 2007 GAAP results
 compare to first quarter 2007 GAAP net income of $30 million or 7 cents per
 diluted share. Second quarter 2007 GAAP net loss included $22.8 million of
 stock-based compensation expense, and a net charge of $340.9 million from
 other special items, principally related to the company's merger with
 Agere.
     Second quarter 2007 non-GAAP** net loss was $14.2 million or 2 cents
 per diluted share, compared to second quarter 2006 non-GAAP net income of
 $57 million or 14 cents per diluted share. First quarter 2007 non-GAAP net
 income was $44 million or 11 cents per diluted share.
     Cash and short-term investments totaled approximately $1.2 billion at
 quarter end. LSI also announced today that it has completed its $500
 million share repurchase program.
     "During our first full quarter of combined operations with Agere, we
 took significant steps to accelerate our merger integration, and signed a
 definitive agreement to sell our consumer products business to Magnum
 Semiconductor," said Abhi Talwalkar, LSI president and chief executive
 officer. "Today, we're also announcing a global transition to third-party
 assembly and test contract manufacturing to leverage greater cost
 efficiencies and provide scalable capacity. As part of this transition, we
 have agreed to sell our Thailand assembly and test operations to STATS
 ChipPAC Ltd. for approximately $100 million."
     "Customers are responding positively to the new LSI and our business
 remains fundamentally strong," added Talwalkar. "We are winning significant
 new designs with industry-leading customers as a result of the combination
 of LSI and Agere, and I am confident that we are well positioned to achieve
 our long-term objectives. We expect revenue to grow sequentially in the
 second half of 2007, consistent with typical seasonal patterns."
     Bryon Look, LSI chief financial officer, said, "We are continuing to
 drive strategic focus and accelerate operational efficiencies. The steps
 taken during the second quarter and the manufacturing decisions announced
 today are significant components of positioning the company for profitable
 growth."
                    LSI Third Quarter 2007 Business Outlook
 
                             GAAP*          Special Items         Non-GAAP**
     Revenue             $675 million to                        $675 million to
                         $705 million                           $705 million
 
     Gross Margin         30 - 34%        $70 to $80 million      42 - 44%
 
     Operating Expenses  $285 million to  $30 to $40 million   $255 million to
                         $305 million                          $265 million
 
     Net Other Income      $0 million                            $0 million
 
     Tax                 Approximately                        Approximately 20%
                           $5 million
 
     Net (Loss)/Income
      Per Share        ($0.15) to ($0.09) ($0.14) to ($0.17)    $0.02 to $0.05
 
     Diluted Share
      Count               725 million                           730 million
     Capital spending is projected to be around $20 million in the third
 quarter and approximately $80 million in total for 2007.
     Third quarter depreciation and software amortization is expected to be
 approximately $25 million.
     LSI Conference Call Information
     LSI will hold a conference call today at 2 pm PDT to discuss second
 quarter financial results and the third quarter 2007 business outlook. The
 number is 1-877-675-5901 within the U.S. and 1-210-839-8500 for all other
 locations. Internet users can access the conference call at
 http://www.lsi.com/webcast. Subsequent to the conference call, a replay
 will be available at the same web address or may be accessed by calling
 1-866-357-1423 within the U.S. and 1-203-369-0115 for all other locations.
     The company has also scheduled an analyst meeting for July 31, 2007 in
 New York City. For more information, please visit
 http://www.lsi.com/investors.
     Forward Looking Statements: This news release contains forward-looking
 statements that are based on the current opinions and estimates of
 management. These statements 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's actual
 results to differ materially from those set forth in the forward-looking
 statements include, but are not limited to: the challenges and costs of
 integrating and restructuring our operations and achieving anticipated
 synergies following our recent acquisition of Agere Systems; a delay in the
 closing of the sale of our Consumer business to Magnum Semiconductor; our
 ability to successfully and timely transition our assembly and test
 operations to third parties; fluctuations in the timing and volumes of
 customer demand; our reliance on major customers and suppliers; our ability
 to compete successfully in competitive markets; our ability to keep up with
 rapid technological change; the unavailability of appropriate levels of
 manufacturing capacity; and general industry and market conditions. For
 additional information, see the documents filed by LSI with the SEC, and
 specifically the risk factors set forth in the company's most recent
 reports on Form 10-K and 10-Q. LSI disclaims any intention or obligation to
 update or revise any forward looking statements, whether as a result of new
 information, future events or otherwise.
     About LSI
     LSI Corporation (NYSE:   LSI) is a leading provider of innovative
 silicon, systems and software technologies that enable products which
 seamlessly bring people, information and digital content together. The
 company offers a broad portfolio of capabilities and services including
 custom and standard product ICs, adapters, systems and software that are
 trusted by the world's best known brands to power leading solutions in the
 Storage, Networking and Mobility markets. More information is available at
 http://www.lsi.com.
                                LSI CORPORATION
             Consolidated Condensed Statements of Operations (GAAP)
                    (In thousands, except per share amounts)
                                  (Unaudited)
 
 
                                 Three Months Ended          Six Months Ended
                             July 1,   April 1,  July 2,    July 1,    July 2,
                              2007       2007      2006       2007       2006
 
     Revenues               $669,939  $465,415  $489,635  $1,135,354  $965,519
 
       Cost of revenues      395,607   263,670   277,970     659,277   547,840
       Purchase accounting
        effect on inventory   47,904      -         -         47,904      -
       Amortization of
        acquisition
        related intangibles   71,310     5,285    10,801      76,595    22,017
       Stock-based
        compensation
        expense                3,148     1,944     2,458       5,092     3,983
          Total cost of
           revenues          517,969   270,899   291,229     788,868   573,840
 
     Gross profit            151,970   194,516   198,406     346,486   391,679
 
       Research and
        development          192,955    99,130    95,719     292,085   193,471
       Stock-based
        compensation
        expense                8,978     4,717     4,643      13,695     9,165
          Total research
           and development   201,933   103,847   100,362     305,780   202,636
 
       Selling, general
        and administrative    97,440    57,087    58,439     154,527   121,533
       Amortization of
        acquisition
        related intangibles    6,676       -         -         6,676      -
       Stock-based
        compensation
        expense               10,687     4,523     6,197      15,210    11,981
          Total selling,
           general and
           administrative    114,803    61,610    64,636     176,413   133,514
 
       Restructuring of
        operations and
        other items, net      25,920    (8,080)  (21,648)     17,840   (15,998)
       Acquired in-
        process research
        and development      176,400     6,500       -       182,900       -
 
     (Loss)/income from
      operations            (367,086)   30,639    55,056    (336,447)   71,527
 
     Interest expense         (9,049)   (3,890)   (6,428)    (12,939)  (12,758)
     Interest income and
      other, net              10,790    10,531    10,319      21,321    19,846
 
     (Loss)/income before
      income taxes          (365,345)   37,280    58,947    (328,065)   78,615
     Provision/(benefit)
      for income taxes        12,500     7,456     5,100      19,956    11,600
 
     Net (loss)/income     $(377,845)  $29,824   $53,847   $(348,021)  $67,015
 
     (Loss)/income per
      share:
        Basic                 $(0.50)    $0.07     $0.14      $(0.60)    $0.17
 
        Diluted               $(0.50)    $0.07     $0.13      $(0.60)    $0.17
 
     Shares used in
      computing per share
      amounts:
        Basic                751,114   404,230   397,790     577,672   396,312
 
        Diluted              751,114   409,808   405,613     577,672   404,213
 
 
     A reconciliation between net (loss)/income on a GAAP basis to a non-GAAP
     net (loss)/income are included below.
 
 
 
     Reconciliation of
      GAAP to Non-GAAP             Three Months Ended      Six Months Ended
      net income:              July 1,  April 1,  July 2,  July 1,   July 2,
                                2007      2007     2006     2007      2006
     GAAP net (loss)/income  $(377,845) $29,824 $53,847  $(348,021) $67,015
 
     Special items:
     a) Stock-based
        compensation expense
        - Cost of revenues       3,148    1,944   2,458      5,092    3,983
     b) Stock-based
        compensation expense
        - R&D                    8,978    4,717   4,643     13,695    9,165
     c) Stock-based
        compensation expense
        - SG&A                  10,687    4,523   6,197     15,210   11,981
     d) Amortization of
        acquisition related
        intangibles -
        Cost of revenues        71,310    5,285  10,801     76,595   22,017
     e) Amortization of
        acquisition related
        intangibles - SG&A       6,676        -       -      6,676        -
     f) Purchase accounting
        effect on inventory     47,904        -       -     47,904        -
     g) Restructuring of
        operations and
        other items, net        25,920   (8,080)(21,648)    17,840  (15,998)
     h) Acquired in-process
        research and
        development            176,400    6,500       -    182,900        -
     i) Loss/(gain) on
        sale/write-down
        of certain equity
        securities               2,396        -       -      2,396   (1,429)
     j) Income tax effect       10,264     (369)    453      9,895     (317)
 
         Total special items   363,683   14,520   2,904    378,203   29,402
 
     Non-GAAP net
      (loss)/income           $(14,162) $44,344 $56,751    $30,182  $96,417
 
     Non-GAAP income per share:
       Basic                    $(0.02)   $0.11   $0.14      $0.05    $0.24
 
       Diluted*                 $(0.02)   $0.11   $0.14      $0.05    $0.24
 
     Shares used in
      computing Non-GAAP
      per share amounts:
       Basic                   751,114  404,230 397,790    577,672  396,312
 
       Diluted                 751,114  409,808 431,693    587,248  404,213
 
     * In computing non-GAAP diluted earnings per share for the three month
       period ended 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.
 
 
 
     Reconciliation of
      shares used in the
      calculation of
      GAAP to
      Non-GAAP diluted            Three Months Ended       Six Months Ended
      net income per share:     July 1, April 1, July 2,   July 1,   July 2,
                                 2007    2007    2006       2007      2006
 
     Diluted shares used
      in per-share
      calculation - GAAP       751,114  409,808 405,613    577,672  404,213
     Dilutive options,
      RSUs and ESPPs                 -        -       -      9,576        -
     Effect of $350 million
      convertible notes
      considered dilutive            -        -  26,080          -        -
     Diluted shares used
      in per-share
      calculation - Non-GAAP   751,114  409,808 431,693    587,248  404,213
 
 
 
                                LSI CORPORATION
                     Consolidated Condensed Balance Sheets
                                 (In millions)
                                  (Unaudited)
 
                                               July 1,     April 1,    July 2,
     Assets                                      2007        2007        2006
 
     Current assets:
       Cash and short-term investments        $1,158.3    $1,016.6    $1,200.6
       Accounts receivable, net                  424.4       303.4       310.8
       Inventories                               285.0       229.1       173.8
       Prepaid expenses and other current
        assets                                   252.4        62.3        85.6
 
           Total current assets                2,120.1     1,611.4     1,770.8
 
     Property and equipment, net                 246.1        89.2        94.1
     Goodwill and other intangibles            4,231.8       997.8       949.1
     Other assets                                227.1       103.4       108.0
 
 
           Total assets                       $6,825.1    $2,801.8    $2,922.0
 
 
     Liabilities and Stockholders' Equity
 
     Current liabilities:
       Other current liabilities                $699.4      $383.7      $482.9
       Current portion of long-term debt           -           -         272.6
 
           Total current liabilities             699.4       383.7       755.5
 
     Long-term debt                              719.5       350.0       350.0
     Pension, tax and other liabilities          519.7       131.5        73.5
 
           Total liabilities                   1,938.6       865.2     1,179.0
 
     Minority interest in subsidiary               0.2         0.2         0.2
 
     Stockholders' equity:
       Common stock and additional paid-in
        capital                                6,453.6     3,121.0     3,055.4
       Accumulated deficit                    (1,575.9)   (1,198.1)   (1,322.9)
       Accumulated other comprehensive
        income                                     8.6        13.5        10.3
 
           Total stockholders' equity          4,886.3     1,936.4     1,742.8
 
           Total liabilities and
            stockholders' equity              $6,825.1    $2,801.8    $2,922.0
 
 
 
                                LSI CORPORATION
                            Statement of Cash Flows
                       (In thousands, except where noted)
                                  (Unaudited)
 
 
                                   Three Months Ended         Six Months Ended
                               July 1,   April 1,  July 2,    July 1,   July 2,
                                2007       2007      2006      2007       2006
     Operating Activities:
     Net (loss)/income      $(377,845)  $29,824   $53,847  $(348,021)  $67,015
     Adjustments:
       Depreciation &
        amortization *        101,599    18,576    22,831    120,175    48,166
       Stock-based
        compensation expense   22,813    11,184    13,298     33,997    25,129
       Non-cash restructuring
        and other items           (29)      228       209        199    (2,749)
       Acquired in-process
        research and
        development           176,400     6,500       -      182,900       -
       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   (4,277)      389     1,057     (3,888)      469
       Loss/(gain) on
        sale/write-down
        of equity securities    2,396       -         218      2,396    (1,211)
       Loss/(gain) on
        sale of property
        and equipment             160    (9,662)       (5)    (9,502)       (5)
       Changes in deferred
        tax assets and
        liabilities            (5,501)       31        23     (5,470)       20
       Changes in assets
        and liabilities,
        net of assets
        acquired and
        liabilities
        assumed in
         business combinations:
           Accounts
            receivable        104,715    45,450   (44,366)   150,165    12,523
           Inventories         64,896   (19,654)    8,613     45,242    17,306
           Prepaid expenses
            and other assets    9,299    24,565   (15,381)    33,864    (5,977)
           Accounts payable   (94,585)  (36,469)   31,751   (131,054)    8,743
           Accrued and
            other liabilities  29,840   (14,980)    1,575     14,860     3,801
     Net cash provided by
      operating activities     29,881    55,982    49,442     85,863   149,002
 
     Investing activities:
       Purchases of debt
        securities
        available-for-
        sale                  (61,606)  (60,630) (216,019)  (122,236) (382,212)
       Proceeds from
        maturities and
        sales of debt
        securities
        available-for-
        sale                  199,740   174,392    97,747    374,132   205,913
       Purchases of
        convertible
        notes/equity
        securities             (3,000)      -      (5,000)    (3,000)   (5,150)
       Proceeds from sale
        of equity securities      -         -       2,026        -       3,581
       Purchases of
        property, equipment
        and software          (20,211)  (20,503)  (12,679)   (40,714)  (28,657)
       Proceeds from sale
        of property and
        equipment               1,274    12,511        40     13,785        40
       Proceeds from sale
        of intellectual
        property                 -          -      15,000        -      15,000
       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                 -          -      81,426        -      81,426
       Proceeds from sale
        of Gresham
        manufacturing
        facility
        associated
        intellectual
        property                 -          -       5,100        -       5,100
       Acquisitions of
        companies, net of
        cash acquired         517,712   (52,079)      -      465,633       -
       Adjustment to
        goodwill acquired
        in a prior year
        for resolution of
        a pre-acquisition
        income tax
        contingency              -        2,442       -        2,442       -
     Net cash provided
      by/(used in)
      investing activities    633,909    56,133   (14,332)   690,042   (86,932)
 
     Financing activities:
       Issuance of common
        stock                  16,246     5,671    20,149     21,917    32,137
       Purchase of common
        stock under
        repurchase program   (400,355)       -        -     (400,355)      -
     Net cash (used
      in)/provided by
      financing activities   (384,109)    5,671    20,149   (378,438)   32,137
 
     Effect of exchange
      rate changes on cash
      and cash equivalents        268       (65)      365        203       598
 
     Increase in cash and
      cash equivalents        279,949   117,721    55,624    397,670    94,805
 
     Cash and cash
      equivalents at
      beginning of period     445,521   327,800   303,830    327,800   264,649
 
     Cash and cash
      equivalents at end of
      period                 $725,470  $445,521  $359,454   $725,470  $359,454
 
 
     * Depreciation of fixed assets, amortization of intangible assets,
       software, capitalized intellectual property, debt issuance costs and
       deferred gains on cancelled interest rate swaps.
 
 
 
                                LSI CORPORATION
                     Selected Financial Information (GAAP)
                       (In millions, except where noted)
                                  (Unaudited)
 
                                                     Three Months Ended
                                               July 1,     April 1,    July 2,
                                                2007        2007        2006
 
     Semiconductor revenues                    $484.8       $272.4      $307.4
     Storage Systems revenues                  $185.1       $193.0      $182.2
     Total revenues                            $669.9       $465.4      $489.6
     Percentage change in revenues-
      qtr./qtr.  (a)                             43.9%       -11.1%        2.9%
     Percentage change in revenues-
      yr./yr. (b)                                36.8%        -2.2%        1.7%
 
     Days sales outstanding                        57           59          57
     Days of inventory                             50           76          54
     Current ratio                                3.0          4.2         2.3
     Quick ratio                                  2.3          3.4         2.0
 
     Gross margin as a percentage of revenues    22.7%        41.8%       40.5%
     R&D as a percentage of revenues             30.1%        22.3%       20.5%
     SG&A as a percentage of revenues            17.1%        13.2%       13.2%
 
     Employees  (c)                             9,138        4,082       3,867
     Revenues per employee (in thousands)(d)   $293.3       $456.1      $506.5
 
     Selected Cash Flow information
     Purchases of property and
      equipment (e)                              $8.6        $14.4        $7.6
     Depreciation / amortization (f)            $21.0        $11.0       $10.8
 
 
      (a) Represents sequential quarter growth/(decrease) in revenues.
      (b) Represents growth/(decrease) 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) Revenues per employee is calculated by annualizing revenues 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 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 logo design is a trademark of LSI Corporation.
     3. All other brand or product names may be trademarks or registered
        trademarks of their respective companies.
 
 

SOURCE LSI Corporation
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