LSI Reports Third Quarter 2010 Results

Oct 27, 2010, 16:01 ET from LSI Corporation

MILPITAS, Calif., Oct. 27 /PRNewswire-FirstCall/ -- LSI Corporation (NYSE: LSI) today reported results for its third quarter ended October 3, 2010.

Third Quarter 2010 News Release Summary

  • Third quarter 2010 revenues of $629 million
  • Third quarter 2010 GAAP* net income of 4 cents per diluted share
  • Third quarter 2010 non-GAAP** net income of 13 cents per diluted share
  • Third quarter operating cash flows of $82 million

Fourth Quarter 2010 Business Outlook

  • Projected revenues of $635 million to $665 million
  • GAAP* net (loss)/income in the range of ($0.01) to $0.08 per share
  • Non-GAAP** net income in the range of $0.10 to $0.16 per share

* Generally Accepted Accounting Principles.

** Excludes goodwill and other intangible asset impairment, stock-based compensation, amortization of acquisition-related intangibles, purchase accounting effect on inventory, restructuring of operations and other items, net, gain on sale/write-down of securities and gain on repurchase of convertible subordinated notes. It also excludes the income tax effect associated with the above mentioned items.

Third quarter 2010 revenues were $629 million, a 9% increase year-over-year compared to $578 million reported in the third quarter of 2009, and compares to $639 million reported in the second quarter of 2010.

Third quarter 2010 GAAP* net income was $23 million or 4 cents per diluted share, compared to third quarter 2009 GAAP net income of $52 million or 8 cents per diluted share. Third quarter 2009 GAAP results included a tax benefit of $65 million, or 10 cents per diluted share. Third quarter 2010 GAAP results compare to second quarter 2010 GAAP net income of $7 million or 1 cent per diluted share. Third quarter 2010 GAAP net income included a net charge of $56 million from special items, consisting primarily of $40 million of amortization of acquisition-related items, $17 million of stock-based compensation expense, $4 million of net restructuring and other items, and $5 million of gain on the sale of securities.

Third quarter 2010 non-GAAP** net income was $79 million or 13 cents per diluted share, compared to third quarter 2009 non-GAAP net income of $119 million or 18 cents per diluted share. Third quarter 2009 non-GAAP results included earnings of 10 cents per diluted share reflecting the above-mentioned tax benefit. Second quarter 2010 non-GAAP net income was $71 million or 11 cents per diluted share.

Cash and short-term investments totaled approximately $601 million at quarter end. The company completed third-quarter purchases of approximately 32 million shares of its common stock for approximately $137 million. On a year-to-date basis, the company has purchased approximately 46 million shares of its common stock for approximately $218 million under its $250 million share repurchase program.

"Healthy growth in our storage systems business coupled with strong execution contributed to solid operating performance, with net income near the high end of our guidance range, despite some end-market softness and related customer inventory adjustments that affected sequential revenues," said Abhi Talwalkar, LSI president and chief executive officer. "While end-market demand challenges could continue, we expect to benefit from new product ramps in 2011 as several of our design wins with top-tier storage and networking customers transition to production."

Bryon Look, LSI CFO and chief administrative officer, said, "Our third quarter results reflect a continuing, strong focus on achieving our business model targets. Gross margins were at the high end of our guidance range, showing solid quarterly expansion and much improvement versus year-ago levels, while operating margins continued to grow on a sequential basis and were sharply higher year over year. Operating cash flows grew 21% sequentially to $82 million and were $256 million on a year-to-date basis, approximately double the $128 million recorded in the same period last year."

LSI Fourth Quarter 2010 Business Outlook

GAAP*

Special Items

Non-GAAP**

Revenue

$635 million to $665

million

$635 million to $665

million

Gross Margin

41% – 45%

$30 million to $40

million

47% – 49%

Operating Expenses

$243 million to $263

million

$20 million to $30

million

$223 million to $233

million

Net Other

(Loss)/Income

$3 million

$3 million

Tax

Approximately $10

million

Approximately $10

million

Net (Loss)/Income Per

Share

($0.01) to $0.08

($0.08) to ($0.11)

$0.10 to $0.16

Diluted Share Count

620 million

620 million

Capital spending is projected to be around $15 million in the fourth quarter and approximately $55 million in total for 2010.

Depreciation and software amortization is projected to be around $27 million in the fourth quarter and approximately $107 million in total for 2010.

LSI Conference Call Information

LSI will hold a conference call today at 2 p.m. PDT to discuss third quarter financial results and the fourth quarter 2010 business outlook. 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.

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: our reliance on major customers and suppliers; our ability to keep up with rapid technological change; our ability to compete successfully in competitive markets; fluctuations in the timing and volumes of customer demand; 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 Securities and Exchange Commission, 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 and Networking markets. More information is available at www.lsi.com.

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. LSI and the LSI & Design logo are trademarks or registered trademarks of LSI Corporation.
  3. All other brand or product names may be trademarks or registered trademarks of their respective companies.

LSI CORPORATION

Condensed Consolidated Balance Sheets

(In millions)

(Unaudited)

October 3,

July 4,

December 31,

Assets

2010

2010

2009

Current assets:

   Cash and short-term investments

$      600.8

$    669.8

$            962.1

   Accounts receivable, net

313.9

307.1

339.0

   Inventories

220.1

191.6

169.3

   Prepaid expenses and other current assets

103.4

110.5

115.1

       Total current assets

1,238.2

1,279.0

1,585.5

Property and equipment, net

208.8

212.8

219.0

Goodwill and identified intangible assets, net

807.2

847.5

927.9

Other assets

221.4

224.8

235.5

       Total assets

$   2,475.6

$ 2,564.1

$         2,967.9

Liabilities and Stockholders' Equity

Current liabilities:

   Current portion of long-term debt

$            -

$          -

$            350.0

   Other current liabilities

499.3

489.6

504.4

       Total current liabilities

499.3

489.6

854.4

Pension, tax and other liabilities

599.9

609.8

652.4

       Total liabilities

1,099.2

1,099.4

1,506.8

Stockholders' equity:

   Common stock and additional paid-in capital

6,003.9

6,123.8

6,149.2

   Accumulated deficit

(4,355.1)

(4,378.5)

(4,408.5)

   Accumulated other comprehensive loss

(272.4)

(280.6)

(279.6)

       Total stockholders' equity

1,376.4

1,464.7

1,461.1

       Total liabilities and stockholders' equity

$   2,475.6

$ 2,564.1

$         2,967.9

LSI CORPORATION

Consolidated Statements of Operations (GAAP)

(In thousands, except per share amounts)

(Unaudited)

Three Months Ended

Nine Months Ended

October 3,

July 4,

October 4,

October 3,

October 4,

2010

2010

2009

2010

2009

Revenues

$                  628,984

$                  639,405

$                  578,419

$               1,905,571

$               1,581,363

   Cost of revenues

319,061

330,194

315,067

982,192

892,984

   Purchase accounting effect on inventory

-

-

1,892

-

4,442

   Amortization of acquisition-related intangibles

31,288

31,288

34,177

93,864

101,654

   Stock-based compensation expense

2,109

2,292

1,697

6,113

5,732

      Total cost of revenues

352,458

363,774

352,833

1,082,169

1,004,812

Gross profit

276,526

275,631

225,586

823,402

576,551

   Research and development

158,558

162,509

144,661

480,041

433,807

   Stock-based compensation expense

7,714

8,644

6,386

24,256

21,443

      Total research and development

166,272

171,153

151,047

504,297

455,250

   Selling, general and administrative

69,272

69,304

66,323

209,139

197,661

   Amortization of acquisition-related intangibles

8,948

8,948

9,123

26,844

27,369

   Stock-based compensation expense

7,135

7,559

6,729

21,515

22,629

      Total selling, general and administrative

85,355

85,811

82,175

257,498

247,659

   Restructuring of operations and other items, net

3,693

5,067

4,745

10,380

35,960

Income/(loss) from operations

21,206

13,600

(12,381)

51,227

(162,318)

   Interest expense

-

(1,707)

(3,899)

(5,601)

(17,999)

   Interest income and other, net

10,315

4,639

3,535

6,147

15,742

Income/(loss) before income taxes

31,521

16,532

(12,745)

51,773

(164,575)

Provision/(benefit) for income taxes

8,100

9,100

(65,230)

(1,600)

(52,030)

Net income/(loss)

$                    23,421

$                      7,432

$                    52,485

$                    53,373

$                (112,545)

Net income/(loss) per share:

   Basic

$                        0.04

$                        0.01

$                        0.08

$                        0.08

$                      (0.17)

   Diluted

$                        0.04

$                        0.01

$                        0.08

$                        0.08

$                      (0.17)

Shares used in computing per share amounts:

   Basic

629,852

651,778

651,865

646,167

650,183

   Diluted

633,731

661,540

658,963

653,685

650,183

A reconciliation of net income/(loss) on the GAAP basis to non-GAAP net income is included below.

Three Months Ended

Nine Months Ended

Reconciliation of GAAP net income/(loss) to

October 3,

July 4,

October 4,

October 3,

October 4,

   non-GAAP net income:

2010

2010

2009

2010

2009

GAAP net income/(loss)

$                    23,421

$                      7,432

$                    52,485

$                    53,373

$                (112,545)

Special items:

a)   Stock-based compensation expense - cost of revenues

2,109

2,292

1,697

6,113

5,732

b)   Stock-based compensation expense - R&D

7,714

8,644

6,386

24,256

21,443

c)   Stock-based compensation expense - SG&A

7,135

7,559

6,729

21,515

22,629

d)   Amortization of acquisition-related intangibles - cost of revenues  

31,288

31,288

34,177

93,864

101,654

e)   Amortization of acquisition-related intangibles - SG&A

8,948

8,948

9,123

26,844

27,369

f)   Purchase accounting effect on inventory

-

-

1,892

-

4,442

g)   Restructuring of operations and other items, net

3,693

5,067

4,745

10,380

35,960

h)   (Gain) on sale/write-down of securities, net

(4,821)

-

1,650

6,779

1,650

      Total special items

56,066

63,798

66,399

189,751

220,879

Non-GAAP net income

$                    79,487

$                    71,230

$                  118,884

$                  243,124

$                  108,334

Non-GAAP net income per share:

   Basic

$                        0.13

$                        0.11

$                        0.18

$                        0.38

$                        0.17

   Diluted *

$                        0.13

$                        0.11

$                        0.18

$                        0.37

$                        0.17

Shares used in computing non-GAAP per share amounts:

   Basic

629,852

651,778

651,865

646,167

650,183

   Diluted

633,731

661,540

685,043

653,685

655,460

* In computing non-GAAP diluted earnings per share for three months ended October 4, 2009, net income was increased by $3,500 for interest, net of taxes, on the $350 million convertible notes considered dilutive common stock.

Three Months Ended

Nine Months Ended

Reconciliation of GAAP to non-GAAP shares used in the calculation

October 3,

July 4,

October 4,

October 3,

October 4,

   of diluted per share amounts:

2010

2010

2009

2010

2009

Diluted shares used in per share computation  - GAAP

633,731

661,540

658,963

653,685

650,183

Dilutive stock awards

-

-

-

-

5,277

Effect of $350 million convertible notes considered dilutive

-

-

26,080

-

-

Diluted shares used in per share computation - non-GAAP

633,731

661,540

685,043

653,685

655,460

LSI CORPORATION

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Three Months Ended

Nine Months Ended

October 3,

July 4,

October 4,

October 3,

October 4,

2010

2010

2009

2010

2009

Operating activities:

Net income/(loss)

$    23,421

$     7,432

$    52,485

$    53,373

$ (112,545)

Adjustments:

   Depreciation and amortization *

67,450

66,251

67,600

200,718

198,918

   Stock-based compensation expense

16,958

18,495

14,812

51,884

49,804

   Gain on redemption of convertible subordinated notes

-

-

-

-

(149)

  (Gain) on sale/write-down of securities, net

(4,821)

-

1,529

6,779

1,529

  (Gain)/loss on sale of property and equipment

(115)

265

(337)

153

(220)

   Unrealized foreign exchange loss

5,384

3,205

8,431

6,374

315

   Deferred taxes

(149)

85

(242)

34

(253)

   Changes in assets and liabilities, net of assets acquired and liabilities

       assumed in business combinations:

       Accounts receivable, net

(6,793)

(8,509)

(39,271)

25,094

(3,217)

       Inventories

(28,538)

(5,806)

4,824

(50,785)

78,406

       Prepaid expenses and other assets

7,555

14,438

4,814

13,898

48,272

       Accounts payable

(9,131)

(5,863)

46,807

(23,541)

(6,581)

       Accrued and other liabilities

10,919

(22,376)

(92,794)

(28,446)

(126,556)

Net cash provided by operating activities

82,140

67,617

68,658

255,535

127,723

Investing activities:

   Purchases of debt securities available-for-sale

(23,029)

(1,189)

-

(24,218)

(10)

   Proceeds from maturities and sales of debt securities available-for-sale

14,684

10,271

13,695

36,209

77,640

   Purchases of equity securities

-

(316)

(4,534)

(316)

(9,534)

   Proceeds from sales of securities

9,795

-

165

9,795

165

   Purchases of property, equipment and software

(18,889)

(21,097)

(20,137)

(67,262)

(68,738)

   Proceeds from sale of property and equipment

360

177

2,637

559

2,749

   Acquisition of business and companies, net of cash acquired

-

-

(26,141)

-

(46,981)

   Decrease in non-current assets and deposits

-

-

-

-

13,501

   Proceeds from maturity of notes receivable associated with sale of

       semiconductor operations in Thailand

-

-

10,000

-

10,000

Net cash used in investing activities

(17,079)

(12,154)

(24,315)

(45,233)

(21,208)

Financing activities:

  Redemption of convertible subordinated notes

-

-

-

-

(244,047)

  Repayment of debt obligations

-

(349,999)

-

(349,999)

-

  Issuance of common stock

469

17,953

3,367

22,057

10,040

  Purchase of common stock under repurchase programs

(137,011)

(54,524)

-

(217,743)

-

Net cash (used in)/provided by financing activities

(136,542)

(386,570)

3,367

(545,685)

(234,007)

Effect of exchange rate changes on cash and cash equivalents

(915)

(895)

2,721

(3,927)

3,576

Net change in cash and cash equivalents

(72,396)

(332,002)

50,431

(339,310)

(123,916)

Cash and cash equivalents at beginning of period

511,377

843,379

654,954

778,291

829,301

Cash and cash equivalents at end of period

$  438,981

$ 511,377

$  705,385

$  438,981

$  705,385

* Depreciation of fixed assets and amortization of intangible assets, software, capitalized intellectual property, premiums on short-term investments, debt issuance costs, and accrued debt premium.  

LSI CORPORATION

Selected Financial Information (GAAP)

(In millions)

(Unaudited)

Three Months Ended

October 3,

July 4,

October 4,

2010

2010

2009

Semiconductor revenues

$      390.1

$ 416.7

$      371.8

Storage Systems revenues

$      238.9

$ 222.7

$      206.6

Total revenues

$      629.0

$ 639.4

$      578.4

Percentage change in revenues-qtr./qtr. ( a )

-1.6%

0.3%

11.1%

Percentage change in revenues-yr./yr. ( b )

8.7%

22.8%

-19.0%

Days sales outstanding

45

43

48

Days of inventory

56

47

40

Current ratio

2.5

2.6

1.8

Quick ratio

1.8

2.0

1.5

Gross margin as a percentage of revenues

44.0%

43.1%

39.0%

R&D as a percentage of revenues

26.4%

26.8%

26.1%

SG&A as a percentage of revenues

13.6%

13.4%

14.2%

Employees  ( c )

5,640

5,612

5,318

Revenues per employee (in thousands) ( d )

$      446.1

$ 455.7

$      435.1

Selected Cash Flow Information:

Purchases of property and equipment ( e )

$        11.1

$   13.3

$        11.4

Depreciation and amortization ( f )

$        27.2

$   25.8

$        23.9

(a) Represents a sequential quarterly change in revenues.

(b) Represents a change 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.  

SOURCE LSI Corporation



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