LSI Life Storage Inc

Third Quarter 2007 Revenues Exceed Guidance MILPITAS, Calif., Oct. 24 /PRNewswire-FirstCall/ -- LSI Corporation (NYSE:LSI) today reported third quarter 2007 revenues of $727 million, compared to $493 million in the third quarter of 2006 and $670 million in the second quarter of 2007. Third quarter 2007 GAAP* net loss was $141 million or 20 cents per diluted share, compared to third quarter 2006 GAAP net income of $44 million or 11 cents per diluted share. Third quarter 2007 GAAP results compare to second quarter 2007 GAAP net loss of $378 million or 50 cents per diluted share. Third quarter 2007 GAAP net loss included a net charge of $184.7 million from special items, including $101.2 million of restructuring costs relating primarily to the sale of our mobility business, $70.6M in the amortization of acquisition-related items and $21.8 million of stock-based compensation expense. Third quarter 2007 non-GAAP** net income was $44 million or 6 cents per diluted share, compared to third quarter 2006 non-GAAP net income of $65 million or 16 cents per diluted share. Second quarter 2007 non-GAAP net loss was $14 million or 2 cents per diluted share. Cash and short-term investments totaled approximately $1.1 billion at quarter end. LSI also announced today that to date it has purchased approximately 67.3 million shares of its common stock for approximately $549 million under two repurchase authorizations totaling $1 billion. "Our solid quarterly results were driven by strong end customer demand in our storage and networking businesses and by achieving substantial cost reductions during our second full quarter of combined operations with Agere," said Abhi Talwalkar, LSI president and chief executive officer. "Since the beginning of the third quarter, we have made significant progress on completing the first phase of our three-phase business acceleration plan, including completing the sale of our consumer products business to Magnum Semiconductor, our mobility products business to Infineon Technologies and our Thai final assembly and test operations to STATS ChipPAC. "As a more focused company, we are now experiencing a significantly higher level of engagement with our customers and substantial increases in design win opportunities," added Talwalkar. "We are also continuing to execute our strategy to invest for long-term revenue growth in our core areas of storage and networking, acquiring Tarari, Inc., a recognized leader in deep packet inspection technology that enables advanced security and network control for service provider and enterprise networks. Through these initial actions and our strong focus, we are poised to achieve our long-term growth and profitability objectives." Bryon Look, LSI chief financial officer, said, "We experienced healthy demand in both our semiconductor and storage systems segments, with double-digit sequential revenue growth in storage and networking semiconductors. Our continuing focus on driving organizational efficiencies and maintaining tight controls contributed to significantly lower operating expenses and improved margins." LSI Fourth Quarter 2007 Business Outlook GAAP* Special Items Non-GAAP** Revenue $700 million $700 million to to $730 million $730 million Gross Margin 36 - 41% $30 to $50 million 43 - 45% Operating Expenses $270 million $25 to $45 $245 million to to $300 million $255 million million Net Other Income $2 million $2 million Tax Approximately Approximately $12 million 25% Net (Loss)/Income Per Share ($0.09) to ($0.06) to $0.05 to $0.03 ($0.14) $0.09 Diluted Share Count 700 million 705 million Capital spending is projected to be around $20 million in the fourth quarter and approximately $60 million in total for 2007. Fourth quarter depreciation and software amortization is expected to be approximately $20 million. LSI Conference Call Information LSI will hold a conference call today at 2 pm PDT to discuss third quarter financial results and the fourth quarter 2007 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 or may be accessed by calling 1-866-410-5843 within the U.S. and 1-203-369-0645 for all other locations. 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; 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 and Networking 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 Nine Months Ended September July October September October 30, 1, 1, 30, 1, 2007 2007 2006 2007 2006 Revenues $727,415 $669,939 $492,978 $1,862,769 $1,458,497 Cost of revenues 411,866 395,607 276,725 1,071,143 824,565 Purchase accounting effect on inventory - 47,904 - 47,904 - Amortization of acquisition related intangibles 64,860 71,310 6,436 141,455 28,453 Stock-based compensation expense 2,824 3,148 1,719 7,916 5,702 Total cost of revenues 479,550 517,969 284,880 1,268,418 858,720 Gross profit 247,865 151,970 208,098 594,351 599,777 Research and development 173,375 192,955 98,625 465,460 292,096 Stock-based compensation expense 8,916 8,978 3,908 22,611 13,073 Total research and development 182,291 201,933 102,533 488,071 305,169 Selling, general and administrative 88,769 97,440 54,878 243,296 176,411 Amortization of acquisition related intangibles 5,714 6,676 - 12,390 - Stock-based compensation expense 10,035 10,687 5,398 25,245 17,379 Total selling, general and administrative 104,518 114,803 60,276 280,931 193,790 Restructuring of operations and other items, net 101,231 25,920 2,614 119,071 (13,384) Acquired in-process research and development - 176,400 - 182,900 - (Loss)/income from operations (140,175) (367,086) 42,675 (476,622) 114,202 Interest expense (9,033) (9,049) (6,556) (21,972) (19,314) Interest income and other, net 11,808 10,790 13,066 33,129 32,912 (Loss)/income before income taxes (137,400) (365,345) 49,185 (465,465) 127,800 Provision for income taxes 3,200 12,500 5,575 23,156 17,175 Net (loss)/income $(140,600) $(377,845) $43,610 $(488,621) $110,625 (Loss)/income per share: Basic $(0.20) $(0.50) $0.11 $(0.78) $0.28 Diluted $(0.20) $(0.50) $0.11 $(0.78) $0.27 Shares used in computing per share amounts: Basic 715,733 751,114 399,613 623,692 397,408 Diluted 715,733 751,114 403,715 623,692 403,779 A reconciliation between net (loss)/income on a GAAP basis to a non-GAAP net (loss)/income is included below. Reconciliation of GAAP to Non-GAAP net (loss)/income: Three Months Ended Nine Months Ended September July October September October 30, 1, 1, 30, 1, 2007 2007 2006 2007 2006 GAAP net (loss)/ income $(140,600) $(377,845) $43,610 $(488,621) $110,625 Special items: a) Stock-based compensation expense - Cost of revenues 2,824 3,148 1,719 7,916 5,702 b) Stock-based compensation expense - R&D 8,916 8,978 3,908 22,611 13,073 c) Stock-based compensation expense - SG&A 10,035 10,687 5,398 25,245 17,379 d) Amortization of acquisition related intangibles - Cost of revenues 64,860 71,310 6,436 141,455 28,453 e) Amortization of acquisition related intangibles - SG&A 5,714 6,676 - 12,390 - f) Purchase accounting effect on inventory - 47,904 - 47,904 - g) Restructuring of operations and other items, net 101,231 25,920 2,614 119,071 (13,384) h) Acquired in-process research and development - 176,400 - 182,900 - i) Loss/(gain) on sale/ write-down of certain equity securities 2,396 (787) 2,396 (2,216) j) Income tax effect (8,916) 10,264 1,738 979 1,421 Total special items 184,664 363,683 21,026 562,867 50,428 Non-GAAP net income/(loss) $44,064 $(14,162) $64,636 $74,246 $161,053 Non-GAAP income/(loss) per share: Basic $0.06 $(0.02) $0.16 $0.12 $0.41 Diluted* $0.06 $(0.02) $0.16 $0.12 $0.40 Shares used in computing Non-GAAP per share amounts: Basic 715,733 751,114 399,613 623,692 397,408 Diluted 720,317 751,114 431,713 632,563 406,791 * In computing non-GAAP diluted earnings per share for the three month period ended 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. Reconciliation of shares used in the calculation of GAAP to Non-GAAP diluted net (loss)/income per share: Three Months Ended Nine Months Ended September July October September October 30, 1, 1, 30, 1, 2007 2007 2006 2007 2006 Diluted shares used in per-share calculation - GAAP 715,733 751,114 403,715 623,692 403,779 Dilutive stock awards 4,584 - 1,918 8,871 3,012 Effect of $350 million convertible notes considered dilutive - - 26,080 - - Diluted shares used in per-share calculation - Non-GAAP 720,317 751,114 431,713 632,563 406,791 LSI CORPORATION Consolidated Condensed Balance Sheets (In millions) (Unaudited) September 30, July 1, December 31, Assets 2007 2007 2006 Current assets: Cash and short-term investments $1,097.9 $1,158.3 $1,008.9 Accounts receivable, net 436.0 424.4 348.6 Inventories 218.4 285.0 209.5 Prepaid expenses and other current assets 708.2 252.4 68.7 Total current assets 2,460.5 2,120.1 1,635.7 Property and equipment, net 236.5 246.1 86.0 Goodwill and other intangibles 3,701.4 4,231.8 991.8 Other assets 226.0 227.1 138.6 Total assets $6,624.4 $6,825.1 $2,852.1 Liabilities and Stockholders' Equity Current liabilities: Other current liabilities $746.9 $699.4 $526.8 Current portion of long-term debt - - - Total current liabilities 746.9 699.4 526.8 Long-term debt 718.7 719.5 350.0 Pension, tax and other liabilities 520.4 519.7 79.4 Total liabilities 1,986.0 1,938.6 956.2 Minority interest in subsidiary 0.2 0.2 0.2 Stockholders' equity: Common stock and additional paid-in capital 6,335.0 6,453.6 3,106.2 Accumulated deficit (1,716.5) (1,575.9) (1,220.3) Accumulated other comprehensive income 19.7 8.6 9.8 Total stockholders' equity 4,638.2 4,886.3 1,895.7 Total liabilities and stockholders' equity $6,624.4 $6,825.1 $2,852.1 LSI CORPORATION Statement of Cash Flows (In thousands, except where noted) (Unaudited) Three Months Ended Nine Months Ended September July October September October 30, 1, 1, 30, 1, 2007 2007 2006 2007 2006 Operating Activities: Net (loss)/income $(140,600) $(377,845) $43,610 $(488,621) $110,625 Adjustments: Depreciation & amortization * 96,545 101,599 17,527 216,720 65,693 Stock-based compensation expense 21,775 22,813 11,025 55,772 36,154 Non-cash restructuring and other items 88,155 (29) 173 88,354 (2,576) Acquired in-process research and development - 176,400 - 182,900 - 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 loss/(gain) 7,109 (4,277) (941) 3,221 (472) Loss/(gain) on sale/write-down of equity securities - 2,396 (787) 2,396 (1,998) (Gain)/loss on sale of property and equipment (11) 160 (240) (9,513) (245) Changes in deferred tax assets and liabilities (1,327) (5,501) 4 (6,797) 24 Changes in assets and liabilities, net of assets acquired and liabilities assumed in business combinations: Accounts receivable (6,167) 104,715 (9,460) 143,998 3,063 Inventories 49,906 64,896 (10,148) 95,148 7,158 Prepaid expenses and other assets 1,197 9,299 (7,403) 35,061 (13,380) Accounts payable (3,567) (94,585) (9,904) (134,621) (1,161) Accrued and other liabilities (14,202) 29,840 13,303 658 17,104 Net cash provided by operating activities 98,813 29,881 46,759 184,676 195,761 Investing activities: Purchases of debt securities available-for-sale (31,851) (61,606) (116,196) (154,087) (498,408) Proceeds from maturities and sales of debt securities available-for-sale 118,897 199,740 96,494 493,029 302,407 Purchases of convertible notes/ equity securities (7,500) (3,000) (3,000) (10,500) (8,150) Proceeds from sale of equity securities - - 2,511 - 6,092 Purchases of property, equipment and software (36,272) (20,211) (15,587) (76,986) (44,244) Proceeds from sale of property and equipment 5 1,274 49 13,790 89 Proceeds from sale of Consumer 22,555 - - 22,555 - 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 - 517,712 - 465,633 - Adjustment to goodwill acquired in a prior year for resolution of a pre-acquisition income tax contingency - - 1,373 2,442 1,373 Net cash provided by/ (used in) investing activities 65,834 633,909 (11,686) 755,876 (98,618) Financing activities: Issuance of common stock 7,077 16,246 3,868 28,994 36,005 Purchase of common stock under repurchase program (148,758) (400,355) - (549,113) - Net cash (used in)/ provided by financing activities (141,681) (384,109) 3,868 (520,119) 36,005 Effect of exchange rate changes on cash and cash equivalents 1,497 268 15 1,700 613 Increase in cash and cash equivalents 24,463 279,949 38,956 422,133 133,761 Cash and cash equivalents at beginning of period 725,470 445,521 359,454 327,800 264,649 Cash and cash equivalents at end of period $749,933 $725,470 $398,410 $749,933 $398,410 * Depreciation of fixed assets, amortization of intangible assets, software, capitalized intellectual property and debt issuance costs. LSI CORPORATION Selected Financial Information (GAAP) (In millions, except where noted) (Unaudited) Three Months Ended September 30, July 1, October 1, 2007 2007 2006 Semiconductor revenues $530.0 $484.8 $313.3 Storage Systems revenues $197.4 $185.1 $179.7 Total revenues $727.4 $669.9 $493.0 Percentage change in revenues-qtr./qtr.(a) 8.6% 43.9% 0.7% Percentage change in revenues-yr./yr.(b) 47.6% 36.8% 2.3% Days sales outstanding 54 57 58 Days of inventory 41 50 59 Current ratio 3.3 3.0 2.5 Quick ratio 2.1 2.3 2.1 Gross margin as a percentage of revenues 34.1% 22.7% 42.2% R&D as a percentage of revenues 25.1% 30.1% 20.8% SG&A as a percentage of revenues 14.4% 17.1% 12.2% Employees(c) 8,302 9,138 3,884 Revenues per employee (in thousands)(d) $350.5 $293.3 $507.7 Selected Cash Flow information Purchases of property and equipment(e) $13.4 $8.6 $6.0 Depreciation / amortization(f) $24.6 $21.0 $10.5 (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) 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. DATASOURCE: LSI Corporation CONTACT: investors, Sujal Shah, +1-610-712-5471, , or media, Robert Guenther, +1-610-712-1514, , both of LSI Corporation Web site: http://www.lsilogic.com/

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