LSI Life Storage Inc

Fourth Quarter 2007 Revenues Exceed Guidance MILPITAS, Calif., Jan. 23 /PRNewswire-FirstCall/ -- LSI Corporation (NYSE:LSI) today reported results for its fourth quarter and full year ended December 31, 2007. Fourth Quarter and Full-Year 2007 News Release Summary -- Fourth quarter 2007 revenues of $741 million, exceeding guidance [1] -- Fourth quarter 2007 GAAP* net loss of $2.88 per share, including an estimated goodwill impairment charge of $2.88 per share -- Fourth quarter 2007 non-GAAP** net income of 13 cents per diluted share, exceeding guidance -- Fourth quarter operating cash flows of $110 million -- Full-year 2007 revenues of $2.6 billion -- Cash and short-term investments of $1.4 billion First Quarter 2008 Business Outlook -- Projected revenues of $620 million to $650 million -- GAAP* net loss in the range of 1 to 9 cents per share -- Non-GAAP** net income in the range of 5 to 9 cents per diluted share [1] On October 24, 2007, LSI completed the sale of its mobility business. Revenues for the fourth quarter include $29 million recognized from that business through the date of sale. [2] The Company purchased Agere Systems on April 2, 2007. * Generally Accepted Accounting Principles. ** Excludes estimated goodwill impairment, 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. BROAD-BASED STORAGE DEMAND FUELS STRONG GROWTH Fourth quarter 2007 revenues were $741 million, a 41% increase year-over-year compared to $524 million reported in the fourth quarter of 2006, and up 2% sequentially compared to $727 million reported in the third quarter of 2007 [2]. Adjusting for the sale of the mobility business, fourth quarter revenues increased 12.2% sequentially compared to the third quarter of 2007. Fourth quarter 2007 GAAP* net loss was $2.0 billion or $2.88 per share, compared to fourth quarter 2006 GAAP net income of $59 million or 14 cents per diluted share. Fourth quarter 2007 GAAP results compare to third quarter 2007 GAAP net loss of $141 million or 20 cents per share. Fourth quarter 2007 GAAP net loss included a net charge of $2.1 billion from special items, including an estimated $2.0 billion non-cash charge for impairment of goodwill, $38.6 million in the amortization of acquisition-related items, $29 million of restructuring costs, $21.5 million of stock-based compensation expense and $6.0 million of acquired in-process R&D. Fourth quarter 2007 non-GAAP** net income was $94 million or 13 cents per diluted share, compared to fourth quarter 2006 non-GAAP net income of $75 million or 18 cents per diluted share. Third quarter 2007 non-GAAP net income was $44 million or 6 cents per diluted share. Cash and short-term investments totaled approximately $1.4 billion at quarter end. LSI also announced today that to date it has purchased approximately 102.6 million shares of its common stock for approximately $771 million under two repurchase authorizations totaling $1 billion. "Our strong fourth quarter results were driven by higher than expected seasonal demand for our storage products, with revenues and non-GAAP earnings significantly exceeding our guidance," said Abhi Talwalkar, LSI president and chief executive officer. "In our core focus areas of storage and networking, revenues increased more than 12% sequentially, reflecting greater than 25% growth in storage systems and double-digit growth in storage semiconductors. "With many new design wins across our storage and networking areas now firmly in hand, I am confident that we are well positioned to grow as these designs ramp to production in the future," added Talwalkar. LSI recorded full year 2007 revenues of $2.60 billion, a 31% increase compared to $1.98 billion in 2006. The company reported 2007 GAAP net loss of $2.49 billion or $3.88 per share. Full-year 2007 GAAP net loss included a net charge of $2.66 billion from special items, including an estimated $2.0 billion non-cash charge for impairment of goodwill, $192 million in the amortization of acquisition-related items, $189 million of acquired in-process R&D, $148 million of restructuring costs, $77 million of stock-based compensation expense, and $48 million from the purchase accounting effect on inventory. Full-year 2007 GAAP results compare to full year 2006 GAAP net profit of $170 million or 42 cents per diluted share. Non-GAAP net income for 2007 was $168 million or 26 cents per diluted share compared to 2006 non-GAAP net income of $236 million or 58 cents per diluted share. Bryon Look, LSI chief financial officer, said, "In the fourth quarter we made significant progress on revenue growth, gross margin expansion, operating expense reduction and cash generation. Despite uncertain economic conditions, our business remains healthy and our forward looking guidance for the first quarter is within our expected range of seasonality." LSI First Quarter 2008 Business Outlook GAAP* Special Items Non-GAAP** Revenue $620 million to $650 $620 million to $650 million million Gross Margin 36 - 40% $40 to $50 44 - 46% million Operating $260 million to $280 $30 to $40 $230 million to $240 Expenses million million million Net Other Income $3 million $3 million Tax Approximately $8 Approximately 15% million Net (Loss)/Income Per Share ($0.09) to ($0.01) ($0.10) to ($0.14) $0.05 to $0.09 Diluted Share Count 660 million 665 million Capital spending is projected to be around $14 million in the first quarter and approximately $50 million in total for 2008. First 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 fourth quarter financial results and the first quarter 2008 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: finalization of the amount of our 2007 goodwill impairment charge; 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 Condensed Consolidated Statements of Operations (GAAP) (In thousands, except per share amounts) (Unaudited) Three Months Ended December 31, September 30, December 31, 2007 2007 2006 Revenues $740,874 $727,415 $523,651 Cost of revenues 394,730 411,866 295,426 Purchase accounting effect on inventory - - - Amortization of acquisition related intangibles 33,842 64,860 3,636 Stock-based compensation expense 2,795 2,824 1,201 Total cost of revenues 431,367 479,550 300,263 Gross profit 309,507 247,865 223,388 Research and development 158,021 173,375 103,939 Stock-based compensation expense 9,132 8,916 4,324 Total research and development 167,153 182,291 108,263 Selling, general and administrative 86,158 88,769 56,409 Amortization of acquisition related intangibles 4,752 5,714 - Stock-based compensation expense 9,568 10,035 5,370 Total selling, general and administrative 100,478 104,518 61,779 Restructuring of operations and other items, net 29,050 101,231 4,957 Estimated goodwill impairment charge * 2,000,000 - - Acquired in-process research and development 5,972 - 4,284 (Loss)/income from operations (1,993,146) (140,175) 44,105 Interest expense (9,048) (9,033) (4,949) Interest income and other, net 13,629 11,808 18,364 (Loss)/income before income taxes (1,988,565) (137,400) 57,520 Provision/(benefit) for income taxes 12,023 3,200 (1,493) Net (loss)/income $(2,000,588) $(140,600) $59,013 (Loss)/income per share: Basic $(2.88) $(0.20) $0.15 Diluted** $(2.88) $(0.20) $0.14 Shares used in computing per share amounts: Basic 695,624 715,733 401,992 Diluted 695,624 715,733 434,434 Year Ended December 31, December 31, 2007 2006 Revenues $2,603,643 $1,982,148 Cost of revenues 1,465,873 1,119,991 Purchase accounting effect on inventory 47,904 - Amortization of acquisition related intangibles 175,297 32,089 Stock-based compensation expense 10,711 6,903 Total cost of revenues 1,699,785 1,158,983 Gross profit 903,858 823,165 Research and development 623,481 396,035 Stock-based compensation expense 31,743 17,397 Total research and development 655,224 413,432 Selling, general and administrative 329,454 232,820 Amortization of acquisition related intangibles 17,142 - Stock-based compensation expense 34,813 22,749 Total selling, general and administrative 381,409 255,569 Restructuring of operations and other items, net 148,121 (8,427) Estimated goodwill impairment charge * 2,000,000 - Acquired in-process research and development 188,872 4,284 (Loss)/income from operations (2,469,768) 158,307 Interest expense (31,020) (24,263) Interest income and other, net 46,758 51,276 (Loss)/income before income taxes (2,454,030) 185,320 Provision/(benefit) for income taxes 35,179 15,682 Net (loss)/income $(2,489,209) $169,638 (Loss)/income per share: Basic $(3.88) $0.43 Diluted** $(3.88) $0.42 Shares used in computing per share amounts: Basic 641,823 398,551 Diluted 641,823 405,163 * The Company is in the process of measuring the impairment to goodwill and it is possible that this estimate could change significantly to a number within a range of $1.7 billion to $2.2 billion. The Company expects to finalize the impairment charge and report it in the Annual Report on Form 10-K. ** 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 (loss)/income on a GAAP basis to a non-GAAP net income is included below. Reconciliation of GAAP net Three Months Ended (loss)/income to Non-GAAP December 31, September 30, December 31, net income: 2007 2007 2006 GAAP net (loss)/income $(2,000,588) $(140,600) $59,013 Special items: a) Stock-based compensation expense - cost of revenues 2,795 2,824 1,201 b) Stock-based compensation expense - R&D 9,132 8,916 4,324 c) Stock-based compensation expense - SG&A 9,568 10,035 5,370 d) Amortization of acquisition related intangibles - cost of revenues 33,842 64,860 3,636 e) Amortization of acquisition related intangibles - SG&A 4,752 5,714 - f) Purchase accounting effect on inventory - - - g) Restructuring of operations and other items, net 29,050 101,231 4,957 h) Estimated goodwill impairment charge * 2,000,000 - - i) Acquired in-process research and development 5,972 - 4,284 j) (Gain) on sale/write-down of certain equity securities - - (4,729) k) Income tax effect (305) (8,916) (2,950) Total special items 2,094,806 184,664 16,093 Non-GAAP net income $94,218 $44,064 $75,106 Non-GAAP income per share: Basic $0.14 $0.06 $0.19 Diluted*** $0.13 $0.06 $0.18 Shares used in computing Non-GAAP per share amounts: Basic 695,624 715,733 401,992 Diluted 726,710 720,317 437,216 Reconciliation of GAAP net Year Ended (loss)/income to Non-GAAP December 31, December 31, net income: 2007 2006 GAAP net (loss)/income $(2,489,209) $169,638 Special items: a) Stock-based compensation expense - cost of revenues 10,711 6,903 b) Stock-based compensation expense - R&D 31,743 17,397 c) Stock-based compensation expense - SG&A 34,813 22,749 d) Amortization of acquisition related intangibles - cost of revenues 175,297 32,089 e) Amortization of acquisition related intangibles - SG&A 17,142 - f) Purchase accounting effect on inventory 47,904 - g) Restructuring of operations and other items, net 148,121 (8,427) h) Estimated goodwill impairment charge * 2,000,000 - i) Acquired in-process research and development 188,872 4,284 j)(Gain) on sale/write-down of certain equity securities 2,396 (6,945) k) Income tax effect 674 (1,529) Total special items 2,657,673 66,521 Non-GAAP net income $168,464 $236,159 Non-GAAP income per share: Basic $0.26 $0.59 Diluted*** $0.26 $0.58 Shares used in computing Non-GAAP per share amounts: Basic 641,823 398,551 Diluted 659,077 434,193 *** In computing non-GAAP diluted earnings per share for the three month period ended December 31, 2007 and 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 non-GAAP 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 GAAP to Non-GAAP Three Months Ended shares used in the calculation December 31, September 30, December 31, of diluted per share amounts: 2007 2007 2006 Diluted shares used in per-share calculation - GAAP 695,624 715,733 434,434 Dilutive stock awards 5,006 4,584 2,782 Effect of $350 million convertible notes considered dilutive 26,080 - - Diluted shares used in per-share calculation - Non-GAAP 726,710 720,317 437,216 Reconciliation of GAAP to Non-GAAP Year Ended shares used in the calculation of December 31, December 31, diluted per share amounts: 2007 2006 Diluted shares used in per-share calculation - GAAP 641,823 405,163 Dilutive stock awards 17,254 2,950 Effect of $350 million convertible notes considered dilutive - 26,080 Diluted shares used in per-share calculation - Non-GAAP 659,077 434,193 LSI CORPORATION Condensed Consolidated Balance Sheets (In millions) (Unaudited) December 31, September 30, December 31, Assets 2007 2007 2006 Current assets: Cash and short-term investments $1,397.6 $1,097.9 $1,008.9 Accounts receivable, net 406.4 436.0 348.6 Inventories 240.8 218.4 209.5 Prepaid expenses and other current assets 147.9 708.2 68.7 Total current assets 2,192.7 2,460.5 1,635.7 Property and equipment, net 229.7 236.5 86.0 Goodwill and other intangibles 1,746.2 3,701.4 991.8 Other assets 256.1 226.0 138.6 Total assets $4,424.7 $6,624.4 $2,852.1 Liabilities and Stockholders' Equity Current liabilities: Other current liabilities $761.8 $746.9 $526.8 Current portion of long-term debt - - - Total current liabilities 761.8 746.9 526.8 Long-term debt 718.0 718.7 350.0 Pension, tax and other liabilities 412.1 520.4 79.4 Total liabilities 1891.9 1986.0 956.2 Minority interest in subsidiary 0.2 0.2 0.2 Stockholders' equity: Common stock and additional paid-in capital 6,159.2 6,335.0 3,106.2 Accumulated deficit (3,717.1) (1,716.5) (1,220.3) Accumulated other comprehensive income 90.5 19.7 9.8 Total stockholders' equity 2,532.6 4,638.2 1,895.7 Total liabilities and stockholders' equity $4,424.7 $6,624.4 $2,852.1 LSI CORPORATION Selected Financial Information (GAAP) (In millions, except where noted) (Unaudited) Three Months Ended December 31, September 30, December 31, 2007 2007 2006 Semiconductor revenues $491.7 $530.0 $304.1 Storage Systems revenues $249.2 $197.4 $219.6 Total revenues $740.9 $727.4 $523.7 Percentage change in revenues-qtr./qtr. ( a ) 1.9% 8.6% 6.2% Percentage change in revenues-yr./yr. ( b ) 41.5% 47.6% 3.4% Days sales outstanding 49 54 60 Days of inventory 50 41 63 Current ratio 2.9 3.3 3.1 Quick ratio 2.4 2.1 2.6 Gross margin as a percentage of revenues 41.8% 34.1% 42.7% R&D as a percentage of revenues 22.6% 25.1% 20.7% SG&A as a percentage of revenues 13.6% 14.4% 11.8% Employees ( c ) 6,180 8,302 4,010 Revenues per employee (in thousands) ( d ) $479.5 $350.5 $522.3 Selected Cash Flow information: Purchases of property and equipment ( e ) $13.6 $13.4 $10.3 Depreciation / amortization ( f ) $21.9 $24.6 $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. LSI CORPORATION Statement of Cash Flows (In thousands, except where noted) (Unaudited) Three Months Ended December 31, September 30, December 31, 2007 2007 2006 Operating Activities: Net (loss)/income $(2,000,588) $(140,600) $59,013 Adjustments: Depreciation and amortization * 61,828 96,545 16,570 Stock-based compensation expense 21,495 21,775 10,895 Non-cash restructuring and other items 10,555 88,155 1,863 Estimated goodwill impairment charge ** 2,000,000 - - Acquired in-process research and development 5,972 - 4,284 Gain on sale of intellectual property - - - Gain on sale of Gresham manufacturing facility and associated intellectual property - - - Write-off of intangible assets acquired in a purchase business combination - - - (Gain) on sale of equity securities/ loss on write-down of equity securities - - (4,729) Loss/(gain) on sale of property and equipment 114 (11) (7) Non-cash foreign exchange loss/(gain) 986 7,109 (617) Changes in deferred tax assets and liabilities 3,178 (1,327) (122) Changes in assets and liabilities, net of assets acquired and liabilities assumed in business combinations: Accounts receivable 30,964 (6,167) (27,680) Inventories (20,440) 49,906 (25,220) Prepaid expenses and other assets (13,509) 1,197 (11,478) Accounts payable 95,459 (3,567) 24,499 Accrued and other liabilities (85,691) (14,202) 4,119 Net cash provided by operating activities 110,323 98,813 51,390 Investing activities: Purchases of debt securities available-for-sale (149,320) (31,851) (105,216) Proceeds from maturities and sales of debt securities available-for-sale 123,195 118,897 292,728 Purchases of convertible notes/equity securities - (7,500) - Proceeds from sale of equity securities - - 5,784 Purchases of property, equipment and software (25,837) (36,272) (14,427) Proceeds from sale of property and equipment 2,376 5 29 Proceeds from sale of Consumer group - 22,555 - Proceeds from sale of Mobility Products group, net of transaction costs 445,500 - - Proceeds from sale of Thailand, net of transaction costs 49,600 - - Proceeds from sale of intellectual property - - - Proceeds from sale of Fort Collins facility - - - Proceeds from sale of Colorado Springs facility - - - Proceeds from sale of Gresham manufacturing facility - - - Proceeds from sale of Gresham manufacturing facility associated intellectual property - - - Acquisition of Agere, net of cash acquired - - - Acquisitions of other companies, net of cash acquired (80,751) - (55,328) Adjustment to goodwill acquired in a prior year for resolution of a pre-acquisition income tax contingency 788 - 909 Net cash provided by investing activities 365,551 65,834 124,479 Financing activities: Issuance of common stock 17,286 7,077 25,009 Purchase of common stock under repurchase programs (221,639) (148,758) - Repayment of debt obligations - - (271,848) Net cash used in financing activities (204,353) (141,681) (246,839) Effect of exchange rate changes on cash and cash equivalents 115 1,497 360 Increase/(decrease) in cash and cash equivalents 271,636 24,463 (70,610) Cash and cash equivalents at beginning of period 749,933 725,470 398,410 Cash and cash equivalents at end of period $1,021,569 $749,933 $327,800 Year Ended December 31, December 31, 2007 2006 Operating Activities: Net (loss)/income $(2,489,209) $169,638 Adjustments: Depreciation and amortization * 278,548 82,263 Stock-based compensation expense 77,267 47,049 Non-cash restructuring and other items 98,909 (713) Estimated goodwill impairment charge ** 2,000,000 Acquired in-process research and development 188,872 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 (Gain) on sale of equity securities/ loss on write-down of equity securities 2,396 (6,727) Loss/(gain) on sale of property and equipment (9,399) (252) Non-cash foreign exchange loss/(gain) 4,207 (1,089) Changes in deferred tax assets and liabilities (3,619) (98) Changes in assets and liabilities, net of assets acquired and liabilities assumed in business combinations: Accounts receivable 174,962 (24,617) Inventories 74,708 (18,062) Prepaid expenses and other assets 21,552 (24,858) Accounts payable (39,162) 23,338 Accrued and other liabilities (85,033) 21,223 Net cash provided by operating activities 294,999 247,151 Investing activities: Purchases of debt securities available-for-sale (303,407) (603,624) Proceeds from maturities and sales of debt securities available-for-sale 616,224 595,135 Purchases of convertible notes/equity securities (10,500) (8,150) Proceeds from sale of equity securities - 11,876 Purchases of property, equipment and software (102,823) (58,671) Proceeds from sale of property and equipment 16,166 118 Proceeds from sale of Consumer group 22,555 - Proceeds from sale of Mobility Products group, net of transaction costs 445,500 - Proceeds from sale of Thailand, net of transaction costs 49,600 - Proceeds from sale of intellectual property - 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 - 96,426 Proceeds from sale of Gresham manufacturing facility associated intellectual property - 5,100 Acquisition of Agere, net of cash acquired 517,712 - Acquisitions of other companies, net of cash acquired (132,830) (55,328) Adjustment to goodwill acquired in a prior year for resolution of a pre-acquisition income tax contingency 3,230 2,282 Net cash provided by investing activities 1,121,427 25,861 Financing activities: Issuance of common stock 46,280 61,014 Purchase of common stock under repurchase programs (770,752) - Repayment of debt obligations - (271,848) Net cash used in financing activities (724,472) (210,834) Effect of exchange rate changes on cash and cash equivalents 1,815 973 Increase/(decrease) in cash and cash equivalents 693,769 63,151 Cash and cash equivalents at beginning of period 327,800 264,649 Cash and cash equivalents at end of period $1,021,569 $327,800 * Depreciation of fixed assets, amortization of intangible assets, software, capitalized intellectual property, debt issuance costs and accrued debt premium. ** The Company is in the process of measuring the impairment to goodwill and it is possible that this estimate could change significantly to a number within a range of $1.7 billion to $2.2 billion. The Company expects to finalize the impairment charge and report it in the Annual Report on Form 10-K. LSI CORPORATION Reconciliations of Non-GAAP to GAAP measures (In thousands) (Unaudited) Three Months Ended December 31, September 30, 2007 2007 Consolidated revenues: $740,874 $727,415 Mobility revenue 29,202 93,305 Consolidated revenue excluding Mobility $711,672 $634,110 % change in revenue - Qtr./Qtr 12.2% Semiconductor revenues: $491,732 $530,013 Less Mobility revenue (29,202) (93,305) Consolidated Semiconductor revenue excluding Mobility $462,530 $436,708 % change in revenue - Qtr./Qtr 5.9% DATASOURCE: LSI Corporation CONTACT: Investor Relations, Sujal Shah, +1-610-712-5471, , or Media Relations, Robert Guenther, +1-610-712-1514, , both of LSI Corporation Web site: http://www.lsi.com/

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