LSI Reports Second Quarter 2010 Results

*

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, write-down of debt and equity securities and gain on repurchase of convertible subordinated notes. It also excludes the income tax effect associated with the above mentioned items.

LSI Third Quarter 2010 Business Outlook

GAAP*

Special Items

Non-GAAP**

Revenue

$625 million to
$655 million

$625 million to
$655 million

Gross Margin

40% – 44%

$30 million to
$40 million

46.5% – 48.5%

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
$8 million

Approximately
$8 million

Net (Loss)/Income Per Share

($0.03) to $0.06

($0.08) to ($0.11)

$0.08 to $0.14

Diluted Share Count

655 million

655 million

LSI CORPORATION

Condensed Consolidated Balance Sheets

(In millions)

(Unaudited)

July 4,

April 4,

December 31,

Assets

2010

2010

2009

Current assets:

   Cash and short-term investments

$    669.8

$ 1,015.5

$   962.1

   Accounts receivable, net

307.1

298.6

339.0

   Inventories

191.6

185.8

169.3

   Prepaid expenses and other current assets

110.5

124.4

115.1

       Total current assets

1,279.0

1,624.3

1,585.5

Property and equipment, net

212.8

215.4

219.0

Goodwill and identified intangible assets, net

847.5

887.7

927.9

Other assets

224.8

223.1

235.5

       Total assets

$ 2,564.1

$ 2,950.5

$2,967.9

Liabilities and Stockholders' Equity

Current liabilities:

   Current portion of long-term debt

$          -

$    350.0

$   350.0

   Other current liabilities

489.6

509.4

504.4

       Total current liabilities

489.6

859.4

854.4

Pension, tax and other liabilities

609.8

618.9

652.4

       Total liabilities

1,099.4

1,478.3

1,506.8

Stockholders' equity:

   Common stock and additional paid-in capital

6,123.8

6,141.6

6,149.2

   Accumulated deficit

(4,378.5)

(4,386.0)

(4,408.5)

   Accumulated other comprehensive loss

(280.6)

(283.4)

(279.6)

       Total stockholders' equity

1,464.7

1,472.2

1,461.1

       Total liabilities and stockholders' equity

$ 2,564.1

$ 2,950.5

$2,967.9

LSI CORPORATION

Consolidated Statements of Operations (GAAP)

(In thousands, except per-share amounts)

(Unaudited)

Three Months Ended

Six Months Ended

July 4,

April 4,

July 5,

July 4,

July 5,

2010

2010

2009

2010

2009

Revenues

$ 639,405

$ 637,182

$ 520,665

$ 1,276,587

$ 1,002,944

   Cost of revenues

330,194

332,937

301,333

663,131

577,917

   Purchase accounting effect on inventory

-

-

2,550

-

2,550

   Amortization of acquisition-related intangibles

31,288

31,288

33,867

62,576

67,477

   Stock-based compensation expense

2,292

1,712

2,022

4,004

4,035

      Total cost of revenues

363,774

365,937

339,772

729,711

651,979

Gross profit

275,631

271,245

180,893

546,876

350,965

   Research and development

162,509

158,974

141,724

321,483

289,146

   Stock-based compensation expense

8,644

7,898

7,195

16,542

15,057

      Total research and development

171,153

166,872

148,919

338,025

304,203

   Selling, general and administrative

69,304

70,563

64,819

139,867

131,338

   Amortization of acquisition-related intangibles

8,948

8,948

9,123

17,896

18,246

   Stock-based compensation expense

7,559

6,821

7,785

14,380

15,900

      Total selling, general and administrative

85,811

86,332

81,727

172,143

165,484

   Restructuring of operations and other items, net

5,067

1,620

6,010

6,687

31,215

Income/(loss) from operations

13,600

16,421

(55,763)

30,021

(149,937)

   Interest expense

(1,707)

(3,894)

(6,864)

(5,601)

(14,100)

   Interest income and other, net

4,639

(8,807)

6,344

(4,168)

12,207

Income/(loss) before income taxes

16,532

3,720

(56,283)

20,252

(151,830)

Provision/(benefit) for income taxes

9,100

(18,800)

5,200

(9,700)

13,200

Net income/(loss)

$     7,432

$   22,520

$ (61,483)

$      29,952

$  (165,030)

Net income/(loss) per share:

   Basic

$       0.01

$       0.03

$     (0.09)

$          0.05

$        (0.25)

   Diluted

$       0.01

$       0.03

$     (0.09)

$          0.05

$        (0.25)

Shares used in computing per-share amounts:

   Basic

651,778

656,528

650,300

654,192

649,360

   Diluted

661,540

664,315

650,300

663,857

649,360

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

Three Months Ended

Six Months Ended

Reconciliation of GAAP net income/(loss) to

July 4,

April 4,

July 5,

July 4,

July 5,

   non-GAAP net income/(loss):

2010

2010

2009

2010

2009

GAAP net income/(loss)

$     7,432

$   22,520

$ (61,483)

$      29,952

$  (165,030)

Special items:

a)   Stock-based compensation expense - cost of revenues

2,292

1,712

2,022

4,004

4,035

b)   Stock-based compensation expense - R&D

8,644

7,898

7,195

16,542

15,057

c)   Stock-based compensation expense - SG&A

7,559

6,821

7,785

14,380

15,900

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

31,288

31,288

33,867

62,576

67,477

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

8,948

8,948

9,123

17,896

18,246

f)   Purchase accounting effect on inventory

-

-

2,550

-

2,550

g)   Restructuring of operations and other items, net

5,067

1,620

6,010

6,687

31,215

h)   Write-down of equity securities

-

11,600

-

11,600

-

      Total special items

63,798

69,887

68,552

133,685

154,480

Non-GAAP net income/(loss)

$   71,230

$   92,407

$     7,069

$    163,637

$    (10,550)

Non-GAAP net income/(loss) per share:

   Basic

$       0.11

$       0.14

$       0.01

$          0.25

$        (0.02)

   Diluted *

$       0.11

$       0.14

$       0.01

$          0.25

$        (0.02)

Shares used in computing non-GAAP per-share amounts:

   Basic

651,778

656,528

650,300

654,192

649,360

   Diluted

661,540

690,395

652,389

663,857

649,360

* In computing non-GAAP diluted earnings per share for three months ended April 4, 2010, 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

Six Months Ended

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

July 4,

April 4,

July 5,

July 4,

July 5,

   of diluted per-share amounts:

2010

2010

2009

2010

2009

Diluted shares used in per-share computation  - GAAP

661,540

664,315

650,300

663,857

649,360

Dilutive stock awards

-

-

2,089

-

-

Effect of $350 million convertible notes considered dilutive

-

26,080

-

-

-

Diluted shares used in per-share computation - non-GAAP

661,540

690,395

652,389

663,857

649,360

LSI CORPORATION

Consolidated Statement of Cash Flows

(In thousands)

(Unaudited)

Three Months Ended

Six Months Ended

July 4,

April 4,

July 5,

July 4,

July 5,

2010

2010

2009

2010

2009

Operating activities:

Net income/(loss)

$     7,432

$   22,520

$ (61,483)

$   29,952

$ (165,030)

Adjustments:

   Depreciation and amortization *

66,251

67,017

66,239

133,268

131,318

   Stock-based compensation expense

18,495

16,431

17,002

34,926

34,992

   Gain on redemption of convertible subordinated notes

-

-

(149)

-

(149)

   Write-down of equity securities

-

11,600

-

11,600

-

   Loss on sale of property and equipment

265

3

17

268

117

   Unrealized foreign exchange loss/(gain)

3,205

(2,215)

4,268

990

(8,116)

   Deferred taxes

85

98

(84)

183

(11)

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

       assumed in business combinations:

       Accounts receivable, net

(8,509)

40,396

5,364

31,887

36,054

       Inventories

(5,806)

(16,441)

54,242

(22,247)

73,582

       Prepaid expenses and other assets

14,438

(8,095)

11,015

6,343

43,458

       Accounts payable

(5,863)

(8,547)

10,147

(14,410)

(53,388)

       Accrued and other liabilities

(22,376)

(16,989)

(37,666)

(39,365)

(33,762)

Net cash provided by operating activities

67,617

105,778

68,912

173,395

59,065

Investing activities:

   Purchases of debt securities available-for-sale

(1,189)

-

-

(1,189)

(10)

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

10,271

11,254

28,063

21,525

63,945

   Purchases of equity securities

(316)

-

-

(316)

(5,000)

   Purchases of property, equipment and software

(21,097)

(27,276)

(23,138)

(48,373)

(48,601)

   Proceeds from sale of property and equipment

177

22

105

199

112

   Acquisition of business and companies, net of cash acquired

-

-

(20,840)

-

(20,840)

   Decrease in non-current assets and deposits

-

-

13,501

-

13,501

Net cash (used in)/provided by investing activities

(12,154)

(16,000)

(2,309)

(28,154)

3,107

Financing activities:

  Redemption of convertible subordinated notes

-

-

(244,047)

-

(244,047)

  Repayment of debt obligations

(349,999)

-

-

(349,999)

-

  Issuance of common stock

17,953

3,635

6,672

21,588

6,673

  Purchase of common stock under repurchase programs

(54,524)

(26,208)

-

(80,732)

-

Net cash used in financing activities

(386,570)

(22,573)

(237,375)

(409,143)

(237,374)

Effect of exchange rate changes on cash and cash equivalents

(895)

(2,117)

3,221

(3,012)

855

Net change in cash and cash equivalents

(332,002)

65,088

(167,551)

(266,914)

(174,347)

Cash and cash equivalents at beginning of period

843,379

778,291

822,505

778,291

829,301

Cash and cash equivalents at end of period

$ 511,377

$ 843,379

$ 654,954

$ 511,377

$  654,954

* 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

July 4,

April 4,

July 5,

2010

2010

2009

Semiconductor revenues

$ 416.7

$ 416.5

$ 343.8

Storage Systems revenues

$ 222.7

$ 220.7

$ 176.9

Total revenues

$ 639.4

$ 637.2

$ 520.7

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

0.3%

-0.1%

8.0%

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

22.8%

32.1%

-24.8%

Days sales outstanding

43

42

46

Days of inventory

47

46

42

Current ratio

2.6

1.9

1.8

Quick ratio

2.0

1.5

1.4

Gross margin as a percentage of revenues

43.1%

42.6%

34.7%

R&D as a percentage of revenues

26.8%

26.2%

28.6%

SG&A as a percentage of revenues

13.4%

13.5%

15.7%

Employees  ( c )

5,612

5,451

5,357

Revenues per employee (in thousands) ( d )

$ 455.7

$ 467.6

$ 388.8

Selected Cash Flow Information:

Purchases of property and equipment ( e )

$   13.3

$   15.2

$     7.7

Depreciation and amortization ( f )

$   25.8

$   26.3

$   23.2

( 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.