S&P affirms LSI Logic <LSI.N> subordinated debt
(Press release provided by Standard & Poor's)
NEW YORK, Aug 5 - Standard & Poor's today affirmed its double-'B'-minus corporate
credit and bank loan ratings and its single-'B' subordinated debt rating for LSI Logic Corp.
The ratings were also removed from CreditWatch, where they were placed July 29, 1999.
The CreditWatch removal follows the company's announcement that it has changed its plans,
and will not offer to sell 5 million shares of stock in the near future.
The company has also deferred a planned sale of $287.5 million in convertible subordinated
notes. Instead, the company has amended its registration statement to sell up to $600 million in
debt or equity securities from time to time.
Standard & Poor's also assigned its preliminary double-'B'-minus/single-'B' ratings to the
company's $600 million universal mixed shelf debt.
Milpitas, CA-based LSI's ratings reflect the company's good niche semiconductor position
and improving profitability, offset by the challenges of delivering increasing quantities of
high-complexity products to a very demanding customer base.
LSI is a major manufacturer of application-specific semiconductors (ASIC), which are
custom-designed for a single customer's requirements in the potentially highly-profitable
digital game, communications and entertainment markets.
The company also makes application-specific standard products, which can be satisfy several
potential customers' needs in these areas.
The company has been enriching its technology base through targeted acquisitions.
LSI's sales were flat from 1995 through the first half of 1998, due to the industry recession,
and increased following the acquisition of Symbios Logic from Hyundai Electronics America.
Operating margins have remained above 25%, reflecting high factory utilization, and the
company's avoidance of low-margin customer relationships.
A cost reduction program has partly offset inherently lower margins at Symbios.
While profitability remains below the company's targeted 17%-20% earnings before interest
and taxes (EBIT) level, fuller utilization of the new Oregon factory should generate further
improvements.
Debt is about 37% of capital or 2.3 times earnings before interest, taxes, depreciation, and
amortization (EBITDA), while cash levels were $345 million at June 30, 1999.
Standard & Poor's anticipates that the company's financing actions will continue to support its
current moderate capital structure. OUTLOOK: POSITIVE
If LSI can rebuild its operating profitability closer to historical levels, while strengthening its
financial profile, ratings could be raised, Standard & Poor's said.
REUTERS
Rtr 14:27 08-05-99
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