##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K





|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended December 31, 2004                                                 
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to          .                                  

Commission File No. 1-10317


LSI LOGIC CORPORATION


(Exact name of registrant as specified in its charter)


|                                                                   |  |                                      
|------------------------------------------------------------------ |  | -------------------------------------
|Delaware                                                           |  | 94-2712976                           
|(State or other jurisdiction of
    incorporation or organization) |  | (IRS Employer
    Identification No.)

1621 Barber Lane


Milpitas, California 95035


(Address of principal executive offices) (Zip Code)


Registrants telephone number, including area code:


(408) 433-8000


Securities registered pursuant to Section 12(b) of the
Act:


|                                |  |                                          
|------------------------------- |  | -----------------------------------------
|Title of each class             |  | Name of each Exchange on which registered
|                                |  |                                          
|Common Stock, $0.01 par value   |  | New York Stock Exchange                  
|Preferred Share Purchase Rights |  | New York Stock Exchange                  

Securities registered pursuant to Section 12(g) of the
Act:


NONE


(Title of class)


þ o


þ


þ o






DOCUMENTS INCORPORATED BY REFERENCE












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TABLE OF CONTENTS



|                           |                                                                                                                          |  |  |  |  |  |  | 
|-------------------------- | ------------------------------------------------------------------------------------------------------------------------ |  |  |  |  |  |  | 
|FORWARD-LOOKING STATEMENTS
|PART I                    
|                           | Item 1. Business                                                                                                        
|RISK FACTORS              
|                           | Item 2. Properties                                                                                                      
|                           | Item 3. Legal Proceedings                                                                                               
|                           | Item 4. Submission of Matters to a Vote of Security Holders                                                             
|PART II                   
|                           | Item 5. Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|                           | Item 6. Selected Financial Data                                                                                         
|                           | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations                           
|                           | Item 7A. Quantitative and Qualitative Disclosures about Market Risk                                                     
|                           | Item 8. Financial Statements and Supplementary Data                                                                     
|                           | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                            
|                           | Item 9A. Controls and Procedures                                                                                        
|                           | Item 9B. Other Information                                                                                              
|PART III                  
|                           | Item 10. Directors and Executive Officers of the Registrant                                                             
|                           | Item 11. Executive Compensation                                                                                         
|                           | Item 12. Security Ownership of Certain Beneficial Owners and Management                                                 
|                           | Item 13. Certain Relationships and Related Transactions                                                                 
|                           | Item 14. Principal Accountant Fees and Services                                                                         
|PART IV                   
|                           | Item 15. Exhibits and Financial Statement Schedule                                                                      
|SIGNATURES                
|INDEX TO EXHIBITS         
|EXHIBIT 10.28             
|EXHIBIT 10.29             
|EXHIBIT 10.30             
|EXHIBIT 10.31             
|EXHIBIT 10.32             
|EXHIBIT 10.33             
|EXHIBIT 10.34             
|EXHIBIT 10.35             
|EXHIBIT 10.36             
|EXHIBIT 10.37             
|EXHIBIT 10.38             
|EXHIBIT 10.39             
|EXHIBIT 21.1              
|EXHIBIT 23.1              
|EXHIBIT 31.1              
|EXHIBIT 31.2              
|EXHIBIT 32.1              
|EXHIBIT 32.2              



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FORWARD-LOOKING STATEMENTS







PART I







|        |         
|------- | --------
|Item 1. | Business

General












2



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www.lsilogic.com http://www.sec.gov


Business Strategy




| |                                
| | -------------------------------
| | Semiconductor Business Strategy





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Target Growth Markets and Selected Customers. We
    concentrate our sales and marketing efforts on leading OEM
    customers in targeted growth markets, including communications,
    consumer products and storage components applications. Our
    engineering expertise is focused on developing technologies that
    will meet the needs of leading-edge customers in order to
    succeed in these market areas.                                                                              
|
| |  | Emphasize CoreWare Methodology and System-on-a-Chip
    Capability. Our CoreWare® design methodology enables
    the integration of one or more pre-designed circuit elements
    with customer-specified elements and memory to create system
    capabilities on a single chip. This results in higher product
    functionality, higher performance, greater differentiation and
    faster time to market. We also have used this design methodology
    to develop proprietary standard products.

tm






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Promote Highly Integrated Design and Manufacturing
    Technology. We use proprietary and leading third-party
    electronic design automation, or EDA, software design tools. Our
    design tool environment is highly integrated with our
    manufacturing process requirements so that it will accurately
    simulate product performance. This integration reduces design
    time and project cost. We continually evaluate and, as
    appropriate, develop expertise with third-party EDA tools from
    leading and emerging suppliers of such products.

3



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Provide Flexibility in Design Engineering. We engage with
    customers of our semiconductor products under various
    arrangements whereby the extent of the engineering support we
    provide will be determined in accordance with the
    customers requirements. For example, a customer may
    primarily use its own engineers for substantial development of
    its product design and retain our support for silicon-specific
    engineering work. We also enter into engineering design
    projects, including those on a turn-key basis.
|
| |  | Maintain High-Quality and Cost-Effective Manufacturing.
    Our wafer manufacturing strategy is a combination of our own
    manufacturing facilities and outsourcing arrangements with
    third-party foundries. We perform substantially all of our
    packaging, assembly and final test operations through
    subcontractors in Asia.                                                                                                                                                                                                               
|
| |  | Leverage Alliances with Key Partners. We are continually
    seeking to establish relationships with key partners in a
    diverse range of semiconductor technologies to promote new
    products, services, operating standards and manufacturing
    capabilities and to avail ourselves of cost efficiencies that
    may be obtained through collaborative development.                                                                                                                                                                               
|
| |  | Forge Successful Partnerships with Leading Distribution
    Partners. Our partner program is designed to effectively
    market the Companys host bus adapter product families and
    integrated circuit products utilizing distribution and reseller
    partnerships. Such partnerships enable us to provide an extended
    population of customers with the full range of product
    offerings, services and support needed to enable their success.                                                                                                
|
| |  | Develop and Drive Industry Standards to Achieve Market
    Advantage. We are a leader in developing and promoting
    important industry standard architectures, functions, protocols
    and interfaces. We believe that this strategy will enable us to
    quickly launch new standard-based products, allowing our
    customers to achieve time-to-market and other competitive
    advantages.                                                                                                                                                       
|
| |  | Operate Worldwide. We market our products and engage with
    our customers on a worldwide basis through direct sales,
    marketing and field technical staff and through independent
    sales representatives and distributors. Our network of design
    centers located in major markets allows us to provide customers
    with highly experienced engineers, to interact with customer
    engineering management and system architects, to develop designs
    for new products and to provide continuing after-sale customer
    support.         



| |                                  
| | ---------------------------------
| | Storage Systems Business Strategy





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Continuing to innovate and extend our product offering.
    We intend to lead the market in adopting and implementing new
    storage system technologies, interfaces, features and customer
    requirements. In addition, we intend to define, design and
    develop products that enable our channel customers to offer a
    broad storage system product line, which incorporates their own
    intellectual property, to address multiple markets. In this
    manner, we intend to continue to expand our product offerings
    further into the entry-level, mid-range and high-end markets.            
|
| |  | Adding feature functionality to meet expanding enterprise
    requirements. Implementation and management of storage
    systems within the enterprise is increasingly complex. To
    address this increasing complexity, we plan to develop
    additional premium software management and hardware system
    features to enhance reliability, data availability and
    serviceability of our products. We also intend to expand our
    Engenio Solutions program implementation guides, which are
    designed to help our customers rapidly implement our products
    for specific business applications.
|
| |  | Enhancing interoperability among our products, our
    customers products and other leading enterprise
    products. We provide significant value to our channel
    customers and enterprises by testing and certifying our products
    with the products of other leading enterprise information
    technology vendors to                                                                                                                                                                                                                                                                                   

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | ensure broad interoperability and compatibility. We intend to
    work closely with our channel customers and enterprises to
    extend and enhance the capabilities of our storage
    sub-assemblies and storage management software. We also seek to
    enhance our position in the storage industry by actively
    participating in a variety of organizations focused on
    developing standards for emerging technologies and facilitating
    industry-wide interoperability.                                                                                                                                                                                                                                                  
|
| |  | Obtaining new channel customers. Our channel customers
    sell storage solutions based on or incorporating our products
    and technology through their direct sales forces and other
    channels. We will continue to seek new customers in domestic and
    international markets in order to expand the total marketing and
    sales resources that are focused on our products. In this
    manner, we intend to increase the market addressable by our
    products.                                                                                                                                                                                                                                                            
|
| |  | Expanding our joint marketing and sales efforts with existing
    and new channel customers. We seek to add value to our
    customers sales, marketing and support initiatives through
    the provision of extensive training, customized go-to-market
    campaigns, product positioning, marketing materials, competitive
    analysis and product support infrastructure. We maintain 15
    Experience Centers worldwide,which allow our channel
    customers to demonstrate to enterprise users the performance and
    benefits of storage deployments incorporating our products. We
    plan to open additional centers to reach a broader customer base
    in the future.                                                  
|
| |  | Promoting our brand. We believe that a strong association
    of our brand with innovation and integrity is valuable in
    achieving increased scale, market leadership and OEM acceptance
    within our industry. Furthermore, we believe that brand
    recognition and reputation will become more important as OEMs
    increasingly outsource their storage system offerings and their
    customers focus on the performance and reliability of the
    storage systems or sub-assemblies integrated into OEM storage
    solutions. We intend to continue to promote our brand and build
    brand equity to establish and bolster our position in the disk
    storage systems and related storage management software markets.

Technology, Products and Services




| |                
| | ---------------
| | ASIC Technology











5



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| |                       
| | ----------------------
| | Semiconductor Products





Storage Components. tm






Consumer Products.


6



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Consumer standard products.


Consumer custom solutions.




Communications.






| |                         
| | ------------------------
| | Storage Systems Products





7



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Marketing and Distribution




| |                                         
| | ----------------------------------------
| | Semiconductor Marketing and Distribution









| |                                           
| | ------------------------------------------
| | Storage Systems Marketing and Distribution





Customers




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| |                        
| | -----------------------
| | Semiconductor Customers





| |                          
| | -------------------------
| | Storage Systems Customers





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | OEM Partners. These channel customers independently
    resell or distribute OEM-branded or Engenio co-branded products,
    which may be integrated with value-added services, hardware and
    software and delivered as differentiated complete storage
    solutions to enterprises. OEM Partners receive basic training
    services to enhance their abilities to sell and support our
    products. After receiving our basic training services, OEM
    Partners independently market, sell and support our products,
    requiring limited ongoing product support from us.
|
| |  | OEM+ Partners. In addition to providing our OEM+ Partners
    with products and basic services as described above, we also
    assist our OEM+ Partners with additional resources that may
    provide tailored, account-specific education, training and sales
    and marketing assistance, allowing our OEM+ Partners to leverage
    our storage products and industry expertise.                                                                                                                                                                                               

Manufacturing




| |                            
| | ---------------------------
| | Semiconductor Manufacturing









9



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| |                              
| | -----------------------------
| | Storage Systems Manufacturing







| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | United States Assembly. Our wholly-owned United States
    manufacturing facility in Wichita, Kansas, assembles and tests
    complete storage systems and sub-assemblies configured from
    modular components, such as our storage controller modules and
    disk drive enclosure modules. ISO-9001 certification at our
    Kansas manufacturing facility has been maintained since April
    1992. This facility has been certified as ISO-9001:2000
    compliant since October of 2001. Product quality is achieved
    through extensive employee training, exhaustive and automated
    testing, and sample auditing. Quality control and measurement is
    extended through the subcomponent supplier and component
    manufacturer base with continuous reporting and ongoing
    qualification programs.
|
| |  | European Assembly. We outsource manufacturing in Cork,
    Ireland, to a Flextronics International Ltd. facility.
    ISO-9001:2000 certification at the Cork assembly facility has
    been maintained since December 2001. This facility is capable of
    the assembly and testing of complete storage systems and
    sub-assemblies configured from modular components, such as our
    storage controller modules and disk drive enclosure modules. The
    site in Ireland was established to provide operational
    flexibility in meeting surges in demand, address growing
    European demand and to serve as a backup site in the event of
    natural or human-made disasters that could disrupt the
    operations of our Wichita facility.                                                             

Backlog




| |                      
| | ---------------------
| | Semiconductor Backlog



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| |                        
| | -----------------------
| | Storage Systems Backlog



Competition




| |                          
| | -------------------------
| | Semiconductor Competitors









| |   |                                            
| | - | -------------------------------------------
| |  | design capabilities;                       
|
| |  | differentiating product features;          
|
| |  | product performance characteristics;       
|
| |  | time to market;                            
|
| |  | price;                                     
|
| |  | manufacturing processes; and               
|
| |  | utilization of emerging industry standards.





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| |   |                                                                   
| | - | ------------------------------------------------------------------
| |  | selection, quantity and quality of our CoreWare library elements; 
|
| |  | our ability to offer our customers system-level
    expertise; and
|
| |  | quality of software to support system-level integration.          





| |                            
| | ---------------------------
| | Storage Systems Competitors





| |   |                                                      
| | - | -----------------------------------------------------
| |  | features and functionality;                          
|
| |  | product performance and price;                       
|
| |  | reliability, scalability and data availability;      
|
| |  | interoperability with other networking devices;      
|
| |  | support for emerging industry and customer standards;
|
| |  | levels of training, marketing and customer support;  
|
| |  | level of easily customizable features;               
|
| |  | quality and availability of supporting software;     
|
| |  | quality of system integration; and                   
|
| |  | technical services and support.                      



Patents, Trademarks and Licenses




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Research and Development






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|     |  |        |         |            |         |  |    |  
|---- |  | ------ | ------- | ---------- | ------- |  | -- | -
|     |  |        |         | Percent of |        
|Year |  | Amount |         |            | Revenue | 
|     |  |        |         |            |         | 
|2004 |  | $      | 421,516 |            |         |  | 25 | %
|2003 |  | $      | 432,695 |            |         |  | 26 | %
|2002 |  | $      | 457,351 |            |         |  | 25 | %



Working Capital




Financial Information about Segments and Geographic Areas






Environmental Regulation






| |   |                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | additional capital improvements to comply with such regulations
    or to restrict discharges;                                                                                                
|
| |  | liability to our employees and/or third parties; and/or                                                                                                                                       
|
| |  | business interruptions as a consequence of permit suspensions or
    revocations or as a consequence of the granting of injunctions
    requested by governmental agencies or private parties.

Employees






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Seasonality







RISK FACTORS


Keep these risk factors in mind when you read
forward-looking statements elsewhere in this
Form 10-K and in the documents incorporated herein by
reference. These are statements that relate to our expectations
for future events and time periods. Generally, the words,
anticipate, expect, intend
and similar expressions identify forward-looking statements.
Forward-looking statements involve risks and uncertainties, and
actual results could differ materially from those anticipated in
the forward-looking statements.


A general economic weakness may reduce our
revenues.


We operate in highly competitive markets.




We are dependent on a limited number of customers.


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| |   |                                                                                  
| | - | ---------------------------------------------------------------------------------
| |  | we do not win new product designs from major existing customers;                 
|
| |  | major customers reduce or cancel their existing business with us;                
|
| |  | major customers make significant changes in scheduled
    deliveries; or         
|
| |  | there are declines in the prices of products that we sell to
    these customers.

Our new products may not achieve market
acceptance.


The manufacturing facilities we operate are highly complex
and require high fixed costs.




| |   |                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------
| |  | maintain a competitive manufacturing cost structure;                                                          
|
| |  | implement the latest process technologies required to
    manufacture new products;                           
|
| |  | exercise stringent quality control measures to ensure high
    yields;                                        
|
| |  | effectively manage the subcontractors engaged in the wafer
    fabrication, test and assembly of products; and
|
| |  | update equipment and facilities as required for leading edge
    production capabilities.                     

We outsource a substantial portion of wafers
manufactured.


We have significant capital requirements to maintain and
grow our business.




16



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We are exposed to fluctuations in foreign currency
exchange rates.


We procure parts and raw materials from limited domestic
and foreign sources.


We utilize indirect channels of distribution over which we
have limited control.


Our operations are affected by cyclical
fluctuations.


We engage in acquisitions and alliances giving rise to
economic and technological risks.




The price of our securities may be subject to wide
fluctuations.


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We may rely on capital and bank markets to provide
liquidity.


We design and develop highly complex cell-based
ASICs.


Our global operations expose us to numerous international
business risks.




The high technology industry in which we operate is prone
to intellectual property litigation.




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Our manufacturing facilities are subject to
disruption.


We depend on independent foundry subcontractors to
manufacture a portion of our current products, and any failure
to secure and maintain sufficient foundry capacity could
materially and adversely affect our business.






| |   |                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------
| |  | a lack of guaranteed wafer supply and potential wafer shortages
    and higher wafer prices;                  
|
| |  | limited control over delivery schedules, quality assurance,
    manufacturing yields and production costs; and
|
| |  | the unavailability of, or potential delays in obtaining access
    to, key process technologies.              





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We depend on third-party subcontractors to assemble,
obtain packaging materials for, and test substantially all of
our current products. If we lose the services of any of our
subcontractors or if these subcontractors are unable to attain
sufficient packaging materials, shipments of our products may be
disrupted, which could harm our customer relationships and
adversely affect our net sales.




We are increasingly exposed to various legal, business,
political and economic risks associated with our international
operations.




| |   |                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------
| |  | political, social and economic instability;                                                                                 
|
| |  | exposure to different legal standards, particularly with respect
    to intellectual property;                              
|
| |  | natural disasters and public health emergencies;                                                                            
|
| |  | nationalization of business and blocking of cash flows;                                                                     
|
| |  | trade and travel restrictions;                                                                                              
|
| |  | the imposition of governmental controls and restrictions;                                                                   
|
| |  | burdens of complying with a variety of foreign laws;                                                                        
|
| |  | import and export license requirements and restrictions of the
    United States and each other country in which we operate;

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| |   |                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------
| |  | unexpected changes in regulatory requirements;                                                      
|
| |  | foreign technical standards;                                                                        
|
| |  | changes in tariffs;                                                                                 
|
| |  | difficulties in staffing and managing international operations;                                     
|
| |  | fluctuations in currency exchange rates;                                                            
|
| |  | difficulties in collecting receivables from foreign entities or
    delayed revenue recognition; and
|
| |  | potentially adverse tax consequences.                                                               





We must attract and retain key employees in a highly
competitive environment.


Engenio Information Technologies, Inc. represents a
significant portion of our business, and an initial public
offering, sale or spin-off of the Storage Systems segment, may
cause our operating results to suffer and may cause net revenues
and income to decline.




The separation and possible initial public offering, sale
or spin-off of Engenio Information Technologies, Inc. from us is
a substantial undertaking that may disrupt our ongoing business
and may increase expenses, which may affect our results of
operations or financial condition.


Future changes in financial accounting standards or
practices or existing taxation rules or practices may cause
adverse unexpected fluctuations and affect our reported results
of operations.


21



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We face uncertainties related to the effectiveness of
internal controls.


Internal control deficiencies or weaknesses that are not
yet identified could emerge.


Internal control issues that appear minor now may later
become reportable conditions.







|        |           
|------- | ----------
|Item 2. | Properties









22



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|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings








|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders



Executive Officers of the Company




|                      |  |     |    |  |          |                                                                                                                    
|--------------------- |  | --- | -- |  | -------- | -------------------------------------------------------------------------------------------------------------------
|Name                  |  | Age |    |  | Position
|                      |  |     |    |  |         
|Wilfred J. Corrigan   |  |     | 66 |  |          | Chairman and Chief Executive Officer                                                                               
|John DErrico         |  |     | 61 |  |          | Executive Vice President, Storage and Communications Components                                                    
|Donald Esses          |  |     | 53 |  |          | Executive Vice President, Worldwide Operations                                                                     
|Thomas Georgens       |  |     | 45 |  |          | Executive Vice President, Storage Systems (and Chief Executive
    Officer, Engenio Information Technologies, Inc.)
|Jon R. Gibson         |  |     | 57 |  |          | Vice President, Human Resources                                                                                    
|Christopher L. Hamlin |  |     | 61 |  |          | Senior Vice President, Chief Technology Officer                                                                    
|Bryon Look            |  |     | 50 |  |          | Executive Vice President and Chief Financial Officer                                                               
|W. Richard Marz       |  |     | 61 |  |          | Executive Vice President, Worldwide Strategic Marketing                                                            
|Umesh Padval          |  |     | 47 |  |          | Executive Vice President, Consumer Products                                                                        
|David G. Pursel       |  |     | 59 |  |          | Vice President, General Counsel and Corporate Secretary                                                            
|Frank A. Tornaghi     |  |     | 50 |  |          | Executive Vice President, Worldwide Sales                                                                          
|Joseph M. Zelayeta    |  |     | 58 |  |          | Executive Vice President, ASIC Technology & Methodology                                                            







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Corporate Governance


www.lsilogic.com


www.lsilogic.com


www.lsilogic.com








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PART II







|        |                                                                                                                         
|------- | ------------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for the Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities



|               |  |            |              |  |            |   |              | 
|-------------- |  | ---------- | ------------ |  | ---------- | - | ------------ | 
|               |  | 2004       |              |  | 2003       |  
|               |  | High  Low |              |  | High  Low |  
|               |  |            |              |  |            |  
|First Quarter  |  | $          | 11.45  8.64 |  |            | $ | 6.32  3.97  | 
|Second Quarter |  | $          | 9.91  7.15  |  |            | $ | 7.74  4.44  | 
|Third Quarter  |  | $          | 6.80  4.03  |  |            | $ | 11.96  7.08 | 
|Fourth Quarter |  | $          | 5.81  4.27  |  |            | $ | 10.14  8.30 | 
|               |  |            |              |  |            |  
|Year           |  | $          | 11.45  4.03 |  |            | $ | 11.96  3.97 | 
|               |  |            |              |  |            |  





Equity Compensation Plan Information


As of December 31, 2004


|                                                              |  |                   |            |  |                  |           |       |                      |  |  |            | 
|------------------------------------------------------------- |  | ----------------- | ---------- |  | ---------------- | --------- | ----- | -------------------- |  |  | ---------- | 
|                                                              |  |                   |            |  |                  | (c)       |      
|                                                              |  |                   |            |  |                  | Number of |      
|                                                              |  | (a)               |            |  | (b)              |           |       | Securities           | 
|                                                              |  | Number of         |            |  | Weighted-        |           |       | Remaining Available  | 
|                                                              |  | Securities to be  |            |  | Average Exercise |           |       | for Future Issuance  | 
|                                                              |  | Issued upon       |            |  | Price of         |           |       | under Equity         | 
|                                                              |  | Exercise of       |            |  | Outstanding      |           |       | Compensation Plans   | 
|                                                              |  | Outstanding       |            |  | Options,         |           |       | (Excluding           | 
|                                                              |  | Options, Warrants |            |  | Warrants and     |           |       | Securities Reflected | 
|Plan Category                                                 |  | and Rights        |            |  | Rights           |           |       | in Column(a))        | 
|                                                              |  |                   |            |  |                  |           |       |                      | 
|Equity compensation plans approved by security holders(1)     |  |                   | 30,240,882 |  |                  | $         | 17.06 |                      |  |  | 56,391,762 | 
|Equity compensation plans not approved by security holders(2) |  |                   | 37,492,191 |  |                  | $         | 12.56 |                      |  |  | 19,362,028 | 
|                                                              |  |                   |            |  |                  |           |       |                      | 
|Total                                                         |  |                   | 67,733,073 |  |                  | $         | 14.57 |                      |  |  | 75,753,790 | 






|    |                                                                              
|--- | -----------------------------------------------------------------------------
|(1) | Equity compensation plans approved by security holders are the
    following:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) The Employee Stock Purchase Plan, amended and restated
    (US ESPP), under which rights are granted to LSI
    Logic employees in the United States to purchase shares of
    common stock at 85% of the lesser of the fair market value of
    such shares at the beginning of a 12-month offering period or
    the end of each six-month purchase period within such an
    offering period. There are 14,796,431 shares remaining
    available for future issuance under this plan. The US ESPP
    includes an annual replenishment calculated at 1.15% of the
    Companys common stock issued and outstanding at the fiscal
    year end less the number of shares available for future grants
    under the US ESPP. No shares have been added to the US ESPP from
    the annual replenishment since January 2001.
|
| | (ii) The 2003 Equity Incentive Plan was approved by stockholders
    in May 2003. Under this plan, the Company may grant stock
    options or restricted stock to employees, officers and
    consultants. There are 10,172,141 shares remaining
    available for future issuance under this plan, including
    595,334 shares reserved for restricted stock awards that
    have been granted, but will not be issued until the awards have
    vested. Stock options will have an exercise price that is no
    less than the fair market value of the stock on                                                                                                                                                                                                                                                                 

26



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##### Table of Contents



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | the date of grant. The term of each option or restricted stock
    award is determined by the Board of Directors and for options
    grants on or after February 12, 2004, will generally be
    seven years. Options generally vest in annual increments of
    25% per year commencing one year from the date of grant.
    Restricted stock awards may be granted with the vesting
    requirements determined by the Board of Directors.                                                                                                                                                                                                                                                                                   
|
| | (iii) Under the 1991 Equity Incentive Plan the Company may grant
    stock options to employees, officers and consultants, with an
    exercise price that is no less than the fair market value of the
    stock on the date of grant. The term of each option is
    determined by the Board of Directors and has generally been ten
    years. For options granted on or after February 12, 2004,
    the term of the options will generally be seven years. Options
    generally vest in annual increments of 25% per year
    commencing one year from the date of grant. With respect to
    shares previously approved by stockholders, no incentive stock
    options may be granted under this plan after March 2001.
|
| | (iv) Under the 1995 Director Option Plan new directors
    receive an initial grant of 30,000 options to purchase shares of
    common stock and directors receive subsequent automatic grants
    of 30,000 options to purchase shares of common stock each year
    thereafter. The initial grants vest in annual increments of
    25% per year, commencing one year from the date of grant.
    Subsequent option grants become exercisable in full six months
    after the grant date. The term of each option is ten years. The
    exercise price of the options granted is equal to the fair
    market value of the stock on the date of grant.                                                                      



|    |                                                                                             
|--- | --------------------------------------------------------------------------------------------
|(2) | Equity compensation plans not previously approved by security
    holders are the following:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) An aggregate of 6,527,893 options with a weighted-average
    exercise price of $12.44 per share are outstanding that
    were assumed in acquisitions. No further options may be granted
    under these assumed plans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | (ii) A total of 316,042 shares of common stock were
    reserved under the 2001 Supplemental Stock Issuance Plan, of
    which 14,830 shares remain available for future issuance.
    Shares of common stock may be issued under this plan pursuant to
    share right awards, which entitle the recipients to receive
    those shares upon the satisfaction of the following service
    requirements: 20% of the shares subject to an award will be
    issued upon completion of three months of continuous service
    measured from the award date, an additional 30% of the shares
    will be issued upon completion of 12 months of continuous
    service measured from the award date and the remaining 50% of
    the shares will be issued upon completion of 24 months of
    continuous service measured from the award date.
|
| | (iii) Under the 1999 Nonstatutory Stock Option Plan the Company
    may grant stock options to its employees, excluding officers,
    with an exercise price that is no less than the fair market
    value of the stock on the date of grant. The term of each option
    is determined by the Board of Directors and has generally been
    ten years. For options granted on or after February 12,
    2004, the term of the options will be seven years. Options
    generally vest in annual increments of 25% per year
    commencing one year from the date of grant.                                                                                                                                                                                                                                                                 
|
| | (iv) Under the International Employee Stock Purchase Plan rights
    are granted to LSI Logic employees (excluding executive
    officers) outside of the United States to purchase shares of
    common stock at 85% of the lesser of the fair market value of
    such shares at the beginning of a 12-month offering period or
    the end of each six-month purchase period within such an
    offering period. There are 1,565,180 shares remaining
    available for future issuance under this plan.                                                                                                                                                                                                                                                                                                                                  



27



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##### Table of Contents








|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

Five-Year Consolidated Summary


|                                                         |                       |                                          |           |           |         |   |           |           |           |   |           |           |           |      |            |           |           |   |           |           |           | 
|-------------------------------------------------------- | --------------------- | ---------------------------------------- | --------- | --------- | ------- | - | --------- | --------- | --------- | - | --------- | --------- | --------- | ---- | ---------- | --------- | --------- | - | --------- | --------- | --------- | 
|                                                         |                       | Year Ended December 31,                  |          
|                                                         |                       |                                          |          
|                                                         |                       | 2004                                     |           |           | 2003    |   |           | 2002      |           |   | 2001      |           |           | 2000 |           
|                                                         |                       |                                          |           |           |         |   |           |           |           |   |           |           |           |      |           
|                                                         |                       | (In thousands, except per share amounts) |          
|Revenues                                                 |                       | $                                        | 1,700,164 |           |         | $ | 1,693,070 |           |           | $ | 1,816,938 |           |           | $    | 1,784,923  |           |           | $ | 2,737,667 |          
|Cost of revenues                                         |                       |                                          | 964,556   |           |         |   | 1,015,865 |           |           |   | 1,122,696 |           |           |      | 1,160,432  |           |           |   | 1,557,232 |          
|Additional excess inventory and related charges          |                       |                                          |          |           |         |   |          |           |           |   | 45,526    |           |           |      | 210,564    |           |           |   | 11,100    |          
|                                                         |                       |                                          |           |           |         |   |           |           |           |   |           |           |           |      |           
|                                                         |                       | Total cost of revenues                   |           |           | 964,556 |   |           |           | 1,015,865 |   |           |           | 1,168,222 |      |            |           | 1,370,996 |   |           |           | 1,568,332 | 
|                                                         |                       |                                          |           |           |         |   |           |           |           |   |           |           |           |      |           
|Gross profit                                             |                       |                                          | 735,608   |           |         |   | 677,205   |           |           |   | 648,716   |           |           |      | 413,927    |           |           |   | 1,169,335 |          
|Research and development                                 |                       |                                          | 421,516   |           |         |   | 432,695   |           |           |   | 457,351   |           |           |      | 503,108    |           |           |   | 378,936   |          
|Selling, general and administrative                      |                       |                                          | 243,498   |           |         |   | 234,156   |           |           |   | 230,202   |           |           |      | 307,310    |           |           |   | 306,962   |          
|Acquired in-process research and development             |                       |                                          |          |           |         |   |          |           |           |   | 2,920     |           |           |      | 96,600     |           |           |   | 77,438    |          
|Restructuring of operations and other items, net         |                       |                                          | 423,444   |           |         |   | 180,597   |           |           |   | 67,136    |           |           |      | 219,639    |           |           |   | 2,781     |          
|Amortization of non-cash deferred stock compensation     |                       |                                          | 8,449     |           |         |   | 26,021    |           |           |   | 77,303    |           |           |      | 104,627    |           |           |   | 41,113    |          
|Amortization of intangibles                              |                       |                                          | 75,050    |           |         |   | 76,352    |           |           |   | 78,617    |           |           |      | 188,251    |           |           |   | 72,648    |          
|                                                         |                       |                                          |           |           |         |   |           |           |           |   |           |           |           |      |           
|(Loss)/ income from operations                           |                       |                                          | (436,349  | )         |         |   | (272,616  | )         |           |   | (264,813  | )         |           |      | (1,005,608 | )         |           |   | 289,457   |          
|Interest expense                                         |                       |                                          | (25,320   | )         |         |   | (30,703   | )         |           |   | (51,977   | )         |           |      | (44,578    | )         |           |   | (41,573   | )        
|Interest income and other, net                           |                       |                                          | 17,066    |           |         |   | 18,933    |           |           |   | 26,386    |           |           |      | 14,529     |           |           |   | 51,766    |          
|Gain on sale of equity securities                        |                       |                                          | 5,104     |           |         |   |          |           |           |   |          |           |           |      | 5,302      |           |           |   | 80,100    |          
|                                                         |                       |                                          |           |           |         |   |           |           |           |   |           |           |           |      |           
|(Loss)/ income before income taxes and minority interest |                       |                                          | (439,499  | )         |         |   | (284,386  | )         |           |   | (290,404  | )         |           |      | (1,030,355 | )         |           |   | 379,750   |          
|Provision for/ (benefit from) income taxes               |                       |                                          | 24,000    |           |         |   | 24,000    |           |           |   | 1,750     |           |           |      | (39,198    | )         |           |   | 142,959   |          
|                                                         |                       |                                          |           |           |         |   |           |           |           |   |           |           |           |      |           
|(Loss)/ income before minority interest                  |                       |                                          | (463,499  | )         |         |   | (308,386  | )         |           |   | (292,154  | )         |           |      | (991,157   | )         |           |   | 236,791   |          
|Minority interest in net income of subsidiary            |                       |                                          | 32        |           |         |   | 161       |           |           |   | 286       |           |           |      | 798        |           |           |   | 191       |          
|                                                         |                       |                                          |           |           |         |   |           |           |           |   |           |           |           |      |           
|Net (loss)/ income                                       |                       | $                                        | (463,531  | )         |         | $ | (308,547  | )         |           | $ | (292,440  | )         |           | $    | (991,955   | )         |           | $ | 236,600   |          
|                                                         |                       |                                          |           |           |         |   |           |           |           |   |           |           |           |      |           
|Basic net (loss)/ income per share                       |                       | $                                        | (1.21     | )         |         | $ | (0.82     | )         |           | $ | (0.79     | )         |           | $    | (2.84      | )         |           | $ | 0.76      |          
|                                                         |                       |                                          |           |           |         |   |           |           |           |   |           |           |           |      |           
|Diluted net (loss)/ income per share                     |                       | $                                        | (1.21     | )         |         | $ | (0.82     | )         |           | $ | (0.79     | )         |           | $    | (2.84      | )         |           | $ | 0.70      |          
|                                                         |                       |                                          |           |           |         |   |           |           |           |   |           |           |           |      |           
|Year-end status:                                         |                       |                                          |           |           |         |   |           |           |           |   |           |           |           |      |            |           |           |   |           |          
|                                                         | Total assets          |                                          | $         | 2,874,001 |         |   | $         | 3,447,901 |           |   | $         | 4,012,736 |           |      | $          | 4,525,077 |           |   | $         | 4,092,762 |          
|                                                         | Long-term obligations |                                          | $         | 859,545   |         |   | $         | 1,007,079 |           |   | $         | 1,315,557 |           |      | $          | 1,547,197 |           |   | $         | 970,761   |          
|                                                         | Stockholders equity  |                                          | $         | 1,618,046 |         |   | $         | 2,042,450 |           |   | $         | 2,300,355 |           |      | $          | 2,479,885 |           |   | $         | 2,498,137 |          





28



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##### Table of Contents
















|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations

Statements in this discussion and analysis include
forward-looking information within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended. All forward-looking statements included in this
discussion and analysis are based on information available to us
on the date of filing of this Annual Report on Form 10-K,
and we assume no obligation to update any such forward-looking
statements. These statements involve known and unknown risks and
uncertainties. Our actual results in future periods may be
significantly different from any future performance suggested in
this report. In some cases, you can identify forward-looking
statements by terminology such as may,
will, expects, plans,
anticipates, believes,
estimates, intends,
projects, predicts, or similar
expressions. For such statements, we claim the protection under
the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995. Although we
believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. For a detailed
discussion of risk factors, refer to the Risk
Factors section set forth in Part I, Item 1 of
this Annual Report on Form  10-K, which is
incorporated by reference into this Part II,
Item 7.


While management believes that the discussion and analysis in
this report is adequate for a fair presentation of the
information, we recommend that you read this discussion and
analysis in conjunction with the remainder of this Annual Report
on Form 10-K.


OVERVIEW






29



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##### Table of Contents













Separation of our Storage Systems business.


Significant acquisitions and other major
transactions.


30



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##### Table of Contents



2004




|                            |  |             |               |       |          |   |      |               |         |  |                   |  |  |          |     |             |                   |   |       |              |  |   |      |  |  |   |     | 
|--------------------------- |  | ----------- | ------------- | ----- | -------- | - | ---- | ------------- | ------- |  | ----------------- |  |  | -------- | --- | ----------- | ----------------- | - | ----- | ------------ |  | - | ---- |  |  | - | --- | 
|                            |  |             |               |       |          |   |      | Fair Value of |         |  |                   |  |  |          |    
|Entity Name;                |  |             |               |       |          |   |      | Tangible Net  |         |  |                   |  |  |          |    
|Segment Included in;        |  |             |               | Total |          |   |      |               | Assets/ |  |                   |  |  |          |     | Deferred    |                  
|Description of Acquired     |  | Acquisition |               |       | Purchase |   |      | Type of       |         |  | (Liabilities)     |  |  |          |     | Amortizable |                   |   | Stock |             
|Business                    |  | Date        |               |       | Price    |   |      | Consideration |         |  | Acquired          |  |  | Goodwill |     |             | Intangible Assets |   |       | Compensation | 
|                            |  |             |               |       |          |   |      |               |         |  |                   |  |  |          |     |             |                   |   |       |              | 
|Velio Communications, Inc.; |  |             | April 2, 2004 |       |          | $ | 20.8 |               |         |  | $19.8 cash; and   |  |  | $        | 1.5 |             |                   |   |      |              |  | $ | 18.3 |  |  | $ | 1.0 | 
|Semiconductor segment;      |  |             |               |       |          |   |      |               |         |  | 0.1 million       |  |  |          |     |             |                   |   |       |              |  |   |      |  |  |   |     | 
|High-speed interconnect and |  |             |               |       |          |   |      |               |         |  | restricted common |  |  |          |     |             |                   |   |       |              |  |   |      |  |  |   |     | 
|switch fabric application   |  |             |               |       |          |   |      |               |         |  | shares            |  |  |          |     |             |                   |   |       |              |  |   |      |  |  |   |     | 
|specific standard products  |  |             |               |       |          |   |      |               |         |  |                   |  |  |          |     |             |                   |   |       |              |  |   |      |  |  |   |     | 
|Accerant, Inc.;             |  |             | May 11, 2004  |       |          | $ | 15.9 |               |         |  | $14.1 cash; and   |  |  | $        |    |             |                   | $ | 8.0   |              |  | $ | 6.1  |  |  | $ | 1.8 | 
|Semiconductor segment;      |  |             |               |       |          |   |      |               |         |  | 0.2 million       |  |  |          |     |             |                   |   |       |              |  |   |      |  |  |   |     | 
|Consumer product            |  |             |               |       |          |   |      |               |         |  | restricted common |  |  |          |     |             |                   |   |       |              |  |   |      |  |  |   |     | 
|applications                |  |             |               |       |          |   |      |               |         |  | shares            |  |  |          |     |             |                   |   |       |              |  |   |      |  |  |   |     | 

2003




2002




|                        |  |                  |               |          |       |   |         |               |             |               |          |  |  |             |            |   |            |              |      |             |                |   |              |  |  |   |     |  |  |   |     | 
|----------------------- |  | ---------------- | ------------- | -------- | ----- | - | ------- | ------------- | ----------- | ------------- | -------- |  |  | ----------- | ---------- | - | ---------- | ------------ | ---- | ----------- | -------------- | - | ------------ |  |  | - | --- |  |  | - | --- | 
|Entity Name or Type of  |  |                  |               |          |       |   |         | Fair Value    |             |               |          |  |  |             |            |   |           
|Technology;             |  |                  |               |          |       |   |         | of Tangible   |             |               |          |  |  |             |            |   |           
|Segment Included in;    |  |                  |               | Total    |       |   |         |               | Net Assets/ |               |          |  |  | Amortizable |            |   | In-Process |              |      |            
|Description of Acquired |  |                  |               | Purchase |       |   | Type of |               |             | (Liabilities) |          |  |  |             | Intangible |   |            | Research and |      |             | Deferred Stock |  
|Business                |  | Acquisition Date |               |          | price |   |         | Consideration |             |               | Acquired |  |  | Goodwill    |            |   | Assets     |              |      | Development |                |   | Compensation | 
|                        |  |                  |               |          |       |   |         |               |             |               |          |  |  |             |            |   |            |              |      |             |                |   |              | 
|Mylex Business Unit of  |  |                  | August 2002   |          |       | $ | 50.5    |               |             |               | Cash     |  |  | $           | 14.1       |   |            | $            | 20.5 |             |                | $ | 14.0         |  |  | $ | 1.9 |  |  | $ |    | 
|IBM;                    |  |                  |               |          |       |   |         |               |             |               |          |  |  |             |            |   |            |              |      |             |                |   |              |  |  |   |     |  |  |   |     | 
|Entry-level storage     |  |                  |               |          |       |   |         |               |             |               |          |  |  |             |            |   |            |              |      |             |                |   |              |  |  |   |     |  |  |   |     | 
|systems in the Storage  |  |                  |               |          |       |   |         |               |             |               |          |  |  |             |            |   |            |              |      |             |                |   |              |  |  |   |     |  |  |   |     | 
|Systems and PCI-RAID    |  |                  |               |          |       |   |         |               |             |               |          |  |  |             |            |   |            |              |      |             |                |   |              |  |  |   |     |  |  |   |     | 
|products in the         |  |                  |               |          |       |   |         |               |             |               |          |  |  |             |            |   |            |              |      |             |                |   |              |  |  |   |     |  |  |   |     | 
|Semiconductor segment   |  |                  |               |          |       |   |         |               |             |               |          |  |  |             |            |   |            |              |      |             |                |   |              |  |  |   |     |  |  |   |     | 
|Digital video product   |  |                  | November 2002 |          |       | $ | 6.7     |               |             |               | Cash     |  |  | $           | (0.2       | ) |            | $            | 2.9  |             |                | $ | 1.8          |  |  | $ | 1.0 |  |  | $ | 1.2 | 
|technologies;           |  |                  |               |          |       |   |         |               |             |               |          |  |  |             |            |   |            |              |      |             |                |   |              |  |  |   |     |  |  |   |     | 
|Semiconductor segment   |  |                  |               |          |       |   |         |               |             |               |          |  |  |             |            |   |            |              |      |             |                |   |              |  |  |   |     |  |  |   |     | 

Stock option exchange program.


31



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##### Table of Contents





RESULTS OF OPERATIONS




| |          
| | ---------
| | Revenues:

|                        |  |                         |         |  |      |   |         |      |  |   |         | 
|----------------------- |  | ----------------------- | ------- |  | ---- | - | ------- | ---- |  | - | ------- | 
|                        |  | Year Ended December 31, |        
|                        |  |                         |        
|                        |  | 2004                    |         |  | 2003 |   |         | 2002 | 
|                        |  |                         |         |  |      |   |         |      | 
|                        |  | (In millions)           |        
|Semiconductor segment   |  | $                       | 1,248.6 |  |      | $ | 1,269.7 |      |  | $ | 1,481.4 | 
|Storage Systems segment |  |                         | 451.6   |  |      |   | 423.4   |      |  |   | 335.5   | 
|                        |  |                         |         |  |      |   |         |      | 
|Consolidated            |  | $                       | 1,700.2 |  |      | $ | 1,693.1 |      |  | $ | 1,816.9 | 
|                        |  |                         |         |  |      |   |         |      | 



2004 compared to 2003








| |   |                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Increases in demand for semiconductors used in storage product
    applications such as our Ultra320 SCSI and Ultra320 RAID
    products, as well as ASICs used in hard disk drives and host
    adapter boards. The Ultra320 product line was introduced in the
    latter part of 2003.
|
| |  | Increases in demand for semiconductors used in consumer product
    applications such as DVD-recorders. We introduced our
    DVD-recorder semiconductor product in the latter part of 2003
    and early 2004.                                                                          
|
| |  | Increases in demand for semiconductors used in communication
    product applications such as wireless solutions.                                                                                                                                                                        





2003 compared to 2002




32



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##### Table of Contents







Significant Customers.


|                         |                                     |                         |  |               |      |  |  |               |  |  |  |               | 
|------------------------ | ----------------------------------- | ----------------------- |  | ------------- | ---- |  |  | ------------- |  |  |  | ------------- | 
|                         |                                     | Year Ended December 31, | 
|                         |                                     |                         | 
|                         |                                     | 2004                    |  |               | 2003 |  |  | 2002          | 
|                         |                                     |                         |  |               |      |  |  |               | 
|Semiconductor segment:   |                                     |                         |  |               |      |  |  |               |  |  |  |              
|                         | Number of significant customers     |                         |  |              |      |  |  | 1             |  |  |  | 1             | 
|                         | Percentage of segment revenues      |                         |  |              |      |  |  | 18%           |  |  |  | 22%           | 
|Storage Systems segment: |                                     |                         |  |               |      |  |  |               |  |  |  |              
|                         | Number of significant customers     |                         |  | 3             |      |  |  | 3             |  |  |  | 3             | 
|                         | Percentage of segment revenues      |                         |  | 54%, 14%, 12% |      |  |  | 52%, 14%, 11% |  |  |  | 36%, 20%, 15% | 
|Consolidated:            |                                     |                         |  |               |      |  |  |               |  |  |  |              
|                         | Number of significant customers     |                         |  | 1             |      |  |  | 2             |  |  |  | 1             | 
|                         | Percentage of consolidated revenues |                         |  | 16%           |      |  |  | 15%, 13%      |  |  |  | 18%           | 

Revenues by geography.


|                      |       |                         |       |         |      |   |       |         |  |   |       |         | 
|--------------------- | ----- | ----------------------- | ----- | ------- | ---- | - | ----- | ------- |  | - | ----- | ------- | 
|                      |       | Year Ended December 31, |      
|                      |       |                         |      
|                      |       | 2004                    |       |         | 2003 |   |       | 2002    | 
|                      |       |                         |       |         |      |   |       |         | 
|                      |       | (In millions)           |      
|Revenues:             |       |                         |       |         |      |   |       |         |  |   |       |        
|North America         |       | $                       | 852.5 |         |      | $ | 863.6 |         |  | $ | 905.3 |        
|Asia, including Japan |       |                         | 655.1 |         |      |   | 677.3 |         |  |   | 748.9 |        
|Europe                |       |                         | 192.6 |         |      |   | 152.2 |         |  |   | 162.7 |        
|                      |       |                         |       |         |      |   |       |         | 
|                      | Total |                         | $     | 1,700.2 |      |   | $     | 1,693.1 |  |   | $     | 1,816.9 | 
|                      |       |                         |       |         |      |   |       |         | 





33



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Operating costs and expenses.


Gross profit margin:


|                        |                                |                         |       |     |      |   |       |      |  |   |       |     | 
|----------------------- | ------------------------------ | ----------------------- | ----- | --- | ---- | - | ----- | ---- |  | - | ----- | --- | 
|                        |                                | Year Ended December 31, |      
|                        |                                |                         |      
|                        |                                | 2004                    |       |     | 2003 |   |       | 2002 | 
|                        |                                |                         |       |     |      |   |       |      | 
|                        |                                | (In millions)           |      
|Semiconductor segment   |                                | $                       | 573.8 |     |      | $ | 518.2 |      |  | $ | 523.4 |    
|                        | Percentage of segment revenues |                         |       | 46% |      |   |       | 41%  |  |   |       | 35% | 
|Storage Systems segment |                                | $                       | 161.8 |     |      | $ | 159.0 |      |  | $ | 125.3 |    
|                        | Percentage of segment revenues |                         |       | 36% |      |   |       | 38%  |  |   |       | 37% | 
|                        |                                |                         |       |     |      |   |       |      | 
|Consolidated            |                                | $                       | 735.6 |     |      | $ | 677.2 |      |  | $ | 648.7 |    
|                        |                                |                         |       |     |      |   |       |      | 
|                        | Percentage of revenues         |                         |       | 43% |      |   |       | 40%  |  |   |       | 36% | 

2004 compared to 2003






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A favorable shift in the overall mix to products with higher
    margins, including the introduction of new products such as
    semiconductors used in consumer product applications such as
    DVD-recorders, and semiconductors used in storage product
    applications such as our Ultra320 product line and ASICs used in
    hard disk drives for the year ended December 31, 2004, as
    compared to the same period of 2003. The improvement was offset
    in part by higher sales of storage systems by Engenio, which
    typically have lower gross profit margins, and lower average
    selling prices for semiconductors used in video game products;
|
| |  | Lower manufacturing variances for the Gresham manufacturing
    facility associated with yield improvements and better factory
    utilization;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | A reduction in cost of revenues as a result of the sale of our
    Japan manufacturing facility in the fourth quarter of 2003;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Lower period costs in 2004 as compared to 2003, as a result of
    the implementation of our 130 nanometer manufacturing process
    technology during 2003; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | A reduction in compensation-related costs and equipment-related
    depreciation and rent expense primarily as a result of the
    restructuring and lease refinancing initiatives during 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

34



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A favorable shift in the overall mix of products sold to
    products with higher margins, including the introduction of new
    products such as semiconductors used in consumer product
    applications such as DVD-recorders and semiconductors used in
    storage product applications such as our Ultra320 product line
    and ASICs used in hard disk drives, offset in part by lower
    average selling prices for semiconductors used in video game
    products for the year ended December 31, 2004, as compared
    to the same period of 2003;
|
| |  | Lower manufacturing variances for the Gresham manufacturing
    facility associated with yield improvements and better factory
    utilization;                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | A reduction in cost of revenues as a result of the sale of our
    Japan manufacturing facility in the fourth quarter of 2003;                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Lower period costs in 2004 as compared to 2003, as a result of
    the implementation of our 130 nanometer manufacturing process
    technology during 2003; and                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | A reduction in compensation-related costs and equipment-related
    depreciation and rent expense primarily as a result of the
    restructuring actions and lease refinancing initiatives during
    2004.                                                                                                                                                                                                                                                                                                                                                   





2003 compared to 2002








| |   |                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Lower charges for obsolete and unmarketable inventories in 2003
    as compared to 2002 in the Semiconductor segment;                                                                                                                                                                                                                      
|
| |  | Lower manufacturing variances associated primarily with yield
    improvements in 2003 related to our 0.18 micron technology;                                                                                                                                                                                                             
|
| |  | Lower compensation-related costs for manufacturing in the
    Semiconductor segment;                                                                                                                                                                                                                                                       
|
| |  | Higher sales of previously reserved inventory. In 2003, sales of
    previously reserved inventory improved gross profit margins by
    less than one percentage point as compared to sales of
    previously reserved inventory in 2002. The majority of this
    improvement in gross profit margin was in the Semiconductor
    segment;
|
| |  | A favorable change in product mix for the Semiconductor segment
    during 2003; and                                                                                                                                                                                                                                                       

35



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| |   |                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A favorable change in product mix for the Storage Systems
    segment, offset by higher compensation related costs, due to
    headcount increases, and higher freight costs incurred during
    2003.





| |   |                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Lower charges for obsolete and unmarketable inventories in 2003
    as compared to 2002;                                                                                                                                                 
|
| |  | Lower manufacturing variances associated primarily with yield
    improvements in 2003 related to our 0.18micron technology;                                                                                                            
|
| |  | Lower compensation-related costs for manufacturing;                                                                                                                                                                                      
|
| |  | A favorable change in product mix during 2003; and                                                                                                                                                                                       
|
| |  | Higher sales of previously reserved inventory. In 2003, sales of
    previously reserved inventory improved gross profit margins by
    less than one percentage point as compared to sales of
    previously reserved inventory in 2002.





| |                          
| | -------------------------
| | Research and development:

|                        |                                |                                |       |     |      |   |       |      |     |   |       |     |     | 
|----------------------- | ------------------------------ | ------------------------------ | ----- | --- | ---- | - | ----- | ---- | --- | - | ----- | --- | --- | 
|                        |                                | Year Ended December 31,        |      
|                        |                                |                                |      
|                        |                                | 2004                           |       |     | 2003 |   |       | 2002 |    
|                        |                                |                                |       |     |      |   |       |      |    
|                        |                                | (In millions)                  |      
|Semiconductor segment   |                                | $                              | 362.5 |     |      | $ | 386.9 |      |     | $ | 421.3 |    
|                        |                                | Percentage of segment revenues |       |     | 29%  |   |       |      | 30% |   |       |     | 28% | 
|Storage Systems segment |                                | $                              | 59.0  |     |      | $ | 45.8  |      |     | $ | 36.1  |    
|                        | Percentage of segment revenues |                                |       | 13% |      |   |       | 11%  |     |   |       | 11% |    
|                        |                                |                                |       |     |      |   |       |      |    
|Consolidated            |                                | $                              | 421.5 |     |      | $ | 432.7 |      |     | $ | 457.4 |    
|                        |                                |                                |       |     |      |   |       |      |    
|                        | Percentage of revenues         |                                |       | 25% |      |   |       | 26%  |     |   |       | 25% |    

2004 compared to 2003








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2003 compared to 2002










| |                                     
| | ------------------------------------
| | Selling, general and administrative:

|                        |                                |                         |       |     |      |   |       |      |  |   |       |     | 
|----------------------- | ------------------------------ | ----------------------- | ----- | --- | ---- | - | ----- | ---- |  | - | ----- | --- | 
|                        |                                | Year Ended December 31, |      
|                        |                                |                         |      
|                        |                                | 2004                    |       |     | 2003 |   |       | 2002 | 
|                        |                                |                         |       |     |      |   |       |      | 
|                        |                                | (In millions)           |      
|Semiconductor segment   |                                | $                       | 168.7 |     |      | $ | 171.8 |      |  | $ | 181.2 |    
|                        | Percentage of segment revenues |                         |       | 14% |      |   |       | 14%  |  |   |       | 12% | 
|Storage Systems segment |                                | $                       | 74.8  |     |      | $ | 62.4  |      |  | $ | 49.0  |    
|                        | Percentage of segment revenues |                         |       | 17% |      |   |       | 15%  |  |   |       | 15% | 
|                        |                                |                         |       |     |      |   |       |      | 
|Consolidated            |                                | $                       | 243.5 |     |      | $ | 234.2 |      |  | $ | 230.2 |    
|                        |                                |                         |       |     |      |   |       |      | 
|                        | Percentage of revenues         |                         |       | 14% |      |   |       | 14%  |  |   |       | 13% | 

2004 compared to 2003






37



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2003 compared to 2002










| |                                              
| | ---------------------------------------------
| | Acquired in-process research and development:



|                  |  |                              |             |  |       |   |     |               |                     |  |                |   |  |  |      | 
|----------------- |  | ---------------------------- | ----------- |  | ----- | - | --- | ------------- | ------------------- |  | -------------- | - |  |  | ---- | 
|                  |  | Acquisition                  |             |  |       |   |     |               | Revenue Projections | 
|Company           |  | Date                         |             |  | IPR&D |   |     | Discount Rate |                     |  | Extend Through |  
|                  |  |                              |             |  |       |   |     |               |                     |  |                |  
|                  |  | (Dollar amounts in millions) |            
|Mylex unit of IBM |  |                              | August 2002 |  |       | $ | 1.9 |               |                     |  | 25             | % |  |  | 2006 | 

Mylex unit of IBM.




| |                                                  
| | -------------------------------------------------
| | Restructuring of operations and other items, net:



| |     
| | ----
| | 2004



38



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| |                                                   
| | --------------------------------------------------
| | Restructuring and impairment of long-lived assets:



| |                       
| | ----------------------
| | First quarter of 2004:







| |                        
| | -----------------------
| | Second quarter of 2004:







| |                       
| | ----------------------
| | Third quarter of 2004:













| |                        
| | -----------------------
| | Fourth quarter of 2004:



39



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40



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|                                                         |       |                |        |        |               |   |         |            |  |   |          |        |   |              |          |          |   |   |        |        | 
|-------------------------------------------------------- | ----- | -------------- | ------ | ------ | ------------- | - | ------- | ---------- |  | - | -------- | ------ | - | ------------ | -------- | -------- | - | - | ------ | ------ | 
|                                                         |       | Balance at     |        |        | Restructuring |   |         | Release of |  |   | Utilized |        |   | Balance at   |         
|                                                         |       | December 31,   |        |        | Expense       |   |         | Reserve    |  |   | During   |        |   | December 31, |         
|                                                         |       | 2003           |        |        | 2004          |   |         | 2004       |  |   | 2004     |        |   | 2004         |         
|                                                         |       |                |        |        |               |   |         |            |  |   |          |        |   |              |         
|                                                         |       | (In thousands) |       
|Write-down of excess assets and decommissioning costs(a) |       | $              | 2,661  |        |               | $ | 404,723 |            |  | $ | (760     | )      |   | $            | (405,417 | )        |   | $ | 1,207  |       
|Lease terminations and maintenance contracts(b)          |       |                | 21,021 |        |               |   | 11,388  |            |  |   | (665     | )      |   |              | (11,679  | )        |   |   | 20,065 |       
|Facility closure and other exit costs(c)                 |       |                | 2,136  |        |               |   | 64      |            |  |   |         |        |   |              | (1,657   | )        |   |   | 543    |       
|Payments to employees for severance(d)                   |       |                | 874    |        |               |   | 18,812  |            |  |   | (18      | )      |   |              | (12,260  | )        |   |   | 7,408  |       
|                                                         |       |                |        |        |               |   |         |            |  |   |          |        |   |              |         
|                                                         | Total |                | $      | 26,692 |               |   | $       | 434,987    |  |   | $        | (1,443 | ) |              | $        | (431,013 | ) |   | $      | 29,223 | 
|                                                         |       |                |        |        |               |   |         |            |  |   |          |        |   |              |         






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The amounts utilized in 2004 reflect $411.6 million of
    non-cash write-downs of long-lived assets in the U.S. due
    to impairment and $0.8 million in cash payments to
    decommission and sell assets, offset by a $7.0 million
    realized gain on the sale of fixed assets previously held for
    sale. The write-downs of long-lived assets were accounted for as
    a reduction of the assets and did not result in a liability. The
    $1.2 million balance as of December 31, 2004, relates
    to machinery and equipment decommissioning costs in the U.S. and
    estimates of selling costs for assets held for sale that is
    expected to be utilized during 2005.



|    |  |                                                                                                                                                                                                                 
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | Amounts utilized represent cash payments. The balance remaining
    for primarily real estate lease terminations will be paid during
    the remaining terms of these contracts, which extend through
    2011. 
|   
|(c) |  | Amounts utilized represent cash payments. The balance remaining
    for facility closure and other exit costs is expected to be paid
    during 2005.                                                           
|   
|(d) |  | Amounts utilized represent cash severance payments to 495
    employees during the year ended December 31, 2004. The
    balance remaining for severance benefits is expected to be paid
    by the end of 2005.



| |             
| | ------------
| | Other Items:











| |     
| | ----
| | 2003



41



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##### Table of Contents





| |                                                       
| | ------------------------------------------------------
| | Restructuring and impairment of long-lived
    assets:





| |                       
| | ----------------------
| | First quarter of 2003:





| |                        
| | -----------------------
| | Second quarter of 2003:









| |                       
| | ----------------------
| | Third quarter of 2003:



| |                                              
| | ---------------------------------------------
| | Agreement to sell Japan fabrication facility:



42



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##### Table of Contents







| |                                                
| | -----------------------------------------------
| | Other third quarter 2003 restructuring actions:







| |                        
| | -----------------------
| | Fourth quarter of 2003:







|                                                         |       |                |       |        |               |   |         |                   |  |   |          |        |   |              |          |          |   |   |        |        | 
|-------------------------------------------------------- | ----- | -------------- | ----- | ------ | ------------- | - | ------- | ----------------- |  | - | -------- | ------ | - | ------------ | -------- | -------- | - | - | ------ | ------ | 
|                                                         |       | Balance at     |       |        | Restructuring |   |         | Release of        |  |   | Utilized |        |   | Balance at   |         
|                                                         |       | December 31,   |       |        | Expense       |   |         | Reserve and       |  |   | During   |        |   | December 31, |         
|                                                         |       | 2002           |       |        | 2003          |   |         | Reclassifications |  |   | 2003     |        |   | 2003         |         
|                                                         |       |                |       |        |               |   |         |                   |  |   |          |        |   |              |         
|                                                         |       | (In thousands) |      
|Write-down of excess assets and decommissioning costs(a) |       | $              | 6,008 |        |               | $ | 147,454 |                   |  | $ | (6,422   | )      |   | $            | (144,379 | )        |   | $ | 2,661  |       
|Lease terminations and maintenance contracts(b)          |       |                | 6,757 |        |               |   | 23,444  |                   |  |   | (1,146   | )      |   |              | (8,034   | )        |   |   | 21,021 |       
|Facility closure and other exit costs(c)                 |       |                | 8,129 |        |               |   | 1,072   |                   |  |   | 1,203    |        |   |              | (8,268   | )        |   |   | 2,136  |       
|Payments to employees for severance(d)                   |       |                | 1,391 |        |               |   | 18,095  |                   |  |   | (928     | )      |   |              | (17,684  | )        |   |   | 874    |       
|                                                         |       |                |       |        |               |   |         |                   |  |   |          |        |   |              |         
|                                                         | Total |                | $     | 22,285 |               |   | $       | 190,065           |  |   | $        | (7,293 | ) |              | $        | (178,365 | ) |   | $      | 26,692 | 
|                                                         |       |                |       |        |               |   |         |                   |  |   |          |        |   |              |         






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The amounts utilized in 2003 reflect $142.4 million of
    non-cash write-downs of amortizable intangible and other
    long-lived assets in the U.S and Japan due to impairment, and
    $2.0 million in cash payments to decommission and sell
    assets. The write-downs of the intangible and other long-lived
    assets were accounted for as a reduction of the assets and did
    not result in a liability. The $2.7 million balance as of

43



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| |                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------
| | December 31, 2003, relates to machinery and equipment
    decommissioning costs in the U.S and estimates of selling costs
    for assets held for sale.



|    |  |                                                                                                                                                                                                                                          
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | Amounts utilized represent cash payments. The balance remaining
    for primarily real estate lease terminations and maintenance
    contracts will be paid during the remaining terms of these
    contracts, which extend through 2011.
|   
|(c) |  | Amounts utilized represent cash payments.                                                                                                                                                                                                
|   
|(d) |  | Amounts utilized represent cash severance payments to 777
    employees during 2003. The $0.9 million balance as of
    December 31, 2003 was paid during 2004.                                                                          



| |             
| | ------------
| | Other items:





| |     
| | ----
| | 2002





| |                                                   
| | --------------------------------------------------
| | Restructuring and impairment of long-lived assets:







44



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##### Table of Contents





|                                                         |       |                |        |        |               |   |        |                   |  |   |          |        |   |              |         |         |   |   |       |        | 
|-------------------------------------------------------- | ----- | -------------- | ------ | ------ | ------------- | - | ------ | ----------------- |  | - | -------- | ------ | - | ------------ | ------- | ------- | - | - | ----- | ------ | 
|                                                         |       | Balance at     |        |        | Restructuring |   |        | Release of        |  |   | Utilized |        |   | Balance at   |        
|                                                         |       | December 31,   |        |        | Expense       |   |        | Reserve and       |  |   | During   |        |   | December 31, |        
|                                                         |       | 2001           |        |        | 2002          |   |        | Reclassifications |  |   | 2002     |        |   | 2002         |        
|                                                         |       |                |        |        |               |   |        |                   |  |   |          |        |   |              |        
|                                                         |       | (In thousands) |       
|Write-down of excess assets and decommissioning costs(a) |       | $              | 3,762  |        |               | $ | 38,918 |                   |  | $ | 5,147    |        |   | $            | (41,819 | )       |   | $ | 6,008 |       
|Lease terminations and maintenance contracts(c)          |       |                | 10,695 |        |               |   | 12,871 |                   |  |   | (10,559  | )      |   |              | (6,250  | )       |   |   | 6,757 |       
|Facility closure and other exit costs(c)                 |       |                | 14,153 |        |               |   | 415    |                   |  |   | 4,058    |        |   |              | (10,497 | )       |   |   | 8,129 |       
|Payments to employees for severance(b)                   |       |                | 724    |        |               |   | 27,490 |                   |  |   | (3,150   | )      |   |              | (23,673 | )       |   |   | 1,391 |       
|                                                         |       |                |        |        |               |   |        |                   |  |   |          |        |   |              |        
|                                                         | Total |                | $      | 29,334 |               |   | $      | 79,694            |  |   | $        | (4,504 | ) |              | $       | (82,239 | ) |   | $     | 22,285 | 
|                                                         |       |                |        |        |               |   |        |                   |  |   |          |        |   |              |        






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Amounts utilized in 2002 reflect a non-cash write-down of fixed
    assets in the U.S. and Japan due to impairment of
    $38.3 million and cash payments for machinery and equipment
    decommissioning costs of $3.5 million. The fixed asset
    write-downs were accounted for as a reduction of the assets and
    did not result in a liability. The $6.0 million balance as
    of December 31, 2002 relates to machinery and equipment
    decommissioning costs in the U.S and selling costs for assets
    held for sale.



|    |  |                                                                                                                                                                                                  
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | Amounts utilized represent cash severance payments to 1,290
    employees during the year ended December 31, 2002. The
    $1.4 million balance as of December 31, 2002 was paid
    during 2003.
|   
|(c) |  | Amounts utilized represent cash payments.                                                                                                                                                        



| |             
| | ------------
| | Other items:





| |                                                          
| | ---------------------------------------------------------
| | Amortization of non-cash deferred stock
    compensation:





| |                             
| | ----------------------------
| | Amortization of intangibles:



45



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##### Table of Contents









| |                  
| | -----------------
| | Interest expense:











| |                                
| | -------------------------------
| | Interest income and other, net:







| |   |                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A pre-tax gain of $3.0 million associated with our
    investment in marketable available-for-sale equity securities of
    a certain technology company that was acquired by another
    publicly traded technology company;
|
| |  | A pre-tax gain of $5.1 million on sales of certain
    marketable available-for-sale equity securities;                                                                                                                      
|
| |  | A pre-tax gain of $1.8 million on repurchase of 2001
    Convertible Notes (see Note 9 of the Notes);                                                                                                                        

46



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| |   |                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A pre-tax loss of $6.2 million on impairment of our
    investment in certain marketable and non-marketable
    available-for-sale equity securities and other miscellaneous
    items. Management considered the impairments to be other than
    temporary (See Note 5 of the Notes).









| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A gain of $14.3 million on the repurchase of a portion of
    the Convertible Notes, net of the write-off of debt issuance
    costs associated with the issuance of the Convertible Notes.
    During the third and fourth quarters of 2002, we repurchased and
    retired $115.0 million of the $500 million
    4% Convertible Notes issued in 2000 and $20.0 million
    of the $345 million
    41/4% Convertible
    Notes issued in 1999. Effective January 1, 2002, we early
    adopted the provisions of Statement of Financial Accounting
    Standards No. 145, Rescission of FASB Statements
    No. 4, 44, and 64, Amendment of FASB Statement No. 13,
    and Technical Corrections related to extinguishment of
    debt. As a result, the gain on the repurchase of debt is
    included in interest income and other, net, in the statement of
    operations (See Note 9 of the Notes);
|
| |  | A net write-down of investments in certain marketable and
    non-marketable available-for-sale equity securities for
    $19.4 million due to impairment considered by our
    management to be other than temporary (See Note 5 of the
    Notes); and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | A gain on miscellaneous asset sales, the cost of purchased
    option contracts, bank fees and other miscellaneous expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 





| |                            
| | ---------------------------
| | Provision for income taxes:





47



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| |                                               
| | ----------------------------------------------
| | Minority interest in net income of subsidiary:



FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY




Working capital.




| |   |                                                                                            
| | - | -------------------------------------------------------------------------------------------
| |  | Prepaid expenses and other current assets decreased by
    $84.5 million, primarily due to:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | - | A decrease of $57.8 million in the current portion of the
    collateral balance on the equipment operating leases. During the
    fourth quarter of 2004, we exercised our right to buyout or
    purchase all of the wafer fabrication equipment that had
    previously been under two operating lease and security
    agreements (see Note 12 of the Notes). The associated
    collateral was returned to us;
|
| | - | An $18.8 million decrease in assets held for sale primarily
    due to write-downs as a result of decreases in fair value, as
    well as sales, net of additions (see Note 3 of the
    Notes); and                                                                                                                                                                                                               
|
| | - | The receipt of a $6.6 million income tax refund in the
    first quarter of 2004.                                                                                                                                                                                                                                                                                                                                  



| |   |                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Accounts payable increased by $19.8 million due to the
    timing of payments.                                                                                                           
|
| |  | Income taxes payable increased by $14.5 million due to the
    timing of tax payments made and the income tax provision
    recorded in 2004.                                            
|
| |  | Current deferred tax assets, net of current deferred tax
    liabilities decreased by $2.5 million due to net changes in
    underlying temporary differences (see Note 11 of the Notes).





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Accounts receivable increased by $40.9 million to
    $272.1 million as of December 31, 2004 from
    $231.2 million at December 31, 2003. The increase is
    mainly attributable to slower collections due to some major
    customers with longer payment terms and fewer customers with
    letter of credit or cash in advance arrangements in the fourth
    quarter of 2004 as compared to the fourth quarter of 2003.

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| |   |                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Inventories increased by $20.4 million to
    $218.9 million as of December 31, 2004 from
    $198.5 million as of December 31, 2003. The increase
    was attributable to a build-up in finished goods and raw
    materials inventories to support future sales.      
|
| |  | Accrued salaries, wages and benefits decreased by
    $17.5 million primarily due to timing differences in
    payment of salaries and bonuses and a decrease in headcount as a
    result of the restructuring actions taken during 2004 (see
    Note 3 of the Notes).
|
| |  | Other accrued liabilities decreased by $11.6 million mainly
    due to our reversal of estimates for certain accrued liabilities
    of $8.8 million that management no longer considered to be
    necessary (See Note 3 of the Notes).                                

Cash and cash equivalents generated from operating
activities.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Income (before depreciation and amortization, non-cash
    restructuring and other items, amortization of non-cash deferred
    stock compensation, loss on write-down of equity securities, net
    of gain on sales, gain or loss on repurchase/redemption of
    Convertible Notes, and gain on the sale of property and
    equipment). The non-cash items and other non-operating
    adjustments are quantified in our Consolidated Statements of
    Cash Flows included in this Current Report on Form 10-K;
|
| |  | Offset by a net decrease in assets and liabilities, net of
    assets acquired and liabilities assumed in business combinations
    including changes in working capital components from
    December 31, 2004 as compared to December 31, 2003 as
    discussed above.                                                                                                                                                                                                                                             



Cash and cash equivalents used in investing
activities.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Purchases of debt and equity securities available for sale, net
    of sales and maturities.                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Purchases of property and equipment.                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Proceeds from the sale of property and equipment.                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Acquisition of companies (see Note 2 of the Notes).                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | During the third quarter of 2004, we entered into two new
    operating leases for wafer fabrication equipment, replacing two
    existing operating leases for the same wafer fabrication
    equipment. Non-current assets and deposits decreased as a result
    of a refund of collateral from the former equipment operating
    leases and increased as a result of collateral deposited on the
    new equipment operating leases.                     
|
| |  | During the fourth quarter of 2004, we exercised our right to
    buyout or purchase all of the wafer fabrication equipment that
    had previously been under two operating lease and security
    agreements (see Note 3 of the Notes). The early termination
    or buyout amount was $332 million. Cash collateral of
    $311 million associated with the leases was returned to us.
    Termination fees under the lease agreements were not significant.
|
| |  | Non-current assets and deposits also decreased during 2004 as a
    result of collateral refunded due to the termination of a letter
    of credit arrangement during the first quarter of 2004 and the
    termination of the Lease Swap during the third quarter of 2004
    (see Note 8 of the Notes).                                                                                                                                                     



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Cash and cash equivalents used in financing
activities.




| |   |                                                                                         
| | - | ----------------------------------------------------------------------------------------
| |  | The repurchase of a portion of the Convertible Notes due in 2006;                       
|
| |  | Additional purchase of minority interests in our Japanese
    subsidiary;               
|
| |  | The issuance of common stock under our employee stock option and
    purchase plans; and
|
| |  | The repayment of debt obligations.                                                      





CONTRACTUAL OBLIGATIONS




|                               |       |                        |       |       |           |   |       |           |  |   |         |      |  |       |       |       |  |   |       |         | 
|------------------------------ | ----- | ---------------------- | ----- | ----- | --------- | - | ----- | --------- |  | - | ------- | ---- |  | ----- | ----- | ----- |  | - | ----- | ------- | 
|                               |       | Payments Due by Period |      
|                               |       |                        |      
|                               |       | Less than              |       |       |           |   | After |           |  |  
|Contractual Obligations        |       | 1 Year                 |       |       | 1-3 Years |   |       | 4-5 Years |  |   | 5 Years |      |  | Total |      
|                               |       |                        |       |       |           |   |       |           |  |   |         |      |  |       |      
|                               |       | (In millions)          |      
|Convertible Subordinated Notes |       | $                      |      |       |           | $ | 421.5 |           |  | $ |        |      |  | $     | 350.0 |       |  | $ | 771.5 |        
|Operating lease obligations    |       |                        | 56.7  |       |           |   | 81.0  |           |  |   | 39.6    |      |  |       | 34.4  |       |  |   | 211.7 |        
|Capital lease obligations      |       |                        | 0.1   |       |           |   |      |           |  |   |        |      |  |       |      |       |  |   | 0.1   |        
|Purchase commitments           |       |                        | 273.1 |       |           |   | 20.3  |           |  |   |        |      |  |       |      |       |  |   | 293.4 |        
|                               |       |                        |       |       |           |   |       |           |  |   |         |      |  |       |      
|                               | Total |                        | $     | 329.9 |           |   | $     | 522.8     |  |   | $       | 39.6 |  |       | $     | 384.4 |  |   | $     | 1,276.7 | 
|                               |       |                        |       |       |           |   |       |           |  |   |         |      |  |       |      



| |                               
| | ------------------------------
| | Convertible Subordinated Notes



50



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| |                            
| | ---------------------------
| | Operating Lease Obligations







| |                     
| | --------------------
| | Purchase Commitments





| |                          
| | -------------------------
| | Standby letters of credit



CRITICAL ACCOUNTING ESTIMATES






Inventory Valuation Methodology.




51



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Valuation of long-lived assets, intangible assets and
goodwill.








Restructuring reserves.


52



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Income taxes.




Recent Accounting Pronouncements









|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures about Market
    Risk

Interest rate sensitivity.








53



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Foreign currency exchange risk.




Equity price risk.




54



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|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data

LSI Logic Corporation


Consolidated Balance Sheets


|                                                                                                      |                                                   |                                 |            |           |      |   |           |           | 
|----------------------------------------------------------------------------------------------------- | ------------------------------------------------- | ------------------------------- | ---------- | --------- | ---- | - | --------- | --------- | 
|                                                                                                      |                                                   | December 31,                    |           
|                                                                                                      |                                                   |                                 |           
|                                                                                                      |                                                   | 2004                            |            |           | 2003 |  
|                                                                                                      |                                                   |                                 |            |           |      |  
|                                                                                                      |                                                   | (In thousands, except per-share |           
|                                                                                                      |                                                   | amounts)                        |           
|ASSETS                                                                                               
|Cash and cash equivalents                                                                             |                                                   | $                               | 218,723    |           |      | $ | 269,682   |          
|Short-term investments                                                                                |                                                   |                                 | 595,862    |           |      |   | 544,007   |          
|Accounts receivable, less allowances of $6,600 and $7,415                                             |                                                   |                                 | 272,065    |           |      |   | 231,184   |          
|Inventories                                                                                           |                                                   |                                 | 218,900    |           |      |   | 198,517   |          
|Prepaid expenses and other current assets                                                             |                                                   |                                 | 59,737     |           |      |   | 146,647   |          
|                                                                                                      |                                                   |                                 |            |           |      |  
|                                                                                                      | Total current assets                              |                                 |            | 1,365,287 |      |   |           | 1,390,037 | 
|Property and equipment, net                                                                           |                                                   |                                 | 311,916    |           |      |   | 481,489   |          
|Other intangible assets, net                                                                          |                                                   |                                 | 108,457    |           |      |   | 161,236   |          
|Goodwill                                                                                              |                                                   |                                 | 973,130    |           |      |   | 968,483   |          
|Non-current assets and deposits                                                                       |                                                   |                                 |           |           |      |   | 318,176   |          
|Other assets                                                                                          |                                                   |                                 | 115,211    |           |      |   | 128,480   |          
|                                                                                                      |                                                   |                                 |            |           |      |  
|                                                                                                      | Total assets                                      |                                 | $          | 2,874,001 |      |   | $         | 3,447,901 | 
|                                                                                                      |                                                   |                                 |            |           |      |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                 
|Accounts payable                                                                                      |                                                   | $                               | 122,422    |           |      | $ | 102,632   |          
|Accrued salaries, wages and benefits                                                                  |                                                   |                                 | 58,516     |           |      |   | 75,968    |          
|Other accrued liabilities                                                                             |                                                   |                                 | 142,278    |           |      |   | 153,857   |          
|Income taxes payable                                                                                  |                                                   |                                 | 72,935     |           |      |   | 58,417    |          
|Current portion of long-term obligations                                                              |                                                   |                                 | 129        |           |      |   | 377       |          
|                                                                                                      |                                                   |                                 |            |           |      |  
|                                                                                                      | Total current liabilities                         |                                 |            | 396,280   |      |   |           | 391,251   | 
|                                                                                                      |                                                   |                                 |            |           |      |  
|Long-term debt and capital lease obligations                                                          |                                                   |                                 | 781,846    |           |      |   | 865,606   |          
|Tax related liabilities and other                                                                     |                                                   |                                 | 77,570     |           |      |   | 141,096   |          
|                                                                                                      |                                                   |                                 |            |           |      |  
|                                                                                                      | Total long-term obligations and other liabilities |                                 |            | 859,416   |      |   |           | 1,006,702 | 
|                                                                                                      |                                                   |                                 |            |           |      |  
|Commitments and contingencies (Note 12)                                                               |                                                   |                                 |            |           |      |   |           |          
|Minority interest in subsidiary                                                                       |                                                   |                                 | 259        |           |      |   | 7,498     |          
|                                                                                                      |                                                   |                                 |            |           |      |  
|Stockholders equity:                                                                                 |                                                   |                                 |            |           |      |   |           |          
|Preferred shares; $.01 par value; 2,000 shares
    authorized; none outstanding                       |                                                   |                                 |           |           |      |   |          |          
|Common stock; $.01 par value; 1,300,000 shares
    authorized; 387,490 and 381,491 shares outstanding |                                                   |                                 | 3,875      |           |      |   | 3,815     |          
|Additional paid-in capital                                                                            |                                                   |                                 | 2,969,478  |           |      |   | 2,950,051 |          
|Deferred stock compensation                                                                           |                                                   |                                 | (8,936     | )         |      |   | (24,839   | )        
|Accumulated deficit                                                                                   |                                                   |                                 | (1,384,321 | )         |      |   | (920,790  | )        
|Accumulated other comprehensive income                                                                |                                                   |                                 | 37,950     |           |      |   | 34,213    |          
|                                                                                                      |                                                   |                                 |            |           |      |  
|                                                                                                      | Total stockholders equity                        |                                 |            | 1,618,046 |      |   |           | 2,042,450 | 
|                                                                                                      |                                                   |                                 |            |           |      |  
|                                                                                                      | Total liabilities and stockholders equity        |                                 | $          | 2,874,001 |      |   | $         | 3,447,901 | 
|                                                                                                      |                                                   |                                 |            |           |      |  



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LSI Logic Corporation


Consolidated Statements of Operations


|                                                        |                        |                                          |           |         |      |   |           |           |   |   |           |           |  
|------------------------------------------------------- | ---------------------- | ---------------------------------------- | --------- | ------- | ---- | - | --------- | --------- | - | - | --------- | --------- | -
|                                                        |                        | Year Ended December 31,                  |          
|                                                        |                        |                                          |          
|                                                        |                        | 2004                                     |           |         | 2003 |   |           | 2002      |  
|                                                        |                        |                                          |           |         |      |   |           |           |  
|                                                        |                        | (In thousands, except per share amounts) |          
|Revenues                                                |                        | $                                        | 1,700,164 |         |      | $ | 1,693,070 |           |   | $ | 1,816,938 |          
|Cost of revenues                                        |                        |                                          | 964,556   |         |      |   | 1,015,865 |           |   |   | 1,122,696 |          
|Additional excess inventory and related charges         |                        |                                          |          |         |      |   |          |           |   |   | 45,526    |          
|                                                        |                        |                                          |           |         |      |   |           |           |  
|                                                        | Total cost of revenues |                                          |           | 964,556 |      |   |           | 1,015,865 |   |   |           | 1,168,222 |  
|                                                        |                        |                                          |           |         |      |   |           |           |  
|Gross profit                                            |                        |                                          | 735,608   |         |      |   | 677,205   |           |   |   | 648,716   |          
|Research and development                                |                        |                                          | 421,516   |         |      |   | 432,695   |           |   |   | 457,351   |          
|Selling, general and administrative                     |                        |                                          | 243,498   |         |      |   | 234,156   |           |   |   | 230,202   |          
|Acquired in-process research and development            |                        |                                          |          |         |      |   |          |           |   |   | 2,920     |          
|Restructuring of operations and other items, net        |                        |                                          | 423,444   |         |      |   | 180,597   |           |   |   | 67,136    |          
|Amortization of non-cash deferred stock compensation(*) |                        |                                          | 8,449     |         |      |   | 26,021    |           |   |   | 77,303    |          
|Amortization of intangibles                             |                        |                                          | 75,050    |         |      |   | 76,352    |           |   |   | 78,617    |          
|                                                        |                        |                                          |           |         |      |   |           |           |  
|Loss from operations                                    |                        |                                          | (436,349  | )       |      |   | (272,616  | )         |   |   | (264,813  | )        
|Interest expense                                        |                        |                                          | (25,320   | )       |      |   | (30,703   | )         |   |   | (51,977   | )        
|Interest income and other, net                          |                        |                                          | 22,170    |         |      |   | 18,933    |           |   |   | 26,386    |          
|                                                        |                        |                                          |           |         |      |   |           |           |  
|Loss before income taxes and minority interest          |                        |                                          | (439,499  | )       |      |   | (284,386  | )         |   |   | (290,404  | )        
|Provision for income taxes                              |                        |                                          | 24,000    |         |      |   | 24,000    |           |   |   | 1,750     |          
|                                                        |                        |                                          |           |         |      |   |           |           |  
|Loss before minority interest                           |                        |                                          | (463,499  | )       |      |   | (308,386  | )         |   |   | (292,154  | )        
|Minority interest in net income of subsidiary           |                        |                                          | 32        |         |      |   | 161       |           |   |   | 286       |          
|                                                        |                        |                                          |           |         |      |   |           |           |  
|Net loss                                                |                        | $                                        | (463,531  | )       |      | $ | (308,547  | )         |   | $ | (292,440  | )        
|                                                        |                        |                                          |           |         |      |   |           |           |  
|Net loss per share:                                     |                        |                                          |           |         |      |   |           |           |   |   |           |          
|                                                        | Basic and diluted      |                                          | $         | (1.21   | )    |   | $         | (0.82     | ) |   | $         | (0.79     | )
|                                                        |                        |                                          |           |         |      |   |           |           |  
|Shares used in computing per share amounts:             |                        |                                          |           |         |      |   |           |           |   |   |           |          
|                                                        | Basic and diluted      |                                          |           | 384,070 |      |   |           | 377,781   |   |   |           | 370,529   |  
|                                                        |                        |                                          |           |         |      |   |           |           |  






|    |                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(*) | Amortization of non-cash deferred stock compensation, if not
    shown separately, would have been included in cost of revenues,
    research and development, and selling, general and
    administrative expenses, as shown below:

|                                    |  |                         |       |  |      |   |        |      |  |   |        | 
|----------------------------------- |  | ----------------------- | ----- |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                    |  | Year Ended December 31, |      
|                                    |  |                         |      
|                                    |  | 2004                    |       |  | 2003 |   |        | 2002 | 
|                                    |  |                         |       |  |      |   |        |      | 
|                                    |  | (In thousands)          |      
|Cost of revenues                    |  | $                       | 198   |  |      | $ | 446    |      |  | $ | 1,520  | 
|Research and development            |  |                         | 6,289 |  |      |   | 20,412 |      |  |   | 58,623 | 
|Selling, general and administrative |  |                         | 1,962 |  |      |   | 5,163  |      |  |   | 17,160 | 
|                                    |  |                         |       |  |      |   |        |      | 
|Total                               |  | $                       | 8,449 |  |      | $ | 26,021 |      |  | $ | 77,303 | 
|                                    |  |                         |       |  |      |   |        |      | 



56



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LSI Logic Corporation


Consolidated Statements of Stockholders Equity


|                                                                                                      |  |                |         |  |            |   |       |                |  |             |              |       |  |               |          |   |               |   |            |       |  |   |         |   |  |   |           |  
|----------------------------------------------------------------------------------------------------- |  | -------------- | ------- |  | ---------- | - | ----- | -------------- |  | ----------- | ------------ | ----- |  | ------------- | -------- | - | ------------- | - | ---------- | ----- |  | - | ------- | - |  | - | --------- | -
|                                                                                                      |  |                |         |  |            |   |       |                |  | Accumulated |              |       | 
|                                                                                                      |  | Common Stock   |         |  | Additional |   |       |                |  |             |              | Other |  |               |         
|                                                                                                      |  |                |         |  | Paid-In    |   |       | Deferred Stock |  |             | Accumulated  |       |  | Comprehensive |          |   |              
|                                                                                                      |  | Shares         |         |  | Amount     |   |       | Capital        |  |             | Compensation |       |  | Deficit       |          |   | Income/(Loss) |   |            | Total | 
|                                                                                                      |  |                |         |  |            |   |       |                |  |             |              |       |  |               |          |   |               |   |            |       | 
|                                                                                                      |  | (In thousands) |        
|Balances at December 31, 2001                                                                         |  |                | 368,446 |  |            | $ | 3,684 |                |  | $           | 2,905,638    |       |  | $             | (124,091 | ) |               | $ | (319,803   | )     |  | $ | 14,457  |   |  | $ | 2,479,885 |  
|Net loss                                                                                              |  |                |         |  |            |   |       |                |  |             |              |       |  |               |          |   |               |   | (292,440   | )     |  |   |         |   |  |   |           |  
|Change in foreign currency translation adjustments                                                    |  |                |         |  |            |   |       |                |  |             |              |       |  |               |          |   |               |   |            |       |  |   | 11,358  |   |  |   |           |  
|Change in unrealized gain on available-for-sale securities                                            |  |                |         |  |            |   |       |                |  |             |              |       |  |               |          |   |               |   |            |       |  |   | (20,089 | ) |  |   |           |  
|                                                                                                      |  |                |         |  |            |   |       |                |  |             |              |       |  |               |          |   |               |   |            |       | 
|Total comprehensive loss                                                                              |  |                |         |  |            |   |       |                |  |             |              |       |  |               |          |   |               |   |            |       |  |   |         |   |  |   | (301,171  | )
|                                                                                                      |  |                |         |  |            |   |       |                |  |             |              |       |  |               |          |   |               |   |            |       | 
|Issuance to employees under stock option and purchase plans                                           |  |                | 6,292   |  |            |   | 63    |                |  |             | 45,102       |       |  |               |          |   |               |   |            |       |  |   |         |   |  |   | 45,165    |  
|Issuance of common stock in conjunction with acquisitions
    (Note 2)                                |  |                | 358     |  |            |   | 4     |                |  |             | 3,542        |       |  |               |          |   |               |   |            |       |  |   |         |   |  |   | 3,546     |  
|Deferred stock compensation (Note 2)                                                                  |  |                |         |  |            |   |       |                |  |             |              |       |  |               | (4,373   | ) |               |   |            |       |  |   |         |   |  |   | (4,373    | )
|Amortization of deferred stock compensation                                                           |  |                |         |  |            |   |       |                |  |             |              |       |  |               | 77,303   |   |               |   |            |       |  |   |         |   |  |   | 77,303    |  
|                                                                                                      |  |                |         |  |            |   |       |                |  |             |              |       |  |               |          |   |               |   |            |       | 
|Balances at December 31, 2002                                                                         |  |                | 375,096 |  |            |   | 3,751 |                |  |             | 2,954,282    |       |  |               | (51,161  | ) |               |   | (612,243   | )     |  |   | 5,726   |   |  |   | 2,300,355 |  
|Net loss                                                                                              |  |                |         |  |            |   |       |                |  |             |              |       |  |               |          |   |               |   | (308,547   | )     |  |   |         |   |  |   |           |  
|Change in foreign currency translation adjustments                                                    |  |                |         |  |            |   |       |                |  |             |              |       |  |               |          |   |               |   |            |       |  |   | 21,309  |   |  |   |           |  
|Change in unrealized gain on available-for-sale securities                                            |  |                |         |  |            |   |       |                |  |             |              |       |  |               |          |   |               |   |            |       |  |   | 5,183   |   |  |   |           |  
|Change in unrealized gain on derivative instruments designated
    and qualifying as cash-flow hedges |  |                |         |  |            |   |       |                |  |             |              |       |  |               |          |   |               |   |            |       |  |   | 1,995   |   |  |   |           |  
|                                                                                                      |  |                |         |  |            |   |       |                |  |             |              |       |  |               |          |   |               |   |            |       | 
|Total comprehensive loss                                                                              |  |                |         |  |            |   |       |                |  |             |              |       |  |               |          |   |               |   |            |       |  |   |         |   |  |   | (280,060  | )
|                                                                                                      |  |                |         |  |            |   |       |                |  |             |              |       |  |               |          |   |               |   |            |       | 
|Issuance to employees under stock option and purchase plans                                           |  |                | 6,386   |  |            |   | 64    |                |  |             | 30,886       |       |  |               |          |   |               |   |            |       |  |   |         |   |  |   | 30,950    |  
|Issuance or return from escrow of common stock in conjunction
    with acquisitions                   |  |                | 9       |  |            |   |       |                |  |             | (6,816       | )     |  |               |          |   |               |   |            |       |  |   |         |   |  |   | (6,816    | )
|Forfeiture of restricted shares (Note 10)                                                             |  |                |         |  |            |   |       |                |  |             | (301         | )     |  |               | 301      |   |               |   |            |       |  |   |         |   |  |   |           |  
|Cash paid for call spread options (Note 9)                                                            |  |                |         |  |            |   |       |                |  |             | (28,000      | )     |  |               |          |   |               |   |            |       |  |   |         |   |  |   | (28,000   | )
|Amortization of deferred stock compensation                                                           |  |                |         |  |            |   |       |                |  |             |              |       |  |               | 26,021   |   |               |   |            |       |  |   |         |   |  |   | 26,021    |  
|                                                                                                      |  |                |         |  |            |   |       |                |  |             |              |       |  |               |          |   |               |   |            |       | 
|Balances at December 31, 2003                                                                         |  |                | 381,491 |  |            |   | 3,815 |                |  |             | 2,950,051    |       |  |               | (24,839  | ) |               |   | (920,790   | )     |  |   | 34,213  |   |  |   | 2,042,450 |  
|Net loss                                                                                              |  |                |         |  |            |   |       |                |  |             |              |       |  |               |          |   |               |   | (463,531   | )     |  |   |         |   |  |   |           |  
|Change in foreign currency translation adjustments                                                    |  |                |         |  |            |   |       |                |  |             |              |       |  |               |          |   |               |   |            |       |  |   | 1,948   |   |  |   |           |  
|Change in unrealized gain on available-for-sale securities                                            |  |                |         |  |            |   |       |                |  |             |              |       |  |               |          |   |               |   |            |       |  |   | 3,784   |   |  |   |           |  
|Change in unrealized gain on derivative instruments designated
    and qualifying as cash-flow hedges |  |                |         |  |            |   |       |                |  |             |              |       |  |               |          |   |               |   |            |       |  |   | (1,995  | ) |  |   |           |  
|                                                                                                      |  |                |         |  |            |   |       |                |  |             |              |       |  |               |          |   |               |   |            |       | 
|Total comprehensive loss                                                                              |  |                |         |  |            |   |       |                |  |             |              |       |  |               |          |   |               |   |            |       |  |   |         |   |  |   | (459,794  | )
|                                                                                                      |  |                |         |  |            |   |       |                |  |             |              |       |  |               |          |   |               |   |            |       | 
|Issuance to employees under stock option and purchase plans                                           |  |                | 5,852   |  |            |   | 59    |                |  |             | 27,928       |       |  |               |          |   |               |   |            |       |  |   |         |   |  |   | 27,987    |  
|Issuance or return from escrow of common stock in conjunction
    with acquisitions (Note 2)          |  |                | 147     |  |            |   | 1     |                |  |             | (414         | )     |  |               |          |   |               |   |            |       |  |   |         |   |  |   | (413      | )
|Grants of restricted shares (Note 10)                                                                 |  |                |         |  |            |   |       |                |  |             | 6,401        |       |  |               | (6,401   | ) |               |   |            |       |  |   |         |   |  |   |          |  
|Forfeiture of restricted shares and stock options assumed in an
    acquisition (Note 10)             |  |                |         |  |            |   |       |                |  |             | (14,488      | )     |  |               | 14,488   |   |               |   |            |       |  |   |         |   |  |   |          |  
|Amortization of deferred stock compensation                                                           |  |                |         |  |            |   |       |                |  |             |              |       |  |               | 7,816    |   |               |   |            |       |  |   |         |   |  |   | 7,816     |  
|                                                                                                      |  |                |         |  |            |   |       |                |  |             |              |       |  |               |          |   |               |   |            |       | 
|Balances at December 31, 2004                                                                         |  |                | 387,490 |  |            | $ | 3,875 |                |  | $           | 2,969,478    |       |  | $             | (8,936   | ) |               | $ | (1,384,321 | )     |  | $ | 37,950  |   |  | $ | 1,618,046 |  
|                                                                                                      |  |                |         |  |            |   |       |                |  |             |              |       |  |               |          |   |               |   |            |       | 



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LSI Logic Corporation


Consolidated Statements of Cash Flows


|                                                             |                                                                                                                 |                                                                                   |                                           |          |         |         |          |            |         |          |          |            |         |          |  
|------------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------- | ----------------------------------------- | -------- | ------- | ------- | -------- | ---------- | ------- | -------- | -------- | ---------- | ------- | -------- | -
|                                                             |                                                                                                                 | Year Ended December 31,                                                           |                                          
|                                                             |                                                                                                                 |                                                                                   |                                          
|                                                             |                                                                                                                 | 2004                                                                              |                                           |          | 2003    |         |          | 2002       |        
|                                                             |                                                                                                                 |                                                                                   |                                           |          |         |         |          |            |        
|                                                             |                                                                                                                 | (In thousands)                                                                    |                                          
|Operating activities:                                        |                                                                                                                 |                                                                                   |                                           |          |         |         |          |            |         |          |          |           
|                                                             | Net loss                                                                                                        |                                                                                   | $                                         | (463,531 | )       |         | $        | (308,547   | )       |          | $        | (292,440   | )      
|                                                             | Adjustments:                                                                                                    |                                                                                   |                                           |          |         |         |          |            |         |          |          |            |        
|                                                             |                                                                                                                 | Depreciation and amortization                                                     |                                           |          | 176,606 |         |          |            | 262,728 |          |          |            | 349,326 |         
|                                                             |                                                                                                                 | Amortization of non-cash deferred stock compensation                              |                                           |          | 8,449   |         |          |            | 26,021  |          |          |            | 77,303  |         
|                                                             |                                                                                                                 | Acquired in-process research and development                                      |                                           |          |        |         |          |            |        |          |          |            | 2,920   |         
|                                                             |                                                                                                                 | Non-cash restructuring and other items                                            |                                           |          | 401,058 |         |          |            | 148,252 |          |          |            | 46,050  |         
|                                                             |                                                                                                                 | (Gain) on sale of equity securities/loss on write-down                            |                                           |          | (1,913  | )       |          |            | 8,518   |          |          |            | 19,423  |         
|                                                             |                                                                                                                 | (Gain)/loss on redemption/repurchase of Convertible Subordinated
    Notes        |                                           |          | (1,767  | )       |          |            | 3,885   |          |          |            | (14,260 | )       
|                                                             |                                                                                                                 | (Gain)/loss on sale of property and equipment, including assets
    held-for-sale |                                           |          | (6,348  | )       |          |            | (6,896  | )        |          |            | 2,928   |         
|                                                             |                                                                                                                 | Changes in deferred tax assets and liabilities                                    |                                           |          | 4,895   |         |          |            | (646    | )        |          |            | 61,385  |         
|                                                             | Changes in assets and liabilities, net of assets acquired and
    liabilities assumed in business combinations: |                                                                                   |                                           |          |         |         |          |            |         |          |          |            |        
|                                                             |                                                                                                                 | Accounts receivable, net                                                          |                                           |          | (40,076 | )       |          |            | 18,220  |          |          |            | (54,619 | )       
|                                                             |                                                                                                                 | Inventories                                                                       |                                           |          | (20,660 | )       |          |            | (4,232  | )        |          |            | 75,579  |         
|                                                             |                                                                                                                 | Prepaid expenses and other assets                                                 |                                           |          | 23,377  |         |          |            | 63,325  |          |          |            | 18,648  |         
|                                                             |                                                                                                                 | Accounts payable                                                                  |                                           |          | 21,056  |         |          |            | 1,684   |          |          |            | (35,828 | )       
|                                                             |                                                                                                                 | Accrued and other liabilities                                                     |                                           |          | (10,329 | )       |          |            | (22,559 | )        |          |            | (91,619 | )       
|                                                             |                                                                                                                 |                                                                                   |                                           |          |         |         |          |            |        
|                                                             |                                                                                                                 |                                                                                   | Net cash provided by operating activities |          |         | 90,817  |          |            |         | 189,753  |          |            |         | 164,796  |  
|                                                             |                                                                                                                 |                                                                                   |                                           |          |         |         |          |            |        
|Investing activities:                                        |                                                                                                                 |                                                                                   |                                           |          |         |         |          |            |         |          |          |           
|                                                             | Purchase of debt securities available-for-sale                                                                  |                                                                                   |                                           | (747,096 | )       |         |          | (2,219,484 | )       |          |          | (1,771,809 | )      
|                                                             | Proceeds from maturities and sales of debt securities
    available-for-sale                                    |                                                                                   |                                           | 679,483  |         |         |          | 2,203,313  |         |          |          | 1,478,596  |        
|                                                             | Purchases of equity securities                                                                                  |                                                                                   |                                           | (2,250   | )       |         |          | (200       | )       |          |          | (11,894    | )      
|                                                             | Proceeds from sales of equity securities                                                                        |                                                                                   |                                           | 10,518   |         |         |          | 1,060      |         |          |          |           |        
|                                                             | Purchases of property and equipment                                                                             |                                                                                   |                                           | (52,776  | )       |         |          | (78,189    | )       |          |          | (48,245    | )      
|                                                             | Proceeds from sale of property and equipment                                                                    |                                                                                   |                                           | 10,936   |         |         |          | 24,737     |         |          |          | 6,745      |        
|                                                             | Buyout of equipment operating lease                                                                             |                                                                                   |                                           | (332,396 | )       |         |          |           |         |          |          |           |        
|                                                             | Increase in non-current assets and deposits                                                                     |                                                                                   |                                           | (313,013 | )       |         |          | (390,135   | )       |          |          | (8,920     | )      
|                                                             | Decrease in non-current assets and deposits                                                                     |                                                                                   |                                           | 688,994  |         |         |          | 272,868    |         |          |          | 9,156      |        
|                                                             | Acquisitions of companies, net of cash acquired                                                                 |                                                                                   |                                           | (32,025  | )       |         |          |           |         |          |          | (55,916    | )      
|                                                             | Proceeds from the sale-lease back of equipment                                                                  |                                                                                   |                                           |         |         |         |          | 160,000    |         |          |          |           |        
|                                                             | Proceeds from the sale of the Japan manufacturing facility                                                      |                                                                                   |                                           |         |         |         |          | 25,846     |         |          |          |           |        
|                                                             |                                                                                                                 |                                                                                   |                                           |          |         |         |          |            |        
|                                                             |                                                                                                                 |                                                                                   | Net cash used in investing activities     |          |         | (89,625 | )        |            |         | (184     | )        |            |         | (402,287 | )
|                                                             |                                                                                                                 |                                                                                   |                                           |          |         |         |          |            |        
|Financing activities:                                        |                                                                                                                 |                                                                                   |                                           |          |         |         |          |            |         |          |          |           
|                                                             | Redemption/ Repurchase of Convertible Subordinated Notes                                                        |                                                                                   |                                           | (68,117  | )       |         |          | (715,983   | )       |          |          | (118,938   | )      
|                                                             | Issuance of common stock                                                                                        |                                                                                   |                                           | 27,988   |         |         |          | 30,306     |         |          |          | 43,992     |        
|                                                             | Purchase of minority interest in subsidiary                                                                     |                                                                                   |                                           | (8,020   | )       |         |          |           |         |          |          |           |        
|                                                             | Repayment of debt obligations                                                                                   |                                                                                   |                                           | (438     | )       |         |          | (327       | )       |          |          | (332       | )      
|                                                             | Proceeds from borrowings                                                                                        |                                                                                   |                                           |         |         |         |          | 350,000    |         |          |          |           |        
|                                                             | Debt issuance costs                                                                                             |                                                                                   |                                           |         |         |         |          | (10,984    | )       |          |          |           |        
|                                                             | Cash paid for call spread options                                                                               |                                                                                   |                                           |         |         |         |          | (28,000    | )       |          |          |           |        
|                                                             |                                                                                                                 |                                                                                   |                                           |          |         |         |          |            |        
|                                                             |                                                                                                                 |                                                                                   | Net cash used in financing activities     |          |         | (48,587 | )        |            |         | (374,988 | )        |            |         | (75,278  | )
|                                                             |                                                                                                                 |                                                                                   |                                           |          |         |         |          |            |        
|Effect of exchange rate changes on cash and cash equivalents |                                                                                                                 |                                                                                   | (3,564                                    | )        |         |         | 6,254    |            |         |          | 4,478    |           
|                                                             |                                                                                                                 |                                                                                   |                                           |          |         |         |          |            |        
|Decrease in cash and cash equivalents                        |                                                                                                                 |                                                                                   | (50,959                                   | )        |         |         | (179,165 | )          |         |          | (308,291 | )         
|Cash and cash equivalents at beginning of year               |                                                                                                                 |                                                                                   | 269,682                                   |          |         |         | 448,847  |            |         |          | 757,138  |           
|                                                             |                                                                                                                 |                                                                                   |                                           |          |         |         |          |            |        
|Cash and cash equivalents at end of year                     |                                                                                                                 | $                                                                                 | 218,723                                   |          |         | $       | 269,682  |            |         | $        | 448,847  |           
|                                                             |                                                                                                                 |                                                                                   |                                           |          |         |         |          |            |        



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LSI Logic Corporation


Notes to Consolidated Financial Statements


Note 1  Significant Accounting policies


Nature of the business.




Basis of presentation.








Use of estimates.


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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)


Acquisitions.


Revenue recognition.






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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)


Earnings per share.


|             |                                           |                                         |   |           |         |  |  |         |           |  |         |       |   |           |   |          |        |  |  |         |  |  |         |       |   |        |   |          |   |  |  |         |  |  |   |       |  
|------------ | ----------------------------------------- | --------------------------------------- | - | --------- | ------- |  |  | ------- | --------- |  | ------- | ----- | - | --------- | - | -------- | ------ |  |  | ------- |  |  | ------- | ----- | - | ------ | - | -------- | - |  |  | ------- |  |  | - | ----- | -
|             |                                           | Year Ended December 31,                 |  
|             |                                           |                                         |  
|             |                                           | 2004                                    |   |           | 2003    |  |  | 2002    |          
|             |                                           |                                         |   |           |         |  |  |         |          
|             |                                           |                                         |   | Per-Share |         |  |  |         | Per-share |  |         |       |   | Per-Share |  
|             |                                           | (Loss)*                                 |   |           | Shares+ |  |  | Amount  |           |  | (Loss)* |       |   | Shares+   |   |          | Amount |  |  | (Loss)* |  |  | Shares+ |       |   | Amount |  
|             |                                           |                                         |   |           |         |  |  |         |           |  |         |       |   |           |   |          |        |  |  |         |  |  |         |       |   |        |  
|             |                                           | (In thousands except per share amounts) |  
|Basic EPS:   |                                           |                                         |   |           |         |  |  |         |           |  |         |       |   |           |   |          |        |  |  |         |  |  |         |       |   |        |   |          |   |  |  |         |  |  |   |      
|             | Net loss available to common stockholders |                                         | $ | (463,531  | )       |  |  | 384,070 |           |  | $       | (1.21 | ) |           | $ | (308,547 | )      |  |  | 377,781 |  |  | $       | (0.82 | ) |        | $ | (292,440 | ) |  |  | 370,529 |  |  | $ | (0.79 | )
|             |                                           |                                         |   |           |         |  |  |         |           |  |         |       |   |           |   |          |        |  |  |         |  |  |         |       |   |        |  
|             | Effect of dilutive securities             |                                         |   |          |         |  |  |        |           |  |         |      |   |           |   |         |        |  |  |        |  |  |         |      |   |        |   |         |   |  |  |        |  |  |   |      |  
|Diluted EPS: |                                           |                                         |   |           |         |  |  |         |           |  |         |       |   |           |   |          |        |  |  |         |  |  |         |       |   |        |   |          |   |  |  |         |  |  |   |      
|             | Net loss available to common stockholders |                                         | $ | (463,531  | )       |  |  | 384,070 |           |  | $       | (1.21 | ) |           | $ | (308,547 | )      |  |  | 377,781 |  |  | $       | (0.82 | ) |        | $ | (292,440 | ) |  |  | 370,529 |  |  | $ | (0.79 | )
|             |                                           |                                         |   |           |         |  |  |         |           |  |         |       |   |           |   |          |        |  |  |         |  |  |         |       |   |        |  






|  |          
|- | ---------
|* | Numerator









Advertising.


Cash equivalents.


Accounts receivable and allowance for doubtful
accounts.


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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)


Investments.




Inventories.


Property and equipment.


|                           |  |  |             | 
|-------------------------- |  |  | ----------- | 
|Buildings and improvements |  |  | 20-40 years | 
|Equipment                  |  |  | 3-5 years   | 
|Furniture and fixtures     |  |  | 5 years     | 



Software.


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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)




Impairment of long-lived assets.


Goodwill.


Fair value disclosures of financial instruments.


Derivative instruments.


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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)








Concentration of credit risk of financial
instruments.


Self-insurance.


Product warranties.


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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)




Litigation and Settlement Costs. Accounting for
Contingencies,


Stock-based compensation.






|                                                                                                                                                                           |                                |                                          |          |       |      |   |          |       |   |   |          |       |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------ | ---------------------------------------- | -------- | ----- | ---- | - | -------- | ----- | - | - | -------- | ----- | -
|                                                                                                                                                                           |                                | Year Ended December 31,                  |         
|                                                                                                                                                                           |                                |                                          |         
|                                                                                                                                                                           |                                | 2004                                     |          |       | 2003 |   |          | 2002  |  
|                                                                                                                                                                           |                                |                                          |          |       |      |   |          |       |  
|                                                                                                                                                                           |                                | (In thousands, except per share amounts) |         
|Net loss, as reported                                                                                                                                                      |                                | $                                        | (463,531 | )     |      | $ | (308,547 | )     |   | $ | (292,440 | )    
|Add: Amortization of non-cash deferred stock compensation
    expense determined under the intrinsic value method as reported
    in net loss, net of related tax effects* |                                |                                          | 3,494    |       |      |   | 9,243    |       |   |   | 30,583   |      
|Deduct: Total stock-based employee compensation expense
    determined under fair value method for all awards, net of
    related tax effects                              |                                |                                          | (120,265 | )     |      |   | (200,470 | )     |   |   | (253,599 | )    
|                                                                                                                                                                           |                                |                                          |          |       |      |   |          |       |  
|Pro forma net loss                                                                                                                                                         |                                | $                                        | (580,302 | )     |      | $ | (499,774 | )     |   | $ | (515,456 | )    
|                                                                                                                                                                           |                                |                                          |          |       |      |   |          |       |  
|Loss per share:                                                                                                                                                            |                                |                                          |          |       |      |   |          |       |   |   |          |      
|                                                                                                                                                                           | Basic and diluted -as reported |                                          | $        | (1.21 | )    |   | $        | (0.82 | ) |   | $        | (0.79 | )
|                                                                                                                                                                           | Basic and diluted -pro forma   |                                          | $        | (1.51 | )    |   | $        | (1.32 | ) |   | $        | (1.39 | )






|  |                                                                                                          
|- | ---------------------------------------------------------------------------------------------------------
|* | This amount excludes amortization of non-cash deferred stock
    compensation on restricted stock awards.

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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)






|                                                 |  |      |       |   |      |   |       |      |  |   |       |  
|------------------------------------------------ |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|Employee Stock Options Granted                   |  | 2004 |       |   | 2003 |   |       | 2002 | 
|                                                 |  |      |       |   |      |   |       |      | 
|Weighted average estimated grant date fair value |  | $    | 4.39  |   |      | $ | 4.95  |      |  | $ | 8.29  |  
|Assumptions in calculation:                      |  |      |       |   |      |   |       |      |  |   |       |  
|Expected life (years)                            |  |      | 3.90  |   |      |   | 3.85  |      |  |   | 3.84  |  
|Risk-free interest rate                          |  |      | 3.03  | % |      |   | 2.73  | %    |  |   | 3.97  | %
|Volatility                                       |  |      | 79.72 | % |      |   | 81.56 | %    |  |   | 77.00 | %
|Dividend yield                                   |  |      |      |   |      |   |      |      |  |   |      |  

|                                                     |  |      |       |   |      |   |       |      |  |   |       |  
|---------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|Employee Stock Purchase Plan Right to Purchase Stock |  | 2004 |       |   | 2003 |   |       | 2002 | 
|                                                     |  |      |       |   |      |   |       |      | 
|Weighted average estimated grant date fair value     |  | $    | 2.65  |   |      | $ | 3.09  |      |  | $ | 3.44  |  
|Assumptions in calculation:                          |  |      |       |   |      |   |       |      |  |   |       |  
|Expected life (years)                                |  |      | 0.91  |   |      |   | 0.87  |      |  |   | 0.87  |  
|Risk-free interest rate                              |  |      | 2.05  | % |      |   | 1.18  | %    |  |   | 1.69  | %
|Volatility                                           |  |      | 69.17 | % |      |   | 88.59 | %    |  |   | 80.39 | %
|Dividend yield                                       |  |      |      |   |      |   |      |      |  |   |      |  

Income Taxes.




Related party transactions.




| |                                  
| | ---------------------------------
| | Recent accounting pronouncements.



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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)
















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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)






Note 2  Business Combinations






| |     
| | ----
| | 2004

Acquisition of Accerant Inc.




|                                                           |  |   |        | 
|---------------------------------------------------------- |  | - | ------ | 
|Fair value of tangible net assets acquired                 |  | $ | 31     | 
|Current technology                                         |  |   | 5,700  | 
|Non-compete agreements                                     |  |   | 400    | 
|Goodwill                                                   |  |   | 7,972  | 
|                                                           |  |   |       
|Total purchase price excluding deferred stock compensation |  |   | 14,103 | 
|Deferred stock compensation                                |  |   | 1,765  | 
|                                                           |  |   |       
|Total purchase price                                       |  | $ | 15,868 | 
|                                                           |  |   |       

Useful life of intangible assets.




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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)


Acquisition of Velio Communications.




|                                                           |  |   |        | 
|---------------------------------------------------------- |  | - | ------ | 
|Fair value of tangible net assets acquired                 |  | $ | 1,529  | 
|Current technology                                         |  |   | 8,788  | 
|Customer base                                              |  |   | 8,788  | 
|Non-compete agreements                                     |  |   | 450    | 
|Existing purchase orders                                   |  |   | 200    | 
|                                                           |  |   |       
|Total purchase price excluding deferred stock compensation |  |   | 19,755 | 
|Deferred stock compensation                                |  |   | 1,000  | 
|                                                           |  |   |       
|Total purchase price                                       |  | $ | 20,755 | 
|                                                           |  |   |       

Useful life of intangible assets.






| |     
| | ----
| | 2003





| |     
| | ----
| | 2002



69



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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)




|                       |  |                  |               |                |       |   |         |               |  |               |          |  |             |          |            |            |        |              |      |             |                |   |              |  |  |   |     |  |  |   |     | 
|---------------------- |  | ---------------- | ------------- | -------------- | ----- | - | ------- | ------------- |  | ------------- | -------- |  | ----------- | -------- | ---------- | ---------- | ------ | ------------ | ---- | ----------- | -------------- | - | ------------ |  |  | - | --- |  |  | - | --- | 
|Entity Name or Type    |  |                  |               |                |       |   |         | Fair Value    |  |               |          |  |             |          |            |            |       
|of Technology;         |  |                  |               |                |       |   |         | of Tangible   |  |               |          |  |             |          |            |            |       
|Segment Included in;   |  |                  |               |                |       |   |         | Net Assets/   |  |               |          |  | Amortizable |          |            | In-Process |        |              |     
|Description of         |  |                  |               | Total Purchase |       |   | Type of |               |  | (Liabilities) |          |  |             |          | Intangible |            |        | Research and |      |             | Deferred Stock |  
|Acquired Business      |  | Acquisition Date |               |                | Price |   |         | Consideration |  |               | Acquired |  |             | Goodwill |            |            | Assets |              |      | Development |                |   | Compensation | 
|                       |  |                  |               |                |       |   |         |               |  |               |          |  |             |          |            |            |        |              |      |             |                |   |              | 
|Mylex Business Unit of |  |                  | August 2002   |                |       | $ | 50.5    |               |  |               | Cash     |  |             | $        | 14.1       |            |        | $            | 20.5 |             |                | $ | 14.0         |  |  | $ | 1.9 |  |  | $ |    | 
|IBM;                   |  |                  |               |                |       |   |         |               |  |               |          |  |             |          |            |            |        |              |      |             |                |   |              |  |  |   |     |  |  |   |     | 
|Entry-level storage    |  |                  |               |                |       |   |         |               |  |               |          |  |             |          |            |            |        |              |      |             |                |   |              |  |  |   |     |  |  |   |     | 
|systems in the Storage |  |                  |               |                |       |   |         |               |  |               |          |  |             |          |            |            |        |              |      |             |                |   |              |  |  |   |     |  |  |   |     | 
|Systems segment and    |  |                  |               |                |       |   |         |               |  |               |          |  |             |          |            |            |        |              |      |             |                |   |              |  |  |   |     |  |  |   |     | 
|PCI-RAID products in   |  |                  |               |                |       |   |         |               |  |               |          |  |             |          |            |            |        |              |      |             |                |   |              |  |  |   |     |  |  |   |     | 
|the Semiconductor      |  |                  |               |                |       |   |         |               |  |               |          |  |             |          |            |            |        |              |      |             |                |   |              |  |  |   |     |  |  |   |     | 
|segment                |  |                  |               |                |       |   |         |               |  |               |          |  |             |          |            |            |        |              |      |             |                |   |              |  |  |   |     |  |  |   |     | 
|Digital video product  |  |                  | November 2002 |                |       | $ | 6.7     |               |  |               | Cash     |  |             | $        | (0.2       | )          |        | $            | 2.9  |             |                | $ | 1.8          |  |  | $ | 1.0 |  |  | $ | 1.2 | 
|technologies;          |  |                  |               |                |       |   |         |               |  |               |          |  |             |          |            |            |        |              |      |             |                |   |              |  |  |   |     |  |  |   |     | 
|Semiconductor segment  |  |                  |               |                |       |   |         |               |  |               |          |  |             |          |            |            |        |              |      |             |                |   |              |  |  |   |     |  |  |   |     | 

Acquired in-process research and development.


|                      |  |                              |             |  |       |   |          |      |  |               |            |   |                    |         |            |  |  |  |      | 
|--------------------- |  | ---------------------------- | ----------- |  | ----- | - | -------- | ---- |  | ------------- | ---------- | - | ------------------ | ------- | ---------- |  |  |  | ---- | 
|                      |  |                              |             |  |       |   |          |      |  | Revenue       |           
|                      |  | Acquisition                  |             |  |       |   | Discount |      |  | Percentage of |            |   | projections extend |        
|Company               |  | Date                         |             |  | IPR&D |   |          | Rate |  |               | Completion |   |                    | through |           
|                      |  |                              |             |  |       |   |          |      |  |               |            |   |                    |         |           
|                      |  | (Dollar amounts in millions) |             |  |      
|Mylex Division of IBM |  |                              | August 2002 |  |       | $ | 1.9      |      |  |               | 25         | % |                    |         | 10% to 50% |  |  |  | 2006 | 







70



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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)


Note 3  Restructuring and other items




| |     
| | ----
| | 2004





| |                                                   
| | --------------------------------------------------
| | Restructuring and impairment of long-lived assets:



| |                       
| | ----------------------
| | First quarter of 2004:







| |                        
| | -----------------------
| | Second quarter of 2004:







| |                       
| | ----------------------
| | Third quarter of 2004:









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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)






| |                        
| | -----------------------
| | Fourth quarter of 2004:















72



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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)








|                                                         |       |                |        |        |               |   |         |            |  |   |          |        |   |              |          |          |   |   |        |        | 
|-------------------------------------------------------- | ----- | -------------- | ------ | ------ | ------------- | - | ------- | ---------- |  | - | -------- | ------ | - | ------------ | -------- | -------- | - | - | ------ | ------ | 
|                                                         |       | Balance at     |        |        | Restructuring |   |         | Release of |  |   | Utilized |        |   | Balance at   |         
|                                                         |       | December 31,   |        |        | Expense       |   |         | Reserve    |  |   | During   |        |   | December 31, |         
|                                                         |       | 2003           |        |        | 2004          |   |         | 2004       |  |   | 2004     |        |   | 2004         |         
|                                                         |       |                |        |        |               |   |         |            |  |   |          |        |   |              |         
|                                                         |       | (In thousands) |       
|Write-down of excess assets and decommissioning costs(a) |       | $              | 2,661  |        |               | $ | 404,723 |            |  | $ | (760     | )      |   | $            | (405,417 | )        |   | $ | 1,207  |       
|Lease terminations and maintenance contracts(b)          |       |                | 21,021 |        |               |   | 11,388  |            |  |   | (665     | )      |   |              | (11,679  | )        |   |   | 20,065 |       
|Facility closure and other exit costs(c)                 |       |                | 2,136  |        |               |   | 64      |            |  |   |         |        |   |              | (1,657   | )        |   |   | 543    |       
|Payments to employees for severance(d)                   |       |                | 874    |        |               |   | 18,812  |            |  |   | (18      | )      |   |              | (12,260  | )        |   |   | 7,408  |       
|                                                         |       |                |        |        |               |   |         |            |  |   |          |        |   |              |         
|                                                         | Total |                | $      | 26,692 |               |   | $       | 434,987    |  |   | $        | (1,443 | ) |              | $        | (431,013 | ) |   | $      | 29,223 | 
|                                                         |       |                |        |        |               |   |         |            |  |   |          |        |   |              |         






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The amounts utilized in 2004 reflect $411.6 million of
    non-cash write-downs of long-lived assets in the U.S. due
    to impairment and $0.8 million in cash payments to
    decommission and sell assets, offset by a $7.0 million
    realized gain on the sale of fixed assets previously held for
    sale. The write-downs of long-lived assets were accounted for as
    a reduction of the assets and did not result in a liability. The
    $1.2 million balance as of December 31, 2004, relates
    to machinery and equipment decommissioning costs in the U.S. and
    estimates of selling costs for assets held for sale and is
    expected to be utilized during 2005.



|    |  |                                                                                                                                                                                                                                          
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | Amounts utilized represent cash payments. The balance remaining
    for primarily real estate lease terminations and maintenance
    contracts will be paid during the remaining terms of these
    contracts, which extend through 2011.
|   
|(c) |  | Amounts utilized represent cash payments. The balance remaining
    for facility closure and other exit costs will be paid during
    2005.                                                                                              
|   
|(d) |  | Amounts utilized represent cash severance payments to 495
    employees during the year ended December 31, 2004. The
    balance remaining for severance benefits is expected to be paid
    by the end of 2005.                         



| |             
| | ------------
| | Other Items:





73



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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)










| |     
| | ----
| | 2003





| |                                                   
| | --------------------------------------------------
| | Restructuring and impairment of long-lived assets:





| |                       
| | ----------------------
| | First quarter of 2003:





| |                        
| | -----------------------
| | Second quarter of 2003:





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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)








| |                       
| | ----------------------
| | Third quarter of 2003:



| |                                              
| | ---------------------------------------------
| | Agreement to sell Japan fabrication facility:





| |                                                
| | -----------------------------------------------
| | Other third quarter 2003 restructuring actions:







| |                        
| | -----------------------
| | Fourth quarter of 2003:



75



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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)






|                                                         |       |                |       |        |               |   |         |                   |  |   |          |        |   |              |          |          |   |   |        |        | 
|-------------------------------------------------------- | ----- | -------------- | ----- | ------ | ------------- | - | ------- | ----------------- |  | - | -------- | ------ | - | ------------ | -------- | -------- | - | - | ------ | ------ | 
|                                                         |       | Balance at     |       |        | Restructuring |   |         | Release of        |  |   | Utilized |        |   | Balance at   |         
|                                                         |       | December 31,   |       |        | Expense       |   |         | Reserve and       |  |   | During   |        |   | December 31, |         
|                                                         |       | 2002           |       |        | 2003          |   |         | Reclassifications |  |   | 2003     |        |   | 2003         |         
|                                                         |       |                |       |        |               |   |         |                   |  |   |          |        |   |              |         
|                                                         |       | (In thousands) |      
|Write-down of excess assets and decommissioning costs(a) |       | $              | 6,008 |        |               | $ | 147,454 |                   |  | $ | (6,422   | )      |   | $            | (144,379 | )        |   | $ | 2,661  |       
|Lease terminations and maintenance contracts(b)          |       |                | 6,757 |        |               |   | 23,444  |                   |  |   | (1,146   | )      |   |              | (8,034   | )        |   |   | 21,021 |       
|Facility closure and other exit costs(c)                 |       |                | 8,129 |        |               |   | 1,072   |                   |  |   | 1,203    |        |   |              | (8,268   | )        |   |   | 2,136  |       
|Payments to employees for severance(d)                   |       |                | 1,391 |        |               |   | 18,095  |                   |  |   | (928     | )      |   |              | (17,684  | )        |   |   | 874    |       
|                                                         |       |                |       |        |               |   |         |                   |  |   |          |        |   |              |         
|                                                         | Total |                | $     | 22,285 |               |   | $       | 190,065           |  |   | $        | (7,293 | ) |              | $        | (178,365 | ) |   | $      | 26,692 | 
|                                                         |       |                |       |        |               |   |         |                   |  |   |          |        |   |              |         






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The amounts utilized in 2003 reflect $142 million of
    non-cash write-downs of amortizable intangible and other
    long-lived assets in the U.S. and Japan due to impairment, and
    $2 million in cash payments to decommission and sell
    assets. The write-downs of the intangible and other long-lived
    assets were accounted for as a reduction of the assets and did
    not result in a liability. The $3 million balance as of
    December 31, 2003 relates to machinery and equipment
    decommissioning costs in U.S. and estimates of selling costs for
    assets held for sale.



|    |  |                                                                                                                                                                                                                                          
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | Amounts utilized represent cash payments. The balance remaining
    for primarily real estate lease terminations and maintenance
    contracts will be paid during the remaining terms of these
    contracts, which extend through 2011.
|   
|(c) |  | Amounts utilized represent cash payments.                                                                                                                                                                                                
|   
|(d) |  | Amounts utilized represent cash severance payments to 777
    employees during 2003. The $0.9 million balance as of
    December 31, 2003 was paid during 2004.                                                                          



| |             
| | ------------
| | Other items:





| |     
| | ----
| | 2002



76



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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)




| |                                                    
| | ---------------------------------------------------
| | Restructuring and impairments of long-lived assets:









|                                                         |       |                |        |        |               |   |        |                   |  |   |          |        |   |              |         |         |   |   |       |        | 
|-------------------------------------------------------- | ----- | -------------- | ------ | ------ | ------------- | - | ------ | ----------------- |  | - | -------- | ------ | - | ------------ | ------- | ------- | - | - | ----- | ------ | 
|                                                         |       | Balance at     |        |        | Restructuring |   |        | Release of        |  |   | Utilized |        |   | Balance at   |        
|                                                         |       | December 31,   |        |        | Expense       |   |        | Reserve and       |  |   | During   |        |   | December 31, |        
|                                                         |       | 2001           |        |        | 2002          |   |        | Reclassifications |  |   | 2002     |        |   | 2002         |        
|                                                         |       |                |        |        |               |   |        |                   |  |   |          |        |   |              |        
|                                                         |       | (In thousands) |       
|Write-down of excess assets and decommissioning costs(a) |       | $              | 3,762  |        |               | $ | 38,918 |                   |  | $ | 5,147    |        |   | $            | (41,819 | )       |   | $ | 6,008 |       
|Lease terminations and maintenance contracts(c)          |       |                | 10,695 |        |               |   | 12,871 |                   |  |   | (10,559  | )      |   |              | (6,250  | )       |   |   | 6,757 |       
|Facility closure and other exit costs(c)                 |       |                | 14,153 |        |               |   | 415    |                   |  |   | 4,058    |        |   |              | (10,497 | )       |   |   | 8,129 |       
|Payments to employees for severance(b)                   |       |                | 724    |        |               |   | 27,490 |                   |  |   | (3,150   | )      |   |              | (23,673 | )       |   |   | 1,391 |       
|                                                         |       |                |        |        |               |   |        |                   |  |   |          |        |   |              |        
|                                                         | Total |                | $      | 29,334 |               |   | $      | 79,694            |  |   | $        | (4,504 | ) |              | $       | (82,239 | ) |   | $     | 22,285 | 
|                                                         |       |                |        |        |               |   |        |                   |  |   |          |        |   |              |        






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Amounts utilized in 2002 reflect a non-cash write-down of fixed
    assets in the U.S. and Japan due to impairment of
    $38.3 million and cash payments for machinery and equipment
    decommissioning costs of $3.5 million. The fixed asset
    write-downs were accounted for as a reduction of the assets and
    did not result in a liability. The $6.0 million balance as
    of December 31, 2002 relates to machinery and equipment
    decommissioning costs in the U.S. and selling costs for assets
    held for sale.



|    |  |                                                                                                                                                                                                  
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | Amounts utilized represent cash severance payments to 1,290
    employees during the year ended December 31, 2002. The
    $1.4 million balance as of December 31, 2002 was paid
    during 2003.
|   
|(c) |  | Amounts utilized represent cash payments.                                                                                                                                                        

77



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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)




| |             
| | ------------
| | Other items:



Note 4  Segment and Geographic Information






Information about profit or loss and assets.


|                               |                 |                         |   |           |           |   |   |           |           |   |   |           |           |  
|------------------------------ | --------------- | ----------------------- | - | --------- | --------- | - | - | --------- | --------- | - | - | --------- | --------- | -
|                               |                 | Year Ended December 31, |  
|                               |                 |                         |  
|                               |                 | 2004                    |   |           | 2003      |   |   | 2002      |          
|                               |                 |                         |   |           |           |   |   |           |          
|                               |                 | (In thousands)          |  
|Revenues:                      |                 |                         |   |           |           |   |   |           |           |   |   |          
|                               | Semiconductor   |                         | $ | 1,248,531 |           |   | $ | 1,269,708 |           |   | $ | 1,481,386 |          
|                               | Storage Systems |                         |   | 451,633   |           |   |   | 423,362   |           |   |   | 335,552   |          
|                               |                 |                         |   |           |           |   |   |           |          
|                               |                 | Total                   |   | $         | 1,700,164 |   |   | $         | 1,693,070 |   |   | $         | 1,816,938 |  
|                               |                 |                         |   |           |           |   |   |           |          
|Income/(loss) from operations: |                 |                         |   |           |           |   |   |           |           |   |   |          
|                               | Semiconductor   |                         | $ | (449,686  | )         |   | $ | (295,710  | )         |   | $ | (290,017  | )        
|                               | Storage Systems |                         |   | 13,337    |           |   |   | 23,094    |           |   |   | 25,204    |          
|                               |                 |                         |   |           |           |   |   |           |          
|                               |                 | Total                   |   | $         | (436,349  | ) |   | $         | (272,616  | ) |   | $         | (264,813  | )
|                               |                 |                         |   |           |           |   |   |           |          



78



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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)




|              |                 |                |   |           |      |  |   |           |  |  |   |           | 
|------------- | --------------- | -------------- | - | --------- | ---- |  | - | --------- |  |  | - | --------- | 
|              |                 | December 31,   |  
|              |                 |                |  
|              |                 | 2004           |   |           | 2003 |  |   | 2002      | 
|              |                 |                |   |           |      |  |   |           | 
|              |                 | (In thousands) |  
|Total assets: |                 |                |   |           |      |  |   |           |  |  |   |          
|              | Semiconductor   |                | $ | 2,549,016 |      |  | $ | 3,115,610 |  |  | $ | 3,721,282 | 
|              | Storage Systems |                |   | 324,985   |      |  |   | 332,291   |  |  |   | 291,454   | 
|              |                 |                |   |           |      |  |   |           | 
|              | Total           |                | $ | 2,874,001 |      |  | $ | 3,447,901 |  |  | $ | 4,012,736 | 
|              |                 |                |   |           |      |  |   |           | 

Significant Customers.


|                         |                                     |                         |  |               |      |  |  |               |  |  |  |               | 
|------------------------ | ----------------------------------- | ----------------------- |  | ------------- | ---- |  |  | ------------- |  |  |  | ------------- | 
|                         |                                     | Year Ended December 31, | 
|                         |                                     |                         | 
|                         |                                     | 2004                    |  |               | 2003 |  |  | 2002          | 
|                         |                                     |                         |  |               |      |  |  |               | 
|Semiconductor segment:   |                                     |                         |  |               |      |  |  |               |  |  |  |              
|                         | Number of significant customers     |                         |  |              |      |  |  | 1             |  |  |  | 1             | 
|                         | Percentage of segment revenues      |                         |  |              |      |  |  | 18%           |  |  |  | 22%           | 
|Storage Systems segment: |                                     |                         |  |               |      |  |  |               |  |  |  |              
|                         | Number of significant customers     |                         |  | 3             |      |  |  | 3             |  |  |  | 3             | 
|                         | Percentage of segment revenues      |                         |  | 54%, 14%, 12% |      |  |  | 52%, 14%, 11% |  |  |  | 36%, 20%, 15% | 
|Consolidated:            |                                     |                         |  |               |      |  |  |               |  |  |  |              
|                         | Number of significant customers     |                         |  | 1             |      |  |  | 2             |  |  |  | 1             | 
|                         | Percentage of consolidated revenues |                         |  | 16%           |      |  |  | 15%, 13%      |  |  |  | 18%           | 

Information about geographic areas.


|          |                       |                         |   |         |           |  |   |         |           |  |   |         |           | 
|--------- | --------------------- | ----------------------- | - | ------- | --------- |  | - | ------- | --------- |  | - | ------- | --------- | 
|          |                       | Year Ended December 31, |  
|          |                       |                         |  
|          |                       | 2004                    |   |         | 2003      |  |   | 2002    |          
|          |                       |                         |   |         |           |  |   |         |          
|          |                       | (In thousands)          |  
|Revenues: |                       |                         |   |         |           |  |   |         |           |  |   |        
|          | North America         |                         | $ | 852,453 |           |  | $ | 863,620 |           |  | $ | 905,323 |          
|          | Asia, including Japan |                         |   | 655,077 |           |  |   | 677,266 |           |  |   | 748,906 |          
|          | Europe                |                         |   | 192,634 |           |  |   | 152,184 |           |  |   | 162,709 |          
|          |                       |                         |   |         |           |  |   |         |          
|          |                       | Total                   |   | $       | 1,700,164 |  |   | $       | 1,693,070 |  |   | $       | 1,816,938 | 
|          |                       |                         |   |         |           |  |   |         |          

|                   |                       |                |   |         |         |  |   |         |         |  |   |         |           | 
|------------------ | --------------------- | -------------- | - | ------- | ------- |  | - | ------- | ------- |  | - | ------- | --------- | 
|                   |                       | December 31,   |  
|                   |                       |                |  
|                   |                       | 2004           |   |         | 2003    |  |   | 2002    |        
|                   |                       |                |   |         |         |  |   |         |        
|                   |                       | (In thousands) |  
|Long-lived assets: |                       |                |   |         |         |  |   |         |         |  |   |        
|                   | North America         |                | $ | 380,527 |         |  | $ | 865,567 |         |  | $ | 968,976 |          
|                   | Asia, including Japan |                |   | 37,870  |         |  |   | 50,471  |         |  |   | 133,953 |          
|                   | Europe                |                |   | 3,686   |         |  |   | 4,623   |         |  |   | 5,559   |          
|                   |                       |                |   |         |         |  |   |         |        
|                   |                       | Total          |   | $       | 422,083 |  |   | $       | 920,661 |  |   | $       | 1,108,488 | 
|                   |                       |                |   |         |         |  |   |         |        

79



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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)






Note 5  Cash, Cash Equivalents and
Investments


|                                           |                                           |                                                  |         |         |         |   |         |         |         | 
|------------------------------------------ | ----------------------------------------- | ------------------------------------------------ | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                           |                                           | December 31,                                     |        
|                                           |                                           |                                                  |        
|                                           |                                           | 2004                                             |         |         | 2003    |  
|                                           |                                           |                                                  |         |         |         |  
|                                           |                                           | (In thousands)                                   |        
|Cash and cash equivalents                  |                                           |                                                  |         |         |         |   |         |        
|Cash in financial institutions             |                                           | $                                                | 51,172  |         |         | $ | 108,989 |        
|                                           |                                           |                                                  |         |         |         |  
|Cash equivalents:                          |                                           |                                                  |         |         |         |   |         |        
|                                           | Overnight deposits and money market funds |                                                  |         | 146,292 |         |   |         | 103,185 |        
|                                           | Commercial paper                          |                                                  |         | 18,260  |         |   |         | 39,294  |        
|                                           | Corporate and municipal debt securities   |                                                  |         |        |         |   |         | 11,370  |        
|                                           | U.S. government and agency securities     |                                                  |         | 2,999   |         |   |         | 6,844   |        
|                                           |                                           |                                                  |         |         |         |  
|                                           | Total cash equivalents                    |                                                  |         | 167,551 |         |   |         | 160,693 |        
|                                           | Total cash and cash equivalents           |                                                  | $       | 218,723 |         |   | $       | 269,682 |        
|                                           |                                           |                                                  |         |         |         |  
|Available-for-sale debt securities         |                                           |                                                  |         |         |         |   |         |        
|Asset and mortgage-backed securities       |                                           | $                                                | 292,898 |         |         | $ | 345,625 |        
|U.S. government and agency securities      |                                           |                                                  | 234,787 |         |         |   | 104,173 |        
|Corporate and municipal debt securities    |                                           |                                                  | 68,177  |         |         |   | 90,730  |        
|Auction rate preferred stock               |                                           |                                                  |        |         |         |   | 3,150   |        
|Foreign debt securities                    |                                           |                                                  |        |         |         |   | 329     |        
|                                           |                                           |                                                  |         |         |         |  
|                                           |                                           | Total short-term investments                     |         | $       | 595,862 |   |         | $       | 544,007 | 
|                                           |                                           |                                                  |         |         |         |  
|Long-term investments in equity securities |                                           |                                                  |         |         |         |   |         |        
|Marketable equity securities               |                                           | $                                                | 28,372  |         |         | $ | 22,912  |        
|Non-marketable equity securities           |                                           |                                                  | 9,307   |         |         |   | 12,543  |        
|                                           |                                           |                                                  |         |         |         |  
|                                           |                                           | Total long-term investments in equity securities |         | $       | 37,679  |   |         | $       | 35,455  | 
|                                           |                                           |                                                  |         |         |         |  



|                    |  |   |         | 
|------------------- |  | - | ------- | 
|Due within one year |  | $ | 77,090  | 
|Due in 1-5 years    |  |   | 330,152 | 
|Due in 5-10 years   |  |   | 45,175  | 
|Due after 10 years  |  |   | 143,445 | 
|                    |  |   |        
|Total               |  | $ | 595,862 | 
|                    |  |   |        





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Notes to Consolidated Financial
Statements  (Continued)






| |   |                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A $3 million pre-tax gain associated with marketable
    available-for-sale equity securities of a certain technology
    company that was acquired by another technology company in the
    first quarter of 2004; and
|
| |  | A $5 million pre-tax gain related to the sales of certain
    marketable available-for-sale equity securities in the second
    quarter of 2004.                                                                       





|                                                                         |                              |                |     |      |             |   |     |     | 
|------------------------------------------------------------------------ | ---------------------------- | -------------- | --- | ---- | ----------- | - | --- | --- | 
|                                                                         |                              | Non-Marketable |     |      | Marketable  |  
|                                                                         |                              | Equity         |     |      | Equity      |  
|                                                                         |                              | Investments    |     |      | Investments |  
|                                                                         |                              |                |     |      |             |  
|                                                                         |                              | (In millions)  |    
|Pre-tax loss:                                                            |                              |                |     |      |             |   |     |    
|                                                                         | Year ended December 31, 2004 |                | $   | 3.3  |             |   | $   | 4.1 | 
|                                                                         | Year ended December 31, 2003 |                |     | 7.9  |             |   |     | 2.7 | 
|                                                                         | Year ended December 31, 2002 |                |     | 15.5 |             |   |     | 6.0 | 
|Total carrying value of impaired investments as of
    December 31, 2004 |                              | $              | 4.8 |      |             | $ | 2.9 |    

Investments in available-for-sale securities


|                                       |  |                |         |  |                  |   |        |                  |  |   |            |   |  |   |         | 
|-------------------------------------- |  | -------------- | ------- |  | ---------------- | - | ------ | ---------------- |  | - | ---------- | - |  | - | ------- | 
|                                       |  | Adjusted       |         |  | Gross Unrealized |   |        | Gross Unrealized |  |   | Estimated  |  
|                                       |  | Cost           |         |  | Gains            |   |        | Losses           |  |   | Fair Value |  
|                                       |  |                |         |  |                  |   |        |                  |  |   |            |  
|                                       |  | (In thousands) |        
|December 31, 2004                      |  |                |         |  |                  |   |        |                  |  |   |            |   |  |   |         | 
|Short-term debt securities             |  | $              | 600,527 |  |                  | $ | 728    |                  |  | $ | (5,393     | ) |  | $ | 595,862 | 
|Long-term marketable equity securities |  |                | 5,912   |  |                  |   | 22,460 |                  |  |   |           |   |  |   | 28,372  | 
|December 31, 2003                      |  |                |         |  |                  |   |        |                  |  |   |            |   |  |   |         | 
|Short-term debt securities             |  |                | 544,540 |  |                  |   | 1,900  |                  |  |   | (2,433     | ) |  |   | 544,007 | 
|Long-term marketable equity securities |  |                | 10,406  |  |                  |   | 12,506 |                  |  |   |           |   |  |   | 22,912  | 



|                                        |  |                     |         |  |                        |   |       |       |  |   |            |  |  |   |       | 
|--------------------------------------- |  | ------------------- | ------- |  | ---------------------- | - | ----- | ----- |  | - | ---------- |  |  | - | ----- | 
|                                        |  | Less than 12 Months |         |  | Greater than 12 Months |  
|                                        |  |                     |         |  |                        |  
|                                        |  | Fair                |         |  | Unrealized             |   |       | Fair  |  |   | Unrealized | 
|                                        |  | Value               |         |  | Losses                 |   |       | Value |  |   | Losses     | 
|                                        |  |                     |         |  |                        |   |       |       |  |   |            | 
|                                        |  | (In thousands)      |        
|Asset and mortgage-backed securities    |  | $                   | 107,680 |  |                        | $ | 1,177 |       |  | $ | 38,287     |  |  |   | 1,192 | 
|U.S. government and agency securities   |  |                     | 167,660 |  |                        |   | 2,321 |       |  |   | 13,822     |  |  |   | 383   | 
|Corporate and municipal debt securities |  |                     | 52,029  |  |                        |   | 320   |       |  |   |           |  |  |   |      | 
|                                        |  |                     |         |  |                        |   |       |       |  |   |            | 
|                                        |  | $                   | 327,369 |  |                        | $ | 3,818 |       |  | $ | 52,109     |  |  | $ | 1,575 | 
|                                        |  |                     |         |  |                        |   |       |       |  |   |            | 

Marketable Debt Securities.


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Notes to Consolidated Financial
Statements  (Continued)




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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)


Note 6  Balance Sheet Detail


|                                                                                                                                                                                                     |                                                                                            |                |         |          |      |   |           |          |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------ | -------------- | ------- | -------- | ---- | - | --------- | -------- | -
|                                                                                                                                                                                                     |                                                                                            | December 31,   |        
|                                                                                                                                                                                                     |                                                                                            |                |        
|                                                                                                                                                                                                     |                                                                                            | 2004           |         |          | 2003 |  
|                                                                                                                                                                                                     |                                                                                            |                |         |          |      |  
|                                                                                                                                                                                                     |                                                                                            | (In thousands) |        
|Inventories:                                                                                                                                                                                         |                                                                                            |                |         |          |      |   |           |         
|                                                                                                                                                                                                     | Raw materials                                                                              |                | $       | 20,022   |      |   | $         | 15,352   |  
|                                                                                                                                                                                                     | Work-in-process                                                                            |                |         | 106,818  |      |   |           | 116,340  |  
|                                                                                                                                                                                                     | Finished goods                                                                             |                |         | 92,060   |      |   |           | 66,825   |  
|                                                                                                                                                                                                     |                                                                                            |                |         |          |      |  
|                                                                                                                                                                                                     |                                                                                            | $              | 218,900 |          |      | $ | 198,517   |         
|                                                                                                                                                                                                     |                                                                                            |                |         |          |      |  
|Prepaid expenses and other current assets:                                                                                                                                                           |                                                                                            |                |         |          |      |   |           |         
|                                                                                                                                                                                                     | Deferred tax assets                                                                        |                | $       | 5,661    |      |   | $         | 8,116    |  
|                                                                                                                                                                                                     | Assets held for sale                                                                       |                |         | 11,034   |      |   |           | 29,883   |  
|                                                                                                                                                                                                     | Current portion of assets and deposits                                                     |                |         |         |      |   |           | 57,805   |  
|                                                                                                                                                                                                     | Prepaid expense and other current assets                                                   |                |         | 43,042   |      |   |           | 50,843   |  
|                                                                                                                                                                                                     |                                                                                            |                |         |          |      |  
|                                                                                                                                                                                                     |                                                                                            | $              | 59,737  |          |      | $ | 146,647   |         
|                                                                                                                                                                                                     |                                                                                            |                |         |          |      |  
|Property and equipment:                                                                                                                                                                              |                                                                                            |                |         |          |      |   |           |         
|                                                                                                                                                                                                     | Land                                                                                       |                | $       | 31,305   |      |   | $         | 37,569   |  
|                                                                                                                                                                                                     | Buildings and improvements                                                                 |                |         | 109,891  |      |   |           | 359,402  |  
|                                                                                                                                                                                                     | Equipment                                                                                  |                |         | 463,271  |      |   |           | 667,899  |  
|                                                                                                                                                                                                     | Furniture and fixtures                                                                     |                |         | 30,697   |      |   |           | 30,567   |  
|                                                                                                                                                                                                     | Leasehold improvements                                                                     |                |         | 30,608   |      |   |           | 34,226   |  
|                                                                                                                                                                                                     | Construction in progress                                                                   |                |         | 10,622   |      |   |           | 26,903   |  
|                                                                                                                                                                                                     |                                                                                            |                |         |          |      |  
|                                                                                                                                                                                                     |                                                                                            |                | 676,394 |          |      |   | 1,156,566 |         
|                                                                                                                                                                                                     | Accumulated depreciation and amortization                                                  |                |         | (364,478 | )    |   |           | (675,077 | )
|                                                                                                                                                                                                     |                                                                                            |                |         |          |      |  
|                                                                                                                                                                                                     |                                                                                            | $              | 311,916 |          |      | $ | 481,489   |         
|                                                                                                                                                                                                     |                                                                                            |                |         |          |      |  
|Depreciation for property and equipment totaling
    $86 million, $149 million and $206 million was
    included in the Companys results of operations during
    2004, 2003 and 2002, respectively
|Other assets:                                                                                                                                                                                        |                                                                                            |                |         |          |      |   |           |         
|                                                                                                                                                                                                     | Deferred tax assets                                                                        |                | $       | 5,044    |      |   | $         | 7,484    |  
|                                                                                                                                                                                                     | Software, net                                                                              |                |         | 22,959   |      |   |           | 21,755   |  
|                                                                                                                                                                                                     | Investment in equity securities                                                            |                |         | 37,679   |      |   |           | 35,455   |  
|                                                                                                                                                                                                     | Debt issuance costs, net                                                                   |                |         | 11,901   |      |   |           | 17,123   |  
|                                                                                                                                                                                                     | Other assets                                                                               |                |         | 37,628   |      |   |           | 46,663   |  
|                                                                                                                                                                                                     |                                                                                            |                |         |          |      |  
|                                                                                                                                                                                                     |                                                                                            | $              | 115,211 |          |      | $ | 128,480   |         
|                                                                                                                                                                                                     |                                                                                            |                |         |          |      |  
|Software amortization totaling $12 million,
    $25 million and $43 million was included in the
    Companys results of operations during 2004, 2003 and 2002,
    respectively                    
|Other accrued liabilities:                                                                                                                                                                           |                                                                                            |                |         |          |      |   |           |         
|                                                                                                                                                                                                     | Accrued expenses                                                                           |                | $       | 87,094   |      |   | $         | 105,870  |  
|                                                                                                                                                                                                     | Warranty reserves                                                                          |                |         | 10,040   |      |   |           | 9,474    |  
|                                                                                                                                                                                                     | Restructuring reserves                                                                     |                |         | 29,223   |      |   |           | 26,692   |  
|                                                                                                                                                                                                     | Sales tax payable                                                                          |                |         | 11,118   |      |   |           | 6,532    |  
|                                                                                                                                                                                                     | Interest payable                                                                           |                |         | 4,803    |      |   |           | 5,289    |  
|                                                                                                                                                                                                     |                                                                                            |                |         |          |      |  
|                                                                                                                                                                                                     |                                                                                            | $              | 142,278 |          |      | $ | 153,857   |         
|                                                                                                                                                                                                     |                                                                                            |                |         |          |      |  
|Tax related liabilities and other:                                                                                                                                                                   |                                                                                            |                |         |          |      |   |           |         
|                                                                                                                                                                                                     | Other long-term tax-related liabilities                                                    |                | $       | 77,313   |      |   | $         | 77,161   |  
|                                                                                                                                                                                                     | Deferred gain on sale of equipment under operating lease                                   |                |         |         |      |   |           | 56,601   |  
|                                                                                                                                                                                                     | Liability for the fair value of residual value guarantees on
    operating lease           |                |         |         |      |   |           | 6,700    |  
|                                                                                                                                                                                                     | Other long-term liabilities                                                                |                |         | 257      |      |   |           | 634      |  
|                                                                                                                                                                                                     |                                                                                            |                |         |          |      |  
|                                                                                                                                                                                                     |                                                                                            | $              | 77,570  |          |      | $ | 141,096   |         
|                                                                                                                                                                                                     |                                                                                            |                |         |          |      |  
|Accumulated other comprehensive income:                                                                                                                                                              |                                                                                            |                |         |          |      |   |           |         
|                                                                                                                                                                                                     | Net unrealized gains on available-for-sale securities, net of
    tax of $6,228 and $4,190 |                | $       | 11,567   |      |   | $         | 7,783    |  
|                                                                                                                                                                                                     | Unrealized gain on cash-flow hedges, net of tax of $-and $698                              |                |         |         |      |   |           | 1,995    |  
|                                                                                                                                                                                                     | Foreign currency translation adjustments                                                   |                |         | 26,383   |      |   |           | 24,435   |  
|                                                                                                                                                                                                     |                                                                                            |                |         |          |      |  
|                                                                                                                                                                                                     |                                                                                            | $              | 37,950  |          |      | $ | 34,213    |         
|                                                                                                                                                                                                     |                                                                                            |                |         |          |      |  



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Notes to Consolidated Financial
Statements  (Continued)








Note 7  Intangible Assets and Goodwill




|                 |                          |                   |         |         |                   |   |          |                |          |   |              |         |         |   |          |          |          |  
|---------------- | ------------------------ | ----------------- | ------- | ------- | ----------------- | - | -------- | -------------- | -------- | - | ------------ | ------- | ------- | - | -------- | -------- | -------- | -
|                 |                          | December 31, 2004 |         |         | December 31, 2003 |  
|                 |                          |                   |         |         |                   |  
|                 |                          | Gross Carrying    |         |         | Accumulated       |   |          | Gross Carrying |          |   | Accumulated  |        
|                 |                          | Amount            |         |         | Amortization      |   |          | Amount         |          |   | Amortization |        
|                 |                          |                   |         |         |                   |   |          |                |          |   |              |        
|Semiconductor:   |                          |                   |         |         |                   |   |          |                |          |   |              |         |         |   |          |         
|                 | Current technology       |                   | $       | 318,402 |                   |   | $        | (239,973       | )        |   | $            | 319,364 |         |   | $        | (195,837 | )       
|                 | Trademarks               |                   |         | 29,685  |                   |   |          | (20,496        | )        |   |              | 29,684  |         |   |          | (15,981  | )       
|                 | Customer base            |                   |         | 8,788   |                   |   |          | (1,198         | )        |   |              |        |         |   |          |         |         
|                 | Non-compete agreements   |                   |         | 849     |                   |   |          | (195           | )        |   |              |        |         |   |          |         |         
|                 | Existing purchase orders |                   |         | 200     |                   |   |          | (200           | )        |   |              |        |         |   |          |         |         
|                 |                          |                   |         |         |                   |   |          |                |          |   |              |        
|                 |                          | Subtotal          |         |         | 357,924           |   |          |                | (262,062 | ) |              |         | 349,048 |   |          |          | (211,818 | )
|Storage Systems: |                          |                   |         |         |                   |   |          |                |          |   |              |         |         |   |          |         
|                 | Current technology       |                   |         | 50,039  |                   |   |          | (41,424        | )        |   |              | 50,039  |         |   |          | (33,802  | )       
|                 | Trademarks               |                   |         | 3,750   |                   |   |          | (2,950         | )        |   |              | 3,750   |         |   |          | (2,458   | )       
|                 | Customer base            |                   |         | 5,010   |                   |   |          | (3,420         | )        |   |              | 5,010   |         |   |          | (2,540   | )       
|                 | Supply agreement         |                   |         | 7,247   |                   |   |          | (5,657         | )        |   |              | 7,247   |         |   |          | (3,240   | )       
|                 |                          |                   |         |         |                   |   |          |                |          |   |              |        
|                 |                          | Subtotal          |         |         | 66,046            |   |          |                | (53,451  | ) |              |         | 66,046  |   |          |          | (42,040  | )
|                 |                          |                   |         |         |                   |   |          |                |          |   |              |        
|Total            |                          | $                 | 423,970 |         |                   | $ | (315,513 | )              |          | $ | 415,094      |         |         | $ | (253,858 | )       
|                 |                          |                   |         |         |                   |   |          |                |          |   |              |        

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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)




|                         |  |               |    |                |                         |   |        |      |  |   |        |  |  |   |        | 
|------------------------ |  | ------------- | -- | -------------- | ----------------------- | - | ------ | ---- |  | - | ------ |  |  | - | ------ | 
|                         |  | Weighted      |    |                | Year Ended December 31, |  
|                         |  | Average Lives |    |                |                         |  
|                         |  | (in months)   |    |                | 2004                    |   |        | 2003 |  |   | 2002   | 
|                         |  |               |    |                |                         |   |        |      |  |   |        | 
|                         |  |               |    | (In thousands) |                        
|Current technology       |  |               | 79 |                |                         | $ | 65,153 |      |  | $ | 67,742 |  |  | $ | 70,713 | 
|Trademarks               |  |               | 83 |                |                         |   | 5,007  |      |  |   | 5,334  |  |  |   | 6,248  | 
|Customer base            |  |               | 68 |                |                         |   | 2,078  |      |  |   | 856    |  |  |   | 836    | 
|Supply agreement         |  |               | 36 |                |                         |   | 2,417  |      |  |   | 2,420  |  |  |   | 820    | 
|Non-compete agreements   |  |               | 46 |                |                         |   | 195    |      |  |   |       |  |  |   |       | 
|Existing purchase orders |  |               | 9  |                |                         |   | 200    |      |  |   |       |  |  |   |       | 
|                         |  |               |    |                |                         |   |        |      |  |   |        | 
|Total                    |  |               | 78 |                |                         | $ | 75,050 |      |  | $ | 76,352 |  |  | $ | 78,617 | 
|                         |  |               |    |                |                         |   |        |      |  |   |        | 



|             |  |         |     | 
|------------ |  | ------- | --- | 
|Fiscal Year: |  | Amount: |    
|             |  |         |    
|2005         |  | $       | 63  | 
|2006         |  |         | 31  | 
|2007         |  |         | 7   | 
|2008         |  |         | 4   | 
|2009         |  |         | 3   | 
|             |  |         |    
|             |  | $       | 108 | 
|             |  |         |    



|                                                                                                                   |  |               |         |   |                 |   |        |       |  |   |         |  
|------------------------------------------------------------------------------------------------------------------ |  | ------------- | ------- | - | --------------- | - | ------ | ----- |  | - | ------- | -
|                                                                                                                   |  | Semiconductor |         |   | Storage Systems |   |        |      
|                                                                                                                   |  | Segment       |         |   | Segment         |   |        | Total | 
|                                                                                                                   |  |               |         |   |                 |   |        |       | 
|Balance as of December 31, 2002                                                                                    |  | $             | 887,990 |   |                 | $ | 80,474 |       |  | $ | 968,464 |  
|                                                                                                                   |  |               |         |   |                 |   |        |       | 
|Adjustment to goodwill acquired in prior periods                                                                   |  |               | 2       |   |                 |   | 17     |       |  |   | 19      |  
|                                                                                                                   |  |               |         |   |                 |   |        |       | 
|Balance as of December 31, 2003                                                                                    |  | $             | 887,992 |   |                 | $ | 80,491 |       |  | $ | 968,483 |  
|                                                                                                                   |  |               |         |   |                 |   |        |       | 
|Goodwill acquired during the year                                                                                  |  |               | 8,106   |   |                 |   |       |       |  |   | 8,106   |  
|Adjustment to goodwill acquired in a prior year for the
    resolution of a pre-acquisition income tax contingency |  |               | (4,463  | ) |                 |   |       |       |  |   | (4,463  | )
|Adjustment to goodwill acquired in prior periods                                                                   |  |               |        |   |                 |   | 142    |       |  |   | 142     |  
|Purchase of minority interest                                                                                      |  |               | 862     |   |                 |   |       |       |  |   | 862     |  
|                                                                                                                   |  |               |         |   |                 |   |        |       | 
|Balance as of December 31, 2004                                                                                    |  | $             | 892,497 |   |                 | $ | 80,633 |       |  | $ | 973,130 |  
|                                                                                                                   |  |               |         |   |                 |   |        |       | 



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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)




Note 8  Derivative Instruments




| |                      
| | ---------------------
| | Foreign currency risk











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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)




| |                   
| | ------------------
| | Interest rate risk









Note 9  Debt


|                                                                |                                              |          |      |          |       |  |            |                |  |   |         |  |  |      |         |         |  |   |         |         | 
|--------------------------------------------------------------- | -------------------------------------------- | -------- | ---- | -------- | ----- |  | ---------- | -------------- |  | - | ------- |  |  | ---- | ------- | ------- |  | - | ------- | ------- | 
|                                                                |                                              |          |      |          |       |  |            | December 31,   | 
|                                                                |                                              |          |      | Interest |       |  | Conversion |                |  |   |        
|                                                                |                                              | Maturity |      |          | Rate* |  |            | Price          |  |   | 2004    |  |  | 2003 |        
|                                                                |                                              |          |      |          |       |  |            |                |  |   |         |  |  |      |        
|                                                                |                                              |          |      |          |       |  |            | (In thousands) | 
|2003 Convertible Subordinated Notes                             |                                              |          | 2010 |          |       |  | 4.00       | %              |  | $ | 13.4200 |  |  | $    | 350,000 |         |  | $ | 350,000 |        
|2001 Convertible Subordinated Notes                             |                                              |          | 2006 |          |       |  | 4.00       | %              |  | $ | 26.3390 |  |  |      | 421,500 |         |  |   | 490,000 |        
|Deferred gain on terminated swap                                |                                              |          |      |          |       |  |            |                |  |   |         |  |  |      | 10,346  |         |  |   | 25,416  |        
|Capital lease obligations                                       |                                              |          |      |          |       |  |            |                |  |   |         |  |  |      | 129     |         |  |   | 567     |        
|                                                                |                                              |          |      |          |       |  |            |                |  |   |         |  |  |      |        
|                                                                |                                              |          |      |          |       |  |            |                |  |   |         |  |  |      | 781,975 |         |  |   | 865,983 |        
|Current portion of long-term debt and capital lease obligations |                                              |          |      |          |       |  |            |                |  |   |         |  |  |      | (129    | )       |  |   | (377    | )      
|                                                                |                                              |          |      |          |       |  |            |                |  |   |         |  |  |      |        
|                                                                | Long-term debt and capital lease obligations |          |      |          |       |  |            |                |  |   |         |  |  |      | $       | 781,846 |  |   | $       | 865,606 | 
|                                                                |                                              |          |      |          |       |  |            |                |  |   |         |  |  |      |        

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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)







|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | The interest rate on a portion of the Convertible Subordinated
    Notes was converted to floating rates through interest rate
    swaps. Interest rate swaps with a notional amount of
    $740 million were terminated in the second quarter of 2003
    (see Note 8). The weighted average interest rate on the
    Convertible Notes, after adjusting for the impact of the
    interest rate swaps, for the years ended December 31, 2004
    and 2003, was 4.00% and 3.30%, respectively.













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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)




Note 10  Common Stock, Stock-Based
Compensation and Other Employee Compensation Plans


Stock option plans.






Stock option exchange program.


89



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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)




|                                    |  |           |        |          |           |   |        |           |          |  |           |   |  |           |        |   |           |  |         |   |  |   |        |  
|----------------------------------- |  | --------- | ------ | -------- | --------- | - | ------ | --------- | -------- |  | --------- | - |  | --------- | ------ | - | --------- |  | ------- | - |  | - | ------ | -
|                                    |  | 2004      |        |          | 2003      |   |        | 2002      |         
|                                    |  |           |        |          |           |   |        |           |         
|                                    |  |           |        | Weighted |           |   |        |           | Weighted |  |           |   |  | Weighted  |       
|                                    |  |           |        | Average  |           |   |        |           | Average  |  |           |   |  | Average   |       
|                                    |  |           |        | Exercise |           |   |        |           | Exercise |  |           |   |  | Exercise  |       
|                                    |  | Number of |        |          | Price per |   |        | Number of |          |  | Price per |   |  | Number of |        |   | Price per | 
|                                    |  | Shares    |        |          | Share     |   |        | Shares    |          |  | Share     |   |  | Shares    |        |   | Share     | 
|                                    |  |           |        |          |           |   |        |           |          |  |           |   |  |           |        |   |           | 
|Options outstanding at January 1,   |  |           | 69,166 |          |           | $ | 15.17  |           |          |  | 57,065    |   |  | $         | 18.24  |   |           |  | 73,997  |   |  | $ | 22.44  |  
|Options assumed in acquisitions     |  |           |       |          |           |   |       |           |          |  |          |   |  |           |       |   |           |  |        |   |  |   |       |  
|Options canceled                    |  |           | (7,993 | )        |           |   | (14.01 | )         |          |  | (7,282    | ) |  |           | (16.39 | ) |           |  | (23,751 | ) |  |   | (30.57 | )
|Options granted                     |  |           | 7,450  |          |           |   | 7.39   |           |          |  | 20,191    |   |  |           | 6.56   |   |           |  | 8,425   |   |  |   | 14.21  |  
|Options exercised                   |  |           | (890   | )        |           |   | (5.87  | )         |          |  | (808      | ) |  |           | (5.94  | ) |           |  | (1,606  | ) |  |   | (8.57  | )
|                                    |  |           |        |          |           |   |        |           |          |  |           |   |  |           |        |   |           | 
|Options outstanding at December 31, |  |           | 67,733 |          |           | $ | 14.57  |           |          |  | 69,166    |   |  | $         | 15.17  |   |           |  | 57,065  |   |  | $ | 18.24  |  
|                                    |  |           |        |          |           |   |        |           |          |  |           |   |  |           |        |   |           | 
|Options exercisable at December 31, |  |           | 44,301 |          |           | $ | 17.54  |           |          |  | 38,936    |   |  | $         | 18.03  |   |           |  | 34,333  |   |  | $ | 17.02  |  
|                                    |  |           |        |          |           |   |        |           |          |  |           |   |  |           |        |   |           | 





|                      |  |             |        |           |                  |  |          |           |          |   |           |          |  |           |        |  |  |   |       | 
|--------------------- |  | ----------- | ------ | --------- | ---------------- |  | -------- | --------- | -------- | - | --------- | -------- |  | --------- | ------ |  |  | - | ----- | 
|                      |  | Outstanding |        |           | Exercisable      | 
|                      |  |             |        |           |                  | 
|                      |  |             |        | Weighted  |                  |  |          |           | Weighted |  
|                      |  |             |        | Average   |                  |  |          |           | Average  |  
|                      |  |             |        | Remaining |                  |  | Exercise |           |          |   |           | Exercise | 
|Options with Exercise |  | Number      |        |           | Contractual Life |  |          | Price per |          |   | Number of |          |  | Price per |       
|Price Ranging from:   |  | of Shares   |        |           | (Years)          |  |          | Share     |          |   | Shares    |          |  | Share     |       
|                      |  |             |        |           |                  |  |          |           |          |   |           |          |  |           |       
|$ 0.06 to $ 5.00      |  |             | 3,520  |           |                  |  | 6.67     |           |          | $ | 4.47      |          |  |           | 331    |  |  | $ | 3.64  | 
|$ 5.01 to $10.00      |  |             | 24,974 |           |                  |  | 6.78     |           |          |   | 7.14      |          |  |           | 12,599 |  |  |   | 7.83  | 
|$10.01 to $15.00      |  |             | 13,853 |           |                  |  | 4.72     |           |          |   | 12.18     |          |  |           | 9,499  |  |  |   | 12.64 | 
|$15.01 to $20.00      |  |             | 10,024 |           |                  |  | 5.47     |           |          |   | 17.24     |          |  |           | 7,931  |  |  |   | 17.32 | 
|$20.01 to $25.00      |  |             | 7,758  |           |                  |  | 5.97     |           |          |   | 22.11     |          |  |           | 6,337  |  |  |   | 22.08 | 
|$25.01 to $30.00      |  |             | 3,352  |           |                  |  | 4.58     |           |          |   | 29.19     |          |  |           | 3,352  |  |  |   | 29.19 | 
|$30.01 to $72.25      |  |             | 4,252  |           |                  |  | 5.17     |           |          |   | 42.75     |          |  |           | 4,252  |  |  |   | 42.75 | 
|                      |  |             |        |           |                  |  |          |           |          |   |           |          |  |           |       
|                      |  |             | 67,733 |           |                  |  | 5.86     |           |          | $ | 14.57     |          |  |           | 44,301 |  |  | $ | 17.54 | 
|                      |  |             |        |           |                  |  |          |           |          |   |           |          |  |           |       



|                                |  |           |     |          |            |   |      |           |          |  |            |  |           |   |   |            |  |  |     |  |  |   |      | 
|------------------------------- |  | --------- | --- | -------- | ---------- | - | ---- | --------- | -------- |  | ---------- |  | --------- | - | - | ---------- |  |  | --- |  |  | - | ---- | 
|                                |  | 2004      |     |          | 2003       |   | 2002 |          
|                                |  |           |     |          |            |   |      |          
|                                |  |           |     | Weighted |            |   |      |           | Weighted |  |            |  | Weighted  |  
|                                |  |           |     | Average  |            |   |      |           | Average  |  |            |  | Average   |  
|                                |  | Number of |     |          | Grant Date |   |      | Number of |          |  | Grant Date |  | Number of |   |   | Grant Date | 
|                                |  | Shares    |     |          | Fair Value |   |      | Shares    |          |  | Fair Value |  | Shares    |   |   | Fair Value | 
|                                |  |           |     |          |            |   |      |           |          |  |            |  |           |   |   |            | 
|Restricted stock awards granted |  |           | 892 |          |            | $ | 6.75 |           |          |  |           |  |           | $ |  |            |  |  | 179 |  |  | $ | 6.74 | 

Forfeitures of stock options and restricted stock awards
prior to vesting.


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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)




Stock purchase plans.


Stock repurchase program.


Stock purchase rights.


LSI 401(k) Defined Contribution Plan.


91



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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)


Note 11  Income Taxes




|          |         |                         |        |        |        |   |        |        |        |   |       |         |         |  
|--------- | ------- | ----------------------- | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ----- | ------- | ------- | -
|          |         | Year Ended December 31, |       
|          |         |                         |       
|          |         | 2004                    |        |        | 2003   |   |        | 2002   |       
|          |         |                         |        |        |        |   |        |        |       
|          |         | (In thousands)          |       
|Current:  |         |                         |        |        |        |   |        |        |        |   |       |        
|          | Federal |                         | $      | 3,815  |        |   | $      | 8,679  |        |   | $     | (83,885 | )      
|          | State   |                         |        | 615    |        |   |        | 600    |        |   |       |        |        
|          | Foreign |                         |        | 14,689 |        |   |        | 15,056 |        |   |       | 24,250  |        
|          |         |                         |        |        |        |   |        |        |       
|          |         | Total                   |        |        | 19,119 |   |        |        | 24,335 |   |       |         | (59,635 | )
|          |         |                         |        |        |        |   |        |        |       
|Deferred: |         |                         |        |        |        |   |        |        |        |   |       |        
|          | Federal |                         |        |       |        |   |        |       |        |   |       | 36,775  |        
|          | State   |                         |        |       |        |   |        |       |        |   |       | 8,006   |        
|          | Foreign |                         |        | 4,881  |        |   |        | (335   | )      |   |       | 16,604  |        
|          |         |                         |        |        |        |   |        |        |       
|          |         | Total                   |        |        | 4,881  |   |        |        | (335   | ) |       |         | 61,385  |  
|          |         |                         |        |        |        |   |        |        |       
|Total     |         | $                       | 24,000 |        |        | $ | 24,000 |        |        | $ | 1,750 |        
|          |         |                         |        |        |        |   |        |        |       



|                                               |  |                         |          |   |      |   |          |      |  |   |          |  
|---------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                               |  | Year Ended December 31, |         
|                                               |  |                         |         
|                                               |  | 2004                    |          |   | 2003 |   |          | 2002 | 
|                                               |  |                         |          |   |      |   |          |      | 
|                                               |  | (In thousands)          |         
|Domestic                                       |  | $                       | (392,070 | ) |      | $ | (42,382  | )    |  | $ | (69,078  | )
|Foreign                                        |  |                         | (47,429  | ) |      |   | (242,004 | )    |  |   | (221,326 | )
|                                               |  |                         |          |   |      |   |          |      | 
|Loss before income taxes and minority interest |  | $                       | (439,499 | ) |      | $ | (284,386 | )    |  | $ | (290,404 | )
|                                               |  |                         |          |   |      |   |          |      | 

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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)




|                              |                                                   |                |        |          |      |   |        |          |  
|----------------------------- | ------------------------------------------------- | -------------- | ------ | -------- | ---- | - | ------ | -------- | -
|                              |                                                   | December 31,   |       
|                              |                                                   |                |       
|                              |                                                   | 2004           |        |          | 2003 |  
|                              |                                                   |                |        |          |      |  
|                              |                                                   | (In thousands) |       
|Deferred tax assets:          |                                                   |                |        |          |      |   |        |         
|                              | Net operating loss carryforwards                  |                | $      | 35,633   |      |   | $      | 23,244   |  
|                              | Tax credit carryovers                             |                |        | 232,013  |      |   |        | 203,027  |  
|                              | Depreciation and amortization                     |                |        | 116,192  |      |   |        |         |  
|                              | Future deductions for purchased intangible assets |                |        | 85,043   |      |   |        | 81,334   |  
|                              | Future deductions for reserves and other          |                |        | 51,163   |      |   |        | 77,174   |  
|                              | Future deductions for inventory reserves          |                |        | 29,894   |      |   |        | 26,265   |  
|                              |                                                   |                |        |          |      |  
|                              | Total deferred tax assets                         |                |        | 549,938  |      |   |        | 411,044  |  
|                              | Valuation allowance                               |                |        | (539,233 | )    |   |        | (366,197 | )
|                              |                                                   |                |        |          |      |  
|                              | Net deferred tax assets                           |                |        | 10,705   |      |   |        | 44,847   |  
|Deferred tax liabilities:     |                                                   |                |        |          |      |   |        |         
|                              | Depreciation and amortization                     |                |        |         |      |   |        | (29,247  | )
|                              |                                                   |                |        |          |      |  
|Total net deferred tax assets |                                                   | $              | 10,705 |          |      | $ | 15,600 |         
|                              |                                                   |                |        |          |      |  





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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)




|                                                                                      |  |                         |          |      |  |  |     |    |  |   |         |   |  |  |     |    |  |   |          |   |  |  |     |   
|------------------------------------------------------------------------------------- |  | ----------------------- | -------- | ---- |  |  | --- | -- |  | - | ------- | - |  |  | --- | -- |  | - | -------- | - |  |  | --- | --
|                                                                                      |  | 2004                    |          |      |  |  |     |    |  |   |        
|                                                                                      |  |                         |          |      |  |  |     |    |  |   |        
|                                                                                      |  |                         |          | 2003 |  |  |     |    | 
|                                                                                      |  |                         |          |      |  |  |     |    | 
|                                                                                      |  | Year Ended December 31, |         
|                                                                                      |  |                         |         
|                                                                                      |  |                         |          | 2002 | 
|                                                                                      |  |                         |          |      | 
|                                                                                      |  | )                       |         
|                                                                                      |  | (In thousands           |         
|Federal statutory rate                                                                |  | $                       | (153,825 | )    |  |  | (35 | )% |  | $ | (99,535 | ) |  |  | (35 | )% |  | $ | (101,642 | ) |  |  | (35 | )%
|State taxes, net of federal benefit                                                   |  |                         | 400      |      |  |  |    |    |  |   | 390     |   |  |  |    |    |  |   | 8,006    |   |  |  | 3   | % 
|Net operating loss and future deductions not currently benefited                      |  |                         | 122,423  |      |  |  | 28  | %  |  |   | 19,590  |   |  |  | 7   | %  |  |   | 46,526   |   |  |  | 16  | % 
|Difference between U.S. and foreign tax rates                                         |  |                         | 35,148   |      |  |  | 8   | %  |  |   | 79,820  |   |  |  | 28  | %  |  |   | 74,858   |   |  |  | 26  | % 
|Nondeductible expenses                                                                |  |                         | 10,054   |      |  |  | 2   | %  |  |   | 7,055   |   |  |  | 3   | %  |  |   | 33,733   |   |  |  | 12  | % 
|Foreign earnings taxed in the U.S.                                                    |  |                         | 6,191    |      |  |  | 1   | %  |  |   | 59,539  |   |  |  | 21  | %  |  |   |         |   |  |  |    |   
|Benefit of net operating losses and deferred tax assets not
    previously recognized |  |                         | (854     | )    |  |  |    |    |  |   | (5,378  | ) |  |  | (2  | )% |  |   |         |   |  |  |    |   
|Foreign tax credits                                                                   |  |                         |         |      |  |  |    |    |  |   | (27,469 | ) |  |  | (10 | )% |  |   |         |   |  |  |    |   
|Research and development tax credit                                                   |  |                         |         |      |  |  |    |    |  |   | (15,905 | ) |  |  | (6  | )% |  |   |         |   |  |  |    |   
|Alternative minimum tax                                                               |  |                         |         |      |  |  |    |    |  |   | 8,679   |   |  |  | 3   | %  |  |   |         |   |  |  |    |   
|Release of income taxes previously accrued                                            |  |                         |         |      |  |  |    |    |  |   |        |   |  |  |    |    |  |   | (61,386  | ) |  |  | (21 | )%
|Other                                                                                 |  |                         | 4,463    |      |  |  | 1   | %  |  |   | (2,786  | ) |  |  | (1  | )% |  |   | 1,655    |   |  |  |    |   
|                                                                                      |  |                         |          |      |  |  |     |    |  |   |         |   |  |  |     |    |  |  
|Effective tax rate                                                                    |  | $                       | 24,000   |      |  |  | 5   | %  |  | $ | 24,000  |   |  |  | 8   | %  |  | $ | 1,750    |   |  |  | 1   | % 
|                                                                                      |  |                         |          |      |  |  |     |    |  |   |         |   |  |  |     |    |  |  











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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)


Note 12  Commitments and Contingencies




| |                 
| | ----------------
| | Operating Leases













| |                 
| | ----------------
| | Indemnifications



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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)






| |           
| | ----------
| | Guarantees

Product warranties.


|                                                                                 |  |                |        |   |      |   |         |  
|-------------------------------------------------------------------------------- |  | -------------- | ------ | - | ---- | - | ------- | -
|                                                                                 |  | Years Ended    |       
|                                                                                 |  | December 31,   |       
|                                                                                 |  |                |       
|                                                                                 |  | 2004           |        |   | 2003 |  
|                                                                                 |  |                |        |   |      |  
|                                                                                 |  | (In thousands) |       
|Balance at the beginning of the period                                           |  | $              | 9,474  |   |      | $ | 6,328   |  
|Accruals for warranties issued during the period                                 |  |                | 10,955 |   |      |   | 9,399   |  
|Accruals related to pre-existing warranties (including changes
    in estimates) |  |                | (463   | ) |      |   | 3,802   |  
|Settlements made during the period (in cash or in kind)                          |  |                | (9,926 | ) |      |   | (10,055 | )
|                                                                                 |  |                |        |   |      |  
|Balance at the end of the period                                                 |  | $              | 10,040 |   |      | $ | 9,474   |  
|                                                                                 |  |                |        |   |      |  

Standby letters of credit.


Purchase commitments.




| |              
| | -------------
| | Legal Matters



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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)










Note 13  Separation of Engenio Information
Technologies, Inc.






97



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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)


Master Separation Agreement.


General Assignment and Assumption Agreement.


Intellectual Property Agreement.




Employee Matters Agreement.




Indemnification and Insurance Matters Agreement.


Tax Sharing Agreement.


98



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LSI Logic Corporation


Notes to Consolidated Financial
Statements  (Continued)




Transition Services Agreement.


Real Estate Matters Agreement.


Investor Rights Agreement.


Equity Incentive Plan.


99



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Report of Independent Registered Public Accounting Firm








Consolidated financial statements and financial statement
schedule




Internal control over financial reporting


Internal Control 
Integrated Framework Internal Control 
Integrated Framework




100



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101



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##### Table of Contents



Supplementary Financial Data


Interim Financial Information (Unaudited)


|                                 |  |                                          |          |   |        |   |          |       |  |   |          |   |  |   |          |  
|-------------------------------- |  | ---------------------------------------- | -------- | - | ------ | - | -------- | ----- |  | - | -------- | - |  | - | -------- | -
|                                 |  | Quarter                                  |         
|                                 |  |                                          |         
|                                 |  | First                                    |          |   | Second |   |          | Third |  |   | Fourth   |  
|                                 |  |                                          |          |   |        |   |          |       |  |   |          |  
|                                 |  | (In thousands, except per share amounts) |         
|Year Ended December 31, 2004     |  |                                          |          |   |        |   |          |       |  |   |          |   |  |   |          |  
|Revenues                         |  | $                                        | 452,357  |   |        | $ | 447,897  |       |  | $ | 380,217  |   |  | $ | 419,693  |  
|Gross profit                     |  |                                          | 201,432  |   |        |   | 208,816  |       |  |   | 151,799  |   |  |   | 173,561  |  
|Net income/(loss)                |  |                                          | 9,085    |   |        |   | 7,242    |       |  |   | (282,432 | ) |  |   | (197,426 | )
|Basic income/(loss) per share:   |  | $                                        | 0.02     |   |        | $ | 0.02     |       |  | $ | (0.73    | ) |  | $ | (0.51    | )
|Diluted income/(loss) per share: |  | $                                        | 0.02     |   |        | $ | 0.02     |       |  | $ | (0.73    | ) |  | $ | (0.51    | )
|Year Ended December 31, 2003     |  |                                          |          |   |        |   |          |       |  |   |          |   |  |   |          |  
|Revenues                         |  | $                                        | 372,785  |   |        | $ | 407,213  |       |  | $ | 450,227  |   |  | $ | 462,845  |  
|Gross profit                     |  |                                          | 124,717  |   |        |   | 168,744  |       |  |   | 184,984  |   |  |   | 198,760  |  
|Net (loss)/income                |  |                                          | (122,425 | ) |        |   | (162,084 | )     |  |   | (31,652  | ) |  |   | 7,614    |  
|Basic (loss)/income per share:   |  | $                                        | (0.33    | ) |        | $ | (0.43    | )     |  | $ | (0.08    | ) |  | $ | 0.02     |  
|Diluted (loss)/income per share: |  | $                                        | (0.33    | ) |        | $ | (0.43    | )     |  | $ | (0.08    | ) |  | $ | 0.02     |  










|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls
and Procedures




Managements Report on Internal Control Over Financial
Reporting




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Internal Control  Integrated
Framework.




Changes in Internal Control over Financial Reporting.









|         |                  
|-------- | -----------------
|Item 9B. | Other Information






PART III









|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant









www.lsilogic.com







|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation








|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management





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|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions








|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services






PART IV







|         |                                          
|-------- | -----------------------------------------
|Item 15. | Exhibits and Financial Statement Schedule





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|---------------------------------------------------------------------------------------------------------------- |  | ----------- | --- | 
|                                                                                                                 |  | Page in the |    
|                                                                                                                 |  | Form 10-K   |    
|                                                                                                                 |  |             |    
|Consolidated Balance Sheets  As of December 31,
    2004 and 2003                                               |  |             | 55  | 
|Consolidated Statements of Operations  For the Three
    Years Ended December 31, 2004, 2003 and 2002           |  |             | 56  | 
|Consolidated Statements of Stockholders Equity 
    For the Three Years Ended December 31, 2004, 2003 and 2002 |  |             | 57  | 
|Consolidated Statements of Cash Flows  For the Three
    Years Ended December 31, 2004, 2003 and 2002           |  |             | 58  | 
|Notes to Consolidated Financial Statements                                                                       |  |             | 59  | 
|Report of Independent Registered Public Accounting Firm                                                          |  |             | 100 | 





104



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##### Table of Contents



SCHEDULE II


VALUATION AND QUALIFYING ACCOUNTS


|                                |  |               |    |  |                      |   |   |             |  |            |          |   |  |   |   | 
|------------------------------- |  | ------------- | -- |  | -------------------- | - | - | ----------- |  | ---------- | -------- | - |  | - | - | 
|Column A                        |  | Column B      |    |  | Column C             |   |   | Column D    |  |            | Column E |  
|                                |  |               |    |  |                      |   |   |             |  |            |          |  
|                                |  | Balance at    |    |  | Additions Charged to |   |   |             |  | Balance at |         
|                                |  | Beginning     |    |  | Costs, Expenses or   |   |   |             |  | End of     |         
|Description                     |  | of Period     |    |  | Other Accounts       |   |   | Deductions* |  |            | Period   |  
|                                |  |               |    |  |                      |   |   |             |  |            |          |  
|                                |  | (In millions) |   
|2004                            |  |               |    |  |                      |   |   |             |  |            |          |   |  |   |   | 
|Allowance for doubtful accounts |  | $             | 7  |  |                      | $ | 5 |             |  | $          | (5       | ) |  | $ | 7 | 
|2003                            |  |               |    |  |                      |   |   |             |  |            |          |   |  |   |   | 
|Allowance for doubtful accounts |  | $             | 7  |  |                      | $ | 5 |             |  | $          | (5       | ) |  | $ | 7 | 
|2002                            |  |               |    |  |                      |   |   |             |  |            |          |   |  |   |   | 
|Allowance for doubtful accounts |  | $             | 20 |  |                      | $ | 9 |             |  | $          | (22      | ) |  | $ | 7 | 






|  |                                                                                                            
|- | -----------------------------------------------------------------------------------------------------------
|* | Deductions include write-offs of uncollectable accounts and
    collections of amounts previously reserved.



| |   |     |  |                                                                                                                                                                                                                                                                                                       
| | - | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2 | .1  |  | Agreement and Plan of Reorganization dated March 26, 2001
    by and among Registrant, Clover Acquisition Corporation and
    C-Cube Microsystems Inc. Incorporated by reference to exhibits
    filed with the Registrants Registration Statement on
    Form S-4 (No. 333-58862) on April 13, 2001.
| | 2 | .2  |  | Master Separation Agreement between Registrant and LSI Logic
    Storage Systems, Inc., effective as of December 31, 2003.
    Incorporated by reference to exhibits filed with the
    Registrants Annual Report on Form 10-K for the year
    ended December 31, 2003.                             
| | 2 | .3  |  | General Assignment and Assumption Agreement between Registrant
    and LSI Logic Storage Systems, Inc., effective as of
    December 31, 2003. Incorporated by reference to exhibits
    filed with the Registrants Annual Report on Form 10-K
    for the year ended December 31, 2003.             
| | 2 | .4  |  | Intellectual Property Agreement between Registrant and LSI Logic
    Storage Systems, Inc., effective as of December 31, 2003.
    Incorporated by reference to exhibits filed with the
    Registrants Annual Report on Form 10-K for the year
    ended December 31, 2003.                         
| | 2 | .5  |  | Indemnification and Insurance Matters Agreement between
    Registrant and LSI Logic Storage Systems, Inc., effective as of
    December 31, 2003. Incorporated by reference to exhibits
    filed with the Registrants Annual Report on Form 10-K
    for the year ended December 31, 2003.         
| | 2 | .6  |  | Employee Matters Agreement between Registrant and LSI Logic
    Storage Systems, Inc., effective as of December 31, 2003.
    Incorporated by reference to exhibits filed with the
    Registrants Annual Report on Form 10-K for the year
    ended December 31, 2003.                              
| | 2 | .7  |  | Real Estate Matters Agreement between LSI Logic Corporation and
    LSI Logic Storage Systems, Inc., effective as of
    December 31, 2003. Incorporated by reference to exhibits
    filed with the Registrants Quarterly Report on
    Form 10-Q for the quarter ending October 3, 2004.           
| | 2 | .8  |  | Tax Sharing Agreement between LSI Logic Corporation and LSI
    Logic Storage Systems, Inc., effective as of March 15,
    2004. Incorporated by reference to exhibits filed with the
    Registrants Quarterly Report on Form 10-Q for the
    quarter ending October 3, 2004.                      
| | 2 | .9  |  | Transition Services Agreement between LSI Logic Corporation and
    LSI Logic Storage Systems, Inc., effective as of March 15,
    2004. Incorporated by reference to exhibits filed with the
    Registrants Quarterly Report on Form 10-Q for the
    quarter ending October 3, 2004.              
| | 2 | .10 |  | Investor Rights Agreement between LSI Logic Corporation and LSI
    Logic Storage Systems, Inc., effective as of March 15,
    2004. Incorporated by reference to exhibits filed with the
    Registrants Quarterly Report on Form 10-Q for the
    quarter ending October 3, 2004.                  
| | 3 | .1  |  | Restated Certificate of Incorporation of Registrant.
    Incorporated by reference to exhibits filed with the
    Registrants Registration Statement on Form S-8
    (No. 333-46436) on September 22, 2000.                                                                                          
| | 3 | .2  |  | By-laws of Registrant. Incorporated by reference to
    Exhibit 3.1 filed with the Registrants Current Report
    on Form 8-K filed on September 3, 2004.                                                                                                                                            

105



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| |    |     |  |                                                                                                                                                                                                                                                                                                                                                                                                  
| | -- | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4  | .1  |  | Indenture dated March 15, 1999 between LSI Logic
    Corporation and State Street Bank and Trust Company of
    California, N.A., as Trustee, covering $345,000,000 principal
    amount of
    41/4% Convertible
    Subordinated Notes due 2004. Incorporated by reference to
    exhibits filed with the Registrants Registration Statement
    on Form S-3 (No. 333-80611) on June 14, 1999.
| | 4  | .2  |  | Indenture dated February 15, 2000 between LSI Logic
    Corporation and State Street Bank and Trust Company of
    California, N.A., as Trustee. Incorporated by reference to
    exhibits filed with the Registrants Current Report on
    Form 8-K filed on February 24, 2000.                                                                                                                
| | 4  | .3  |  | Indenture dated as of October 30, 2001, between LSI Logic
    Corporation and State Street Bank and Trust Company of
    California, N.A., as Trustee. Incorporated by reference to
    exhibits filed with Registrants Registration Statement on
    Form S-3 (No. 333-81434) on January 25, 2002.                                                                                             
| | 4  | .4  |  | Indenture dated as of May 16, 2003, between LSI Logic
    Corporation and U.S. Bank, N.A., as Trustee. Incorporated
    by reference to exhibits filed with Registrants Quarterly
    Report on Form 10-Q for the quarter ended June 30,
    2003.                                                                                                                                              
| | 4  | .5  |  | See Exhibit 3.1.                                                                                                                                                                                                                                                                                                                                                                                 
| | 10 | .1  |  | Form of Indemnification Agreement between Registrant and our
    officers, directors and certain key employees. Incorporated by
    reference to exhibits filed with the Registrants Annual
    Report on Form 10-K for the year ended December 31,
    1987.*                                                                                                                                  
| | 10 | .2  |  | Amended and Restated LSI Logic Corporation 1991 Equity Incentive
    Plan. Incorporated by reference to exhibits filed with
    Registrants Registration Statement on Form S-8
    (No. 333-96543) on July 16, 2002.*                                                                                                                                                                           
| | 10 | .3  |  | 1995 Director Option Plan. Incorporated by reference to
    exhibits filed with the Registrants Registration Statement
    on Form S-8 (No. 333-106205) on June 17, 2003.*                                                                                                                                                                                                                      
| | 10 | .4  |  | LSI Logic Corporation International Employee Stock Purchase
    Plan. Incorporated by reference to exhibits filed with the
    Registrants Registration Statement on Form S-8
    (No. 333-115762) on May 21, 2004.*                                                                                                                                                                            
| | 10 | .5  |  | Form of LSI Logic Corporation Change of Control Severance
    Agreement between LSI Logic Corporation and each of its
    executive officers. Incorporated by reference to exhibits filed
    with the Registrants Annual Report on Form 10-K for
    the year ended December 31, 2003.*                                                                                                        
| | 10 | .6  |  | Technology Transfer Agreement between LSI Logic Corporation and
    Wafer Technology (Malaysia) Sdn. Bhd., dated September 8,
    1999. Incorporated by reference to exhibits filed with the
    Registrants Quarterly Report on Form 10-Q for the
    quarter ended September 30, 1999.                                                                                                        
| | 10 | .7  |  | Mint Technology, Inc. Amended 1996 Stock Option Plan.
    Incorporated by reference to exhibits filed with the
    Registrants Registration Statement on Form S-8
    (No. 333-34285) on August 25, 1997.*                                                                                                                                                                                      
| | 10 | .8  |  | Registrants Amended and Restated Employee Stock Purchase
    Plan. Incorporated by reference to exhibits filed with the
    Registrants Registration Statement on Form S-8
    (No. 333-115762) on May 21, 2004.*                                                                                                                                                                              
| | 10 | .9  |  | Symbios Logic, Inc. 1995 Stock Plan. Incorporated by reference
    to exhibits filed with the Registrants Form S-8
    (No. 333-62159) on August 25, 1998.                                                                                                                                                                                                                                      
| | 10 | .10 |  | LSI Logic Corporation 1999 Nonstatutory Stock Option Plan.
    Incorporated by reference to exhibits filed with the
    Registrants Registration Statement on Form S-8
    (No. 333-96549) on July 16, 2002.*                                                                                                                                                                                   
| | 10 | .11 |  | SEEQ Technology, Inc. Amended and Restated 1982 Stock Option
    Plan. Incorporated by reference to exhibits filed with the
    Registrants Registration Statement on Form S-8
    (No. 333-81435) on June 24, 1999.*                                                                                                                                                                           
| | 10 | .12 |  | IntraServer Technology, Inc. 1998 Stock Option Plan.
    Incorporated by reference to exhibits filed with
    Registrants Registration Statement on Form S-8
    (No. 333-38746) on June 7, 2000.                                                                                                                                                                                               
| | 10 | .13 |  | DataPath Systems, Inc. Amended 1994 Stock Option Plan.
    Incorporated by reference to exhibits filed with
    Registrants Registration Statement on Form S-8
    (No. 333-42888) on August 2, 2000.*                                                                                                                                                                                          
| | 10 | .14 |  | DataPath Systems, Inc. Amended and Restated 1997 Stock Option
    Plan. Incorporated by reference to exhibits filed with
    Registrants Registration Statement on Form S-8
    (No. 333-42888) on August 2, 2000.*                                                                                                                                                                             

106



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| |    |     |  |                                                                                                                                                                                                                                                                                                                                         
| | -- | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10 | .15 |  | Syntax Systems, Inc. Restated Stock Option Plan of
    January 5, 1999. Incorporated by reference to exhibits
    filed with Registrants Registration Statement on
    Form S-8 (No. 333-52050) on December 18, 2000.*                                                                                                                 
| | 10 | .16 |  | C-Cube Microsystems Inc. 2000 Stock Plan. Incorporated by
    reference to exhibits filed with Registrants Registration
    Statement on Form S-8 (No. 333-62960) on June 14,
    2001.                                                                                                                                                
| | 10 | .17 |  | Wilfred J. Corrigan Employment Agreement dated as of
    September 20, 2001. Incorporated by reference to exhibits
    filed with the Registrants Annual Report on Form 10-K
    for the year ended December 31, 2001.*                                                                                                                
| | 10 | .18 |  | Manufacturing Technology Joint Development and Foundry Supply
    Agreement dated as of March 30, 2001 by and between the
    Registrant and Taiwan Semiconductor Manufacturing Co., Ltd.
    Incorporated by reference to exhibits filed with the
    Registrants Annual Report on Form 10-K for the year
    ended December 31, 2002.
| | 10 | .19 |  | LSI Logic Corporation 2003 Equity Incentive Plan. Incorporated
    by reference to exhibits filed with the Registrants
    Registration Statement on From S-8 (No. 333-106206) on
    June 17, 2003.*                                                                                                                                  
| | 10 | .20 |  | Registration Rights Agreement between LSI Logic Corporation and
    Morgan Stanley & Co., Inc., dated May 16, 2003.
    Incorporated by reference to exhibits filed with
    Registrants Quarterly Report on Form 10-Q for the
    quarter ended June 30, 2003.                                                                        
| | 10 | .21 |  | Change in Control Severance Agreement between the Registrant and
    Thomas Georgens, dated as of November 20, 2003.
    Incorporated by reference to exhibits filed with the
    Registrants Annual Report on Form 10-K for the year
    ended December 31, 2003.*                                                                    
| | 10 | .22 |  | LSI Logic Corporation 1991 Equity Incentive Plan Nonqualified
    Stock Option Agreement. Incorporated by reference to exhibits
    filed with the Registrants Quarterly Report on
    Form 10-Q for the quarter ending October 3, 2004.                                                                                               
| | 10 | .23 |  | Form of Notice of Grant under LSI Logic Corporation Nonqualified
    Stock Option Agreement. Incorporated by reference to exhibits
    filed with the Registrants Quarterly Report on
    Form 10-Q for the quarter ending October 3, 2004.                                                                                            
| | 10 | .24 |  | LSI Logic Corporation 2003 Equity Incentive Plan Restricted
    Stock Unit Agreement. Incorporated by reference to exhibits
    filed with the Registrants Quarterly Report on
    Form 10-Q for the quarter ending October 3, 2004.                                                                                                   
| | 10 | .25 |  | Engenio Information Technologies, Inc. Amended and Restated 2004
    Equity Incentive Plan. Incorporated by reference from exhibits
    filed with the Current Report on Form 8-K on
    November 4, 2004.                                                                                                                              
| | 10 | .26 |  | Engenio Information Technologies, Inc. 2004 Equity Incentive
    Plan Nonqualified Stock Option Agreement. Incorporated by
    reference from exhibits filed with the Current Report on
    Form 8-K on November 4, 2004.                                                                                                               
| | 10 | .27 |  | Form of Notice of Grant under Engenio Information Technologies,
    Inc. 2004 Equity Incentive Plan Nonqualified Stock Option
    Agreement. Incorporated by reference from exhibits filed with
    the Current Report on Form 8-K on November 4, 2004.                                                                                 
| | 10 | .28 |  | Lease Agreement dated June 30, 2004, for
    670 N. McCarthy Boulevard, Milpitas, California
    between Engenio Information Technologies, Inc. and The Irvine
    Company. Included as an Exhibit to this Annual Report on
    Form 10-K for the year ended December 31, 2004.                                                         
| | 10 | .29 |  | First Amendment, dated October 28, 2004, to the Lease
    Agreement (dated June 30, 2004), for
    670 N. McCarthy Boulevard, Milpitas, California
    between Engenio Information Technologies, Inc. and The Irvine
    Company. Included as an Exhibit to this Annual Report on
    Form 10-K for the year ended December 31, 2004.   
| | 10 | .30 |  | Lease Agreement dated December 31, 2003, for 1621 Barber
    Lane, Milpitas, California, between the Registrant and Limar
    Realty Corp. #9. Included as an Exhibit to this Annual Report on
    Form 10-K for the year ended December 31, 2004.                                                                                      
| | 10 | .31 |  | Lease Agreement dated December 31, 2003, for 765 Sycamore
    Drive, Milpitas, California, between the Registrant and Limar
    Realty Corp. #4. Included as an Exhibit to this Annual Report on
    Form 10-K for the year ended December 31, 2004.                                                                                    

107



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| |    |     |  |                                                                                                                                                                                                                                                                                                                                      
| | -- | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10 | .32 |  | Lease Agreement dated December 31, 2003, for 1501 McCarthy
    Boulevard, Milpitas, California, between the Registrant and
    Limar Realty Corp. #4. Included as an Exhibit to this
    Annual Report on Form 10-K for the year ended
    December 31, 2004.                                                                        
| | 10 | .33 |  | Lease Agreement dated February 20, 2004, for 1855 Barber
    Lane, Milpitas, California, between the Registrant and TriNet
    Milpitas Associates, LLC. Included as an Exhibit to this Annual
    Report on Form 10-K for the year ended December 31,
    2004.                                                                     
| | 10 | .34 |  | Lease Agreement dated February 20, 2004, for 560 Cottonwood
    Drive, Milpitas, California, between the Registrant and TriNet
    Milpitas Associates, LLC. Included as an Exhibit to this Annual
    Report on Form 10-K for the year ended December 31,
    2004.                                                                 
| | 10 | .35 |  | Assignment and Assumption of Lease dated May 27, 2004, for
    5400 Airport Boulevard, Suites 100 and 200, Boulder, Colorado,
    between LakeCentre Plaza Limited, Ltd., LLLP and Engenio
    Information Technologies, Inc. Included as an Exhibit to this
    Annual Report on Form 10-K for the year ended
    December 31, 2004.
| | 10 | .36 |  | Lease Modification Agreement dated June 21, 2004, for 5400
    Airport Boulevard, Suites 100 and 200, Boulder, Colorado,
    between LakeCentre Plaza Limited, Ltd., LLLP and Engenio
    Information Technologies, Inc. Included as an Exhibit to this
    Annual Report on Form 10-K for the year ended
    December 31, 2004.     
| | 10 | .37 |  | Form of Notice of Grant of Restricted Stock Units under LSI
    Logic Corporation 2003 Equity Incentive Plan. Included as an
    Exhibit to this Annual Report on Form 10-K for the year
    ended December 31, 2004.                                                                                                                
| | 10 | .38 |  | LSI Logic Corporation 2004 16(b) Executive Officer
    Incentive Plan. Included as an Exhibit to this Annual Report on
    Form 10-K for the year ended December 31, 2004.*                                                                                                                                                          
| | 10 | .39 |  | Summary Description of the Engenio Information Technologies,
    Inc. 2004 Incentive Plan. Included as an Exhibit to this Annual
    Report on Form 10-K for the year ended December 31,
    2004.*                                                                                                                                  
| | 21 | .1  |  | List of Subsidiaries.                                                                                                                                                                                                                                                                                                                
| | 23 | .1  |  | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                                                            
| | 24 | .1  |  | Power of Attorney (See page 110).                                                                                                                                                                                                                                                                                                    
| | 31 | .1  |  | Certification of the Chief Executive Officer pursuant to
    Securities and Exchange Act Rules 13a-15(e) and 15d-1(e),
    as adopted pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002.                                                                                                                                 
| | 31 | .2  |  | Certification of the Chief Financial Officer pursuant to
    Securities and Exchange Act Rules 13a-15(e) and 15de-1(e),
    as adopted pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002.                                                                                                                                
| | 32 | .1  |  | Certification of the Chief Executive Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.**                                                                                                                                                                     
| | 32 | .2  |  | Certification of the Chief Financial Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.**                                                                                                                                                                     






| |   |                                                                 
| | - | ----------------------------------------------------------------
| | * | Denotes management contract or compensatory plan or arrangement.



|   |                      
|-- | ---------------------
|** | Furnished, not filed.

108



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##### Table of Contents





See Item 14(a)(3), above.






TRADEMARK ACKNOWLEDGMENTS






109



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##### Table of Contents






SIGNATURES






| |                      
| | ---------------------
| | LSI LOGIC CORPORATION



| |     |                        
| | --- | -----------------------
| | By: | /s/ WILFRED J. CORRIGAN

| |                                                  
| | -------------------------------------------------
| |                                                  
| | Wilfred J. Corrigan                              
| | Chairman of the Board and Chief Executive Officer



POWER OF ATTORNEY






|                                                 |  |                                                                                                                         |  |                |  | 
|------------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|Signature                                        |  | Title                                                                                                                   |  | Date          
|                                                 |  |                                                                                                                         |  |               
|                                                
|/s/ WILFRED J. CORRIGAN(Wilfred
    J. Corrigan) |  | Chairman of the Board, Chief Executive Officer (Principal
    Executive Officer) and Director                           |  | March 15, 2005
|                                                
|/s/ BRYON LOOK(Bryon
    Look)                   |  | Executive Vice President and Chief Financial Officer (Principal
    Financial Officer and Principal Accounting Officer) |  | March 15, 2005
|                                                
|/s/ T.Z. CHU(T.Z.
    Chu)                       |  | Director                                                                                                                |  | March 15, 2005
|                                                
|/s/ MALCOLM R. CURRIE(Malcolm
    R. Currie)     |  | Director                                                                                                                |  | March 15, 2005
|                                                
|/s/ JAMES H. KEYES(James
    H. Keyes)           |  | Director                                                                                                                |  | March 15, 2005
|                                                
|/s/ R. DOUGLAS NORBY(R.
    Douglas Norby)       |  | Director                                                                                                                |  | March 15, 2005

110



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|                                               |  |          |  |                |  | 
|---------------------------------------------- |  | -------- |  | -------------- |  | 
|Signature                                      |  | Title    |  | Date          
|                                               |  |          |  |               
|                                              
|/s/ MATTHEW
    OROURKE(Matthew
    ORourke) |  | Director |  | March 15, 2005
|                                              
|/s/ GREGORIO REYES(Gregorio
    Reyes)         |  | Director |  | March 15, 2005
|                                              
|/s/ LARRY W. SONSINI(Larry
    W. Sonsini)     |  | Director |  | March 15, 2005

111



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##### Table of Contents






INDEX TO EXHIBITS


| |    |     |  |                                                                                                                                                                                                                                                                                                                                                                                                  
| | -- | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2  | .1  |  | Agreement and Plan of Reorganization dated March 26, 2001
    by and among Registrant, Clover Acquisition Corporation and
    C-Cube Microsystems Inc. Incorporated by reference to exhibits
    filed with the Registrants Registration Statement on
    Form S-4 (No. 333-58862) on April 13, 2001.                                                                                           
| | 2  | .2  |  | Master Separation Agreement between Registrant and LSI Logic
    Storage Systems, Inc., effective as of December 31, 2003.
    Incorporated by reference to exhibits filed with the
    Registrants Annual Report on Form 10-K for the year ended
    December 31, 2003.                                                                                                                        
| | 2  | .3  |  | General Assignment and Assumption Agreement between Registrant
    and LSI Logic Storage Systems, Inc., effective as of
    December 31, 2003. Incorporated by reference to exhibits
    filed with the Registrants Annual Report on Form 10-K for
    the year ended December 31, 2003.                                                                                                        
| | 2  | .4  |  | Intellectual Property Agreement between Registrant and LSI Logic
    Storage Systems, Inc., effective as of December 31, 2003.
    Incorporated by reference to exhibits filed with the
    Registrants Annual Report on Form 10-K for the year ended
    December 31, 2003.                                                                                                                    
| | 2  | .5  |  | Indemnification and Insurance Matters Agreement between
    Registrant and LSI Logic Storage Systems, Inc., effective as of
    December 31, 2003. Incorporated by reference to exhibits
    filed with the Registrants Annual Report on Form 10-K for
    the year ended December 31, 2003.                                                                                                    
| | 2  | .6  |  | Employee Matters Agreement between Registrant and LSI Logic
    Storage Systems, Inc., effective as of December 31, 2003.
    Incorporated by reference to exhibits filed with the
    Registrants Annual Report on Form 10-K for the year ended
    December 31, 2003.                                                                                                                         
| | 2  | .7  |  | Real Estate Matters Agreement between LSI Logic Corporation and
    LSI Logic Storage Systems, Inc., effective as of
    December 31, 2003. Incorporated by reference to exhibits
    filed with the Registrants Quarterly Report on Form 10-Q
    for the quarter ending October 3, 2004.                                                                                                      
| | 2  | .8  |  | Tax Sharing Agreement between LSI Logic Corporation and LSI
    Logic Storage Systems, Inc., effective as of March 15,
    2004. Incorporated by reference to exhibits filed with the
    Registrants Quarterly Report on Form 10-Q for the quarter
    ending October 3, 2004.                                                                                                                 
| | 2  | .9  |  | Transition Services Agreement between LSI Logic Corporation and
    LSI Logic Storage Systems, Inc., effective as of March 15,
    2004. Incorporated by reference to exhibits filed with the
    Registrants Quarterly Report on Form 10-Q for the quarter
    ending October 3, 2004.                                                                                                         
| | 2  | .10 |  | Investor Rights Agreement between LSI Logic Corporation and LSI
    Logic Storage Systems, Inc., effective as of March 15,
    2004. Incorporated by reference to exhibits filed with the
    Registrants Quarterly Report on Form 10-Q for the quarter
    ending October 3, 2004.                                                                                                             
| | 3  | .1  |  | Restated Certificate of Incorporation of Registrant.
    Incorporated by reference to exhibits filed with the
    Registrants Registration Statement on Form S-8 (No.
    333-46436) on September 22, 2000.                                                                                                                                                                                     
| | 3  | .2  |  | By-laws of Registrant. Incorporated by reference to
    Exhibit 3.1 filed with the Registrants Current Report
    on Form 8-K filed on September 3, 2004.                                                                                                                                                                                                                                       
| | 4  | .1  |  | Indenture dated March 15, 1999 between LSI Logic
    Corporation and State Street Bank and Trust Company of
    California, N.A., as Trustee, covering $345,000,000 principal
    amount of
    41/4% Convertible
    Subordinated Notes due 2004. Incorporated by reference to
    exhibits filed with the Registrants Registration Statement
    on Form S-3 (No. 333-80611) on June 14, 1999.
| | 4  | .2  |  | Indenture dated February 15, 2000 between LSI Logic
    Corporation and State Street Bank and Trust Company of
    California, N.A., as Trustee. Incorporated by reference to
    exhibits filed with the Registrants Current Report on Form
    8-K filed on February 24, 2000.                                                                                                                
| | 4  | .3  |  | Indenture dated as of October 30, 2001, between LSI Logic
    Corporation and State Street Bank and Trust Company of
    California, N.A., as Trustee. Incorporated by reference to
    exhibits filed with Registrants Registration Statement on
    Form S-3 (No. 333-81434) on January 25, 2002.                                                                                             
| | 4  | .4  |  | Indenture dated as of May 16, 2003, between LSI Logic
    Corporation and U.S. Bank, N.A., as Trustee. Incorporated
    by reference to exhibits filed with Registrants Quarterly
    Report on Form 10-Q for the quarter ended June 30, 2003.                                                                                                                                                  
| | 4  | .5  |  | See Exhibit 3.1.                                                                                                                                                                                                                                                                                                                                                                                 
| | 10 | .1  |  | Form of Indemnification Agreement between Registrant and our
    officers, directors and certain key employees. Incorporated by
    reference to exhibits filed with the Registrants Annual
    Report on Form 10-K for the year ended December 31, 1987.*                                                                                                                                      



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##### Table of Contents



| |    |     |  |                                                                                                                                                                                                                                                                                                                                         
| | -- | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10 | .2  |  | Amended and Restated LSI Logic Corporation 1991 Equity Incentive
    Plan. Incorporated by reference to exhibits filed with
    Registrants Registration Statement on Form S-8 (No.
    333-96543) on July 16, 2002.*                                                                                                                  
| | 10 | .3  |  | 1995 Director Option Plan. Incorporated by reference to
    exhibits filed with the Registrants Registration Statement
    on Form S-8 (No. 333-106205) on June 17, 2003.*                                                                                                                                                             
| | 10 | .4  |  | LSI Logic Corporation International Employee Stock Purchase
    Plan. Incorporated by reference to exhibits filed with the
    Registrants Registration Statement on Form S-8 (No.
    333-115762) on May 21, 2004.*                                                                                                                   
| | 10 | .5  |  | Form of LSI Logic Corporation Change of Control Severance
    Agreement between LSI Logic Corporation and each of its
    executive officers. Incorporated by reference to exhibits filed
    with the Registrants Annual Report on Form 10-K for the
    year ended December 31, 2003.*                                               
| | 10 | .6  |  | Technology Transfer Agreement between LSI Logic Corporation and
    Wafer Technology (Malaysia) Sdn. Bhd., dated September 8,
    1999. Incorporated by reference to exhibits filed with the
    Registrants Quarterly Report on Form 10-Q for the quarter
    ended September 30, 1999.                                               
| | 10 | .7  |  | Mint Technology, Inc. Amended 1996 Stock Option Plan.
    Incorporated by reference to exhibits filed with the
    Registrants Registration Statement on Form S-8 (No.
    333-34285) on August 25, 1997.*                                                                                                                             
| | 10 | .8  |  | Registrants Amended and Restated Employee Stock Purchase
    Plan. Incorporated by reference to exhibits filed with the
    Registrants Registration Statement on Form S-8 (No.
    333-115762) on May 21, 2004.*                                                                                                                     
| | 10 | .9  |  | Symbios Logic, Inc. 1995 Stock Plan. Incorporated by reference
    to exhibits filed with the Registrants Form S-8 (No.
    333-62159) on August 25, 1998.                                                                                                                                                                             
| | 10 | .10 |  | LSI Logic Corporation 1999 Nonstatutory Stock Option Plan.
    Incorporated by reference to exhibits filed with the
    Registrants Registration Statement on Form S-8 (No.
    333-96549) on July 16, 2002.*                                                                                                                          
| | 10 | .11 |  | SEEQ Technology, Inc. Amended and Restated 1982 Stock Option
    Plan. Incorporated by reference to exhibits filed with the
    Registrants Registration Statement on Form S-8 (No.
    333-81435) on June 24, 1999.*                                                                                                                  
| | 10 | .12 |  | IntraServer Technology, Inc. 1998 Stock Option Plan.
    Incorporated by reference to exhibits filed with
    Registrants Registration Statement on Form S-8 (No.
    333-38746) on June 7, 2000.                                                                                                                                      
| | 10 | .13 |  | DataPath Systems, Inc. Amended 1994 Stock Option Plan.
    Incorporated by reference to exhibits filed with
    Registrants Registration Statement on Form S-8 (No.
    333-42888) on August 2, 2000.*                                                                                                                                 
| | 10 | .14 |  | DataPath Systems, Inc. Amended and Restated 1997 Stock Option
    Plan. Incorporated by reference to exhibits filed with
    Registrants Registration Statement on Form S-8 (No.
    333-42888) on August 2, 2000.*                                                                                                                    
| | 10 | .15 |  | Syntax Systems, Inc. Restated Stock Option Plan of
    January 5, 1999. Incorporated by reference to exhibits
    filed with Registrants Registration Statement on
    Form S-8 (No. 333-52050) on December 18, 2000.*                                                                                                                 
| | 10 | .16 |  | C-Cube Microsystems Inc. 2000 Stock Plan. Incorporated by
    reference to exhibits filed with Registrants Registration
    Statement on Form S-8 (No. 333-62960) on June 14, 2001.                                                                                                                                                    
| | 10 | .17 |  | Wilfred J. Corrigan Employment Agreement dated as of
    September 20, 2001. Incorporated by reference to exhibits
    filed with the Registrants Annual Report on Form 10-K for
    the year ended December 31, 2001.*                                                                                                                
| | 10 | .18 |  | Manufacturing Technology Joint Development and Foundry Supply
    Agreement dated as of March 30, 2001 by and between the
    Registrant and Taiwan Semiconductor Manufacturing Co., Ltd.
    Incorporated by reference to exhibits filed with the
    Registrants Annual Report on Form 10-K for the year ended
    December 31, 2002.
| | 10 | .19 |  | LSI Logic Corporation 2003 Equity Incentive Plan. Incorporated
    by reference to exhibits filed with the Registrants
    Registration Statement on From S-8 (No. 333-106206) on
    June 17, 2003.*                                                                                                                                  
| | 10 | .20 |  | Registration Rights Agreement between LSI Logic Corporation and
    Morgan Stanley & Co., Inc., dated May 16, 2003.
    Incorporated by reference to exhibits filed with
    Registrants Quarterly Report on Form 10-Q for the quarter
    ended June 30, 2003.                                                                        
| | 10 | .21 |  | Change in Control Severance Agreement between the Registrant and
    Thomas Georgens, dated as of November 20, 2003.
    Incorporated by reference to exhibits filed with the
    Registrants Annual Report on Form 10-K for the year ended
    December 31, 2003.*                                                                    



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##### Table of Contents



| |    |     |  |                                                                                                                                                                                                                                                                                                                                      
| | -- | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10 | .22 |  | LSI Logic Corporation 1991 Equity Incentive Plan Nonqualified
    Stock Option Agreement. Incorporated by reference to exhibits
    filed with the Registrants Quarterly Report on Form 10-Q
    for the quarter ending October 3, 2004.                                                                                            
| | 10 | .23 |  | Form of Notice of Grant under LSI Logic Corporation Nonqualified
    Stock Option Agreement. Incorporated by reference to exhibits
    filed with the Registrants Quarterly Report on Form 10-Q
    for the quarter ending October 3, 2004.                                                                                         
| | 10 | .24 |  | LSI Logic Corporation 2003 Equity Incentive Plan Restricted
    Stock Unit Agreement. Incorporated by reference to exhibits
    filed with the Registrants Quarterly Report on Form 10-Q
    for the quarter ending October 3, 2004.                                                                                                
| | 10 | .25 |  | Engenio Information Technologies, Inc. Amended and Restated 2004
    Equity Incentive Plan. Incorporated by reference from exhibits
    filed with the Current Report on Form 8-K on November 4,
    2004.                                                                                                                           
| | 10 | .26 |  | Engenio Information Technologies, Inc. 2004 Equity Incentive
    Plan Nonqualified Stock Option Agreement. Incorporated by
    reference from exhibits filed with the Current Report on Form
    8-K on November 4, 2004.                                                                                                            
| | 10 | .27 |  | Form of Notice of Grant under Engenio Information Technologies,
    Inc. 2004 Equity Incentive Plan Nonqualified Stock Option
    Agreement. Incorporated by reference from exhibits filed with
    the Current Report on Form 8-K on November 4, 2004.                                                                              
| | 10 | .28 |  | Lease Agreement dated June 30, 2004, for
    670 N. McCarthy Boulevard, Milpitas, California
    between Engenio Information Technologies, Inc. and The Irvine
    Company. Included as an Exhibit to this Annual Report on Form
    10-K for the year ended December 31, 2004.                                                      
| | 10 | .29 |  | First Amendment, dated October 28, 2004, to the Lease
    Agreement (dated June 30, 2004), for
    670 N. McCarthy Boulevard, Milpitas, California
    between Engenio Information Technologies, Inc. and The Irvine
    Company. Included as an Exhibit to this Annual Report on Form
    10-K for the year ended December 31, 2004.
| | 10 | .30 |  | Lease Agreement dated December 31, 2003, for 1621 Barber
    Lane, Milpitas, California, between the Registrant and Limar
    Realty Corp. #9. Included as an Exhibit to this Annual Report on
    Form 10-K for the year ended December 31, 2004.                                                                                   
| | 10 | .31 |  | Lease Agreement dated December 31, 2003, for 765 Sycamore
    Drive, Milpitas, California, between the Registrant and Limar
    Realty Corp. #4. Included as an Exhibit to this Annual Report on
    Form 10-K for the year ended December 31, 2004.                                                                                 
| | 10 | .32 |  | Lease Agreement dated December 31, 2003, for 1501 McCarthy
    Boulevard, Milpitas, California, between the Registrant and
    Limar Realty Corp. #4. Included as an Exhibit to this
    Annual Report on Form 10-K for the year ended December 31,
    2004.                                                                        
| | 10 | .33 |  | Lease Agreement dated February 20, 2004, for 1855 Barber
    Lane, Milpitas, California, between the Registrant and TriNet
    Milpitas Associates, LLC. Included as an Exhibit to this Annual
    Report on Form 10-K for the year ended December 31, 2004.                                                                         
| | 10 | .34 |  | Lease Agreement dated February 20, 2004, for 560 Cottonwood
    Drive, Milpitas, California, between the Registrant and TriNet
    Milpitas Associates, LLC. Included as an Exhibit to this Annual
    Report on Form 10-K for the year ended December 31, 2004.                                                                     
| | 10 | .35 |  | Assignment and Assumption of Lease dated May 27, 2004, for
    5400 Airport Boulevard, Suites 100 and 200, Boulder, Colorado,
    between LakeCentre Plaza Limited, Ltd., LLLP and Engenio
    Information Technologies, Inc. Included as an Exhibit to this
    Annual Report on Form 10-K for the year ended December 31,
    2004.
| | 10 | .36 |  | Lease Modification Agreement dated June 21, 2004, for 5400
    Airport Boulevard, Suites 100 and 200, Boulder, Colorado,
    between LakeCentre Plaza Limited, Ltd., LLLP and Engenio
    Information Technologies, Inc. Included as an Exhibit to this
    Annual Report on Form 10-K for the year ended December 31,
    2004.     
| | 10 | .37 |  | Form of Notice of Grant of Restricted Stock Units under LSI
    Logic Corporation 2003 Equity Incentive Plan. Included as an
    Exhibit to this Annual Report on Form 10-K for the year ended
    December 31, 2004.                                                                                                                
| | 10 | .38 |  | LSI Logic Corporation 2004 16(b) Executive Officer
    Incentive Plan. Included as an Exhibit to this Annual Report on
    Form 10-K for the year ended December 31, 2004.*                                                                                                                                                          
| | 10 | .39 |  | Summary Description of the Engenio Information Technologies,
    Inc. 2004 Incentive Plan. Included as an Exhibit to this Annual
    Report on Form 10-K for the year ended December 31,
    2004.*                                                                                                                                  
| | 21 | .1  |  | List of Subsidiaries.                                                                                                                                                                                                                                                                                                                



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##### Table of Contents



| |    |    |  |                                                                                                                                                                                                      
| | -- | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 23 | .1 |  | Consent of Independent Registered Public Accounting Firm.                                                                                                                                            
| | 24 | .1 |  | Power of Attorney (See page 110).                                                                                                                                                                    
| | 31 | .1 |  | Certification of the Chief Executive Officer pursuant to
    Securities and Exchange Act Rules 13a-15(e) and 15d-1(e),
    as adopted pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002. 
| | 31 | .2 |  | Certification of the Chief Financial Officer pursuant to
    Securities and Exchange Act Rules 13a-15(e) and 15de-1(e),
    as adopted pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002.
| | 32 | .1 |  | Certification of the Chief Executive Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.**                                     
| | 32 | .2 |  | Certification of the Chief Financial Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.**                                     






|  |                                                                
|- | ---------------------------------------------------------------
|* | Denotes management contract or compensatory plan or arrangement



|   |                      
|-- | ---------------------
|** | Furnished, not filed.