##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended March 30, 2008
 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 Number: 1-10317
 LSI CORPORATION
 (Exact name of registrant as specified in its charter)
 Delaware
    
    94-2712976(State of Incorporation)
    
    (I.R.S. Employer Identification Number)
 1621 Barber Lane
Milpitas, California 95035  (Address of principal executive offices)
(Zip code)
 (408) 433-8000
(Registrants telephone number, including area code)
 þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



LSI CORPORATION
Form 10-Q
For the Quarter Ended March 30, 2008
INDEX
 PageNo.PART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Condensed Consolidated Balance Sheets as of March 30, 2008 and December 31, 2007 (unaudited)
    
    
    3Condensed Consolidated Statements of Operations for the three months ended March 30, 2008
and April 1, 2007 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the three months ended March 30, 2008
and April 1, 2007 (unaudited)
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    26Item 4. Controls and Procedures
    
    
    26PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    26Item 1A. Risk Factors
    
    
    26Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    28Item 6. Exhibits
    
    
    28Signatures
    
    
    29Index to Exhibits
    
    
    30EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
 FORWARD-LOOKING STATEMENTS
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PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 LSI CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (UNAUDITED)
 March 30,
    
    
    December 31,2008
    
    
    2007(In thousands, exceptper share amounts)ASSETSCash and cash equivalents
    
    $
    869,878
    
    
    $
    1,021,569Short-term investments
    
    
    366,876
    
    
    
    376,028Accounts receivable, less allowances of $9,731 and $10,192
    
    
    332,115
    
    
    
    406,368Inventories
    
    
    258,561
    
    
    
    240,842Prepaid expenses and other current assets
    
    
    158,659
    
    
    
    147,751Total current assets
    
    
    1,986,089
    
    
    
    2,192,558Property and equipment, net
    
    
    235,219
    
    
    
    229,732Other intangible assets, net
    
    
    1,169,507
    
    
    
    1,225,196Goodwill
    
    
    496,344
    
    
    
    499,551Other assets
    
    
    252,523
    
    
    
    249,353Total assets
    
    $
    4,139,682
    
    
    $
    4,396,390LIABILITIES AND STOCKHOLDERS EQUITYAccounts payable
    
    $
    290,625
    
    
    $
    329,444Accrued salaries, wages and benefits
    
    
    126,515
    
    
    
    118,990Other accrued liabilities
    
    
    290,589
    
    
    
    298,343Income taxes payable
    
    
    21,293
    
    
    
    15,679Total current liabilities
    
    
    729,022
    
    
    
    762,456Long-term debt
    
    
    717,193
    
    
    
    717,967Pension, post-retirement and other benefits
    
    
    136,397
    
    
    
    137,543Income taxes payable  non-current
    
    
    177,415
    
    
    
    185,036Other non-current liabilities
    
    
    93,141
    
    
    
    108,143Total long-term obligations and other liabilities
    
    
    1,124,146
    
    
    
    1,148,689Commitments and contingencies (Note 12)
    
    
    
    
    
    
    Minority interest in subsidiary
    
    
    283
    
    
    
    249Stockholders equity:Preferred stock, $.01 par value: 2,000 shares authorized; none outstanding
    
    
    
    
    
    
    Common stock, $.01 par value: 1,300,000 shares authorized; 637,123 and
680,595 shares outstanding
    
    
    6,371
    
    
    
    6,806Additional paid-in capital
    
    
    5,952,884
    
    
    
    6,152,421Accumulated deficit
    
    
    (3,752,150
    )
    
    
    (3,738,522
    )Accumulated other comprehensive income
    
    
    79,126
    
    
    
    64,291Total stockholders equity
    
    
    2,286,231
    
    
    
    2,484,996Total liabilities and stockholders equity
    
    $
    4,139,682
    
    
    $
    4,396,390
  3




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LSI CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 Three Months EndedMarch 30, 2008
    
    
    April 1, 2007(In thousands, except per shareamounts)Revenues
    
    $
    660,747
    
    
    $
    465,415Cost of revenues
    
    
    401,194
    
    
    
    270,899Gross profit
    
    
    259,553
    
    
    
    194,516Research and development
    
    
    169,717
    
    
    
    103,847Selling, general and administrative
    
    
    99,053
    
    
    
    61,610Restructuring of operations and other items, net
    
    
    4,564
    
    
    
    (8,080
    )Acquired in-process research and development
    
    
    
    
    
    
    6,500(Loss)/income from operations
    
    
    (13,781
    )
    
    
    30,639Interest expense
    
    
    (8,978
    )
    
    
    (3,890
    )Interest income and other, net
    
    
    14,631
    
    
    
    10,531(Loss)/income before income taxes
    
    
    (8,128
    )
    
    
    37,280Provision for income taxes
    
    
    5,500
    
    
    
    7,456Net (loss)/income
    
    $
    (13,628
    )
    
    $
    29,824Net (loss)/income per share:Basic
    
    $
    (0.02
    )
    
    $
    0.07Diluted
    
    $
    (0.02
    )
    
    $
    0.07Shares used in computing per share amounts:Basic
    
    
    661,984
    
    
    
    404,230Diluted
    
    
    661,984
    
    
    
    409,808
  4




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LSI CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 Three Months EndedMarch 30, 2008
    
    
    April 1, 2007(In thousands)Operating activities:Net (loss)/income
    
    $
    (13,628
    )
    
    $
    29,824Adjustments:Depreciation and amortization
    
    
    78,328
    
    
    
    18,576Stock-based compensation expense
    
    
    17,795
    
    
    
    11,184Non-cash restructuring and other items
    
    
    (3,291
    )
    
    
    228Acquired in-process research and development
    
    
    
    
    
    
    6,500Gain on sale of property and equipment, including assets held-for-sale
    
    
    (12
    )
    
    
    (9,662
    )Non-cash foreign exchange loss
    
    
    12,918
    
    
    
    389Changes in deferred tax assets and liabilities
    
    
    2,115
    
    
    
    31Changes in assets and liabilities, net of assets acquired and
liabilities assumed in business combinations:Accounts receivable, net
    
    
    74,272
    
    
    
    45,450Inventories
    
    
    (17,719
    )
    
    
    (19,654
    )Prepaid expenses and other assets
    
    
    (4,317
    )
    
    
    24,565Accounts payable
    
    
    (39,432
    )
    
    
    (36,469
    )Accrued and other liabilities
    
    
    (10,828
    )
    
    
    (14,980
    )Net cash provided by operating activities
    
    
    96,201
    
    
    
    55,982Investing activities:Purchase of debt securities available-for-sale
    
    
    (44,151
    )
    
    
    (60,630
    )Proceeds from maturities and sales of debt securities available-for-sale
    
    
    50,904
    
    
    
    174,392Purchases of equity securities
    
    
    (3,500
    )
    
    
    Purchases of property, equipment and software
    
    
    (35,230
    )
    
    
    (20,503
    )Proceeds from sale of property and equipment
    
    
    6,333
    
    
    
    12,511Acquisitions of companies, net of cash acquired
    
    
    
    
    
    
    (52,079
    )Adjustment to goodwill acquired in a prior year for resolution of a
pre-acquisition income tax contingency
    
    
    4,821
    
    
    
    2,442Net cash (used in)/provided by investing activities
    
    
    (20,823
    )
    
    
    56,133Financing activities:Issuance of common stock
    
    
    346
    
    
    
    5,671Purchase of common stock under repurchase programs
    
    
    (229,231
    )
    
    
    Net cash (used in)/provided by financing activities
    
    
    (228,885
    )
    
    
    5,671Effect of exchange rate changes on cash and cash equivalents
    
    
    1,816
    
    
    
    (65
    )(Decrease)/increase in cash and cash equivalents
    
    
    (151,691
    )
    
    
    117,721Cash and cash equivalents at beginning of year
    
    
    1,021,569
    
    
    
    327,800Cash and cash equivalents at end of period
    
    $
    869,878
    
    
    $
    445,521
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LSI CORPORATION
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  BASIS OF PRESENTATION
      Recent Accounting Pronouncements
     6




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Fair Value Measurements as of March 30, 2008(In thousands)Description
    
    Total
    
    Level 1
    
    Level 2
    
    Level 3Short-term investments in debt securities and
certain cash equivalents
    
    $
    1,107,297
    
    
    $
    742,976
    
    
    $
    364,321
    
    
    
    Long-term investments in marketable equity securities
    
    $
    1,704
    
    
    $
    1,704
    
    
    
    
    
    
    
    Rabbi Trust all invested in money market funds
    
    $
    11,031
    
    
    $
    11,031
    
    
    
    
    
    
    
    
    NOTE 2  STOCK-BASED COMPENSATION
  Three Months EndedStock-Based Compensation Expense Included In:
    
    March 30, 2008
    
    
    April 1, 2007(In thousands)Cost of revenues
    
    $
    2,061
    
    
    $
    1,944Research and development
    
    
    7,823
    
    
    
    4,717Selling, general and administrative
    
    
    7,911
    
    
    
    4,523Total stock-based compensation expense
    
    $
    17,795
    
    
    $
    11,184
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Stock Options
  Three Months EndedMarch 30, 2008
    
    April 1, 2007Weighted average estimated grant date fair value per share
    
    $
    1.78
    
    
    $
    3.35Weighted average assumptions in calculation:Expected life (years)
    
    
    4.39
    
    
    
    4.35Risk-free interest rate
    
    
    2
    %
    
    
    5
    %Volatility
    
    
    52
    %
    
    
    46
    %
       Weighted Average
    
    
    Weighted AverageExercise
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Price Per
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Share
    
    
    Term
    
    
    Value(In thousands)
    
    
    
    
    
    
    (In years)
    
    
    (In thousands)Options outstanding at December 31, 2007
    
    
    100,242
    
    
    $
    16.12
    
    
    
    
    
    
    
    Options granted
    
    
    11,639
    
    
    
    5.03
    
    
    
    
    
    
    
    Options exercised
    
    
    (83
    )
    
    
    (4.18
    )
    
    
    
    
    
    
    Options canceled
    
    
    (13,121
    )
    
    
    (22.20
    )
    
    
    
    
    
    
    Options outstanding at March 30, 2008
    
    
    98,677
    
    
    $
    14.02
    
    
    
    3.97
    
    
    $
    1,419Options exercisable at March 30, 2008
    
    
    60,887
    
    
    $
    18.33
    
    
    
    2.80
    
    
    $
    1,230
  8




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Employee Stock Purchase Plans
  Restricted Stock Awards
   Number ofShares(In thousands)Non-vested shares at December 31, 2007
    
    
    9,177Granted
    
    
    1,700Vested
    
    
    (1,526
    )Forfeited
    
    
    (288
    )Non-vested shares at March 30, 2008
    
    
    9,063
  NOTE 3  RESTRUCTURING
   First Quarter of 2008:
  
    
    A gain of $1.9 million from the sale of land in Gresham, Oregon, which had a net book
value of $0.9 million. Total proceeds from the sale were $2.8 million. A net credit of $0.1
million for the estimated fair value change of certain other assets which were previously
written down;
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
    
    A charge of $5.0 million for lease termination costs, which included $3.1 million for
new U.S. lease termination costs and $1.9 million for changes in previously accrued
facility lease exit costs including changes in time value of accruals; and
    
    A net credit of $1.2 million primarily for severance and termination benefits for
employees due to change in estimates primarily for restructuring actions taken in January
2008.
  Balance at
    
    
    Restructuring
    
    
    Utilized
    
    
    Balance atDecember 31,
    
    
    Expense
    
    
    During
    
    
    March 30,2007
    
    
    Q1 2008
    
    
    Q1 2008
    
    
    2008(In thousands)Write-down of excess assets and other liabilities (a)
    
    $
    225
    
    
    $
    (1,976
    )
    
    $
    1,834
    
    
    $
    83Lease terminations (b)
    
    
    23,318
    
    
    
    4,998
    
    
    
    (1,961
    )
    
    
    26,355Payments to employees for severance (c)
    
    
    24,817
    
    
    
    (1,230
    )
    
    
    (12,899
    )
    
    
    10,688Total
    
    $
    48,360
    
    
    $
    1,792
    
    
    $
    (13,026
    )
    
    $
    37,126
 
 (a)
    
    The credit includes the gain from the sale of land in Gresham, Oregon.(b)
    
    Amounts utilized represent cash payments. The balance remaining for real estate lease
terminations is expected to be paid during the remaining terms of the leases, which extend
through 2011.(c)
    
    Amounts utilized represent cash severance payments to employees. The majority of the balance
remaining for severance is expected to be paid by the end of 2008. Restructuring Actions Associated with the Agere Merger
   First Quarter of 2008:
  
    
    A $1.2 million gain from the sale of assets held for sale in Singapore;
    
    A $1.1 million charge for the change in assumptions and time value of accruals for
previously recorded facility lease exit costs; and
    
    A $1.6 million charge for severance and termination benefits due to a change in
severance estimates.
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Balance at
    
    
    Changes in
    
    
    Utilized
    
    
    Balance atDecember 31,
    
    
    Estimates During
    
    
    During
    
    
    March 30,2007
    
    
    Q1 2008
    
    
    Q1 2008
    
    
    2008Lease terminations (a)
    
    $
    33,439
    
    
    $
    1,068
    
    
    $
    (3,671
    )
    
    $
    30,836Payments to employees for severance (b)
    
    
    18,926
    
    
    
    1,635
    
    
    
    (10,581
    )
    
    
    9,980Stock compensation charges in accordance with FAS 123R (c)
    
    
    20,860
    
    
    
    
    
    
    
    (7,844
    )
    
    
    13,016Gain on sale of assets (d)
    
    
    
    
    
    
    (1,163
    )
    
    
    1,163
    
    
    
    Total
    
    $
    73,225
    
    
    $
    1,540
    
    
    $
    (20,933
    )
    
    $
    53,832
 
 (a)
    
    Amounts utilized include $2.9 million in cash payments and $0.8 million for write-off of
leasehold improvements. The balance remaining for real estate lease terminations is expected
to be paid during the remaining terms of these contracts, which extend through 2013.(b)
    
    Amounts utilized represent cash severance payments to employees. The majority of the balance
remaining for severance is expected to be paid by the end of 2008.(c)
    
    Amounts utilized represent stock grants exercised or expired. The balance is expected to be
utilized by the end of 2009.(d)
    
    Amounts utilized represent the gain on sale of assets held for sale in Singapore. Assets Held for Sale
   NOTE 4  AGERE MERGER  PRO FORMA RESULTS
   Three MonthsEndedApril 1, 2007Revenues
    
    $
    800,559Net income
    
    $
    6,171Basic income per share
    
    $
    0.01Diluted income per share
    
    $
    0.01
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NOTE 5  BENEFIT OBLIGATIONS
   Three Months EndedMarch 30, 2008Pension
    
    
    Post-retirementBenefits
    
    
    Benefits(In thousands)Service cost
    
    $
    1,406
    
    
    $
    26Interest cost
    
    
    18,528
    
    
    
    766Expected return on plan assets
    
    
    (20,582
    )
    
    
    (1,258
    )Amortization of prior service cost
    
    
    4
    
    
    
    Net actuarial gain recognized
    
    
    (13
    )
    
    
    (29
    )Total benefit credit
    
    $
    (657
    )
    
    $
    (495
    )
  NOTE 6  INTANGIBLE ASSETS AND GOODWILL
 Intangible Assets
  March 30, 2008
    
    
    December 31, 2007Gross
    
    
    Accumulated
    
    
    Gross
    
    
    AccumulatedCarrying Amount
    
    
    Amortization
    
    
    Carrying Amount
    
    
    Amortization(In thousands)Semiconductor:Current technology
    
    $
    848,656
    
    
    $
    (328,883
    )
    
    $
    848,656
    
    
    $
    (298,525
    )Trademarks
    
    
    26,730
    
    
    
    (26,284
    )
    
    
    26,730
    
    
    
    (26,272
    )Customer base
    
    
    367,808
    
    
    
    (34,888
    )
    
    
    367,808
    
    
    
    (20,761
    )Non-compete agreements
    
    
    1,949
    
    
    
    (1,323
    )
    
    
    1,949
    
    
    
    (1,165
    )Existing purchase orders
    
    
    200
    
    
    
    (200
    )
    
    
    200
    
    
    
    (200
    )Supply agreement
    
    
    100
    
    
    
    (100
    )
    
    
    100
    
    
    
    (100
    )Patent licensing
    
    
    313,800
    
    
    
    (36,245
    )
    
    
    313,800
    
    
    
    (27,183
    )Order backlog
    
    
    41,300
    
    
    
    (41,300
    )
    
    
    41,300
    
    
    
    (41,300
    )Workforce
    
    
    3,567
    
    
    
    (810
    )
    
    
    3,567
    
    
    
    (661
    )Trade names
    
    
    2,248
    
    
    
    (187
    )
    
    
    2,248
    
    
    
    (94
    )Subtotal
    
    
    1,606,358
    
    
    
    (470,220
    )
    
    
    1,606,358
    
    
    
    (416,261
    )Storage Systems:Current technology
    
    
    164,339
    
    
    
    (131,796
    )
    
    
    164,339
    
    
    
    (130,361
    )Trademarks
    
    
    7,150
    
    
    
    (7,150
    )
    
    
    7,150
    
    
    
    (7,149
    )Customer base
    
    
    5,010
    
    
    
    (5,010
    )
    
    
    5,010
    
    
    
    (5,010
    )Non-compete agreements
    
    
    1,600
    
    
    
    (1,422
    )
    
    
    1,600
    
    
    
    (1,156
    )Supply agreement
    
    
    8,147
    
    
    
    (8,147
    )
    
    
    8,147
    
    
    
    (8,147
    )Trade names
    
    
    800
    
    
    
    (152
    )
    
    
    800
    
    
    
    (124
    )Subtotal
    
    
    187,046
    
    
    
    (153,677
    )
    
    
    187,046
    
    
    
    (151,947
    )Total intangible assets
    
    $
    1,793,404
    
    
    $
    (623,897
    )
    
    $
    1,793,404
    
    
    $
    (568,208
    )
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Weighted
    
    
    Three Months Ended
    
    
    Year EndedAverage Lives
    
    
    March 30,
    
    
    December 31,(In Months)
    
    
    2008
    
    
    2007(In thousands)Current technology
    
    
    58
    
    
    $
    31,793
    
    
    $
    88,579Trademarks
    
    
    83
    
    
    
    13
    
    
    
    855Customer base
    
    
    44
    
    
    
    14,127
    
    
    
    19,253Non-compete agreements
    
    
    27
    
    
    
    424
    
    
    
    1,662Supply agreement
    
    
    32
    
    
    
    
    
    
    
    775Patent licensing
    
    
    36
    
    
    
    9,062
    
    
    
    27,510Order backlog
    
    
    2
    
    
    
    
    
    
    
    53,000Workforce
    
    
    72
    
    
    
    149
    
    
    
    596Trade names
    
    
    75
    
    
    
    121
    
    
    
    208Total
    
    
    50
    
    
    $
    55,689
    
    
    $
    192,438
  AmountFiscal Year:
    
    (In thousands)2008 (March 31 through December 31, 2008)
    
    $
    166,4462009
    
    
    214,0252010
    
    
    172,9652011
    
    
    135,1372012 and thereafter
    
    
    480,934Total
    
    $
    1,169,507
 Goodwill
  Semiconductor
    
    
    Storage SystemsSegment
    
    
    Segment
    
    
    Total(In thousands)Balance as of December 31, 2007
    
    $
    323,927
    
    
    $
    175,624
    
    
    $
    499,551Adjustment to goodwill acquired in a prior year for the
resolution of a pre-acquisition income tax contingency
    
    
    (4,821
    )
    
    
    
    
    
    
    (4,821
    )Adjustment to goodwill related to FASB Interpretation No. 48
    
    
    1,468
    
    
    
    
    
    
    
    1,468Other
    
    
    146
    
    
    
    
    
    
    
    146Balance as of March 30, 2008
    
    $
    320,720
    
    
    $
    175,624
    
    
    $
    496,344
 NOTE 7  OTHER BALANCE SHEET DETAILS
 March 30,
    
    
    December 31,2008
    
    
    2007(In thousands)Cash and cash equivalents:Cash in financial institutions
    
    $
    85,674
    
    
    $
    117,464Cash equivalents
    
    
    784,204
    
    
    
    904,105Total cash and cash equivalents
    
    $
    869,878
    
    
    $
    1,021,569Available-for-sale debt securities:Asset-backed and mortgage-backed securities
    
    $
    214,232
    
    
    $
    207,290U.S. government and agency securities
    
    
    135,224
    
    
    
    121,350Corporate and municipal debt securities
    
    
    17,420
    
    
    
    47,388Total short-term investments
    
    $
    366,876
    
    
    $
    376,028
 13




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##### Table of Contents



March 30,
    
    
    December 31,2008
    
    
    2007(In thousands)Inventories:Raw materials
    
    $
    26,773
    
    
    $
    30,023Work-in-process
    
    
    94,022
    
    
    
    95,262Finished goods
    
    
    137,766
    
    
    
    115,557Total inventories
    
    $
    258,561
    
    
    $
    240,842Long-term investments in equity securities *:Marketable available-for-sale equity securities
    
    $
    1,704
    
    
    $
    1,888Non-marketable equity securities
    
    
    41,140
    
    
    
    37,891Total long-term investments in equity securities
    
    $
    42,844
    
    
    $
    39,779
 Interest
    
    
    Conversion
    
    
    March 30,
    
    
    December 31,Maturity
    
    
    Rate
    
    
    Price
    
    
    2008
    
    
    2007(In thousands)Long-term debt:2003 Convertible Subordinated Notes
    
    
    2010
    
    
    
    4.00
    %
    
    $
    13.4200
    
    
    $
    350,000
    
    
    $
    350,0002002 Convertible Subordinated Notes
    
    
    2009
    
    
    
    6.50
    %
    
    $
    15.3125
    
    
    
    361,660
    
    
    
    361,660Accrued debt premium**
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,589
    
    
    
    8,589720,249
    
    
    
    720,249Amortization of accrued debt premium **
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,056
    )
    
    
    (2,282
    )Total long-term debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    717,193
    
    
    $
    717,967
 
 *
    
    The long-term investments in equity securities are included in the other assets in the
consolidated balance sheets.**
    
    Upon the completion of merger with Agere, the Company guaranteed Ageres 2002 Convertible
Subordinated Notes. The carrying value of these Notes was adjusted to the fair value of $370.2
million as of April 2, 2007, the purchase date. The accrued debt premium will be fully
amortized by December 2009. NOTE 8  RECONCILIATION OF BASIC AND DILUTED (LOSS)/INCOME PER SHARE
  Three Months EndedMarch 30, 2008
    
    April 1, 2007Per-Share
    
    
    
    
    
    
    
    
    
    Per-ShareLoss*
    
    Shares+
    
    Amount
    
    Income*
    
    Shares+
    
    Amount(In thousands except per share amounts)Basic (loss)/income per share:Net (loss)/income available to common stockholders
    
    $
    (13,628
    )
    
    
    661,984
    
    
    $
    (0.02
    )
    
    $
    29,824
    
    
    
    404,230
    
    
    $
    0.07Stock options, employee stock purchase rights and
restricted stock awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,578
    
    
    
    Diluted (loss)/income per share:Net (loss)/income available to common stockholders
    
    $
    (13,628
    )
    
    
    661,984
    
    
    $
    (0.02
    )
    
    $
    29,824
    
    
    
    409,808
    
    
    $
    0.07
 
 *
    
    Numerator+
    
    Denominator   NOTE 9  SEGMENT REPORTING
  14




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Summary of Operations by Segment
  Three Months EndedMarch 30, 2008
    
    
    April 1, 2007(In thousands)Revenues:Semiconductor
    
    $
    458,802
    
    
    $
    272,374Storage Systems
    
    
    201,945
    
    
    
    193,041Total
    
    $
    660,747
    
    
    $
    465,415(Loss)/income from operations:Semiconductor
    
    $
    (24,337
    )
    
    $
    27,159Storage Systems
    
    
    10,556
    
    
    
    3,480Total
    
    $
    (13,781
    )
    
    $
    30,639
  Significant Customers
  Three Months EndedMarch 30, 2008
    
    April 1, 2007Semiconductor segment:Number of significant customers
    
    
    1
    
    
    
    2Percentage of segment revenues
    
    
    30
    %
    
    
    20%, 14
    %Storage Systems segment:Number of significant customers
    
    
    3
    
    
    
    2Percentage of segment revenues
    
    
    43%, 16%, 13
    %
    
    
    45%, 20
    %Consolidated:Number of significant customers
    
    
    2
    
    
    
    2Percentage of consolidated revenues
    
    
    21%, 14
    %
    
    
    19%, 12
    %
 Information about Geographic Areas
  NOTE 10  COMPREHENSIVE INCOME
  Three Months EndedMarch 30, 2008
    
    
    April 1, 2007(In thousands)Net (loss)/income
    
    $
    (13,628
    )
    
    $
    29,824Change in unrealized (loss)/gain on available-for-sale securities
    
    
    (69
    )
    
    
    3,264Change in foreign currency translation adjustments
    
    
    14,904
    
    
    
    405Comprehensive income
    
    $
    1,207
    
    
    $
    33,493
 15




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##### Table of Contents



NOTE 11  RELATED PARTY TRANSACTIONS
    NOTE 12  COMMITMENTS, CONTINGENCIES AND LEGAL MATTERS
 Purchase Commitments
    Guarantees
 Product Warranties:
   Balance as of December 31, 2007
    
    $
    14,734Accruals for warranties issued during the period
    
    
    3,730Accruals related to pre-existing warranties (including changes in estimates)
    
    
    (1,251
    )Settlements made during the period (in cash or in kind)
    
    
    (3,774
    )Balance as of March 30, 2008
    
    $
    13,439
 16




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Convertible Subordinated Notes:
  Standby Letters of Credit:
  FIN 48 Liabilities
  Indemnifications
  Legal Matters
    17




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NOTE 13  SUBSEQUENT EVENTS
  18




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 This Managements discussion and analysis should be read in conjunction with the other
sections of this Form 10-Q, including Part 1, Item 1- Financial Statements.
  OVERVIEW
        19




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##### Table of Contents



RESULTS OF OPERATIONS
 Revenues
  Three Months EndedMarch 30, 2008
    
    
    April 1, 2007(In millions)Semiconductor segment
    
    $
    458.8
    
    
    $
    272.4Storage Systems segment
    
    
    201.9
    
    
    
    193.0Consolidated
    
    $
    660.7
    
    
    $
    465.4
 Three months ended March 30, 2008 compared to the three months ended April 1, 2007:
  Semiconductor Segment:
  Storage Systems Segment:
   Revenues by Geography
  Three Months EndedMarch 30, 2008
    
    
    April 1, 2007(In millions)North America*
    
    $
    206.8
    
    
    $
    210.7Asia**
    
    
    348.2
    
    
    
    188.9EMEA***
    
    
    105.7
    
    
    
    65.8Total
    
    $
    660.7
    
    
    $
    465.4
 
 *
    
    Primarily the United States.**
    
    Including Japan.***
    
    EMEA refers to Europe, Middle East and Africa. Our business is in
Europe and the Middle East.  Gross Profit Margin, Operating Costs and Expenses
 20




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##### Table of Contents



Gross Profit Margin:
 Three Months EndedMarch 30, 2008
    
    
    April 1, 2007(Dollars in millions)Semiconductor segment
    
    $
    184.9
    
    
    $
    131.5Percentage of segment revenues
    
    
    40.3
    %
    
    
    48.3
    %Storage Systems segment
    
    $
    74.7
    
    
    $
    63.0Percentage of segment revenues
    
    
    37.0
    %
    
    
    32.6
    %Consolidated
    
    $
    259.6
    
    
    $
    194.5Percentage of total revenues
    
    
    39.3
    %
    
    
    41.8
    %
   Semiconductor Segment:
  Storage Systems Segment:
  Research and Development:
 Three Months EndedMarch 30, 2008
    
    
    April 1, 2007(Dollars in millions)Semiconductor segment
    
    $
    135.2
    
    
    $
    73.7Percentage of segment revenues
    
    
    29.5
    %
    
    
    27.1
    %Storage Systems segment
    
    $
    34.5
    
    
    $
    30.1Percentage of segment revenues
    
    
    17.1
    %
    
    
    15.6
    %Consolidated
    
    $
    169.7
    
    
    $
    103.8Percentage of total revenues
    
    
    25.7
    %
    
    
    22.3
    %
  Semiconductor Segment:
  Storage Systems Segment:
  21




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##### Table of Contents



Selling, General and Administrative:
 Three Months EndedMarch 30, 2008
    
    
    April 1, 2007(Dollars in millions)Semiconductor segment
    
    $
    69.4
    
    
    $
    32.3Percentage of segment revenues
    
    
    15.1
    %
    
    
    11.9
    %Storage Systems segment
    
    $
    29.7
    
    
    $
    29.3Percentage of segment revenues
    
    
    14.7
    %
    
    
    15.2
    %Consolidated
    
    $
    99.1
    
    
    $
    61.6Percentage of total revenues
    
    
    15.0
    %
    
    
    13.2
    %
  Semiconductor Segment:
  Storage Systems Segment:
  Restructuring of Operations and Other Items:
     Interest Expense :
  Interest Income and Other :
  22




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##### Table of Contents



Provision for Income Taxes :
   FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
  Working Capital
  
    
    Cash, cash equivalents and short-term investments decreased by $160.8 million;
    
    Accounts receivable decreased by $74.3 million due to an improvement in collections;
    
    Accrued salaries, wages and benefits increased by $7.5 million primarily due to timing
differences in payment of salaries, benefits and performance-based compensation; and
    
    Income taxes payable increased by $5.6 million due to an increase in the tax provision
less tax payments.
  
    
    Accounts payable decreased by $38.8 million due to the timing of invoice payments;
    
    Inventories increased by $17.7 million primarily driven by temporary inventory pre-builds
required to complete planned factory shutdowns for the transition to third party
manufacturers;
    
    Prepaid expenses and other current assets increased by $10.9 million primarily due to
increases in other receivables and prepaid taxes offset by a decrease in assets held for
sale; and
    
    Other accrued liabilities decreased by $7.8 million primarily due to a decrease in the
restructuring reserve offset by an increase in accrued bond interest and various other
miscellaneous accruals.
 23




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##### Table of Contents



Cash provided by operating activities
  
    
    A net loss adjusted for non-cash transactions. The non-cash items and other non-operating
adjustments are quantified in our Condensed Consolidated Statements of Cash Flows included
in this Form 10-Q; and
    
    A net increase in assets and liabilities, including changes in working capital components
from December 31, 2007 to March 30, 2008, as discussed above.
 Cash and cash equivalents (used in)/provided by investing activities
  
    
    Purchases of property, equipment and software, net of sales;
    
    The receipt of an income tax refund for pre-acquisition tax matters associated with an
acquisition in 2001; and
    
    Proceeds from maturities and sales of debt and equity securities available for sale, net
of purchases.
  Cash and cash equivalents (used in)/provided by financing activities
    24




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##### Table of Contents



CONTRACTUAL OBLIGATIONS
  Payments Due by PeriodLess Than 1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    After 5 Years
    
    
    Total(In millions)Convertible Subordinated Notes
    
    $
    
    
    
    $
    711.7
    
    
    $
    
    
    
    $
    
    
    
    $
    711.7Operating lease obligations
    
    
    100.0
    
    
    
    137.1
    
    
    
    33.7
    
    
    
    7.5
    
    
    
    278.3Purchase commitments
    
    
    321.3
    
    
    
    3.6
    
    
    
    378.2
    
    
    
    
    
    
    
    703.1Pension and post-retirement contributions
    
    
    14.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14.7Total
    
    $
    436.0
    
    
    $
    852.4
    
    
    $
    411.9
    
    
    $
    7.5
    
    
    $
    1,707.8
 Convertible Subordinated Notes
    Operating Lease Obligations
  Purchase Commitments
  FIN 48 Tax Liabilities
  25




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##### Table of Contents



Standby Letters of Credit
  CRITICAL ACCOUNTING POLICIES
  RECENT ACCOUNTING PRONOUNCEMENTS
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4. Controls and Procedures
 EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
  CHANGES IN INTERNAL CONTROLS
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  26




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##### Table of Contents




    
    We depend on a small number of customers. The loss of, or a significant reduction in
revenue from, any of these customers would harm our results of operations.
    
    If we fail to keep pace with technological advances, or if we pursue technologies that do
not become commercially accepted, customers may not buy our products and our results of
operations may be harmed.
    
    We operate in intensely competitive markets, and our failure to compete effectively would
harm our results of operations.
    
    We may fail to realize benefits expected from our merger with Agere Systems, which could
harm our stock price.
    
    Customer orders and ordering patterns can change quickly, making it difficult for us to
predict our revenues and making it possible that our actual revenues may vary materially
from our expectations, which could harm our results of operations and stock price.
    
    We depend increasingly on outside suppliers to manufacture, assemble, package and test
our products; accordingly, any failure to transition successfully our manufacturing,
assembly, packaging and test operations to suppliers, to secure and maintain sufficient
manufacturing capacity or to maintain the quality of our products could harm our business
and results of operations.
    
    Failure to qualify our semiconductor products or our suppliers manufacturing lines with
key customers could harm our business and results of operations.
    
    Any defects in our products could harm our reputation, customer relationships and results
of operations.
    
    As part of our integration efforts with Agere, we intend to transition Ageres operation
to our enterprise resource planning system. Any issues that may arise with this transition
could interfere with our business and harm our operating results or our ability to produce
accurate and timely financial statements.
    
    We may be subject to intellectual property infringement claims and litigation, which
could cause us to incur significant expenses or prevent us from selling our products.
    
    If we are unable to protect or assert our intellectual property rights, our business and
results of operations may be harmed.
    
    A decline in the revenue that we derive from the licensing of intellectual property could
have a significant impact on our net income.
    
    We are exposed to legal, business, political and economic risks associated with our
international operations.
    
    We use indirect channels of product distribution over which we have limited control.
    
    Our failure to attract, retain and motivate key employees could harm our business.
    
    We may engage in acquisitions and strategic alliances, which may not be successful and
could harm our business and operating results.
    
    The semiconductor industry is highly cyclical, which may cause our operating results to
fluctuate.
    
    Our operations and our suppliers operations are subject to natural disasters and other
events outside of our control that may disrupt our business and harm our operating results.
    
    We are subject to various environmental laws and regulations that could impose
substantial costs on us and may harm our business.
 27




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##### Table of Contents




    
    Our stockholder rights plan and Delaware law contain provisions that may inhibit
potential acquisition bids, which may harm our stock price, discourage merger offers or
prevent changes in our management.
    
    Class action litigation due to stock price volatility or other factors could cause us to
incur substantial costs and divert our managements attention and resources.
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Issuer Purchases of Equity Securities
 Maximum Number (orTotal Number of
    
    
    Approximate DollarShares (or Units)
    
    
    Value) of Shares (orAverage Price
    
    
    Purchased as Part of
    
    
    Units) that May YetTotal Number of Shares
    
    
    Paid per Share
    
    
    Publicly Announced
    
    
    Be Purchased UnderPeriod
    
    (or Units) Purchased
    
    
    (or Unit)
    
    
    Plans or Programs
    
    
    the Plans or ProgramsJanuary 1 January
31, 2008
    
    
    8,250,000
    
    
    $
    5.06
    
    
    
    8,250,000
    
    
    $
    187,502,588February 1 
February 29, 2008
    
    
    25,829,970
    
    
    $
    5.16
    
    
    
    25,829,970
    
    
    $
    54,121,773March 1  March 30,
2008
    
    
    10,531,200
    
    
    $
    5.14
    
    
    
    10,531,200
    
    
    $
    16,951Total
    
    
    44,611,170
    
    
    $
    5.14
    
    
    
    44,611,170
  
 Item 6. Exhibits
  28




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##### Table of Contents



SIGNATURES
  LSI CORPORATION 
(Registrant)Date: May 09, 2008
    By
    /s/ Bryon LookBryon LookExecutive Vice President & Chief Financial Officer 29




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##### Table of Contents



EXHIBIT INDEX
 10.1
    
    Form of Indemnification Agreement (Incorporated by reference to Exhibit 10.1 to our Current
Report on Form 8-K, filed February 22, 2008)10.2
    
    Written description of 2008 bonus program for named executive officers (Incorporated by
reference to Exhibit 10.1 to our Current Report on Form 8-K, filed March 4, 2008)31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a)31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a)32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. 135032.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350
 30