##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the Quarterly Period Ended April 5, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period fromto
 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
 o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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LSI CORPORATION
Form 10-QFor the Quarter Ended April 5, 2009
  
 INDEX
 PageNo.PART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Consolidated Balance Sheets as of April 5, 2009 (unaudited) and December 31, 2008
    
    
    3Consolidated Statements of Operations for the three months ended April 5, 2009 and March 30, 2008 (unaudited)
    
    
    4Consolidated Statements of Cash Flows for the three months ended April 5, 2009 and March 30, 2008 (unaudited)
    
    
    5Notes to Unaudited 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
    
    
    27Item 4. Controls and Procedures
    
    
    27PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    27Item 1A. Risk Factors
    
    
    28Item 6. Exhibits
    
    
    30Signatures
    
    
    31Exhibit Index
    
    
    32EX-31.1EX-31.2EX-32.1EX-32.2
  FORWARD-LOOKING STATEMENTS
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 LSI CORPORATION
 
 CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 April 5,
    
    
    December 31,2009
    
    
    2008(In thousands, exceptper share amounts)ASSETSCash and cash equivalents
    
    $
    822,505
    
    
    $
    829,301Short-term investments
    
    
    251,300
    
    
    
    289,841Accounts receivable, less allowances of $7,427 and $9,627, respectively
    
    
    273,281
    
    
    
    303,971Inventories
    
    
    201,195
    
    
    
    220,535Prepaid expenses and other current assets
    
    
    136,721
    
    
    
    155,814Total current assets
    
    
    1,685,002
    
    
    
    1,799,462Property and equipment, net
    
    
    226,644
    
    
    
    235,963Identified intangible assets, net
    
    
    847,264
    
    
    
    889,995Goodwill
    
    
    175,624
    
    
    
    175,624Other assets
    
    
    243,450
    
    
    
    243,150Total assets
    
    $
    3,177,984
    
    
    $
    3,344,194LIABILITIES AND STOCKHOLDERS EQUITYAccounts payable
    
    $
    136,030
    
    
    $
    201,035Accrued salaries, wages and benefits
    
    
    92,643
    
    
    
    114,730Other accrued liabilities
    
    
    258,609
    
    
    
    233,157Income taxes payable
    
    
    2,766
    
    
    
    3,504Current portion of long-term debt
    
    
    244,564
    
    
    
    245,107Total current liabilities
    
    
    734,612
    
    
    
    797,533Long-term debt, net of current portion
    
    
    350,000
    
    
    
    350,000Pension, postretirement and other benefits
    
    
    444,571
    
    
    
    451,079Income taxes payable  non-current
    
    
    196,176
    
    
    
    193,590Other non-current liabilities
    
    
    110,088
    
    
    
    111,070Total long-term obligations and other liabilities
    
    
    1,100,835
    
    
    
    1,105,739Commitments and contingencies (Note 14)Stockholders equity:Preferred stock, $.01 par value: 2,000 shares authorized; none outstanding
    
    
    
    
    
    
    Common stock, $.01 par value: 1,300,000 shares authorized; 648,781 and
648,132 shares outstanding
    
    
    6,488
    
    
    
    6,481Additional paid-in capital
    
    
    6,081,906
    
    
    
    6,058,786Accumulated deficit
    
    
    (4,464,322
    )
    
    
    (4,360,775
    )Accumulated other comprehensive loss
    
    
    (281,535
    )
    
    
    (263,570
    )Total stockholders equity
    
    
    1,342,537
    
    
    
    1,440,922Total liabilities and stockholders equity
    
    $
    3,177,984
    
    
    $
    3,344,194
  3




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##### Table of Contents



LSI CORPORATION
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 Three Months EndedApril 5, 2009
    
    
    March 30, 2008(In thousands, except per share amounts)Revenues
    
    $
    482,279
    
    
    $
    660,747Cost of revenues
    
    
    312,207
    
    
    
    401,194Gross profit
    
    
    170,072
    
    
    
    259,553Research and development
    
    
    155,284
    
    
    
    169,717Selling, general and administrative
    
    
    83,757
    
    
    
    99,053Restructuring of operations and other items, net
    
    
    25,205
    
    
    
    4,564Loss from operations
    
    
    (94,174
    )
    
    
    (13,781
    )Interest expense
    
    
    (7,236
    )
    
    
    (8,978
    )Interest income and other, net
    
    
    5,863
    
    
    
    14,631Loss before income taxes
    
    
    (95,547
    )
    
    
    (8,128
    )Provision for income taxes
    
    
    8,000
    
    
    
    5,500Net loss
    
    $
    (103,547
    )
    
    $
    (13,628
    )Net loss per share:Basic
    
    $
    (0.16
    )
    
    $
    (0.02
    )Diluted
    
    $
    (0.16
    )
    
    $
    (0.02
    )Shares used in computing per share amounts:Basic
    
    
    648,459
    
    
    
    661,984Diluted
    
    
    648,459
    
    
    
    661,984
  4




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##### Table of Contents



LSI CORPORATION
  CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)
 Three Months EndedApril 5, 2009
    
    
    March 30, 2008(In thousands)Operating activities:Net loss
    
    $
    (103,547
    )
    
    $
    (13,628
    )Adjustments:Depreciation and amortization
    
    
    65,079
    
    
    
    78,328Stock-based compensation expense
    
    
    17,990
    
    
    
    17,795Non-cash restructuring of operations and other items
    
    
    (1
    )
    
    
    (3,291
    )Loss/(gain) on sale of property and equipment
    
    
    100
    
    
    
    (12
    )Non-cash foreign exchange (gain)/loss
    
    
    (12,384
    )
    
    
    12,918Changes in deferred tax assets and liabilities
    
    
    73
    
    
    
    2,115Changes in assets and liabilities:Accounts receivable, net
    
    
    30,690
    
    
    
    74,272Inventories
    
    
    19,340
    
    
    
    (17,719
    )Prepaid expenses and other assets
    
    
    32,443
    
    
    
    (4,317
    )Accounts payable
    
    
    (63,535
    )
    
    
    (39,432
    )Accrued and other liabilities
    
    
    3,905
    
    
    
    (10,828
    )Net cash (used in)/provided by operating activities
    
    
    (9,847
    )
    
    
    96,201Investing activities:Purchases of debt securities available-for-sale
    
    
    (10
    )
    
    
    (44,151
    )Proceeds from maturities and sales of debt securities available-for-sale
    
    
    35,882
    
    
    
    50,904Purchases of equity securities
    
    
    (5,000
    )
    
    
    (3,500
    )Purchases of property, equipment and software
    
    
    (25,463
    )
    
    
    (35,230
    )Proceeds from sale of property and equipment
    
    
    7
    
    
    
    6,333Proceeds received from the resolution of a pre-acquisition income tax contingency
    
    
    
    
    
    
    4,821Net cash provided by/(used in) investing activities
    
    
    5,416
    
    
    
    (20,823
    )Financing activities:Issuance of common stock
    
    
    1
    
    
    
    346Purchases of common stock under repurchase programs
    
    
    
    
    
    
    (229,231
    )Net cash provided by/(used in) financing activities
    
    
    1
    
    
    
    (228,885
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (2,366
    )
    
    
    1,816Decrease in cash and cash equivalents
    
    
    (6,796
    )
    
    
    (151,691
    )Cash and cash equivalents at beginning of year
    
    
    829,301
    
    
    
    1,021,569Cash and cash equivalents at end of period
    
    $
    822,505
    
    
    $
    869,878
  5




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LSI CORPORATION
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 Note 1  Basis of Presentation
    Recent Accounting Pronouncements
      6




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##### Table of Contents



Note 2  Stock-Based Compensation
   Three Months EndedApril 5, 2009
    
    
    March 30, 2008Stock-Based Compensation Expense Included In:
    
    (In thousands)Cost of revenues
    
    $
    2,013
    
    
    $
    2,061Research and development
    
    
    7,862
    
    
    
    7,823Selling, general and administrative
    
    
    8,115
    
    
    
    7,911Total stock-based compensation expense
    
    $
    17,990
    
    
    $
    17,795
  Stock Options
  Three Months EndedApril 5, 2009
    
    March 30, 2008Weighted average estimated grant date fair value per share
    
    $
    1.35
    
    
    $
    1.78Weighted average assumptions in calculation:Expected life (years)
    
    
    4.29
    
    
    
    4.39Risk-free interest rate
    
    
    2
    %
    
    
    2
    %Volatility
    
    
    68
    %
    
    
    52
    %
     7




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##### Table of Contents



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, 2008
    
    
    85,113
    
    
    $
    12.62
    
    
    
    
    
    
    
    Options granted
    
    
    20,587
    
    
    
    2.91
    
    
    
    
    
    
    
    Options exercised
    
    
    (2
    )
    
    
    0.46
    
    
    
    
    
    
    
    Options canceled
    
    
    (2,687
    )
    
    
    11.85
    
    
    
    
    
    
    
    Options outstanding at April 5, 2009
    
    
    103,011
    
    
    $
    10.70
    
    
    
    4.40
    
    
    $
    16,090Options exercisable at April 5, 2009
    
    
    53,866
    
    
    $
    15.68
    
    
    
    2.97
    
    
    $
    15
   Employee Stock Purchase Plans
  Restricted Stock Unit Awards
  Number of Units(In thousands)Non-vested restricted stock units at December 31, 2008
    
    
    6,391Granted
    
    
    76Vested
    
    
    (1,011
    )Forfeited
    
    
    (130
    )Non-vested restricted stock units at April 5, 2009
    
    
    5,326
  Note 3  Restructuring and Other Items
  8




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##### Table of Contents



Restructuring
  
    
    A charge of $14.0 million primarily related to an accrual for remaining payments to be
made under an operating lease arrangement for design tools that will no longer be used by
the Company;
    
    A charge of $4.5 million for severance and termination benefits for employees; and
    
    A charge of $0.8 million primarily for the change in time value of accruals for
previously accrued facility lease exit costs.
  Balance at
    
    
    Expense
    
    
    Utilized
    
    
    Balance atDecember 31,
    
    
    During
    
    
    During
    
    
    April 5,2008
    
    

Q1
2009
    
    

Q1 2009
    

    
    2009(In thousands)Write-down of excess assets and other liabilities
    
    $
    83
    
    
    $
    (83
    )
    
    $
    
    
    
    $
    Lease terminations (a)
    
    
    44,555
    
    
    
    14,878
    
    
    
    (10,323
    )
    
    
    49,110Payments to employees for severance (b)
    
    
    28,031
    
    
    
    4,518
    
    
    
    (17,347
    )
    
    
    15,202Total
    
    $
    72,669
    
    
    $
    19,313
    
    
    $
    (27,670
    )
    
    $
    64,312
 
 (a)
    
    The amount utilized represents cash payments. The balance remaining for real estate lease and
the operating lease arrangement for design tools terminations is expected to be paid during
the remaining terms of the leases, which extend through 2013.(b)
    
    The amount utilized includes $6.1 million related to stock grants exercised or expired. The
majority of the balance remaining for severance is expected to be paid by the end of 2009. Other Items
  Assets Held for Sale
   Note 4  Benefit Obligations
  9




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##### Table of Contents



Three Months EndedApril 5, 2009
    
    
    March 30, 2008Pension
    
    
    Postretirement
    
    
    Pension
    
    
    PostretirementBenefits
    
    
    Benefits
    
    
    Benefits
    
    
    Benefits(In thousands)Service cost
    
    $
    471
    
    
    $
    20
    
    
    $
    1,406
    
    
    $
    26Interest cost
    
    
    18,271
    
    
    
    605
    
    
    
    18,528
    
    
    
    766Expected return on plan assets
    
    
    (19,212
    )
    
    
    (1,219
    )
    
    
    (20,582
    )
    
    
    (1,258
    )Amortization of prior service cost
    
    
    11
    
    
    
    
    
    
    
    4
    
    
    
    Net actuarial gain recognized
    
    
    (21
    )
    
    
    
    
    
    
    (13
    )
    
    
    (29
    )Total benefit credit
    
    $
    (480
    )
    
    $
    (594
    )
    
    $
    (657
    )
    
    $
    (495
    )
  Note 5  Identified Intangible Assets and Goodwill
 Identified Intangible Assets
  April 5, 2009
    
    
    December 31, 2008Gross
    
    
    Accumulated
    
    
    Gross
    
    
    AccumulatedCarrying Amount
    
    
    Amortization
    
    
    Carrying Amount
    
    
    Amortization(In thousands)Semiconductor:Current technology
    
    $
    894,808
    
    
    $
    (546,661
    )
    
    $
    894,808
    
    
    $
    (524,120
    )Trademarks
    
    
    26,657
    
    
    
    (26,657
    )
    
    
    26,657
    
    
    
    (26,657
    )Customer base
    
    
    399,508
    
    
    
    (170,447
    )
    
    
    399,508
    
    
    
    (160,925
    )Non-compete agreements
    
    
    1,949
    
    
    
    (1,909
    )
    
    
    1,949
    
    
    
    (1,888
    )Existing purchase orders
    
    
    200
    
    
    
    (200
    )
    
    
    200
    
    
    
    (200
    )Supply agreement
    
    
    100
    
    
    
    (100
    )
    
    
    100
    
    
    
    (100
    )Patent licensing
    
    
    312,800
    
    
    
    (72,278
    )
    
    
    312,800
    
    
    
    (63,243
    )Order backlog
    
    
    41,300
    
    
    
    (41,300
    )
    
    
    41,300
    
    
    
    (41,300
    )Workforce
    
    
    3,567
    
    
    
    (1,406
    )
    
    
    3,567
    
    
    
    (1,258
    )Trade names
    
    
    2,248
    
    
    
    (2,248
    )
    
    
    2,248
    
    
    
    (2,248
    )Subtotal
    
    
    1,683,137
    
    
    
    (863,206
    )
    
    
    1,683,137
    
    
    
    (821,939
    )Storage Systems:Current technology
    
    
    164,339
    
    
    
    (137,539
    )
    
    
    164,339
    
    
    
    (136,104
    )Trademarks
    
    
    7,150
    
    
    
    (7,150
    )
    
    
    7,150
    
    
    
    (7,150
    )Customer base
    
    
    5,010
    
    
    
    (5,010
    )
    
    
    5,010
    
    
    
    (5,010
    )Non-compete agreements
    
    
    1,600
    
    
    
    (1,600
    )
    
    
    1,600
    
    
    
    (1,600
    )Supply agreement
    
    
    8,147
    
    
    
    (8,147
    )
    
    
    8,147
    
    
    
    (8,147
    )Trade names
    
    
    800
    
    
    
    (267
    )
    
    
    800
    
    
    
    (238
    )Subtotal
    
    
    187,046
    
    
    
    (159,713
    )
    
    
    187,046
    
    
    
    (158,249
    )Total identified intangible assets
    
    $
    1,870,183
    
    
    $
    (1,022,919
    )
    
    $
    1,870,183
    
    
    $
    (980,188
    )
 10




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##### Table of Contents



Weighted
    
    
    Three Months EndedAverage Lives
    
    
    April 5, 2009
    
    
    March 30, 2008(In months)
    
    
    (In thousands)Current technology
    
    
    57
    
    
    $
    23,977
    
    
    $
    31,793Trademarks
    
    
    83
    
    
    
    
    
    
    
    13Customer base
    
    
    45
    
    
    
    9,522
    
    
    
    14,127Non-compete agreements
    
    
    27
    
    
    
    21
    
    
    
    424Patent licensing
    
    
    36
    
    
    
    9,035
    
    
    
    9,062Workforce
    
    
    72
    
    
    
    149
    
    
    
    149Trade names
    
    
    75
    
    
    
    29
    
    
    
    121Total
    
    
    50
    
    
    $
    42,733
    
    
    $
    55,689
  Amount(In thousands)Fiscal Year:2009 (April 6 through December 31, 2009)
    
    $
    127,3792010
    
    
    155,4492011
    
    
    120,7002012
    
    
    103,9972013 and thereafter
    
    
    339,739Total
    
    $
    847,264
 Goodwill
  Note 6  Derivative Instruments
     11




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Derivatives Designated as Cash Flow
    
    Asset Derivatives
    
    Liability DerivativesHedges Under FAS 133
    
    Balance Sheet Classification
    
    Fair Value
    
    Balance Sheet Classification
    
    Fair ValueForeign
exchange forward contracts
    
    Prepaid expenses and other current assets
    
    $
    165
    
    
    Other accrued liabilities
    
    $
    1,220
  Loss Reclassified from
    
    Gain Recognized in IncomeLoss
    
    Accumulated OCI into Income
    
    (Ineffective Portion and AmountRecognized in OCI
    
    (Effective Portion)
    
    Excluded from Effectiveness Testing)Derivatives in FAS 133 Cash Flow
    
    (Effective Portion)
    
    Location in Statement
    
    
    
    
    
    Location in StatementHedging Relationships
    
    Amount
    
    of Operation
    
    Amount
    
    of Operation
    
    AmountForeign exchange forward contracts
    
    $
    (212
    )
    
    Research and development / Selling, general and administrative (*)
    
    $
    (1,012
    )
    
    Interest income and other, net
    
    $
    120
  (*)
    
    Includes losses of $0.4 million and $0.6 million that were reclassified from accumulated
OCI into research and development expenses and selling, general and administrative expenses,
respectively. Derivatives Not Designated as Hedges
    Derivatives Not Designated as
    
    Asset Derivatives
    
    Liability DerivativesHedging Instruments Under FAS 133
    
    Balance Sheet Classification
    
    Fair Value
    
    Balance Sheet Classification
    
    Fair ValueForeign exchange forward contracts
    
    Prepaid expenses and other current assets
    
    $60
    
    Other
accrued liabilities
    
    $366
  Loss Recognized in IncomeDerivatives not Designated as Hedging Instruments under FAS 133
    
    Location in Statement of Operation
    
    AmountForeign exchange forward contracts
    
    Interest income and other, net
    
    $
    (16,790)
 12




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##### Table of Contents



Note 7  Other Balance Sheet Details
  April 5,
    
    
    December 31,2009
    
    
    2008(In thousands)Cash and cash equivalents:Cash in financial institutions
    
    $
    88,058
    
    
    $
    77,372Cash equivalents
    
    
    734,447
    
    
    
    751,929Total cash and cash equivalents
    
    $
    822,505
    
    
    $
    829,301Available-for-sale debt securities:Asset-backed and mortgage-backed securities
    
    $
    169,926
    
    
    $
    184,511U.S. government and agency securities
    
    
    70,641
    
    
    
    88,504Corporate and municipal debt securities
    
    
    10,733
    
    
    
    16,826Total short-term investments
    
    $
    251,300
    
    
    $
    289,841Inventories:Raw materials
    
    $
    35,269
    
    
    $
    44,208Work-in-process
    
    
    37,169
    
    
    
    52,242Finished goods
    
    
    128,757
    
    
    
    124,085Total inventories
    
    $
    201,195
    
    
    $
    220,535
 Interest
    
    
    Conversion
    
    
    April 5,
    
    
    December 31,Maturity
    
    
    Rate
    
    
    Price
    
    
    2009
    
    
    2008(In thousands)Long-term debt:4% Convertible Subordinated Notes due 2010
    
    
    2010
    
    
    
    4.00
    %
    
    $
    13.4200
    
    
    $
    350,000
    
    
    $
    350,0006.5% Convertible Subordinated Notes due 2009
    
    
    2009
    
    
    
    6.50
    %
    
    $
    15.3125
    
    
    
    243,002
    
    
    
    243,002Accrued debt premium *
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,405
    
    
    
    7,405600,407
    
    
    
    600,407Amortization of accrued debt premium
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,843
    )
    
    
    (5,300
    )Total debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    594,564
    
    
    
    595,107Current portion of long-term debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (244,564
    )
    
    
    (245,107
    )Long-term debt, net of current portion
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    350,000
    
    
    $
    350,000
 
 *
    
    The accrued debt premium will be fully amortized by December 2009. Note 8  Fair Value Measurements
   13




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##### Table of Contents



Fair Value Measurements as of April 5, 2009Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total(In thousands)Short-term investments in debt securities and
certain cash equivalents
    
    $
    805,091
    
    
    $
    180,656
    
    
    
    
    
    
    $
    985,747Long-term investments in marketable equity securities
    
    $
    798
    
    
    
    
    
    
    
    
    
    
    $
    798Derivative liabilities, net
    
    
    
    
    
    $
    (1,361
    )
    
    
    
    
    
    $
    (1,361
    )Rabbi Trust  all invested in money market funds
    
    $
    9,538
    
    
    
    
    
    
    
    
    
    
    $
    9,538
 Note 9  Reconciliation of Basic and Diluted Loss per Share
  Three Months EndedApril 5, 2009
    
    March 30, 2008Per-Share
    
    
    
    
    
    
    
    
    
    Per-ShareLoss*
    
    Shares+
    
    Amount
    
    Loss*
    
    Shares+
    
    Amount(In thousands except per share amounts)Basic loss per share:Net loss available
to common
stockholders
    
    $
    (103,547
    )
    
    
    648,459
    
    
    $
    (0.16
    )
    
    $
    (13,628
    )
    
    
    661,984
    
    
    $
    (0.02
    )Stock options,
employee stock
purchase rights and
restricted stock
unit awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted loss per share:Net loss available
to common
stockholders
    
    $
    (103,547
    )
    
    
    648,459
    
    
    $
    (0.16
    )
    
    $
    (13,628
    )
    
    
    661,984
    
    
    $
    (0.02
    )
 
 *
    
    Numerator+
    
    Denominator   Note 10  Segment and Geographic Information
 14




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##### Table of Contents



Summary of Operations by Segment
  Three Months EndedApril 5, 2009
    
    
    March 30, 2008(In thousands)Revenues:Semiconductor
    
    $
    325,034
    
    
    $
    458,802Storage Systems
    
    
    157,245
    
    
    
    201,945Total
    
    $
    482,279
    
    
    $
    660,747Loss from operations:Semiconductor
    
    $
    (80,095
    )
    
    $
    (24,337
    )Storage Systems
    
    
    (14,079
    )
    
    
    10,556Total
    
    $
    (94,174
    )
    
    $
    (13,781
    )
 Significant Customers
  Three Months EndedApril 5, 2009
    
    March 30, 2008Semiconductor segment:Number of significant customers
    
    
    1
    
    
    
    1Percentage of segment revenues
    
    
    25
    %
    
    
    30
    %Storage Systems segment:Number of significant customers
    
    
    3
    
    
    
    3Percentage of segment revenues
    
    
    43%, 14%, 12
    %
    
    
    43%, 16%, 13
    %Consolidated:Number of significant customers
    
    
    2
    
    
    
    2Percentage of consolidated revenues
    
    
    17%, 15
    %
    
    
    21%, 14
    %
 Information about Geographic Areas
  Note 11  Comprehensive (Loss)/Income
  Three Months EndedApril 5, 2009
    
    
    March 30, 2008(In thousands)Net loss
    
    $
    (103,547
    )
    
    $
    (13,628
    )Net unrealized loss on available-for-sale securities
    
    
    (2,642
    )
    
    
    (69
    )Net unrealized loss on cash-flow hedges
    
    
    (212
    )
    
    
    Foreign currency translation adjustments
    
    
    (15,101
    )
    
    
    14,904Amortization of prior service cost and net
actuarial gain included in net periodic benefit
credit
    
    
    (10
    )
    
    
    Total comprehensive (loss)/income
    
    $
    (121,512
    )
    
    $
    1,207
 15




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##### Table of Contents



Note 12  Income Taxes
   Note 13  Related Party Transactions
    Note 14  Commitments, Contingencies and Legal Matters
 Purchase Commitments
  16




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##### Table of Contents



Guarantees
 Product Warranties :
   Three Months EndedApril 5, 2009(In thousands)Balance as of December 31, 2008
    
    $
    12,238Accruals for warranties issued during the period
    
    
    5,436Accruals related to pre-existing warranties (including changes in estimates)
    
    
    (122
    )Settlements made during the period (in cash or in kind)
    
    
    (3,507
    )Balance as of April 5, 2009
    
    $
    14,045
 Convertible Subordinated Notes:
  Standby Letters of Credit:
  Uncertain Tax Positions
  17




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##### Table of Contents



Indemnifications
  Legal Matters
      18




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##### Table of Contents



Note 15  Subsequent Events
  
 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 EndedApril 5, 2009
    
    
    March 30, 2008(In millions)Semiconductor segment
    
    $
    325.0
    
    
    $
    458.8Storage Systems segment
    
    
    157.3
    
    
    
    201.9Consolidated
    
    $
    482.3
    
    
    $
    660.7
 Three months ended April 5, 2009 compared to the three months ended March 30, 2008:
  Semiconductor Segment:
  Storage Systems Segment:
   Revenues by Geography
  20




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##### Table of Contents



Three Months EndedApril 5, 2009
    
    
    March 30, 2008(In millions)North America *
    
    $
    107.7
    
    
    $
    206.8Asia **
    
    
    244.9
    
    
    
    348.2Europe and the Middle East
    
    
    129.7
    
    
    
    105.7Total
    
    $
    482.3
    
    
    $
    660.7
 
 *
    
    Primarily the United States.**
    
    Including Japan. Three months ended April 5, 2009 compared to the three months ended March 30, 2008:
  Gross Profit Margin
  Three Months EndedApril 5, 2009
    
    
    March 30, 2008(Dollars in millions)Semiconductor segment
    
    $
    124.6
    
    
    $
    184.9Percentage of segment revenues
    
    
    38.3
    %
    
    
    40.3
    %Storage Systems segment
    
    $
    45.5
    
    
    $
    74.7Percentage of segment revenues
    
    
    28.9
    %
    
    
    37.0
    %Consolidated
    
    $
    170.1
    
    
    $
    259.6Percentage of total revenues
    
    
    35.3
    %
    
    
    39.3
    %
 Three months ended April 5, 2009 compared to the three months ended March 30, 2008:
  Semiconductor Segment:
  Storage Systems Segment:
  21




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##### Table of Contents



Research and Development
  Three Months EndedApril 5, 2009
    
    
    March 30, 2008(Dollars in millions)Semiconductor segment
    
    $
    123.0
    
    
    $
    135.2Percentage of segment revenues
    
    
    37.8
    %
    
    
    29.5
    %Storage Systems segment
    
    $
    32.3
    
    
    $
    34.5Percentage of segment revenues
    
    
    20.5
    %
    
    
    17.1
    %Consolidated
    
    $
    155.3
    
    
    $
    169.7Percentage of total revenues
    
    
    32.2
    %
    
    
    25.7
    %
 Three months ended April 5, 2009 compared to the three months ended March 30, 2008:
  Semiconductor Segment:
  Storage Systems Segment:
  Selling, General and Administrative
  Three Months EndedApril 5, 2009
    
    
    March 30, 2008(Dollars in millions)Semiconductor segment
    
    $
    56.5
    
    
    $
    69.4Percentage of segment revenues
    
    
    17.4
    %
    
    
    15.1
    %Storage Systems segment
    
    $
    27.3
    
    
    $
    29.7Percentage of segment revenues
    
    
    17.4
    %
    
    
    14.7
    %Consolidated
    
    $
    83.8
    
    
    $
    99.1Percentage of total revenues
    
    
    17.4
    %
    
    
    15.0
    %
 Three months ended April 5, 2009 compared to the three months ended March 30, 2008:
  22




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##### Table of Contents



Semiconductor Segment:
  Storage Systems Segment:
  Restructuring of Operations and Other Items, net
   Interest (Expense) or Income and Other, net
  Three Months EndedApril 5, 2009
    
    
    March 30, 2008(In millions)Interest expense
    
    $
    (7.2
    )
    
    $
    (9.0
    )Interest income
    
    
    6.4
    
    
    
    14.3Other (expense) /income, net
    
    
    (0.5
    )
    
    
    0.3Total
    
    $
    (1.3
    )
    
    $
    5.6
 Interest Expense:
  Interest Income and Other, net:
   23




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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 $45.3 million;
    
    Accounts receivable decreased by $30.7 million primarily as a result of lower revenues in
the first quarter of 2009 than in the fourth quarter of 2008;
    
    Other accrued liabilities increased by $25.5 million primarily as a result of increases
in accruals for interest on our convertible notes as the interest payment dates approach,
increases in liabilities with third party manufacturers and other accruals related to
operations of the business, offset in part by the utilization of restructuring reserves;
    
    Inventories declined by $19.3 million primarily as a result of the usage of inventories
during the first quarter of 2009, which reflects our continued focus on supply chain
management; and
    
    Prepaid expenses and other current assets decreased by $19.0 million primarily the result
of decreases in other receivables and tax-related receivables.
  
    
    Accounts payable decreased by $65.0 million primarily as a result of lower purchases
following the global economic downturn and the timing of invoice receipts and payments;
    
    Accrued salaries, wages and benefits decreased by $22.1 million primarily the result of
timing differences in the payment of salaries, benefits and performance-based compensation;
    
    Income taxes payable decreased by $0.7 million because of the timing of income tax
payments made and the income tax provision recorded during the first quarter of 2009; and
 24




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##### Table of Contents




    
    Current portion of the long-term debt decreased $0.5 million as a result of the
amortization of accrued debt premium.
 Cash Used in Operating Activities
  
    
    A net loss adjusted for non-cash transactions, including depreciation and amortization.
The non-cash items and other non-operating adjustments are quantified in the Statements of
Cash Flows included in Item 1; offset by
    
    A net increase in assets and liabilities, including changes in working capital components
from December 31, 2008 to April 5, 2009, as discussed above.
 Cash Provided by Investing Activities
  
    
    Proceeds from maturities and sales of available-for-sale debt securities and equity
securities, net of purchases; and
    
    Purchases of property, equipment and software, net of sales.
  Cash Provided by Financing Activities
   CONTRACTUAL OBLIGATIONS
  Payments Due by PeriodLess Than 1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    After 5 Years
    
    
    Other
    
    
    Total(In millions)Convertible Subordinated
Notes
    
    $
    243.0
    
    
    $
    350.0
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    593.0Estimated interest
payments on Convertible
Subordinated Notes
    
    
    29.8
    
    
    
    7.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36.8Operating lease obligations
    
    
    82.5
    
    
    
    72.0
    
    
    
    16.7
    
    
    
    2.9
    
    
    
    
    
    
    
    174.1Purchase commitments
    
    
    262.6
    
    
    
    246.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    509.1FIN 48 liabilities
    
    
    35.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    196.2
    **
    
    
    231.4Pension and postretirement
contributions
    
    
    20.0 to 60.0
    
    
    
    *
    
    
    
    *
    
    
    
    *
    
    
    
    *
    
    
    
    20.0 to 60.0Total
    
    $
    673.1 to 713.1
    
    
    $
    675.5
    
    
    $
    16.7
    
    
    $
    2.9
    
    
    $
    196.2
    
    
    $
    1,564.4 to 1,604.4
 25




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##### Table of Contents



*
    
    We have pension plans covering substantially all former Agere Systems U.S. employees,
excluding management employees hired after June 30, 2003. We also have pension plans covering
certain international employees. Although additional future contributions will be required,
the amount and timing of these contributions will be impacted by actuarial assumptions, the
actual rate of return on plan assets, the level of market interest rates, and the amount of
voluntary contributions to the plans. If current macroeconomic conditions continue, the
additional contributions in future years would likely be higher than those projected for 2009.
Effective April 6, 2009, we froze the U.S. management pension plan, which covers active
participants who joined us from Agere.**
    
    Represents the non-current tax payable obligation under FIN 48. We are unable to make a
reasonably reliable estimate as to when cash settlement with a taxing authority may occur. Convertible Subordinated Notes
    Operating Lease Obligations
  Purchase Commitments
  Uncertain Tax Positions
  26




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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 Control:
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  27




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##### Table of Contents



Item 1A. Risk Factors
  
    
    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.
    
    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.
    
    A prolonged economic downturn could have a material negative impact on our results of
operations and financial condition.
    28




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##### Table of Contents




    
    We depend on outside suppliers to manufacture, assemble, package and test our products;
accordingly, any failure 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.
 29




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##### Table of Contents




    
    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 failure to attract, retain and motivate key employees could harm our business.
    
    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.
    
    Our blank check preferred stock 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 6. Exhibits
  30




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##### Table of Contents



SIGNATURES
  LSI CORPORATION
(Registrant)Date: May 14, 2009
    By
    /s/ Bryon LookBryon LookExecutive Vice President, Chief Financial Officer
and Chief Administrative Officer 31




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##### Table of Contents



EXHIBIT INDEX
 10.1
    
    Separation Agreement with Ruediger Stroh (Incorporated by reference
to Exhibit 10.33 to our Annual Report on Form 10-K, filed March 2,
2009)10.2
    
    Separation Agreement with Claudine Simson (Incorporated by reference
to Exhibit 10.34 to our Annual Report on Form 10-K, filed March 2,
2009)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
 32