##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended October 4, 2009
 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
 o 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 October 4, 2009
INDEX
 PageNo.PART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Condensed Consolidated Balance Sheets as of October 4, 2009 and December 31, 2008 (unaudited)
    
    
    3Condensed Consolidated Statements of Operations for the three and nine months ended October
4, 2009 and September 28, 2008 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the nine months ended October 4, 2009
and September 28, 2008 (unaudited)
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    33Item 4. Controls and Procedures
    
    
    33PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    33Item 1A. Risk Factors
    
    
    33Item 6. Exhibits
    
    
    35Signatures
    
    
    36Exhibit Index
    
    
    37EX-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
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except per share amounts)
(Unaudited)
 October 4,
    
    
    December 31,2009
    
    
    2008ASSETSCash and cash equivalents
    
    $
    705,385
    
    
    $
    829,301Short-term investments
    
    
    201,742
    
    
    
    289,841Accounts receivable, less allowances of $7,831 and $9,627, respectively
    
    
    307,191
    
    
    
    303,971Inventories
    
    
    155,521
    
    
    
    220,535Prepaid expenses and other current assets
    
    
    140,225
    
    
    
    155,814Total current assets
    
    
    1,510,064
    
    
    
    1,799,462Property and equipment, net
    
    
    215,932
    
    
    
    235,963Identified intangible assets, net
    
    
    781,814
    
    
    
    889,995Goodwill
    
    
    188,862
    
    
    
    175,624Other assets
    
    
    228,517
    
    
    
    243,150Total assets
    
    $
    2,925,189
    
    
    $
    3,344,194LIABILITIES AND STOCKHOLDERS EQUITYAccounts payable
    
    $
    193,653
    
    
    $
    201,035Accrued salaries, wages and benefits
    
    
    93,267
    
    
    
    114,730Other accrued liabilities
    
    
    197,656
    
    
    
    236,661Current portion of long-term debt
    
    
    350,000
    
    
    
    245,107Total current liabilities
    
    
    834,576
    
    
    
    797,533Long-term debt, net of current portion
    
    
    
    
    
    
    350,000Pension, postretirement and other benefits
    
    
    432,054
    
    
    
    451,079Income taxes payable  non-current
    
    
    158,229
    
    
    
    193,590Other non-current liabilities
    
    
    100,317
    
    
    
    111,070Total long-term obligations and other liabilities
    
    
    690,600
    
    
    
    1,105,739Commitments and contingencies (Note 16)Stockholders equity:Preferred stock, $.01 par value: 2,000 shares authorized; none outstanding
    
    
    
    
    
    
    Common stock, $.01 par value: 1,300,000 shares authorized; 652,271 and
648,132 shares outstanding, respectively
    
    
    6,523
    
    
    
    6,481Additional paid-in capital
    
    
    6,123,059
    
    
    
    6,058,786Accumulated deficit
    
    
    (4,473,320
    )
    
    
    (4,360,775
    )Accumulated other comprehensive loss
    
    
    (256,249
    )
    
    
    (263,570
    )Total stockholders equity
    
    
    1,400,013
    
    
    
    1,440,922Total liabilities and stockholders equity
    
    $
    2,925,189
    
    
    $
    3,344,194
  3




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LSI CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share amounts)
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedOctober 4, 2009
    
    
    September 28, 2008
    
    
    October 4, 2009
    
    
    September 28, 2008Revenues
    
    $
    578,419
    
    
    $
    714,308
    
    
    $
    1,581,363
    
    
    $
    2,067,118Cost of revenues
    
    
    352,833
    
    
    
    416,891
    
    
    
    1,004,812
    
    
    
    1,225,252Gross profit
    
    
    225,586
    
    
    
    297,417
    
    
    
    576,551
    
    
    
    841,866Research and development
    
    
    151,047
    
    
    
    169,551
    
    
    
    455,250
    
    
    
    509,383Selling, general and administrative
    
    
    82,175
    
    
    
    103,744
    
    
    
    247,659
    
    
    
    307,267Restructuring of operations and other items, net
    
    
    4,745
    
    
    
    1,586
    
    
    
    35,960
    
    
    
    26,869(Loss)/income from operations
    
    
    (12,381
    )
    
    
    22,536
    
    
    
    (162,318
    )
    
    
    (1,653
    )Interest expense
    
    
    (3,899
    )
    
    
    (8,993
    )
    
    
    (17,999
    )
    
    
    (26,930
    )Interest income and other, net
    
    
    3,535
    
    
    
    8,028
    
    
    
    15,742
    
    
    
    30,879(Loss)/income before income taxes
    
    
    (12,745
    )
    
    
    21,571
    
    
    
    (164,575
    )
    
    
    2,296(Benefit)/provision for income taxes
    
    
    (65,230
    )
    
    
    10,200
    
    
    
    (52,030
    )
    
    
    18,200Net income/(loss)
    
    $
    52,485
    
    
    $
    11,371
    
    
    $
    (112,545
    )
    
    $
    (15,904
    )Net income/(loss) per share:Basic
    
    $
    0.08
    
    
    $
    0.02
    
    
    $
    (0.17
    )
    
    $
    (0.02
    )Diluted
    
    $
    0.08
    
    
    $
    0.02
    
    
    $
    (0.17
    )
    
    $
    (0.02
    )Shares used in computing per share amounts:Basic
    
    
    651,865
    
    
    
    643,849
    
    
    
    650,183
    
    
    
    648,519Diluted
    
    
    658,963
    
    
    
    647,418
    
    
    
    650,183
    
    
    
    648,519
  4




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##### Table of Contents



LSI CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
(Unaudited)
 Nine Months EndedOctober 4, 2009
    
    
    September 28, 2008Operating activities:Net loss
    
    $
    (112,545
    )
    
    $
    (15,904
    )Adjustments:Depreciation and amortization
    
    
    198,918
    
    
    
    239,945Stock-based compensation expense
    
    
    49,804
    
    
    
    54,292Non-cash restructuring of operations and other items, net
    
    
    690
    
    
    
    (3,163
    )Gain on redemption of convertible subordinated notes
    
    
    (149
    )
    
    
    Write-down of debt and equity securities, net of gain on sale of equity securities
    
    
    1,529
    
    
    
    4,500(Gain)/loss on sale of property and equipment
    
    
    (220
    )
    
    
    14Non-cash foreign exchange loss
    
    
    315
    
    
    
    6,988Deferred taxes
    
    
    (253
    )
    
    
    4,397Changes in assets and liabilities, net of assets acquired and liabilities assumed in business combinations:Accounts receivable, net
    
    
    (3,217
    )
    
    
    5,237Inventories
    
    
    78,406
    
    
    
    30,884Prepaid expenses and other assets
    
    
    48,272
    
    
    
    9,192Accounts payable
    
    
    (6,581
    )
    
    
    (92,323
    )Accrued and other liabilities
    
    
    (127,246
    )
    
    
    (64,194
    )Net cash provided by operating activities
    
    
    127,723
    
    
    
    179,865Investing activities:Purchases of debt securities available-for-sale
    
    
    (10
    )
    
    
    (158,601
    )Proceeds from maturities and sales of debt securities available-for-sale
    
    
    77,640
    
    
    
    131,719Purchases of equity securities
    
    
    (9,534
    )
    
    
    (8,500
    )Proceeds from sales of equity securities
    
    
    165
    
    
    
    Purchases of property, equipment and software
    
    
    (68,738
    )
    
    
    (95,005
    )Proceeds from sale of property and equipment
    
    
    2,749
    
    
    
    11,400Acquisition of businesses and companies, net of cash acquired
    
    
    (46,981
    )
    
    
    (95,137
    )Decrease/(increase) in non-current assets and deposits
    
    
    13,501
    
    
    
    (13,300
    )Proceeds from maturity of notes receivable associated with sale of semiconductor operations in Thailand
    
    
    10,000
    
    
    
    Proceeds received from the resolution of a pre-acquisition income tax contingency
    
    
    
    
    
    
    4,821Net cash used in investing activities
    
    
    (21,208
    )
    
    
    (222,603
    )Financing activities:Redemption of convertible subordinated notes
    
    
    (244,047
    )
    
    
    Issuances of common stock
    
    
    10,040
    
    
    
    36,370Purchases of common stock under repurchase programs
    
    
    
    
    
    
    (229,231
    )Net cash used in financing activities
    
    
    (234,007
    )
    
    
    (192,861
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    3,576
    
    
    
    (1,060
    )Decrease in cash and cash equivalents
    
    
    (123,916
    )
    
    
    (236,659
    )Cash and cash equivalents at beginning of year
    
    
    829,301
    
    
    
    1,021,569Cash and cash equivalents at end of period
    
    $
    705,385
    
    
    $
    784,910
  5




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##### Table of Contents



LSI CORPORATION
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 1  Basis of Presentation
     Recent Accounting Pronouncements
 Pronouncements not yet Effective:
      6




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Pronouncement Adopted during the Third Quarter of 2009:
  Note 2  Stock-Based Compensation
   Three Months Ended
    
    
    Nine Months EndedStock-Based Compensation Expense Included In:
    
    October 4, 2009
    
    
    September 28, 2008
    
    
    October 4, 2009
    
    
    September 28, 2008(In thousands)Cost of revenues
    
    $
    1,697
    
    
    $
    2,252
    
    
    $
    5,732
    
    
    $
    6,885Research and development
    
    
    6,386
    
    
    
    6,593
    
    
    
    21,443
    
    
    
    21,985Selling, general and administrative
    
    
    6,729
    
    
    
    8,005
    
    
    
    22,629
    
    
    
    25,422Total stock-based compensation expense
    
    $
    14,812
    
    
    $
    16,850
    
    
    $
    49,804
    
    
    $
    54,292
  Stock Options
  Three Months Ended
    
    Nine Months EndedOctober 4, 2009
    
    September 28, 2008
    
    October 4, 2009
    
    September 28, 2008Weighted average estimated grant date fair value per share
    
    $
    1.93
    
    
    $
    2.63
    
    
    $
    1.41
    
    
    $
    2.06Weighted average assumptions in calculation:Expected life (years)
    
    
    3.90
    
    
    
    4.38
    
    
    
    4.26
    
    
    
    4.37Risk-free interest rate
    
    
    2
    %
    
    
    3
    %
    
    
    2
    %
    
    
    3
    %Volatility
    
    
    58
    %
    
    
    53
    %
    
    
    67
    %
    
    
    52
    %
   7




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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
    
    
    22,865
    
    
    
    3.10
    
    
    
    
    
    
    
    Options exercised
    
    
    (692
    )
    
    
    4.89
    
    
    
    
    
    
    
    Options canceled
    
    
    (10,718
    )
    
    
    14.54
    
    
    
    
    
    
    
    Options outstanding at October 4, 2009
    
    
    96,568
    
    
    $
    10.21
    
    
    
    4.05
    
    
    $
    49,365Options exercisable at October 4, 2009
    
    
    53,788
    
    
    $
    14.39
    
    
    
    2.75
    
    
    $
    2,046
   Employee Stock Purchase Plan
  Three Months EndedJuly 5, 2009
    
    June 29, 2008Weighted average estimated grant date fair value per share
    
    $
    1.39
    
    
    $
    2.13Weighted average assumptions in calculation:Expected life (years)
    
    
    0.5
    
    
    
    0.8Risk-free interest rate
    
    
    0.3
    %
    
    
    2
    %Volatility
    
    
    78
    %
    
    
    44
    %
 Restricted Stock Unit Awards
  8




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##### Table of Contents



Number of Units(In thousands)Non-vested restricted stock units at December 31, 2008
    
    
    6,391Granted
    
    
    363Vested
    
    
    (1,458
    )Forfeited
    
    
    (502
    )Non-vested restricted stock units at October 4, 2009
    
    
    4,794
  Note 3  Restructuring of Operations and Other Items
  Restructuring
 First Quarter of 2009:
  
    
    A charge of $14.0 million primarily related to an accrual for remaining payments to be
made under a licensing 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.
 Second Quarter of 2009:
  
    
    A charge of $4.5 million for severance and termination benefits for employees; and
    
    A charge of $1.2 million primarily for the change in time value of accruals for
previously accrued facility lease exit costs.
 Third Quarter of 2009:
  
    
    A charge of $2.3 million primarily for changes in estimates and sublease assumptions and
for the change in time value of accruals for previously accrued facility lease exit costs;
and
    
    A charge of $0.9 million primarily related to the write-off of an asset.
  9




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Balance at
    
    
    (Income)/
    
    
    Utilized
    
    
    Balance at
    
    
    (Income)/
    
    
    Utilized
    
    
    Balance at
    
    
    
    
    
    
    Utilized
    
    
    Balance atDecember 31,
    
    
    Expense
    
    
    During
    
    
    April 5,
    
    
    Expense
    
    
    During
    
    
    July 5,
    
    
    Expense
    
    
    During
    
    
    October 4,2008
    
    
    Q1 2009
    
    
    Q1 2009
    
    
    2009
    
    
    Q2 2009
    
    
    Q2 2009
    
    
    2009
    
    
    Q3 2009
    
    
    Q3 2009
    
    
    2009(In thousands)Write-down of excess
assets and other
liabilities
    
    $
    83
    
    
    $
    (83
    )
    
    $
    
    
    
    $
    
    
    
    $
    (8
    )
    
    $
    8
    
    
    $
    
    
    
    $
    699
    
    
    $
    (699
    )
    
    $
    Lease terminations (a)
    
    
    44,555
    
    
    
    14,878
    
    
    
    (10,323
    )
    
    
    49,110
    
    
    
    1,166
    
    
    
    (1,260
    )
    
    
    49,016
    
    
    
    2,332
    
    
    
    (6,559
    )
    
    
    44,789Payments to employees
for severance (b)
    
    
    28,031
    
    
    
    4,518
    
    
    
    (17,347
    )
    
    
    15,202
    
    
    
    4,546
    
    
    
    (7,374
    )
    
    
    12,374
    
    
    
    132
    
    
    
    (7,134
    )
    
    
    5,372Total
    
    $
    72,669
    
    
    $
    19,313
    
    
    $
    (27,670
    )
    
    $
    64,312
    
    
    $
    5,704
    
    
    $
    (8,626
    )
    
    $
    61,390
    
    
    $
    3,163
    
    
    $
    (14,392
    )
    
    $
    50,161
 
 (a)
    
    The amount utilized represents cash payments. The balance remaining is expected to be paid
during the remaining terms of the leases, which extend through 2013 and includes accruals for
a licensing agreement that is no longer being used by the Company.(b)
    
    The majority of the balance remaining for severance is expected to be paid by the first
quarter of 2010. Other Items
  Assets Held for Sale
   Note 4  Business Combinations
 3ware RAID Storage Adapter Business
   Entity Name or Type of Technology;
    
    
    
    
    
    Fair Value of
    
    
    
    
    
    
    NetSegment Included in;
    
    
    
    
    
    Total
    
    
    Type of
    
    
    Tangible
    
    
    IdentifiedDescription of Acquired Business
    
    Acquisition Date
    
    
    Consideration
    
    
    Consideration
    
    
    Assets
    
    
    Intangible Assets
    
    
    Goodwill(Dollars in millions)3ware RAID storage adapter
business; Storage Systems segment;Server RAID adapters and storage
solutions
    
    April 21, 2009
    
    $
    21.5
    
    
    Cash
    
    $
    12.3
    
    
    $
    5.0
    
    
    $
    4.2
   10




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##### Table of Contents



WeightedFair Value
    
    
    Average Life(In millions)
    
    
    (In years)Current technology
    
    $
    1.5
    
    
    
    2Customer base
    
    
    3.2
    
    
    
    5Trade names
    
    
    0.3
    
    
    
    2Total acquired identified intangible assets
    
    $
    5.0
 ONStor, Inc.
   AcquiredEntity Name or Type of Technology;
    
    
    
    
    
    Fair Value of
    
    
    
    
    
    
    Net
    
    
    
    
    
    
    In-Process ResearchSegment Included in;
    
    
    
    
    
    Total
    
    
    Type of
    
    
    Tangible
    
    
    Identified
    
    
    & DevelopmentDescription of Acquired Business
    
    Acquisition Date
    
    
    Consideration
    
    
    Consideration
    
    
    Assets
    
    
    Intangible Assets
    
    

(IPR&D)
    
    
    Goodwill(Dollars in millions)ONStor;Storage Systems segment;Clustered network-attached storage
solutions
    
    July 27, 2009
    
    $
    25.5
    
    
    Cash
    
    $
    0.7
    
    
    $
    15.0
    
    
    $
    0.8
    
    
    $
    9.0
   WeightedFair Value
    
    
    Average Life(In millions)
    
    
    (In years)Current technology
    
    $
    12.7
    
    
    
    6Customer base
    
    
    2.1
    
    
    
    2Trade names
    
    
    0.2
    
    
    
    2Total acquired identified intangible assets
    
    $
    15.0
  Note 5  Benefit Obligations
  11




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Three Months EndedOctober 4, 2009
    
    
    September 28, 2008Pension
    
    
    Postretirement
    
    
    Pension
    
    
    PostretirementBenefits
    
    
    Benefits
    
    
    Benefits
    
    
    Benefits(In thousands)Service cost
    
    $
    416
    
    
    $
    20
    
    
    $
    1,298
    
    
    $
    25Interest cost
    
    
    18,435
    
    
    
    606
    
    
    
    18,947
    
    
    
    745Expected return on plan assets
    
    
    (19,198
    )
    
    
    (1,219
    )
    
    
    (20,701
    )
    
    
    (1,258
    )Amortization of prior service cost
    
    
    11
    
    
    
    
    
    
    
    4
    
    
    
    Net actuarial gain recognized
    
    
    (21
    )
    
    
    
    
    
    
    
    
    
    
    (30
    )Total benefit credit
    
    $
    (357
    )
    
    $
    (593
    )
    
    $
    (452
    )
    
    $
    (518
    )
 Nine Months EndedOctober 4, 2009
    
    
    September 28, 2008Pension
    
    
    Postretirement
    
    
    Pension
    
    
    PostretirementBenefits
    
    
    Benefits
    
    
    Benefits
    
    
    Benefits(In thousands)Service cost
    
    $
    1,373
    
    
    $
    60
    
    
    $
    4,201
    
    
    $
    77Interest cost
    
    
    55,311
    
    
    
    1,818
    
    
    
    56,084
    
    
    
    2,278Expected return on plan assets
    
    
    (57,601
    )
    
    
    (3,657
    )
    
    
    (61,865
    )
    
    
    (3,775
    )Amortization of prior service cost
    
    
    34
    
    
    
    
    
    
    
    12
    
    
    
    Net actuarial gain recognized
    
    
    (67
    )
    
    
    
    
    
    
    (1
    )
    
    
    (89
    )Total benefit credit
    
    $
    (950
    )
    
    $
    (1,779
    )
    
    $
    (1,569
    )
    
    $
    (1,509
    )
  Note 6  Balance Sheet Details
 October 4,
    
    
    December 31,2009
    
    
    2008(In thousands)Inventories:Raw materials
    
    $
    28,002
    
    
    $
    44,208Work-in-process
    
    
    28,395
    
    
    
    52,242Finished goods
    
    
    99,124
    
    
    
    124,085Total inventories
    
    $
    155,521
    
    
    $
    220,535
 Interest
    
    
    Conversion
    
    
    October 4,
    
    
    December 31,Maturity
    
    
    Rate
    
    
    Price
    
    
    2009
    
    
    2008(In thousands)Debt:4% Convertible Subordinated Notes
    
    
    2010
    
    
    
    4.00
    %
    
    $
    13.4200
    
    
    $
    350,000
    
    
    $
    350,0006.5% Convertible Subordinated Notes
    
    
    2009
    
    
    
    6.50
    %
    
    $
    15.3125
    
    
    
    
    
    
    
    243,002Accrued debt premium
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,405Amortization of accrued debt premium
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,300
    )Total debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    350,000
    
    
    
    595,107Current portion of long-term debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (350,000
    )
    
    
    (245,107
    )Long-term debt, net of current portion
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    $
    350,000
  12




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##### Table of Contents



Note 7  Identified Intangible Assets and Goodwill
 Identified Intangible Assets
  October 4, 2009
    
    
    December 31, 2008Gross
    
    
    Accumulated
    
    
    Gross
    
    
    AccumulatedCarrying Amount
    
    
    Amortization
    
    
    Carrying Amount
    
    
    Amortization(In thousands)Semiconductor:Current technology
    
    $
    894,808
    
    
    $
    (591,744
    )
    
    $
    894,808
    
    
    $
    (524,120
    )Trademarks
    
    
    26,657
    
    
    
    (26,657
    )
    
    
    26,657
    
    
    
    (26,657
    )Customer base
    
    
    399,508
    
    
    
    (189,493
    )
    
    
    399,508
    
    
    
    (160,925
    )Non-compete agreements
    
    
    1,949
    
    
    
    (1,949
    )
    
    
    1,949
    
    
    
    (1,888
    )Existing purchase orders
    
    
    200
    
    
    
    (200
    )
    
    
    200
    
    
    
    (200
    )Supply agreement
    
    
    100
    
    
    
    (100
    )
    
    
    100
    
    
    
    (100
    )Patent licensing
    
    
    312,800
    
    
    
    (90,348
    )
    
    
    312,800
    
    
    
    (63,243
    )Order backlog
    
    
    41,300
    
    
    
    (41,300
    )
    
    
    41,300
    
    
    
    (41,300
    )Workforce
    
    
    3,567
    
    
    
    (1,705
    )
    
    
    3,567
    
    
    
    (1,258
    )Trade names
    
    
    2,248
    
    
    
    (2,248
    )
    
    
    2,248
    
    
    
    (2,248
    )Subtotal
    
    
    1,683,137
    
    
    
    (945,744
    )
    
    
    1,683,137
    
    
    
    (821,939
    )Storage Systems:Current technology
    
    
    178,580
    
    
    
    (140,744
    )
    
    
    164,339
    
    
    
    (136,104
    )Trademarks
    
    
    7,150
    
    
    
    (7,150
    )
    
    
    7,150
    
    
    
    (7,150
    )Customer base
    
    
    10,301
    
    
    
    (5,422
    )
    
    
    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
    
    
    1,350
    
    
    
    (404
    )
    
    
    800
    
    
    
    (238
    )IPR&D
    
    
    760
    
    
    
    
    
    
    
    
    
    
    
    Subtotal
    
    
    207,888
    
    
    
    (163,467
    )
    
    
    187,046
    
    
    
    (158,249
    )Total identified intangible assets
    
    $
    1,891,025
    
    
    $
    (1,109,211
    )
    
    $
    1,870,183
    
    
    $
    (980,188
    )
  Weighted
    
    
    Nine Months EndedAverage Life
    
    
    October 4, 2009
    
    
    September 28, 2008(In months)
    
    
    (In thousands)Current technology
    
    
    57
    
    
    $
    72,264
    
    
    $
    100,833Trademarks
    
    
    83
    
    
    
    
    
    
    
    37Customer base
    
    
    45
    
    
    
    28,980
    
    
    
    45,020Non-compete agreements
    
    
    27
    
    
    
    61
    
    
    
    918Patent licensing
    
    
    36
    
    
    
    27,105
    
    
    
    27,183Workforce
    
    
    72
    
    
    
    447
    
    
    
    447Trade names
    
    
    68
    
    
    
    166
    
    
    
    366Total
    
    
    50
    
    
    $
    129,023
    
    
    $
    174,804
  Amount(In thousands)Fiscal Year:2009 (October 5 through December 31, 2009)
    
    $
    42,5712010
    
    
    160,9432011
    
    
    126,6902012
    
    
    106,4972013 and thereafter
    
    
    344,353Total
    
    $
    781,054
 13




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##### Table of Contents



Goodwill
  Storage SystemsSegment(In thousands)Balance as of December 31, 2008
    
    $
    175,624Additions as a result of acquisitions during the period *
    
    
    13,238Balance as of October 4, 2009
    
    $
    188,862
 
 *
    
    During the nine months ended October 4, 2009, the Company recorded $4.2 million and $9.0
million of goodwill in connection with 3ware and ONStor acquisitions, respectively. Note 8  Cash, Cash Equivalents and Investments
  October 4,
    
    
    December 31,2009
    
    
    2008(In thousands)Cash and cash equivalents:Cash in financial institutions
    
    $
    128,176
    
    
    $
    77,372Cash equivalents:Overnight deposits and money market funds
    
    
    577,209
    
    
    
    744,430Commercial paper
    
    
    
    
    
    
    1,085U.S. government and agency securities
    
    
    
    
    
    
    6,414Total cash equivalents
    
    
    577,209
    
    
    
    751,929Total cash and cash equivalents
    
    $
    705,385
    
    
    $
    829,301Available-for-sale debt securities: *Asset-backed and mortgage-backed securities
    
    $
    146,947
    
    
    $
    184,511U.S. government and agency securities
    
    
    49,947
    
    
    
    88,504Corporate and municipal debt securities
    
    
    4,848
    
    
    
    16,826Total short-term investments
    
    $
    201,742
    
    
    $
    289,841Long-term investments in equity securities: **Marketable available-for-sale equity securities
    
    $
    1,408
    
    
    $
    566Non-marketable equity securities
    
    
    51,954
    
    
    
    46,141Total long-term investments in equity securities
    
    $
    53,362
    
    
    $
    46,707
 
 *
    
    Short-term investments in marketable debt securities are reported at fair value.**
    
    Included in other assets in the condensed consolidated balance sheets. Long-term investments
in marketable equity securities are reported at fair value. For non-marketable equity
securities, the Company does not estimate the fair values unless there are identified events
or changes in circumstances that may have a significant adverse effect on the investment. If
management determines that these non-marketable equity investments are impaired, losses are
generally measured by using pricing reflected in current rounds of financing. During the three
months ended October 4, 2009, the Company recorded a pre-tax charge of $1.7 million associated
with the impairment of certain non-marketable equity securities considered to be other than
temporary. The pre-tax loss was recorded in interest income and other, net in the condensed
consolidated statements of operations. Investments in Available-for-Sale Securities
 14




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##### Table of Contents



Amount(In thousands)Due within one year
    
    $
    23,135Due in 1-5 years
    
    
    35,150Due in 5-10 years
    
    
    16,776Due after 10 years
    
    
    126,681Total
    
    $
    201,742
   October 4, 2009Amortized
    
    
    Gross Unrealized
    
    
    Gross UnrealizedCost
    
    
    Gain
    
    
    Loss
    
    
    Fair Value(In thousands)Short-term debt securities:Asset-backed and mortgage-backed securities
    
    $
    141,906
    
    
    $
    6,214
    
    
    $
    (1,173
    )
    
    $
    146,947U.S. government and agency securities
    
    
    47,886
    
    
    
    2,061
    
    
    
    
    
    
    
    49,947Corporate and municipal debt securities
    
    
    4,712
    
    
    
    177
    
    
    
    (41
    )
    
    
    4,848Total short-term debt securities
    
    $
    194,504
    
    
    $
    8,452
    
    
    $
    (1,214
    )
    
    $
    201,742Long-term marketable equity securities
    
    $
    111
    
    
    $
    1,297
    
    
    $
    
    
    
    $
    1,408
 December 31, 2008Amortized
    
    
    Gross Unrealized
    
    
    Gross UnrealizedCost
    
    
    Gain
    
    
    Loss
    
    
    Fair Value(In thousands)Short-term debt securities:Asset-backed and mortgage-backed securities
    
    $
    183,385
    
    
    $
    1,829
    
    
    $
    (703
    )
    
    $
    184,511U.S. government and agency securities
    
    
    85,426
    
    
    
    3,078
    
    
    
    
    
    
    
    88,504Corporate and municipal debt securities
    
    
    17,183
    
    
    
    54
    
    
    
    (411
    )
    
    
    16,826Total short-term debt securities
    
    $
    285,994
    
    
    $
    4,961
    
    
    $
    (1,114
    )
    
    $
    289,841Long-term marketable equity securities
    
    $
    155
    
    
    $
    413
    
    
    $
    (2
    )
    
    $
    566
  Less than 12 Months
    
    
    Greater than 12 MonthsFair Value
    
    
    Unrealized Losses
    
    
    Fair Value
    
    
    Unrealized Losses(In thousands)Asset-backed and mortgage-backed securities
    
    $
    9,054
    
    
    $
    (1,142
    )
    
    $
    1,394
    
    
    $
    (31
    )Corporate and municipal debt securities
    
    
    1,311
    
    
    
    (41
    )
    
    
    
    
    
    
    Total
    
    $
    10,365
    
    
    $
    (1,183
    )
    
    $
    1,394
    
    
    $
    (31
    )
   15




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##### Table of Contents



Note 9  Derivative Instruments
  Cash Flow Hedges
  Other Foreign Currency Hedges
  Fair Values of Derivative Instruments
  October 4, 2009(In thousands)Prepaid expenses and other current assets:Derivative assets designated as hedging instruments:Foreign exchange forward contracts
    
    $
    1,194Derivative assets not designated as hedging instruments:Foreign exchange forward contracts
    
    $
    290Other accrued liabilities:Derivative liabilities designated as hedging instruments:Foreign exchange forward contracts
    
    $
    116Derivative liabilities not designated as hedging instruments:Foreign exchange forward contracts
    
    $
    147
 Effect of Derivative Instruments on OCI and Statements of Operations
 16




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##### Table of Contents



(a) Cash Flow Hedges:
 Three Months Ended
    
    
    Nine Months EndedOctober 4, 2009
    
    
    October 4, 2009(In thousands)Accumulated gain/(loss) in OCI, beginning of period
    
    $
    262
    
    
    $
    (905
    )Net unrealized gain recorded in OCI (effective portion)
    
    
    178
    
    
    
    310(Gain)/loss reclassified from accumulated OCI to
research and development expenses (effective portion)
    
    
    (61
    )
    
    
    327(Gain)/loss reclassified from accumulated OCI to
selling, general and administrative expenses (effective
portion)
    
    
    (235
    )
    
    
    412Accumulated gain in OCI, end of period
    
    $
    144
    
    
    $
    144
 (b) Other Foreign Currency Hedges:
 Three Months Ended
    
    
    Nine Months EndedOctober 4, 2009
    
    
    October 4, 2009(In thousands)Gain recognized in interest income and other, net
    
    $
    10,808
    
    
    $
    6,406
 Note 10  Fair Value Measurements
       Fair Value Measurements as of October 4, 2009Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total(In thousands)Short-term investments in debt securities and cash equivalents
    
    $
    627,156
    
    
    $
    151,795
    
    
    
    
    
    
    $
    778,951Long-term investments in marketable equity securities
    
    $
    1,408
    
    
    
    
    
    
    
    
    
    
    $
    1,408Derivative assets, net
    
    
    
    
    
    $
    1,221
    
    
    
    
    
    
    $
    1,221Rabbi Trust * invested in money market funds and mutual funds
    
    $
    9,831
    
    
    
    
    
    
    
    
    
    
    $
    9,831
 
 *
    
    Included in other assets in the condensed consolidated balance sheets. Note 11  Reconciliation of Basic and Diluted Income/(Loss) per Share
 17




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##### Table of Contents



Three Months EndedOctober 4, 2009
    
    September 28, 2008Per-Share
    
    
    
    
    
    
    
    
    
    Per-ShareIncome*
    
    Shares+
    
    Amount
    
    Income*
    
    Shares+
    
    Amount(In thousands except per share amounts)Basic:Net income available to common stockholders
    
    $
    52,485
    
    
    
    651,865
    
    
    $
    0.08
    
    
    $
    11,371
    
    
    
    643,849
    
    
    $
    0.02Stock options, employee stock purchase rights and restricted stock unit awards
    
    
    
    
    
    
    7,098
    
    
    
    
    
    
    
    
    
    
    
    3,569
    
    
    
    Diluted:Net income available to common stockholders
    
    $
    52,485
    
    
    
    658,963
    
    
    $
    0.08
    
    
    $
    11,371
    
    
    
    647,418
    
    
    $
    0.02
 Nine Months EndedOctober 4, 2009
    
    September 28, 2008Per-Share
    
    
    
    
    
    
    
    
    
    Per-ShareLoss*
    
    Shares+
    
    Amount
    
    Loss*
    
    Shares+
    
    Amount(In thousands except per share amounts)Basic:Net loss available to common stockholders
    
    $
    (112,545
    )
    
    
    650,183
    
    
    $
    (0.17
    )
    
    $
    (15,904
    )
    
    
    648,519
    
    
    $
    (0.02
    )Stock options, employee stock purchase rights and restricted stock unit awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted:Net loss available to common stockholders
    
    $
    (112,545
    )
    
    
    650,183
    
    
    $
    (0.17
    )
    
    $
    (15,904
    )
    
    
    648,519
    
    
    $
    (0.02
    )
 
 *
    
    Numerator+
    
    Denominator   Note 12  Segment and Geographic Information
  Summary of Operations by Segment
  Three Months Ended
    
    
    Nine Months EndedOctober 4, 2009
    
    
    September 28, 2008
    
    
    October 4, 2009
    
    
    September 28, 2008(In thousands)Revenues:Semiconductor
    
    $
    371,834
    
    
    $
    500,432
    
    
    $
    1,040,654
    
    
    $
    1,421,244Storage Systems
    
    
    206,585
    
    
    
    213,876
    
    
    
    540,709
    
    
    
    645,874Total
    
    $
    578,419
    
    
    $
    714,308
    
    
    $
    1,581,363
    
    
    $
    2,067,118(Loss)/income from operations:Semiconductor
    
    $
    (20,084
    )
    
    $
    8,892
    
    
    $
    (152,411
    )
    
    $
    (47,371
    )Storage Systems
    
    
    7,703
    
    
    
    13,644
    
    
    
    (9,907
    )
    
    
    45,718Total
    
    $
    (12,381
    )
    
    $
    22,536
    
    
    $
    (162,318
    )
    
    $
    (1,653
    )
 Significant Customers
 18




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##### Table of Contents



Three Months Ended
    
    Nine Months EndedOctober 4, 2009
    
    September 28, 2008
    
    October 4, 2009
    
    September 28, 2008Semiconductor segment:Number of significant customers
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    1Percentage of segment revenues
    
    
    24
    %
    
    
    26
    %
    
    
    24
    %
    
    
    27
    %Storage Systems segment:Number of significant customers
    
    
    2
    
    
    
    4
    
    
    
    3
    
    
    
    2Percentage of segment revenues
    
    
    49%, 13
    %
    
    
    46%, 12%, 10%, 10
    %
    
    
    47%, 12%, 10
    %
    
    
    45%, 15
    %Consolidated:Number of significant customers
    
    
    2
    
    
    
    2
    
    
    
    2
    
    
    
    2Percentage of consolidated revenues
    
    
    20%, 16
    %
    
    
    18%, 15
    %
    
    
    18%, 16
    %
    
    
    19%, 15
    %
 Information about Geographic Areas
   Note 13  Comprehensive Income/(Loss)
  Three Months Ended
    
    
    Nine Months EndedOctober 4, 2009
    
    
    September 28, 2008
    
    
    October 4, 2009
    
    
    September 28, 2008(In thousands)Net income/(loss)
    
    $
    52,485
    
    
    $
    11,371
    
    
    $
    (112,545
    )
    
    $
    (15,904
    )Net unrealized gain/(loss) on available-for-sale securities
    
    
    1,482
    
    
    
    249
    
    
    
    2,697
    
    
    
    (2,117
    )Net unrealized (loss)/gain on cash-flow hedges
    
    
    (118
    )
    
    
    78
    
    
    
    1,049
    
    
    
    78Foreign currency translation adjustments
    
    
    11,042
    
    
    
    (336
    )
    
    
    3,720
    
    
    
    5,459Amortization of prior service cost and net actuarial gain
included in net periodic benefit credit
    
    
    (122
    )
    
    
    (62
    )
    
    
    (145
    )
    
    
    (113
    )Total comprehensive income/(loss)
    
    $
    64,769
    
    
    $
    11,300
    
    
    $
    (105,224
    )
    
    $
    (12,597
    )
 Note 14  Income Taxes
   19




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##### Table of Contents



Note 15  Related Party Transactions
    Note 16  Commitments, Contingencies and Legal Matters
 Purchase Commitments
   20




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##### Table of Contents



Guarantees
 Product Warranties :
   Nine Months EndedOctober 4, 2009(In thousands)Balance as of December 31, 2008
    
    $
    12,238Accruals for warranties issued during the period
    
    
    12,028Accruals related to pre-existing warranties (including changes in estimates)
    
    
    569Settlements made during the period (in cash or in kind)
    
    
    (10,737
    )Balance as of October 4, 2009
    
    $
    14,098
 Standby Letters of Credit:
  Uncertain Tax Positions
  Indemnifications
  Legal Matters
  21




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22




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##### Table of Contents



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
        23




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##### Table of Contents



RESULTS OF OPERATIONS
 Revenues
  Three Months Ended
    
    
    Nine Months EndedOctober 4, 2009
    
    
    September 28, 2008
    
    
    October 4, 2009
    
    
    September 28, 2008(In millions)Semiconductor segment
    
    $
    371.8
    
    
    $
    500.4
    
    
    $
    1,040.7
    
    
    $
    1,421.2Storage Systems segment
    
    
    206.6
    
    
    
    213.9
    
    
    
    540.7
    
    
    
    645.9Consolidated
    
    $
    578.4
    
    
    $
    714.3
    
    
    $
    1,581.4
    
    
    $
    2,067.1
 Three months ended October 4, 2009 compared to the three months ended September 28, 2008:
 Semiconductor Segment:
  Storage Systems Segment:
  Nine months ended October 4, 2009 compared to the nine months ended September 28, 2008:
 Semiconductor Segment:
  Storage Systems Segment:
   24




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##### Table of Contents



Revenues by Geography
  Three Months Ended
    
    
    Nine Months EndedOctober 4, 2009
    
    
    September 28, 2008
    
    
    October 4, 2009
    
    
    September 28, 2008(In millions)North America *
    
    $
    150.1
    
    
    $
    155.2
    
    
    $
    369.9
    
    
    $
    582.8Asia **
    
    
    286.4
    
    
    
    390.9
    
    
    
    811.7
    
    
    
    1,086.0Europe and the Middle East
    
    
    141.9
    
    
    
    168.2
    
    
    
    399.8
    
    
    
    398.3Total
    
    $
    578.4
    
    
    $
    714.3
    
    
    $
    1,581.4
    
    
    $
    2,067.1
 
 *
    
    Primarily the United States.**
    
    Including Japan. Three months ended October 4, 2009 compared to the three months ended September 28, 2008:
  Nine months ended October 4, 2009 compared to the nine months ended September 28, 2008:
  Gross Profit Margin
  Three Months Ended
    
    
    Nine Months EndedOctober 4, 2009
    
    
    September 28, 2008
    
    
    October 4, 2009
    
    
    September 28, 2008(In millions)Semiconductor segment
    
    $
    152.5
    
    
    $
    216.4
    
    
    $
    399.2
    
    
    $
    597.3Percentage of segment revenues
    
    
    41.0
    %
    
    
    43.2
    %
    
    
    38.4
    %
    
    
    42.0
    %Storage Systems segment
    
    $
    73.1
    
    
    $
    81.0
    
    
    $
    177.4
    
    
    $
    244.6Percentage of segment revenues
    
    
    35.4
    %
    
    
    37.9
    %
    
    
    32.8
    %
    
    
    37.9
    %Consolidated
    
    $
    225.6
    
    
    $
    297.4
    
    
    $
    576.6
    
    
    $
    841.9Percentage of total revenues
    
    
    39.0
    %
    
    
    41.6
    %
    
    
    36.5
    %
    
    
    40.7
    %
 Three months ended October 4, 2009 compared to the three months ended September 28, 2008:
  Semiconductor Segment:
  25




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##### Table of Contents



Storage Systems Segment:
  Nine months ended October 4, 2009 compared to the nine months ended September 28, 2008:
  Semiconductor Segment:
  Storage Systems Segment:
  Research and Development
  Three Months Ended
    
    
    Nine Months EndedOctober 4, 2009
    
    
    September 28, 2008
    
    
    October 4, 2009
    
    
    September 28, 2008(In millions)Semiconductor segment
    
    $
    117.1
    
    
    $
    135.1
    
    
    $
    356.4
    
    
    $
    405.7Percentage of segment revenues
    
    
    31.5
    %
    
    
    27.0
    %
    
    
    34.2
    %
    
    
    28.5
    %Storage Systems segment
    
    $
    33.9
    
    
    $
    34.5
    
    
    $
    98.9
    
    
    $
    103.7Percentage of segment revenues
    
    
    16.4
    %
    
    
    16.1
    %
    
    
    18.3
    %
    
    
    16.1
    %Consolidated
    
    $
    151.0
    
    
    $
    169.6
    
    
    $
    455.3
    
    
    $
    509.4Percentage of total revenues
    
    
    26.1
    %
    
    
    23.7
    %
    
    
    28.8
    %
    
    
    24.6
    %
 Three months ended October 4, 2009 compared to the three months ended September 28, 2008:
  Semiconductor Segment:
  26




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##### Table of Contents



Storage Systems Segment:
  Nine months ended October 4, 2009 compared to the nine months ended September 28, 2008:
  Semiconductor Segment:
  Storage Systems Segment:
  Selling, General and Administrative
  Three Months Ended
    
    
    Nine Months EndedOctober 4, 2009
    
    
    September 28, 2008
    
    
    October 4, 2009
    
    
    September 28, 2008(In millions)Semiconductor segment
    
    $
    52.4
    
    
    $
    70.8
    
    
    $
    162.5
    
    
    $
    212.4Percentage of segment revenues
    
    
    14.1
    %
    
    
    14.1
    %
    
    
    15.6
    %
    
    
    14.9
    %Storage Systems segment
    
    $
    29.8
    
    
    $
    32.9
    
    
    $
    85.2
    
    
    $
    94.9Percentage of segment revenues
    
    
    14.4
    %
    
    
    15.4
    %
    
    
    15.8
    %
    
    
    14.7
    %Consolidated
    
    $
    82.2
    
    
    $
    103.7
    
    
    $
    247.7
    
    
    $
    307.3Percentage of total revenues
    
    
    14.2
    %
    
    
    14.5
    %
    
    
    15.7
    %
    
    
    14.9
    %
 Three months ended October 4, 2009 compared to the three months ended September 28, 2008:
  27




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##### Table of Contents



Semiconductor Segment:
  Storage Systems Segment:
  Nine months ended October 4, 2009 compared to the nine months ended September 28, 2008:
  Semiconductor Segment:
  Storage Systems Segment:
  Restructuring of Operations and Other Items, net
   28




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##### Table of Contents



Interest/ (Expense) or Income and Other, net
  Three Months Ended
    
    
    Nine Months EndedOctober 4, 2009
    
    
    September 28, 2008
    
    
    October 4, 2009
    
    
    September 28, 2008(In millions)Interest expense
    
    $
    (3.9
    )
    
    $
    (9.0
    )
    
    $
    (18.0
    )
    
    $
    (26.9
    )Interest income
    
    
    4.6
    
    
    
    10.4
    
    
    
    16.8
    
    
    
    35.3Other expense, net
    
    
    (1.1
    )
    
    
    (2.4
    )
    
    
    (1.1
    )
    
    
    (4.4
    )Total
    
    $
    (0.4
    )
    
    $
    (1.0
    )
    
    $
    (2.3
    )
    
    $
    4.0
 Interest Expense:
  Interest Income and Other, net:
   Provision for Income Taxes
    29




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##### Table of Contents



FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
  Working Capital
  
    
    Cash, cash equivalents and short-term investments decreased by $212.0 million;
    
    Current portion of long-term debt increased by $104.9 million as a result of the
reclassification of $350.0 million of 4% Convertible Subordinated Notes that are due in May
2010 from long-term debt to current portion of long-term debt, offset in part by the
redemption of $243.0 million principal amount of 6.5% Convertible Subordinated Notes during
the nine months ended October 4, 2009;
    
    Inventories decreased by $65.0 million primarily as a result of reduced inventory
purchases to reflect the expected reduction in revenues from the recent economic slowdown;
and
    
    Prepaid expenses and other current assets decreased by $15.6 million primarily due to
decreases in prepaid taxes and in prepaid software maintenance.
  
    
    Other accrued liabilities decreased by $39.0 million attributed to a reversal in tax
liabilities because of a settlement of a multi-year foreign tax audit in a foreign
jurisdiction, utilization of restructuring reserves, a decrease in liabilities with third
party manufacturers and other miscellaneous liabilities, offset in part by an increase in
other accrued liabilities resulting from a reclassification of certain accrued expenses from
accounts payable;
    
    Accrued salaries, wages and benefits decreased by $21.5 million primarily as a result of
the absence of performance-based compensation accruals;
    
    Accounts payable decreased by $7.4 million primarily as a result of the timing of invoice
receipts and payments and a reclassification of certain expenses from accounts payable to
other accrued liabilities; and
    
    Accounts receivable increased by $3.2 million primarily as a result of longer days sales
outstanding in the third quarter of 2009 as compared to the fourth quarter of 2008.
 Cash Provided by Operating Activities
  
    
    A net loss adjusted for non-cash transactions, primarily depreciation and amortization
and stock-based compensation expense. The non-cash items and other non-operating adjustments
are quantified in the condensed consolidated statements of cash flows included in Item 1;
offset in part by
    
    A net decrease in assets and liabilities, including changes in working capital
components, from December 31, 2008 to October 4, 2009, as discussed above.
 30




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##### Table of Contents



Cash Used in Investing Activities
  
    
    Proceeds from maturities and sales of available-for-sale debt securities and equity
securities, net of purchases;
    
    Purchases of property, equipment and software, net of sales;
    
    Acquisition of business and companies, net of cash acquired;
    
    A decrease in non-current assets and deposits; and
    
    Proceeds from maturity of notes receivable associated with sale of our assembly and test
operations in Thailand.
  Cash Used in 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
    
    $
    350.0
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    350.0Estimated interest payments
on convertible subordinated
notes
    
    
    14.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14.0Operating lease obligations
    
    
    76.2
    
    
    
    55.4
    
    
    
    14.4
    
    
    
    1.7
    
    
    
    
    
    
    
    147.7Purchase commitments
    
    
    417.9
    
    
    
    158.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    576.8Unrecognized tax positions
plus interest and penalties
    
    
    5.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    145.3
    **
    
    
    150.9Pension contributions
    
    
    3.4
    
    
    
    *
    
    
    
    *
    
    
    
    *
    
    
    
    *
    
    
    
    3.4Total
    
    $
    867.1
    
    
    $
    214.3
    
    
    $
    14.4
    
    
    $
    1.7
    
    
    $
    145.3
    
    
    $
    1,242.8
 
 *
    
    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. The amount shown in the table represents our planned
contributions to our pension plans for the remainder of 2009. Because any contributions for
2010 and later will depend on the value of the plan assets in the future and thus are
uncertain, we have not included any amounts for 2010 and beyond in the above table. At
present, we estimate that our 2010 contributions will be in a range of $30 to $40 million. If
current macroeconomic conditions continue, the additional contributions in future years would
likely be higher than those in 2009 and those estimated for 2010. 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 less prepaid tax payments. We are unable to
make a reasonably reliable estimate as to when cash settlement with a taxing authority may
occur. 31




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##### Table of Contents



Convertible Subordinated Notes
   Operating Lease Obligations
  Purchase Commitments
  Uncertain Tax Positions
  Standby Letters of Credit
  CRITICAL ACCOUNTING POLICIES
  32




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##### Table of Contents



RECENT ACCOUNTING PRONOUNCEMENTS
  
 Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
  Foreign Currency Exchange Risk
   
 Item 4.
    
    Controls and Procedures
 Evaluation of Disclosure Controls and Procedures:
 Changes in Internal Control:
 
 PART II  OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
  
 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.
 33




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##### Table of Contents




    
    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.
      34




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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.
    
    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.
    
    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
  35




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##### Table of Contents



SIGNATURES
  LSI CORPORATION
(Registrant)Date: November 10, 2009
    By
    /s/ Bryon LookBryon LookExecutive Vice President, Chief Financial Officer
and Chief Administrative Officer 36




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##### Table of Contents



EXHIBIT INDEX
 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
 37