##### 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 April 4, 2010
 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




---



##### 



LSI CORPORATION
Form 10-Q
For the Quarter Ended April 4, 2010
INDEX
 PageNo.PART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Condensed Consolidated Balance Sheets as of April 4, 2010 and December 31, 2009 (unaudited)
    
    
    3Condensed Consolidated Statements of Operations for the three months ended April 4, 2010
and April 5, 2009 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the three months ended April 4, 2010
and April 5, 2009 (unaudited)
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    28Item 4. Controls and Procedures
    
    
    28PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    28Item 1A. Risk Factors
    
    
    28Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    30Item 6. Exhibits
    
    
    30Signatures
    
    
    31Exhibit Index
    
    
    32EX-31.1EX-31.2EX-32.1EX-32.2
  FORWARD-LOOKING STATEMENTS
  2




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 LSI CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS  (In thousands, except per share amounts)  (Unaudited)
 April 4,
    
    
    December 31,2010
    
    
    2009ASSETSCash and cash equivalents
    
    $
    843,379
    
    
    $
    778,291Short-term investments
    
    
    172,157
    
    
    
    183,781Accounts receivable, less allowances of $7,602 and $9,902, respectively
    
    
    298,565
    
    
    
    338,961Inventories
    
    
    185,776
    
    
    
    169,335Prepaid expenses and other current assets
    
    
    124,445
    
    
    
    115,084Total current assets
    
    
    1,624,322
    
    
    
    1,585,452Property and equipment, net
    
    
    215,368
    
    
    
    218,972Identified intangible assets, net
    
    
    699,007
    
    
    
    739,244Goodwill
    
    
    188,698
    
    
    
    188,698Other assets
    
    
    223,127
    
    
    
    235,564Total assets
    
    $
    2,950,522
    
    
    $
    2,967,930LIABILITIES AND STOCKHOLDERS EQUITYAccounts payable
    
    $
    200,234
    
    
    $
    213,008Accrued salaries, wages and benefits
    
    
    101,913
    
    
    
    77,281Other accrued liabilities
    
    
    207,258
    
    
    
    214,096Current portion of long-term debt
    
    
    350,000
    
    
    
    350,000Total current liabilities
    
    
    859,405
    
    
    
    854,385Pension, post-retirement and other benefits
    
    
    451,571
    
    
    
    455,134Income taxes payable  non-current
    
    
    78,017
    
    
    
    103,047Other non-current liabilities
    
    
    89,346
    
    
    
    94,260Total long-term obligations and other liabilities
    
    
    618,934
    
    
    
    652,441Commitments
and contingencies (Note 13)Stockholders equity:Preferred stock, $.01 par value: 2,000 shares authorized; none outstanding
    
    
    
    
    
    
    Common stock, $.01 par value: 1,300,000 shares authorized; 653,867 and
656,484 shares outstanding, respectively
    
    
    6,539
    
    
    
    6,565Additional paid-in capital
    
    
    6,135,036
    
    
    
    6,142,674Accumulated deficit
    
    
    (4,385,974
    )
    
    
    (4,408,494
    )Accumulated other comprehensive loss
    
    
    (283,418
    )
    
    
    (279,641
    )Total stockholders equity
    
    
    1,472,183
    
    
    
    1,461,104Total liabilities and stockholders equity
    
    $
    2,950,522
    
    
    $
    2,967,930
  3




---



##### Table of Contents



LSI CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  (In thousands, except per share amounts)  (Unaudited)
 Three Months EndedApril 4, 2010
    
    
    April 5, 2009Revenues
    
    $
    637,182
    
    
    $
    482,279Cost of revenues
    
    
    365,937
    
    
    
    312,207Gross profit
    
    
    271,245
    
    
    
    170,072Research and development
    
    
    166,872
    
    
    
    155,284Selling, general and administrative
    
    
    86,332
    
    
    
    83,757Restructuring of operations and other items, net
    
    
    1,620
    
    
    
    25,205Income/(loss) from operations
    
    
    16,421
    
    
    
    (94,174
    )Interest expense
    
    
    (3,894
    )
    
    
    (7,236
    )Interest income and other, net
    
    
    (8,807
    )
    
    
    5,863Income/(loss) before income taxes
    
    
    3,720
    
    
    
    (95,547
    )(Benefit)/provision for income taxes
    
    
    (18,800
    )
    
    
    8,000Net income/(loss)
    
    $
    22,520
    
    
    $
    (103,547
    )Net income/(loss) per share:Basic
    
    $
    0.03
    
    
    $
    (0.16
    )Diluted
    
    $
    0.03
    
    
    $
    (0.16
    )Shares used in computing per share amounts:Basic
    
    
    656,528
    
    
    
    648,459Diluted
    
    
    664,315
    
    
    
    648,459
  4




---



##### Table of Contents



LSI CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (In thousands)  (Unaudited)
 Three Months EndedApril 4, 2010
    
    
    April 5, 2009Operating activities:Net income/(loss)
    
    $
    22,520
    
    
    $
    (103,547
    )Adjustments:Depreciation and amortization
    
    
    67,017
    
    
    
    65,079Stock-based compensation expense
    
    
    16,431
    
    
    
    17,990Non-cash restructuring of operations and other items, net
    
    
    (10
    )
    
    
    (1
    )Write-down of equity securities
    
    
    11,600
    
    
    
    Loss on sale of property and equipment
    
    
    3
    
    
    
    100Unrealized foreign exchange gain
    
    
    (2,215
    )
    
    
    (12,384
    )Deferred taxes
    
    
    98
    
    
    
    73Changes in assets and liabilities:Accounts receivable, net
    
    
    40,396
    
    
    
    30,690Inventories
    
    
    (16,441
    )
    
    
    19,340Prepaid expenses and other assets
    
    
    (8,095
    )
    
    
    32,443Accounts payable
    
    
    (8,547
    )
    
    
    (63,535
    )Accrued and other liabilities
    
    
    (16,979
    )
    
    
    3,905Net cash provided by/(used in) operating activities
    
    
    105,778
    
    
    
    (9,847
    )Investing activities:Purchases of debt securities available-for-sale
    
    
    
    
    
    
    (10
    )Proceeds from maturities and sales of debt securities available-for-sale
    
    
    11,254
    
    
    
    35,882Purchases of equity securities
    
    
    
    
    
    
    (5,000
    )Purchases of property, equipment and software
    
    
    (27,276
    )
    
    
    (25,463
    )Proceeds from sale of property and equipment
    
    
    22
    
    
    
    7Net cash (used in)/provided by investing activities
    
    
    (16,000
    )
    
    
    5,416Financing activities:Issuances of common stock
    
    
    3,635
    
    
    
    1Purchase of common stock under repurchase program
    
    
    (26,208
    )
    
    
    Net cash (used in)/provided by financing activities
    
    
    (22,573
    )
    
    
    1Effect of exchange rate changes on cash and cash equivalents
    
    
    (2,117
    )
    
    
    (2,366
    )Increase/(decrease) in cash and cash equivalents
    
    
    65,088
    
    
    
    (6,796
    )Cash and cash equivalents at beginning of period
    
    
    778,291
    
    
    
    829,301Cash and cash equivalents at end of period
    
    $
    843,379
    
    
    $
    822,505
  5




---



##### Table of Contents



LSI CORPORATION
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 1  Basis of Presentation
    Recent Accounting Pronouncements
 Pronouncements not yet Effective:
   Pronouncements Adopted during the First Quarter of 2010:
   6




---



##### Table of Contents



Note 2  Stock-Based Compensation and Common Stock
 Stock-Based Compensation Expense
  Three Months EndedStock-Based Compensation Expense Included In:
    
    April 4, 2010
    
    
    April 5, 2009(In thousands)Cost of revenues
    
    $
    1,712
    
    
    $
    2,013Research and development
    
    
    7,898
    
    
    
    7,862Selling, general and administrative
    
    
    6,821
    
    
    
    8,115Total stock-based compensation expense
    
    $
    16,431
    
    
    $
    17,990
  Stock Options:
  Three Months EndedApril 4, 2010
    
    April 5, 2009Weighted-average estimated grant date fair value per share
    
    $
    1.97
    
    
    $
    1.35Weighted-average assumptions in calculation:Expected life (years)
    
    
    4.28
    
    
    
    4.29Risk-free interest rate
    
    
    2
    %
    
    
    2
    %Volatility
    
    
    51
    %
    
    
    68
    %
      7




---



##### 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, 2009
    
    
    91,526
    
    
    $
    9.83
    
    
    
    
    
    
    
    Options granted
    
    
    6,926
    
    
    
    5.51
    
    
    
    
    
    
    
    Options exercised
    
    
    (917
    )
    
    
    3.96
    
    
    
    
    
    
    
    Options canceled
    
    
    (1,446
    )
    
    
    46.26
    
    
    
    
    
    
    
    Options outstanding at April 4, 2010
    
    
    96,089
    
    
    $
    9.03
    
    
    
    3.98
    
    
    $
    82,672Options exercisable at April 4, 2010
    
    
    57,334
    
    
    $
    11.72
    
    
    
    2.94
    
    
    $
    24,645
  Three Months EndedApril 4, 2010
    
    
    April 5, 2009(In thousands)Intrinsic value of options exercised
    
    $
    2,000
    
    
    $
    5Proceeds received from the exercise of stock options
    
    $
    3,635
    
    
    $
    1
   Employee Stock Purchase Plan:
  Restricted Stock Awards:
 Service-based:
  Number of Units(In thousands)Unvested restricted stock units at December 31, 2009
    
    
    2,986Granted
    
    
    5,481Vested
    
    
    (774
    )Forfeited
    
    
    (51
    )Unvested restricted stock units at April 4, 2010
    
    
    7,642
  8




---



##### Table of Contents



Performance-based:
  Number of Units(In thousands)Unvested restricted stock units at December 31, 2009
    
    
    Granted
    
    
    3,046Vested
    
    
    Forfeited
    
    
    (8
    )Unvested restricted stock units at April 4, 2010
    
    
    3,038
  Common Stock
 Stock Repurchase Program:
  Note 3  Restructuring of Operations and Other Items
  Restructuring
  
    
    A charge of $0.9 million primarily for the change in time value of accruals for
previously accrued facility lease exit costs; and
    
    A charge of $0.5 million for severance and termination benefits for employees.
  Balance at
    
    
    Expense
    
    
    Utilized
    
    
    Balance atDecember 31,
    
    
    During
    
    
    During
    
    
    April 4,2009
    
    
    Q1 2010
    
    
    Q1 2010
    
    
    2010(In thousands)Lease terminations (a)
    
    $
    40,397
    
    
    $
    846
    
    
    $
    (7,540
    )
    
    $
    33,703Payments to employees for severance and related benefits (b)
    
    
    4,905
    
    
    
    525
    
    
    
    (2,919
    )
    
    
    2,511Total
    
    $
    45,302
    
    
    $
    1,371
    
    
    $
    (10,459
    )
    
    $
    36,214
 
 (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 third
quarter of 2010. Note 4  Benefit Obligations
  9




---



##### Table of Contents



Three Months EndedApril 4, 2010
    
    
    April 5, 2009Pension
    
    
    Post-retirement
    
    
    Pension
    
    
    Post-retirementBenefits
    
    
    Benefits
    
    
    Benefits
    
    
    Benefits(In thousands)Service cost
    
    $
    118
    
    
    $
    20
    
    
    $
    471
    
    
    $
    20Interest cost
    
    
    17,617
    
    
    
    608
    
    
    
    18,271
    
    
    
    605Expected return on plan assets
    
    
    (17,823
    )
    
    
    (1,148
    )
    
    
    (19,212
    )
    
    
    (1,219
    )Amortization of prior service cost
    
    
    10
    
    
    
    
    
    
    
    11
    
    
    
    Amortization of net actuarial loss/(gain) recognized
    
    
    547
    
    
    
    
    
    
    
    (21
    )
    
    
    Total benefit cost/(credit)
    
    $
    469
    
    
    $
    (520
    )
    
    $
    (480
    )
    
    $
    (594
    )
  Note 5  Balance Sheet Details
 Inventories
  April 4,
    
    
    December 31,2010
    
    
    2009(In thousands)Raw materials
    
    $
    33,981
    
    
    $
    24,038Work-in-process
    
    
    33,502
    
    
    
    19,090Finished goods
    
    
    118,293
    
    
    
    126,207Total inventories
    
    $
    185,776
    
    
    $
    169,335
 Debt
  Interest
    
    
    Conversion
    
    
    April 4,
    
    
    December 31,Maturity
    
    
    Rate
    
    
    Price
    
    
    2010
    
    
    2009(In thousands)4% Convertible Subordinated Notes  current portion
    
    May 15, 2010
    
    
    4.00
    %
    
    $
    13.4200
    
    
    $
    350,000
    
    
    $
    350,000
  10




---



##### Table of Contents



Note 6  Cash Equivalents and Investments
  Fair Value Measurements as of April 4, 2010Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total(In thousands)Cash equivalents:Money-market funds*
    
    $
    694,826
    
    
    $
    
    
    
    $
    
    
    
    $
    694,826Available-for-sale debt securities: **Asset-backed and mortgage-backed securities
    
    $
    
    
    
    $
    127,359
    
    
    $
    
    
    
    $
    127,359U.S. government and agency securities
    
    
    
    
    
    
    40,568
    
    
    
    
    
    
    
    40,568Corporate debt securities
    
    
    
    
    
    
    4,230
    
    
    
    
    
    
    
    4,230Total short-term investments
    
    $
    
    
    
    $
    172,157
    
    
    $
    
    
    
    $
    172,157Long-term investments in equity securities:Marketable available-for-sale equity securities***
    
    $
    1,066
    
    
    $
    
    
    
    $
    
    
    
    $
    1,066
 Fair Value Measurements as of December 31, 2009Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total(In thousands)Cash equivalents:Money-market funds*
    
    $
    631,073
    
    
    $
    
    
    
    $
    
    
    
    $
    631,073Available-for-sale debt securities:**Asset-backed and mortgage-backed securities
    
    $
    
    
    
    $
    138,282
    
    
    $
    
    
    
    $
    138,282U.S. government and agency securities
    
    
    
    
    
    
    40,644
    
    
    
    
    
    
    
    40,644Corporate debt securities
    
    
    
    
    
    
    4,855
    
    
    
    
    
    
    
    4,855Total short-term investments
    
    $
    
    
    
    $
    183,781
    
    
    $
    
    
    
    $
    183,781Long-term investments in equity securities:Marketable available-for-sale equity securities***
    
    $
    1,405
    
    
    $
    
    
    
    $
    
    
    
    $
    1,405
 
 *
    
    The fair value of the money-market funds is valued using unadjusted
prices in active markets.**
    
    The fair value of the short-term investments in debt securities is valued using the market
approach and the income approach and is classified within Level 2 of the fair value
hierarchy. These investments are traded less frequently than Level 1 securities and are
valued using inputs that include quoted prices for similar assets in active markets and
inputs other than quoted prices that are observable for the asset, such as interest rates,
yield curves, prepayment speeds, collateral performance, broker/dealer quotes and indices
that are observable at commonly quoted intervals.***
    
    The fair value of the marketable equity securities is valued using quoted market prices in
active markets and is classified within Level 1 of the fair value hierarchy.  During Three Months EndedCarrying Value
    
    
    April 4, 2010
    
    
    Losses for Threeas of
    
    
    Fair Value Measured Using
    
    
    Months EndedApril 4, 2010
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    April 4, 2010(In thousands)Non-marketable equity securities
    
    $
    1,900
    
    
    $
    
    
    
    $
    
    
    
    $
    1,900
    
    
    $
    11,600
  11




---



##### Table of Contents



Investments in Available-for-Sale Securities
  April 4, 2010Amortized
    
    
    Gross Unrealized
    
    
    Gross UnrealizedCost
    
    
    Gain
    
    
    Loss*
    
    
    Fair Value(In thousands)Short-term debt securities:Asset-backed and mortgage-backed securities
    
    $
    120,201
    
    
    $
    7,959
    
    
    $
    (801
    )
    
    $
    127,359U.S. government and agency securities
    
    
    39,230
    
    
    
    1,338
    
    
    
    
    
    
    
    40,568Corporate debt securities
    
    
    4,058
    
    
    
    178
    
    
    
    (6
    )
    
    
    4,230Total short-term debt securities
    
    $
    163,489
    
    
    $
    9,475
    
    
    $
    (807
    )
    
    $
    172,157Long-term marketable equity securities
    
    $
    111
    
    
    $
    956
    
    
    $
    (1
    )
    
    $
    1,066
 
 *
    
    As of April 4, 2010, there were 24 investments in an unrealized loss position. December 31, 2009Amortized
    
    
    Gross Unrealized
    
    
    Gross UnrealizedCost
    
    
    Gain
    
    
    Loss
    
    
    Fair Value(In thousands)Short-term debt securities:Asset-backed and mortgage-backed securities
    
    $
    132,210
    
    
    $
    7,141
    
    
    $
    (1,069
    )
    
    $
    138,282U.S. government and agency securities
    
    
    39,033
    
    
    
    1,611
    
    
    
    
    
    
    
    40,644Corporate debt securities
    
    
    4,736
    
    
    
    175
    
    
    
    (56
    )
    
    
    4,855Total short-term debt securities
    
    $
    175,979
    
    
    $
    8,927
    
    
    $
    (1,125
    )
    
    $
    183,781Long-term marketable equity securities
    
    $
    111
    
    
    $
    1,294
    
    
    $
    
    
    
    $
    1,405
  April 4, 2010Less than 12 Months
    
    
    Greater than 12 MonthsFair Value
    
    
    Unrealized Losses
    
    
    Fair Value
    
    
    Unrealized Losses(In thousands)Asset-backed and mortgage-backed securities
    
    $
    2,831
    
    
    $
    (22
    )
    
    $
    5,324
    
    
    $
    (779
    )Corporate debt securities
    
    
    1,293
    
    
    
    (6
    )
    
    
    
    
    
    
    Total
    
    $
    4,124
    
    
    $
    (28
    )
    
    $
    5,324
    
    
    $
    (779
    )
 December 31, 2009Less than 12 Months
    
    
    Greater than 12 MonthsFair Value
    
    
    Unrealized Losses
    
    
    Fair Value
    
    
    Unrealized Losses(In thousands)Asset-backed and mortgage-backed securities
    
    $
    9,126
    
    
    $
    (1,037
    )
    
    $
    870
    
    
    $
    (32
    )Corporate debt securities
    
    
    1,308
    
    
    
    (56
    )
    
    
    
    
    
    
    Total
    
    $
    10,434
    
    
    $
    (1,093
    )
    
    $
    870
    
    
    $
    (32
    )
   Amount(In thousands)Due within one year
    
    $
    29,984Due in 1-5 years
    
    
    21,948Due in 5-10 years
    
    
    10,230Due after 10 years
    
    
    109,995Total
    
    $
    172,157
 12




---



##### Table of Contents



Note 7  Derivative Instruments
  Cash-Flow Hedges
  Other Foreign-Currency Hedges
  Fair Value of Derivative Instruments
  13




---



##### Table of Contents



Note 8  Reconciliation of Basic and Diluted Income/(Loss) per Share
  Three Months EndedApril 4, 2010
    
    April 5, 2009Per-Share
    
    
    
    
    
    
    
    
    
    Per-ShareIncome*
    
    Shares+
    
    Amount
    
    (Loss)*
    
    Shares+
    
    Amount(In thousands except per share amounts)Basic:Net income/(loss) available to common stockholders
    
    $
    22,520
    
    
    
    656,528
    
    
    $
    0.03
    
    
    $
    (103,547
    )
    
    
    648,459
    
    
    $
    (0.16
    )Stock options, employee stock purchase rights and
restricted stock unit awards
    
    
    
    
    
    
    7,787
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted:Net income/(loss) available to common stockholders
    
    $
    22,520
    
    
    
    664,315
    
    
    $
    0.03
    
    
    $
    (103,547
    )
    
    
    648,459
    
    
    $
    (0.16
    )
 
 *
    
    Numerator+
    
    Denominator 14




---



##### Table of Contents



Three Months EndedApril 4, 2010
    
    
    April 5, 2009(Shares in thousands)Anti-dilutive securities:Stock options
    
    
    69,225
    
    
    
    91,512Restricted stock unit awards
    
    
    399
    
    
    
    5,309Convertible notes
    
    
    26,080
    
    
    
    41,950
 Note 9  Segment and Geographic Information
  Summary of Operations by Segment
  Three Months EndedApril 4, 2010
    
    
    April 5, 2009(In thousands)Revenues:Semiconductor
    
    $
    416,489
    
    
    $
    325,034Storage Systems
    
    
    220,693
    
    
    
    157,245Total
    
    $
    637,182
    
    
    $
    482,279Income/(loss) from operations:Semiconductor
    
    $
    (2,969
    )
    
    $
    (80,095
    )Storage Systems
    
    
    19,390
    
    
    
    (14,079
    )Total
    
    $
    16,421
    
    
    $
    (94,174
    )
 Information about Geographic Areas
  Goodwill
  15




---



##### Table of Contents



Note 10  Comprehensive Income/(Loss)
  Three Months EndedApril 4, 2010
    
    
    April 5, 2009(In thousands)Net income/(loss)
    
    $
    22,520
    
    
    $
    (103,547
    )Net unrealized gain/(loss) on available-for-sale securities
    
    
    527
    
    
    
    (2,642
    )Net unrealized loss on cash-flow hedges
    
    
    (859
    )
    
    
    (212
    )Foreign currency translation adjustments
    
    
    (4,002
    )
    
    
    (15,101
    )Amortization of prior service cost and net actuarial loss/(gain)
    
    
    557
    
    
    
    (10
    )Total comprehensive income/(loss)
    
    $
    18,743
    
    
    $
    (121,512
    )
 Note 11  Income Taxes
   Note 12  Related Party Transactions
    16




---



##### Table of Contents



Note 13  Commitments, Contingencies and Legal Matters
 Purchase Commitments
   Guarantees
 Product Warranties :
   Three Months EndedApril 4, 2010(In thousands)Balance as of December 31, 2009
    
    $
    13,831Accruals for warranties issued during the period
    
    
    2,951Accruals related to pre-existing warranties (including changes in estimates)
    
    
    694Settlements made during the period (in cash or in kind)
    
    
    (3,538
    )Balance as of April 4, 2010
    
    $
    13,938
 Standby Letters of Credit:
  Uncertain Tax Positions
  Indemnifications
  17




---



##### Table of Contents



Legal Matters
     18




---



##### 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
       19




---



##### Table of Contents



RESULTS OF OPERATIONS
 Revenues
  Three Months EndedApril 4, 2010
    
    
    April 5, 2009(In millions)Semiconductor segment
    
    $
    416.5
    
    
    $
    325.0Storage Systems segment
    
    
    220.7
    
    
    
    157.3Consolidated
    
    $
    637.2
    
    
    $
    482.3
 Three months ended April 4, 2010 compared to the three months ended April 5, 2009:
  Semiconductor Segment:
  Storage Systems Segment:
  20




---



##### Table of Contents



Significant Customers:
  Three Months EndedApril 4, 2010
    
    
    April 5, 2009Semiconductor segment:Number of significant customers
    
    
    1
    
    
    
    1Percentage of Semiconductor segment revenues
    
    
    23
    %
    
    
    25
    %Storage Systems segment:Number of significant customers
    
    
    2
    
    
    
    3Percentage of Storage Systems segment revenues
    
    
    47%, 15
    %
    
    
    43%, 14%, 12
    %Consolidated:Number of significant customers
    
    
    2
    
    
    
    2Percentage of consolidated revenues
    
    
    19%, 15
    %
    
    
    17%, 15
    %
 Revenues by Geography
  Three Months EndedApril 4, 2010
    
    
    April 5, 2009(In millions)North America *
    
    $
    155.6
    
    
    $
    107.7Asia **
    
    
    332.7
    
    
    
    244.9Europe and the Middle East
    
    
    148.9
    
    
    
    129.7Total
    
    $
    637.2
    
    
    $
    482.3
 
 *
    
    Primarily the United States.**
    
    Including Japan. Three months ended April 4, 2010 compared to the three months ended April 5, 2009:
  Gross Profit Margin
  Three Months EndedApril 4, 2010
    
    
    April 5, 2009(Dollars in millions)Semiconductor segment
    
    $
    186.5
    
    
    $
    124.6Percentage of Semiconductor segment revenues
    
    
    44.8
    %
    
    
    38.3
    %Storage Systems segment
    
    $
    84.7
    
    
    $
    45.5Percentage of Storage Systems segment revenues
    
    
    38.4
    %
    
    
    28.9
    %Consolidated
    
    $
    271.2
    
    
    $
    170.1Percentage of consolidated revenues
    
    
    42.6
    %
    
    
    35.3
    %
 21




---



##### Table of Contents



Three months ended April 4, 2010 compared to the three months ended April 5, 2009:
  Semiconductor Segment:
  Storage Systems Segment:
  Research and Development
  Three Months EndedApril 4, 2010
    
    
    April 5, 2009(Dollars in millions)Semiconductor segment
    
    $
    130.0
    
    
    $
    123.0Percentage of Semiconductor segment revenues
    
    
    31.2
    %
    
    
    37.8
    %Storage Systems segment
    
    $
    36.9
    
    
    $
    32.3Percentage of Storage Systems segment revenues
    
    
    16.7
    %
    
    
    20.5
    %Consolidated
    
    $
    166.9
    
    
    $
    155.3Percentage of consolidated revenues
    
    
    26.2
    %
    
    
    32.2
    %
 Three months ended April 4, 2010 compared to the three months ended April 5, 2009:
  Semiconductor Segment:
  Storage Systems Segment:
  22




---



##### Table of Contents



Selling, General and Administrative
  Three Months EndedApril 4, 2010
    
    
    April 5, 2009(Dollars in millions)Semiconductor segment
    
    $
    58.2
    
    
    $
    56.5Percentage of Semiconductor segment revenues
    
    
    14.0
    %
    
    
    17.4
    %Storage Systems segment
    
    $
    28.1
    
    
    $
    27.3Percentage of Storage Systems segment revenues
    
    
    12.7
    %
    
    
    17.4
    %Consolidated
    
    $
    86.3
    
    
    $
    83.8Percentage of consolidated revenues
    
    
    13.5
    %
    
    
    17.4
    %
 Three months ended April 4, 2010 compared to the three months ended April 5, 2009:
  Semiconductor Segment:
  Storage Systems Segment:
  Restructuring of Operations and Other Items, net
     Interest (Expense) or Income and Other, net
  Three Months EndedApril 4, 2010
    
    
    April 5, 2009(In millions)Interest expense
    
    $
    (3.9
    )
    
    $
    (7.2
    )Interest income
    
    
    3.6
    
    
    
    6.4Other expense, net
    
    
    (12.4
    )
    
    
    (0.5
    )Total
    
    $
    (12.7
    )
    
    $
    (1.3
    )
 23




---



##### Table of Contents



Interest Expense:
  Interest Income and Other, net:
   Provision for Income Taxes
   FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
  Working Capital
  
    
    Cash, cash equivalents and short-term investments, net, increased by $53.4 million;
    
    Inventories increased by $16.4 million primarily as a result of an increase in inventory
purchases to meet expected customer demand in the second quarter of 2010;
    
    Accounts payable decreased by $12.8 million primarily as a result of the timing of the
receipt of invoices and payments;
    
    Prepaid expenses and other current assets increased by $9.4 million primarily due to an
increase in prepaid software maintenance contracts, other prepaid expenses and non-trade
receivables; and
    
    Other accrued liabilities decreased by $6.8 million primarily attributable to the
utilization of restructuring reserves and
 24




---



##### Table of Contents



payments of liabilities, offset in part by an increase in accruals for interest on our
convertible notes as the interest payment date approaches in May 2010 and other accruals
related to operations of the business.
  
    
    Accounts receivable decreased by $40.4 million primarily as a result of improved
collections; and
    
    Accrued salaries, wages and benefits increased by $24.6 million primarily as a result of
timing differences in payment of salaries and benefits, and performance-based compensation
accruals which we reduced temporarily in 2009.
  
    
    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 approached,
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, reflecting our continued focus on supply chain management;
and
    
    Prepaid expenses and other current assets decreased by $19.0 million primarily as a  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 as a  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
    
    Current portion of the long-term debt decreased $0.5 million as a result of the
amortization of accrued debt premium.
 Cash Provided by Operating Activities
  
    
    Net income adjusted for non-cash items, including depreciation, amortization and
stock-based compensation expense. 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 decrease of $9.7 million in assets and liabilities, including changes in working
capital components from December 31, 2009 to April 4, 2010, as discussed above.
  
    
    Net loss adjusted for non-cash transactions, including depreciation, amortization and
stock-based compensation expense. The non-cash items and other non-operating adjustments are
quantified in the statements of cash flows included in Item 1; offset by
 25




---



##### Table of Contents




    
    A net increase of $22.8 million in assets and liabilities, including changes in working
capital components from December 31, 2008 to April 5, 2009, as discussed above.
 Cash Used in Investing Activities
  
    
    Purchases of property, equipment and software, net of proceeds from sales; and
    
    Proceeds from maturities and sales of available-for-sale debt securities.
  
    
    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 proceeds from sales.
  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
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    350.0Interest payments on
convertible subordinated
notes
    
    
    7.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.0Operating lease obligations
    
    
    68.6
    
    
    
    53.1
    
    
    
    13.7
    
    
    
    2.0
    
    
    
    
    
    
    
    137.4Purchase commitments
    
    
    450.2
    
    
    
    82.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    532.6Unrecognized tax positions
plus interest and penalties
    
    
    8.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    78.0
    **
    
    
    86.2Pension contributions
    
    
    27.9
    
    
    
    *
    
    
    
    *
    
    
    
    *
    
    
    
    *
    
    
    
    27.9Total
    
    $
    911.9
    
    
    $
    135.5
    
    
    $
    13.7
    
    
    $
    2.0
    
    
    $
    78.0
    
    
    $
    1,141.1
 
 *
    
    We have pension plans covering substantially all former Agere 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 affected 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 2010. Because any contributions for 2011 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 2011 and beyond in the above table.**
    
    Represents the non-current tax payable obligation. We are unable to make a reasonably
reliable estimate as to when cash settlement with a taxing authority may occur. 26




---



##### Table of Contents



Convertible Subordinated Notes
   Operating Lease Obligations
  Purchase Commitments
  Uncertain Tax Positions
  Standby Letters of Credit
  27




---



##### Table of Contents



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
  
 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.
 28




---



##### Table of Contents




    
    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.
     
    
    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.
 29




---



##### Table of Contents




    
    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 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Issuer Purchases of Equity Securities
 Total Number ofShares Purchased
    
    
    Dollar Value of Sharesas Part of
    
    
    that May Yet BeTotal Number of Shares
    
    
    Average Price
    
    
    Publicly Announced
    
    
    Purchased UnderPeriod
    
    Purchased
    
    
    Paid per Share
    
    
    Plans or Programs
    
    
    the ProgramsJanuary 1  January 31, 2010
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    February 1  February 28, 2010
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    March 1  April 4, 2010
    
    
    4,000,000
    
    
    $
    6.55
    
    
    
    4,000,000
    
    
    $
    223,792,065Total
    
    
    4,000,000
    
    
    $
    6.55
    
    
    
    4,000,000
    
    
    $
    223,792,065
  
 Item 6. Exhibits
  30




---



##### Table of Contents



SIGNATURES
  LSI CORPORATION
(Registrant)Date: May 11, 2010
By
    /s/ Bryon LookBryon LookExecutive Vice President, Chief Financial Officer
and Chief Administrative Officer 31




---



##### Table of Contents



EXHIBIT INDEX
 10.1
    
    2003 Equity Incentive Plan Form of Notice of Grant of Restricted
Stock Units (Revenue and non-GAAP operating income performance tests)
(Incorporated by reference to Exhibit 10.1 to Current Report on Form
8-K filed February 17, 2010)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