##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended June 29, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 1-10317
 LSI CORPORATION
 (Exact name of registrant as specified in its charter)
 Delaware
    
    94-2712976(State of Incorporation)
    
    (I.R.S. Employer Identification Number)
 1621 Barber Lane
Milpitas, California 95035  (Address of principal executive offices)
(Zip code)
 (408) 433-8000
(Registrants telephone number, including area code)
 þ o
  Large accelerated filer þ
    
    Accelerated filer  o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



LSI CORPORATION
Form 10-Q
For the Quarter Ended June 29, 2008
INDEX
  
 PageNo.PART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Condensed Consolidated Balance Sheets as of June 29, 2008 (unaudited) and December 31, 2007
    
    
    3Condensed Consolidated Statements of Operations for the three months and six months ended June 29, 2008 and July
1, 2007 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the six months ended June 29, 2008 and July 1, 2007 (unaudited)
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    32Item 4. Controls and Procedures
    
    
    32PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    33Item 1A. Risk Factors
    
    
    33Item 4. Submission of Matters to a Vote of Security Holders
    
    
    34Item 6. Exhibits
    
    
    35Signatures
    
    
    36Exhibits Index
    
    
    37EXHIBIT 10.4EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  FORWARD-LOOKING STATEMENTS
  2




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PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 LSI CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (UNAUDITED)
 June 29,
    
    
    December 31,2008
    
    
    2007(In thousands, exceptper share amounts)ASSETSCash and cash equivalents
    
    $
    769,061
    
    
    $
    1,021,569Short-term investments
    
    
    378,159
    
    
    
    376,028Accounts receivable, less allowances of $10,650 and $10,192
    
    
    359,300
    
    
    
    406,368Inventories
    
    
    240,941
    
    
    
    240,842Prepaid expenses and other current assets
    
    
    179,129
    
    
    
    147,751Total current assets
    
    
    1,926,590
    
    
    
    2,192,558Property and equipment, net
    
    
    240,170
    
    
    
    229,732Other intangible assets, net
    
    
    1,189,112
    
    
    
    1,225,196Goodwill
    
    
    503,202
    
    
    
    499,551Other assets
    
    
    268,808
    
    
    
    249,353Total assets
    
    $
    4,127,882
    
    
    $
    4,396,390LIABILITIES AND STOCKHOLDERS EQUITYAccounts payable
    
    $
    282,789
    
    
    $
    329,444Accrued salaries, wages and benefits
    
    
    126,039
    
    
    
    118,990Other accrued liabilities
    
    
    261,037
    
    
    
    298,343Income taxes payable
    
    
    13,600
    
    
    
    15,679Total current liabilities
    
    
    683,465
    
    
    
    762,456Long-term debt
    
    
    716,400
    
    
    
    717,967Pension, post-retirement and other benefits
    
    
    131,555
    
    
    
    137,543Income taxes payable  non-current
    
    
    176,237
    
    
    
    185,036Other non-current liabilities
    
    
    98,820
    
    
    
    108,143Total long-term obligations and other liabilities
    
    
    1,123,012
    
    
    
    1,148,689Commitments and contingencies (Note 12)
    
    
    
    
    
    
    Minority interest in subsidiary
    
    
    260
    
    
    
    249Stockholders equity:Preferred stock, $.01 par value: 2,000 shares authorized; none outstanding
    
    
    
    
    
    
    Common stock, $.01 par value: 1,300,000 shares authorized; 643,016 and
680,595 shares outstanding
    
    
    6,430
    
    
    
    6,806Additional paid-in capital
    
    
    6,012,843
    
    
    
    6,152,421Accumulated deficit
    
    
    (3,765,797
    )
    
    
    (3,738,522
    )Accumulated other comprehensive income
    
    
    67,669
    
    
    
    64,291Total stockholders equity
    
    
    2,321,145
    
    
    
    2,484,996Total liabilities and stockholders equity
    
    $
    4,127,882
    
    
    $
    4,396,390
  3




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LSI CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 Three Months Ended
    
    
    Six Months EndedJune 29, 2008
    
    
    July 1, 2007
    
    
    June 29, 2008
    
    
    July 1, 2007(In thousands, except per share amounts)Revenues
    
    $
    692,063
    
    
    $
    669,939
    
    
    $
    1,352,810
    
    
    $
    1,135,354Cost of revenues
    
    
    407,167
    
    
    
    517,969
    
    
    
    808,361
    
    
    
    788,868Gross profit
    
    
    284,896
    
    
    
    151,970
    
    
    
    544,449
    
    
    
    346,486Research and development
    
    
    170,115
    
    
    
    201,933
    
    
    
    339,832
    
    
    
    305,780Selling, general and administrative
    
    
    104,470
    
    
    
    114,803
    
    
    
    203,523
    
    
    
    176,413Restructuring of operations and other items, net
    
    
    20,719
    
    
    
    25,920
    
    
    
    25,283
    
    
    
    17,840Acquired in-process research and development
    
    
    
    
    
    
    176,400
    
    
    
    
    
    
    
    182,900Loss from operations
    
    
    (10,408
    )
    
    
    (367,086
    )
    
    
    (24,189
    )
    
    
    (336,447
    )Interest expense
    
    
    (8,959
    )
    
    
    (9,049
    )
    
    
    (17,937
    )
    
    
    (12,939
    )Interest income and other, net
    
    
    8,220
    
    
    
    10,790
    
    
    
    22,851
    
    
    
    21,321Loss before income taxes
    
    
    (11,147
    )
    
    
    (365,345
    )
    
    
    (19,275
    )
    
    
    (328,065
    )Provision for income taxes
    
    
    2,500
    
    
    
    12,500
    
    
    
    8,000
    
    
    
    19,956Net loss
    
    $
    (13,647
    )
    
    $
    (377,845
    )
    
    $
    (27,275
    )
    
    $
    (348,021
    )Net loss per share:Basic
    
    $
    (0.02
    )
    
    $
    (0.50
    )
    
    $
    (0.04
    )
    
    $
    (0.60
    )Diluted
    
    $
    (0.02
    )
    
    $
    (0.50
    )
    
    $
    (0.04
    )
    
    $
    (0.60
    )Shares used in computing per share amounts:Basic
    
    
    639,872
    
    
    
    751,114
    
    
    
    650,867
    
    
    
    577,672Diluted
    
    
    639,872
    
    
    
    751,114
    
    
    
    650,867
    
    
    
    577,672
  4




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LSI CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 Six Months EndedJune 29, 2008
    
    
    July 1, 2007(In thousands)Operating activities:Net loss
    
    $
    (27,275
    )
    
    $
    (348,021
    )Adjustments:Depreciation and amortization
    
    
    157,618
    
    
    
    120,175Stock-based compensation expense
    
    
    37,442
    
    
    
    33,997Non-cash restructuring and other items
    
    
    (3,245
    )
    
    
    199Acquired in-process research and development
    
    
    
    
    
    
    182,900Write-down of debt and equity securities
    
    
    2,827
    
    
    
    2,396Gain on sale of property and equipment, including assets held-for-sale
    
    
    (23
    )
    
    
    (9,502
    )Non-cash foreign exchange loss/(gain)
    
    
    5,049
    
    
    
    (3,888
    )Changes in deferred tax assets and liabilities
    
    
    4,129
    
    
    
    (5,470
    )Changes in assets and liabilities, net of assets acquired and
liabilities assumed in business combinations:Accounts receivable, net
    
    
    47,019
    
    
    
    150,165Inventories
    
    
    (99
    )
    
    
    45,242Prepaid expenses and other assets
    
    
    (9,592
    )
    
    
    33,864Accounts payable
    
    
    (50,808
    )
    
    
    (131,054
    )Accrued and other liabilities
    
    
    (39,590
    )
    
    
    14,860Net cash provided by operating activities
    
    
    123,452
    
    
    
    85,863Investing activities:Purchases of debt securities available-for-sale
    
    
    (106,632
    )
    
    
    (122,236
    )Proceeds from maturities and sales of debt securities available-for-sale
    
    
    93,203
    
    
    
    374,132Purchases of equity securities
    
    
    (3,500
    )
    
    
    (3,000
    )Purchases of property, equipment and software
    
    
    (67,855
    )
    
    
    (40,714
    )Proceeds from sale of property and equipment
    
    
    11,250
    
    
    
    13,785Cash acquired from acquisition of Agere, net of acquisition costs
    
    
    
    
    
    
    517,712Acquisition of other companies, net of cash acquired
    
    
    (95,137
    )
    
    
    (52,079
    )Increase in non-current assets and deposits
    
    
    (13,300
    )
    
    
    Adjustment to goodwill acquired in a prior year for resolution of a
pre-acquisition income tax contingency
    
    
    4,821
    
    
    
    2,442Net cash (used in)/provided by investing activities
    
    
    (177,150
    )
    
    
    690,042Financing activities:Issuance of common stock
    
    
    29,549
    
    
    
    21,917Purchases of common stock under repurchase programs
    
    
    (229,231
    )
    
    
    (400,355
    )Net cash used in financing activities
    
    
    (199,682
    )
    
    
    (378,438
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    872
    
    
    
    203(Decrease)/increase in cash and cash equivalents
    
    
    (252,508
    )
    
    
    397,670Cash and cash equivalents at beginning of year
    
    
    1,021,569
    
    
    
    327,800Cash and cash equivalents at end of period
    
    $
    769,061
    
    
    $
    725,470
  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
     6




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##### Table of Contents



Fair Value Measurements as of June 29, 2008Level 1
    
    Level 2
    
    Level 3
    
    Total(In thousands)Short-term investments in debt securities and certain cash equivalents
    
    $
    667,974
    
    
    $
    339,250
    
    
    
    
    
    
    $
    1,007,224Long-term investments in marketable equity securities
    
    $
    1,832
    
    
    
    
    
    
    
    
    
    
    $
    1,832Rabbi Trust all invested in money market funds
    
    $
    10,270
    
    
    
    
    
    
    
    
    
    
    $
    10,270
     NOTE 2  STOCK-BASED COMPENSATION
  
    
    Making a total of 45 million shares available for use under the 2003 Plan. Of that
amount, 15 million shares were available for grants of restricted stock and restricted
stock units.
 7




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##### Table of Contents




    
    Allowing non-employee directors to be eligible to participate in the 2003 Plan.
    
    Including stock appreciation rights as a permitted type of award under the 2003 Plan.
    
    Increasing the limits on the size of awards that can be granted under the 2003 Plan
to any person in one year from two million to four million shares for stock options and
from 500,000 to one million shares for restricted stock and restricted stock units.
    
    Allowing incentive stock options to be granted under the 2003 Plan until May 14,
2018.
   
    
    Making a total of 25 million shares available for purchase under the US ESPP after
May 14, 2008.
    
    Consolidating the Companys International Employee Stock Purchase Plan into the US
ESPP, which is expected to occur in November 2008.
    
    Extending the term of the US ESPP through May 14, 2018.
  Three Months Ended
    
    
    Six Months EndedStock-Based Compensation Expenses Included in:
    
    June 29, 2008
    
    
    July 1, 2007
    
    
    June 29, 2008
    
    
    July 1, 2007(In thousands)Cost of revenues
    
    $
    2,572
    
    
    $
    3,148
    
    
    $
    4,633
    
    
    $
    5,092Research and development
    
    
    7,569
    
    
    
    8,978
    
    
    
    15,392
    
    
    
    13,695Selling, general and administrative
    
    
    9,506
    
    
    
    10,687
    
    
    
    17,417
    
    
    
    15,210Total stock-based compensation expenses
    
    $
    19,647
    
    
    $
    22,813
    
    
    $
    37,442
    
    
    $
    33,997
  Stock Options
  Three Months Ended
    
    Six Months EndedJune 29, 2008
    
    July 1, 2007
    
    June 29, 2008
    
    July 1, 2007Weighted average estimated grant date fair value per share
    
    $
    2.20
    
    
    $
    3.45
    
    
    $
    1.81
    
    
    $
    3.36Weighted average assumptions in calculation:Expected life (years)
    
    
    4.05
    
    
    
    4.44
    
    
    
    4.36
    
    
    
    4.35Risk-free interest rate
    
    
    3
    %
    
    
    5
    %
    
    
    2
    %
    
    
    5
    %Volatility
    
    
    51
    %
    
    
    46
    %
    
    
    52
    %
    
    
    46
    %
   8




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##### Table of Contents



Weighted Average
    
    
    Weighted AverageExercise
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Price Per
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Share
    
    
    Term
    
    
    Value(In thousands)
    
    
    
    
    
    
    (In years)
    
    
    (In thousands)Options outstanding at December 31, 2007
    
    
    100,242
    
    
    $
    16.12
    
    
    
    
    
    
    
    Options granted
    
    
    12,558
    
    
    
    5.13
    
    
    
    
    
    
    
    Options exercised
    
    
    (3,479
    )
    
    
    (5.32
    )
    
    
    
    
    
    
    Options canceled
    
    
    (18,633
    )
    
    
    (20.47
    )
    
    
    
    
    
    
    Options outstanding at June 29, 2008
    
    
    90,688
    
    
    $
    14.12
    
    
    
    3.99
    
    
    $
    24,863Options exercisable at June 29, 2008
    
    
    55,300
    
    
    $
    18.67
    
    
    
    2.87
    
    
    $
    8,282
   Employee Stock Purchase Plans
  Three Months Ended
    
    Three Months EndedJune 29, 2008
    
    July 1, 2007Weighted average estimated grant date fair value per share
    
    $
    2.13
    
    
    $
    2.37Weighted average assumptions in calculation:Expected life (years)
    
    
    0.8
    
    
    
    0.8Risk-free interest rate
    
    
    2
    %
    
    
    5
    %Volatility
    
    
    44
    %
    
    
    38
    %
 9




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##### Table of Contents



Restricted Stock Awards
  Number ofShares(In thousands)Non-vested shares at December 31, 2007
    
    
    9,177Granted
    
    
    1,708Vested
    
    
    (2,025
    )Forfeited
    
    
    (434
    )Non-vested shares at June 29, 2008
    
    
    8,426
  NOTE 3  RESTRUCTURING AND OTHER ITEMS
  Restructuring and Impairment of Long-Lived Assets
   First Quarter of 2008:
  
    
    A gain of $1.9 million from the sale of land in Gresham, Oregon, which had a net book
value of $0.9 million. Total proceeds from the sale were
$2.8 million. A credit of $0.1 million for other miscellaneous
items;
    
    A charge of $5.0 million for lease termination costs, which included $3.1 million for
additional U.S. lease termination costs and $1.9 million for changes in previously accrued
facility lease exit costs including changes in the time-value of accruals; and
    
    A credit of $1.2 million primarily for severance and termination benefits for employees
due to a change in estimates primarily for restructuring actions taken in January 2008.
 Second Quarter of 2008:
  
    
    A charge of $3.4 million for lease termination costs, which included $2.7 million for
additional U.S. lease termination costs including the related write-off of leasehold
improvements and $0.7 million in charges for changes in assumptions and changes in the time
value of accruals for previously accrued facility lease exit costs; and
 10




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##### Table of Contents







    
    A charge of $3.7 million for severance and termination benefits for employees, which
included $1.8 million for integrating operations in Hong Kong and Singapore and $1.9
million for changes in estimates related to various restructuring actions taken since June
2007.
  Balance at
    
    
    Restructuring
    
    
    Utilized
    
    
    Balance at
    
    
    Restructuring
    
    
    Utilized
    
    
    Balance atDecember 31,
    
    
    Expense
    
    
    During
    
    
    March 30,
    
    
    Expense
    
    
    During
    
    
    June 29,2007
    
    
    Q1 2008
    
    
    Q1 2008
    
    
    2008
    
    
    Q2 2008
    
    
    Q2 2008
    
    
    2008(In thousands)Write-down of excess assets and other liabilities
(a)
    
    $
    225
    
    
    $
    (1,976
    )
    
    $
    1,834
    
    
    $
    83
    
    
    $
    876
    
    
    $
    (876
    )
    
    $
    83Lease terminations (b)
    
    
    23,318
    
    
    
    4,998
    
    
    
    (1,961
    )
    
    
    26,355
    
    
    
    2,494
    
    
    
    (4,333
    )
    
    
    24,516Payments to employees for severance (c)
    
    
    24,817
    
    
    
    (1,230
    )
    
    
    (12,899
    )
    
    
    10,688
    
    
    
    3,723
    
    
    
    (4,446
    )
    
    
    9,965Total
    
    $
    48,360
    
    
    $
    1,792
    
    
    $
    (13,026
    )
    
    $
    37,126
    
    
    $
    7,093
    
    
    $
    (9,655
    )
    
    $
    34,564
 
 (a)
    
    The credit in Q1 2008 includes a gain from the sale of land in Gresham, Oregon.(b)
    
    Amounts utilized represent cash payments. The balance remaining for real estate lease
terminations is expected to be paid during the remaining terms of the leases, which extend
through 2011.(c)
    
    Amounts utilized include $6.5 million related to stock grants exercised or expired. The
majority of the balance remaining for severance is expected to be paid by the end of 2009. Restructuring Actions Associated with the Agere Merger
   First Quarter of 2008:
  
    
    A charge of $1.1 million for changes in assumptions and the time value of accruals
previously recorded for facility lease exit costs;
    
    A charge of $1.6 million for severance and termination benefits due to a change in
severance estimates; and
    
    A gain of $1.2 million from the sale of assets held for sale in Singapore.
 11




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Second Quarter of 2008:
  
    
    A charge of $3.0 million for lease termination costs, which included $2.4 million for
changes in assumptions resulting from changes in market conditions and $0.6 million for the
change in the time value of accruals previously recorded for facility lease exit costs;
    
    A net charge of $0.2 million for severance and termination benefits due to a change in
severance estimates; and
    
    A net credit of $0.3 million including a gain of $0.6 million primarily from the sale
of assets held for sale in Singapore, a credit of $0.4 million primarily for the reversal
of an earlier write-down of held for sale assets which were put back to use and a $0.7
million charge for plant closing costs.
  Changes in
    
    
    
    
    
    
    
    
    
    
    Changes inBalance at
    
    
    Estimates
    
    
    Utilized
    
    
    Balance at
    
    
    Estimates
    
    
    Utilized
    
    
    Balance atDecember 31,
    
    
    During
    
    
    During
    
    
    March 30,
    
    
    During
    
    
    During
    
    
    June 29,2007
    
    
    Q1 2008
    
    
    Q1 2008
    
    
    2008
    
    
    Q2 2008
    
    
    Q2 2008
    
    
    2008(In thousands)Lease terminations (a)
    
    $
    33,439
    
    
    $
    1,068
    
    
    $
    (3,671
    )
    
    $
    30,836
    
    
    $
    3,002
    
    
    $
    (3,647
    )
    
    $
    30,191Payments to employees for severance (b)
    
    
    18,926
    
    
    
    1,635
    
    
    
    (10,581
    )
    
    
    9,980
    
    
    
    190
    
    
    
    (5,102
    )
    
    
    5,068Stock compensation charges in accordance with FAS 123R (c)
    
    
    20,860
    
    
    
    
    
    
    
    (7,844
    )
    
    
    13,016
    
    
    
    
    
    
    
    (11,290
    )
    
    
    1,726Write-down of excess assets and other liabilities (d)
    
    
    
    
    
    
    (1,163
    )
    
    
    1,163
    
    
    
    
    
    
    
    (320
    )
    
    
    320
    
    
    
    Total
    
    $
    73,225
    
    
    $
    1,540
    
    
    $
    (20,933
    )
    
    $
    53,832
    
    
    $
    2,872
    
    
    $
    (19,719
    )
    
    $
    36,985
 
 (a)
    
    Amounts utilized in Q1 2008 include $2.9 million in cash payments and $0.8 million for
write-off of leasehold improvements. The balance remaining for real estate lease terminations
is expected to be paid during the remaining terms of these contracts, which extend through
2013.(b)
    
    Amounts utilized represent cash severance payments to employees. The majority of the balance
remaining for severance is expected to be paid by the end of 2008.(c)
    
    Amounts utilized are related to stock grants exercised or expired. The balance is expected to
be utilized by the end of 2009.(d)
    
    The amount in Q1 2008 represents a gain on sale of assets held for sale in Singapore. The
amount in Q2 2008 includes a $0.6 million of gain on the sale of assets held for sale in
Singapore. Assets Held for Sale
   12




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##### Table of Contents



Other Items:
  NOTE 4  BUSINESS COMBINATIONS
 Acquisition of Hard Disk Drive Semiconductor Business of Infineon
    Entity Name or Typeof Technology;Segment Included in;
    
    
    
    
    
    Total
    
    
    
    
    
    Fair Value ofDescription of
    
    
    
    
    
    Purchase
    
    Type of
    
    Other Assets
    
    
    
    
    
    AmortizableAcquired Business
    
    Acquisition Date
    
    Price
    
    Consideration
    
    Acquired
    
    Goodwill
    
    Intangible AssetsHDD semiconductor
business of
Infineon;
Semiconductor
segment;Silicon solutions
for hard diskdrive makers
    
    April 25, 2008
    
    $
    95.1
    
    
    $95.1 cash
    
    $
    10.3
    
    
    $
    6.6
    
    
    $
    78.2
  WeightedAverageUseful LifeFair Value
    
    
    (in Years)Current technology
    
    $
    46.5
    
    
    
    4Customer base
    
    
    31.7
    
    
    
    5Total acquired identifiable intangible assets
    
    $
    78.2
  Agere Merger  Pro Forma results
  13




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##### Table of Contents



Six MonthsEndedJuly 1, 2007Revenues
    
    $
    1,470,498Net loss
    
    $
    (195,274
    )Basic loss per share
    
    $
    (0.26
    )Diluted loss per share
    
    $
    (0.26
    )
 NOTE 5  BENEFIT OBLIGATIONS
   Three Months EndedJune 29, 2008
    
    
    July 1, 2007Pension
    
    
    Post-retirement
    
    
    Pension
    
    
    Post-retirementBenefits
    
    
    Benefits
    
    
    Benefits
    
    
    Benefits(In thousands)Service cost
    
    $
    1,405
    
    
    $
    26
    
    
    $
    1,867
    
    
    $
    41Interest cost
    
    
    18,528
    
    
    
    767
    
    
    
    18,396
    
    
    
    931Expected return on plan assets
    
    
    (20,581
    )
    
    
    (1,259
    )
    
    
    (20,859
    )
    
    
    (1,194
    )Amortization of prior service cost
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    Net actuarial gain recognized
    
    
    (13
    )
    
    
    (30
    )
    
    
    
    
    
    
    Total benefit credit
    
    $
    (657
    )
    
    $
    (496
    )
    
    $
    (596
    )
    
    $
    (222
    )
 Six Months EndedJune 29, 2008
    
    
    July 1, 2007Pension
    
    
    Post-retirement
    
    
    Pension
    
    
    Post-retirementBenefits
    
    
    Benefits
    
    
    Benefits
    
    
    Benefits(In thousands)Service cost
    
    $
    2,811
    
    
    $
    52
    
    
    $
    1,867
    
    
    $
    41Interest cost
    
    
    37,056
    
    
    
    1,533
    
    
    
    18,396
    
    
    
    931Expected return on plan assets
    
    
    (41,163
    )
    
    
    (2,517
    )
    
    
    (20,859
    )
    
    
    (1,194
    )Amortization of prior service cost
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    Net actuarial gain recognized
    
    
    (26
    )
    
    
    (59
    )
    
    
    
    
    
    
    Total benefit credit
    
    $
    (1,314
    )
    
    $
    (991
    )
    
    $
    (596
    )
    
    $
    (222
    )
  14




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##### Table of Contents



NOTE 6  INTANGIBLE ASSETS AND GOODWILL
 Intangible Assets
  June 29, 2008
    
    
    December 31, 2007Gross
    
    
    Accumulated
    
    
    Gross
    
    
    AccumulatedCarrying Amount
    
    
    Amortization
    
    
    Carrying Amount
    
    
    Amortization(In thousands)Semiconductor:Current technology
    
    $
    894,808
    
    
    $
    (360,830
    )
    
    $
    848,656
    
    
    $
    (298,525
    )Trademarks
    
    
    26,657
    
    
    
    (26,224
    )
    
    
    26,730
    
    
    
    (26,272
    )Customer base
    
    
    399,508
    
    
    
    (50,070
    )
    
    
    367,808
    
    
    
    (20,761
    )Non-compete agreements
    
    
    1,949
    
    
    
    (1,481
    )
    
    
    1,949
    
    
    
    (1,165
    )Existing purchase orders
    
    
    200
    
    
    
    (200
    )
    
    
    200
    
    
    
    (200
    )Supply agreement
    
    
    100
    
    
    
    (100
    )
    
    
    100
    
    
    
    (100
    )Patent licensing
    
    
    313,800
    
    
    
    (45,306
    )
    
    
    313,800
    
    
    
    (27,183
    )Order backlog
    
    
    41,300
    
    
    
    (41,300
    )
    
    
    41,300
    
    
    
    (41,300
    )Workforce
    
    
    3,567
    
    
    
    (959
    )
    
    
    3,567
    
    
    
    (661
    )Trade names
    
    
    2,248
    
    
    
    (281
    )
    
    
    2,248
    
    
    
    (94
    )Subtotal
    
    
    1,684,137
    
    
    
    (526,751
    )
    
    
    1,606,358
    
    
    
    (416,261
    )Storage Systems:Current technology
    
    
    164,339
    
    
    
    (133,232
    )
    
    
    164,339
    
    
    
    (130,361
    )Trademarks
    
    
    7,150
    
    
    
    (7,150
    )
    
    
    7,150
    
    
    
    (7,149
    )Customer base
    
    
    5,010
    
    
    
    (5,010
    )
    
    
    5,010
    
    
    
    (5,010
    )Non-compete agreements
    
    
    1,600
    
    
    
    (1,600
    )
    
    
    1,600
    
    
    
    (1,156
    )Supply agreement
    
    
    8,147
    
    
    
    (8,147
    )
    
    
    8,147
    
    
    
    (8,147
    )Trade names
    
    
    800
    
    
    
    (181
    )
    
    
    800
    
    
    
    (124
    )Subtotal
    
    
    187,046
    
    
    
    (155,320
    )
    
    
    187,046
    
    
    
    (151,947
    )Total intangible assets
    
    $
    1,871,183
    
    
    $
    (682,071
    )
    
    $
    1,793,404
    
    
    $
    (568,208
    )
   Six Months Ended
    
    
    Six Months EndedWeighted
    
    
    June 29,
    
    
    July 1,Average Lives
    
    
    2008
    
    
    2007(In months)
    
    
    (In thousands)Current technology
    
    
    57
    
    
    $
    65,525
    
    
    $
    37,286Trademarks
    
    
    83
    
    
    
    25
    
    
    
    822Customer base
    
    
    45
    
    
    
    29,309
    
    
    
    7,602Non-compete agreements
    
    
    27
    
    
    
    760
    
    
    
    813Supply agreement
    
    
    32
    
    
    
    
    
    
    
    742Patent licensing
    
    
    36
    
    
    
    18,122
    
    
    
    9,151Order backlog
    
    
    2
    
    
    
    
    
    
    
    26,500Workforce
    
    
    72
    
    
    
    298
    
    
    
    298Trade names
    
    
    75
    
    
    
    244
    
    
    
    57Total
    
    
    50
    
    
    $
    114,283
    
    
    $
    83,271
  Amount(In thousands)Fiscal Year:2008 (June 30 through December 31, 2008)
    
    $
    120,8002009
    
    
    234,9262010
    
    
    191,6662011
    
    
    149,9142012 and thereafter
    
    
    491,806Total
    
    $
    1,189,112
 15




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##### Table of Contents



Goodwill
  Semiconductor
    
    
    Storage SystemsSegment
    
    
    Segment
    
    
    Total(In thousands)Balance as of December 31, 2007
    
    $
    323,927
    
    
    $
    175,624
    
    
    $
    499,551Goodwill acquired during the year *
    
    
    6,624
    
    
    
    
    
    
    
    6,624Adjustment to goodwill acquired in a prior year for the
resolution of a pre-acquisition income tax contingency
    
    
    (4,587
    )
    
    
    
    
    
    
    (4,587
    )Adjustment to goodwill related to FASB Interpretation No. 48
    
    
    1,468
    
    
    
    
    
    
    
    1,468Other
    
    
    146
    
    
    
    
    
    
    
    146Balance as of June 29, 2008
    
    $
    327,578
    
    
    $
    175,624
    
    
    $
    503,202
 
 *
    
    During the three months ended June 29, 2008, the Company recorded $6.6 million of goodwill in
connection with the acquisition of Infineons HDD semiconductor business. See Note 4. NOTE 7  OTHER BALANCE SHEET DETAILS
 June 29,
    
    
    December 31,2008
    
    
    2007(In thousands)Cash and cash equivalents:Cash in financial institutions
    
    $
    91,938
    
    
    $
    117,464Cash equivalents
    
    
    677,123
    
    
    
    904,105Total cash and cash equivalents
    
    $
    769,061
    
    
    $
    1,021,569Available-for-sale debt securities: *Asset-backed and mortgage-backed securities
    
    $
    212,794
    
    
    $
    207,290U.S. government and agency securities
    
    
    145,057
    
    
    
    121,350Corporate and municipal debt securities
    
    
    20,308
    
    
    
    47,388Total short-term investments
    
    $
    378,159
    
    
    $
    376,028Inventories:Raw materials
    
    $
    34,191
    
    
    $
    30,023Work-in-process
    
    
    76,539
    
    
    
    95,262Finished goods
    
    
    130,211
    
    
    
    115,557Total inventories
    
    $
    240,941
    
    
    $
    240,842
 Interest
    
    
    Conversion
    
    
    June 29,
    
    
    December 31,Maturity
    
    
    Rate
    
    
    Price
    
    
    2008
    
    
    2007(In thousands)Long-term debt:2003 Convertible Subordinated Notes
    
    
    2010
    
    
    
    4.00
    %
    
    $
    13.4200
    
    
    $
    350,000
    
    
    $
    350,0002002 Convertible Subordinated Notes **
    
    
    2009
    
    
    
    6.50
    %
    
    $
    15.3125
    
    
    
    361,645
    
    
    
    361,660Accrued debt premium
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,589
    
    
    
    8,589720,234
    
    
    
    720,249Amortization of accrued debt premium
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,834
    )
    
    
    (2,282
    )Total long-term debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    716,400
    
    
    $
    717,967
 
 *
    
    During the three months ended June 29, 2008, the Company recognized impairment charges of $2.1
million for certain available-for-sale debt securities, of which the Company determined the decline
in their fair value was other than temporary.**
    
    During the six months ended June 29, 2008, $15,000 of the principal amount of these notes was
converted into 977 shares of LSIs common stock at the conversion price of $15.3125 per share. 16




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##### Table of Contents



NOTE 8  RECONCILIATION OF BASIC AND DILUTED LOSS PER SHARE
  Three Months EndedJune 29, 2008
    
    July 1, 2007Per-Share
    
    
    
    
    
    
    
    
    
    Per-ShareLoss*
    
    Shares+
    
    Amount
    
    Loss*
    
    Shares+
    
    Amount(In thousands except per share amounts)Basic loss per share:Net loss available to common stockholders
    
    $
    (13,647
    )
    
    
    639,872
    
    
    $
    (0.02
    )
    
    $
    (377,845
    )
    
    
    751,114
    
    
    $
    (0.50
    )Stock options, employee stock purchase
rights and restricted stock awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted loss per share:Net loss available to common stockholders
    
    $
    (13,647
    )
    
    
    639,872
    
    
    $
    (0.02
    )
    
    $
    (377,845
    )
    
    
    751,114
    
    
    $
    (0.50
    )
 Six Months EndedJune 29, 2008
    
    July 1, 2007Per-Share
    
    
    
    
    
    
    
    
    
    Per-ShareLoss*
    
    Shares+
    
    Amount
    
    Loss*
    
    Shares+
    
    Amount(In thousands except per share amounts)Basic loss per share:Net loss available to common stockholders
    
    $
    (27,275
    )
    
    
    650,867
    
    
    $
    (0.04
    )
    
    $
    (348,021
    )
    
    
    577,672
    
    
    $
    (0.60
    )Stock options, employee stock purchase
rights and restricted stock awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted loss per share:Net loss available to common stockholders
    
    $
    (27,275
    )
    
    
    650,867
    
    
    $
    (0.04
    )
    
    $
    (348,021
    )
    
    
    577,672
    
    
    $
    (0.60
    )
 
 *
    
    Numerator+
    
    Denominator   NOTE 9  SEGMENT REPORTING
  17




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##### Table of Contents



Summary of Operations by Segment
  Three Months Ended
    
    
    Six Months EndedJune 29, 2008
    
    
    July 1, 2007
    
    
    June 29, 2008
    
    
    July 1, 2007(In thousands)Revenues:Semiconductor
    
    $
    462,010
    
    
    $
    484,840
    
    
    $
    920,812
    
    
    $
    757,214Storage Systems
    
    
    230,053
    
    
    
    185,099
    
    
    
    431,998
    
    
    
    378,140Total
    
    $
    692,063
    
    
    $
    669,939
    
    
    $
    1,352,810
    
    
    $
    1,135,354Loss from operations:Semiconductor
    
    $
    (31,926
    )
    
    $
    (365,811
    )
    
    $
    (56,263
    )
    
    $
    (338,652
    )Storage Systems
    
    
    21,518
    
    
    
    (1,275
    )
    
    
    32,074
    
    
    
    2,205Total
    
    $
    (10,408
    )
    
    $
    (367,086
    )
    
    $
    (24,189
    )
    
    $
    (336,447
    )
   Significant Customers
  Three Months Ended
    
    Six Months EndedJune 29, 2008
    
    July 1, 2007
    
    June 29, 2008
    
    July 1, 2007Semiconductor segment:Number of significant customers
    
    
    1
    
    
    
    2
    
    
    
    1
    
    
    
    3Percentage of segment revenues
    
    
    25
    %
    
    
    26%, 18
    %
    
    
    27
    %
    
    
    24%, 12%, 10
    %Storage Systems segment:Number of significant customers
    
    
    2
    
    
    
    2
    
    
    
    2
    
    
    
    2Percentage of segment revenues
    
    
    47%, 16
    %
    
    
    46%, 19
    %
    
    
    45%, 16
    %
    
    
    46%, 19
    %Consolidated:Number of significant customers
    
    
    2
    
    
    
    3
    
    
    
    2
    
    
    
    2Percentage of consolidated revenues
    
    
    17%, 16
    %
    
    
    19%, 13%, 13
    %
    
    
    19%, 15
    %
    
    
    16%, 16
    %
 Information about Geographic Areas
   NOTE 10  COMPREHENSIVE LOSS
  Three Months Ended
    
    
    Six Months EndedJune 29, 2008
    
    
    July 1, 2007
    
    
    June 29, 2008
    
    
    July 1, 2007(In thousands)Net loss
    
    $
    (13,647
    )
    
    $
    (377,845
    )
    
    $
    (27,275
    )
    
    $
    (348,021
    )Change in unrealized (loss)/gain on available-for-sale securities
    
    
    (2,297
    )
    
    
    (1,127
    )
    
    
    (2,366
    )
    
    
    2,137Change in foreign currency translation adjustments
    
    
    (9,109
    )
    
    
    (3,761
    )
    
    
    5,795
    
    
    
    (3,356
    )Amortization of prior service cost and actuarial gains included
in net periodic benefit credit
    
    
    (51
    )
    
    
    
    
    
    
    (51
    )
    
    
    Comprehensive loss
    
    $
    (25,104
    )
    
    $
    (382,733
    )
    
    $
    (23,897
    )
    
    $
    (349,240
    )
 18




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##### Table of Contents



NOTE 11  RELATED PARTY TRANSACTIONS
    NOTE 12  COMMITMENTS, CONTINGENCIES AND LEGAL MATTERS
 Purchase Commitments
    19




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##### Table of Contents



Guarantees
 Product Warranties:
   Balance as of December 31, 2007
    
    $
    14,734Accruals for warranties issued during the period
    
    
    7,850Accruals related to pre-existing warranties (including changes in estimates)
    
    
    (1,786
    )Settlements made during the period (in cash or in kind)
    
    
    (6,529
    )Balance as of June 29, 2008
    
    $
    14,269
 Convertible Subordinated Notes:
  Standby Letters of Credit:
  FASB Interpretation No. 48 (FIN 48) Liabilities
  Indemnifications
  Legal Matters
  20




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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
   21




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##### Table of Contents




    
    The acquisition of SiliconStor, a provider of semiconductor solutions for enterprise
storage networks, in March 2007.
    
    The acquisition of Agere Systems in April 2007, through the merger of Agere and a
subsidiary of ours. Agere was a provider of integrated circuit solutions for a variety
of communications and computing applications.
    
    The sale of our Consumer Products Group in July 2007.
    
    The sale in October 2007 of the Mobility Products Group we acquired from Agere.
    
    The sale of, or discontinuation of operations at, our semiconductor and storage
systems assembly and test facilities, and the transition of the work performed at those
facilities to contract manufacturers.
    
    The acquisition of Tarari, a maker of silicon and software that provides content and
application awareness in packet and message processing, in October 2007.
    
    The acquisition in April 2008 of the hard disk drive semiconductor business of
Infineon Technologies.
     22




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##### Table of Contents



RESULTS OF OPERATIONS
 Revenues
  Three Months Ended
    
    
    Six Months EndedJune 29, 2008
    
    
    July 1, 2007
    
    
    June 29, 2008
    
    
    July 1, 2007(In millions)Semiconductor segment
    
    $
    462.0
    
    
    $
    484.8
    
    
    $
    920.8
    
    
    $
    757.2Storage Systems segment
    
    
    230.1
    
    
    
    185.1
    
    
    
    432.0
    
    
    
    378.1Consolidated
    
    $
    692.1
    
    
    $
    669.9
    
    
    $
    1,352.8
    
    
    $
    1,135.3
 Three months ended June 29, 2008 compared to the three months ended July 1, 2007:
  Semiconductor Segment:
  
    
    A $51.0 million increase in revenues attributable to increased demand for
semiconductors used in storage product applications;
    
    A $28.0 million increase in revenues from semiconductors used in networking standard
products; and
    
    A $10.0 million increase in revenues from the licensing of intellectual property.
 Storage Systems Segment:
  Six months ended June 29, 2008 compared to the six months ended July 1, 2007:
  Semiconductor Segment:
  Storage Systems Segment:
   23




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##### Table of Contents



Revenues by Geography
  Three Months Ended
    
    
    Six Months EndedJune 29, 2008
    
    
    July 1, 2007
    
    
    June 29, 2008
    
    
    July 1, 2007(In millions)North America *
    
    $
    220.8
    
    
    $
    208.0
    
    
    $
    427.6
    
    
    $
    418.7Asia **
    
    
    346.9
    
    
    
    386.9
    
    
    
    695.1
    
    
    
    575.8Europe and Middle East
    
    
    124.4
    
    
    
    75.0
    
    
    
    230.1
    
    
    
    140.8Total
    
    $
    692.1
    
    
    $
    669.9
    
    
    $
    1,352.8
    
    
    $
    1,135.3
 
 *
    
    Primarily the United States.**
    
    Including Japan. Three months ended June 29, 2008 compared to the three months ended July 1, 2007:
  Six months ended June 29, 2008 compared to the six months ended July 1, 2007:
  Gross Profit Margin
  Three Months Ended
    
    
    Six Months EndedJune 29, 2008
    
    
    July 1, 2007
    
    
    June 29, 2008
    
    
    July 1, 2007(Dollars in millions)Semiconductor segment
    
    $
    196.0
    
    
    $
    88.9
    
    
    $
    380.9
    
    
    $
    220.4Percentage of segment revenues
    
    
    42.4
    %
    
    
    18.3
    %
    
    
    41.4
    %
    
    
    29.1
    %Storage Systems segment
    
    $
    88.9
    
    
    $
    63.1
    
    
    $
    163.6
    
    
    $
    126.1Percentage of segment revenues
    
    
    38.6
    %
    
    
    34.1
    %
    
    
    37.9
    %
    
    
    33.4
    %Consolidated
    
    $
    284.9
    
    
    $
    152.0
    
    
    $
    544.5
    
    
    $
    346.5Percentage of total revenues
    
    
    41.2
    %
    
    
    22.7
    %
    
    
    40.2
    %
    
    
    30.5
    %
 Three months ended June 29, 2008 compared to the three months ended July 1, 2007:
  Semiconductor Segment:
  
    
    An inventory charge of $47.9 million which was recorded in the second quarter of 2007
related to fair valuing the inventory in the acquisition of Agere;
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
    
    A decrease of $27.1 million in the amortization of intangible assets in the second
quarter of 2008;
    
    An $11.0 million charge recorded for an unfavorable wafer supply agreement with ON
Semiconductor resulting from a decline in demand in the second quarter of 2007;
    
    An additional $6.2 million of previously reserved inventory was sold through in the
second quarter of 2008; and
    
    Increased sales of products with higher gross profit margins in the second quarter of
2008.
 Storage Systems Segment:
  Six months ended June 29, 2008 compared to the six months ended July 1, 2007:
  Semiconductor Segment:
  
    
    An inventory charge of $47.9 million which was recorded in the second quarter of 2007
related to fair valuing the inventory in the acquisition of Agere;
    
    $11.0 million in charges recorded in the second quarter of 2007 for an unfavorable
wafer supply agreement with ON Semiconductor resulting from a decline in demand;
    
    An additional $10.1 million of previously reserved inventory was sold through for the
six months ended June 29, 2008; and
    
    Increased sales of products with higher gross profit margins in the first half of
2008.
 Storage Systems Segment:
  Research and Development
  Three Months Ended
    
    
    Six Months EndedJune 29, 2008
    
    
    July 1, 2007
    
    
    June 29, 2008
    
    
    July 1, 2007(Dollars in millions)Semiconductor segment
    
    $
    135.4
    
    
    $
    170.9
    
    
    $
    270.6
    
    
    $
    244.6Percentage of segment revenues
    
    
    29.3
    %
    
    
    35.3
    %
    
    
    29.4
    %
    
    
    32.3
    %Storage Systems segment
    
    $
    34.7
    
    
    $
    31.0
    
    
    $
    69.2
    
    
    $
    61.1Percentage of segment revenues
    
    
    15.1
    %
    
    
    16.7
    %
    
    
    16.0
    %
    
    
    16.2
    %Consolidated
    
    $
    170.1
    
    
    $
    201.9
    
    
    $
    339.8
    
    
    $
    305.7Percentage of total revenues
    
    
    24.6
    %
    
    
    30.1
    %
    
    
    25.1
    %
    
    
    26.9
    %
 Three months ended June 29, 2008 compared to the three months ended July 1, 2007:
  25




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Semiconductor Segment:
  Storage Systems Segment:
  Six months ended June 29, 2008 compared to the six months ended July 1, 2007:
  Semiconductor Segment:
  Storage Systems Segment:
  Selling, General and Administrative
  Three Months Ended
    
    
    Six Months EndedJune 29, 2008
    
    
    July 1, 2007
    
    
    June 29, 2008
    
    
    July 1, 2007(Dollars in millions)Semiconductor segment
    
    $
    72.2
    
    
    $
    85.2
    
    
    $
    141.6
    
    
    $
    117.5Percentage of segment revenues
    
    
    15.6
    %
    
    
    17.6
    %
    
    
    15.4
    %
    
    
    15.5
    %Storage Systems segment
    
    $
    32.3
    
    
    $
    29.6
    
    
    $
    62.0
    
    
    $
    58.9Percentage of segment revenues
    
    
    14.0
    %
    
    
    16.0
    %
    
    
    14.4
    %
    
    
    15.6
    %Consolidated
    
    $
    104.5
    
    
    $
    114.8
    
    
    $
    203.6
    
    
    $
    176.4Percentage of total revenues
    
    
    15.1
    %
    
    
    17.1
    %
    
    
    15.1
    %
    
    
    15.5
    %
 26




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Three months ended June 29, 2008 compared to the three months ended July 1, 2007:
  Semiconductor Segment:
  Storage Systems Segment:
  Six months ended June 29, 2008 compared to the six months ended July 1, 2007:
  Semiconductor Segment:
  Storage Systems Segment:
  Restructuring of Operations and Other Items
   27




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Interest Expense
  Interest Income and Other
   Provision for Income Taxes
   28




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FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
  Working Capital
  
    
    Cash, cash equivalents and short-term investments decreased by $250.4 million;
    
    Accounts receivable decreased by $47.1 million due to higher cash collections and lower
revenues for the second quarter of 2008 compared to the fourth quarter of 2007, our
seasonally stronger quarter of the year. We typically experience
higher revenues in the fourth quarter than in the first half of the
year due to seasonality; and
    
    Accrued salaries, wages and benefits increased by $7.0 million primarily attributable to
the timing of payments.
  
    
    Accounts payable decreased by $46.7 million due to the timing of invoice payments;
    
    Other accrued liabilities decreased by $37.3 million primarily due to decreases in the
restructuring reserves;
    
    Prepaid expenses and other current assets increased by $31.4 million primarily due to
increases in other receivables and prepaid taxes offset by a decrease in assets held for
sale; and
    
    Income taxes payable decreased by $2.1 million as a result of tax payments offset by an
increase in the tax provision.
 Cash provided by operating activities
  
    
    A net loss adjusted for non-cash transactions. The non-cash items and other non-operating
adjustments are quantified in the Statements of Cash Flows included in Item 1; and
    
    A net decrease in assets and liabilities, including changes in working capital components
from December 31, 2007 to June 29, 2008, as discussed above.
 Cash and cash equivalents used in investing activities
  
    
    Acquisition of businesses, net of cash acquired;
    
    Purchases of property, equipment and software, net of sales;
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##### Table of Contents




    
    Proceeds from maturities and sales of debt and equity securities available for sale, net
of purchases;
    
    An increase in a non-current deposit; and
    
    The receipt of an income tax refund for pre-acquisition tax matters associated with an
acquisition in 2001.
  Cash and cash equivalents used in financing activities
    CONTRACTUAL OBLIGATIONS
  Payments Due by PeriodLess Than 1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    After 5 Years
    
    
    Total(In millions)Convertible Subordinated Notes
    
    $
    
    
    
    $
    711.6
    
    
    $
    
    
    
    $
    
    
    
    $
    711.6Operating lease obligations
    
    
    98.0
    
    
    
    120.4
    
    
    
    29.9
    
    
    
    5.0
    
    
    
    253.3Purchase commitments
    
    
    336.2
    
    
    
    3.5
    
    
    
    368.9
    
    
    
    
    
    
    
    708.6Pension and post-retirement contributions
    
    
    15.9
    
    
    
    *
    
    
    
    *
    
    
    
    *
    
    
    
    15.9Total
    
    $
    450.1
    
    
    $
    835.5
    
    
    $
    398.8
    
    
    $
    5.0
    
    
    $
    1,689.4
 
 *
    
    We have pension plans covering substantially all former Agere U.S. employees, excluding
management employees hired after June 30, 2003. Although future contributions are likely to 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. Convertible Subordinated Notes
  30




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##### Table of Contents



Operating Lease Obligations
  Purchase Commitments
  FIN 48 Tax Liabilities
  Standby Letters of Credit
  CRITICAL ACCOUNTING POLICIES
  31




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##### Table of Contents



RECENT ACCOUNTING PRONOUNCEMENTS
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4. Controls and Procedures
 EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
  CHANGES IN INTERNAL CONTROLS
  32




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##### Table of Contents



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.
    
    We may fail to realize benefits expected from our merger with Agere Systems, which could
harm our stock price.
    
    Customer orders and ordering patterns can change quickly, making it difficult for us to
predict our revenues and making it possible that our actual revenues may vary materially
from our expectations, which could harm our results of operations and stock price.
    
    We depend increasingly on outside suppliers to manufacture, assemble, package and test
our products; accordingly, any failure to transition successfully our manufacturing,
assembly, packaging and test operations to suppliers, to secure and maintain sufficient
manufacturing capacity or to maintain the quality of our products could harm our business
and results of operations.
    
    Failure to qualify our semiconductor products or our suppliers manufacturing lines with
key customers could harm our business and results of operations.
    
    Any defects in our products could harm our reputation, customer relationships and results
of operations.
    
    As part of our integration efforts with Agere, we intend to transition Ageres operation
to our enterprise resource planning system. Any issues that may arise with this transition
could interfere with our business and harm our operating results or our ability to produce
accurate and timely financial statements.
    
    We may be subject to intellectual property infringement claims and litigation, which
could cause us to incur significant expenses or prevent us from selling our products.
    
    If we are unable to protect or assert our intellectual property rights, our business and
results of operations may be harmed.
    
    A decline in the revenue that we derive from the licensing of intellectual property could
have a significant impact on our net income.
    
    We are exposed to legal, business, political and economic risks associated with our
international operations.
    
    We use indirect channels of product distribution over which we have limited control.
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##### Table of Contents




    
    Our failure to attract, retain and motivate key employees could harm our business.
    
    We may engage in acquisitions and strategic alliances, which may not be successful and
could harm our business and operating results.
    
    The semiconductor industry is highly cyclical, which may cause our operating results to
fluctuate.
    
    Our operations and our suppliers operations are subject to natural disasters and other
events outside of our control that may disrupt our business and harm our operating results.
    
    We are subject to various environmental laws and regulations that could impose
substantial costs on us and may harm our business.
    
    Our stockholder rights plan and Delaware law contain provisions that may inhibit
potential acquisition bids, which may harm our stock price, discourage merger offers or
prevent changes in our management.
    
    Class action litigation due to stock price volatility or other factors could cause us to
incur substantial costs and divert our managements attention and resources.
 
 Item 4. Submission of Matters to a Vote of Security Holders
   For
    
    Against
    
    AbstainTimothy Y. Chen
    
    
    545,456,974
    
    
    
    11,522,490
    
    
    
    6,273,903Charles A. Haggerty
    
    
    529,590,754
    
    
    
    27,053,636
    
    
    
    6,608,978Richard S. Hill
    
    
    545,249,066
    
    
    
    11,899,683
    
    
    
    6,104,617Michael J. Mancuso
    
    
    547,838,187
    
    
    
    9,182,860
    
    
    
    6,232,320John H.F. Miner
    
    
    545,338,145
    
    
    
    11,759,688
    
    
    
    6,155,535Arun Netravali
    
    
    544,804,033
    
    
    
    12,114,960
    
    
    
    6,334,374Matthew J. ORourke
    
    
    547,802,563
    
    
    
    9,363,971
    
    
    
    6,086,834Gregorio Reyes
    
    
    547,481,870
    
    
    
    9,627,078
    
    
    
    6,144,420Abhijit Y. Talwalkar
    
    
    547,877,943
    
    
    
    9,305,083
    
    
    
    6,070,343
  For
    
    
    Against
    
    
    Abstain547,772,766
    
    
    
    8,927,542
    
    
    
    6,553,061
  For
    
    
    Against
    
    
    Abstain
    
    
    Broker Non-Votes360,363,826
    
    
    
    61,968,015
    
    
    
    5,774,913
    
    
    
    135,146,615
 34




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##### Table of Contents



For
    
    
    Against
    
    
    Abstain
    
    
    Broker Non-Votes392,971,547
    
    
    
    29,511,679
    
    
    
    5,623,529
    
    
    
    135,146,614
 
 Item 6. Exhibits
  35




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##### Table of Contents



SIGNATURES
  LSI CORPORATION
(Registrant)Date: August 7, 2008
    
    By
    
    /s/ Bryon LookBryon LookExecutive Vice President & Chief Financial Officer
 36




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##### Table of Contents



EXHIBIT INDEX
 10.1
    
    LSI Corporation 2003 Equity Incentive Plan (Incorporated by reference
to Exhibit 10.1 to our Current Report on Form 8-K, filed May 20,
2008)10.2
    
    Description of Mr. Talwalkars Housing Allowance (Incorporated by
reference to Exhibit 10.2 to our Current Report on Form 8-K, filed
May 20, 2008)10.3
    
    LSI Corporation Severance Policy for Executive Officers (Incorporated
by reference to Exhibit 10.3 to our Current Report on Form 8-K, filed
May 20, 2008)10.4

    
    International Assignment Agreement with Andrew Micallef31.1
    
    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