##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
  þ
    
    REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended April 1, 2007
 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(State of Incorporation)
    
    94-2712976(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)
LSI Logic Corporation (Former Name)
  þ o
  þ o o
  o þ




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##### 



LSI CORPORATION
Form 10-Q
For the Quarter Ended April 1, 2007
INDEX
 PageNo.PART I. FINANCIAL INFORMATIONItem 1
    
    Financial StatementsCondensed Consolidated  Balance Sheets as of April 1, 2007 (unaudited) and December 31, 2006
    
    3Condensed Consolidated  Statements of Operations for the three months ended April 1, 2007 and April 2, 2006
 (unaudited)
    
    4Condensed Consolidated Statements of Cash Flows for the three months ended April 1, 2007 and
April 2, 2006 (unaudited)
    
    5Notes to unaudited Condensed Consolidated Financial Statements
    
    6Item 2
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    16Item 3
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    23Item 4
    
    Controls and Procedures
    
    23PART II. OTHER INFORMATIONItem 1
    
    Legal Proceedings
    
    23Item 1A
    
    Risk Factors
    
    23Item 2
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    26Item 4
    
    Submission of Matters to a Vote of Security Holders
    
    27Item 6
    
    Exhibits
    
    27Signatures
    
    29Index to ExhibitsEXHIBIT 4.1EXHIBIT 10.18EXHIBIT 10.19EXHIBIT 10.20EXHIBIT 10.21EXHIBIT 10.22EXHIBIT 10.23EXHIBIT 10.24EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 LSI CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 April 1,
    
    December 31,2007
    
    2006(In thousands, exceptper share amounts)ASSETSCash and cash equivalents
    
    $
    445,521
    
    
    $
    327,800Short-term investments
    
    
    571,121
    
    
    
    681,137Accounts receivable, less allowances of $9,027 and $13,871
    
    
    303,369
    
    
    
    348,638Inventories
    
    
    229,067
    
    
    
    209,470Prepaid expenses and other current assets
    
    
    62,315
    
    
    
    68,692Total current assets
    
    
    1,611,393
    
    
    
    1,635,737Property and equipment, net
    
    
    89,246
    
    
    
    86,045Other intangible assets, net
    
    
    64,799
    
    
    
    59,484Goodwill
    
    
    932,978
    
    
    
    932,323Other assets
    
    
    103,413
    
    
    
    138,555Total assets
    
    $
    2,801,829
    
    
    $
    2,852,144LIABILITIES AND STOCKHOLDERS EQUITYAccounts payable
    
    $
    162,904
    
    
    $
    200,189Accrued salaries, wages and benefits
    
    
    72,347
    
    
    
    82,292Other accrued liabilities
    
    
    136,614
    
    
    
    155,986Income taxes payable
    
    
    11,820
    
    
    
    88,304Total current liabilities
    
    
    383,685
    
    
    
    526,771Long-term debt
    
    
    350,000
    
    
    
    350,000Tax-related liabilities and other
    
    
    131,540
    
    
    
    79,400Total long-term obligations and other liabilities
    
    
    481,540
    
    
    
    429,400Commitments and contingencies (Note 10)Minority interest in subsidiary
    
    
    235
    
    
    
    235Stockholders equity:Preferred shares; $.01 par value; 2,000 shares authorized; none outstanding
    
    
    
    
    
    
    Common stock; $.01 par value; 1,300,000 shares authorized;
404,763 and 403,680 shares outstanding
    
    
    4,048
    
    
    
    4,037Additional paid-in capital
    
    
    3,116,902
    
    
    
    3,102,178Accumulated deficit
    
    
    (1,198,079
    )
    
    
    (1,220,306
    )Accumulated other comprehensive income
    
    
    13,498
    
    
    
    9,829Total stockholders equity
    
    
    1,936,369
    
    
    
    1,895,738Total liabilities and stockholders equity
    
    $
    2,801,829
    
    
    $
    2,852,144
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LSI CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 Three Months EndedApril 1, 2007
    
    April 2, 2006(In thousands, except per share amounts)Revenues
    
    $
    465,415
    
    
    $
    475,884Cost of revenues
    
    
    265,614
    
    
    
    271,395Gross profit
    
    
    199,801
    
    
    
    204,489Research and development
    
    
    103,847
    
    
    
    102,274Selling, general and administrative
    
    
    61,610
    
    
    
    68,878Restructuring of operations and other items, net
    
    
    (8,080
    )
    
    
    5,650Acquired in-process research and development
    
    
    6,500
    
    
    
    Amortization of intangibles
    
    
    5,285
    
    
    
    11,216Income from operations
    
    
    30,639
    
    
    
    16,471Interest expense
    
    
    (3,890
    )
    
    
    (6,330
    )Interest income and other, net
    
    
    10,531
    
    
    
    9,527Income before income taxes
    
    
    37,280
    
    
    
    19,668Provision for income taxes
    
    
    7,456
    
    
    
    6,500Net income
    
    $
    29,824
    
    
    $
    13,168Net income per share:Basic
    
    $
    0.07
    
    
    $
    0.03Diluted
    
    $
    0.07
    
    
    $
    0.03Shares used in computing per share amounts:Basic
    
    
    404,230
    
    
    
    394,851Diluted
    
    
    409,808
    
    
    
    402,189
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LSI CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Three Months EndedApril 1, 2007
    
    April 2, 2006(In thousands)Operating activities:Net income
    
    $
    29,824
    
    
    $
    13,168Adjustments:Depreciation and amortization
    
    
    18,576
    
    
    
    25,335Stock-based compensation expense
    
    
    11,184
    
    
    
    11,831Non-cash restructuring and other items
    
    
    228
    
    
    
    (2,958
    )Acquired in-process research and development
    
    
    6,500
    
    
    
    Non-cash foreign exchange loss/(gain)
    
    
    389
    
    
    
    (588
    )Gain on sale of equity securities
    
    
    
    
    
    
    (1,429
    )Gain on sale of property and equipment
    
    
    (9,662
    )
    
    
    Changes in deferred tax assets and liabilities
    
    
    31
    
    
    
    (3
    )Changes in assets and liabilities, net of assets
acquired and liabilities assumed in business combinations:Accounts receivable, net
    
    
    45,450
    
    
    
    56,889Inventories
    
    
    (19,654
    )
    
    
    8,693Prepaid expenses and other assets
    
    
    24,565
    
    
    
    9,404Accounts payable
    
    
    (36,469
    )
    
    
    (23,008
    )Accrued and other liabilities
    
    
    (14,980
    )
    
    
    2,226Net cash provided by operating activities
    
    
    55,982
    
    
    
    99,560Investing activities:Purchase of debt securities available-for-sale
    
    
    (60,630
    )
    
    
    (166,193
    )Proceeds from maturities and sales of debt securities available-for-sale
    
    
    174,392
    
    
    
    108,166Purchases of equity securities
    
    
    
    
    
    
    (150
    )Proceeds from sale of equity securities
    
    
    
    
    
    
    1,555Purchases of property, equipment and software
    
    
    (20,503
    )
    
    
    (15,978
    )Proceeds from sale of property and equipment
    
    
    12,511
    
    
    
    Adjustment to goodwill acquired in a prior year for resolution of
a pre-acquisition income tax contingency
    
    
    2,442
    
    
    
    Acquisitions of companies, net of cash acquired
    
    
    (52,079
    )
    
    
    Net cash provided by/(used in) investing activities
    
    
    56,133
    
    
    
    (72,600
    )Financing activities:Issuance of common stock
    
    
    5,671
    
    
    
    11,988Net cash provided by financing activities
    
    
    5,671
    
    
    
    11,988Effect of exchange rate changes on cash and cash equivalents
    
    
    (65
    )
    
    
    233Increase in cash and cash equivalents
    
    
    117,721
    
    
    
    39,181Cash and cash equivalents at beginning of year
    
    
    327,800
    
    
    
    264,649Cash and cash equivalents at end of period
    
    $
    445,521
    
    
    $
    303,830
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LSI CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  BASIS OF PRESENTATION
    Recent Accounting Pronouncements
      6




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Accumulated deficit as of December 31, 2006
    
    $
    (1,220,306
    )Impact of adoption of FIN 48 on accumulated deficit as of January 1, 2007
    
    
    (3,393
    )Impact of adoption of EITF 06-02 on accumulated deficit as of January 1, 2007
    
    
    (4,204
    )Accumulated deficit as of January 1, 2007
    
    $
    (1,227,903
    )
 Fair Value Measurements
  NOTE 2  STOCK-BASED COMPENSATION
   Three months endedStock-based compensation expense:
    
    April 1, 2007
    
    
    April 2, 2006(In thousands)Cost of revenues
    
    $
    1,944
    
    
    $
    1,525Research and development
    
    
    4,717
    
    
    
    4,522Selling, general and administrative
    
    
    4,523
    
    
    
    5,784Total stock-based compensation expense
    
    $
    11,184
    
    
    $
    11,831
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Stock Options
  Three months ended
    
    Three months endedEmployee Stock Options Granted
    
    April 1, 2007
    
    April 2, 2006Weighted average estimated grant date fair value
    
    $
    3.35
    
    
    $
    3.37Weighted average assumptions in calculation:Expected life (years)
    
    
    4.35
    
    
    
    4.25Risk-free interest rate
    
    
    4.73
    %
    
    
    4.59
    %Volatility
    
    
    46.27
    %
    
    
    47.84
    %
       Weighted
    
    
    Weighted
    
    
    AggregateAverage
    
    
    Average
    
    
    IntrinsicNumber of
    
    
    Exercise
    
    
    Remaining
    
    
    ValueShares
    
    
    Price Per
    
    
    Contractual
    
    
    (In(In thousands)
    
    
    Share
    
    
    Term (In years)
    
    
    thousands)Options outstanding at December 31, 2006
    
    
    56,750
    
    
    $
    11.92
    
    
    
    
    
    
    
    Options granted
    
    
    9,107
    
    
    
    9.33
    
    
    
    
    
    
    
    Options exercised
    
    
    (853
    )
    
    
    (6.65
    )
    
    
    
    
    
    
    Options canceled
    
    
    (1,194
    )
    
    
    (15.04
    )
    
    
    
    
    
    
    Options outstanding at April 1, 2007
    
    
    63,810
    
    
    $
    11.56
    
    
    
    4.82
    
    
    $
    110,664Options exercisable at April 1, 2007
    
    
    36,675
    
    
    $
    13.85
    
    
    
    3.93
    
    
    $
    56,553
   Employee Stock Purchase Plans
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Restricted Stock Awards
   Number ofShares(In thousands)Non-vested shares at December 31, 2006
    
    
    1,910Granted
    
    
    1,600Vested
    
    
    (450
    )Forfeited
    
    
    (48
    )Non-vested shares at April 1, 2007
    
    
    3,012
  NOTE 3  RESTRUCTURING AND OTHER ITEMS
  Restructuring and impairment of long-lived assets:
   
    
    $10.4 million net gain was recorded for the sale of land in Colorado, which had a net
book value of $2.0 million. Total proceeds from the sale were $12.4 million. The gain
was offset in part by a charge of $0.2 million associated with certain other asset
write-offs;
    
    A credit of $0.5 million was recorded for changes in sublease assumptions for certain
previously accrued facility lease termination costs;
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
    
    An expense of $0.7 million was recorded to reflect the change in time value of
accruals for facility lease termination costs; and
    
    An expense of $1.9 million was recorded for severance and termination benefits for
employees.
   Balance at
    
    Restructuring
    
    Utilized
    
    Balance atDecember 31,
    
    Expense
    
    during Q1
    
    April 1,2006
    
    Q1 2007
    
    2007
    
    2007(In thousands)Write-down of excess assets (a)
    
    $
    
    
    
    $
    (10,143
    )
    
    $
    10,143
    
    
    $
    Lease terminations (b)
    
    
    23,169
    
    
    
    189
    
    
    
    (2,952
    )
    
    
    20,406Payments to employees for severance (c)
    
    
    342
    
    
    
    1,874
    
    
    
    (449
    )
    
    
    1,767Total
    
    $
    23,511
    
    
    $
    (8,080
    )
    
    $
    6,742
    
    
    $
    22,173
 
 (a)
    
    The credit includes the gain from the sale of the land in Colorado, offset in part by a
charge of $0.2 million associated with certain asset write-offs.(b)
    
    Amounts utilized represent cash payments. The balance remaining for real estate lease
terminations is expected to be paid during the remaining terms of these contracts, which
extend through 2011.(c)
    
    Amounts utilized represent cash severance payments to 6 employees during the three months
ended April 1, 2007. The balance remaining for severance is expected to be paid by the end of
2007. NOTE 4  BUSINESS COMBINATIONS
   Fair Value ofTangible NetEntity Name;
    
    
    
    
    
    Total
    
    
    
    
    
    Assets/
    
    
    
    
    
    
    
    
    
    In-ProcessSegment Included in;
    
    
    
    
    
    Purchase
    
    Type of
    
    (Liabilities)
    
    
    
    
    
    Amortizable
    
    Research andDescription of Acquired Business
    
    Acquisition Date
    
    Price
    
    Consideration
    
    Acquired
    
    Goodwill
    
    Intangible Assets
    
    Development(dollars in millions)SiliconStor, Inc.;
Semiconductor segment; silicon
solutions for enterprise
storage based on SAS and
FC-SATA
    
    March 13, 2007
    
    $
    56.4
    
    
    $56.4 cash
    
    $
    1.5
    
    
    $
    37.8
    
    
    $
    10.6
    
    
    $
    6.5
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Merger with Agere.
  NOTE 5  BALANCE SHEET DETAIL
 April 1,
    
    December 31,2007
    
    2006(In thousands)Cash and cash equivalents:Cash in financial institutions
    
    $
    37,235
    
    
    $
    50,478Cash equivalents
    
    
    408,286
    
    
    
    277,322$
    445,521
    
    
    $
    327,800Available-for-sale debt securities:Asset and mortgage-backed securities
    
    $
    291,906
    
    
    $
    363,723U.S. government and agency securities
    
    
    240,310
    
    
    
    272,287Corporate and municipal debt securities
    
    
    38,905
    
    
    
    45,127Total short-term investments
    
    $
    571,121
    
    
    $
    681,137Long-term investments in equity securities:Marketable equity securities available-for-sale
    
    $
    2,815
    
    
    $
    2,827Non-marketable equity securities
    
    
    9,976
    
    
    
    12,973Total long-term investments in equity securities
    
    $
    12,791
    
    
    $
    15,800Inventories:Raw materials
    
    $
    48,301
    
    
    $
    44,151Work-in-process
    
    
    54,670
    
    
    
    52,497Finished goods
    
    
    126,096
    
    
    
    112,822$
    229,067
    
    
    $
    209,470
 NOTE 6 RECONCILIATION OF BASIC AND DILUTED INCOME PER SHARE
  Three Months EndedApril 1, 2007
    
    
    April 2, 2006Per-Share
    
    
    
    
    
    
    
    
    
    
    Per-ShareIncome*
    
    
    Shares+
    
    
    Amount
    
    
    Income*
    
    
    Shares+
    
    
    Amount(In thousands except per share amounts)Basic EPS:Net income available to common stockholders
    
    $
    29,824
    
    
    
    404,230
    
    
    $
    0.07
    
    
    $
    13,168
    
    
    
    394,851
    
    
    $
    0.03Stock options, employee stock purchase
rights and restricted stock unit
awards
    
    
    
    
    
    
    5,578
    
    
    
    
    
    
    
    
    
    
    
    7,338
    
    
    
    Diluted EPS:Net income available to common stockholders
    
    $
    29,824
    
    
    
    409,808
    
    
    $
    0.07
    
    
    $
    13,168
    
    
    
    402,189
    
    
    $
    0.03
 
 *
    
    Numerator+
    
    Denominator 11




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NOTE 7  SEGMENT REPORTING
   Three months endedApril 1, 2007
    
    
    April 2, 2006(In thousands)Revenues:Semiconductor
    
    $
    272,374
    
    
    $
    298,374Storage Systems
    
    
    193,041
    
    
    
    177,510Total
    
    $
    465,415
    
    
    $
    475,884Income from operations:Semiconductor
    
    $
    27,159
    
    
    $
    3,529Storage Systems
    
    
    3,480
    
    
    
    12,942Total
    
    $
    30,639
    
    
    $
    16,471
  Significant Customers.
 Three months endedApril 1, 2007
    
    April 2, 2006Semiconductor segment:Number of significant customers
    
    
    2
    
    
    
    1Percentage of segment revenues
    
    
    20%,
    14%
    
    
    
    19%Storage Systems segment:Number of significant customers
    
    
    2
    
    
    
    2Percentage of segment revenues
    
    
    45%,
    20%
    
    
    43%,
    15%Consolidated:Number of significant customers
    
    
    2
    
    
    
    2Percentage of consolidated revenues
    
    
    19%,
    12%
    
    
    17%,
    12%
 12




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April 1,
    
    
    December 31,2007
    
    
    2006(In thousands)Total Assets:Semiconductor
    
    $
    2,147,557
    
    
    $
    2,212,711Storage Systems
    
    
    654,272
    
    
    
    639,433Total
    
    $
    2,801,829
    
    
    $
    2,852,144
  NOTE 8  COMPREHENSIVE INCOME
  Three Months EndedApril 1,
    
    
    April 2,2007
    
    
    2006(In thousands)Net income
    
    $
    29,824
    
    
    $
    13,168Change in unrealized gain/loss on available-for-sale
securities
    
    
    3,264
    
    
    
    (3,011
    )Change in foreign currency translation adjustments
    
    
    405
    
    
    
    (366
    )Comprehensive income
    
    $
    33,493
    
    
    $
    9,791
 NOTE 9 RELATED PARTY TRANSACTIONS
  NOTE 10  COMMITMENTS, CONTINGENCIES AND LEGAL MATTERS
   13




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NOTE 11  SUBSEQUENT EVENTS
    14




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AmountsEstimated fair value of LSI common shares issued
    
    $
    3,647,021Estimated fair value of options and restricted stock units assumed
    
    
    206,916Estimated direct transaction costs
    
    
    22,400Total estimated purchase price
    
    $
    3,876,337
 Preliminary Estimated Purchase Price Allocation
  As ofApril 2,2007Tangible net assets acquired
    
    $
    484,886Identifiable intangible assets
    
    
    1,797,500In-process research and development
    
    
    193,300Unearned stock compensation
    
    
    168,005Goodwill
    
    
    1,232,646Total estimated purchase price
    
    $
    3,876,337
 15




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  OVERVIEW
      Acquisitions.
 Merger with Agere.
   16




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RESULTS OF OPERATIONS
 Revenues:
 Three Months EndedApril 1,
    
    April 2,2007
    
    2006Semiconductor segment
    
    $
    272.4
    
    
    $
    298.4Storage Systems segment
    
    
    193.0
    
    
    
    177.5Consolidated
    
    $
    465.4
    
    
    $
    475.9
   Semiconductor segment
  
    
    Decreases in demand for semiconductors used in consumer product applications such as digital
audio players, where our customers solution has not been included in the new generation of a
customers products, DVD products and cable set-top box solutions;
    
    Decreases in demand for semiconductors used in communication product applications such as
telecommunications and printing.These decreases were offset in part by increased demand for semiconductors used in storage
products associated with the ramping of our SAS (Serial Attached SCSI) products and also from
increased demand for Host Bus Adapters.
 Storage Systems segment
  .
 Revenues by geography.
 Three Months EndedApril 1, 2007
    
    April 2, 2006Revenues:North America
    
    $
    210.7
    
    
    $
    236.9Asia, including Japan
    
    
    188.9
    
    
    
    186.4Europe and Middle East (EMEA)
    
    
    65.8
    
    
    
    52.6Total
    
    $
    465.4
    
    
    $
    475.9
  17




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Operating costs and expenses.
 Gross profit margin:
 Three Months EndedApril 1, 2007
    
    April 2, 2006Semiconductor segment
    
    $
    134.3
    
    
    $
    139.4Percentage of revenues
    
    
    49.3
    %
    
    
    46.7
    %Storage Systems segment
    
    $
    65.5
    
    
    $
    65.1Percentage of revenues
    
    
    33.9
    %
    
    
    36.7
    %Consolidated
    
    $
    199.8
    
    
    $
    204.5Percentage of revenues
    
    
    42.9
    %
    
    
    43.0
    %
  Semiconductor segment:
  
    
    Improved wafer pricing for our .11 micron process products,
    
    Lower scrap costs; and
    
    A favorable shift in product mix in the first quarter of 2007.
 Storage Systems segment:
   Research and development:
 Three Months EndedApril 1, 2007
    
    April 2, 2006Semiconductor segment
    
    $
    73.7
    
    
    $
    81.6Percentage of revenues
    
    
    27.1
    %
    
    
    27.3
    %Storage Systems segment
    
    $
    30.1
    
    
    $
    20.7Percentage of revenues
    
    
    15.6
    %
    
    
    11.7
    %Consolidated
    
    $
    103.8
    
    
    $
    102.3Percentage of revenues
    
    
    22.3
    %
    
    
    21.5
    %
  18




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##### Table of Contents



Semiconductor segment:
  Storage Systems segment:
  Selling, general and administrative:
 Three Months EndedApril 1, 2007
    
    April 2, 2006Semiconductor segment
    
    $
    32.3
    
    
    $
    40.3Percentage of revenues
    
    
    11.9
    %
    
    
    13.5
    %Storage Systems segment
    
    $
    29.3
    
    
    $
    28.6Percentage of revenues
    
    
    15.2
    %
    
    
    16.1
    %Consolidated
    
    $
    61.6
    
    
    $
    68.9Percentage of revenues
    
    
    13.2
    %
    
    
    14.5
    %
  Semiconductor segment:
  Storage Systems segment:
  
    
    An increase in sales commissions due to increased revenues;
    
    Increased compensation related expenses based on increased headcount;
    
    A $5.4 million charge recorded in the first quarter of 2006 to reduce
a receivable balance following the Silicon Graphics bankruptcy filing.
 Acquired in-process research and development:
  19




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##### Table of Contents



Restructuring
of operations and other items:
 Stock-based compensation
 Amortization of intangibles:
 Interest expense:
 Interest income and other, net:
 Provision for income taxes:
   FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
  Working capital.
 
    
    Income taxes payable decreased by $76.5 million due to the adoption of FIN 48 in the first quarter of 2007, offset in part
by an increase in the tax provision. They did not have a cash impact.
    
    Accounts payable decreased by $37.3 million due to the timing of invoice receipt and payments.
 20




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##### Table of Contents




    
    Inventories increased by $19.6 million to $229.1 million as of April 1, 2007, from $209.5
million as of December 31, 2006. The increase in inventory levels reflects the need to build
inventory to support the ending of a supply agreement and support the initiation of new product
lines.
    
    Other accrued liabilities decreased by $19.4 million due to the payment of liabilities and a decrease in our
restructuring reserves, offset in part by an increase in interest payable.
    
    Accrued salaries, wages and benefits decreased by $9.9 million primarily due to timing differences in payment of
salaries, benefits and performance-based compensation.
    
    Cash, cash equivalents and short-term investments increased by $7.7 million.These increases in working capital were offset, in part, by the following:
    
    Prepaid expenses and other current assets decreased by $6.4 million primarily due to decreases in VAT and consumption
tax and other miscellaneous receivables, a decrease in assets held following the sale from the sale of land in
Colorado, offset by an increase in deferred tax assets.
    
    Accounts receivable decreased by $45.3 million to $303.3 million as of April 1, 2007 from $348.6 million at December
31, 2006. The decrease is mainly attributed to lower revenues and improved collections in the first quarter of 2007 as
compared to the fourth quarter of 2006.
 Cash and cash equivalents generated from operating activities.
 
    
    Net income adjusted for non-cash transactions. The non-cash items and
other non-operating adjustments are quantified in our Condensed
Consolidated Statements of Cash Flows included in this Form 10-Q; and
    
    A net decrease in assets and liabilities, including changes in working
capital components from December 31, 2006 to April 1, 2007, as
discussed above.
 Cash and cash equivalents provided by/(used in) investing activities.
 
    
    Proceeds from maturities and sales of debt securities available for sale, net of purchases;
    
    The receipt of an income tax refund for pre-acquisition tax matters associated with an acquisition in 2001;
    
    Purchases of property, equipment and software;
    
    The acquisition of SiliconStor, Inc. and
    
    Proceeds from the sale of land in Colorado.
  Cash and cash equivalents provided by financing activities
 21




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##### Table of Contents



Contractual Obligations
  Payments due by periodLess than
    
    1  3
    
    4  5
    
    After 5Contractual Obligations
    
    1 year
    
    years
    
    years
    
    years
    
    Total(in millions)Convertible Subordinated Notes
    
    $
    
    
    
    $
    
    
    
    $
    350.0
    
    
    $
    
    
    
    $
    350.0Operating lease obligations
    
    
    45.5
    
    
    
    72.8
    
    
    
    29.0
    
    
    
    8.0
    
    
    
    155.3Purchase commitments
    
    
    345.4
    
    
    
    13.8
    
    
    
    
    
    
    
    
    
    
    
    359.2Total
    
    $
    390.9
    
    
    $
    86.6
    
    
    $
    379.0
    
    
    $
    8.0
    
    
    $
    864.5
 Convertible Subordinated Notes
    Operating Lease Obligations
  Purchase Commitments
   22




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##### 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 Controls:
 
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
   
    
    We may fail to realize the benefits expected from our recent merger with Agere Systems,
which could adversely affect the value of our common stock.
 23




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##### Table of Contents




    
    Demonstrating to our customers that the merger will not result in adverse changes to our
ability to address their needs or loss of attention or business focus;
    
    Coordinating and integrating independent research and development teams across
technologies and product platforms to enhance product development while reducing costs;
    
    Combining product offerings;
    
    Consolidating and integrating corporate, information technology, finance and administrative infrastructures;
    
    Coordinating sales and marketing efforts to effectively position our capabilities and
the direction of product development; and
    
    Minimizing the diversion of management attention from important business objectives.
  
    
    We must attract and retain key employees in a highly competitive environment;
uncertainties associated with the Agere merger may cause a loss of employees and may
otherwise materially adversely affect our business.
    
    The industries in which we operate are highly cyclical, and our operating results may fluctuate.
    
    General economic weakness and geopolitical factors may harm our operating results and financial condition.
    
    We are dependent on a limited number of customers.
    
    We depend to a large extent on independent foundry subcontractors to manufacture our
semiconductor products; accordingly, any failure to secure and maintain sufficient foundry
capacity could materially and adversely affect our business.
  
    
    a manufacturer may be unwilling to devote adequate capacity to production of our
products or may be unable to produce our products;
    
    a manufacturer may not be able to develop manufacturing methods appropriate for our products;
    
    manufacturing costs may be higher than planned;
    
    product reliability may decline;
    
    a manufacturer may not be able to maintain continuing relationships with our suppliers; and
    
    we may have reduced control over delivery schedules, quality, manufacturing yields and costs of products.
   24




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##### Table of Contents




    
    We operate in intensely competitive markets.
    
    Our target markets are characterized by rapid technological change.
    
    Order or shipment cancellations or deferrals could cause our revenue to decline.
    
    We design and develop highly complex products that require significant investments.
    
    Our products may contain defects.
    
    Our manufacturing facilities have high fixed costs and involve highly complex and precise processes.
   
    
    Failure to qualify our products or our suppliers manufacturing lines may adversely
affect our results of operations.
 
    
    We depend in part upon third-party subcontractors to assemble, obtain packaging
materials for, and test certain products.
  25




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##### Table of Contents




    
    A widespread outbreak of an illness or other health issue could negatively affect our
manufacturing, assembly and test, design or other operations.
    
    We procure parts and raw materials from a limited number of domestic and foreign
sources.
    
    If our new product development and expansion efforts are not successful, our results of
operations may be adversely affected.
    
    We may engage in acquisitions and alliances giving rise to financial and technological risks.
    
    The semiconductor industry is prone to intellectual property litigation.
    
    We may not be able to adequately protect or enforce our intellectual property rights,
which could harm our competitive position.
    
    A decline in the revenue that we derive from the licensing of intellectual property
could have a significant impact on net income.
  
    
    We conduct a significant amount of activity outside of the United States, and are
exposed to legal, business, political and economic risks associated with our international
operations.
    
    We may rely on the capital markets and/or bank markets to provide financing.
    
    We utilize indirect channels of distribution over which we will have limited control.
    
    The price of our securities may be subject to wide fluctuations.
    
    Future changes in financial accounting standards or practices or existing taxation rules
or practices may cause adverse unexpected fluctuations and affect reported results of
operations.
    
    Internal control deficiencies or weaknesses that are not yet identified could emerge.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  26




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders
   Votes For
    
    Votes Against
    
    AbstainIssuance of shares of common stock in connection with the Agere merger
    
    
    204,451,968
    
    
    
    32,422,738
    
    
    
    2,533,235
  
 Item 6. Exhibits
 4.1
    
    
    Specimen Common Stock certificate4.2
    
    
    Indenture for Ageres 6.5% Convertible Subordinated Notes due 2009 (incorporated by reference to Exhibit 10.1 to Ageres Quarterly Report on Form 10-Q, filed August 9, 2002)4.3
    
    
    Supplemental Indenture No. 1 to the Indenture for Ageres 6.5% Convertible Subordinated Notes due 2009 (incorporated by reference to Exhibit 4.5 to Ageres Current Report on Form 8-K, filed June 1, 2005)4.4
    
    
    Supplemental Indenture No. 2 to the Indenture for Ageres 6.5% Convertible Subordinated Notes due 2009 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed April 6, 2007)10.1
    
    
    Patent and Technology License Agreement (incorporated by reference to Exhibit 10.13 to Ageres Registration Statement on Form S-1, File No. 333-51594)10.2
    
    
    Joint Venture Agreement with Chartered Semiconductor Manufacturing Ltd. (incorporated by reference to Exhibit 10.19 to Ageres Registration Statement on Form S-1, File No. 333-51594)10.3
    
    
    Amendment to Joint Venture Agreement with Chartered Semiconductor Manufacturing Ltd. (incorporated by reference to Exhibit 10.1 to Ageres Current Report on Form 8-K, filed September 23, 2004)10.4
    
    
    Agreement of Sale with AG Semi-Conductor Limited, Maxim/Dallas Direct, Inc. and Texas Instruments Incorporated (incorporated by reference to Exhibit 10 to Ageres Current Report on Form 8-K, filed September 19, 2005)10.5
    
    
    Agere Systems Inc. Short Term Incentive Plan (incorporated by reference to Exhibit 10.9 to Ageres Annual Report on Form 10-Q, filed December 1, 2006)10.6
    
    
    Agere Systems Inc. 2001 Long Term Incentive Plan (incorporated by reference to Exhibit 10.1 to Ageres Quarterly Report on Form 10-Q, filed May 5, 2006)10.7
    
    
    Form of Agere Systems Inc. 2001 Long Term Incentive Plan Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.7 to Ageres Registration Statement on Form S-1, File No. 333- 51594)10.8
    
    
    Form of Agere Performance-vested RSU Award Agreement  Total Stockholder Return (incorporated by reference to Exhibit 10.2 to Ageres Current Report on Form 8-K/A, filed November 3, 2005)10.9
    
    
    Form of Agere Performance-vested RSU Award Agreement  Earnings per share (incorporated by reference to Exhibit 10.13 to Ageres Annual Report on Form 10-K, filed December 1, 2006)10.10
    
    
    Form of Agere Systems Inc. 2001 Long Term Incentive Plan Nonstatutory Stock Option Agreement (incorporated by reference to Exhibit 10.8 to Ageres Registration Statement on Form S-1, File No. 333- 51594)10.11
    
    
    Agere Systems Inc. Non-Employee Director Stock Plan (incorporated by reference to Exhibit 10.2 to Ageres Quarterly Report on Form 10-Q, filed May 5, 2006)10.12
    
    
    Agere Systems Inc. Supplemental Pension Plan (incorporated by reference to Exhibit 10.10 to Ageres Registration Statement on Form S-1, File No. 333-51594)10.13
    
    
    Agere Systems Inc. Officer Severance Policy (incorporated by reference to Exhibit 10.26 to Ageres Annual Report on Form 10-K, filed December 12, 2002)10.14
    
    
    1996 Lucent Long Term Incentive Program For Agere Employees (incorporated by reference to Exhibit 10.28 to Ageres Annual Report on Form 10-K, filed December 12, 2002)10.15
    
    
    1997 Lucent Long Term Incentive Plan For Agere Employees (incorporated by reference to Exhibit 10.29 to Ageres Annual Report on Form 10-K, filed December 12, 2002)10.16
    
    
    1998 Global Stock Option Plan For Agere Employees (incorporated by reference to Exhibit 10.30 to Ageres Annual Report on Form 10-K, filed December 12, 2002)10.17
    
    
    Employment Agreement with Ruediger Stroh (incorporated by reference to Exhibit 10.27 to our Annual Report on Form 10-K, filed December 12, 2005)
 27




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##### Table of Contents



10.18
    
    
    Retention Agreement with Andrew Micallef10.19
    
    
    Retention Agreement with Jean Rankin10.20
    
    
    Retention Agreement with Denis Regimbal10.21
    
    
    Retention Agreement with Ruediger Stroh10.22
    
    
    Employment Agreement with Jeffrey Hoogenboom10.23
    
    
    Employment Agreement with Claudine Simson10.24
    
    
    Separation Agreement with Donald Esses31.1
    
    
    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
  28




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##### Table of Contents



SIGNATURES
  LSI CORPORATION 
(Registrant)Date: May 11, 2007
    By
    /s/ Bryon LookBryon LookExecutive Vice President &
Chief Financial Officer 29




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##### Table of Contents



INDEX TO EXHIBITS
 4.1
    
    
    Specimen Common Stock certificate4.2
    
    
    Indenture for Ageres 6.5% Convertible Subordinated Notes due 2009 (incorporated by reference to Exhibit 10.1 to Ageres Quarterly Report on Form 10-Q, filed August 9, 2002)4.3
    
    
    Supplemental Indenture No. 1 to the Indenture for Ageres 6.5% Convertible Subordinated Notes due 2009 (incorporated by reference to Exhibit 4.5 to Ageres Current Report on Form 8-K, filed June 1, 2005)4.4
    
    
    Supplemental Indenture No. 2 to the Indenture for Ageres 6.5% Convertible Subordinated Notes due 2009 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed April 6, 2007)10.1
    
    
    Patent and Technology License Agreement (incorporated by reference to Exhibit 10.13 to Ageres Registration Statement on Form S-1, File No. 333-51594)10.2
    
    
    Joint Venture Agreement with Chartered Semiconductor Manufacturing Ltd. (incorporated by reference to Exhibit 10.19 to Ageres Registration Statement on Form S-1, File No. 333-51594)10.3
    
    
    Amendment to Joint Venture Agreement with Chartered Semiconductor Manufacturing Ltd. (incorporated by reference to Exhibit 10.1 to Ageres Current Report on Form 8-K, filed September 23, 2004)10.4
    
    
    Agreement of Sale with AG Semi-Conductor Limited, Maxim/Dallas Direct, Inc. and Texas Instruments Incorporated (incorporated by reference to Exhibit 10 to Ageres Current Report on Form 8-K, filed September 19, 2005)10.5
    
    
    Agere Systems Inc. Short Term Incentive Plan (incorporated by reference to Exhibit 10.9 to Ageres Annual Report on Form 10-Q, filed December 1, 2006)10.6
    
    
    Agere Systems Inc. 2001 Long Term Incentive Plan (incorporated by reference to Exhibit 10.1 to Ageres Quarterly Report on Form 10-Q, filed May 5, 2006)10.7
    
    
    Form of Agere Systems Inc. 2001 Long Term Incentive Plan Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.7 to Ageres Registration Statement on Form S-1, File No. 333- 51594)10.8
    
    
    Form of Agere Performance-vested RSU Award Agreement  Total Stockholder Return (incorporated by reference to Exhibit 10.2 to Ageres Current Report on Form 8-K/A, filed November 3, 2005)10.9
    
    
    Form of Agere Performance-vested RSU Award Agreement  Earnings per share (incorporated by reference to Exhibit 10.13 to Ageres Annual Report on Form 10-K, filed December 1, 2006)10.10
    
    
    Form of Agere Systems Inc. 2001 Long Term Incentive Plan Nonstatutory Stock Option Agreement (incorporated by reference to Exhibit 10.8 to Ageres Registration Statement on Form S-1, File No. 333- 51594)10.11
    
    
    Agere Systems Inc. Non-Employee Director Stock Plan (incorporated by reference to Exhibit 10.2 to Ageres Quarterly Report on Form 10-Q, filed May 5, 2006)10.12
    
    
    Agere Systems Inc. Supplemental Pension Plan (incorporated by reference to Exhibit 10.10 to Ageres Registration Statement on Form S-1, File No. 333-51594)10.13
    
    
    Agere Systems Inc. Officer Severance Policy (incorporated by reference to Exhibit 10.26 to Ageres Annual Report on Form 10-K, filed December 12, 2002)10.14
    
    
    1996 Lucent Long Term Incentive Program For Agere Employees (incorporated by reference to Exhibit 10.28 to Ageres Annual Report on Form 10-K, filed December 12, 2002)10.15
    
    
    1997 Lucent Long Term Incentive Plan For Agere Employees (incorporated by reference to Exhibit 10.29 to Ageres Annual Report on Form 10-K, filed December 12, 2002)10.16
    
    
    1998 Global Stock Option Plan For Agere Employees (incorporated by reference to Exhibit 10.30 to Ageres Annual Report on Form 10-K, filed December 12, 2002)10.17
    
    
    Employment Agreement with Ruediger Stroh (incorporated by reference to Exhibit 10.27 to our Annual Report on Form 10-K, filed December 12, 2005)10.18
    
    
    Retention Agreement with Andrew Micallef10.19
    
    
    Retention Agreement with Jean Rankin10.20
    
    
    Retention Agreement with Denis Regimbal10.21
    
    
    Retention Agreement with Ruediger Stroh10.22
    
    
    Employment Agreement with Jeffrey Hoogenboom10.23
    
    
    Employment Agreement with Claudine Simson10.24
    
    
    Separation Agreement with Donald Esses31.1
    
    
    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