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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

     (Mark One)

For the Quarter Ended June 30, 2002

OR

For the transition period from _______ to ________

Commission File Number: 0-11674

LSI LOGIC CORPORATION

1551 McCarthy Boulevard
Milpitas, California 95035
(Address of principal executive offices)

(408) 433-8000
(Registrant’s telephone number)

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES [X]    NO [   ]

     As of August 2, 2002, there were 371,838,370 shares of the registrant’s Common Stock, $.01 par value, outstanding.

Table of Contents

LSI LOGIC CORPORATION
Form 10-Q
For the Quarter Ended June 30, 2002
INDEX

				Page
				No.
PART  I. FINANCIAL INFORMATION
Item 1		Financial Statements
		Consolidated Balance Sheets — June 30, 2002 and December 31, 2001		3
		Consolidated Statements of Operations — Three and Six Months Ended June 30, 2002 and 2001		4
		Consolidated Statements of Cash Flows — Six Months Ended June 30, 2002 and 2001		5
		Notes to Consolidated Financial Statements		6
Item 2		Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3		Quantitative and Qualitative Disclosures About Market Risk		24
PART II. OTHER INFORMATION
Item 1		Legal Proceedings		25
Item 6		Exhibits and Reports on Form 8-K		25

2

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PART I

Item 1. Financial Statements

LSI LOGIC CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

			June 30,				December 31,
(In thousands, except per-share amounts)			2002				2001
Assets
Cash and cash equivalents			$	445,942			$	757,138
Short-term investments				562,606				256,169
Accounts receivable, less allowances of $8,484 and $20,151				244,659				191,731
Inventories				197,828				256,629
Deferred tax assets				161,231				160,371
Prepaid expenses and other current assets				150,044				146,930
	Total current assets			1,762,310				1,768,968
Property and equipment, net				819,274				944,374
Goodwill and other intangibles (Note 2)				1,252,115				1,297,542
Deferred tax assets				110,789				107,957
Non-current assets and deposits				287,023				296,265
Investment in available-for-sale securities				60,611				78,433
Other assets				135,319				132,233
	Total assets		$	4,427,441			$	4,625,772
Liabilities and Stockholders’ Equity
Accounts payable			$	95,756			$	136,739
Accrued salaries, wages and benefits				70,978				72,260
Other accrued liabilities				244,063				227,467
Income tax payable				67,949				73,187
Current portion of long-term obligations				342				332
	Total current liabilities			479,088				509,985
Deferred tax liabilities				174,072				173,759
Long term debt and capital lease obligations				1,334,297				1,335,806
Other non-current liabilities				111,795				120,470
	Total long-term obligations and deferred tax liabilities			1,620,164				1,630,035
Commitments and contingencies (Note 12)
Minority interest in subsidiary				6,711				5,867
Stockholders’ equity:
Preferred shares; $.01 par value; 2,000 shares authorized				—				—
Common stock; $.01 par value; 1,300,000 shares authorized; 371,772 and 368,446 shares outstanding				3,718				3,684
Additional paid-in capital				2,935,711				2,905,638
Deferred stock compensation				(76,493	)			(124,091	)
Accumulated deficit				(553,847	)			(319,803	)
Accumulated other comprehensive income				12,389				14,457
	Total stockholders’ equity			2,321,478				2,479,885
	Total liabilities and stockholders’ equity		$	4,427,441			$	4,625,772

See notes to unaudited consolidated financial statements.

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LSI LOGIC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

						Three Months Ended								Six Months Ended
						June 30,								June 30,
(In thousands, except per share amounts)						2002				2001				2002				2001
Revenues						$	437,768			$	465,219			$	850,277			$	982,418
Costs and expenses:
		Cost of revenues					269,632				284,759				535,541				595,904
		Additional excess inventory charges					4,772				108,026				45,526				108,026
		Research and development					112,833				127,412				227,176				246,179
		Selling, general and administrative					57,366				77,480				115,546				156,451
		Acquired in-process research and development					—				77,500				—				77,500
		Restructuring of operations and other non- recurring items, net					(6,405	)			59,839				58,655				59,839
		Amortization of non-cash deferred stock compensation (*)					23,849				27,840				50,770				49,107
		Amortization of intangibles					19,147				43,469				38,304				70,558
			Total costs and expenses				481,194				806,325				1,071,518				1,363,564
Loss from operations							(43,426	)			(341,106	)			(221,241	)			(381,146	)
Interest expense							(15,486	)			(9,864	)			(31,320	)			(19,804	)
Interest income and other, net							2,621				3,742				6,267				18,023
Loss before income taxes							(56,291	)			(347,228	)			(246,294	)			(382,927	)
Provision/(benefit) for income taxes							6,000				(34,747	)			(12,250	)			(39,198	)
Net loss						$	(62,291	)		$	(312,481	)		$	(234,044	)		$	(343,729	)
Loss per share:
		Basic				$	(0.17	)		$	(0.91	)		$	(0.63	)		$	(1.03	)
	Dilutive					$	(0.17	)		$	(0.91	)		$	(0.63	)		$	(1.03	)
Shares used in computing per share amounts:
		Basic					369,672				344,873				368,769				332,728
		Dilutive					369,672				344,873				368,769				332,728

(*)

Amortization of non-cash deferred stock compensation, if not shown separately, would have been included in cost of revenues, research and development and selling, general and administrative expenses as shown below:

See notes to unaudited consolidated financial statements.

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LSI LOGIC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

					Six Months Ended
					June 30,
(In thousands)					2002				2001
Operating activities:
Net loss					$	(234,044	)		$	(343,729	)
Adjustments:
	Depreciation and amortization					175,928				243,614
	Amortization of non-cash deferred stock compensation					50,770				49,107
	Acquired in-process research and development					—				77,500
	Non-cash restructuring and non-recurring items, net					49,598				54,215
	Changes in working capital components, net of assets acquired and liabilities assumed in business combinations:
			Accounts receivable, net			(49,577	)			237,013
			Inventories, net			61,115				(54,763	)
			Prepaid expenses and other assets			(9,960	)			(48,477	)
			Accounts payable			(41,398	)			(91,166	)
			Accrued and other liabilities			(12,366	)			(19,349	)
	Net cash (used in)/ provided by operating activities					(9,934	)			103,965
Investing activities:
	Purchase of debt and equity securities available-for-sale					(947,636	)			(934,197	)
	Maturities and sales of debt and equity securities available-for-sale					627,823				949,613
	Purchases of property and equipment, net of retirements					(12,148	)			(125,635	)
	Increase in non-current assets and deposits					236				—
	Acquisition of companies, net of cash acquired					—				43,979
	Net cash used in investing activities					(331,725	)			(66,240	)
Financing activities:
	Repayment of debt obligations					(191	)			(869	)
	Issuance of common stock, net					26,589				44,367
	Net cash provided by financing activities					26,398				43,498
Effect of exchange rate changes on cash and cash equivalents						4,065				791
(Decrease)/ increase in cash and cash equivalents						(311,196	)			82,014
Cash and cash equivalents at beginning of period						757,138				235,895
Cash and cash equivalents at end of period					$	445,942			$	317,909

The Company paid $28 million and $18 million in interest for the six months ended June 30, 2002 and 2001, respectively.

See notes to unaudited consolidated financial statements.

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LSI LOGIC CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — BASIS OF PRESENTATION

     In the opinion of LSI Logic Corporation (the “Company” or “LSI”), the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments, additional excess inventory and other related charges, and restructuring and other non-recurring items, net as discussed in Note 3), necessary to present fairly the financial information included herein. While the Company believes that the disclosures are adequate to make the information not misleading, it is suggested that these financial statements be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001.

     For financial reporting purposes, the Company reports on a 13 or 14 week quarter with a year ending December 31. For presentation purposes, the consolidated financial statements refer to the quarter’s calendar month end for convenience. The results of operations for the quarter ended June 30, 2002 are not necessarily indicative of the results to be expected for the full year.

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ significantly from these estimates.

NOTE 2 — GOODWILL AND INTANGIBLE ASSETS

     The Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” on January 1, 2002. As a result, goodwill is no longer amortized, but is instead tested for impairment annually or sooner if circumstances indicate that it may no longer be recoverable. In addition, intangible assets acquired prior to July 1, 2001 that do not meet the criteria for recognition under SFAS No. 141 “Business Combinations” have been reclassified to goodwill.

     Upon adoption, the Company completed the transitional goodwill impairment assessment required by SFAS No. 142 and concluded that goodwill was not impaired as of January 1, 2002. For the purpose of measuring the impairment, goodwill was assigned to reporting units as defined by SFAS No. 142. The reporting units identified by the Company are Semiconductor and Storage Systems.

     Goodwill and intangible assets by reportable segment are comprised of the following (in thousands):