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

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 1-10317

LSI CORPORATION

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)

     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 þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     As of August 6, 2009, there were 651,914,731 shares of the registrant’s Common Stock, $.01 par value, outstanding.

 

 

LSI CORPORATION
Form 10-Q
For the Quarter Ended July 5, 2009
INDEX

		Page
		No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements			3
Consolidated Balance Sheets as of July 5, 2009 (unaudited) and December 31, 2008			3
Consolidated Statements of Operations for the three and six months ended July 5, 2009 and June 29, 2008 (unaudited)			4
Consolidated Statements of Cash Flows for the six months ended July 5, 2009 and June 29, 2008 (unaudited)			5
Notes to Unaudited Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
Item 3. Quantitative and Qualitative Disclosures about Market Risk			31
Item 4. Controls and Procedures			31
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			32
Item 1A. Risk Factors			32
Item 4. Submission of Matters to a Vote of Security Holders			34
Item 6. Exhibits			34
Signatures			35
Exhibit Index			36
EX-31.1
EX-31.2
EX-32.1
EX-32.2

FORWARD-LOOKING STATEMENTS

     This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words “estimate,” “plan,” “intend,” “expect,” “anticipate,” “believe” and similar words are intended to identify forward-looking statements. Although we believe our expectations are based on reasonable assumptions, our actual results could differ materially from those projected in the forward-looking statements. We have described in Part II, Item 1A- “Risk Factors” a number of factors that could cause our actual results to differ from our projections or estimates. Except where otherwise indicated, the statements made in this report are made as of the date we filed this report with the Securities and Exchange Commission and should not be relied upon as of any subsequent date. We expressly disclaim any obligation to update the information in this report, except as may otherwise be required by law.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

LSI CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

		July 5,				December 31,
		2009				2008
		(In thousands, except
		per share amounts)
ASSETS
Cash and cash equivalents		$	654,954			$	829,301
Short-term investments			218,679				289,841
Accounts receivable, less allowances of $6,711 and $9,627, respectively			267,917				303,971
Inventories			158,658				220,535
Prepaid expenses and other current assets			140,466				155,814
Total current assets			1,440,674				1,799,462
Property and equipment, net			217,541				235,963
Identified intangible assets, net			809,294				889,995
Goodwill			179,212				175,624
Other assets			235,596				243,150
Total assets		$	2,882,317			$	3,344,194
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable		$	145,714			$	201,035
Accrued salaries, wages and benefits			82,004				114,730
Other accrued liabilities			236,416				236,661
Current portion of long-term debt			350,000				245,107
Total current liabilities			814,134				797,533
Long-term debt, net of current portion			—				350,000
Pension, postretirement and other benefits			444,458				451,079
Income taxes payable — non-current			198,099				193,590
Other non-current liabilities			108,201				111,070
Total long-term obligations and other liabilities			750,758				1,105,739
Commitments and contingencies (Note 16)
Stockholders’ equity:
Preferred stock, $.01 par value: 2,000 shares authorized; none outstanding			—				—
Common stock, $.01 par value: 1,300,000 shares authorized; 651,406 and 648,132 shares outstanding, respectively			6,514				6,481
Additional paid-in capital			6,105,249				6,058,786
Accumulated deficit			(4,525,805	)			(4,360,775	)
Accumulated other comprehensive loss			(268,533	)			(263,570	)
Total stockholders’ equity			1,317,425				1,440,922
Total liabilities and stockholders’ equity		$	2,882,317			$	3,344,194

The accompanying notes are an integral part of these Consolidated Financial Statements.

LSI CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

		Three Months Ended								Six Months Ended
		July 5, 2009				June 29, 2008				July 5, 2009				June 29, 2008
		(In thousands, except per share amounts)
Revenues		$	520,665			$	692,063			$	1,002,944			$	1,352,810
Cost of revenues			339,772				407,167				651,979				808,361
Gross profit			180,893				284,896				350,965				544,449
Research and development			148,919				170,115				304,203				339,832
Selling, general and administrative			81,727				104,470				165,484				203,523
Restructuring of operations and other items, net			6,010				20,719				31,215				25,283
Loss from operations			(55,763	)			(10,408	)			(149,937	)			(24,189	)
Interest expense			(6,864	)			(8,959	)			(14,100	)			(17,937	)
Interest income and other, net			6,344				8,220				12,207				22,851
Loss before income taxes			(56,283	)			(11,147	)			(151,830	)			(19,275	)
Provision for income taxes			5,200				2,500				13,200				8,000
Net loss		$	(61,483	)		$	(13,647	)		$	(165,030	)		$	(27,275	)
Net loss per share:
Basic		$	(0.09	)		$	(0.02	)		$	(0.25	)		$	(0.04	)
Diluted		$	(0.09	)		$	(0.02	)		$	(0.25	)		$	(0.04	)
Shares used in computing per share amounts:
Basic			650,300				639,872				649,360				650,867
Diluted			650,300				639,872				649,360				650,867

The accompanying notes are an integral part of these Consolidated Financial Statements.

LSI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

		Six Months Ended
		July 5, 2009				June 29, 2008
		(In thousands)
Operating activities:
Net loss		$	(165,030	)		$	(27,275	)
Adjustments:
Depreciation and amortization			131,318				157,618
Stock-based compensation expense			34,992				37,442
Non-cash restructuring of operations and other items, net			(9	)			(3,245	)
Gain on redemption of convertible subordinated notes			(149	)			—
Write-down of debt and equity securities			—				2,827
Loss/(gain) on sale of property and equipment			117				(23	)
Non-cash foreign exchange (gain)/loss			(8,116	)			5,049
Deferred taxes			(11	)			4,129
Changes in assets and liabilities, net of assets acquired and liabilities assumed in business combination:
Accounts receivable, net			36,054				47,019
Inventories			73,582				(99	)
Prepaid expenses and other assets			43,458				(9,592	)
Accounts payable			(53,388	)			(50,808	)
Accrued and other liabilities			(33,753	)			(39,590	)
Net cash provided by operating activities			59,065				123,452
Investing activities:
Purchases of debt securities available-for-sale			(10	)			(106,632	)
Proceeds from maturities and sales of debt securities available-for-sale			63,945				93,203
Purchases of equity securities			(5,000	)			(3,500	)
Purchases of property, equipment and software			(48,601	)			(67,855	)
Proceeds from sale of property and equipment			112				11,250
Acquisition of businesses and companies, net of cash acquired			(20,840	)			(95,137	)
Decrease/(increase) in non-current assets and deposits			13,501				(13,300	)
Proceeds received from the resolution of a pre-acquisition income tax contingency			—				4,821
Net cash provided by/(used in) investing activities			3,107				(177,150	)
Financing activities:
Redemption of convertible subordinated notes			(244,047	)			—
Issuances of common stock			6,673				29,549
Purchases of common stock under repurchase programs			—				(229,231	)
Net cash used in financing activities			(237,374	)			(199,682	)
Effect of exchange rate changes on cash and cash equivalents			855				872
Decrease in cash and cash equivalents			(174,347	)			(252,508	)
Cash and cash equivalents at beginning of year			829,301				1,021,569
Cash and cash equivalents at end of period		$	654,954			$	769,061

The accompanying notes are an integral part of these Consolidated Financial Statements.

LSI CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Basis of Presentation

     For financial reporting purposes, LSI Corporation (“LSI” or the “Company”) reports on a 13- or 14-week quarter with a year ending December 31. The current quarter ended July 5, 2009. The second quarter of 2008 ended June 29, 2008. The results of operations for the quarter ended July 5, 2009 are not necessarily indicative of the results to be expected for the full year. The first six months of 2009 and 2008 consisted of approximately 26 weeks each. The second quarter in each of 2009 and 2008 consisted of 13 weeks.

     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 financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ significantly from these estimates.

     In management’s opinion, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments and restructuring of operations and other items, net, as discussed in Note 3), necessary to state fairly the financial information included herein. While the Company believes that the disclosures are adequate to make the information not misleading, these financial statements should 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, 2008.

Recent Accounting Pronouncements

     Pronouncements not yet Effective:

     In December 2008, the Financial Accounting Standards Board (“FASB”) issued Staff Position (“FSP”) No. FAS 132(R)-1 (“FSP FAS 132(R)-1”), “Employer’s Disclosures about Postretirement Benefit Plan Assets.” This FSP amends FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 132(R) (“FAS 132(R)”) to provide guidance on an employer’s disclosure about plan assets of a defined benefit pension or other postretirement plan. The additional required disclosures focus on fair value by category of plan assets including the factors that are pertinent to an understanding of investment policies and strategies. The FSP is effective for annual periods ending after December 15, 2009. The adoption of FSP FAS 132(R)-1 will not have any impact on the Company’s results of operations or financial position.

     In June 2009, the FASB issued SFAS No. 168 (“FAS 168”), “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162.” FAS 168 replaces SFAS No. 162 and establishes the FASB Accounting Standards Codification as the single source of authoritative U.S. generally accepted accounting principles recognized by FASB to be applied by non-governmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. FAS 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of FAS 168 will not have any impact on the Company’s results of operations or financial position.

     Pronouncements Adopted during the Second Quarter of 2009:

     In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other Than Temporary Impairments.” This FSP is intended to bring greater consistency to the timing of impairment recognition, and provide greater clarity to investors about the credit and noncredit components of impaired debt securities that are not expected to be sold. This FSP also requires increased and more timely disclosures regarding expected cash flows, credit losses, and an aging of securities with unrealized losses. This FSP is effective for interim and annual periods ending after June 15, 2009. The Company adopted this FSP during the second quarter of 2009, and the adoption had no material impact on its results of operations or financial position.

     In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” This FSP requires disclosures of fair value for any financial instruments not currently reflected on the balance sheet at fair value for all interim periods. This FSP is effective prospectively for interim and annual reporting periods ending after June 15, 2009. The Company adopted this FSP during the second quarter of 2009, and the adoption had no material impact on its results of operations or financial position.

     In April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” This FSP provides guidance on how to determine the fair value of assets and liabilities when there is no active market or where the price inputs being used represent distressed sales. Specifically, it reaffirms the need to use judgment to ascertain if a formerly active market has become inactive and in determining fair values when markets have become inactive. This FSP is effective prospectively for interim and annual periods ending after June 15, 2009. The Company adopted this FSP in the second quarter of 2009, and the adoption had no material impact on its results of operations or financial position.

     In May 2009, the FASB issued SFAS No. 165 (“FAS 165”), “Subsequent Events.” FAS 165 establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. FAS 165 requires the disclosure of the date through which an entity has evaluated subsequent events, as well as whether the date is the date the financial statements were issued or the date the financial statements were available to be issued. FAS 165 is effective for interim or annual periods ending after June 15, 2009. The Company adopted FAS 165 in the second quarter of 2009, and the adoption did not have any impact on its results of operations or financial position.

Note 2 — Stock-Based Compensation

     On March 31, 2009, the Compensation Committee of the Board of Directors of the Company adopted an amendment to the Company’s Employee Stock Purchase Plan (“ESPP”) to increase the maximum number of shares that a participant can purchase in a single purchase period from 1,000 shares to 2,000 shares. The increase will be effective November 15, 2009.

     The following table summarizes stock-based compensation expense related to the Company’s stock options, ESPP and restricted stock unit awards for the three and six months ended July 5, 2009 and June 29, 2008. Stock-based compensation costs capitalized to inventory and software for the three and six months ended July 5, 2009 and June 29, 2008 were not significant.

		Three Months Ended								Six Months Ended
		July 5, 2009				June 29, 2008				July 5, 2009				June 29, 2008
Stock-Based Compensation Expense Included In:						(In thousands)
Cost of revenues		$	2,022			$	2,572			$	4,035			$	4,633
Research and development			7,195				7,569				15,057				15,392
Selling, general and administrative			7,785				9,506				15,900				17,417
Total stock-based compensation expense		$	17,002			$	19,647			$	34,992			$	37,442

     The estimated fair value of stock-based awards, less expected forfeitures, is amortized over each award’s vesting period on a straight-line basis.

Stock Options

     The fair value of each option grant is estimated as of the date of grant using a reduced form calibrated binominal lattice model (the “lattice model”). This model requires the use of historical data for employee exercise behavior and the use of the assumptions outlined in the following table:

		Three Months Ended								Six Months Ended
		July 5, 2009				June 29, 2008				July 5, 2009				June 29, 2008
Weighted average estimated grant date fair value per share		$	1.89			$	2.20			$	1.37			$	1.81
Weighted average assumptions in calculation:
Expected life (years)			4.29				4.05				4.29				4.36
Risk-free interest rate			2	%			3	%			2	%			2	%
Volatility			66	%			51	%			68	%			52	%

     The expected life of employee stock options represents the weighted-average period the stock options are expected to remain outstanding and is a derived output of the lattice model. The expected life of employee stock options is affected by all of the underlying assumptions and calibration of the Company’s model.

     The risk-free interest rate assumption is based upon observed interest rates of constant maturity U.S. Treasury securities appropriate for the term of the Company’s employee stock options.

     The Company used an equally weighted combination of historical and implied volatilities as of the grant date. The historical volatility is the standard deviation of the daily stock returns for LSI from the date of the initial public offering of its common stock in 1983. For the implied volatilities, the Company uses near-the-money exchange-traded call options, as stock options are call options that are granted at-the-money. The historical and implied volatilities are annualized and equally weighted to determine the volatilities as of the grant date. Management believes that the equally weighted combination of historical and implied volatilities is more representative of future stock price trends than sole use of historical or implied volatilities.

     The lattice model assumes that employees’ exercise behavior is a function of the option’s remaining vested life and the extent to which the option is in-the-money. The lattice model estimates the probability of exercise as a function of these two variables based on the entire history of exercises and cancellations for all past option grants made by the Company since its initial public offering.

     Because stock-based compensation expense recognized is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience.

     The following table summarizes changes in stock options outstanding during the six months ended July 5, 2009:

		Number of Shares				Weighted Average Exercise Price Per Share				Weighted Average Remaining Contractual Term				Aggregate Intrinsic Value
		(In thousands)								(In years)				(In thousands)
Options outstanding at December 31, 2008			85,113			$	12.62				—				—
Options granted			21,167				2.94				—				—
Options exercised			(7	)			(3.14	)			—				—
Options canceled			(7,447	)			(13.02	)			—				—
Options outstanding at July 5, 2009			98,826			$	10.52				4.20			$	37,389
Options exercisable at July 5, 2009			52,665			$	15.21				2.79			$	258

     As of July 5, 2009, the total unrecognized compensation expense related to nonvested stock options, net of estimated forfeitures, was $78.2 million and is expected to be recognized over the next 2.8 years on a weighted average basis. The total intrinsic value of options exercised during the three and six months ended July 5, 2009 was $1 thousand and $6 thousand, respectively. Cash received from stock option exercises was $20 thousand and $21 thousand for the three and six months ended July 5, 2009, respectively.

     The Company’s determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as a number of highly complex and subjective assumptions. The Company uses third-party consultants to assist in developing the assumptions used in, as well as calibrating, the lattice model. The Company is responsible for determining the assumptions used in estimating the fair value of its share-based payment awards.

Employee Stock Purchase Plan

     Compensation expense for the Company’s ESPP is calculated using the fair value of the employees’ purchase rights under the Black-Scholes model. A total of 2.5 million shares and 2.2 million shares were issued under the ESPP during the three months ended July 5, 2009 and June 29, 2008, respectively. The following table summarizes the assumptions that went into the calculation of the fair value for the May 2009 and May 2008 grants:

		Three Months Ended
		July 5, 2009				June 29, 2008
Weighted average estimated grant date fair value per share		$	1.39			$	2.13
Weighted average assumptions in calculation:
Expected life (years)			0.5				0.8
Risk-free interest rate			0.3	%			2	%
Volatility			78	%			44	%

Restricted Stock Unit Awards

     The cost of restricted stock unit awards is determined using the fair value of the Company’s common stock on the date of grant. The following table summarizes changes in restricted stock units outstanding during the six months ended July 5, 2009:

		Number of Units
		(In thousands)
Non-vested restricted stock units at December 31, 2008			6,391
Granted			76
Vested			(1,171	)
Forfeited			(412	)
Non-vested restricted stock units at July 5, 2009			4,884

     As of July 5, 2009, the total unrecognized compensation expense related to restricted stock units, net of estimated forfeitures, was $23.7 million and is expected to be recognized over the next 1.2 years on a weighted average basis. The fair value of shares vested during the three and six months ended July 5, 2009 was $0.6 million and $3.4 million, respectively.

Note 3 — Restructuring of Operations and Other Items

     The Company recorded a charge of $6.0 million in restructuring of operations and other items, net, for the three months ended July 5, 2009. Of this charge, $4.5 million and $1.5 million were recorded in the Semiconductor segment and Storage Systems segment, respectively. The Company recorded a charge of $31.2 million in restructuring of operations and other items, net, for the six months ended July 5, 2009, consisting of $25.0 million in charges for restructuring of operations and $6.2 million in charges for other items. Of this charge, $29.7 million and $1.5 million were recorded in the Semiconductor segment and Storage Systems segment, respectively. For a complete discussion of the 2008 restructuring actions, see Note 2 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

Restructuring

     First Quarter of 2009:

     The $19.3 million charge was the result of the following:

	•		A charge of $14.0 million primarily related to an accrual for remaining payments to be made under a licensing arrangement for design tools that will no longer be used by the Company;
	•		A charge of $4.5 million for severance and termination benefits for employees; and
	•		A charge of $0.8 million primarily for the change in time value of accruals for previously accrued facility lease exit costs.

     Second Quarter of 2009:

     The $5.7 million charge was the result of the following:

	•		A charge of $4.5 million for severance and termination benefits for employees; and
	•		A charge of $1.2 million primarily for the change in time value of accruals for previously accrued facility lease exit costs.

     Restructuring reserves are included within other accrued liabilities and other non-current liabilities on the consolidated balance sheets. The following table summarizes the activities affecting the restructuring accruals since December 31, 2008:

		Balance at				Expense				Utilized				Balance at				Expense				Utilized				Balance at
		December 31,				During				During				April 5,				During				During				July 5,
		2008				Q1 2009				Q1 2009				2009				Q2 2009				Q2 2009				2009
		(In thousands)
Write-down of excess assets and other liabilities		$	83			$	(83	)		$	—			$	—			$	(8	)		$	8			$	—
Lease terminations (a)			44,555				14,878				(10,323	)			49,110				1,166				(1,260	)			49,016
Payments to employees for severance (b)			28,031				4,518				(17,347	)			15,202				4,546				(7,374	)			12,374
Total		$	72,669			$	19,313			$	(27,670	)		$	64,312			$	5,704			$	(8,626	)		$	61,390

Other Items

     The Company recorded a net charge of $6.2 million for other items for the six months ended July 5, 2009, primarily related to litigation costs.

Assets Held for Sale

     Assets held for sale are included as a component of prepaid expenses and other current assets in the balance sheets as of July 5, 2009 and December 31, 2008. As of July 5, 2009 and December 31, 2008, assets held for sale were $19.1 million and $17.3 million, respectively, which primarily consisted of $16.8 million related to land in Gresham, Oregon.

     Assets classified as held for sale are recorded at the lower of their carrying amount or fair value less cost to sell and are not depreciated. The Company reassesses its ability to realize the carrying value of these assets at the end of each reporting period until the assets are sold or otherwise disposed of and, therefore, additional adjustments may be necessary.

Note 4 — Business Combinations

     On April 21, 2009, the Company completed the acquisition of the assets and certain associated intellectual property of the 3ware RAID storage adapter business of Applied Micro Circuits Corporation. 3ware products include SAS and SATA RAID adapters and high-capacity storage solutions for a broad range of applications. The acquisition was intended to enhance the Company’s competitive position in host bus RAID adapter solutions for distributors and system builders. The acquisition was accounted for as a purchase business combination. For reporting purposes, the 3ware business is included as part of the Storage Systems segment.

     The following table summarizes information about this acquisition:

Entity Name or Type of Technology;

Fair Value of

Net

Segment Included in;

Total

Type of

Tangible

Identified

Description of Acquired Business

Acquisition Date

Consideration

Consideration

Assets

Intangible Assets

Goodwill

(Dollars in millions)

3ware RAID storage adapter business;

Storage Systems segment; Host bus RAID adapters and storage solutions

April 21, 2009

$

20.9

Cash

$

12.3

$

5.0

$

3.6

     The goodwill of $3.6 million represents the excess of the purchase price over the fair value of the net tangible and identified intangible assets acquired. All of this goodwill was assigned to the Storage Systems segment, and is not expected to be deductible for tax purposes.

     The following table summarizes the components of the identified intangible assets associated with this acquisition, which are being amortized on a straight-line basis:

						Weighted
		Fair Value				Average Life
		(In millions)				(In years)
Current technology		$	1.5				2
Customer base			3.2				5
Trade names			0.3				2
Total acquired identified intangible assets		$	5.0

     The consolidated financial statements include the operating results of the acquired 3ware business from the date of acquisition. Pro forma financial information has not been presented because the effect of this acquisition was not material to the Company’s financial results.

Note 5 — Benefit Obligations

     The Company has pension plans covering substantially all former Agere U. S. employees, excluding management employees hired after June 30, 2003. Retirement benefits are offered under a defined benefit plan and are based on either an adjusted career average pay or dollar per month formula or on a cash balance program. The cash balance program provides for annual company contributions

based on a participant’s age, compensation and interest on existing balances and covers employees of certain companies acquired by Agere since 1996 and management employees hired after January 1, 1999 and before July 1, 2003. The Company also has a non- qualified supplemental pension plan in the U.S. that principally provides benefits based on compensation in excess of amounts that can be considered under a tax qualified plan. The Company also provides postretirement life insurance coverage for former Agere employees. The Company provided postretirement medical benefits for former Agere employees until December 31, 2008. Participants in the cash balance program and management employees hired after June 30, 2003 are not covered under the postretirement life insurance. The Company also has pension plans covering certain international employees.

     Effective April 6, 2009, the Company froze the U.S. management pension plan, which covers active participants who joined the Company from Agere. Participants under the adjusted career average pay program will not earn any future accruals after that date. Participants under the cash balance program will not earn any future service accruals, but will continue to earn 4% interest per year on their cash balance accounts.

     The following table sets forth the components of the net periodic benefit credit for the three and six months ended July 5, 2009 and June 29, 2008:

		Three Months Ended
		July 5, 2009								June 29, 2008
		Pension				Postretirement				Pension				Postretirement
		Benefits				Benefits				Benefits				Benefits
		(In thousands)
Service cost		$	486			$	20			$	1,405			$	26
Interest cost			18,605				607				18,528				767
Expected return on plan assets			(19,191	)			(1,219	)			(20,581	)			(1,259	)
Amortization of prior service cost			11				—				4				—
Net actuarial gain recognized			(24	)			—				(13	)			(30	)
Total benefit credit		$	(113	)		$	(592	)		$	(657	)		$	(496	)

		Six Months Ended
		July 5, 2009								June 29, 2008
		Pension				Postretirement				Pension				Postretirement
		Benefits				Benefits				Benefits				Benefits
		(In thousands)
Service cost		$	957			$	40			$	2,811			$	52
Interest cost			36,876				1,212				37,056				1,533
Expected return on plan assets			(38,403	)			(2,438	)			(41,163	)			(2,517	)
Amortization of prior service cost			22				—				8				—
Net actuarial gain recognized			(45	)			—				(26	)			(59	)
Total benefit credit		$	(593	)		$	(1,186	)		$	(1,314	)		$	(991	)

     During the six months ended July 5, 2009, the Company contributed $5.1 million to its pension plans and $1.8 million to its postretirement benefit plans. The Company expects to contribute an additional $16.0 million to $55.0 million to its pension plans and $0.1 million to its postretirement benefit plans for the remainder of 2009.

Note 6 — Balance Sheet Details

		July 5,				December 31,
		2009				2008
		(In thousands)
Inventories:
Raw materials		$	33,784			$	44,208
Work-in-process			26,360				52,242
Finished goods			98,514				124,085
Total inventories		$	158,658			$	220,535

						Interest				Conversion				July 5,				December 31,
		Maturity				Rate				Price				2009				2008
														(In thousands)
Debt:
4% Convertible Subordinated Notes			2010				4.00	%		$	13.4200			$	350,000			$	350,000
6.5% Convertible Subordinated Notes			2009				6.50	%		$	15.3125				—				243,002
Accrued debt premium															—				7,405
Amortization of accrued debt premium															—				(5,300	)
Total debt															350,000				595,107
Current portion of long—term debt															(350,000	)			(245,107	)
Long-term debt, net of current portion														$	—			$	350,000

     During the three months ended July 5, 2009, the Company redeemed all of the outstanding principal amount of $243.0 million of 6.5% Convertible Subordinated Notes due in December 2009 at a price of 100.43% of the principal amount of each note plus accrued interest to the date of redemption. A net pre-tax gain of $0.1 million was recognized and included in interest income and other, net. The pre-tax gain is net of the write off of the unamortized accrued debt premium as of the redemption date.

     During the three months ended July 5, 2009, the 4% Convertible Subordinated Notes became due within 12 months. As such, the balance was reclassified to the current portion of long-term debt. As of July 5, 2009, the estimated fair value of the 4% Convertible Subordinated Notes was $349.1 million, based on market data.

Note 7 — Identified Intangible Assets and Goodwill

Identified Intangible Assets

     Identified intangible assets by reportable segment were comprised of the following:

		July 5, 2009								December 31, 2008
		Gross				Accumulated				Gross				Accumulated
		Carrying Amount				Amortization				Carrying Amount				Amortization
		(In thousands)
Semiconductor:
Current technology		$	894,808			$	(569,203	)		$	894,808			$	(524,120	)
Trademarks			26,657				(26,657	)			26,657				(26,657	)
Customer base			399,508				(179,970	)			399,508				(160,925	)
Non-compete agreements			1,949				(1,929	)			1,949				(1,888	)
Existing purchase orders			200				(200	)			200				(200	)
Supply agreement			100				(100	)			100				(100	)
Patent licensing			312,800				(81,313	)			312,800				(63,243	)
Order backlog			41,300				(41,300	)			41,300				(41,300	)
Workforce			3,567				(1,555	)			3,567				(1,258	)
Trade names			2,248				(2,248	)			2,248				(2,248	)
Subtotal			1,683,137				(904,475	)			1,683,137				(821,939	)
Storage Systems:
Current technology			165,829				(139,099	)			164,339				(136,104	)
Trademarks			7,150				(7,150	)			7,150				(7,150	)
Customer base			8,240				(5,118	)			5,010				(5,010	)
Non-compete agreements			1,600				(1,600	)			1,600				(1,600	)
Supply agreement			8,147				(8,147	)			8,147				(8,147	)
Trade names			1,100				(320	)			800				(238	)
Subtotal			192,066				(161,434	)			187,046				(158,249	)
Total identified intangible assets		$	1,875,203			$	(1,065,909	)		$	1,870,183			$	(980,188	)

     On April 21, 2009, the Company completed the acquisition of the assets and certain associated intellectual property of the 3ware RAID storage adapter business.

     The following table summarizes amortization expenses and weighted average lives of identified intangible assets:

		Weighted				Six Months Ended
		Average Life				July 5, 2009				June 29, 2008
		(In months)				(In thousands)
Current technology			57			$	48,078			$	65,525
Trademarks			83				—				25
Customer base			45				19,152				29,309
Non-compete agreements			27				42				760
Patent licensing			36				18,070				18,122
Workforce			72				298				298
Trade names			71				83				244
Total			50			$	85,723			$	114,283

     The estimated annual future amortization expenses related to identified intangible assets are as follows:

		Amount
		(In thousands)
Fiscal Year
2009 (July 6 through December 31, 2009)		$	85,417
2010			156,989
2011			121,644
2012			104,643
2013 and thereafter			340,601
Total		$	809,294

Goodwill

     The following table summarizes changes in the carrying amount of goodwill, all of which related to the Company’s Storage Systems segment, for the six months ended July 5, 2009:

		Storage Systems
		Segment
		(In thousands)
Balance as of December 31, 2008		$	175,624
Additions as a result of acquisition during the period *			3,588
Balance as of July 5, 2009		$	179,212

Note 8 — Cash, Cash Equivalents and Investments

     The following table shows the breakdown of the Company’s cash, cash equivalents and investments as of July 5, 2009 and December 31, 2008:

		July 5,				December 31,
		2009				2008
		(In thousands)
Cash and cash equivalents:
Cash in financial institutions		$	177,038			$	77,372
Cash equivalents:
Overnight deposits and money market funds			477,916				744,430
Commercial paper			—				1,085
U.S. government and agency securities			—				6,414
Total cash equivalents			477,916				751,929
Total cash and cash equivalents		$	654,954			$	829,301
Available-for-sale debt securities: *
Asset-backed and mortgage-backed securities		$	157,816			$	184,511
U.S. government and agency securities			52,987				88,504
Corporate and municipal debt securities			7,876				16,826
Total short-term investments		$	218,679			$	289,841
Long-term investments in equity securities: **
Marketable available-for-sale equity securities		$	1,502			$	566
Non-marketable equity securities			49,070				46,141
Total long-term investments in equity securities		$	50,572			$	46,707

Investments in Available-for-Sale Securities

     Contractual maturities of available-for-sale debt securities as of July 5, 2009 were as follows:

		Amount
		(In thousands)
Due within one year		$	21,203
Due in 1-5 years			44,789
Due in 5-10 years			18,432
Due after 10 years			134,255
Total		$	218,679

     The maturities of asset-backed and mortgage-backed securities were determined based on contractual principal maturities assuming no prepayments.

     The following table shows the breakdown of the estimated fair value of the Company’s available-for-sale securities as of July 5, 2009 and December 31, 2008:

		July 5, 2009
		Amortized				Gross Unrealized				Gross Unrealized
		Cost				Gain				Loss				Fair Value
		(In thousands)
Short-term debt securities:
Asset-backed and mortgage-backed securities		$	155,270			$	4,681			$	(2,135	)		$	157,816
U.S. government and agency securities			50,701				2,286				—				52,987
Corporate and municipal debt securities			7,870				111				(105	)			7,876
		$	213,841			$	7,078			$	(2,240	)		$	218,679
Long-term marketable equity securities		$	155			$	1,349			$	(2	)		$	1,502

		December 31, 2008
		Amortized				Gross Unrealized				Gross Unrealized
		Cost				Gain				Loss				Fair Value
		(In thousands)
Short-term debt securities:
Asset-backed and mortgage-backed securities		$	183,385			$	1,829			$	(703	)		$	184,511
U.S. government and agency securities			85,426				3,078				—				88,504
Corporate and municipal debt securities			17,183				54				(411	)			16,826
		$	285,994			$	4,961			$	(1,114	)		$	289,841
Long-term marketable equity securities		$	155			$	413			$	(2	)		$	566

     The following table shows the gross unrealized losses and fair values of the Company’s short-term investments that have been in a continuous unrealized loss position for less than and greater than 12 months, aggregated by investment category as of July 5, 2009:

		Less than 12 Months								Greater than 12 Months
		Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
		(In thousands)
Asset-backed and mortgage-backed securities		$	25,305			$	(1,979	)		$	5,102			$	(156	)
Corporate and municipal debt securities			4,113				(91	)			988				(14	)
Total		$	29,418			$	(2,070	)		$	6,090			$	(170	)

     If the fair value of a debt security is less than its amortized cost basis, the Company assesses whether the impairment is other than temporary. If the Company does not intend to sell and it is not more likely than not that the Company will be required to sell the debt securities before the expected recovery of the amortized cost, then the Company recognizes in earnings the amount of the other than temporary impairment representing the credit loss and all other amounts in other comprehensive income. Credit loss represents the present value of cash flows expected to be collected less the amortized cost of the debt security. The Company evaluates both qualitative and quantitative factors such as duration and severity of the unrealized loss, credit ratings, prepayment speeds, default and loss rates of the underlying collateral, structure and credit enhancements to determine if a credit loss may exist.

     During the three and six months ended June 29, 2008, the Company recognized impairment charges of $2.8 million for certain available-for-sale debt and equity securities after determining that the decline in their fair value was other than temporary. During the three and six months ended July 5, 2009, there was no other than temporary impairment charge for available-for-sale debt and equity securities for which the Company does not expect to recover the entire amortized cost. There are no other than temporary impairments recognized in other comprehensive income.

     Net realized gain or loss on sales of available-for-sale debt securities for the three and six months ended July 5, 2009 and June 29, 2008 was not significant.

Note 9 — Derivative Instruments

     In March 2008, the FASB issued SFAS No. 161 (“FAS 161”), “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133.” FAS 161 expands quarterly disclosure requirements in SFAS No. 133 (“FAS 133”), “Accounting for Derivative Instruments and Hedging Activities,” about an entity’s derivative instruments and hedging activities. The Company adopted FAS 161 in the first quarter of 2009, and the adoption did not have any impact on the Company’s results of operations or financial position.

     The Company has foreign subsidiaries that operate and sell the Company’s products in various global markets. As a result, the Company is exposed to changes in foreign currency exchange rates. The Company utilizes forward contracts to manage its exposure associated with net asset and liability positions denominated in non-functional currencies and to reduce the volatility of earnings and cash flows related to forecasted foreign currency transactions. The Company does not hold derivative financial instruments for speculative or trading purposes.

     The Company enters into forward contracts that are designated as foreign currency cash flow hedges of selected forecasted payments denominated in currencies other than U.S. dollars. These forward contracts have maturities of less than 12 months. Changes in the fair value of the forward contracts attributable to changes in time value are excluded from the assessment of effectiveness and are recognized in interest income and other, net. The effective portion of the forward contracts’ gain or loss is initially reported as a component of accumulated other comprehensive income (“AOCI”) and subsequently reclassified into earnings when the hedged exposure affects earnings. The ineffective portion, if any, of the gain or loss is reported in earnings immediately.

     As of July 5, 2009, the Company held forward contracts designated as foreign currency cash flow hedges of forecasted Euro, Pound Sterling and Indian Rupee payment transactions that were set to expire in one to ten months. As of July 5, 2009, the notional value of the forward contracts that were designated as cash flow hedges was $21.8 million. The Company did not enter into foreign currency cash flow hedges for the three and six months ended June 29, 2008.

     The Company enters into foreign exchange forward contracts that are used to hedge certain foreign currency-denominated assets or liabilities that do not qualify for cash flow hedge accounting treatment. Accordingly, the changes in fair value of these hedges are recorded immediately in earnings to offset the changes in fair value of the assets or liabilities being hedged. The Company’s foreign exchange forward contracts related to foreign currency-denominated assets or liabilities generally range from one to three months in original maturity.

     The Company has forward contracts, not designated as cash flow hedges, with obligations to buy Japanese Yen, Euro, Pound Sterling, Canadian Dollar, Singapore Dollar, Korean Won and Indian Rupee. As of July 5, 2009, the notional value of the forward contracts that were not designated as cash flow hedges was $250.1 million.

     The balance sheet classification and the fair value of foreign exchange forward contracts are as follows:

		July 5, 2009
		(In thousands)
Prepaid expenses and other current assets:
Derivative assets designated as cash flow hedges:
Foreign exchange forward contracts		$	1,593
Derivative assets not designated as cash flow hedges:
Foreign exchange forward contracts		$	996
Other accrued liabilities:
Derivative liabilities designated as cash flow hedges:
Foreign exchange forward contracts		$	102
Derivative liabilities not designated as cash flow hedges:
Foreign exchange forward contracts		$	136

     The effect of derivative instruments designated as cash flow hedges on the AOCI and the effective portion reclassified from AOCI into Company’s statement of operations for the three and six months ended July 5, 2009 were as follows:

		Three Months Ended				Six Months Ended
		July 5, 2009				July 5, 2009
		(In thousands)
Accumulated loss in OCI, beginning of period, net of tax		$	(1,117	)		$	(905	)
Net unrealized gain recorded in OCI (effective portion)			1,357				133
Loss reclassified from AOCI to research and development expenses (effective portion)			20				388
Loss reclassified from AOCI to selling, general and administrative expenses (effective portion)			2				646
Accumulated gain in OCI, end of period, net of tax		$	262			$	262

     For the three and six months ended July 5, 2009, the gain recognized in earnings related to ineffective portion and excluded from effectiveness testing for the cash flow hedges were $0.1 million and $0.3 million, respectively.

     The effect of derivative instruments not designated as cash flow hedges on the Company’s statement of operations for the three and six months ended July 5, 2009 was as follows:

		Three Months Ended				Six Months Ended
		July 5, 2009				July 5, 2009
		(In thousands)
Gain/(loss) recognized in interest income and other, net		$	12,441			$	(4,349	)

Note 10 — Fair Value Measurements

     In February 2008, the FASB issued FSP 157-2, “Effective Date of FASB Statement No. 157 (“FAS 157”),” which delays the effective date of FAS 157 for all nonrecurring fair value measurements of non-financial assets and non-financial liabilities until annual periods beginning after November 15, 2008. The Company adopted FSP 157-2 in the first quarter of 2009, and the adoption had no material impact on its results of operations or financial position.

     GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company’s financial assets and financial liabilities recorded at fair value have been categorized based upon the following three levels of inputs:

     Level 1 — Unadjusted, quoted prices in active, accessible markets for identical assets or liabilities. The Company’s investments in marketable equity securities and money market funds that are traded in active exchange markets, as well as U.S. Treasury securities that are highly liquid and are actively traded in over-the-counter markets are classified under level 1.

     Level 2 — Observable inputs other than level 1 prices such as quoted prices for similar assets or liabilities in active markets; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. The Company’s investments in U.S. government agency securities, commercial paper, corporate and municipal debt securities and asset-backed and mortgage-backed securities are traded less frequently than exchange-traded securities and are valued using inputs that include quoted prices for similar assets in active markets, and inputs other than quoted prices that are observable for the asset, such as interest rates and yield curves that are observable at commonly quoted intervals. Foreign exchange forward contracts traded in the over-the-counter markets are valued using market transactions, or broker quotations. As such, these derivative instruments are classified within level 2.

     Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

     The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

     The following table summarizes assets and liabilities measured at fair value on a recurring basis as of July 5, 2009:

		Fair Value Measurements as of July 5, 2009
		Level 1				Level 2				Level 3				Total
		(In thousands)
Short-term investments in debt securities and cash equivalents		$	530,914			$	165,681				—			$	696,595
Long-term investments in marketable equity securities		$	1,502				—				—			$	1,502
Derivative assets, net			—			$	2,351				—			$	2,351
Rabbi Trust — all invested in money market funds		$	9,763				—				—			$	9,763

Note 11 — Reconciliation of Basic and Diluted Loss per Share

     The following table sets forth a reconciliation of the numerators and denominators used in the computation of basic and diluted per share amounts:

		Three Months Ended
		July 5, 2009												June 29, 2008
										Per-Share												Per-Share
		Loss*				Shares+				Amount				Loss*				Shares+				Amount
		(In thousands except per share amounts)
Basic loss per share:
Net loss available to common stockholders		$	(61,483	)			650,300			$	(0.09	)		$	(13,647	)			639,872			$	(0.02	)
Stock options, employee stock purchase rights and restricted stock unit awards			—				—				—				—				—				—
Diluted loss per share:
Net loss available to common stockholders		$	(61,483	)			650,300			$	(0.09	)		$	(13,647	)			639,872			$	(0.02	)

		Six Months Ended
		July 5, 2009												June 29, 2008
										Per-Share												Per-Share
		Loss*				Shares+				Amount				Loss*				Shares+				Amount
		(In thousands except per share amounts)
Basic loss per share:
Net loss available to common stockholders		$	(165,030	)			649,360			$	(0.25	)		$	(27,275	)			650,867			$	(0.04	)
Stock options, employee stock purchase rights and restricted stock unit awards			—				—				—				—				—				—
Diluted loss per share:
Net loss available to common stockholders		$	(165,030	)			649,360			$	(0.25	)		$	(27,275	)			650,867			$	(0.04	)

     Options to purchase 81,120,105 and 96,064,777 weighted average shares were excluded from the computation of diluted shares for the three and six months ended July 5, 2009, respectively, because of their antidilutive effect on net loss per share. Options to purchase 87,814,384 and 91,393,949 weighted average shares were excluded from the computation of diluted shares for the three and six months ended June 29, 2008, respectively, because of their antidilutive effect on net loss per share.

     For the three and six months ended July 5, 2009, 38,636,562 and 40,328,899, respectively, weighted average potentially dilutive shares associated with convertible notes were excluded from the calculation of diluted shares because of their antidilutive effect on net loss per share. For the three and six months ended June 29, 2008, 49,698,093 and 49,698,581, respectively, weighted average potentially dilutive shares associated with convertible notes were excluded from the calculation of diluted shares because of their antidilutive effect on net loss per share.

Note 12 — Segment and Geographic Information

     The Company operates in two reportable segments — the Semiconductor segment and the Storage Systems segment.

Summary of Operations by Segment

     The following is a summary of operations by segment for the three and six months ended July 5, 2009 and June 29, 2008:

		Three Months Ended								Six Months Ended
		July 5, 2009				June 29, 2008				July 5, 2009				June 29, 2008
		(In thousands)
Revenues:
Semiconductor		$	343,786			$	462,010			$	668,820			$	920,812
Storage Systems			176,879				230,053				334,124				431,998
Total		$	520,665			$	692,063			$	1,002,944			$	1,352,810
Loss from operations:
Semiconductor		$	(52,232	)		$	(31,926	)		$	(132,327	)		$	(56,263	)
Storage Systems			(3,531	)			21,518				(17,610	)			32,074
Total		$	(55,763	)		$	(10,408	)		$	(149,937	)		$	(24,189	)

Significant Customers

     The following table provides information about the Company’s significant customers, each of whom accounted for 10% or more of consolidated revenues or 10% or more of either segment’s revenues, for the three and six months ended July 5, 2009 and June 29, 2008:

		Three Months Ended								Six Months Ended
		July 5, 2009				June 29, 2008				July 5, 2009				June 29, 2008
Semiconductor segment:
Number of significant customers			1				1				1				1
Percentage of segment revenues			24	%			25	%			24	%			27	%
Storage Systems segment:
Number of significant customers			2				2				3				2
Percentage of segment revenues			48%, 11	%			47%, 16	%			46%, 12%, 11	%			45%, 16	%
Consolidated:
Number of significant customers			2				2				2				2
Percentage of consolidated revenues			18%, 16	%			17%, 16	%			17%, 16	%			19%, 15	%

Information about Geographic Areas

     Revenues from domestic operations were $112.1 million, representing 21.5% of consolidated revenues, for the three months ended July 5, 2009, as compared to $220.8 million, representing 31.9% of consolidated revenues, for the three months ended June 29, 2008.

     Revenues from domestic operations were $219.9 million, representing 21.9% of consolidated revenues, for the six months ended July 5, 2009, as compared to $427.6 million, representing 31.6% of consolidated revenues, for the six months ended June 29, 2008.

Note 13 — Comprehensive Income/(Loss)

     Comprehensive income or loss is defined as a change in equity of a company during a period from transactions and other events and circumstances, excluding transactions resulting from investments by owners and distributions to owners. Comprehensive loss, net of taxes, for the three and six months ended July 5, 2009 and June 29, 2008 is as follows:

		Three Months Ended								Six Months Ended
		July 5, 2009				June 29, 2008				July 5, 2009				June 29, 2008
		(In thousands)
Net loss		$	(61,483	)		$	(13,647	)		$	(165,030	)		$	(27,275	)
Net unrealized gain/(loss) on available-for-sale securities			3,857				(2,297	)			1,215				(2,366	)
Net unrealized gain on cash-flow hedges			1,379				—				1,167				—
Foreign currency translation adjustments			7,779				(9,109	)			(7,322	)			5,795
Amortization of prior service cost and net actuarial gain included in net periodic benefit credit			(13	)			(51	)			(23	)			(51	)
Total comprehensive loss		$	(48,481	)		$	(25,104	)		$	(169,993	)		$	(23,897	)

Note 14 — Income Taxes

     The income tax provision for the three months ended July 5, 2009 and June 29, 2008, was $5.2 million and $2.5 million, respectively. For the three months ended July 5, 2009 and June 29, 2008, the Company did not record any re-measurement or reversal of uncertain tax positions.

     The income tax provision for the six months ended July 5, 2009 and June 29, 2008, was $13.2 million and $8.0 million, respectively. During the six months ended July 5, 2009, the Company recorded a reversal of $29.8 million in liabilities, which includes previously unrecognized tax benefits of $15.7 million and interest and penalties of $14.1 million, because various statutes of limitations expired during the period and an increase of $32.9 million, which includes unrecognized tax benefits of $25.0 million and interest and penalties of $7.9 million, as a result of re-measurements of uncertain tax positions taken in prior periods based on new

information. During the six months ended June 29, 2008, the Company recorded a reversal of an $8.8 million liability because a statute of limitations expired during the period and an increase of $2.1 million as a result of re-measurement of uncertain tax positions taken in prior periods based on new information.

     The income or loss from certain jurisdictions has been excluded from the overall estimation of the annual rate because of the anticipated annual pretax losses in those jurisdictions for which tax benefits are not realizable or cannot be recognized in the current year. Excluding certain foreign jurisdictions, management believes that it is more likely than not that the future benefit of deferred tax assets will not be realized.

Note 15 — Related Party Transactions