Emulex Announces Fourth Quarter and Fiscal 2008 Results


COSTA MESA, Calif., Aug. 7, 2008 (PRIME NEWSWIRE) -- Emulex Corporation (NYSE:ELX) today announced results for its fourth fiscal quarter ended June 29, 2008.

Fourth Quarter Highlights


 * Total net revenues of $112.8 million - a decrease of 11% year-
   over-year
 * Host Server Products net revenues of $84.4 million - 75% of total
   net revenues
 * Embedded Storage Products net revenues of $28.3 million - 25% of
   total net revenues
 * GAAP gross margin of 63% and non-GAAP gross margin of 68%
 * GAAP operating income of $8.8 million, or 8% of total net
   revenues, and non-GAAP operating income of $24.7 million, or 22%
   of net revenues
 * GAAP Net Loss Per Share of $0.61 and non-GAAP diluted Earnings
   Per Share of $0.22
 * Cash, cash equivalents and investments of $350.3 million
 * Inventory turnover of 8.5 times
 * Days Sales Outstanding of 45 days

2008 Full Year Highlights


 * Total net revenues of $488.3 million - an increase of 4% year-
   over-year
 * Host Server Products net revenues of $352.7 million - 72% of
   total net revenues
 * Embedded Storage Products net revenues of $134.9 million - 28% of
   total net revenues
 * GAAP gross margin of 62% and non-GAAP gross margin of 67%
 * GAAP operating income of $66.3 million, or 14% of total net
   revenues, and non-GAAP operating income of $131.9 million, or 27%
   of net revenues
 * GAAP Net Loss Per Share of $0.09 and non-GAAP diluted EPS of
   $1.13

Financial Results

Fourth quarter net revenues were $112.8 million, a decrease of 11% from the comparable quarter last year and a 12% decrease sequentially from the third quarter. Fourth quarter GAAP net loss was $50.4 million, or $0.61 per share compared to GAAP net income of $0.15 per diluted share reported in the year ago period and $0.19 per diluted share in the third quarter. Non-GAAP net income for the fourth quarter, which excludes amortization of intangibles, stock-based compensation, severance and associated charges, and tax charges associated with the Company's globalization initiatives, was $18.2 million, or $0.22 per diluted share. Non-GAAP net income per diluted share decreased 35% from the $0.34 per diluted share reported last year, and decreased 29% sequentially from $0.31 per diluted share reported in the third quarter. Reconciliations between GAAP and non-GAAP results are included in the accompanying financial data.

Full year fiscal 2008 net revenues were $488.3 million, a 4% increase over 2007 and representing the 10th consecutive year of revenue growth. Full year GAAP net loss was $7.1 million or $0.09 per share compared to GAAP net income of $29.4 million or $0.34 per diluted share in 2007. Non-GAAP net income was $95.0 million or $1.13 per diluted share compared to $100.8 million or $1.14 per diluted share in 2007.

In early August, the Board of Directors approved approximately $40 million of share repurchases in the first quarter of fiscal 2009, which is the remaining amount available under the existing 2006 Share Repurchase Plan. In addition, the Board has authorized a new plan of $100 million of share repurchases.

Jim McCluney, president and CEO commented, "While the fourth quarter revenue results were disappointing, key metrics including our gross margins, cash generation and spending management demonstrate our commitment to performance. We were also able to deliver our 10th consecutive year of top line revenue growth in 2008 driven by strong year-over-year growth of our server OEMs."

"As we enter 2009, we are accelerating our strategy of leveraging our strong financial model to take advantage of our opportunities to grow through diversification. In addition to adding depth to our product portfolio, we are focusing our internal investments in sales and marketing to closely align ourselves with our customers and partners in faster growing global markets for our existing solutions," concluded McCluney.

Business Outlook

Although actual results may vary depending on a variety of factors, many of which are outside the Company's control, Emulex is providing guidance for its first fiscal quarter ending September 28, 2008. Emulex is budgeting for first quarter fiscal 2009 total net revenues in the range of $108-$111 million. The Company expects non-GAAP gross margin will be approximately 67% and non-GAAP earnings per diluted share could amount to $0.18-$0.20 in the first quarter. On a GAAP basis, Emulex expects gross margin will be approximately 63% and diluted first quarter earnings per share of $0.00-$0.02. GAAP estimates reflect approximately $0.18 per diluted share in expected charges arising from amortization of intangibles, stock-based compensation, severance and associated costs, and charges associated with globalization initiatives for the first quarter.

About Emulex

Emulex Corporation creates enterprise-class products that intelligently connect storage, servers and networks. The world's leading server and storage providers rely on Emulex's award-winning HBAs, intelligent storage platforms and embedded storage products, including switches, bridges, routers and I/O controllers, to build reliable, scalable and high-performance storage and server solutions. Emulex is listed on the New York Stock Exchange (NYSE:ELX) and has corporate headquarters in Costa Mesa, California. News releases and other information about Emulex Corporation are available at http://www.emulex.com.

The Emulex Corporation logo is available at http://www.primenewswire.com/newsroom/prs/?pkgid=1744

Note Regarding Non-GAAP Financial Information. To supplement the consolidated financial statements presented in accordance with U.S. generally accepted accounting principles (GAAP), the Company has included the following non-GAAP financial measures in this press release or in the webcast to discuss the Company's financial results for the fourth fiscal quarter which may be accessed via the Company's website at www.emulex.com: (i) non-GAAP gross margin, (ii) non-GAAP operating expenses, (iii) non-GAAP operating income, (iv) non-GAAP net income, and (v) non-GAAP diluted earnings per share. Each of these non-GAAP financial measures is adjusted from results based on GAAP to exclude certain expenses and gains. As a general matter, the Company uses these non-GAAP measures in addition to and in conjunction with results presented in accordance with GAAP. Among other things, the Company uses such non-GAAP financial measures in addition to and in conjunction with corresponding GAAP measures to help analyze the performance of its core business, in connection with the preparation of annual budgets, and in measuring performance for some forms of compensation. In addition, the Company believes that non-GAAP financial information is used by analysts and others in the investment community to analyze the Company's historical results and in providing estimates of future performance and that failure to report these non-GAAP measures, could result in confusion among analysts and others and a misplaced perception that the Company's results have underperformed or exceeded expectations.

These non-GAAP financial measures reflect an additional way of viewing aspects of the Company's operations that, when viewed with the GAAP results and the reconciliations to corresponding GAAP financial measures, provide a more complete understanding of the Company's results of operations and the factors and trends affecting the Company's business. However, these non-GAAP measures should be considered as a supplement to, and not as a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP.

The non-GAAP disclosures and the non-GAAP adjustments, including the basis for excluding such adjustments and the impact on the Company's operations, are outlined below:

Non-GAAP gross margin. Non-GAAP gross margin excludes the effects of (i) amortization of intangibles, (ii) stock-based compensation expense, (iii) the mark-up to fair value of inventory acquired in the Sierra Logic acquisition and subsequently sold and (iv) impairment of intangible assets. At the time of an acquisition, the intangible assets and inventory of the acquired company are recorded at fair value and subsequently either amortized over their estimated useful lives or expensed as sold. The Company believes that such intangibles and the mark-up on acquired inventory do not constitute part of its core business because they generally represent costs incurred by the acquired company to build value prior to acquisition and as such they are effectively part of transaction costs rather than ongoing costs of operating the Company's core business. In this regard, the Company notes that (1) once the intangibles are fully amortized or the acquired inventory is consumed, the intangibles and the inventory mark-up will not be replaced with cash costs and therefore, the exclusion of these costs provides management and investors with better visibility into the actual costs required to generate revenues over time, and (2) although the Company sets the amortization expense based on useful life of the various assets at the time of the transaction, the Company cannot influence the timing and amount of the future amortization expense recognition once the lives are established. As a result, the Company believes that exclusion of these costs in presenting non-GAAP gross margin and other non-GAAP financial measures provides management and investors a more effective means of evaluating its historical performance and projected costs and the potential for realizing cost efficiencies within its core business. Similarly, the Company believes that presentation of gross margin and other non-GAAP measures that exclude the impact to gross margin of stock-based compensation expense assists management and investors in evaluating the period over period performance of the Company's ongoing core business operations because the expenses are non-cash in nature and, although the size of the grants is within the Company's control, the amount of expense varies depending on factors such as short-term fluctuations in stock price and volatility which can be unrelated to the operational performance of the Company during the period in question and generally is outside the control of management during the period in which the expense is recognized. Moreover, the Company believes that the exclusion of stock-based compensation in presenting non-GAAP gross margin and other non-GAAP financial measures is useful to investors to understand the impact of the expensing of stock-based compensation to the Company's gross margin and other financial measures in comparison to both prior periods as well as to its competitors. Furthermore, with respect to the exclusion of charges relating to the impairment of intangible assets, the Company believes that presentation of a measure of non-GAAP gross margin that excludes such charges is useful to management and investors in evaluating the performance of the Company's ongoing operations on a period-to-period basis and relative to the Company's competitors. In this regard, the Company notes that the impairment of intangible assets charges are infrequent in nature and are unrelated to the Company's core business.

The Company believes disclosure of non-GAAP gross margin has economic substance because the excluded expenses do not represent continuing cash expenditures and, as described above, the Company has limited control over the timing and amount of the expenditures being discussed. A material limitation associated with the use of this measure as compared to the GAAP measure of gross margin is that it may not be comparable with the calculation of gross margin for other companies in the Company's industry. The Company compensates for these limitations by providing full disclosure of the effects of this non-GAAP measure, by presenting the corresponding GAAP financial measure in this release and in the Company's financial statements and by providing a reconciliation to the corresponding GAAP measure to enable investors to perform their own analysis.

Non-GAAP operating income. Non-GAAP operating income excludes the effects of (i) amortization of intangibles, (ii) in-process research and development, (iii) stock-based compensation, (iv) the mark-up to fair value of inventory acquired in the Sierra Logic acquisition and subsequently sold, (v) severance and associated costs, and (vi) impairment of intangible assets. The Company believes that presentation of a measure of operating income that excludes amortization of intangibles, the mark-up on Sierra Logic inventory acquired, stock-based compensation expense, severance and associated costs for former executives, and impairment of intangible assets is useful to management and investors for the same reasons as described above with respect to non-GAAP gross margin. In-process research and development is an expense relating to acquisitions. At the time of an acquisition, in-process research and development costs of the acquired entity are expensed. As is the case with respect to the amortization of intangibles, the Company believes that such in-process research and development expenses do not constitute part of its core business because they generally represent costs incurred by the acquired company to build value or develop technology prior to acquisition and as such they are part of transaction costs rather than ongoing costs of operating the Company's core business. In this regard, the Company notes that (1) once in-process research and development is expensed, it generally will not be replaced with cash costs and therefore, the exclusion of these costs provides management and investors with better visibility into the actual costs required to generate revenues over time, and (2) the Company cannot influence the amount of in-process research and development expenses incurred. As a result, the Company believes that exclusion of in-process research and development expenses in presenting non-GAAP operating income gives management and investors a more effective means of evaluating its historical performance and projected costs and the potential for realizing cost efficiencies within its core business. The Company has incurred severance and certain related costs in connection with the change in employment status of certain employees including terminations resulting from elimination of certain positions. The Company believes that such costs are infrequent and non-recurring in nature and, as such, do not accurately reflect the costs of operation of the Company's core business. As a result, the Company believes that the exclusion of such severance and related costs gives management and investors a more effective means of evaluating its historical performance and projected costs.

The Company believes disclosure of non-GAAP operating income has economic substance because the excluded expenses are either infrequent in nature or do not represent current cash expenditures. A material limitation associated with the use of this measure as compared to the GAAP measure of operating income is that it may not be comparable with the calculation of operating income for other companies in the Company's industry. The Company compensates for these limitations by providing full disclosure of the effects of this non-GAAP measure, by presenting the corresponding GAAP financial measure in this release and in the Company's financial statements and by providing a reconciliation to the corresponding GAAP measure to enable investors to perform their own analysis.

Non-GAAP operating expenses. Non-GAAP operating expenses exclude the effects of (i) amortization of other intangibles, (ii) in-process research and development, (iii) stock-based compensation, (iv) severance and associated costs, and (v) impairment of other intangible assets. The Company believes that presentation of a measure of operating expenses that excludes the amortization of intangibles, in-process research and development expenses, stock-based compensation expense, severance and associated costs, and impairment of other intangible assets is useful to investors and the Company for the same reasons as described above with respect to non-GAAP operating income and non-GAAP gross margin.

The Company believes disclosure of non-GAAP operating expenses has economic substance because the excluded expenses are either infrequent in nature or do not represent current cash expenditures. A material limitation associated with the use of this measure as compared to the GAAP measure of operating expenses is that it may not be comparable with the calculation of operating expenses for other companies in the Company's industry. The Company compensates for these limitations by providing full disclosure of the effects of this non-GAAP measure, by presenting the corresponding GAAP financial measure in this release and in the Company's financial statements and by providing a reconciliation to the corresponding GAAP measure to enable investors to perform their own analysis.

Non-GAAP net income and non-GAAP diluted earnings per share. Non-GAAP net income and non-GAAP earnings per share exclude the effects of (i) amortization of intangibles, (ii) in-process research and development, (iii) stock-based compensation, (iv) the mark-up to fair value of inventory acquired in the Sierra Logic acquisition and subsequently sold, (v) net recovery of a previous impairment of a strategic investment and associated note, (vi) impairment of other intangible assets, (vii) net charge related to an impairment of a strategic investment, (viii) severance and associated costs, and (ix) charges reflecting the U.S. tax impact associated with the implementation of our recent globalization initiatives. In addition, non-GAAP net income and non-GAAP diluted earnings per share reflect an adjustment of income tax expense associated with exclusion of the foregoing expense (income) items. The adjustment of income taxes is required in order to provide management and investors a more accurate assessment of the taxes that would have been payable on net income, as adjusted by exclusion of the effects of the above listed items. The Company believes that presentation of measures of net income and diluted earnings per share that exclude these items is useful to management and investors for the reasons described above with respect to non-GAAP gross margin and non-GAAP operating income. The Company believes that presentation of a measure of net income and diluted earnings per share that excludes the net recovery related to a previous impairment of strategic investment and associated note, the net charge related to an impairment of a strategic investment, as well as the tax impact associated with the Company's recent globalization initiatives, is useful to management and investors in evaluating the performance of the Company's ongoing operations on a period-to-period basis and relative to the Company's competitors. In this regard, the Company notes that recoveries and charges of this type are infrequent in nature and are unrelated to ongoing operation of the Company's core business.

The Company believes disclosure of non-GAAP net income and non-GAAP diluted earnings per share has economic substance because the excluded expenses are infrequent in nature, are unlikely to be recurring and are variable in nature, or, other than with respect to charges relating to the tax impact associated with the Company's globalization initiatives, do not represent current cash expenditures. A material limitation associated with the use of this measure as compared to the GAAP measures of net income and diluted earnings per share is that they may not be comparable with the calculation of net income and diluted earnings per share for other companies in the Company's industry. The Company compensates for these limitations by providing full disclosure of the effects of this non-GAAP measure, by presenting the corresponding GAAP financial measure in this release and in the Company's financial statements and by providing a reconciliation to the corresponding GAAP measure to enable investors to perform their own analysis.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: With the exception of historical information, the statements set forth above, including, without limitation, those contained in the discussion of "Business Outlook" above, and the reconciliation of forward-looking diluted earnings per share below, contain forward-looking statements that involve risk and uncertainties. We expressly disclaim any obligation or undertaking to release publicly any updates or changes to these forward-looking statements that may be made to reflect any future events or circumstances. The Company wishes to caution readers that a number of important factors could cause actual results to differ materially from those in the forward-looking statements. The fact that the economy generally, and the technology and storage segments specifically, have been in a state of uncertainty makes it difficult to determine if past experience is a good guide to the future and makes it impossible to determine if markets will grow or shrink in the short term. In the past, the Company's results have been significantly impacted by a widespread slowdown in technology investment that pressured the storage networking market that is the mainstay of the Company's business. A downturn in information technology spending could adversely affect the Company's revenues and results of operations. As a result of this uncertainty, the Company is unable to predict with any accuracy what future results might be. Other factors affecting these forward-looking statements include, but are not limited to, the following: slower than expected growth of the storage networking market or the failure of the Company's Original Equipment Manufacturer (OEM) customers to successfully incorporate the Company's products into their systems; the Company's dependence on a limited number of customers and the effects of the loss of, or decrease or delays in orders by, any such customers, or the failure of such customers to make payments; the emergence of new or stronger competitors as a result of consolidation movements in the market; the timing and market acceptance of the Company's or the Company's OEM customers' new or enhanced products; the variability in the level of the Company's backlog and the variable and seasonal procurement patterns of the Company's customers; the effects of terrorist activities, natural disasters and resulting political or economic instability; the highly competitive nature of the markets for the Company's products as well as pricing pressures that may result from such competitive conditions; the effect of rapid migration of customers towards newer, lower cost product platforms; possible transitions from board or box level to application specific computer chip solutions for selected applications; a shift in unit product mix from higher-end to lower-end mezzanine card products; a decrease in the average unit selling prices or an increase in the manufactured cost of the Company's products; delays in product development; the Company's reliance on third-party suppliers and subcontractors for components and assembly; any inadequacy of the Company's intellectual property protection or the potential for third-party claims of infringement; the Company's ability to attract and retain key technical personnel; the Company's ability to benefit from research and development activities; the Company's dependence on international sales and internationally produced products; the effect of acquisitions; impairment charges; changes in tax rates or legislation; changes in accounting standards; and the potential effects of global warming and any resulting regulatory changes on our business. These and other factors which could cause actual results to differ materially from those in the forward-looking statements are discussed in the Company's filings with the Securities and Exchange Commission, including its recent filings on Forms 8-K, 10-K and 10-Q, under the caption "Risk Factors."

This news release refers to various products and companies by their trade names. In most, if not all, cases these designations are claimed as trademarks or registered trademarks by their respective companies.


                     EMULEX CORPORATION AND SUBSIDIARIES
                   Condensed Consolidated Statements of Income
                       (in thousands, except per share data)

                           Three Months Ended        Year Ended
                           June 29,    July 1,   June 29,    July 1,
                             2008       2007       2008       2007
                          ------------------------------------------
 Net revenues             $ 112,763  $ 126,268  $ 488,301  $ 470,187
 Cost of sales               41,237     49,226    187,077    195,579
                          ------------------------------------------
  Gross profit               71,526     77,042    301,224    274,608
                          ------------------------------------------

 Operating expenses:
  Engineering and
   development               33,437     31,346    129,232    117,833
  Selling and marketing      15,689     12,843     57,946     47,870
  General and
   administrative            11,497      9,586     38,531     31,416
  In-process research and
   development                   --       (600)        --     19,225
  Impairment of other
   intangible assets             --         --         --      2,001
   Amortization of other
    intangible assets         2,089      2,531      9,260     12,082
                          ------------------------------------------
  Total operating
   expenses                  62,712     55,706    234,969    230,427
                          ------------------------------------------

  Operating income            8,814     21,336     66,255     44,181
                          ------------------------------------------
 Nonoperating income
  (loss):
  Interest income             2,018      3,472     11,672     20,000
  Interest expense               (2)         6        (27)    (1,179)
  Other income (loss), net      (52)    (4,935)        17     (3,919)
                          ------------------------------------------
  Total nonoperating
   income (loss)              1,964     (1,457)    11,662     14,902
                          ------------------------------------------

 Income before income
  taxes                      10,778     19,879     77,917     59,083

 Income tax provision        61,185      6,717     84,988     29,649
                          ------------------------------------------

 Net income (loss)        $ (50,407) $  13,162  $  (7,071) $  29,434
                          ==========================================
 Net income (loss) per
  share:
    Basic                 $   (0.61) $    0.16  $   (0.09) $    0.35
                          ==========================================
    Diluted               $   (0.61) $    0.15  $   (0.09) $    0.34
                          ==========================================

 Number of shares used in
  per share computations:
    Basic                    82,358     83,830     82,147     84,545
                          ==========================================
    Diluted                  82,358     86,295     82,147     89,089
                          ==========================================

                         EMULEX CORPORATION AND SUBSIDIARIES
                        Condensed Consolidated Balance Sheets
                                   (in thousands)


                                            June 29,    July 1,
                                              2008       2007
                                            --------   --------
 Assets
 ------

 Current assets:
  Cash and cash equivalents                 $217,017   $ 69,036
  Investments                                133,182    202,288
  Accounts and other receivables, net         61,634     67,529
  Inventories                                 19,336     28,973
  Prepaid expenses                             5,105      4,114
  Deferred income taxes                       20,773     27,114
                                            --------   --------
   Total current assets                      457,047    399,054

 Property and equipment, net                  73,580     64,294
 Investments                                     150         --
 Intangible assets, net                      155,142    170,689
 Deferred income taxes                         5,481         --
 Other assets                                  7,656     25,440
                                            --------   --------
                                            $699,056   $659,477
                                            ========   ========
 Liabilities and Stockholders' Equity
 ------------------------------------

 Current liabilities:
  Accounts payable                          $ 23,714   $ 19,761
  Accrued liabilities                         26,363     29,483
  Income taxes payable                        37,528     21,285
                                            --------   --------
  Total current liabilities                   87,605     70,529


 Other liabilities                             3,633        802
 Deferred income taxes                            --      6,239
 Accrued taxes                                31,979         --
                                            --------   --------
 Total liabilities                           123,217     77,570
                                            --------   --------


 Total stockholders' equity                  575,839    581,907
                                            --------   --------
                                            $699,056   $659,477
                                            ========   ========

                         EMULEX CORPORATION AND SUBSIDIARIES
                               Supplemental Information

 Historical Net Revenues by Channel and Territory:
 -------------------------------------------------

                        Q4                 Q4
                     FY 2008  % Total    FY 2007   % Total      %
 ($000s)            Revenues  Revenues  Revenues   Revenues  Change
                    ------------------  -------------------  ------
 Revenues from OEM
  customers         $  88,617      79%  $  90,070       71%     (2%)
 Revenues from
  distribution         23,945      21%     36,207       29%    (34%)
 Other                    201      nm          (9)      nm      nm
                    ------------------  -------------------  ------
 Total net revenues $ 112,763     100%  $ 126,268      100%    (11%)
                    ==================  ===================  ======

 United States      $  46,054      41%  $  61,086       48%    (25%)
 Pacific Rim
  countries            28,485      25%     26,116       21%      9%
 Europe and rest of
  world                38,224      34%     39,066       31%     (2%)
                     ------------------  ------------------- --------
 Total net revenues $ 112,763     100%  $ 126,268      100%    (11%)
                    ==================  ===================  =======

 nm - not meaningful

 Summary of Stock-based Compensation:
 ------------------------------------

                             Three Months Ended     Year Ended
                             June 29,   July 1,  June 29,   July 1,
 ($000s)                       2008      2007      2008      2007
                             -------------------------------------

 Cost of sales               $   313   $   271   $ 1,320   $ 1,065
 Engineering & development     3,013     3,146    12,031    12,897
 Selling & marketing           1,340     1,242     5,580     5,556
 General & administrative      3,214     2,044    10,071     8,512
                             -------------------------------------
 Total stock-based
  compensation               $ 7,880   $ 6,703   $29,002   $28,030
                             =====================================

 Reconciliation of GAAP gross margin to non-GAAP gross margin:
 -------------------------------------------------------------

                                Three Months
                                    Ended          Year Ended
                               June 29, July 1, June 29, July 1,
                                 2008    2007     2008    2007
                            ---------------------------------------

 GAAP gross margin               63.4%   61.0%   61.7%   58.4%
                            ---------------------------------------
 Items excluded from GAAP
  gross margin to calculate
  non-GAAP gross margin:
 Stock-based compensation         0.3%    0.2%    0.3%    0.2%
 Amortization of intangibles      4.2%    5.8%    4.7%    5.6%
 Impairment of intangible
  assets                           --     0.1%    0.6%    0.0%
 Additional cost on sell
  through of stepped up
  inventory                        --      --      --     0.4%
                            ---------------------------------------
 Non-GAAP gross margin           67.9%   67.1%   67.3%   64.6%
                            =======================================

 Reconciliation of GAAP operating expenses to non-GAAP
 operating expenses:
 -----------------------------------------------------

                          Three Months Ended         Year Ended
                          June 29,    July 1,   June 29,    July 1,
 ($000s)                    2008       2007       2008       2007
                         ------------------------------------------

 GAAP operating expenses,
  as presented above
  above                  $  62,712  $  55,706  $ 234,969  $ 230,427
                         ------------------------------------------
 Items excluded from
  GAAP operating
  expenses to calculate
  non-GAAP operating
  expenses:

  Stock-based
   compensation             (7,567)    (6,432)   (27,682)   (26,965)
  Amortization of other
   intangibles              (2,089)    (2,531)    (9,260)   (12,082)
  Severance and
   associated costs         (1,224)        --     (1,224)        --
  Impairment of other
   intangible assets            --         --         --     (2,001)
  In-process research
   and development              --        600         --    (19,225)
                         ------------------------------------------
  Impact on operating
   expenses                (10,880)    (8,363)   (38,166)   (60,273)
                         ------------------------------------------

 Non-GAAP operating
  expenses               $  51,832  $  47,343  $ 196,803  $ 170,154
                         ==========================================

 Reconciliation of GAAP operating income to non-GAAP operating
 income:
 -------------------------------------------------------------

                            Three Months Ended     Year Ended
                             June 29,  July 1,   June 29,  July 1,
 ($000s)                       2008     2007       2008     2007
                            --------------------------------------
 GAAP operating income as
  presented above           $  8,814  $ 21,336  $ 66,255  $ 44,181
                            --------------------------------------

 Items excluded from GAAP
  operating income to
  calculate non-GAAP
  operating income:

  Stock-based
   compensation                7,880     6,703    29,002    28,030
  Amortization of
   intangibles                 6,820     9,816    32,302    37,888
  Severance and
   associated costs            1,224        --      1,224       --
  Impairment of other
   intangible assets              --       175      3,097    2,176
 In-process research and
  development(1)                  --      (600)       --    19,225
 Additional cost on sell
  through of stepped up
  inventory                       --        --        --     2,036
                            --------------------------------------
 Impact on operating
  income                      15,924    16,094    65,625    89,355
                            --------------------------------------
 Non-GAAP operating
  income                    $ 24,738  $ 37,430  $131,880  $133,536
                            ======================================

 Reconciliation of GAAP net income (loss) to non-GAAP net income:
 ----------------------------------------------------------------

                           Three Months Ended       Year Ended
                           June 29,   July 1,    June 29,   July 1,
 ($000s)                     2008      2007        2008      2007
                         ------------------------------------------
 GAAP net income (loss)
  as presented above     $ (50,407) $  13,162  $  (7,071) $  29,434
                         ------------------------------------------

 Items excluded from GAAP
  net income (loss)to
  calculate non-GAAP net
  income:

  Stock-based
   compensation              7,880      6,703     29,002     28,030
  Amortization of
   intangibles               6,820      9,816     32,302     37,888
  Severance and
   associated costs          1,224         --      1,224         --
  Impairment of other
   intangible assets            --        175      3,097      2,176
  In-process research and
   development                  --       (600)        --     19,225
  Additional cost on sell
   through of stepped up
   inventory                    --         --         --      2,036
  Net recovery related to
   a previous impairment
   of a strategic
   investment and
   associated note              --         --         --       (819)
  Net charge related to
   an impairment of
   strategic investment         --      4,975         --      4,975
  Income tax effect of
   above items              (5,744)    (4,841)   (22,013)   (22,123)
  Charges related to
   globalization
   initiatives              58,467         --     58,467         --
                         ------------------------------------------
   Impact on net income
    (loss)                  68,647     16,228    102,079     71,388
                         ------------------------------------------
 Non-GAAP net income     $  18,240  $  29,390  $  95,008  $ 100,822
                         ==========================================

 Reconciliation of GAAP diluted earnings (loss) per share to
 non-GAAP diluted earnings per share:
 -----------------------------------------------------------

                             Three Months Ended     Year Ended
                              June 29,  July 1,  June 29,  July 1,
 (shares in 000s)               2008     2007      2008     2007
                            --------------------------------------
 GAAP diluted earnings
  (loss) per share as
  presented above           $  (0.61) $   0.15  $  (0.09) $   0.34
                            --------------------------------------

 Items excluded from diluted
  GAAP earnings (loss) per
  share to calculate diluted
  non-GAAP earnings per
  share, net of tax effect:
  Stock-based compensation      0.06      0.07      0.24      0.24
  Amortization of
   intangibles                  0.05      0.07      0.24      0.27
  Severance and associated
   costs                        0.01        --      0.01        --
  Impairment of other
   intangible assets              --      0.00      0.02      0.01
  In-process research and
   development                    --     (0.01)       --      0.22
  Additional cost on sell
   through of stepped up
   inventory                      --        --        --      0.01
  Net recovery related to a
   previous impairment of a
   strategic investment and
   associated note                --        --        --     (0.01)
  Net charge related to an
   impairment of strategic
   investment                     --      0.06        --      0.06
  Charges related to
   globalization
   initiatives                  0.71        --      0.71        --
                            --------------------------------------
  Impact on diluted
   earnings (loss) per
   share                        0.83      0.19      1.22      0.80
                            --------------------------------------
 Non-GAAP diluted earnings
  per share                 $   0.22  $   0.34  $   1.13  $   1.14
                            --------------------------------------
 Diluted shares used in
  non-GAAP per share
  computations                83,980    86,295    83,980    89,089
                            ======================================

                                                   Guidance for
                                                   Three Months
                                                      Ending
                                                   September 28,
                                                       2008
                                                   -------------

 Non-GAAP diluted earnings per share guidance      $0.18 - $0.20

 Items excluded, net of tax, from non-GAAP diluted
  earnings per share to calculate GAAP diluted
  earnings per share guidance:
   Amortization of intangibles                          0.05
   Stock-based compensation                             0.05
   Severance and associated costs                       0.02
   Charges related to globalization initiatives         0.06
                                                   -------------

 GAAP diluted earnings per share guidance          $0.00 - $0.02
                                                   =============



 Forward-Looking Gross Margin Reconciliation:
                                                   Guidance for
                                                   Three Months
                                                      Ending
                                                   September 28
                                                       2008
                                                   -------------

 Non-GAAP gross margin guidance                         67%

 Items excluded from non-GAAP gross margin to
  calculate GAAP gross margin guidance:

   Amortization of intangibles                           4%
   Stock-based compensation                              0%
                                                   -------------

 GAAP gross margin guidance                             63%
                                                   =============


            

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