EX-99.01 2 elxq4fy14ex-9901.htm EXHIBIT 99.01 ELXQ4FY14EX-99.01
Exhibit 99.01

                            
                    
Investor Contact:
 
Press Contact:
Paul Mansky
 
Katherine Lane
Sr. Director Corporate Development & Investor Relations
 
Sr. Director Corporate & Marketing Communications
+1 714 885-2888
 
+1 714 885-3828
paul.mansky@emulex.com
 
katherine.lane@emulex.com


EMULEX ANNOUNCES PRELIMINARY FISCAL 2014 FOURTH QUARTER AND ANNUAL RESULTS


COSTA MESA, Calif., August 7, 2014 ─ Emulex Corporation (NYSE:ELX), a leader in network connectivity, monitoring and management, today announced preliminary earnings results for the fourth quarter and fiscal year ending June 29, 2014.

Fourth Quarter Financial Highlights

•
Total revenue of $99.8 million was at the high end of the prior guidance range, aided by sequential growth in Fibre Channel host products.
•
Non-GAAP diluted earnings of $0.07 and a GAAP loss of $0.19 per share as compared to guidance of $0.00 - $0.05 and a loss of $0.16 - $0.21, respectively.
•
Non-GAAP gross margins of 66%, unchanged sequentially and up 100 basis points year-over-year, with GAAP gross margins of 58%, unchanged over both periods.
•
Cash, cash equivalents and investments at the end of the quarter of $158.4 million.
•
Diluted share count of 77.8 million shares in the fourth quarter, down from 93.5 million at the end of the first quarter of fiscal 2014.

“I’m very pleased with the operational execution by the Emulex team during the fourth quarter. We achieved the high end of our revenue guidance, and with the completion of the closure of the Bolton engineering facility, we have accomplished the reduction in our operating expenses that we announced back in November. This, combined with strong gross margins helped us exceed the high end of our earnings per share guidance,” commented Jeff Benck, president and CEO, Emulex. “We experienced good recovery in our Fibre Channel business in the quarter with sequential revenue growth. Based on reported results to date, we expect to demonstrate more than two points of Fibre Channel market share gain in the quarter.”

“As we look forward, we believe that we should benefit from two major server upgrade cycles this year, IBM Power 8 and the Intel Grantley refresh. With this new Intel design cycle nearing completion, Emulex has significantly broadened its design win footprint in Ethernet from a concentration among two OEMs to now include offerings from all of the top eight server OEMs as well as the leading open compute ODMs,” Benck concluded.



Preliminary FY’14 Q4 Earnings Results     
August 7, 2014
Page 2 of 13


Business Outlook

Although actual results may vary depending on a variety of factors, including those listed in the Safe Harbor Statement below and our filings with the SEC, Emulex is forecasting total net revenues in the range of $93 - $99 million. The Company expects first quarter non-GAAP earnings of $0.07 - $0.11 and a GAAP loss of $0.07 - $0.11 per share. GAAP estimates for the first quarter reflect approximately $0.18 per diluted share in expected charges arising primarily from amortization of intangibles, stock-based compensation, royalties, mitigation expenses and license fees associated with the Broadcom patent litigation, the accretion of debt discount on outstanding convertible senior notes, and the tax effects and the impact of our U.S. GAAP tax valuation allowance associated with these items. Reconciliation between GAAP and non-GAAP results is included in the accompanying financial data.

Fourth Quarter Business Highlights

•
Deepened Lenovo relationship with new 10Gb Ethernet and 16Gb Fibre Channel solutions for Lenovo ThinkServer rack and tower servers and was awarded the Lenovo Outstanding Quality supplier award for the second time in three years.
•
Announced next generation 10GbE converged adapters as EMC E-Lab qualified for use with solutions including EMC VNX and the new VMAX3 storage arrays.
•
Unveiled next generation 10Gb and 40Gb Ethernet solutions featuring advanced packet processing, enabling the telecommunications market to lower costs and scale flexibility by accelerating the deployment of Network Functions Virtualization (NFV) for the mobile, cloud-enabled world.
•
Commenced a strategic partnership with Compuware to deliver integrated best-of-breed application-aware network performance management (AA-NPM) and network monitoring solutions using Compuware’s Data Center Real-User Monitoring (DC RUM) and EndaceProbe™ Intelligent Network Recorders (INRs).

Preliminary FY’14 Q4 Earnings Results     
August 7, 2014
Page 3 of 13


EMULEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
 (unaudited, in thousands, except per share data)
 
Three Months Ended
Twelve Months Ended
 
June 29,
June 30,
June 29,
June 30,
 
2014
2013
2014
2013
Net revenues
$
99,775

$
120,369

$
447,333

$
478,567

 
 
 
 
 
Cost of sales:
 
 
 
 
  Cost of goods sold
34,330

42,917

153,994

173,004

  Amortization of core and developed technology intangible assets
6,277

6,025

24,916

21,800

Expenses related to the Broadcom patents
1,593

1,587

7,426

4,963

Cost of sales
42,200

50,529

186,336

199,767

   Gross profit
57,575

69,840

260,997

278,800

 
 
 
 
 
Operating expenses:
 
 
 
 
   Engineering and development
36,359

46,202

155,909

168,446

   Selling and marketing
20,467

20,550

77,757

66,235

   General and administrative
8,666

9,872

41,115

38,893

   Amortization of other intangible assets
1,584

1,559

6,375

5,935

      Total operating expenses
67,076

78,183

281,156

279,509

 








      Operating loss
(9,501
)
(8,343
)
(20,159
)
(709
)
 
 
 
 
 
Non-operating loss:
 
 
 
 
   Interest income
1

11

26

34

   Interest expense
(2,354
)
(13
)
(5,860
)
(24
)
   Other income (expense), net
(75
)
(40
)
(193
)
(4,884
)
      Total non-operating loss
(2,428
)
(42
)
(6,027
)
(4,874
)
 
 
 
 
 
Loss before income taxes
(11,929
)
(8,385
)
(26,186
)
(5,583
)
 








Income tax provision (benefit)
2,736

(3,775
)
3,346

(369
)
 
 
 
 
 
Net loss
$
(14,665
)
$
(4,610
)
$
(29,532
)
$
(5,214
)
 
 
 
 
 
Net loss per share:
 
 
 
 
   Basic
$
(0.19
)
$
(0.05
)
$
(0.35
)
$
(0.06
)
   Diluted
$
(0.19
)
$
(0.05
)
$
(0.35
)
$
(0.06
)
 
 
 
 
 
Number of shares used in net loss per share computations:
 
 
 
 
   Basic
76,459

91,084

83,917

90,271

   Diluted
76,459

91,084

83,917

90,271


Preliminary FY’14 Q4 Earnings Results     
August 7, 2014
Page 4 of 13



EMULEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(unaudited, in thousands)
 
June 29,
June 30,
 
2014
2013
Assets
 
 
 
 
 
Current assets:
 
 
      Cash and cash equivalents
$
158,439

$
105,637

      Accounts receivable, net
76,974

82,363

      Inventories
25,831

23,897

      Prepaid income taxes
2,839

10,166

      Prepaid expenses and other current assets
17,190

14,113

      Deferred income taxes
223

3,137

      Total current assets
281,496

239,313

 
 
 
Property and equipment, net
59,908

62,415

Goodwill and intangible assets, net
356,526

387,817

Other assets
19,993

21,164

 
$
717,923

$
710,709

 
 
 
Liabilities and Stockholders’ Equity
 
 
 
 
 
Current liabilities:
 
 
      Accounts payable
$
25,762

$
27,725

      Accrued and other current liabilities
42,183

43,861

      Total current liabilities
67,945

71,586

 
 
 
Convertible senior notes
146,478

—

Other liabilities
6,842

4,924

Deferred income taxes
15,550

17,048

Accrued taxes
26,462

29,526

  Total liabilities
263,277

123,084

 
 
 
Total stockholders’ equity
454,646

587,625

 
$
717,923

$
710,709


Preliminary FY’14 Q4 Earnings Results     
August 7, 2014
Page 5 of 13



EMULEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
(unaudited, in thousands)
 
Twelve Months Ended
 
June 29,
June 30,
 
2014
2013
 
 
 
Cash flows from operations:
 
 
Net (loss) income
$
(29,532
)
$
(5,214
)
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
 
 
      Depreciation and amortization
50,327

45,935

      Stock based compensation
15,257

21,802

      Deferred income taxes
1,428

1,886

      Other reconciling items
2,490

(209
)
Changes in assets and liabilities
7,813

(53,603
)
         Net cash provided by (used in) operating activities
47,783

10,597

 
 
 
Cash flows from investing activities:
 
 
   Investment in property and equipment, net
(15,983
)
(15,696
)
   Acquisitions, net of cash acquired
—

(107,709
)
   Maturities of (proceeds from) investments, net
—

28,939

      Net cash provided by (used in) investing activities
(15,983
)
(94,466
)
 
 
 
Cash flows from financing activities:
 
 
Issuance of convertible senior notes
175,000

—

Repurchase of common stock
(150,000
)
—

    Non-controlling interest
—

(11,828
)
   Other
(4,459
)
628

      Net cash provided by (used in) financing activities
20,541

(11,200
)
 
 
 
Effect of exchange rates on cash and cash equivalents
461

(342
)
 
 
 
Net increase (decrease) in cash & cash equivalents
52,802

(95,411
)
Opening cash balance
105,637

201,048

Ending cash balance
$
158,439

$
105,637








Preliminary FY’14 Q4 Earnings Results     
August 7, 2014
Page 6 of 13


EMULEX CORPORATION AND SUBSIDIARIES
Supplemental Information
Reconciliation of GAAP Net Loss to Non-GAAP Net Income:
 
 
 
($000s)
Three Months Ended
Twelve Months Ended
 
June 29,
June 30,
June 29,
June 30,
 
2014
2013
2014
2013
GAAP net loss as presented above
$
(14,665
)
$
(4,610
)
$
(29,532
)
$
(5,214
)
GAAP loss per share as presented above
$
(0.19
)
$
(0.05
)
$
(0.35
)
$
(0.06
)
Shares used in GAAP loss per share computations
76,459

91,084

83,917

90,271

 
 
 
 
 
Items excluded from GAAP net loss to calculate non-GAAP net income:
 
 
 
 
   Amortization of intangibles:
 
 
 
 
     Cost of sales
6,277

6,025

24,916

21,800

     Amortization of intangibles (operating expense)
1,584

1,559

6,375

5,935

          Total amortization of intangibles
7,861

7,584

31,291

27,735

   Stock-based compensation:
 
 
 
 
     Cost of sales
198

269

667

1,013

     Engineering and development
1,271

2,284

5,550

9,802

     Selling and marketing
891

1,017

3,929

3,593

     General and administrative
671

1,964

5,111

7,393

          Total stock-based compensation
3,031

5,534

15,257

21,801

   Site closure and other restructuring costs:
 
 
 
 
     Cost of sales
(6
)
45

296

45

     Engineering and development
263

1,728

5,688

1,728

     Selling and marketing
1,348

591

2,473

591

     General and administrative
581

340

1,981

340

          Total site closure and other restructuring costs
2,186

2,704

10,438

2,704

   Expenses related to the Broadcom patents:
 
 
 
 
     Cost of sales
1,593

1,587

7,426

4,963

     Engineering and development
(271
)
3,809

2,132

6,948

     Selling and marketing
1,154

—

1,979

—

     General and administrative
22

307

5,347

1,658

           Total expenses related to the Broadcom patents
2,498

5,703

16,884

13,569

   Expenses related to the acquisition of Endace:
 
 
 
 
     Cost of sales
—

349

—

858

     Engineering and development
—

116

—

275

     Selling and marketing
—

69

21

85

     General and administrative
(39
)
328

282

3,176

     Non-operating income
—

—

—

4,692

 Total expenses related to the acquisition of Endace
(39
)
862

303

9,086

   Expenses related to class action lawsuit:
 
 
 
 
     General and administrative
18

—

18

—

          Total expenses related to class action lawsuit
18

—

18

—

IRS NOPA:
 
 
 
 
     General and administrative
762

—

934

—

          Total IRS NOPA
762

—

934

—

Accretion of debt discount on convertible senior notes
1,587

—

3,914

—

Tax impact of above items and U.S. GAAP tax valuation allowance
2,563

(3,779
)
(875
)
(2,752
)
   Impact on GAAP net loss
20,467

18,608

78,164

72,143

 
 
 
 
 
Non-GAAP net income
$
5,802

$
13,998

$
48,632

$
66,929

Non-GAAP diluted earnings per share
$
0.07

$
0.15

$
0.57

$
0.73

Diluted shares used in non-GAAP earnings per share computations
77,784

92,842

85,583

92,171


Preliminary FY’14 Q4 Earnings Results     
August 7, 2014
Page 7 of 13



Reconciliation of GAAP Gross Margin to Non-GAAP Gross Margin:
 
Three Months Ended
Twelve Months Ended
($000s)
June 29,
June 30,
June 29,
June 30,
 
2014
2013
2014
2013
Revenue
$
99,775

$
120,369

$
447,333

$
478,567

 
 
 
 
 
GAAP gross margin
57,575

69,840

260,997

278,800

GAAP gross margin %
57.7
%
58.0
%
58.3
%
58.3
%
 
 
 
 
 
Items excluded from GAAP gross margin to calculate non-GAAP gross margin:
 
 
 
 
   Amortization of intangibles
6,277

6,025

24,916

21,800

   Stock-based compensation
198

269

667

1,013

   Site closure and other restructuring costs
(6
)
45

296

45

   Expenses related to the Broadcom patents
1,593

1,587

7,426

4,963

 Expenses related to the acquisition of Endace
—

349

—

858

Impact on gross margin
8,062

8,275

33,305

28,679

 
 
 
 
 
Non-GAAP gross margin
$
65,637

$
78,115

$
294,302

$
307,479

Non-GAAP gross margin %
65.8
%
64.9
%
65.8
%
64.2
%



Reconciliation of GAAP Operating Expenses to Non-GAAP Operating Expenses:
 
Three Months Ended
Twelve Months Ended
 
June 29,
June 30,
June 29,
June 30,
($000s)
2014
2013
2014
2013
 
 
 
 
 
GAAP operating expenses, as presented above
$
67,076

$
78,183

$
281,156

$
279,509

 
 
 
 
 
Items excluded from GAAP operating expenses to calculate non-GAAP operating expenses:
 
 
 
 
    Amortization of other intangibles
(1,584
)
(1,559
)
(6,375
)
(5,935
)
    Stock-based compensation
(2,833
)
(5,265
)
(14,590
)
(20,788
)
Site closure and other restructuring costs
(2,192
)
(2,659
)
(10,142
)
(2,659
)
Expenses related to the Broadcom patents
(905
)
(4,116
)
(9,458
)
(8,606
)
    Expenses related to the acquisition of Endace
39

(513
)
(303
)
(3,536
)
    Expenses related to class action lawsuit
(18
)
—

(18
)
—

    IRS NOPA
(762
)
—

(934
)
—

    Impact on operating expenses
(8,255
)
(14,112
)
(41,820
)
(41,524
)
Non-GAAP operating expenses
$
58,821

$
64,071

$
239,336

$
237,985


Preliminary FY’14 Q4 Earnings Results     
August 7, 2014
Page 8 of 13



Reconciliation of GAAP Operating Loss to Non-GAAP Operating Income:
 
Three Months Ended
Twelve Months Ended
($000s)
June 29,
June 30,
June 29,
June 30,
 
2014
2013
2014
2013
 
 
 
 
 
GAAP operating loss as presented above
$
(9,501
)
$
(8,343
)
$
(20,159
)
$
(709
)
 
 
 
 
 
Items excluded from GAAP operating loss to calculate non-GAAP operating income:
 
 
 
 
   Amortization of intangibles
7,861

7,584

31,291

27,735

   Stock-based compensation
3,031

5,534

15,257

21,801

   Site closure and other restructuring costs
2,186

2,704

10,438

2,704

   Expenses related to the Broadcom patents
2,498

5,703

16,884

13,569

   Expenses related to the acquisition of Endace
(39
)
862

303

4,394

   Expenses related to class action lawsuit
18

—

18

—

   IRS NOPA
762

—

934

—

   Impact on operating loss
16,317

22,387

75,125

70,203

Non-GAAP operating income
$
6,816

$
14,044

$
54,966

$
69,494



 
Guidance for
Three Months Ending
September 28, 2014
 
 
 
 
Non-GAAP diluted earnings per share guidance
$0.07 - $0.11
 
 
Items excluded, net of tax, from non-GAAP diluted earnings per share to
calculate GAAP loss per share guidance:
 
      Amortization of intangibles
(0.10)
      Stock-based compensation
(0.04)
      Expenses related to the Broadcom patents
(0.03)
      Accretion of debt discount on convertible senior notes
(0.02)
      Tax impact of above items and U.S. GAAP tax valuation allowance
0.01
 
 
GAAP loss per share guidance
($0.07 - $0.11)

Preliminary FY’14 Q4 Earnings Results     
August 7, 2014
Page 9 of 13


Historical Net Revenue by Product Lines:
($000s)
 Q4 FY
2014
Revenues
% Total
Revenues
 
Q4 FY
2013
Revenues
% Total
Revenues
 
% Change
 
 
 
 
 
 
 
 
Network Connectivity Products
$
75,850

76
%
 
$
82,943

69
%
 
(9
)%
Storage Connectivity and Other Products
16,850

17
%
 
29,115

24
%
 
(42
)%
Emulex Connectivity Division
$
92,700

93
%
 
$
112,058

93
%
 
(17
)%
Network Visibility Products
7,075

7
%
 
8,311

7
%
 
(15
)%
Total net revenues
$
99,775

100
%
 
$
120,369

100
%
 
(17
)%

Historical Net Revenues by Channel:
($000s)
 Q4 FY
2014
Revenues
% Total Revenues
 
Q4 FY
2013
Revenues
% Total Revenues
 
% Change
 
 
 
 
 
 
 
 
Revenues from OEM customers
$
82,995

83
%
 
$
101,342

84
%
 
(18
)%
Revenues from distribution
13,646

14
%
 
14,107

12
%
 
(3
)%
Other
3,134

3
%
 
4,920

4
%
 
(36
)%
Total net revenues
$
99,775

100
%
 
$
120,369

100
%
 
(17
)%

Historical Net Revenues by Territory:
($000s)
 Q4 FY
2014
Revenues
% Total Revenues
 
Q4 FY
2013
Revenues
% Total Revenues
 
% Change
 
 
 
 
 
 
 
 
Asia-Pacific
$
61,469

61
%
 
$
68,297

57
%
 
(10
)%
United States
22,707

23
%
 
33,881

28
%
 
(33
)%
Europe, Middle East and Africa
14,752

15
%
 
16,537

14
%
 
(11
)%
Rest of world
847

1
%
 
1,654

1
%
 
(49
)%
Total net revenues
$
99,775

100
%
 
$
120,369

100
%
 
(17
)%


Preliminary FY’14 Q4 Earnings Results     
August 7, 2014
Page 10 of 13


Note Regarding Non-GAAP Financial Information

To supplement the condensed consolidated financial statements presented in accordance with U.S. generally accepted accounting principles (GAAP), we have included the following non-GAAP financial measures in this press release or in the webcast to discuss our financial results for the fourth fiscal quarter which may be accessed via our 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. These non-GAAP financial measures exclude certain expenses and reflect an additional way of viewing aspects of our operations that, when viewed with the GAAP results and the reconciliations to corresponding GAAP financial measures, provide a more complete understanding of our results of operations and the factors and trends affecting our 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. We use our non-GAAP financial measures internally to better understand and evaluate our business, prepare annual budgets, and in measuring performance for some forms of compensation.

Our non-GAAP financial measures reflect adjustments based on the following items, as well as the related income tax effects:

Amortization of intangibles. Amortization of intangibles generally represents costs incurred by an acquired company or other third party to build value prior to our acquisition of the intangible assets. As such, it is effectively part of the transaction costs of the acquisition rather than ongoing costs of operating our core business. As a result, we believe that exclusion of these costs in presenting 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 our core business. Amortization of intangibles will recur in future periods.

Stock-based compensation. Although stock-based compensation represents an important part of incentive compensation offered to our key employees, we believe that exclusion of the impact of stock-based compensation assists management and investors in evaluating the period over period performance of our business operations and in comparing our performance with those of our competitors. Stock-based compensation expense will recur in future periods.

Site closure and other restructuring costs. We have recognized expenses related to an organizational restructure including closure and consolidation of certain facilities, as well as severance and related costs. We believe that exclusion of these expenses is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis and relative to our competitors. In this regard, we note that expenses of this type may be incurred in future periods but are generally infrequent in nature.

Patent litigation damages, license fees and royalties related to the Broadcom patents. We have incurred expenses in the form of damages, sunset period royalties and settlement costs as a result of a judgment in a patent litigation proceeding with Broadcom and the related partial settlement and worldwide license agreement executed on July 3, 2012 (the Release Agreement). We believe that exclusion of these cost of sales expenses related to the Broadcom patents is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis and relative to our competitors. In this regard, we note that expenses of this type are generally unrelated to our core business and/or infrequent in nature but will continue in future periods.

Dismissal Agreement and mitigation expenses related to the Broadcom patents. Effective March 30, 2014, we have entered into a Dismissal and Standstill Agreement (Dismissal Agreement) agreeing to pay Broadcom, a non-refundable, non-cancelable dismissal and standstill fee of $5 million. We have recognized mitigation expenses related to the Broadcom patents. We believe that exclusion of these operating expenses related to the Broadcom patents is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis and relative to our competitors. In this regard, we note that expenses of this type are generally unrelated to our core business and/or infrequent in nature but will continue in future periods.

Expenses related to the acquisition of Endace Limited. We have incurred various expenses in connection with our acquisition of Endace Limited including but not limited to legal fees, accounting fees, the mark-up on acquired

Preliminary FY’14 Q4 Earnings Results     
August 7, 2014
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inventory, severance costs and realized translation loss. We believe that exclusion of these charges is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis and relative to our competitors, as these expenditures do not reflect a continuing cost of operating our current core business. In this regard, we note that expenses of this type relate to the acquisition of an operating business and, as such, are infrequent in nature but may occur in future periods in the event we make a material acquisition.

Expenses related to class action lawsuit. We have incurred expenses related to a class action lawsuit. We believe that exclusion of these expenses is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis and relative to our competitors. In this regard, we note that expenses of this type are infrequent in nature.

IRS NOPA Expenses. We have incurred various legal and accounting expenses related to the receipt and our response to the Notice of Proposed Adjustment (NOPA) received from the Internal Revenue Service in March of 2014. We disagree with the IRS’ proposed adjustments and the basis for its positions, and will administratively appeal to the IRS Appeals Office. We believe that exclusion of these expenses is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis and relative to our competitors. In this regard, we note that expenses of this type are infrequent in nature but will continue in future periods until these audits are resolved.

Accretion of debt discount on convertible senior notes. We have accreted debt discount in connection with the convertible senior notes. We believe that exclusion of this expense is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis and relative to our competitors. In this regard, we note that expenses of this type are generally unrelated to our core business but will continue in future periods until maturity of the convertible senior notes.

Valuation allowance for U.S. federal and state deferred tax assets. The Company has concluded that it is more likely than not that we will be unable to fully utilize the majority of our U.S. federal and state deferred tax assets. As a result, the Company has previously recorded a valuation allowance against those assets to the extent that they cannot be realized through net operating loss carrybacks to prior tax years.  We believe that eliminating the impact of a discrete adjustment of this nature and its continuing impact on our effective tax rate 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, we note that adjustments of this type are generally infrequent in nature.

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"Safe Harbor'' Statement under the Private Securities Litigation Reform Act of 1995: With the exception of historical information, the statements set forth above, 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. We wish to caution readers that a number of important factors could cause actual results to differ materially from those in the forward-looking statements. These factors include the possibility that all or a substantial portion of the cost savings targeted by us will not be realized on a timely basis or at all even though we expect to incur charges relating to the cost saving initiative and that the share repurchases implemented by us may not be completed in whole or in part or within the expected timeframe. The assumptions on which the cost savings, share repurchase and capital return goals and expectations are based necessarily involve judgments with respect to, among other things, economic, competitive and financial market conditions and the impact of the cost savings initiative on our customers, all of which are difficult or impossible to predict and many of which are beyond the Company’s control. Furthermore, our changes to the membership of our board of directors may not have the desired effect in helping us achieve and implement our business and strategic goals. These factors also include the possibility that we may not realize the anticipated benefits from the acquisition of Endace Limited on a timely basis or at all, and may be unable to integrate the technology, operations and personnel of Endace into our existing operations in a timely and efficient manner. In addition, intellectual property claims, with or without merit, could result in costly litigation, cause product shipment delays, require us to indemnify customers, or require us to enter into royalty or licensing agreements, which may or may not be available. Furthermore, we have in the past obtained, and may be required in the future to obtain, licenses of technology owned by other parties. We cannot be certain that

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the necessary licenses will be available or that they will be obtainable on commercially reasonable terms. If we were to fail to obtain such royalty or licensing agreements in a timely manner and on reasonable terms, our business, results of operations and financial condition could be materially adversely affected. Lawsuits present inherent risks, any of which could have a material adverse effect on our business, financial condition, or results of operations. Such potential risks include continuing expenses of litigation, loss of patent rights, monetary damages, injunctions against the sale of products incorporating the technology in question, counterclaims, attorneys’ fees, incremental costs associated with product or component redesigns, liabilities to customers under reimbursement agreements or contractual indemnification provisions, and diversion of management’s attention from other business matters. In addition, the fact that the economy generally, and the network connectivity and visibility market 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. Continued weakness in domestic and worldwide macro-economic conditions, currency exchange rate fluctuations, potential disruptions in world credit and equity markets, and the resulting economic uncertainty for our customers, as well as the overall network connectivity and visibility markets, has and could continue to adversely affect our revenues and results of operations. As a result of these uncertainties, we are unable to predict our future results with any accuracy. Other factors affecting these forward-looking statements include but are not limited to the following: faster than anticipated declines in the storage networking market, slower than expected growth of the converged networking market or the failure of our Original Equipment Manufacturer (OEM) customers to successfully incorporate our products into their systems; our dependence on a limited number of customers and the effects of the loss of, decrease in or delays of orders by any such customers, or the failure of such customers to make timely payments; the emergence of new or stronger competitors as a result of consolidation movements in the market; the timing and market acceptance of our products or our OEM customers’ new or enhanced products; costs associated with entry into new areas of the network connectivity and visibility markets; the variability in the level of our backlog and the variable and seasonal procurement patterns of our customers; any inadequacy of our intellectual property protection and the costs of actual or potential third-party claims of infringement and any related indemnity obligations or adverse judgments; the effect of any actual or potential unsolicited offers to acquire us; proxy contests or the activities of activist investors; impairment charges, including but not limited to goodwill and intangible assets; changes in tax rates or legislation; the effects of acquisitions; the effects of terrorist activities, natural disasters, and any resulting disruption in our supply chain or customer purchasing patterns or any other resulting economic or political instability; the highly competitive nature of the markets for our 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; transitions from board or box level to application specific integrated circuit (ASIC) solutions for selected applications; a shift in unit product mix from higher-end to lower-end or mezzanine card products; a faster than anticipated decrease in the average unit selling prices or an increase in the manufactured cost of our products; delays in product development; our reliance on third-party suppliers and subcontractors for components and assembly; our ability to attract and retain key technical personnel; our ability to benefit from our research and development activities as well as government grants related thereto; our dependence on international sales and internationally produced products; changes in accounting standards; and any resulting regulatory changes on our business. These and other factors could cause actual results to differ materially from those in the forward-looking statements and are discussed in our filings with the Securities and Exchange Commission, including our recent filings on Forms 10-K and 10-Q, under the caption “Risk Factors.”
About Emulex
Emulex, a leader in network connectivity, monitoring and management, provides hardware and software solutions for global networks that support enterprise, cloud, government and telecommunications. Emulex’s products enable unrivaled end-to-end application visibility, optimization and acceleration. The Company's I/O connectivity offerings, including its line of ultra high-performance Ethernet and Fibre Channel-based connectivity products, have been designed into server and storage solutions from leading OEMs, including Cisco, Dell, EMC, Fujitsu, Hitachi, HP, Huawei, IBM, NetApp and Oracle, and can be found in the data centers of nearly all of the Fortune 1000. Emulex’s monitoring and management solutions, including its portfolio of network visibility and recording products, provide organizations with complete network performance management at speeds up to 100Gb Ethernet. Emulex is headquartered in Costa Mesa, Calif., and has offices and research facilities in North America, Asia and Europe. For more information about Emulex (NYSE:ELX) please visit http://www.Emulex.com.



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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.