COSTA MESA, Calif., April 27, 2006 (PRIMEZONE) -- Emulex Corporation (NYSE:ELX) today announced results for its third fiscal quarter ended April 2, 2006.
Third Quarter Highlights
-- Third quarter revenues declined 13% from a year ago to
$89.3 million primarily due to deferred launches of next-generation
OEM server and storage platforms enabled by Emulex HBAs, particularly
4 Gigabit per second, or 4 Gb/s, models.
-- Non-GAAP diluted earnings per share of $0.22 and GAAP diluted
earnings per share of $0.13 declined 12% and 35%, respectively,
over the comparable year-ago results.
-- Emulex 4 Gb/s HBA revenues grew over 100% sequentially vs. the
prior quarter, while 4 Gb/s HBA design wins expanded to more than
57, up from 46 in the second quarter.
-- Non-GAAP gross margins rose to 64% compared to 62% in the prior
quarter. GAAP gross margins for the third quarter were 60% compared
to 59% in the prior quarter.
-- Non-GAAP operating margin was 29% and GAAP operating margin was
16%.
-- Cash and investments, net of debt, rose to $377 million, up
$21 million from second quarter levels.
Financial Results
Third quarter revenues declined 13% from a year ago and 19% from record second quarter results to $89.3 million. Non-GAAP gross margins rose to 64% compared to 62% in the prior quarter, while GAAP gross margins for the third quarter rose to 60% compared to 59% in the prior quarter. As previously reported, the preceding quarter gross margin comparables included an excess and obsolescence charge of roughly $1 million against an older generation 2 Gb/s root switch related to the transition to the 4 Gb/s product. In addition, due to the reclassification of expenses associated with amortization of acquired technology which were included in GAAP operating expenses and are now included in GAAP cost of goods sold, historical GAAP gross margin is lower than previously reported. This reclassification from operating expenses to cost of goods sold did not impact operating income, net income or earnings per share. Third quarter non-GAAP net income declined by 14% from the comparable year-ago results, to $19.4 million, or $0.22 per diluted share. Third quarter GAAP net income decreased by 35% from a year ago to $11.6 million, or $0.13 per diluted share. A reconciliation between GAAP and non-GAAP results is included in the accompanying financial data.
During the third quarter, revenue was primarily impacted by deferred OEM launches of next-generation OEM server and storage platforms enabled by 4 Gb/s Emulex HBAs. These OEM launches, which span blade servers, traditional high-end servers and midrange storage, had been scheduled for release late in the third quarter and have been rescheduled for the fourth quarter. Paul Folino, Chairman and CEO of Emulex, stated, "We believe that end-user demand paused while customers waited for availability of OEM products certified for use with 4 Gb/s Fibre Channel HBAs. We experienced strong growth of more than 100% sequentially in 4 Gb/s HBAs with OEM platforms that were early adopters of 4 Gb/s technology, while demand for older generation 2 Gb/s HBAs fell, showing particular softness within OEM product sectors where 4 Gb/s HBA availability is imminent. We are encouraged by the strong uptake of 4 Gb/s HBAs where already certified, and the prospects for Emulex's expansion into new market and customer sectors. Emulex's roster of 4 Gb/s HBA design wins, which expanded to more than 57, up from 46 in the second quarter, taps new customers and market sectors such as Sun, Linux and blade servers."
Emulex's storage switching solutions grew 15% from a year ago as unit demand continued to expand. Over the course of calendar 2006, the Company expects its embedded switching business to transition from 2 Gb/s to lower priced 4 Gb/s solutions, temporarily dampening near term growth in this product sector. Emulex exited the third quarter with an installed base of nearly 12 million switching ports, up from 10 million ports at the end of the second quarter, complementing its growing installed base of over 2 million Emulex HBAs.
Emulex recently announced a definitive agreement to acquire Aarohi Communications, a development stage company headquartered in San Jose, California with a well established, highly skilled engineering facility in Bangalore, India. This acquisition is expected to provide Emulex with a cost-effective skilled engineering team in India and a multi-protocol suite of building blocks for intelligent storage platforms and for next generation data center networking solutions. Aarohi's foundation technologies include a high performance architecture with embedded virtualization engines, multi-protocol connectivity spanning both Fibre Channel and Ethernet, and support for link speeds up to 10 Gb/s. Under the terms of the agreement, Emulex will acquire Aarohi for a transaction value of up to approximately $39 million in cash, contingent consideration, assumed debt and assumed Aarohi stock options, plus employee equity incentive compensation. This transaction is expected to be complete on or near May 1, 2006, subject to certain closing conditions. After closing, Emulex expects Aarohi to contribute immaterial revenue in the fourth quarter and the first half of fiscal 2007.
Business Outlook
Although actual results may vary depending on a variety of factors, many of which are outside Emulex's control, Emulex is providing guidance for its fourth fiscal quarter ending July 2, 2006. Based upon an expected recovery in HBA growth which will be mitigated by the transition to lower cost 4 Gb/s products in the switch sector, Emulex is budgeting for fourth quarter revenue in a range of $96 to $99 million. Emulex believes that with third quarter dilution from the Aarohi acquisition of up to $0.03 per share, non-GAAP diluted earnings per share could amount to up to $0.20-$0.21. On a GAAP basis, Emulex expects approximately $0.09 per share in expected GAAP charges arising primarily from amortization of intangibles and stock-based compensation. Additionally, Emulex will incur charges associated with the announced acquisition of Aarohi Communications, including additional stock-based compensation, amortization of intangibles and in-process research and development. However, as the acquisition and the purchase allocation is not yet complete, Emulex is unable to predict the impact on its GAAP earnings per share at this time.
Webcast Information
Emulex will host a webcast today at 2:00 p.m. Pacific time to discuss the financial results in detail. The webcast may be accessed live via the home page of the Emulex website at www.emulex.com. During the call, Emulex will discuss details of the third fiscal quarter financial results. A replay of the webcast will be available in the audio archive section of the investor relations page of the Emulex website. In addition, a replay of the quarterly conference call will be available for 48 hours by calling (888) 203-1112 -- and using the passcode 3030848.
About Emulex
Emulex Corporation is the most trusted name in storage networking connectivity, with solutions spanning host bus adapters, embedded storage switches, I/O controllers and SAN Storage Switches. Emulex products are selected by the world's leading server and storage manufacturers to provide customers with industry-leading SAN connectivity solutions. Emulex ranked number 19 in the Deloitte 2005 Technology Fast 50 and is listed on the New York Stock Exchange (NYSE:ELX). Corporate headquarters are located 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.primezone.com/newsroom/prs/?pkgid=1744
EMULEX -- We network storage
Note Regarding Non-GAAP Financial Information. The non-GAAP financial information included in this press release is not prepared in accordance with GAAP as it excludes charges relating to the amortization of intangibles and the impairment of goodwill arising out of prior acquisitions as well as charges related to stock-based compensation, net insurance settlement (recovery) associated with the settlement of securities class action and derivative lawsuits, and gains or losses on the repurchase of convertible subordinated notes. The Company uses such non-GAAP financial measures to analyze the performance of its core business as well as measuring performance for some forms of compensation. The Company believes that such non-GAAP financial information is used by investors and others in the investment community in order to compare the ongoing operations of the Company relative to its competitors.
Non-GAAP financial measures exclude amortization of intangibles and the impairment of goodwill associated with prior acquisitions as these assets have relatively short useful lives and excluding such amortization and impairment charges gives management and investors a clearer indication as to past results and expected future results. Readers should keep in mind that the non-GAAP financial information reflects the benefits of revenues generated from acquired businesses but, by excluding amortization of intangibles, the non-GAAP financial information does not reflect the full costs of such acquisitions.
In addition, the Company excludes expenses associated with the adoption of SFAS 123R "Share Based Payment." As one of the first required adopters of SFAS 123R, the Company believes management and investors are better able to compare the Company's results to those of its competitors and other industry participants by providing operating results both with and without the related expenses since a majority of the Company's competitors and other industry participants have not been required to adopt the Statement and/or continue to report non-GAAP financial information that excludes stock-based compensation.
The Company also excludes the net insurance settlement (recovery) associated with the settlement of securities class action and derivative lawsuits and the net gain (loss) on repurchase of convertible subordinated notes, as these items are considered to be infrequent in their occurrence, not part of the Company's core business activities and to not be representative of future expected results.
The non-GAAP results should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from non-GAAP or other pro forma measures used by other companies.
"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, 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. Those factors include the ability to close the Aarohi transaction as proposed and to realize the anticipated benefits on a timely basis or at all, and the company's ability to integrate the technology, operations and personnel of Aarohi into its existing operations in a timely and efficient manner. 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 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 booking 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 Company's ability and the ability of the Company's OEM customers to keep pace with the rapid technological changes in the Company's industry and gain market acceptance for new products and technologies; 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 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 dependence on foreign sales and foreign produced products; the effect of acquisitions; impairment charges; changes in tax rates or legislation; and changes in accounting standards. 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 Nine Months Ended
------------------ ------------------
April 2, March 27, April 2, March 27,
2006 2005 2006 2005
-------- -------- -------- --------
Net revenues $ 89,295 $102,580 $303,942 $267,476
Cost of sales 35,923 41,160 123,084 111,382
-------- -------- -------- --------
Gross profit 53,372 61,420 180,858 156,094
-------- -------- -------- --------
Operating expenses:
Engineering and development 21,726 21,042 65,916 60,985
Selling and marketing 9,151 8,004 26,362 23,015
General and administrative 5,468 4,223 17,316 7,381
Impairment of goodwill -- -- -- 1,793
Amortization of other
intangibles 2,686 2,833 8,143 8,498
-------- -------- -------- --------
Total operating expenses 39,031 36,102 117,737 101,672
-------- -------- -------- --------
Operating income 14,341 25,318 63,121 54,422
-------- -------- -------- --------
Nonoperating income:
Interest income 5,881 3,341 14,419 9,242
Interest expense (620) (1,016) (1,866) (3,419)
Gain (loss) on repurchase
of convertible
subordinated notes -- (279) -- 12,811
Other income (expense), net 52 (24) 32 48
-------- -------- -------- --------
Total nonoperating income 5,313 2,022 12,585 18,682
-------- -------- -------- --------
Income before income taxes 19,654 27,340 75,706 73,104
Income tax provision 8,061 9,552 30,468 26,816
-------- -------- -------- --------
Net income $ 11,593 $ 17,788 $ 45,238 $ 46,288
======== ======== ======== ========
Net income per share:
Basic $ 0.14 $ 0.21 $ 0.54 $ 0.56
======== ======== ======== ========
Diluted $ 0.13 $ 0.20 $ 0.51 $ 0.52
======== ======== ======== ========
Number of shares used in per
share computations:
Basic 84,075 82,963 83,764 82,710
======== ======== ======== ========
Diluted 91,304 93,415 91,171 93,467
======== ======== ======== ========
The interest expense adjustment, net of tax, to the Company's GAAP diluted per share calculation due to the dilutive effect of its convertible subordinated notes was $366 and $661 for the three months ended April 2, 2006, and March 27, 2005, respectively. The interest expense adjustment, net of tax, to the Company's GAAP diluted per share calculation due to the dilutive effect of its convertible subordinated notes was $1,115 and $2,160 for the nine months ended April 2, 2006, and March 27, 2005, respectively.
Please note that the amortization of technology intangibles resulting from previous acquisitions has been reclassified from operating expenses to cost of sales for the three and nine months ended March 27, 2005, to conform to the current period presentation.
EMULEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)
April 2, July 3,
2006 2005
-------- --------
Assets
------
Current assets:
Cash and cash equivalents $138,997 $120,317
Investments 460,885 346,675
Accounts and other receivables, net 56,954 47,730
Inventories, net 30,471 36,266
Prepaid expenses 5,432 4,508
Deferred income taxes 26,163 28,961
-------- --------
Total current assets 718,902 584,457
Property and equipment, net 64,592 65,976
Investments 11,686 54,936
Intangibles, net 76,170 95,806
Other assets 429 606
-------- --------
$871,779 $801,781
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 20,772 $ 29,778
Accrued liabilities 20,746 21,505
Income taxes payable 31,476 25,361
-------- --------
Total current liabilities 72,994 76,644
Convertible subordinated notes 234,729 233,382
Deferred income taxes and other 12,069 14,164
-------- --------
Total liabilities 319,792 324,190
-------- --------
Total stockholders' equity 551,987 477,591
-------- --------
$871,779 $801,781
======== ========
EMULEX CORPORATION AND SUBSIDIARIES
Supplemental Information
Historical Revenue by Channel and Territory:
-------------------------------------------
Q3 FY Q3 FY
2006 % Total 2005 % Total % Change
($000s) Revenue Revenue Revenue Revenue Year/Year
------- ------- -------- ------- ---------
Revenue from
OEM customers $58,816 66% $65,222 64% -10%
Revenue from
distribution 30,428 34% 37,355 36% -19%
Other 51 nm 3 nm nm
------- ------- -------- ------- ---------
Total net revenues $89,295 100% $102,580 100% -13%
======= ======= ======== ======= =========
United States $48,065 54% $ 57,848 57% -17%
Pacific Rim
countries 12,723 14% 15,780 15% -19%
Europe and rest
of world 28,507 32% 28,952 28% -2%
------- ------- -------- ------- ---------
Total net revenues $89,295 100% $102,580 100% -13%
======= ======= ======== ======= =========
Reconciliation of GAAP gross margin to non-GAAP gross margin:
------------------------------------------------------------
Three Months Ended Nine Months Ended
------------------- -------------------
April 2, March 27, April 2, March 27,
2006 2005 2006 2005
-------- -------- -------- --------
GAAP gross profit, as
presented above $ 53,372 $ 61,420 $180,858 $156,094
-------- -------- -------- --------
Items excluded from GAAP
gross profit to calculate
non-GAAP gross profit:
Stock-based
compensation (a) 128 36 448 111
Amortization of intangibles 3,640 3,714 10,940 11,144
-------- -------- -------- --------
Impact on gross profit 3,768 3,750 11,388 11,255
-------- -------- -------- --------
Non-GAAP gross profit $ 57,140 $ 65,170 $192,246 $167,349
======== ======== ======== ========
Non-GAAP gross margin 64% 64% 63% 63%
======== ======== ======== ========
Reconciliation of GAAP engineering and development expenses
to non-GAAP engineering and development expenses:
-----------------------------------------------------------
Three Months Ended Nine Months Ended
------------------ ------------------
April 2, March 27, April 2, March 27,
2006 2005 2006 2005
------- ------- ------- -------
GAAP engineering and
development expenses,
as presented above $21,726 $21,042 $65,916 $60,985
Item excluded from GAAP
engineering expense to
calculate non-GAAP
engineering expense:
Stock-based
compensation (a) (1,961) (310) (6,057) (1,196)
------- ------- ------- -------
Non-GAAP engineering and
development expenses $19,765 $20,732 $59,859 $59,789
======= ======= ======= =======
Reconciliation of GAAP selling and marketing expenses
to non-GAAP selling and marketing expenses:
-----------------------------------------------------
Three Months Ended Nine Months Ended
------------------ ------------------
April 2, March 27, April 2, March 27,
2006 2005 2006 2005
------- ------- ------- -------
GAAP selling and
marketing expenses,
as presented above $ 9,151 $ 8,004 $26,362 $23,015
Item excluded from GAAP
selling and marketing
expenses to calculate
non-GAAP selling and
marketing expenses:
Stock-based
compensation (a) (1,047) (210) (3,338) (668)
------- ------- ------- -------
Non-GAAP selling and
marketing expenses $ 8,104 $ 7,794 $23,024 $22,347
======= ======= ======= =======
Reconciliation of GAAP general and administrative expenses
to non-GAAP general and administrative expenses:
----------------------------------------------------------
Three Months Ended Nine Months Ended
------------------ ------------------
April 2, March 27, April 2, March 27,
2006 2005 2006 2005
------- ------- ------- -------
GAAP general and
administrative expenses,
as presented above $ 5,468 $ 4,223 $17,316 $ 7,381
------- ------- ------- -------
Items excluded from GAAP
general and administrative
expenses to calculate non-
GAAP general and
administrative expenses:
Stock-based
compensation (a) (1,658) (368) (5,590) (1,329)
Net insurance recovery
(settlement) associated
with settlement of
securities class action
and derivative lawsuits -- -- 415 4,649
------- ------- ------- -------
Impact on general and
administrative expenses (1,658) (368) (5,175) 3,320
------- ------- ------- -------
Non-GAAP general and
administrative expenses $ 3,810 $ 3,855 $12,141 $10,701
======= ======= ======= =======
Reconciliation of GAAP operating expenses to
non-GAAP operating expenses:
--------------------------------------------
Three Months Ended Nine Months Ended
------------------ --------------------
April 2, March 27, April 2, March 27,
2006 2005 2006 2005
------- ------- -------- --------
GAAP operating expenses,
as presented above $39,031 $36,102 $117,737 $101,672
------- ------- -------- --------
Items excluded from GAAP
operating expenses to
calculate non-GAAP
operating expenses:
Stock-based
compensation (a) (4,666) (888) (14,985) (3,193)
Amortization of other
intangibles (2,686) (2,833) (8,143) (8,498)
Impairment of goodwill (b) -- -- -- (1,793)
Net insurance recovery
(settlement) associated
with settlement of
securities class action
and derivative lawsuits -- -- 415 4,649
------- ------- -------- --------
Impact on operating
expenses (7,352) (3,721) (22,713) (8,835)
------- ------- -------- --------
Non-GAAP operating
expenses $31,679 $32,381 $ 95,024 $ 92,837
======= ======= ======== ========
Reconciliation of GAAP operating income
to non-GAAP operating income:
---------------------------------------
Three Months Ended Nine Months Ended
----------------- -----------------
April 2, March 27, April 2, March 27,
2006 2005 2006 2005
------- ------- ------- -------
GAAP operating income,
as presented above $14,341 $25,318 $63,121 $54,422
------- ------- ------- -------
Items excluded from GAAP
operating income to
calculate non-GAAP
operating income:
Stock-based
compensation (a) 4,794 924 15,433 3,304
Amortization of other
intangibles 6,326 6,547 19,083 19,642
Impairment of goodwill (b) -- -- -- 1,793
Net insurance settlement
(recovery) associated with
settlement of securities
class action and
derivative lawsuits -- -- (415) (4,649)
------- ------- ------- -------
Impact on operating income 11,120 7,471 34,101 20,090
------- ------- ------- -------
Non-GAAP operating income $25,461 $32,789 $97,222 $74,512
======= ======= ======= =======
Reconciliation of GAAP net income
to non-GAAP net income:
---------------------------------
Three Months Ended Nine Months Ended
----------------- -----------------
April 2, March 27, April 2, March 27,
2006 2005 2006 2005
------- ------- ------- -------
GAAP net income,
as presented above $11,593 $17,788 $45,238 $46,288
------- ------- ------- -------
Items excluded from GAAP
net income to calculate
non-GAAP net income:
Stock-based
compensation (a) 4,794 924 15,433 3,304
Amortization of
intangibles 6,326 6,547 19,083 19,642
Impairment of goodwill (b) -- -- -- 1,793
Net insurance settlement
(recovery) and related
interest associated with
settlement of securities
class action and
derivative lawsuits -- -- (415) (4,964)
Net loss (gain) on
repurchase of convertible
subordinated notes (c) -- 279 -- (12,811)
Income tax effect of
above items (3,265) (2,827) (10,035) (2,136)
------- ------- ------- -------
Impact on net income 7,855 4,923 24,066 4,828
------- ------- ------- -------
Non-GAAP net income $19,448 $22,711 $69,304 $51,116
======= ======= ======= =======
Reconciliation of diluted GAAP earnings per
share to diluted non-GAAP earnings per share:
---------------------------------------------
Three Months Ended Nine Months Ended
----------------- -----------------
April 2, March 27, April 2, March 27,
2006 2005 2006 2005
------- ------- ------- -------
Diluted GAAP earnings per share,
as presented above $ 0.13 $ 0.20 $ 0.51 $ 0.52
------- ------- ------- -------
Items excluded from diluted GAAP
earnings per share to calculate
diluted non-GAAP earnings per
share, net of tax effect:
Stock-based compensation (a) 0.04 0.01 0.13 0.03
Amortization of intangibles 0.05 0.04 0.13 0.13
Impairment of goodwill (b) -- -- -- 0.01
Net insurance settlement
(recovery) and related
interest associated with
settlement of securities class
action and derivative lawsuits -- -- 0.00 (0.03)
Net loss (gain) on repurchase
of convertible subordinated
notes (c) -- 0.00 -- (0.09)
------- ------- ------- -------
Impact on diluted earnings
per share 0.09 0.05 0.26 0.05
------- ------- ------- -------
Non-GAAP diluted earnings
per share $ 0.22 $ 0.25 $ 0.77 $ 0.57
======= ======= ======= =======
Diluted shares used in GAAP and
non-GAAP per share
computations 91,304 93,415 91,171 93,467
======= ======= ======= =======
Forward-Looking Diluted Earnings per Share Reconciliation:
----------------------------------------------------------
Guidance for
Three Months Ending
July 2, 2006
-------------------
Non-GAAP diluted earnings per share guidance $0.20 - $0.21
Items excluded, net of tax, from non-GAAP
diluted earning per share to calculate GAAP
diluted earnings per share guidance:
Amortization of intangibles (0.05)
Stock-based compensation (0.04)
-------------------
GAAP diluted earnings per share guidance (d) $0.11 - $0.12
===================
(a) Amortization of stock-based compensation. For the three and
nine months ended April 2, 2006, stock-based compensation is
calculated in accordance with FAS 123R adopted effective July 4,
2005. For the three and nine months ended March 27, 2005,
stock-based compensation is associated with the acquisitions of
Vixel and Giganet.
(b) Impairment of goodwill. In connection with the preparation of
Vixel Corporation's tax return in the first quarter of fiscal
2005, the Company revised estimates and discovered errors related
to the deferred tax assets of Vixel Corporation (acquired in
November 2004). As a result, the Company recorded a $1.8 million
impairment of goodwill in the first quarter of fiscal 2005.
(c) Net loss (gain) on repurchase of convertible subordinated
notes. In the three months ended September 26, 2004, Emulex
repurchased $153.0 million in face value of its 0.25% convertible
subordinated notes at a discount, resulting in a pre-tax gain of
$13.1 million. In the three months ended March 27, 2005, Emulex
repurchased $17.0 million in face value of its 1.75% convertible
subordinated notes, resulting in a pre-tax loss of $0.3 million.
(d) Excludes some effects arising from the announced acquisition
of Aarohi Communications*. Because the acquisition of Aarohi is
not yet complete and the related charges and purchase price
allocation have not been finalized, Emulex is unable to provide
earnings per share guidance under GAAP at this time. *Emulex will
incur charges associated with this acquisition, including
additional stock-based compensation, amortization of intangibles
and in-process research and development.