##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 
 (Mark One)
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
 For the quarterly period ended September 28, 2008
 OR
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 Commission File No. 001-31353
 EMULEX CORPORATION
 (Exact name of registrant as specified in its charter)
 Delaware(State or other jurisdiction 
of incorporation or organization)
    
    51-0300558(I.R.S Employer
Identification No.)3333 Susan Street 
Costa Mesa, California(Address of principal executive offices)
    
    92626(Zip Code)
 (714) 662-5600  Registrants telephone number, including area code
 
 þ o
  Large accelerated filer: þ
    
    Accelerated filer: o
    
    Non-accelerated filer:  o
(Do not check if a smaller reporting company)
    
    Smaller reporting company: o
 o þ




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##### 



PAGEPart I. FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)Condensed Consolidated Balance Sheets September 28, 2008 and June 29, 2008
    
    
    3Condensed Consolidated Statements of Income Three months ended September 28, 2008 and
September 30, 2007
    
    
    4Condensed Consolidated Statements of Cash Flows Three months ended September 28, 2008 and
September 30, 2007
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    28Item 4. Controls and Procedures
    
    
    28Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    28Item 1A. Risk Factors
    
    
    29Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    42Item 6. Exhibits
    
    
    43Signatures
    
    
    44EX-31AEX-31BEX-32
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
  
   September 28,
    
    
    June 29,2008
    
    
    2008AssetsCurrent assets:Cash and cash equivalents
    
    $
    168,114
    
    
    $
    217,017Investments
    
    
    126,140
    
    
    
    133,182Accounts and other receivables, net of
allowance for doubtful accounts of $1,742
and $1,753 as of September 28, 2008 and June
29, 2008, respectively
    
    
    56,924
    
    
    
    61,634Inventories
    
    
    19,393
    
    
    
    19,336Prepaid expenses
    
    
    7,691
    
    
    
    5,105Deferred income taxes
    
    
    21,432
    
    
    
    20,773Total current assets
    
    
    399,694
    
    
    
    457,047Property and equipment, net
    
    
    75,747
    
    
    
    73,580Investments
    
    
    152
    
    
    
    150Goodwill
    
    
    87,840
    
    
    
    87,843Intangible assets, net
    
    
    60,471
    
    
    
    67,299Deferred income taxes
    
    
    7,546
    
    
    
    5,481Other assets
    
    
    8,063
    
    
    
    7,656Total assets
    
    $
    639,513
    
    
    $
    699,056Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    21,738
    
    
    $
    23,714Accrued liabilities
    
    
    29,858
    
    
    
    26,363Income taxes payable
    
    
    2,345
    
    
    
    37,528Total current liabilities
    
    
    53,941
    
    
    
    87,605Other liabilities
    
    
    4,224
    
    
    
    3,633Accrued taxes
    
    
    32,690
    
    
    
    31,979Total liabilities
    
    
    90,855
    
    
    
    123,217Commitments and contingencies (Note 6)Stockholders equity:Preferred stock, $0.01 par value; 1,000,000
shares authorized (150,000 shares designated
as Series A Junior Participating Preferred
Stock); none issued and outstanding
    
    
    
    
    
    
    Common stock, $0.10 par value; 240,000,000
shares authorized; 88,466,061 and 88,113,322
issued at September 28, 2008 and June 29,
2008, respectively
    
    
    8,847
    
    
    
    8,811Additional paid-in capital
    
    
    1,086,217
    
    
    
    1,080,722Accumulated deficit
    
    
    (396,113
    )
    
    
    (403,614
    )Accumulated other comprehensive (loss) income
    
    
    (293
    )
    
    
    7Treasury stock, at cost; 8,550,971 and
5,660,337 shares at September 28, 2008 and
June 29, 2008, respectively
    
    
    (150,000
    )
    
    
    (110,087
    )Total stockholders equity
    
    
    548,658
    
    
    
    575,839Total liabilities and stockholders equity
    
    $
    639,513
    
    
    $
    699,056
  3




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##### Table of Contents



Three Months EndedSeptember 28,
    
    
    September 30,2008
    
    
    2007Net revenues
    
    $
    111,696
    
    
    $
    117,070Cost of sales
    
    
    41,744
    
    
    
    49,143Gross profit
    
    
    69,952
    
    
    
    67,927Operating expenses:Engineering and development
    
    
    34,783
    
    
    
    31,287Selling and marketing
    
    
    14,516
    
    
    
    12,904General and administrative
    
    
    9,416
    
    
    
    8,569Amortization of other intangible assets
    
    
    2,087
    
    
    
    2,638Total operating expenses
    
    
    60,802
    
    
    
    55,398Operating income
    
    
    9,150
    
    
    
    12,529Nonoperating income, net:Interest income
    
    
    1,849
    
    
    
    3,309Interest expense
    
    
    (2
    )
    
    
    (4
    )Other income, net
    
    
    324
    
    
    
    61Total nonoperating income, net
    
    
    2,171
    
    
    
    3,366Income before income taxes
    
    
    11,321
    
    
    
    15,895Income tax provision
    
    
    3,820
    
    
    
    5,724Net income
    
    $
    7,501
    
    
    $
    10,171Net income per share:Basic
    
    $
    0.09
    
    
    $
    0.12Diluted
    
    $
    0.09
    
    
    $
    0.12Number of shares used in per share computations:Basic
    
    
    81,264
    
    
    
    82,767Diluted
    
    
    82,922
    
    
    
    84,828
  4




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##### Table of Contents



Three Months EndedSeptember 28,
    
    
    September 30,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    7,501
    
    
    $
    10,171Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization of property and equipment
    
    
    5,340
    
    
    
    4,555Share-based compensation expense
    
    
    6,770
    
    
    
    6,951Amortization of intangible assets
    
    
    6,818
    
    
    
    9,077Impairment of intangible assets
    
    
    
    
    
    
    3,097Amortization of premiums and accretion of discounts on investments, net
    
    
    (188
    )
    
    
    (Gain) loss on disposal of property and equipment
    
    
    (39
    )
    
    
    43Deferred income taxes
    
    
    (2,713
    )
    
    
    (5,197
    )Excess tax benefit from share-based compensation
    
    
    (132
    )
    
    
    (403
    )Foreign currency adjustments
    
    
    (305
    )
    
    
    (62
    )Changes in assets and liabilities:Accounts and other receivables
    
    
    4,768
    
    
    
    2,313Inventories
    
    
    (44
    )
    
    
    7,498Prepaid expenses and other assets
    
    
    (2,992
    )
    
    
    (1,024
    )Accounts payable, accrued liabilities, and other liabilities
    
    
    2,223
    
    
    
    (2,594
    )Accrued taxes
    
    
    711
    
    
    
    Income taxes payable
    
    
    (35,696
    )
    
    
    10,689Net cash (used in) provided by operating activities
    
    
    (7,978
    )
    
    
    45,114Cash flows from investing activities:Net proceeds from sale of property and equipment
    
    
    50
    
    
    
    9Additions to property and equipment
    
    
    (7,682
    )
    
    
    (5,803
    )Purchases of investments
    
    
    (87,722
    )
    
    
    (360,449
    )Maturities of investments
    
    
    94,950
    
    
    
    393,338Net cash (used in) provided by investing activities
    
    
    (404
    )
    
    
    27,095Cash flows from financing activities:Proceeds from issuance of common stock under stock plans
    
    
    880
    
    
    
    4,867Repurchase of common stock
    
    
    (39,913
    )
    
    
    (40,000
    )Tax withholding payments reimbursed by common stock
    
    
    (1,649
    )
    
    
    (1,126
    )Excess tax benefit from share-based compensation expense
    
    
    132
    
    
    
    403Net cash used in financing activities
    
    
    (40,550
    )
    
    
    (35,856
    )Effect of exchange rates on cash and cash equivalents
    
    
    29
    
    
    
    71Net (decrease) increase in cash and cash equivalents
    
    
    (48,903
    )
    
    
    36,424Cash and cash equivalents at beginning of period
    
    
    217,017
    
    
    
    69,036Cash and cash equivalents at end of period
    
    $
    168,114
    
    
    $
    105,460
  5




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Basis of Presentation
  Supplemental Cash Flow Information
 Three Months EndedSeptember 28,
    
    
    September 30,2008
    
    
    2007Cash paid during the period for:Interest
    
    $
    2
    
    
    $
    4Income taxes
    
    $
    42,225
    
    
    $
    233Non-cash activities:Additional goodwill resulting from escrow
release as required by the Sierra Logic,
Inc. acquisition agreement
    
    $
    
    
    
    $
    12,138Purchases of property and equipment not paid
during the period included in the accounts payable balance on the Companys condensed consolidated
balance sheets
    
    $
    109
    
    
    $
    489
 Recently Adopted Accounting Standards
 .
  6




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Recently Issued Accounting Standards
     7




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Investments
   Gross
    
    
    GrossUnrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueSeptember 28, 2008Municipal bonds
    
    $
    152
    
    
    $
    2
    
    
    $
    
    
    
    $
    154U.S. Government securities
    
    
    27,322
    
    
    
    50
    
    
    
    
    
    
    
    27,372U.S. Government sponsored entity securities
    
    
    98,818
    
    
    
    
    
    
    
    (66
    )
    
    
    98,752$
    126,292
    
    
    $
    52
    
    
    $
    (66
    )
    
    $
    126,278June 29, 2008Municipal bonds
    
    $
    4,626
    
    
    $
    18
    
    
    $
    
    
    
    $
    4,644U.S. Government securities
    
    
    29,250
    
    
    
    2
    
    
    
    
    
    
    
    29,252U.S. Government Agency securities
    
    
    90,528
    
    
    
    19
    
    
    
    
    
    
    
    90,547Corporate bonds
    
    
    8,928
    
    
    
    13
    
    
    
    
    
    
    
    8,941$
    133,332
    
    
    $
    52
    
    
    $
    
    
    
    $
    133,384
  September 28,
    
    
    June 29,2008
    
    
    2008(In thousands)Short-term investments (maturities less than one year)
    
    $
    126,140
    
    
    $
    133,182Long-term investments (maturities of one to five years)
    
    
    152
    
    
    
    150$
    126,292
    
    
    $
    133,332
 Inventories
  September 28,
    
    
    June 29,2008
    
    
    2008(in thousands)Raw materials
    
    $
    4,688
    
    
    $
    4,090Finished goods
    
    
    14,705
    
    
    
    15,246$
    19,393
    
    
    $
    19,336
 Goodwill and Intangible assets, net
  8




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September 28,
    
    
    June 29,2008
    
    
    2008(in thousands)Intangible assets subject to amortization:Core technology and patents
    
    $
    92,266
    
    
    $
    92,272Accumulated amortization, core technology and patents
    
    
    (77,302
    )
    
    
    (75,607
    )Developed technology
    
    
    77,312
    
    
    
    77,313Accumulated amortization, developed technology
    
    
    (36,213
    )
    
    
    (32,788
    )Customer relationships
    
    
    38,670
    
    
    
    38,674Accumulated amortization, customer relationships
    
    
    (35,594
    )
    
    
    (34,047
    )Tradename
    
    
    4,643
    
    
    
    4,643Accumulated amortization, tradename
    
    
    (3,311
    )
    
    
    (3,161
    )$
    60,471
    
    
    $
    67,299
     2009 (remaining 9 months)
    
    $
    17,4422010
    
    
    21,7212011
    
    
    17,7232012
    
    
    3,5852013
    
    
    Thereafter
    
    
    $
    60,471
 Accrued Liabilities
  September 28,
    
    
    June 29,2008
    
    
    2008(in thousands)Payroll and related costs
    
    $
    14,884
    
    
    $
    11,792Warranty liability
    
    
    3,782
    
    
    
    4,174Deferred revenue and accrued rebates
    
    
    4,391
    
    
    
    4,848Other
    
    
    6,801
    
    
    
    5,549$
    29,858
    
    
    $
    26,363
 9




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##### Table of Contents



(in thousands)Balance as of June 29, 2008
    
    $
    4,174Accrual for warranties issued
    
    
    457Changes to pre-existing warranties (including changes in estimates)
    
    
    (351
    )Settlements made (in cash or in kind)
    
    
    (498
    )Balance as of September 28, 2008
    
    $
    3,782
 Commitments and Contingencies
 Litigation
  10




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Treasury Stock
  Stock-Based Compensation
   Three Months EndedSeptember 28,
    
    
    September 30,2008
    
    
    2007Total cost of stock-based payment plans during the period
    
    $
    6,783
    
    
    $
    6,947Amounts capitalized in inventory during the period
    
    
    (179
    )
    
    
    (157
    )Amounts recognized in income for amounts previously capitalized in inventory
    
    
    166
    
    
    
    161Amounts charged against income, before income tax benefit
    
    $
    6,770
    
    
    $
    6,951Amount of related income tax benefit recognized in income
    
    $
    1,916
    
    
    $
    1,817
 11




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Three Months EndedSeptember 28,
    
    September 30,2008
    
    2007Expected volatility
    
    
    42%
    
    
    
    33%  34%Weighted average expected volatility
    
    
    42%
    
    
    
    33%Expected dividends
    
    
    
    
    
    
    Expected term (in years)
    
    
    3.0  5.0
    
    
    
    2.4  4.4Weighted average expected term (in years)
    
    
    3.81
    
    
    
    3.25Risk-free rate
    
    
    2.70%  3.02%
    
    
    
    3.99%  4.17%
  Three Months EndedSeptember 28,
    
    September 30,2008
    
    2007Weighted average expected volatility
    
    
    45
    %
    
    
    29
    %Expected dividends
    
    
    
    
    
    
    Weighted average expected term (in years)
    
    
    0.5
    
    
    
    0.5Risk-free rate
    
    
    1.67
    %
    
    
    5.08
    %
  WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    IntrinsicOptions
    
    
    Exercise Price
    
    
    Term
    
    
    Value(in years)
    
    
    (in millions)Options outstanding at June 29, 2008
    
    
    14,078,051
    
    
    $
    21.54
    
    
    
    4.09
    
    
    $
    5.75Options granted
    
    
    134,000
    
    
    $
    12.30Options exercised
    
    
    (127,639
    )
    
    $
    6.90Options canceled
    
    
    (46,590
    )
    
    $
    24.45Options forfeited
    
    
    (227,996
    )
    
    $
    16.63Options outstanding at September 28, 2008
    
    
    13,809,826
    
    
    $
    21.65
    
    
    
    3.59
    
    
    $
    4.17Options vested and expected to vest at
September 28, 2008
    
    
    13,666,576
    
    
    $
    21.71
    
    
    
    3.57
    
    
    $
    4.16Options exercisable at September 28, 2008
    
    
    11,557,287
    
    
    $
    22.68
    
    
    
    3.32
    
    
    $
    3.86
 12




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WeightedAverage GrantNumber of
    
    
    Date FairAwards
    
    
    ValueAwards outstanding and unvested at June 29, 2008
    
    
    2,135,765
    
    
    $
    18.07Awards granted
    
    
    676,100
    
    
    $
    13.32Awards vested
    
    
    (349,752
    )
    
    $
    18.30Awards forfeited
    
    
    (187,990
    )
    
    $
    18.43Awards outstanding and unvested at September 28, 2008
    
    
    2,274,123
    
    
    $
    16.59
    Income Taxes
   Net Income Per Share
  13




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Three Months EndedSeptember 28,
    
    
    September 30,2008
    
    
    2007(in thousands, except pershare data)Numerator  Net income
    
    $
    7,501
    
    
    $
    10,171Denominator:Denominator for basic net income per share  weighted average
shares outstanding
    
    
    81,264
    
    
    
    82,767Effect of dilutive securities:Dilutive options outstanding, unvested stock and ESPP
    
    
    1,658
    
    
    
    2,061Denominator for diluted net income per share  adjusted weighted
average shares outstanding
    
    
    82,922
    
    
    
    84,828Basic net income per share
    
    $
    0.09
    
    
    $
    0.12Diluted net income per share
    
    $
    0.09
    
    
    $
    0.12Antidilutive options and unvested stock excluded from the computations
    
    
    12,655
    
    
    
    7,796Average market price of common stock
    
    $
    12.18
    
    
    $
    19.95
  14




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Forward-Looking Statements
   15




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Executive Overview
       www.emulex.com
 16




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Global Initiatives
   Results of Operations
  Percentage of Net RevenuesThree Months EndedSeptember 28,
    
    September 30,2008
    
    2007Net revenues
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    37.4
    
    
    
    42.0Gross profit
    
    
    62.6
    
    
    
    58.0Operating expenses:Engineering and development
    
    
    31.1
    
    
    
    26.7Selling and marketing
    
    
    13.0
    
    
    
    11.0General and administrative
    
    
    8.4
    
    
    
    7.3Amortization of other intangible assets
    
    
    1.9
    
    
    
    2.3Total operating expenses
    
    
    54.4
    
    
    
    47.3Operating income
    
    
    8.2
    
    
    
    10.7Nonoperating income, net:Interest income
    
    
    1.6
    
    
    
    2.8Interest expense
    
    
    
    
    
    
    Other income, net
    
    
    0.3
    
    
    
    0.1Total nonoperating income, net
    
    
    1.9
    
    
    
    2.9Income before income taxes
    
    
    10.1
    
    
    
    13.6Income tax provision
    
    
    3.4
    
    
    
    4.9Net income
    
    
    6.7
    %
    
    
    8.7
    %
 17




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##### Table of Contents



Three months ended September 28, 2008, compared to three months ended September 30, 2007
 Net Revenues.
 Net Revenues by Product Line
  Net Revenues by Product LineThree Months
    
    
    
    
    
    Three MonthsEnded
    
    Percentage
    
    Ended
    
    PercentageSeptember 28,
    
    of Net
    
    September 30,
    
    of Net
    
    Increase/
    
    Percentage(in thousands)
    
    2008
    
    Revenues
    
    2007
    
    Revenues
    
    (Decrease)
    
    ChangeHost Server Products
    
    $
    81,203
    
    
    
    73
    %
    
    $
    88,769
    
    
    
    76
    %
    
    $
    (7,566
    )
    
    
    (9
    %)Embedded Storage Products
    
    
    30,364
    
    
    
    27
    %
    
    
    27,996
    
    
    
    24
    %
    
    
    2,368
    
    
    
    8
    %Intelligent
Network Products and Other
    
    
    129
    
    
    
    
    
    
    
    305
    
    
    
    
    
    
    
    (176
    )
    
    
    (58
    %)Total net revenues
    
    $
    111,696
    
    
    
    100
    %
    
    $
    117,070
    
    
    
    100
    %
    
    $
    (5,374
    )
    
    
    (5
    %)
    18




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Net Revenues by Major Customers
  Net Revenues by Major CustomersDirect Revenues
    
    Total Direct and Indirect Revenues (2)Three Months
    
    Three Months
    
    Three Months
    
    Three MonthsEnded
    
    Ended
    
    Ended
    
    EndedSeptember 28,
    
    September 30,
    
    September 28,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Net revenue percentage (1):OEM:EMC
    
    
    
    
    
    
    
    
    
    
    13
    %
    
    
    22
    %Hewlett-Packard
    
    
    16
    %
    
    
    14
    %
    
    
    16
    %
    
    
    15
    %IBM
    
    
    22
    %
    
    
    20
    %
    
    
    29
    %
    
    
    28
    %Other:Info X
    
    
    10
    %
    
    
    18
    %
    
    
    
    
    
    
    
 
 (1)
    
    Amounts less than 10% are not presented.(2)
    
    Customer-specific models purchased or marketed indirectly through distributors, resellers,
and other third parties are included with the OEMs revenues in these columns rather than as
revenue for the distributors, resellers or other third parties.  Net Revenues by Sales Channel
  Net Revenues by Sales ChannelThree Months Ended
    
    Percentage
    
    Three Months Ended
    
    PercentageSeptember 28,
    
    of Net
    
    September 30,
    
    of Net
    
    Increase/
    
    Percentage(in thousands)
    
    2008
    
    Revenues
    
    2007
    
    Revenues
    
    (Decrease)
    
    ChangeOEM
    
    $
    87,511
    
    
    
    78
    %
    
    $
    82,565
    
    
    
    71
    %
    
    $
    4,946
    
    
    
    6
    %Distribution
    
    
    24,118
    
    
    
    22
    %
    
    
    34,362
    
    
    
    29
    %
    
    
    (10,244
    )
    
    
    (30
    %)Other
    
    
    67
    
    
    
    
    
    
    
    143
    
    
    
    
    
    
    
    (76
    )
    
    
    (53
    %)Total net revenues
    
    $
    111,696
    
    
    
    100
    %
    
    $
    117,070
    
    
    
    100
    %
    
    $
    5,374
    
    
    
    (5
    %)
  19




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##### Table of Contents



Net Revenues by Geographic Territory
  Net Domestic and International RevenuesThree Months
    
    
    
    
    
    Three MonthsEnded
    
    Percentage
    
    Ended
    
    PercentageSeptember 28,
    
    of net
    
    September 30,
    
    of Net
    
    Increase/
    
    Percentage(in thousands)
    
    2008
    
    Revenues
    
    2007
    
    Revenues
    
    (Decrease)
    
    ChangeDomestic
    
    $
    39,799
    
    
    
    36
    %
    
    $
    49,471
    
    
    
    42
    %
    
    $
    (9,672
    )
    
    
    (20
    %)Pacific Rim
    
    
    32,474
    
    
    
    29
    %
    
    
    31,344
    
    
    
    27
    %
    
    
    1,130
    
    
    
    4
    %Europe and rest of the world
    
    
    39,423
    
    
    
    35
    %
    
    
    36,255
    
    
    
    31
    %
    
    
    3,168
    
    
    
    9
    %Total net revenues
    
    $
    111,696
    
    
    
    100
    %
    
    $
    117,070
    
    
    
    100
    %
    
    $
    (5,374
    )
    
    
    (5
    %)
  Gross Profit.
 Gross ProfitThree Months
    
    
    
    Three MonthsEnded September 28,
    
    Percentage of
    
    Ended September 30,
    
    Percentage of
    
    Increase/
    
    Percentage2008
    
    Net Revenues
    
    2007
    
    Net Revenues
    
    (Decrease)
    
    Points Change$69,952
    
    63%
    
    $67,927
    
    58%
    
    $2,025
    
    5%
  20




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Engineering and Development.
 Engineering and DevelopmentThree Months Ended
    
    Percentage of
    
    Three Months Ended
    
    Percentage of
    
    Increase/
    
    PercentageSeptember 28, 2008
    
    Net Revenues
    
    September 30, 2007
    
    Net Revenues
    
    (Decrease)
    
    Points Change$34,783
    
    31%
    
    $31,287
    
    27%
    
    $3,496
    
    4%
  Selling and Marketing.
 Selling and MarketingThree Months Ended
    
    Percentage of Net
    
    Three Months Ended
    
    Percentage of Net
    
    
    
    Percentage PointsSeptember 28, 2008
    
    Revenues
    
    September 30, 2007
    
    Revenues
    
    Increase/ (Decrease)
    
    Change$14,516
    
    13%
    
    $12,904
    
    11%
    
    $1,612
    
    2%
  General and Administrative.
 General and AdministrativeThree Months Ended
    
    Percentage of Net
    
    Three Months Ended
    
    Percentage of Net
    
    
    
    Percentage PointsSeptember 28, 2008
    
    Revenues
    
    September 30, 2007
    
    Revenues
    
    Increase/ (Decrease)
    
    Change$9,416
    
    8%
    
    $8,569
    
    7%
    
    $847
    
    1%
  21




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Amortization of Other Intangible Assets.
 Amortization of Other Intangible AssetsThree Months Ended
    
    Percentage of Net
    
    Three Months Ended
    
    Percentage of Net
    
    
    
    Percentage PointsSeptember 28, 2008
    
    Revenues
    
    September 30, 2007
    
    Revenues
    
    Increase/ (Decrease)
    
    Change$2,087
    
    2%
    
    $2,638
    
    2%
    
    $(551)
    
    
  Nonoperating Income, net.
 Nonoperating Income, netThree Months Ended
    
    Percentage of Net
    
    Three Months Ended
    
    Percentage of Net
    
    
    
    Percentage PointsSeptember 28, 2008
    
    Revenues
    
    September 30, 2007
    
    Revenues
    
    Increase/ (Decrease)
    
    Change$2,171
    
    2%
    
    $3,366
    
    3%
    
    $(1,195)
    
    (1%)
  Income Taxes
 Income TaxesThree Months Ended
    
    Percentage of Net
    
    Three Months Ended
    
    Percentage of Net
    
    
    
    Percentage PointsSeptember 28, 2008
    
    Revenues
    
    September 30, 2007
    
    Revenues
    
    Increase/ (Decrease)
    
    Change$3,820
    
    3%
    
    $5,724
    
    5%
    
    $(1,904)
    
    (1%)
  22




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Critical Accounting Policies
   Revenue Recognition.
 Warranty.
 Allowance for Doubtful Accounts
 Intangible Assets and Other Long-Lived Assets
 23




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Inventories
 Goodwill
  Income Taxes
  Stock-Based Compensation
 24




---



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Recently Adopted Accounting Standards
 .
  Recently Issued Accounting Standards
   25




---



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Liquidity and Capital Resources
    26




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Payments Due by Period(in thousands)RemainingTotal
    
    2009
    
    2010
    
    2011
    
    2012
    
    2013
    
    ThereafterLeases (1)
    
    $
    22,115
    
    
    $
    4,100
    
    
    $
    6,113
    
    
    $
    5,961
    
    
    $
    4,077
    
    
    $
    1,864
    
    
    
    Purchase commitments
    
    
    37,679
    
    
    
    35,928
    
    
    
    1,167
    
    
    
    584
    
    
    
    
    
    
    
    
    
    
    
    Other commitments (2)
    
    
    9,072
    
    
    
    6,777
    
    
    
    1,286
    
    
    
    1,006
    
    
    
    3
    
    
    
    
    
    
    
    Total
    
    $
    68,866
    
    
    $
    46,805
    
    
    $
    8,566
    
    
    $
    7,551
    
    
    $
    4,080
    
    
    $
    1,864
    
    
    
    
 
 (1)
    
    Lease payments include common area maintenance (CAM) charges.(2)
    
    Consists primarily of commitments to purchase non-recurring engineering services but excludes
approximately $32.7 million of unrecognized tax benefits under FIN 48 for which we cannot make
a reasonably reliable estimate of the period of payment. 27




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
   
 Item 4. Controls and Procedures
   
 PART II: OTHER INFORMATION
 
 Item 1. Legal Proceedings
 Litigation
  28




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Item 1A. Risk Factors
 Recent disruptions in world credit and equity markets may result in a downturn in information
technology spending in general, or spending on computer and storage systems in particular, that
could adversely affect our revenues and results of operations.
  29




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##### Table of Contents



Our markets are highly competitive and our business and results of operations may be adversely
affected by entry of new competitors into the markets, aggressive pricing, and the introduction or
expansion of competitive products and technologies.
  A significant portion of our business depends upon the continued growth of the storage networking
market, and our business will be adversely affected if such growth does not occur or occurs more
slowly than we anticipate.
  Because a significant portion of our revenues is generated from sales to a limited number of
customers, none of which are the subject of exclusive or long-term contracts, the loss of one or
more of these customers, or our customers failure to make timely payments to us, could adversely
affect our business.
  30




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##### Table of Contents



Our operating results are difficult to forecast and could be adversely affected by many factors,
and our stock price may decline if our results fail to meet expectations.
  
    
    changes in the size, mix, timing and terms of OEM and/or other customer orders;
    
    changes in the sales and deployment cycles for our products and/or desired inventory
levels for our products;
    
    acquisitions or strategic investments by our customers, competitors or us;
    
    timing and market acceptance of new or enhanced product introductions by us, our OEM
customers and/or competitors;
    
    market share losses or difficulty in gaining incremental market share;
    
    fluctuations in product development, procurement, resource utilization and other
operating expenses;
    
    component shortages;
    
    reduced demand from our customers if there is a shortage of, or difficulties in
acquiring, components or other products, such as Fibre Channel or serial advanced technology
attachment (SATA) disk drives and optical modules, used in conjunction with our products in
the deployment of systems;
    
    inability of our electronics manufacturing service providers to produce and distribute
our products in a timely fashion;
    
    difficulties with updates, changes or additions to our information technology systems;
    
    breaches of our network security, including viruses;
    
    changes in general social and economic conditions, including but not limited to natural
disasters, terrorism, public health crises, slower than expected market growth, reduced
economic activity, delayed economic recovery, loss of consumer confidence, increased energy
costs, adverse business conditions and liquidity
concerns, concerns about inflation or deflation, recession, and reduced business profits and
capital spending, with resulting changes in customer technology budgeting and spending;
 31




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##### Table of Contents




    
    changes in technology, industry standards or consumer preferences;
    
    seasonality;
    
    changes in our effective tax rate; and
    
    changes in our accounting or other policies resulting from the adoption of new laws,
regulations or pronouncements.
  Our relatively small backlog of unfilled orders, possible customer delays or deferrals and our
tendency to generate a large percentage of our quarterly sales near the end of the quarter
contribute to possible fluctuations in our operating results that could have an adverse impact on
our results of operations and stock price.
  Our industry is subject to rapid technological change and we must keep pace with the changes to
successfully compete.
  32




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The migration of our customers toward newer product platforms may have a significant adverse
effect.
  The migration of our customers from purchasing our products through the distribution channel and
toward OEM server manufacturers may have a significant adverse effect.
  Any failure of our OEM customers to keep up with rapid technological change and successfully
market and sell systems that incorporate new technologies could adversely affect our business.
  Rapid changes in the evolution of technology, including the unexpected extent or timing of the
transition from HBA solutions or embedded switch box solutions to lower priced ASIC solutions,
could adversely affect our business.
  If customers elect to utilize lower end HBAs in higher-end environments or applications, our
business and financial condition could be negatively affected.
  33




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##### Table of Contents



Advancement of storage device capacity technology may not allow for additional revenue growth.
  A decrease in the average unit selling prices and/or an increase in the manufactured cost of our
products due to inflation or other factors could adversely affect our revenue, gross margins and
financial performance.
  Delays in product development could adversely affect our business.
  
    
    difficulties in hiring and retaining necessary employees and independent contractors;
    
    difficulties in reallocating engineering resources and other resource limitations;
    
    unanticipated engineering or manufacturing complexity, including from third party
suppliers of intellectual property such as foundries of our ASICs;
    
    undetected errors or failures in our products;
    
    changing OEM product specifications;
    
    delays in the acceptance or shipment of products by OEM customers; and
    
    changing market or competitive product requirements.
  34




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##### Table of Contents



Our joint development activities may result in products that are not commercially successful or
that are not available in a timely fashion.
  A change in our business relationships with our third party suppliers or our electronics
manufacturing service providers could adversely affect our business.
  
    
    discontinued production by a supplier;
    
    required long-term purchase commitments;
    
    undetected errors, failures or production quality issues, including projected failures
that may exceed epidemic failure rates specified in agreements with our customers or that
may require us to make concessions or accommodations for continuing customer relationships;
    
    timeliness of product delivery;
    
    sole sourcing and components made by a small number of suppliers, including the inability
to obtain components and finished goods at reasonable cost from such sources and suppliers;
    
    financial stability and viability of our suppliers and electronics manufacturing service
(EMS) providers;
    
    changes in business strategies of our suppliers and EMS providers;
    
    increases in manufacturing costs due to lower volumes or more complex manufacturing
process than anticipated;
    
    disruption in shipping channels;
    
    natural disasters;
    
    inability or unwillingness of our suppliers or EMS providers to continue their business
with us;
    
    environmental, tax or legislative changes in the location where our products are produced
or delivered;
    
    difficulties associated with international operations; and
    
    market shortages.
  35




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If our intellectual property protections are inadequate, it could adversely affect our business.
    Third party claims of intellectual property infringement could adversely affect our business.
  36




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##### Table of Contents



The inability or increased cost of attracting, motivating, or retaining key managerial and
technical personnel could adversely affect our business.
  Our international business activities subject us to risks that could adversely affect our
business.
  
    
    imposition of or changes in governmental controls, taxes, tariffs, trade restrictions,
and regulatory requirements to our current or future operations;
    
    costs and risks of localizing products for international countries;
    
    longer accounts receivable payment cycles;
    
    changes in the value of local currencies relative to our functional currency;
 37




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##### Table of Contents




    
    fluctuations in freight costs and potential disruptions in the transportation
infrastructure for our products and components;
    
    import and export restrictions;
    
    loss of tax benefits or increases in tax expenses;
    
    general economic and social conditions within international countries;
    
    taxation in multiple jurisdictions;
    
    difficulty maintaining management oversight and control of remote locations;
    
    potential restrictions on transferring funds between countries and difficulties
associated with repatriating cash generated or held outside of the U.S. in a tax-efficient
manner;
    
    the increased travel, infrastructure, accounting, and legal compliance costs associated
with multiple international locations; and
    
    political instability, war, or terrorism.
  Potential acquisitions or strategic investments may be more costly or less profitable than
anticipated and may adversely affect the price of our common stock.
  
    
    difficulties in the assimilation of the operations, technologies, products, and personnel
of the acquired company;
    
    purchased technology that is not adopted by customers in the way or the time frame we
anticipated;
    
    diversion of managements attention from other business concerns;
    
    risks of entering markets in which we have limited or no prior experience;
    
    risks associated with assuming the legal obligations of the acquired company;
    
    minority interest in a company, resulting from a strategic investment, that could have an
impact on our results;
 38




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##### Table of Contents




    
    risks related to the effect that the acquired companys internal control processes might
have on our financial reporting and managements report on our internal controls over
financial reporting;
    
    potential loss of key employees of the company we invested in or acquired;
    
    risks related to companies we invest in not being able to secure additional funding,
obtain favorable investment terms for future financings, or to take advantage of liquidity
events such as initial public offerings, mergers, and private sales;
    
    there may exist unknown defects of an acquired companys products or assets that may not
be identified due to the inherent limitations involved in the due diligence process of an
acquisition; and
    
    changes in generally accepted accounting principles regarding the accounting treatment
for acquisitions to less favorable treatment than is currently allowed.
  Our stock price is volatile, which has and may result in lawsuits against us and our officers and
directors.
  
    
    quarterly variations in customer demand and operating results;
    
    announcements of new products by us or our competitors;
    
    the gain or loss of significant customers or design wins;
    
    changes in analysts earnings estimates;
    
    changes in analyst recommendations, price targets, or other parameters that may not be
related to earnings estimates;
    
    rumors or dissemination of false information;
    
    pricing pressures;
    
    short selling of our common stock;
    
    general conditions in the computer, storage, or communications markets; and
    
    events affecting other companies that investors deem to be comparable to us.
  39




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##### Table of Contents



Terrorist activities and resulting military and other actions could adversely affect our business.
  Our corporate offices and principal product development facilities are located in regions that are
subject to earthquakes and other natural disasters.
   Our shareholder rights plan, certificate of incorporation and Delaware law could adversely
affect the performance of our stock.
  Our system of internal controls may be inadequate.
  40




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##### Table of Contents



Changes in laws, regulations, and financial accounting standards may affect our reported results
of operations.
  The final determination of our income tax liability may be materially different from our income
tax provisions and accruals.
    We may need additional capital in the future and such additional financing may not be available on
favorable terms.
  
    
    take advantage of unanticipated opportunities, including more rapid international
expansion or acquisitions of complementary businesses or technologies;
    
    develop new products or services;
    
    repay outstanding indebtedness; and
    
    respond to unanticipated competitive pressures.
  41




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##### Table of Contents



Global warming issues may cause us to alter the way we conduct our business.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    Issuer Purchases of Equity Securities
 Total Number of
    
    
    Approximate DollarShares Purchased as
    
    
    Value of SharesTotal Number
    
    
    Average
    
    
    Part of Publicly
    
    
    that May Yet Beof Shares
    
    
    Price Paid
    
    
    Announced Plans
    
    
    Purchased under thePeriod
    
    Purchased
    
    
    per Share
    
    
    Or Programs
    
    
    Plans or ProgramsJune 30, 2008  July 27, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    39,913,000July 28, 2008  August 24, 2008
    
    
    2,413,334
    
    
    $
    13.81
    
    
    
    2,413,334
    
    
    $
    6,579,000August 25, 2008  September 28, 2008
    
    
    477,300
    
    
    $
    13.78
    
    
    
    477,300
    
    
    $
    Total
    
    
    2,890,634
    
    
    $
    13.81
    
    
    
    2,890,634
    
    
    $
    
 42




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##### Table of Contents



Item 6. Exhibits
 Exhibit 3.1
    
    Certificate of Incorporation, as amended (incorporated by
reference to Exhibit 3.1 to the Companys 1997 Annual Report
on Form 10-K).Exhibit 3.2
    
    Certificate of Amendment of Certificate of Incorporation of
the Company (incorporated by reference to Exhibit 3.4 to the
Companys Quarterly Report on Form 10-Q for the quarterly
period ended December 31, 2000).Exhibit 3.3
    
    Amended and restated Bylaws of the Company (incorporated by
reference to Exhibit 3.1 to the Companys Current Report on
Form 8-K filed on August 29, 2007).Exhibit 3.4
    
    Certificate of Designations of Series A Junior Participating
Preferred Stock (incorporated by reference to Exhibit 4 to the
Companys Current Report on Form 8-K filed February 2, 1989).Exhibit 4.1
    
    Rights Agreement dated January 19, 1989, as amended
(incorporated by reference to Exhibit 4 to the Companys
Current Report on Form 8-K filed February 2, 1989).Exhibit 4.2
    
    Certificate regarding extension of Final Expiration Date of
Rights Agreement dated January 18, 1999 (incorporated by
reference to Exhibit 4.2 of Amendment No. 2 to the
Registration Statement on Form S-3, filed on May 17, 1999).10.1
    
    Letter Agreement between Emulex Corporation, a California
corporation, and Michael Smith (incorporated by reference to
Exhibit 10.1 to the Companys Current Report on Form 8-K filed
August 6, 2008).10.2
    
    Executive Bonus Plan of Emulex Corporation, as amended
(incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K filed on September 10, 2008).10.3
    
    Description of Compensation for certain executive officers of
the Company (incorporated by reference to Exhibit 10.2 to the
Companys Current Report on Form 8-K filed on September 10,
2008).Exhibit 31A
    
    Certification of the Principal Executive Officer Pursuant to
17 CFR 240.13a-14(a), as Adopted Pursuant to § 302 of the
Sarbanes-Oxley Act of 2002.Exhibit 31B
    
    Certification of the Principal Financial Officer Pursuant to
17 CFR 240.13a-14(a), as Adopted Pursuant to § 302 of the
Sarbanes-Oxley Act of 2002.Exhibit 32
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to § 906 of the Sarbanes-Oxley Act of 2002.
 43




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##### Table of Contents



SIGNATURES
   EMULEX CORPORATIONBy:
    /s/ James M. McCluneyJames M. McCluneyChief Executive Officer and PresidentBy:
    /s/ Michael J. RockenbachMichael J. RockenbachExecutive Vice President and Chief Financial Officer (Principal
Financial and Chief Accounting Officer) 44




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##### Table of Contents



Exhibit 3.1
    
    Certificate of Incorporation, as amended
(incorporated by reference to Exhibit 3.1 to the
Companys 1997 Annual Report on Form 10-K).Exhibit 3.2
    
    Certificate of Amendment of Certificate of
Incorporation of the Company (incorporated by
reference to Exhibit 3.4 to the Companys
Quarterly Report on Form 10-Q for the quarterly
period ended December 31, 2000).Exhibit 3.3
    
    Amended and restated Bylaws of the Company
(incorporated by reference to Exhibit 3.1 to the
Companys Current Report on Form 8-K filed on
August 29, 2007).Exhibit 3.4
    
    Certificate of Designations of Series A Junior
Participating Preferred Stock (incorporated by
reference to Exhibit 4 to the Companys Current
Report on Form 8-K filed February 2, 1989).Exhibit 4.1
    
    Rights Agreement dated January 19, 1989, as amended
(incorporated by reference to Exhibit 4 to the
Companys Current Report on Form 8-K filed
February 2, 1989).Exhibit 4.2
    
    Certificate regarding extension of Final Expiration
Date of Rights Agreement dated January 18, 1999
(incorporated by reference to Exhibit 4.2 of
Amendment No. 2 to the Registration Statement on
Form S-3, filed on May 17, 1999).10.1
    
    Letter Agreement between Emulex Corporation, a California
corporation, and Michael Smith (incorporated by reference to
Exhibit 10.1 to the Companys Current Report on Form 8-K filed
August 6, 2008).10.2
    
    Executive Bonus Plan of Emulex Corporation, as amended
(incorporated by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K filed on September 10, 2008).10.3
    
    Description of Compensation for certain executive officers of the
Company (incorporated by reference to Exhibit 10.2 to the Companys
Current Report on Form 8-K filed on September 10, 2008).Exhibit 31A
    
    Certification of the Principal Executive Officer
Pursuant to 17 CFR 240.13a-14(a), as Adopted
Pursuant to § 302 of the Sarbanes-Oxley Act of
2002.Exhibit 31B
    
    Certification of the Principal Financial Officer
Pursuant to 17 CFR 240.13a-14(a), as Adopted
Pursuant to § 302 of the Sarbanes-Oxley Act of
2002.Exhibit 32
    
    Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to § 906 of the
Sarbanes-Oxley Act of 2002.
 45