##### 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 27, 2009
 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
    
    51-0300558(State or other jurisdiction
    
    (I.R.S Employerof incorporation or organization)
    
    Identification No.)3333 Susan StreetCosta Mesa, California
    
    92626(Address of principal executive offices)
    
    (Zip Code)
 (714) 662-5600  Registrants telephone number, including area code
 
 þ o
 Yes o No o
  Large accelerated filer: þ
    
    Accelerated filer: o
    
    Non-accelerated filer: o
    
    Smaller reporting company: o(Do not check if a smaller reporting company)
 o þ




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##### 



PAGEPart I. FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)Condensed Consolidated Balance Sheets September 27, 2009 and June 28, 2009
    
    
    3Condensed Consolidated Statements of Income Three months ended September 27, 2009 and
September 28, 2008
    
    
    4Condensed Consolidated Statements of Cash Flows Three months ended September 27, 2009 and
September 28, 2008
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    30Item 4. Controls and Procedures
    
    
    30Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    31Item 1A. Risk Factors
    
    
    34Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    46Item 6. Exhibits
    
    
    47Signatures
    
    
    48Exhibit 10.2Exhibit 31AExhibit 31BExhibit 32
   2




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PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
  
   September 27,
    
    
    June 28,2009
    
    
    2009AssetsCurrent assets:Cash and cash equivalents
    
    $
    271,152
    
    
    $
    294,136Investments
    
    
    153
    
    
    
    8,289Accounts and other receivables, net of
allowance for doubtful accounts of $1,467
and $1,553 as of September 27, 2009 and June
28, 2009, respectively
    
    
    51,611
    
    
    
    51,566Inventories
    
    
    10,617
    
    
    
    10,665Prepaid income taxes
    
    
    17,220
    
    
    
    17,083Prepaid expenses and other current assets
    
    
    26,887
    
    
    
    8,021Deferred income taxes
    
    
    17,601
    
    
    
    16,793Total current assets
    
    
    395,241
    
    
    
    406,553Property and equipment, net
    
    
    69,297
    
    
    
    74,794Goodwill
    
    
    87,840
    
    
    
    87,840Intangible assets, net
    
    
    56,566
    
    
    
    42,990Deferred income taxes
    
    
    19,665
    
    
    
    16,002Other assets
    
    
    20,143
    
    
    
    30,739Total assets
    
    $
    648,752
    
    
    $
    658,918Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    24,978
    
    
    $
    28,786Accrued liabilities
    
    
    29,376
    
    
    
    23,454Total current liabilities
    
    
    54,354
    
    
    
    52,240Other liabilities
    
    
    5,612
    
    
    
    5,826Accrued taxes
    
    
    31,964
    
    
    
    31,408Total liabilities
    
    
    91,930
    
    
    
    89,474Commitments and contingencies (Note 8)Subsequent event (Note 8)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; 90,018,776 and 89,668,255
issued at September 27, 2009 and June 28,
2009, respectively
    
    
    9,002
    
    
    
    8,967Additional paid-in capital
    
    
    1,108,828
    
    
    
    1,106,990Accumulated deficit
    
    
    (392,232
    )
    
    
    (396,070
    )Accumulated other comprehensive loss
    
    
    (536
    )
    
    
    (443
    )Treasury stock, at cost; 10,550,971 and
8,550,971 shares at September 27, 2009 and
June 28, 2009, respectively
    
    
    (168,240
    )
    
    
    (150,000
    )Total stockholders equity
    
    
    556,822
    
    
    
    569,444Total liabilities and stockholders equity
    
    $
    648,752
    
    
    $
    658,918
   3




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Three Months EndedSeptember 27,
    
    
    September 28,2009
    
    
    2008Net revenues
    
    $
    85,527
    
    
    $
    111,696Cost of sales
    
    
    33,421
    
    
    
    41,744Gross profit
    
    
    52,106
    
    
    
    69,952Operating expenses:Engineering and development
    
    
    31,399
    
    
    
    34,783Selling and marketing
    
    
    12,912
    
    
    
    14,516General and administrative
    
    
    12,279
    
    
    
    9,416Amortization of other intangible assets
    
    
    1,698
    
    
    
    2,087Total operating expenses
    
    
    58,288
    
    
    
    60,802Operating (loss) income
    
    
    (6,182
    )
    
    
    9,150Nonoperating income, net:Interest income
    
    
    119
    
    
    
    1,849Interest expense
    
    
    (2
    )
    
    
    (2
    )Other income, net
    
    
    230
    
    
    
    324Total nonoperating income, net
    
    
    347
    
    
    
    2,171(Loss) income before income taxes
    
    
    (5,835
    )
    
    
    11,321Income tax (benefit) provision
    
    
    (9,673
    )
    
    
    3,820Net income
    
    $
    3,838
    
    
    $
    7,501Net income per share:Basic
    
    $
    0.05
    
    
    $
    0.09Diluted
    
    $
    0.05
    
    
    $
    0.09Number of shares used in per share computations:Basic
    
    
    79,797
    
    
    
    81,264Diluted
    
    
    80,585
    
    
    
    81,838
   4




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Three Months EndedSeptember 27,
    
    
    September 28,2009
    
    
    2008Cash flows from operating activities:Net income
    
    $
    3,838
    
    
    $
    7,501Adjustments to reconcile net income to net cash provided by (used
in) operating activities:Depreciation and amortization of property and equipment
    
    
    5,438
    
    
    
    5,340Share-based compensation expense
    
    
    4,937
    
    
    
    6,770Amortization of intangible assets
    
    
    6,424
    
    
    
    6,818Provision for losses on accounts and other receivables
    
    
    (86
    )
    
    
    (12
    )Accrued interest income, net
    
    
    34
    
    
    
    (188
    )Loss (gain) on disposal of property and equipment
    
    
    1,130
    
    
    
    (39
    )Deferred income taxes
    
    
    (5,701
    )
    
    
    (2,713
    )Excess tax benefit from share-based compensation
    
    
    (15
    )
    
    
    (132
    )Foreign currency adjustments
    
    
    (246
    )
    
    
    (305
    )Changes in assets and liabilities:Accounts and other receivables, net
    
    
    12
    
    
    
    4,780Inventories
    
    
    14
    
    
    
    (44
    )Prepaid expenses and other assets
    
    
    (8,345
    )
    
    
    (2,992
    )Accounts payable, accrued liabilities, and other liabilities
    
    
    3,034
    
    
    
    2,223Accrued taxes
    
    
    556
    
    
    
    711Income taxes payable and prepaid income taxes
    
    
    (162
    )
    
    
    (35,696
    )Net cash provided by (used in) operating activities
    
    
    10,862
    
    
    
    (7,978
    )Cash flows from investing activities:Net proceeds from sale of property and equipment
    
    
    
    
    
    
    50Purchases of property and equipment
    
    
    (1,811
    )
    
    
    (7,682
    )Purchases of intangible assets
    
    
    (20,000
    )
    
    
    Purchases of investments
    
    
    
    
    
    
    (87,722
    )Maturities of investments
    
    
    8,102
    
    
    
    94,950Net cash used in investing activities
    
    
    (13,709
    )
    
    
    (404
    )Cash flows from financing activities:Proceeds from issuance of common stock under stock plans
    
    
    44
    
    
    
    880Repurchase of common stock
    
    
    (18,240
    )
    
    
    (39,913
    )Tax withholding payments reimbursed by common stock
    
    
    (1,869
    )
    
    
    (1,649
    )Excess tax benefit from share-based compensation
    
    
    15
    
    
    
    132Net cash used in financing activities
    
    
    (20,050
    )
    
    
    (40,550
    )Effect of exchange rates on cash and cash equivalents
    
    
    (87
    )
    
    
    29Net decrease in cash and cash equivalents
    
    
    (22,984
    )
    
    
    (48,903
    )Cash and cash equivalents at beginning of period
    
    
    294,136
    
    
    
    217,017Cash and cash equivalents at end of period
    
    $
    271,152
    
    
    $
    168,114
   5




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Basis of Presentation
   Supplemental Cash Flow Information
 Three Months EndedSeptember 27,
    
    
    September 28,2009
    
    
    2008Cash paid during the period for:Interest
    
    $
    2
    
    
    $
    2Income taxes
    
    $
    47
    
    
    $
    42,225Non-cash activities:Purchases of property and equipment not paid, net
    
    $
    827
    
    
    $
    109
 Recently Adopted Accounting Standards
     6




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Recently Issued Accounting Standards
     Fair Value of Financial Instruments
  Level 1
    
    Quoted prices in active markets for identical assets or liabilities;Level 2
    
    Observable inputs other than Level 1 prices, such as quoted prices
for similar assets or liabilities; quoted prices in markets that
are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full
term of the assets or liabilities; andLevel 3
    
    Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets
or liabilities.
  8




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Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total(in thousands)September 27, 2009Cash and cash equivalents
    
    $
    271,152
    
    
    $
    
    
    
    $
    
    
    
    $
    271,152Municipal bonds
    
    
    153
    
    
    
    
    
    
    
    
    
    
    
    153$
    271,305
    
    
    $
    
    
    
    $
    
    
    
    $
    271,305June 28, 2009Cash and cash equivalents
    
    $
    294,136
    
    
    $
    
    
    
    $
    
    
    
    $
    294,136Municipal bonds
    
    
    152
    
    
    
    
    
    
    
    
    
    
    
    152U.S. Government securities
    
    
    4,097
    
    
    
    
    
    
    
    
    
    
    
    4,097U.S. Government sponsored entity securities
    
    
    4,058
    
    
    
    
    
    
    
    
    
    
    
    4,058$
    302,443
    
    
    $
    
    
    
    $
    
    
    
    $
    302,443
  Investments
  Gross
    
    
    GrossUnrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(in thousands)September 27, 2009Municipal bonds
    
    $
    153
    
    
    $
    
    
    
    $
    
    
    
    $
    153June 28, 2009Municipal bonds
    
    $
    151
    
    
    $
    1
    
    
    $
    
    
    
    $
    152U.S. Government securities
    
    
    4,097
    
    
    
    
    
    
    
    
    
    
    
    4,097U.S. Government sponsored entity securities
    
    
    4,041
    
    
    
    17
    
    
    
    
    
    
    
    4,058$
    8,289
    
    
    $
    18
    
    
    $
    
    
    
    $
    8,307
  Inventories
  September 27,
    
    
    June 28,2009
    
    
    2009(in thousands)Raw materials
    
    $
    3,305
    
    
    $
    4,330Finished goods
    
    
    7,312
    
    
    
    6,335$
    10,617
    
    
    $
    10,665
  9




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Goodwill and Intangible Assets, net
   September 27,
    
    
    June 28,2009
    
    
    2009(in thousands)Intangible assets subject to amortization:Core technology and patents
    
    $
    72,144
    
    
    $
    92,228Accumulated amortization, core technology and patents
    
    
    (44,986
    )
    
    
    (82,381
    )Developed technology
    
    
    68,500
    
    
    
    77,312Accumulated amortization, developed technology
    
    
    (41,100
    )
    
    
    (46,488
    )Customer relationships
    
    
    38,670
    
    
    
    38,670Accumulated amortization, customer relationships
    
    
    (37,387
    )
    
    
    (37,227
    )Tradename
    
    
    4,639
    
    
    
    4,639Accumulated amortization, tradename
    
    
    (3,914
    )
    
    
    (3,763
    )$
    56,566
    
    
    $
    42,990
     2010 (remaining 9 months)
    
    $
    19,2702011
    
    
    21,7112012
    
    
    7,5852013
    
    
    4,0002014
    
    
    4,000Thereafter
    
    
    $
    56,566
 Other Assets
  September 27,
    
    
    June 28,2009
    
    
    2009(in thousands)Note receivable
    
    $
    
    
    
    $
    15,000Equity investment in privately-held company
    
    
    11,184
    
    
    
    11,184Other
    
    
    8,959
    
    
    
    4,555$
    20,143
    
    
    $
    30,739
  10




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Accrued Liabilities
  September 27,
    
    
    June 28,2009
    
    
    2009(in thousands)Payroll and related costs
    
    $
    16,181
    
    
    $
    11,410Warranty liability
    
    
    2,102
    
    
    
    2,462Deferred revenue and accrued rebates
    
    
    3,880
    
    
    
    3,499Other
    
    
    7,213
    
    
    
    6,083$
    29,376
    
    
    $
    23,454
  (in thousands)Balance as of June 28, 2009
    
    $
    2,462Accrual for warranties issued
    
    
    228Changes to pre-existing warranties (including changes in estimates)
    
    
    (378
    )Settlements made (in cash or in kind)
    
    
    (210
    )Balance as of September 27, 2009
    
    $
    2,102
 Commitments and Contingencies
   11




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12




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13




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Broadcom Unsolicited Takeover Proposal
  Other Commitments and Contingencies
     14




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Treasury Stock
  Stock-Based Compensation
   Three Months EndedSeptember 27,
    
    
    September 28,2009
    
    
    2008Total cost of stock-based payment plans during the period
    
    $
    4,903
    
    
    $
    6,783Amounts capitalized in inventory during the period
    
    
    (120
    )
    
    
    (179
    )Amounts recognized in income for amounts previously capitalized in inventory
    
    
    154
    
    
    
    166Amounts charged against income, before income tax benefit
    
    $
    4,937
    
    
    $
    6,770Amount of related income tax benefit recognized in income, excluding tax
impact of stock option exchange program (see Note 11)
    
    $
    1,629
    
    
    $
    1,916
   Three Months EndedSeptember 27,
    
    
    September 28,2009
    
    
    2008Expected volatility
    
    46%  48%
    
    
    42%Weighted average expected volatility
    
    47%
    
    
    42%Expected dividends
    
    
    
    
    Expected term (in years)
    
    3.0  5.0
    
    
    3.0  5.0Weighted average expected term (in years)
    
    3.81
    
    
    3.81Risk-free rate
    
    1.51%  2.41%
    
    
    2.70%  3.02%
  15




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Three Months EndedSeptember 27,
    
    
    September 28,2009
    
    
    2008Weighted average expected volatility
    
    
    87
    %
    
    
    45
    %Expected dividends
    
    
    
    
    
    
    Weighted average expected term (in years)
    
    
    0.5
    
    
    
    0.5Risk-free rate
    
    
    0.30
    %
    
    
    1.67
    %
  WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    IntrinsicOptions
    
    
    Exercise Price
    
    
    Term
    
    
    Value(in years)
    
    
    (in millions)Options outstanding at June 28, 2009
    
    
    12,180,404
    
    
    $
    21.68
    
    
    
    3.10
    
    
    $
    2.04Options granted
    
    
    402,000
    
    
    $
    9.82Options exercised
    
    
    (13,383
    )
    
    $
    3.30Options canceled
    
    
    (3,935,230
    )
    
    $
    22.45Options forfeited
    
    
    (478,580
    )
    
    $
    17.15Options outstanding at September 27, 2009
    
    
    8,155,211
    
    
    $
    21.03
    
    
    
    3.26
    
    
    $
    2.27Options vested and expected to vest at
September 27, 2009
    
    
    8,074,423
    
    
    $
    21.12
    
    
    
    3.24
    
    
    $
    2.22Options exercisable at September 27, 2009
    
    
    7,241,602
    
    
    $
    22.07
    
    
    
    3.03
    
    
    $
    1.83
  WeightedAverage GrantNumber of
    
    
    Date FairAwards
    
    
    ValueAwards outstanding and unvested at June 28, 2009
    
    
    2,721,606
    
    
    $
    12.85Awards granted
    
    
    792,608
    
    
    $
    7.81Awards vested
    
    
    (527,302
    )
    
    $
    16.17Awards forfeited
    
    
    (65,026
    )
    
    $
    13.40Awards outstanding and unvested at September 27, 2009
    
    
    2,921,886
    
    
    $
    10.87
    16




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11.

    Income Taxes
   Net Income Per Share
    17




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Three Months EndedSeptember 27,
    
    
    September 28,2009
    
    
    2008(in thousands, except pershare data)Numerator  Net income
    
    $
    3,838
    
    
    $
    7,501Less: Undistributed earnings allocated to participating securities
    
    
    (78
    )
    
    
    (175
    )Undistributed earnings allocated to common shareholders for basic net
income per share
    
    $
    3,760
    
    
    $
    7,326Undistributed earnings allocated to common shareholders for diluted
net income per share
    
    $
    3,761
    
    
    $
    7,327Denominator:Denominator for basic net income per share  weighted average shares
outstanding
    
    
    79,797
    
    
    
    81,264Effect of dilutive securities:Dilutive options outstanding, unvested stock and ESPP
    
    
    788
    
    
    
    574Denominator for diluted net income per share  adjusted weighted
average shares outstanding
    
    
    80,585
    
    
    
    81,838Basic net income per share
    
    $
    0.05
    
    
    $
    0.09Diluted net income per share
    
    $
    0.05
    
    
    $
    0.09Antidilutive options and unvested stock excluded from the computations
    
    
    10,758
    
    
    
    14,401Average market price of common stock
    
    $
    9.63
    
    
    $
    12.18
   18




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Forward-Looking Statements
    19




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Executive Overview
  ®
 ® ®
      20




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Global Initiatives
   Results of Operations
  Percentage of Net RevenuesThree Months EndedSeptember 27,
    
    
    September 28,2009
    
    
    2008Net revenues
    
    
    100
    %
    
    
    100
    %Cost of sales
    
    
    39
    
    
    
    37Gross profit
    
    
    61
    
    
    
    63Operating expenses:Engineering and development
    
    
    37
    
    
    
    31Selling and marketing
    
    
    15
    
    
    
    13General and administrative
    
    
    14
    
    
    
    9Amortization of other intangible assets
    
    
    2
    
    
    
    2Total operating expenses
    
    
    68
    
    
    
    55Operating (loss) income
    
    
    (7
    )
    
    
    8Nonoperating income, net:Interest income
    
    
    
    
    
    
    2Interest expense
    
    
    
    
    
    
    Other income, net
    
    
    
    
    
    
    Total nonoperating income, net
    
    
    
    
    
    
    2(Loss) income before income taxes
    
    
    (7
    )
    
    
    10Income tax (benefit) provision
    
    
    (11
    )
    
    
    3Net income
    
    
    4
    %
    
    
    7
    %
  21




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Three months ended September 27, 2009, compared to three months ended September 28, 2008
 Net Revenues.
 Net Revenues by Product Line
  Net Revenues by Product LineThree Months
    
    
    
    
    
    
    Three MonthsEnded
    
    
    Percentage
    
    
    Ended
    
    
    PercentageSeptember 27,
    
    
    of Net
    
    
    September 28,
    
    
    of Net
    
    
    Increase/
    
    
    Percentage(in thousands)
    
    2009
    
    
    Revenues
    
    
    2008
    
    
    Revenues
    
    
    (Decrease)
    
    
    ChangeHost Server Products
    
    $
    64,145
    
    
    
    75
    %
    
    $
    81,203
    
    
    
    73
    %
    
    $
    (17,058
    )
    
    
    (21
    %)Embedded Storage Products
    
    
    21,274
    
    
    
    25
    %
    
    
    30,364
    
    
    
    27
    %
    
    
    (9,090
    )
    
    
    (30
    %)Other
    
    
    108
    
    
    
    
    
    
    
    129
    
    
    
    
    
    
    
    (21
    )
    
    
    (16
    %)Total net revenues
    
    $
    85,527
    
    
    
    100
    %
    
    $
    111,696
    
    
    
    100
    %
    
    $
    (26,169
    )
    
    
    (23
    %)
  ® ®
   22




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##### Table of Contents



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 27,
    
    
    September 28,
    
    
    September 27,
    
    
    September 28,2009
    
    
    2008
    
    
    2009
    
    
    2008Net revenue percentage (1):OEM:EMC
    
    
    
    
    
    
    
    
    
    
    11
    %
    
    
    13
    %Hewlett-Packard
    
    
    14
    %
    
    
    16
    %
    
    
    15
    %
    
    
    16
    %IBM
    
    
    24
    %
    
    
    22
    %
    
    
    34
    %
    
    
    29
    %Other:Info X
    
    
    
    
    
    
    10
    %
    
    
    
    
    
    
    
 
 (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
    
    
    
    
    
    Three MonthsEnded
    
    
    Percentage
    
    
    Ended
    
    
    PercentageSeptember 27,
    
    
    of Net
    
    
    September 28,
    
    
    of Net
    
    
    Increase/
    
    
    Percentage(in thousands)
    
    2009
    
    
    Revenues
    
    
    2008
    
    
    Revenues
    
    
    (Decrease)
    
    
    ChangeOEM
    
    $
    72,287
    
    
    
    85
    %
    
    $
    87,511
    
    
    
    78
    %
    
    $
    (15,224
    )
    
    
    (17
    %)Distribution
    
    
    13,211
    
    
    
    15
    %
    
    
    24,118
    
    
    
    22
    %
    
    
    (10,907
    )
    
    
    (45
    %)Other
    
    
    29
    
    
    
    
    
    
    
    67
    
    
    
    
    
    
    
    (38
    )
    
    
    (57
    %)Total net revenues
    
    $
    85,527
    
    
    
    100
    %
    
    $
    111,696
    
    
    
    100
    %
    
    $
    (26,169
    )
    
    
    (23
    %)
   23




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##### Table of Contents



Net Revenues by Geographic Territory
  Net United States and International RevenuesThree Months
    
    
    
    
    
    
    Three MonthsEnded
    
    
    Percentage
    
    
    Ended
    
    
    PercentageSeptember 27,
    
    
    of Net
    
    
    September 28,
    
    
    of Net
    
    
    Increase/
    
    
    Percentage(in thousands)
    
    2009
    
    
    Revenues
    
    
    2008
    
    
    Revenues
    
    
    (Decrease)
    
    
    ChangeUnited States
    
    $
    26,766
    
    
    
    31
    %
    
    $
    39,799
    
    
    
    36
    %
    
    $
    (13,033
    )
    
    
    (33
    %)Asia Pacific
    
    
    29,166
    
    
    
    34
    %
    
    
    32,474
    
    
    
    29
    %
    
    
    (3,308
    )
    
    
    (10
    %)Europe,
Middle East, Africa 
and
rest of the world
    
    
    29,595
    
    
    
    35
    %
    
    
    39,423
    
    
    
    35
    %
    
    
    (9,828
    )
    
    
    (25
    )%Total net revenues
    
    $
    85,527
    
    
    
    100
    %
    
    $
    111,696
    
    
    
    100
    %
    
    $
    (26,169
    )
    
    
    (23
    %)
  Gross Profit.
 Gross ProfitThree Months
    
    
    
    
    
    Three MonthsEnded
    
    
    Percentage
    
    
    Ended
    
    
    PercentageSeptember 27,
    
    
    of Net
    
    
    September 28,
    
    
    of Net
    
    
    Increase/
    
    
    Percentage2009
    
    
    Revenues
    
    
    2008
    
    
    Revenues
    
    
    (Decrease)
    
    
    Points Change$
    52,106
    
    
    61
    %
    
    $
    69,952
    
    
    
    63
    %
    
    $
    (17,846
    )
    
    
    (2
    )%
  Engineering and Development.
 Engineering and DevelopmentThree Months
    
    
    
    
    
    Three MonthsEnded
    
    
    Percentage
    
    
    Ended
    
    
    PercentageSeptember 27,
    
    
    of Net
    
    
    September 28,
    
    
    of Net
    
    
    Increase/
    
    
    Percentage2009
    
    
    Revenues
    
    
    2008
    
    
    Revenues
    
    
    (Decrease)
    
    
    Points Change$
    31,399
    
    
    37
    %
    
    $
    34,783
    
    
    
    31
    %
    
    $
    (3,384
    )
    
    
    6
    %
  24




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##### Table of Contents



Selling and Marketing.
 Selling and MarketingThree Months
    
    
    
    
    
    Three MonthsEnded
    
    Percentage
    
    
    Ended
    
    
    PercentageSeptember 27,
    
    of Net
    
    
    September 28,
    
    
    of Net
    
    
    Increase/
    
    

    Percentage2009
    
    Revenues
    
    
    2008
    
    
    Revenues
    
    
    (Decrease)
    
    
    Points
 Change$
    12,912
    
    
    15
    %
    
    $
    14,516
    
    
    
    13
    %
    
    $
    (1,604
    )
    
    
    2
    %
  General and Administrative.
 General and AdministrativeThree Months
    
    
    
    
    
    Three MonthsEnded
    
    Percentage
    
    
    Ended
    
    
    PercentageSeptember 27,
    
    of Net
    
    
    September 28,
    
    
    of Net
    
    
    Increase/
    
    
    Percentage2009
    
    Revenues
    
    
    2008
    
    
    Revenues
    
    
    (Decrease)
    
    
    Points
 Change$
    12,279
    
    
    14
    %
    
    $
    9,416
    
    
    
    9
    %
    
    $
    2,863
    
    
    
    5
    %
   25




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##### Table of Contents



Amortization of Other Intangible Assets.
 Amortization of Other Intangible AssetsThree Months
    
    
    
    
    
    Three MonthsEnded
    
    
    Percentage
    
    
    Ended
    
    
    PercentageSeptember 27,
    
    
    of Net
    
    
    September 28,
    
    
    of Net
    
    
    Increase/
    
    
    Percentage2009
    
    
    Revenues
    
    
    2008
    
    
    Revenues
    
    
    (Decrease)
    
    
    Points Change$
    1,698
    
    
    2
    %
    
    $
    2,087
    
    
    
    2
    %
    
    $
    (389
    )
    
    
    
    %
  Nonoperating Income, net.
 Nonoperating Income, netThree Months
    
    
    
    
    
    Three MonthsEnded
    
    
    Percentage
    
    
    Ended
    
    
    PercentageSeptember 27,
    
    
    of Net
    
    
    September 28,
    
    
    of Net
    
    
    Increase/
    
    
    Percentage2009
    
    
    Revenues
    
    
    2008
    
    
    Revenues
    
    
    (Decrease)
    
    
    Points Change$
    347
    
    
    
    %
    
    $
    2,171
    
    
    
    2
    %
    
    $
    (1,824
    )
    
    
    (2
    %)
  Income Taxes
 Income TaxesThree Months
    
    
    
    
    
    Three MonthsEnded
    
    
    Percentage
    
    
    Ended
    
    
    PercentageSeptember 27,
    
    
    of Net
    
    
    September 28,
    
    
    of Net
    
    
    Increase/
    
    
    Percentage2009
    
    
    Revenues
    
    
    2008
    
    
    Revenues
    
    
    (Decrease)
    
    
    Points Change$
    (9,673
    )
    
    (11
    %)
    
    $
    3,820
    
    
    
    3
    %
    
    $
    (13,493
    )
    
    
    (14
    %)
   26




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##### Table of Contents



Critical Accounting Policies
   Revenue Recognition.
 Warranty.
 Allowance for Doubtful Accounts
 Intangible Assets and Other Long-Lived Assets
 Inventories
  27




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##### Table of Contents



Goodwill
  Income Taxes
  Stock-Based Compensation
 Litigation Costs
  28




---



##### Table of Contents



Recently Adopted and Recently Issued Accounting Standards
  Liquidity and Capital Resources
        29




---



##### Table of Contents



Payments Due by Period(in thousands)RemainingTotal
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    ThereafterLeases (1)
    
    $
    16,177
    
    
    $
    4,622
    
    
    $
    5,951
    
    
    $
    3,943
    
    
    $
    1,661
    
    
    $
    
    
    
    $
    Purchase commitments
    
    
    51,691
    
    
    
    51,527
    
    
    
    164
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other commitments (2)
    
    
    17,892
    
    
    
    8,857
    
    
    
    9,032
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    85,760
    
    
    $
    65,006
    
    
    $
    15,147
    
    
    $
    3,946
    
    
    $
    1,661
    
    
    $
    
    
    
    $
    
 
 (1)
    
    Lease payments include common area maintenance (CAM) charges.(2)
    
    Consists primarily of commitments to purchase non-recurring
engineering services but excludes approximately $31.8 million of
unrecognized tax benefits for which we cannot make a reasonably
reliable estimate of the period of payment. 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
   
 Item 4. Controls and Procedures
    30




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##### Table of Contents



PART II: OTHER INFORMATION
 
 Item 1. Legal Proceedings
 Litigation
   31




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32




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##### Table of Contents



33




---



##### Table of Contents



Item 1A. Risk Factors
 The recent economic downturn has resulted in a reduction in information technology spending in
general, or spending on computer and storage systems in particular, that will adversely affect our
revenues and results of operations in the near term and possibly beyond.
  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.
   34




---



##### Table of Contents



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, occurs more
slowly than we anticipate, or declines.
  Because a significant portion of our revenues is generated from sales to a limited number of
customers, none of which are subject to 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.
    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;
    
    Effect of any actual or potential unsolicited offers to acquire us;
    
    Timing and market acceptance of new or enhanced product introductions by us, our OEM
customers and/or competitors;
  35




---



##### Table of Contents




    
    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;
    
    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.
  A number of factors including 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.
   36




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##### Table of Contents



Our industry is subject to rapid technological change, thus our results of operations could be
adversely affected if we are unable to keep pace with the changes to successfully compete.
  We have experienced losses in our history and may experience losses in our future that may
adversely affect our financial condition.
  The timing of migration of our customers toward newer product platforms varies and 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 to 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.
   37




---



##### Table of Contents



If customers elect to utilize lower-end HBAs in higher-end environments or applications, our
business and financial condition could be negatively affected.
  Advancement of storage device capacity technology may not allow for additional revenue growth.
  A decrease in the average unit selling prices 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.
   38




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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 constitute 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.
  39




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##### Table of Contents



Unsolicited takeover proposals may be disruptive to our business and may adversely affect our
operations; results and our ability to retain key employees.
    If our intellectual property protections are inadequate, it could adversely affect our business.
    40




---



##### Table of Contents



Third party claims of intellectual property infringement could adversely affect our business.
   The inability or increased cost of attracting, motivating, or retaining key managerial and
technical personnel could adversely affect our business.
   41




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##### Table of Contents



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;
    
    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.
   42




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##### Table of Contents



Potential acquisitions or strategic investments may become more costly or less profitable than
originally 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;
    
    Losses incurred by our strategic investments that may be required to be reflected in
our results;
    
    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.
   43




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##### Table of Contents



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;
    
    Events affecting other companies that investors deem to be comparable to us; and
    
    Offers to buy the Company for a premium over recent trading price.
   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.
    44




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##### Table of Contents



Our certificate of incorporation, provisions of Delaware law, and any shareholders rights plan
could adversely affect the performance of our stock.
  Our system of internal controls may be inadequate.
  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 and our tax liabilities may be adversely affected by changes in
applicable tax laws.
     45




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##### Table of Contents



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.
  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
  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 29, 2009  July 26, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    100,000,000July 27, 2009  August 23, 2009
    
    
    2,000,000
    
    
    $
    9.12
    
    
    
    2,000,000
    
    
    $
    81,760,136August 24, 2009  September 27, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    81,760,136Total
    
    
    2,000,000
    
    
    $
    9.12
    
    
    
    2,000,000
    
    
    $
    81,760,136
 Sales of Unregistered Securities
   46




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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 October 2, 2009).Exhibit 3.4
    
    Amended and Restated Certificate of Designations, Preferences and Rights of Series A
Junior Participating Preferred Stock of Emulex Corporation, incorporated by reference
to Exhibit 3.1 to the Companys Form 8-K filed with the Securities and Exchange
Commission on January 16, 2009.Exhibit 4.1
    
    Rights Agreement, dated as of January 15, 2009, with Mellon Investor Services LLC, as
rights agent, which includes as Exhibit B the Form of Rights Certificate, incorporated
by reference to Exhibit 4.1 to the Companys Form 8-K filed with the Securities and
Exchange Commission on January 16, 2009.Exhibit 4.2
    
    Amendment to Rights Agreement, dated October 1, 2009, with Mellon Investor Services
LLC, as rights agent, incorporated by reference to Exhibit 4.1 to the Companys Form
8-K filed with the Securities and Exchange Commission on October 2, 2009.Exhibit 10.1
    
    Executive Incentive Plan of the Company, as amended, incorporated by reference to
Exhibit 10.1 to the Companys Form 8-K filed with the Securities and Exchange
Commission on September 3, 2009.Exhibit 10.2
    
    Separation Agreement, dated September 25, 2009, between the Company and Marshall D. Lee.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.
  47




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SIGNATURES
   EMULEX CORPORATIONBy:
    /s/ James M. McCluneyJames M. McCluneyPresident and Chief Executive OfficerBy:
    /s/ Michael J. RockenbachMichael J. RockenbachExecutive Vice President and Chief Financial
Officer (Principal Financial and Chief
Accounting Officer)  48




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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 3.2 to
the Companys Current Report on Form 8-K filed on October 2, 2009).Exhibit 3.4
    
    Amended and Restated Certificate of Designations, Preferences and Rights of Series A
Junior Participating Preferred Stock of Emulex Corporation, incorporated by reference
to Exhibit 3.1 to the Companys Form 8-K filed with the Securities and Exchange
Commission on January 16, 2009.Exhibit 4.1
    
    Rights Agreement, dated as of January 15, 2009, with Mellon Investor Services LLC, as
rights agent, which includes as Exhibit B the Form of Rights Certificate, incorporated
by reference to Exhibit 4.1 to the Companys Form 8-K filed with the Securities and
Exchange Commission on January 16, 2009.Exhibit 4.2
    
    Amendment to Rights Agreement, dated October 1, 2009, with Mellon Investor Services
LLC, as rights agent, incorporated by reference to Exhibit 4.1 to the Companys Form
8-K filed with the Securities and Exchange Commission on October 2, 2009.Exhibit 10.1
    
    Executive Incentive Plan of the Company, as amended, incorporated by reference to
Exhibit 10.1 to the Companys Form 8-K filed with the Securities and Exchange
Commission on September 3, 2009.Exhibit 10.2
    
    Separation Agreement, dated September 25, 2009, between the Company and Marshall D. Lee.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.
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