##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
 For the quarterly period ended December 30, 2007
 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
  þ o o
 o þ




---



##### 



PAGEPart I. FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)Condensed Consolidated Balance Sheets December 30, 2007, and July 1, 2007
    
    
    2Condensed Consolidated Statements of Operations Three and Six months ended December 30,
2007, and December 31, 2006
    
    
    3Condensed Consolidated Statements of Cash Flows Six months ended December 30, 2007, and
December 31, 2006
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    32Item 4. Controls and Procedures
    
    
    32Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    33Item 1A. Risk Factors
    
    
    34Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    45Item 4. Submission of Matters to a Vote of Security Holders
    
    
    46Item 6. Exhibits
    
    
    47Signatures
    
    
    48EXHIBIT 31.AEXHIBIT 31.BEXHIBIT 32
  1




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
  
   December 30,
    
    
    July 1,2007
    
    
    2007AssetsCurrent assets:Cash and cash equivalents
    
    $
    125,115
    
    
    $
    69,036Investments
    
    
    182,340
    
    
    
    202,288Accounts and other receivables, net of
allowance for doubtful accounts of $1,864
and $1,902 as of December 30, 2007 and July
1, 2007, respectively
    
    
    71,834
    
    
    
    67,529Inventories
    
    
    18,141
    
    
    
    28,973Prepaid expenses
    
    
    5,835
    
    
    
    4,114Deferred income taxes
    
    
    27,115
    
    
    
    27,114Total current assets
    
    
    430,380
    
    
    
    399,054Property and equipment, net
    
    
    69,078
    
    
    
    64,294Investments
    
    
    150
    
    
    
    Goodwill
    
    
    74,127
    
    
    
    62,347Intangible assets, net
    
    
    82,705
    
    
    
    108,342Deferred income taxes
    
    
    2,372
    
    
    
    Other assets
    
    
    13,644
    
    
    
    25,440Total assets
    
    $
    672,456
    
    
    $
    659,477Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    22,871
    
    
    $
    19,761Accrued liabilities
    
    
    30,017
    
    
    
    29,483Income taxes payable
    
    
    1
    
    
    
    21,285Total current liabilities
    
    
    52,889
    
    
    
    70,529Other liabilities
    
    
    2,907
    
    
    
    802Deferred income taxes
    
    
    
    
    
    
    6,239Accrued taxes
    
    
    23,110
    
    
    
    Total liabilities
    
    
    78,906
    
    
    
    77,570Commitments 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; 87,764,082 and 86,906,540
issued at December 30, 2007 and July 1,
2007, respectively
    
    
    8,776
    
    
    
    8,691Additional paid-in capital
    
    
    1,063,514
    
    
    
    1,045,221Accumulated deficit
    
    
    (368,728
    )
    
    
    (401,982
    )Accumulated other comprehensive income
    
    
    75
    
    
    
    64Treasury stock, at cost; 5,660,337 and
3,589,278 shares at December 30, 2007 and
July 1, 2007, respectively
    
    
    (110,087
    )
    
    
    (70,087
    )Total stockholders equity
    
    
    593,550
    
    
    
    581,907Total liabilities and stockholders equity
    
    $
    672,456
    
    
    $
    659,477
  2




---



##### Table of Contents



Three Months Ended
    
    
    Six Months EndedDecember 30,
    
    
    December 31,
    
    
    December 30,
    
    
    December 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Net revenues
    
    $
    130,622
    
    
    $
    121,390
    
    
    $
    247,692
    
    
    $
    223,708Cost of sales
    
    
    48,880
    
    
    
    55,608
    
    
    
    98,023
    
    
    
    96,727Gross profit
    
    
    81,742
    
    
    
    65,782
    
    
    
    149,669
    
    
    
    126,981Operating expenses:Engineering and development
    
    
    31,477
    
    
    
    29,566
    
    
    
    62,764
    
    
    
    54,877Selling and marketing
    
    
    13,740
    
    
    
    11,944
    
    
    
    26,644
    
    
    
    22,136General and administrative
    
    
    8,808
    
    
    
    7,858
    
    
    
    17,377
    
    
    
    14,018Amortization of other intangible assets
    
    
    2,280
    
    
    
    4,135
    
    
    
    4,918
    
    
    
    6,988In-process research and development
    
    
    
    
    
    
    21,589
    
    
    
    
    
    
    
    20,639Total operating expenses
    
    
    56,305
    
    
    
    75,092
    
    
    
    111,703
    
    
    
    118,658Operating income (loss)
    
    
    25,437
    
    
    
    (9,310
    )
    
    
    37,966
    
    
    
    8,323Nonoperating income, net:Interest income
    
    
    3,487
    
    
    
    5,435
    
    
    
    6,796
    
    
    
    12,873Interest expense
    
    
    (7
    )
    
    
    (520
    )
    
    
    (11
    )
    
    
    (1,144
    )Other income, net
    
    
    
    
    
    
    182
    
    
    
    61
    
    
    
    995Total nonoperating income, net
    
    
    3,480
    
    
    
    5,097
    
    
    
    6,846
    
    
    
    12,724Income (loss) before income taxes
    
    
    28,917
    
    
    
    (4,213
    )
    
    
    44,812
    
    
    
    21,047Income tax provision
    
    
    11,273
    
    
    
    5,863
    
    
    
    16,997
    
    
    
    16,161Net income (loss)
    
    $
    17,644
    
    
    $
    (10,076
    )
    
    $
    27,815
    
    
    $
    4,886Net income (loss) per share:Basic
    
    $
    0.22
    
    
    $
    (0.12
    )
    
    $
    0.34
    
    
    $
    0.06Diluted
    
    $
    0.21
    
    
    $
    (0.12
    )
    
    $
    0.33
    
    
    $
    0.06Number of shares used in per share computations:Basic
    
    
    81,885
    
    
    
    85,215
    
    
    
    82,254
    
    
    
    84,861Diluted
    
    
    83,809
    
    
    
    85,215
    
    
    
    84,305
    
    
    
    91,676
  3




---



##### Table of Contents



Six Months EndedDecember 30,
    
    
    December 31,2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    27,815
    
    
    $
    4,886Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization of property and equipment
    
    
    9,307
    
    
    
    8,801Amortization of discount on convertible subordinated notes
    
    
    
    
    
    
    823Share-based compensation expense
    
    
    14,091
    
    
    
    13,543Amortization of intangible assets
    
    
    17,631
    
    
    
    18,205In-process research and development
    
    
    
    
    
    
    20,639Impairment of intangible assets
    
    
    3,097
    
    
    
    Loss on disposal of property and equipment
    
    
    131
    
    
    
    25Deferred income taxes
    
    
    (3,715
    )
    
    
    1,253Excess tax benefit from share-based compensation
    
    
    (1,004
    )
    
    
    (4,066
    )Foreign currency adjustments
    
    
    60
    
    
    
    (145
    )Changes in assets and liabilities:Accounts and other receivables
    
    
    (4,304
    )
    
    
    (94
    )Inventories
    
    
    10,791
    
    
    
    1,461Prepaid expenses and other assets
    
    
    (2,252
    )
    
    
    120Accounts payable, accrued liabilities, and other liabilities
    
    
    3,892
    
    
    
    6,355Accrued taxes
    
    
    (1,221
    )
    
    
    Income taxes payable
    
    
    8,932
    
    
    
    (10,542
    )Net cash provided by operating activities
    
    
    83,251
    
    
    
    61,264Cash flows from investing activities:Net proceeds from sale of property and equipment
    
    
    20
    
    
    
    3Additions to property and equipment
    
    
    (13,064
    )
    
    
    (5,647
    )Purchases of investments
    
    
    (554,040
    )
    
    
    (1,296,647
    )Maturities of investments
    
    
    573,838
    
    
    
    1,520,977Strategic investment in privately-held company
    
    
    
    
    
    
    (4,975
    )Payments for purchase of Sierra Logic, Inc., net of cash acquired
    
    
    
    
    
    
    (134,381
    )Restricted cash placed in escrow related to Sierra Logic, Inc. acquisition
    
    
    
    
    
    
    (24,307
    )Net cash provided by investing activities
    
    
    6,754
    
    
    
    55,023Cash flows from financing activities:Retirement of convertible subordinated notes
    
    
    
    
    
    
    (236,000
    )Retirement of debt assumed in conjunction with Sierra Logic, Inc. acquisition
    
    
    
    
    
    
    (3,425
    )Repurchase of common stock
    
    
    (40,000
    )
    
    
    Tax withholding payments reimbursed by restricted stock
    
    
    (2,288
    )
    
    
    Proceeds from issuance of common stock under stock plans
    
    
    7,400
    
    
    
    9,133Excess tax benefit from share-based compensation expense
    
    
    1,004
    
    
    
    4,066Net cash (used in) financing activities
    
    
    (33,884
    )
    
    
    (226,226
    )Effect of exchange rates on cash and cash equivalents
    
    
    (42
    )
    
    
    7Net increase (decrease) in cash and cash equivalents
    
    
    56,079
    
    
    
    (109,932
    )Cash and cash equivalents at beginning of period
    
    
    69,036
    
    
    
    224,292Cash and cash equivalents at end of period
    
    $
    125,115
    
    
    $
    114,360Supplemental disclosures:Cash paid during the period for:Interest
    
    $
    11
    
    
    $
    301Income taxes
    
    $
    13,609
    
    
    $
    25,667Non-cash activities:Additional goodwill resulting from escrow release as required by the
Sierra Logic, Inc. acquisition agreement
    
    $
    12,138
    
    
    $
    Capital expenditures included in accounts payable in the Companys
condensed consolidated balance sheets
    
    $
    1,668
    
    
    $
    806
  4




---



##### Table of Contents



1.
    
    Basis of PresentationIn the opinion of management of Emulex Corporation (Emulex or the Company), the accompanying
unaudited condensed consolidated financial statements contain all adjustments (which are normal
recurring accruals) necessary to present fairly the Companys consolidated financial position,
results of operations, and cash flows. Interim results for the three and six months ended
December 30, 2007, are not necessarily indicative of the results that may be expected for the
year ending June 29, 2008. The accompanying condensed consolidated interim financial statements
should be read in conjunction with the Companys Annual Report on Form 10-K for the fiscal year
ended July 1, 2007.Certain reclassifications have been made to prior period amounts to conform to the current
periods presentation.Recently Adopted Accounting StandardThe Company adopted Financial Accounting Standards Board (FASB) Interpretation No. 48,
Accounting for Uncertainty in Income Taxes (FIN 48), during the six months ended December 30,
2007. See Note 9.Recently Issued Accounting StandardsIn September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 157,
Fair Value Measurements. This statement defines fair value, establishes a framework for
measuring fair value and expands disclosure of fair value measurements. SFAS No. 157 applies
under other accounting pronouncements that require or permit fair value measurements and
accordingly, does not require any new fair value measurements. SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007, which is the
Companys fiscal year beginning June 30, 2008. The Company is in the process of studying the
potential financial statement impact of the adoption of SFAS No. 157.In February 2007, the FASB issued SFAS No. 159, Fair Value Option for Financial Assets and
Financial Liabilities  Including an amendment of FASB Statement No. 115. SFAS No. 159 expands
the use of fair value accounting but does not affect existing standards which require assets or
liabilities to be carried at fair value. Under SFAS No. 159, a company may elect to use fair
value to measure certain financial assets and liabilities. The fair value election is
irrevocable and generally made on an instrument-by-instrument basis, even if a company has
similar instruments that it elects not to measure based on fair value. At the adoption date,
unrealized gains and losses on existing items for which fair value has been elected are reported
as a cumulative adjustment to beginning retained earnings. Subsequent to the adoption of SFAS
No. 159, changes in fair value are recognized in earnings. SFAS No. 159 is effective for fiscal
years beginning after November 15, 2007, which is the
Companys fiscal year beginning June 30,
2008. The Company is in the process of studying the potential financial statement impact of the
adoption of SFAS No. 159.In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS
141R). SFAS 141R will significantly change the accounting for business combinations in a number
of areas including the treatment of contingent consideration, contingencies, acquisition costs,
in-process research and development, and restructuring costs. In addition, under SFAS 141R,
changes in deferred tax asset valuation allowances and acquired income tax uncertainties in a
business combination after the measurement period will impact income taxes. SFAS 141R is
effective for fiscal years beginning after December 15, 2008,
which is the Companys fiscal year beginning June 29, 2009, and will impact the accounting for
any business combinations entered into after the effective date.
 5




---



##### Table of Contents



In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements, an amendment of Accounting Research Bulletin (ARB) No. 51, which changes
the accounting and reporting for minority interests. Minority interests will be recharacterized
as noncontrolling interests and will be reported as a component of equity separate from the
parents equity, and purchases or sales of equity interests that do not result in a change in
control will be accounted for as equity transactions. In addition, net income attributable to
the noncontrolling interest will be included in consolidated net income on the face of the
income statement and, upon a loss of control, the interest sold, as well as any interest
retained, will be recorded at fair value with any gain or loss recognized in earnings. SFAS No.
160 will apply prospectively, except for the presentation and disclosure requirements, which
will apply retrospectively. SFAS No. 160 is effective for periods beginning on or after
December 15, 2008 and will impact the accounting for noncontrolling interests after the
effective date.In December 2007, the Emerging Issues Task Force (EITF) reached a consensus on EITF Issue No.
07-1, Accounting for Collaborative Arrangements (EITF 07-1), that prohibits companies from
applying the equity method of accounting to activities performed outside a separate legal entity
by a virtual joint venture. Instead, revenues and costs incurred with third parties in
connection with the collaborative arrangement should be presented gross or net by the
collaborators based on the criteria in EITF Issue No. 99-19, Reporting Revenue Gross as a
Principal versus Net as an Agent, and other applicable accounting literature. The consensus
should be applied to collaborative arrangements in existence at the date of adoption using a
modified retrospective method that requires reclassification in all periods presented for those
arrangements still in effect at the transition date, unless that application is impracticable.
The consensus is effective for fiscal years beginning after
December 15, 2008, which is the Companys fiscal year beginning
June 29, 2009. The Company is in
the process of studying the potential financial statement impact of adopting EITF 07-1.2.
    
    Business CombinationOn October 2, 2006, the Company acquired 100% of the outstanding common shares of Sierra Logic,
Inc. (Sierra Logic), a privately-held supplier of embedded products for storage networking
equipment located in Roseville, California. The Company accounted for the acquisition using the
purchase method of accounting in accordance with SFAS No. 141, Business Combinations. The
aggregate purchase price to date is approximately $159.2 million, which includes approximately
$12.1 million released from escrow during the three months ended September 30, 2007, in
accordance with the acquisition agreement, and approximately $8.3 million in restricted stock,
which was issued upon acquisition and being recognized as post-acquisition compensation expense.
Approximately $12.1 million remains in escrow and is deemed to be contingent consideration,
which is included in other assets. The contingent consideration relates to certain standard
representations and warranties defined in the escrow agreement and are expected to be resolved
within 18 months from the acquisition date. The Company has allocated the purchase price to the
assets acquired and liabilities assumed at estimated fair values. The excess of the purchase
price over the aggregate fair values was recorded as goodwill. The final purchase price
allocation, other than the approximately $12.1 million in escrow and deemed contingent
consideration noted above, has been recorded during the six months ended December 30, 2007.3.
    
    InventoriesInventories are summarized as follows:
 December 30,
    
    
    July 1,2007
    
    
    2007(in thousands)Raw materials
    
    $
    3,217
    
    
    $
    11,128Finished goods
    
    
    14,924
    
    
    
    17,845$
    18,141
    
    
    $
    28,973
 6




---



##### Table of Contents



4.
    
    Goodwill and Intangible assets, netThe activity in goodwill during the six months ended December 30, 2007 is as follows:
 CarryingAmount(in thousands)Goodwill, as of July 1, 2007
    
    $
    62,347Escrow release as required by Sierra Logic acquisition agreement
    
    
    12,138Purchase price allocation refinements
    
    
    (270
    )Other
    
    
    (88
    )Goodwill, as of December 30, 2007
    
    $
    74,127
 Intangible assets, net, are as follows:
 December 30,
    
    
    July 1,2007
    
    
    2007(in thousands)Intangible assets subject to amortization:Core technology and patents
    
    $
    92,688
    
    
    $
    95,471Accumulated amortization, core technology and patents
    
    
    (71,341
    )
    
    
    (65,347
    )Developed technology
    
    
    77,313
    
    
    
    81,982Accumulated amortization, developed technology
    
    
    (25,938
    )
    
    
    (19,731
    )Customer relationships
    
    
    38,956
    
    
    
    40,608Accumulated amortization, customer relationships
    
    
    (30,851
    )
    
    
    (27,170
    )Tradename
    
    
    4,680
    
    
    
    4,896Accumulated amortization, tradename
    
    
    (2,855
    )
    
    
    (2,546
    )Covenants not-to-compete
    
    
    516
    
    
    
    3,575Accumulated amortization, covenants not-to-compete
    
    
    (463
    )
    
    
    (3,396
    )$
    82,705
    
    
    $
    108,342
 During the three months ended September 30, 2007, an impairment charge of approximately $3.1
million was recorded in accordance with SFAS No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets (SFAS No. 144). The impairment charge was related to a developed
technology intangible asset acquired from Aarohi Communications, Inc. (Aarohi). The initial
value ascribed to this developed technology intangible asset was based primarily on forecasted
revenues from products which the Company decided, during the three months ended September 30,
2007, to no longer place into production. The Company recorded the impairment charge to reduce
the carrying value of this developed technology intangible asset to the estimated fair value of
zero. This impairment charge was recorded in cost of sales in the accompanying condensed
consolidated statements of operations.The intangible assets subject to amortization are being amortized on a straight-line basis over
original lives ranging from approximately two to seven years. Aggregated amortization expense
for intangible assets for the three months ended December 30, 2007 and December 31, 2006, was
approximately $8.6 million and $11.5 million, respectively. Aggregated amortization expense for
intangible assets for the six months ended December 30, 2007 and December 31, 2006, was
approximately $17.6 million and $18.2 million, respectively.Amortization expense of approximately $6.3 million and $7.3 million related to core and
developed technology is included in cost of sales in the accompanying condensed consolidated
statements of operations for the three months ended December 30, 2007 and December 31, 2006,
respectively. Amortization expense related to core and developed technology included in cost of
sales for the six months ended December 30, 2007 and December 31, 2006, was approximately $12.7
million and $11.2 million, respectively.
 7




---



##### Table of Contents



The following table presents the estimated future aggregated amortization expense of intangible
assets as of December 30, 2007 (in thousands):
 2008 (remaining 6 months)
    
    $
    14,8102009
    
    
    24,6172010
    
    
    21,8912011
    
    
    17,8022012
    
    
    3,585Thereafter
    
    
    $
    82,705
 5.
    
    Accrued LiabilitiesComponents of accrued liabilities are as follows:
 December 30,
    
    
    July 1,2007
    
    
    2007(in thousands)Payroll and related costs
    
    $
    15,633
    
    
    $
    15,879Warranty liability
    
    
    3,773
    
    
    
    3,832Deferred revenue and accrued rebates
    
    
    6,288
    
    
    
    3,724Accrued advertising and promotions
    
    
    1,303
    
    
    
    839Accrued property, sales, and franchise taxes
    
    
    909
    
    
    
    1,710Other
    
    
    2,111
    
    
    
    3,499$
    30,017
    
    
    $
    29,483
 The Company provides a warranty of between one and five years on its products. The Company
records a provision for estimated warranty-related costs at the time of sale based on historical
product return rates and the Companys estimates of expected
future costs of fulfilling its
warranty obligations. Changes to the warranty liability were:
 Three Months Ended
    
    
    Six Months EndedDecember 30,
    
    
    December 31,
    
    
    December 30,
    
    
    December 31,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)
    
    
    (in thousands)Balance at beginning of period
    
    $
    3,564
    
    
    $
    3,379
    
    
    $
    3,832
    
    
    $
    2,949Accrual for warranties issued
    
    
    622
    
    
    
    1,114
    
    
    
    1,497
    
    
    
    2,373Changes to pre-existing warranties
(including changes in estimates)
    
    
    
    
    
    
    
    
    
    
    (653
    )
    
    
    Settlements made (in cash or in kind)
    
    
    (413
    )
    
    
    (638
    )
    
    
    (903
    )
    
    
    (1,467
    )Balance at end of period
    
    $
    3,773
    
    
    $
    3,855
    
    
    $
    3,773
    
    
    $
    3,855
 8




---



##### Table of Contents



6.
    
    Commitments and ContingenciesLitigationOn November 15, 2001, prior to the Companys acquisition of Vixel Corporation, a securities
class action was filed in the United States District Court in the Southern District of New York
as Case No. 01 CIV. 10053 (SAS), Master File No. 21 MC92 (SAS) against Vixel and two of its
officers and directors (one of which is James M. McCluney, the Companys current Chief Executive
Officer and President) and certain underwriters who participated in the Vixel initial public
offering in late 1999. The amended complaint alleges violations under Section 10(b) of the
Exchange Act and Section 11 of the Securities Act and seeks unspecified damages on behalf of
persons who purchased Vixel stock during the period October 1, 1999 through December 6, 2000. In
October 2002, the parties agreed to toll the statute of limitations with respect to Vixels
officers and directors until September 30, 2003, and on the basis of this agreement, Vixels
officers and directors were dismissed from the lawsuit without prejudice. During June 2003,
Vixel and the other issuer defendants in the action reached a tentative settlement with the
plaintiffs that would, among other things, result in the dismissal with prejudice of all claims
against the defendants and their officers and directors. In connection with the possible
settlement, those officers and directors who had entered tolling agreements with the plaintiffs
agreed to extend those agreements so that they would not expire prior to any settlement being
finalized. Although Vixel approved this settlement proposal in principle, it remained subject to
a number of procedural conditions, as well as formal approval by the court. On August 31, 2005,
a Preliminary Order In Connection With Settlement Proceedings was issued by the court which
among other items, set a date for a Settlement Fairness Hearing held on April 24, 2006, and the
form of notice to the Settlement Classes of the Issuers Settlement Stipulation. In December
2005, the settlement notices authorized by the court were sent to former Vixel stockholders and
the web site www.iposecuritieslitigation.com was created for claimants, as well as a March 24,
2006 objection deadline. At the Settlement Fairness Hearing held on April 24, 2006, the court raised the following
primary issues: (1) the (possible) change in value of the settlement since preliminary approval,
and whether the benefits of the settlement should be evaluated at the time of approval or at the
time of negotiation; (2) how the class certification argument before the Second Circuit Court of
Appeals could or would affect the fairness of the settlement; (3) how to evaluate the intangible
benefits of the settlement to the class members; and (4) how to value the $1 billion guarantee
(for the consolidated litigation involving Vixel and 297 other Issuers) by insurers in the
stipulation and agreement of settlement in light of the underwriters potential future
settlements. The Court did not rule on April 24, 2006 on the motion for final approval or
objections. On June 6, 2006, the Second Circuit Court of Appeals held oral arguments on the
appeal by the underwriters of Judge Scheindlins class certification decision. On or about July
17, 2006, Emulex assigned to the class action plaintiffs any IPO claims that Emulex (Vixel) had
against RBC Dain Rauscher in the IPO litigation, as required by the settlement agreement. On
December 5, 2006, the Second Circuit Court of Appeals issued a decision reversing Judge
Scheindlins class certification decision. On December 14, 2006, Judge Scheindlin issued an
order to stay all proceedings pending a decision from the Second Circuit on whether it will hear
further argument. On about January 6, 2007, Emulex assigned to the class action plaintiffs any
IPO claims that Emulex (Vixel) had against The Bear Stearns Companies Inc. and Bear Stearns &
Co. Inc. in the IPO litigation, as required by the settlement agreement. On April 6, 2007, the
Second Circuit denied the plaintiffs petition for rehearing of the decision denying class
certification. During April 2007, counsel for Emulex and other Issuers informed Judge Scheindlin
that, in light of the Second Circuit opinion, the settlement agreement could not be approved
because the defined settlement class, like the litigation class, did not meet the Second Circuit
requirements for certification. Judge Scheindlin held a conference on May 30, 2007 to consider
issues relating to the class definitions, the statute of limitations, settlement, and discovery.
On June 25, 2007, Judge Scheindlin signed a Stipulation and Order submitted by the parties which
terminated the June 10, 2004 Stipulation and Agreement of Settlement with Defendant Issuers and
Individuals. On June 26, 2007, a document production request from the plaintiffs to all 298
issuers (including Vixel) was received, covering documents from each issuers inception through
December 31, 2001. In September 2007, due to the expiration of the tolling agreements, those
officers and directors who had entered tolling agreements with the plaintiffs agreed to extend
those agreements until August 27, 2010. On December 19, 2007,
the issuers and their respective insurers entered into an
Insurers-Insureds Agreement (replacing an earlier agreement), which
provides for the insurers to pay for certain defense costs under
applicable issurer insurance policies. On December 21, 2007, issuer
defendants filed an opposition to plaintiffs motion for class
certification of certain focus cases.In addition to the ongoing litigation discussed above, the Company is involved in various claims
and legal actions arising in the ordinary course of business. In the opinion of management, the
ultimate disposition of the open matters will not have a material adverse effect on the
Companys consolidated financial position, results of operations or liquidity.
 9




---



##### Table of Contents



Other Commitments and ContingenciesThe Company has entered into various agreements for purchases of inventory. As of December 30,
2007, the Companys purchase obligation associated primarily with inventory was approximately
$42.7 million.In addition, the Company provides limited indemnification in selected circumstances within its
various customer contracts whereby the Company indemnifies the parties to whom it sells its
products with respect to the Companys product infringement of certain intellectual property,
and in some limited cases against bodily injury or damage to real or tangible personal property
caused by a defective Company product. It is not possible to predict the maximum potential
amount of future payments under these or similar agreements, due to the conditional nature of
the Companys obligations and the unique facts and circumstances involved in each particular
agreement.7.
    
    Treasury StockOn December 5, 2006, the Companys Board of Directors authorized the repurchase of up to $150
million of its outstanding common stock over the next two years. The Company may repurchase
shares from time-to-time in open market purchases or privately negotiated transactions. The
share repurchases will be financed by available cash balances and cash from operations. Since
the December 5, 2006 authorization date to the quarter ended December 30, 2007, the Company has
repurchased 5,660,337 shares of its common stock under this program for an aggregate purchase
price of approximately $110.1 million for an average of $19.45 per share. Through January 30,
2008, the Company has not purchased any additional shares of its common stock under this
program.8.
    
    Stock-Based CompensationSFAS No. 123R, Share-Based Payment (SFAS No. 123R), requires that the compensation cost
related to share-based payment transactions, measured based on the fair value of the equity or
liability instruments issued, be recognized in the financial statements. The Company adopted
SFAS No. 123R at the beginning of fiscal year 2006. Determining the fair value of options using
the Black-Scholes-Merton (Black-Scholes) model requires subjective assumptions, including future
stock price volatility and expected time until exercise, which affect the calculated fair value
on the grant date.As of December 30, 2007, the Company had three stock-based plans for employees and directors
that are open for future grant awards, the 2005 Equity Incentive Plan (Equity Incentive Plan),
the 1997 Stock Award Plan for Non-Employee Directors (Director Plan), and the Emulex Corporation
Employee Stock Purchase Plan (Purchase Plan). In addition, the Company had eight stock-based
plans, including six plans assumed in connection with prior acquisitions, the Sierra Logic, Inc.
2001 Stock Option Plan, the Aarohi Communications, Inc. 2001 Stock Option Plan, the Vixel
Corporation Amended and Restated 1995 Stock Option Plan, the Vixel Corporation 1999 Equity
Incentive Plan, the Vixel Corporation 2000 Non-Officer Equity Incentive Plan, and the Giganet,
Inc. 1995 Stock Option Plan (All Other Plans), each of which is closed for future grants but has
options outstanding. Available for future award grants are 2,535,064 shares under the Equity
Incentive Plan, 255,000 shares under the Director Plan, and 636,237 shares under the Purchase
Plan.
 10




---



##### Table of Contents



Aggregate amounts recognized in the condensed consolidated financial statements with respect to
these plans are as follows:
 Three Months
    
    
    Three MonthsEnded
    
    
    Ended
    
    
    Six Months Ended
    
    
    Six Months EndedDecember 30, 2007
    
    
    December 31, 2006
    
    
    December 30, 2007
    
    
    December 31, 2006(in thousands)Total cost of
stock-based payment
plans during the
period
    
    $
    7,103
    
    
    $
    7,631
    
    
    $
    14,050
    
    
    $
    13,618Amounts capitalized
in inventory during
the period
    
    
    (120
    )
    
    
    (210
    )
    
    
    (277
    )
    
    
    (331
    )Amounts recognized
in income for
amounts previously
capitalized in
inventory
    
    
    157
    
    
    
    121
    
    
    
    318
    
    
    
    256Amounts charged
against income,
before income tax
benefit
    
    $
    7,140
    
    
    $
    7,542
    
    
    $
    14,091
    
    
    $
    13,543Amount of related
income tax benefit
recognized in
income
    
    $
    1,795
    
    
    $
    2,621
    
    
    $
    3,612
    
    
    $
    3,614
 The fair value of each stock option award and purchase under the Equity Incentive Plan, the
Director Plan, and the Purchase Plan is estimated on the date of grant using the Black-Scholes
option-pricing model based on the market price of the underlying common stock as of the date of
grant, expected term, stock price volatility and expected risk-free interest rates. Expected
volatilities are based on methodologies utilizing equal weighting involving both historical
periods equal to the expected term and implied volatilities based on traded options to buy the
Companys shares.The assumptions utilized to compute the fair value of stock option grants for the Equity
Incentive Plan and the Director Plan for the three and six months ended December 30, 2007 and
December 31, 2006 were:
 Three Months Ended
    
    Six Months EndedDecember 30,
    
    December 31,
    
    December 30,
    
    December 31,2007
    
    2006
    
    2007
    
    2006Expected volatility
    
    37%
    
    34%  36%
    
    33%  37%
    
    34%  38%Weighted average expected volatility
    
    37%
    
    34%
    
    36%
    
    35%Expected dividends
    
    
    
    
    
    
    
    Expected term (in years)
    
    2.4  4.4
    
    2.4  4.4
    
    2.4  4.4
    
    1.4  4.4Weighted average expected term (in years)
    
    3.25
    
    3.25
    
    3.25
    
    3.25Risk-free rate
    
    3.23%  3.43%
    
    4.68%  4.78%
    
    3.23%  4.17 %
    
    4.58%  4.78%
 The assumptions utilized to compute the fair value of stock option grants for the Purchase Plan
for the three and six months ended December 30, 2007 and December 31, 2006 were:
 Three Months Ended
    
    
    Six Months EndedDecember 30,
    
    
    December 31,
    
    
    December 30,
    
    
    December 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Expected volatility
    
    
    32
    %
    
    
    31
    %
    
    
    32
    %
    
    
    31
    %Weighted average expected volatility
    
    
    32
    %
    
    
    31
    %
    
    
    32
    %
    
    
    31
    %Expected dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expected term (in years)
    
    
    0.5
    
    
    
    0.5
    
    
    
    0.5
    
    
    
    0.5Weighted average expected term (in years)
    
    
    0.5
    
    
    
    0.5
    
    
    
    0.5
    
    
    
    0.5Risk-free rate
    
    
    4.08
    %
    
    
    5.01
    %
    
    
    4.08
    %
    
    
    5.01
    %
 11




---



##### Table of Contents



A summary of option activity under the plans for the six months ended December 30, 2007 is as
follows:
 WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    IntrinsicOptions
    
    
    Exercise Price
    
    

Term
    
    
    Value(in years)
    
    (in millions)Options outstanding at July 1, 2007
    
    
    13,512,649
    
    
    $
    21.66Options granted
    
    
    707,900
    
    
    $
    17.56Options exercised
    
    
    (500,244
    )
    
    $
    10.45Options canceled
    
    
    (80,050
    )
    
    $
    27.51Options forfeited
    
    
    (41,185
    )
    
    $
    18.76Options outstanding at December 30, 2007
    
    
    13,599,070
    
    
    $
    21.83
    
    
    
    4.50
    
    
    $
    18.2Options vested and expected to vest at
December 30, 2007
    
    
    13,201,776
    
    
    $
    21.97
    
    
    
    4.48
    
    
    $
    17.7Options exercisable at December 30, 2007
    
    
    10,511,074
    
    
    $
    23.15
    
    
    
    4.26
    
    
    $
    14.7
 A summary of restricted stock activity for the six months ended December 30, 2007 is as follows:
 WeightedAverage GrantNumber of
    
    
    Date FairAwards
    
    
    ValueAwards outstanding and unvested at July 1, 2007
    
    
    1,314,776
    
    
    $
    18.22Awards granted
    
    
    1,087,675
    
    
    $
    18.74Awards vested
    
    
    (338,086
    )
    
    $
    18.32Awards forfeited
    
    
    (6,100
    )
    
    $
    18.72Awards outstanding and unvested at December 30, 2007
    
    
    2,058,265
    
    
    $
    18.48
 As of December 30, 2007, there was approximately $30.6 million of total unrecognized
compensation cost related to nonvested share-based compensation arrangements granted under the
plans. That cost is expected to be recognized over a weighted-average period of approximately
1.38 years.The weighted average grant date fair value of options granted during the six months ended
December 30, 2007 and December 31, 2006 was approximately $5.20 and $4.19, respectively. The
weighted average grant date fair value of restricted stock awards granted during the six months
ended December 30, 2007 and December 31, 2006 was approximately $18.74 and $18.27, respectively.
The total intrinsic value of stock options exercised during the six months ended December 30,
2007 and December 31, 2006 was approximately $5.0 million and $11.1 million, respectively. The
total fair value of restricted stock awards vested during the six months ended December 30, 2007
was approximately $6.3 million and there were no awards vested during the six months ended
December 31, 2006.Cash received from share option exercises and shares
purchased under the Purchase Plan and under
stock-based plans for the six months ended December 30, 2007 and December 31, 2006 were
approximately $7.4 million and $9.1 million, respectively. The actual tax benefit realized for
the tax deductions from option exercise of stock-based plans was approximately $4.3 million for
both the six months ended December 30, 2007 and December 31, 2006.As of December 30, 2007, we anticipate that the number of shares authorized under the Equity
Incentive Plan, the Director Plan, the Purchase Plan, and All Other Plans are sufficient to
cover future stock option exercises.
 12




---



##### Table of Contents



9.
    
    Income TaxesIn July 2006, the FASB issued FIN 48. FIN 48 prescribes a comprehensive model for how a company
should recognize, measure, present, and disclose in its financial statements uncertain tax
positions that the company has taken or expects to take on a tax return.FIN 48 states that a tax benefit from an uncertain tax position may be recognized only if it is
more likely than not that the position is sustainable, based on its technical merits. The tax
benefit of a qualifying position is the largest amount of tax benefit that is greater than 50
percent likely of being realized upon settlement with a taxing authority having full knowledge
of all relevant information.A tax benefit from an uncertain position was previously recognized if it was probable of being
sustained. Under FIN 48, the liability for unrecognized tax benefits is classified as noncurrent
unless the liability is expected to be settled in cash within 12 months of the reporting date.
FIN 48 was effective for the Company as of July 2, 2007, the beginning of the current fiscal
year.In connection with the Companys adoption of FIN 48, as of July 2, 2007, the Company recorded a
net increase to retained earnings of approximately $5.4 million related to the measurement of
uncertain tax positions the Company had taken. In addition, the Company recorded a decrease to
additional paid-in-capital of approximately $3.1 million associated with uncertain tax positions
related to stock options. Furthermore, the Company recorded a net decrease to goodwill,
identifiable intangibles, and associated deferred tax liabilities of approximately $2.9 million.
The Company reclassified tax liabilities from income taxes payable to accrued taxes upon
adoption of FIN 48.As of December 30, 2007, the Company had total unrecognized tax benefits of approximately $23.1
million compared to approximately $24.7 million immediately after the adoption of FIN 48 on July
2, 2007. If fully recognized, approximately $16.1 million of the $23.1 million would impact the
Companys effective tax rate. The Company does not expect that the liability for unrecognized
tax benefits will change significantly within the next 12 months.The audit of the Companys fiscal 2004 Federal income tax return was completed in a prior fiscal
year. The Companys Federal income tax returns for fiscal years 2004 to 2007 and California
income tax returns from fiscal years 2003 to 2007 are open as the statute of limitations have not
yet expired. The Company is currently under audit by various state taxing authorities, but not
any foreign taxing authorities. The Company does not believe that the resolution of these audits
will have a material effect on its financial statements.The Company recognizes accrued interest and penalties related to unrecognized tax benefits in
income tax expense. The Company had accrued approximately $0.7 million in interest and penalties
related to unrecognized tax benefits accrued as of December 30, 2007 and July 2, 2007 (post FIN
48 adoption).10.
    
    Net Income (Loss) Per ShareBasic net income (loss) per share for the three and six months ended December 30, 2007 and
December 31, 2006, was computed by dividing net income (loss) by the weighted average number of
common shares outstanding during the period.
 13




---



##### Table of Contents



Diluted net income (loss) per share was computed by dividing adjusted net income (loss) by the
weighted average number of common shares outstanding during the period increased to include, if
dilutive, the number of additional common shares that would be outstanding if the dilutive
potential common shares from stock-based plans and convertible subordinated notes had been
issued. The dilutive effect of outstanding stock options and stock awards is reflected in
diluted net income per share by application of the treasury stock method. The dilutive effect of
convertible subordinated notes is reflected in diluted net income per share by application of
the if-converted method. The following table sets forth the computation of basic and diluted net
income (loss) per share:
 Three Months Ended
    
    
    Six Months EndedDecember 30,
    
    
    December 31,
    
    
    December 30,
    
    
    December 31,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands, except per
    
    
    (in thousands, except pershare data)
    
    
    share data)Numerator:Net income (loss)
    
    $
    17,644
    
    
    $
    (10,076
    )
    
    $
    27,815
    
    
    $
    4,886Adjustment for interest expense
on convertible subordinated
notes, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    515Numerator for diluted net income
(loss) per share
    
    $
    17,644
    
    
    $
    (10,076
    )
    
    $
    27,815
    
    
    $
    5,401Denominator:Denominator for basic net income
(loss) per share weighted
average shares outstanding
    
    
    81,885
    
    
    
    85,215
    
    
    
    82,254
    
    
    
    84,861Effect of dilutive securities:Dilutive options outstanding,
restricted stock and ESPP
    
    
    1,924
    
    
    
    
    
    
    
    2,051
    
    
    
    1,762Dilutive common shares from
assumed conversion of
convertible subordinated
notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,053Denominator for diluted net
income (loss) per share 
adjusted weighted average shares
outstanding
    
    
    83,809
    
    
    
    85,215
    
    
    
    84,305
    
    
    
    91,676Basic net income (loss) per share
    
    $
    0.22
    
    
    $
    (0.12
    )
    
    $
    0.34
    
    
    $
    0.06Diluted net income (loss) per share
    
    $
    0.21
    
    
    $
    (0.12
    )
    
    $
    0.33
    
    
    $
    0.06Antidilutive options excluded from
the computations
    
    
    9,330
    
    
    
    14,151
    
    
    
    9,198
    
    
    
    9,435Average market price of common stock
    
    $
    18.68
    
    
    $
    19.85
    
    
    $
    19.32
    
    
    $
    18.01
 The antidilutive stock options and stock awards were excluded from the computation of diluted
net income (loss) per share due to the options exercise price being greater than the average
market price of the common shares or due to the Company incurring a net loss during the periods
presented.
 14




---



##### Table of Contents



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




---



##### Table of Contents



Executive Overview
     www.emulex.com
 16




---



##### Table of Contents



Results of Operations
  Percentage of Net Revenues
    
    Percentage of Net RevenuesThree Months Ended
    
    Six Months EndedDecember 30,
    
    December 31,
    
    December 30,
    
    December 31,2007
    
    2006
    
    2007
    
    2006Net revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    37.4
    
    
    
    45.8
    
    
    
    39.6
    
    
    
    43.2Gross profit
    
    
    62.6
    
    
    
    54.2
    
    
    
    60.4
    
    
    
    56.8Operating expenses:Engineering and
development
    
    
    24.1
    
    
    
    24.4
    
    
    
    25.3
    
    
    
    24.5Selling and
marketing
    
    
    10.5
    
    
    
    9.8
    
    
    
    10.8
    
    
    
    9.9General and
administrative
    
    
    6.7
    
    
    
    6.5
    
    
    
    7.0
    
    
    
    6.3Amortization of other
intangible assets
    
    
    1.8
    
    
    
    3.4
    
    
    
    2.0
    
    
    
    3.1In-process research
and development
    
    
    
    
    
    
    17.8
    
    
    
    
    
    
    
    9.3Total operating
expenses
    
    
    43.1
    
    
    
    61.9
    
    
    
    45.1
    
    
    
    53.1Operating income (loss)
    
    
    19.5
    
    
    
    (7.7
    )
    
    
    15.3
    
    
    
    3.7Nonoperating income, net:Interest income
    
    
    2.6
    
    
    
    4.5
    
    
    
    2.8
    
    
    
    5.8Interest expense
    
    
    
    
    
    
    (0.4
    )
    
    
    
    
    
    
    (0.5
    )Other income, net
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    0.4Total
nonoperating
income, net
    
    
    2.6
    
    
    
    4.2
    
    
    
    2.8
    
    
    
    5.7Income (loss) before
income taxes
    
    
    22.1
    
    
    
    (3.5
    )
    
    
    18.1
    
    
    
    9.4Income tax provision
    
    
    8.6
    
    
    
    4.8
    
    
    
    6.9
    
    
    
    7.2Net income (loss)
    
    
    13.5
    %
    
    
    (8.3
    %)
    
    
    11.2
    %
    
    
    2.2
    %
 Three months ended December 30, 2007, compared to three months ended December 31, 2006
 Net Revenues.
 17




---



##### Table of Contents



Net Revenues by Product Line
  Net Revenues by Product LineThree Months
    
    
    
    
    
    Three MonthsEnded
    
    Percentage
    
    Ended
    
    PercentageDecember 30,
    
    of Net
    
    December 31,
    
    of Net
    
    Increase/
    
    Percentage(in thousands)
    
    2007
    
    Revenues
    
    2006
    
    Revenues
    
    (Decrease)
    
    ChangeHost Server Products
    
    $
    94,434
    
    
    
    72
    %
    
    $
    90,528
    
    
    
    75
    %
    
    $
    3,906
    
    
    
    4
    %Embedded Storage Products
    
    
    36,075
    
    
    
    28
    %
    
    
    30,400
    
    
    
    25
    %
    
    
    5,675
    
    
    
    19
    %Intelligent Network Products
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11
    
    
    nmOther
    
    
    102
    
    
    
    
    
    
    
    462
    
    
    
    
    
    
    
    (360
    )
    
    
    (78
    %)Total net revenues
    
    $
    130,622
    
    
    
    100
    %
    
    $
    121,390
    
    
    
    100
    %
    
    $
    9,232
    
    
    
    8
    %
 
 Not meaningful (nm).    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
    
    EndedDecember 30, 2007
    
    December 31, 2006
    
    December 30, 2007
    
    December 31, 2006Net revenue percentage (1) :OEM:EMC
    
    
    
    
    
    
    
    
    
    
    19
    %
    
    
    14
    %Hewlett-Packard
    
    
    15
    %
    
    
    14
    %
    
    
    15
    %
    
    
    14
    %IBM
    
    
    22
    %
    
    
    23
    %
    
    
    30
    %
    
    
    24
    %Other:Info X
    
    
    15
    %
    
    
    13
    %
    
    
    
    
    
    
    
 
 (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. 18




---



##### Table of Contents



Net Revenues by Sales Channel
  Net Revenues by Sales ChannelThree MonthsEnded
    
    Percentage
    
    Three Months Ended
    
    PercentageDecember 30,
    
    of Net
    
    December 31,
    
    of Net
    
    Increase/
    
    Percentage(in thousands)
    
    2007
    
    Revenues
    
    2006
    
    Revenues
    
    (Decrease)
    
    ChangeOEM
    
    $
    96,314
    
    
    
    74
    %
    
    $
    90,666
    
    
    
    75
    %
    
    $
    5,648
    
    
    
    6
    %Distribution
    
    
    34,111
    
    
    
    26
    %
    
    
    30,752
    
    
    
    25
    %
    
    
    3,359
    
    
    
    11
    %Other
    
    
    197
    
    
    
    
    
    
    
    (28
    )
    
    
    
    
    
    
    225
    
    
    nmTotal net
revenues
    
    $
    130,622
    
    
    
    100
    %
    
    $
    121,390
    
    
    
    100
    %
    
    $
    9,232
    
    
    
    8
    %
 
 Not meaningful (nm).  Net Revenues by Geographic Territory
  Net Domestic and International RevenuesThree Months
    
    
    
    
    
    Three MonthsEnded
    
    Percentage
    
    Ended
    
    PercentageDecember 30,
    
    of net
    
    December 31,
    
    of Net
    
    Increase/
    
    Percentage(in thousands)
    
    2007
    
    Revenues
    
    2006
    
    Revenues
    
    (Decrease)
    
    ChangeDomestic
    
    $
    52,181
    
    
    
    40
    %
    
    $
    51,061
    
    
    
    42
    %
    
    $
    1,120
    
    
    
    2
    %Pacific Rim
    
    
    32,967
    
    
    
    25
    %
    
    
    19,352
    
    
    
    16
    %
    
    
    13,615
    
    
    
    70
    %Europe and rest of the world
    
    
    45,474
    
    
    
    35
    %
    
    
    50,977
    
    
    
    42
    %
    
    
    (5,503
    )
    
    
    (11
    %)Total net revenues
    
    $
    130,622
    
    
    
    100
    %
    
    $
    121,390
    
    
    
    100
    %
    
    $
    9,232
    
    
    
    8
    %
  19




---



##### Table of Contents



Gross Profit.
 Gross ProfitThree Months
    
    
    
    Three MonthsEnded December
    
    Percentage of
    
    Ended December
    
    Percentage of
    
    Increase/
    
    Percentage30, 2007
    
    Net Revenues
    
    31, 2006
    
    Net Revenues
    
    (Decrease)
    
    Points Change$81,742
    
    63%
    
    $65,782
    
    54%
    
    $15,960
    
    8%
  Engineering and Development.
 Engineering and DevelopmentThree Months
    
    
    
    Three MonthsEnded December
    
    Percentage of
    
    Ended December
    
    Percentage of
    
    Increase/
    
    Percentage30, 2007
    
    Net Revenues
    
    31, 2006
    
    Net Revenues
    
    (Decrease)
    
    Points Change$31,477
    
    24%
    
    $29,566
    
    24%
    
    $1,911
    
    
  20




---



##### Table of Contents



Selling and Marketing.
 Selling and MarketingThree Months Ended
    
    Percentage of Net
    
    Three Months Ended
    
    Percentage of Net
    
    
    
    
    
    Percentage PointsDecember 30, 2007
    
    Revenues
    
    December 31, 2006
    
    Revenues
    
    Increase/ (Decrease)
    
    Change$13,740
    
    
    11
    %
    
    $
    11,944
    
    
    
    10
    %
    
    $
    1,796
    
    
    
    1
    %
  General and Administrative.
 General and AdministrativeThree Months Ended
    
    Percentage of Net
    
    Three Months Ended
    
    Percentage of Net
    
    
    
    
    
    Percentage PointsDecember 30, 2007
    
    Revenues
    
    December 31, 2006
    
    Revenues
    
    Increase/ (Decrease)
    
    Change$8,808
    
    
    7
    %
    
    $
    7,858
    
    
    
    6
    %
    
    $
    950
    
    
    
    
  Amortization of Other Intangible Assets.
 Amortization of Other Intangible AssetsThree Months Ended
    
    Percentage of Net
    
    Three Months Ended
    
    Percentage of Net
    
    
    
    
    
    Percentage PointsDecember 30, 2007
    
    Revenues
    
    December 31, 2006
    
    Revenues
    
    Increase/ (Decrease)
    
    Change$2,280
    
    
    2
    %
    
    $
    4,135
    
    
    
    3
    %
    
    $
    (1,855
    )
    
    
    (2
    %)
 21




---



##### Table of Contents



In-Process Research and Development.
 In-Process Research and DevelopmentThree Months Ended
    
    Percentage of Net
    
    Three Months Ended
    
    Percentage of Net
    
    
    
    
    
    Percentage PointsDecember 30, 2007
    
    Revenues
    
    December 31, 2006
    
    Revenues
    
    Increase/ (Decrease)
    
    Change$
    
    
    
    
    
    $
    21,589
    
    
    
    18
    %
    
    $
    (21,589
    )
    
    
    (18
    %)
  Nonoperating Income, net.
 Nonoperating Income, netThree Months Ended
    
    Percentage of Net
    
    Three Months Ended
    
    Percentage of Net
    
    
    
    
    
    Percentage PointsDecember 30, 2007
    
  Revenues
    
    December 31, 2006
    
    Revenues
    
    Increase/ (Decrease)
    
    Change$3,480
    
    
    3
    %
    
    $
    5,097
    
    
    
    4
    %
    
    $
    (1,617
    )
    
    
    (2
    %)
  Income Taxes
 Income TaxesThree Months Ended
    
    Percentage of Net
    
    Three Months Ended
    
    Percentage of Net
    
    
    
    
    
    Percentage PointsDecember 30, 2007
    
    Revenues
    
    December 31, 2006
    
    Revenues
    
    Increase/ (Decrease)
    
    Change$11,273
    
    
    9
    %
    
    $
    5,863
    
    
    
    5
    %
    
    $
    5,410
    
    
    
    4
    %
 22




---



##### Table of Contents



Six months ended December 30, 2007, compared to six months ended December 31, 2006
 Net Revenues.
 Net Revenues by Product Line
  Net Revenues by Product LineSix Months
    
    
    
    
    
    Six MonthsEnded
    
    Percentage
    
    Ended
    
    PercentageDecember 30,
    
    of Net
    
    December 31,
    
    of Net
    
    Increase/
    
    Percentage(in thousands)
    
    2007
    
    Revenues
    
    2006
    
    Revenues
    
    (Decrease)
    
    ChangeHost Server Products
    
    $
    183,203
    
    
    
    74
    %
    
    $
    176,762
    
    
    
    79
    %
    
    $
    6,441
    
    
    
    4
    %Embedded Storage Products
    
    
    64,071
    
    
    
    26
    %
    
    
    46,096
    
    
    
    21
    %
    
    
    17,975
    
    
    
    39
    %Intelligent Network Products
    
    
    120
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    120
    
    
    nmOther
    
    
    298
    
    
    
    
    
    
    
    850
    
    
    
    
    
    
    
    (552
    )
    
    
    (65
    %)Total net revenues
    
    $
    247,692
    
    
    
    100
    %
    
    $
    223,708
    
    
    
    100
    %
    
    $
    23,984
    
    
    
    11
    %
 
 Not meaningful (nm).   23




---



##### Table of Contents



Net Revenues by Major Customers
  Net Revenues by Major CustomersDirect Revenues
    
    Total Direct and Indirect Revenues (2)Six Months
    
    Six Months
    
    Six Months
    
    Six MonthsEnded
    
    Ended
    
    Ended
    
    EndedDecember 30, 2007
    
    December 31, 2006
    
    December 30, 2007
    
    December 31, 2006Net revenue percentage (1):OEM:EMC
    
    
    
    
    
    
    
    
    
    
    21
    %
    
    
    18
    %Hewlett-Packard
    
    
    14
    %
    
    
    13
    %
    
    
    15
    %
    
    
    13
    %IBM
    
    
    21
    %
    
    
    24
    %
    
    
    29
    %
    
    
    25
    %Other:Info X
    
    
    16
    %
    
    
    17
    %
    
    
    
    
    
    
    
 
 (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 ChannelSix MonthsEnded
    
    Percentage
    
    Six Months Ended
    
    PercentageDecember 30,
    
    of Net
    
    December 31,
    
    of Net
    
    Increase/
    
    Percentage(in thousands)
    
    2007
    
    Revenues
    
    2006
    
    Revenues
    
    (Decrease)
    
    ChangeOEM
    
    $
    178,879
    
    
    
    72
    %
    
    $
    158,243
    
    
    
    71
    %
    
    $
    20,636
    
    
    
    13
    %Distribution
    
    
    68,473
    
    
    
    28
    %
    
    
    65,362
    
    
    
    29
    %
    
    
    3,111
    
    
    
    5
    %Other
    
    
    340
    
    
    
    
    
    
    
    103
    
    
    
    
    
    
    
    237
    
    
    
    230
    %Total net revenues
    
    $
    247,692
    
    
    
    100
    %
    
    $
    223,708
    
    
    
    100
    %
    
    $
    23,984
    
    
    
    11
    %
  24




---



##### Table of Contents



Net Revenues by Geographic Territory
  Net Domestic and International RevenuesSix Months
    
    
    
    
    
    Six MonthsEnded
    
    Percentage
    
    Ended
    
    PercentageDecember 30,
    
    of Net
    
    December 31,
    
    of Net
    
    Increase/
    
    Percentage(in thousands)
    
    2007
    
    Revenues
    
    2006
    
    Revenues
    
    (Decrease)
    
    ChangeDomestic
    
    $
    101,652
    
    
    
    41
    %
    
    $
    104,800
    
    
    
    47
    %
    
    $
    (3,148
    )
    
    
    (3
    %)Pacific Rim
    
    
    64,311
    
    
    
    26
    %
    
    
    32,592
    
    
    
    14
    %
    
    
    31,719
    
    
    
    97
    %Europe and rest of the world
    
    
    81,729
    
    
    
    33
    %
    
    
    86,316
    
    
    
    39
    %
    
    
    (4,587
    )
    
    
    (5
    %)Total net revenues
    
    $
    247,692
    
    
    
    100
    %
    
    $
    223,708
    
    
    
    100
    %
    
    $
    23,984
    
    
    
    11
    %
  Gross Profit.
 Gross ProfitSix Months Ended
    
    Percentage of Net
    
    Six Months Ended
    
    Percentage of Net
    
    
    
    
    
    Percentage PointsDecember 30, 2007
    
    Revenues
    
    December 31, 2006
    
    Revenues
    
    Increase/ (Decrease)
    
    Change$149,669
    
    
    60
    %
    
    $
    126,981
    
    
    
    57
    %
    
    $
    22,688
    
    
    
    4
    %
  Engineering and Development.
 Engineering and DevelopmentSix Months Ended
    
    Percentage of Net
    
    Six Months Ended
    
    Percentage of Net
    
    
    
    
    
    Percentage PointsDecember 30, 2007
    
    Revenues
    
    December 31, 2006
    
    Revenues
    
    Increase/ (Decrease)
    
    Change$62,764
    
    
    25
    %
    
    $
    54,877
    
    
    
    25
    %
    
    $
    7,887
    
    
    
    1
    %
 25




---



##### Table of Contents



Selling and Marketing.
 Selling and MarketingSix Months Ended
    
    Percentage of Net
    
    Six Months Ended
    
    Percentage of Net
    
    
    
    
    
    Percentage PointsDecember 30, 2007
    
    Revenues
    
    December 31, 2006
    
    Revenues
    
    Increase/ (Decrease)
    
    Change$26,644
    
    
    11
    %
    
    $
    22,136
    
    
    
    10
    %
    
    $
    4,508
    
    
    
    1
    %
  General and Administrative.
 General and AdministrativeSix Months Ended
    
    Percentage of Net
    
    Six Months Ended
    
    Percentage of Net
    
    
    
    
    
    Percentage PointsDecember 30, 2007
    
    Revenues
    
    December 31, 2006
    
    Revenues
    
    Increase/ (Decrease)
    
    Change$17,377
    
    
    7
    %
    
    $
    14,018
    
    
    
    6
    %
    
    $
    3,359
    
    
    
    1
    %
  26




---



##### Table of Contents



Amortization of Other Intangible Assets.
 Amortization of Other Intangible AssetsSix Months Ended
    
    Percentage of Net
    
    Six Months Ended
    
    Percentage of Net
    
    
    
    
    
    Percentage PointsDecember 30, 2007
    
    Revenues
    
    December 31, 2006
    
    Revenues
    
    Increase/ (Decrease)
    
    Change$4,918
    
    
    2
    %
    
    $
    6,988
    
    
    
    3
    %
    
    $
    (2,070
    )
    
    
    (1
    %)
  In-Process Research and Development.
 In-Process Research and DevelopmentSix Months Ended
    
    Percentage of Net
    
    Six Months Ended
    
    Percentage of Net
    
    
    
    
    
    Percentage PointsDecember 30, 2007
    
    Revenues
    
    December 31, 2006
    
    Revenues
    
    Increase/ (Decrease)
    
    Change$
    
    
    
    
    
    $
    20,639
    
    
    
    9
    %
    
    $
    (20,639
    )
    
    
    (9
    %)
  Nonoperating Income, net.
 Nonoperating Income, netSix Months Ended
    
    Percentage of Net
    
    Six Months Ended
    
    Percentage of Net
    
    
    
    
    
    Percentage PointsDecember 30, 2007
    
    Revenues
    
    December 31, 2006
    
    Revenues
    
    Increase/ (Decrease)
    
    Change$6,846
    
    
    3
    %
    
    $
    12,724
    
    
    
    6
    %
    
    $
    (5,878
    )
    
    
    (3
    %)
  Income Taxes
 Income TaxesSix Months Ended
    
    Percentage of Net
    
    Six Months Ended
    
    Percentage of Net
    
    
    
    
    
    Percentage PointsDecember 30, 2007
    
    Revenues
    
    December 31, 2006
    
    Revenues
    
    Increase/ (Decrease)
    
    Change$16,997
    
    
    7
    %
    
    $
    16,161
    
    
    
    7
    %
    
    $
    836
    
    
    
    
 27




---



##### Table of Contents



28




---



##### Table of Contents



Critical Accounting Policies
   Revenue Recognition.
 Warranty.
 Allowance for Doubtful Accounts
 29




---



##### Table of Contents



Intangible Assets and Other Long-Lived Assets
 Inventories
 Goodwill
  Income Taxes
  30




---



##### Table of Contents



Stock-Based Compensation
 Recently Issued Accounting Standards
      Liquidity and Capital Resources
       31




---



##### Table of Contents



Payments Due by Period(in thousands)RemainingTotal
    
    2008
    
    2009
    
    2010
    
    2011
    
    2012
    
    ThereafterLeases (1)
    
    $
    16,930
    
    
    $
    2,141
    
    
    $
    4,064
    
    
    $
    3,922
    
    
    $
    3,848
    
    
    $
    2,074
    
    
    $
    881Purchase commitments
    
    
    42,704
    
    
    
    41,099
    
    
    
    1,605
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other commitments (2)
    
    
    2,544
    
    
    
    2,388
    
    
    
    82
    
    
    
    39
    
    
    
    32
    
    
    
    3
    
    
    
    Total
    
    $
    62,178
    
    
    $
    45,628
    
    
    $
    5,751
    
    
    $
    3,961
    
    
    $
    3,880
    
    
    $
    2,077
    
    
    $
    881
 
 (1)
    
    Lease payments include common area maintenance (CAM) charges.(2)
    
    Consists primarily of commitments to purchase non-recurring engineering services but excludes
approximately $23.1 million of unrecognized tax benefits under FIN 48 for which we cannot make
a reasonably reliable estimate of the period of payment. See Note 9 to our condensed
consolidated financial statements. 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Interest Rate Sensitivity
  
 Item 4. Controls and Procedures
   32




---



##### Table of Contents



PART II: OTHER INFORMATION
 
 Item 1. Legal Proceedings
 Litigation
    33




---



##### Table of Contents



Item 1A. Risk Factors
  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 downturn in information technology spending in general, or spending on computer and storage
systems in particular, could adversely affect our revenues and results of operations.
  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 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.
    35




---



##### 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, 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; and
    
    changes in our accounting or other policies resulting from the adoption of new laws,
regulations or pronouncements.
  36




---



##### Table of Contents



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.
  We have experienced losses in our history and may experience losses in our future that may
adversely affect our stock price and financial condition.
  The migration of our customers toward newer product platforms may have a significant adverse
effect.
  37




---



##### Table of Contents



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 could be negatively affected.
  Advancement of storage disk 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 could adversely affect our revenue, gross margins and financial performance.
  38




---



##### Table of Contents



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.
  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;
 39




---



##### Table of Contents




    
    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.
   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.
  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;
    
    costs and risks of localizing products for international countries;
 41




---



##### Table of Contents




    
    longer accounts receivable payment cycles;
    
    changes in the value of local currencies relative to our functional currency;
    
    import and export restrictions;
    
    loss of tax benefits, or increases in tax expenses, due to international production;
    
    general economic and social conditions within international countries;
    
    taxation in multiple jurisdictions; 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;
    
    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.
 42




---



##### 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; and
    
    events affecting other companies that investors deem to be comparable to us.
  Terrorist activities and resulting military and other actions could adversely affect our business.
  43




---



##### Table of Contents



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.
  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.
  44




---



##### 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
   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 ProgramsOctober 1  October 28, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    39,913,000October 29  November 25, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    39,913,000November 26  December 30, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    39,913,000Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    39,913,000
 45




---



##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders
  Nominee
    
    In Favor
    
    WithheldFred B. Cox
    
    
    71,872,557
    
    
    
    2,915,540Michael P. Downey
    
    
    72,853,383
    
    
    
    1,934,714Bruce C. Edwards
    
    
    73,331,122
    
    
    
    1,456,975Paul F. Folino
    
    
    72,096,569
    
    
    
    2,691,528Robert H. Goon
    
    
    72,620,432
    
    
    
    2,167,665Don M. Lyle
    
    
    72,852,293
    
    
    
    1,935,804James M. McCluney
    
    
    72,454,187
    
    
    
    2,333,910Dean A. Yoost
    
    
    73,327,921
    
    
    
    1,460,176
  For
    
    
    50,611,577Against
    
    
    15,227,800Abstain
    
    
    64,477
  For
    
    
    65,141,339Against
    
    
    702,578Abstain
    
    
    59,937
  For
    
    
    73,943,824Against
    
    
    773,690Abstain
    
    
    70,582
 46




---



##### 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).Exhibit 10.1
    
    Emulex Corporation 2005 Equity Incentive Plan, as amended
(incorporated by reference to Appendix A to Emulex
Corporations proxy statement on Schedule 14A for the 2007
annual meeting of its stockholders filed with the Securities
and Exchange Commission on October 15, 2007).Exhibit 10.2
    
    Emulex Corporation Employee Stock Purchase Plan, as amended
(incorporated by reference to Appendix B to Emulex
Corporations proxy statement on Schedule 14A for the 2007
annual meeting of its stockholders filed with the Securities
and Exchange Commission on October 15, 2007).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




---



##### 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) 48




---



##### 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).Exhibit 10.1
    
    Emulex Corporation 2005 Equity Incentive Plan, as amended (incorporated by reference to Appendix A to Emulex Corporations proxy statement on Schedule 14A for the 2007 annual meeting of its stockholders filed with the Securities and Exchange Commission on October 15, 2007).Exhibit 10.2
    
    Emulex Corporation Employee Stock Purchase Plan, as amended (incorporated by reference to Appendix B to Emulex Corporations proxy statement on Schedule 14A for the 2007 annual meeting of its stockholders filed with the Securities and Exchange Commission on October 15, 2007).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.
 49