Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
January 29, 2009
 
Date of Report
(Date of earliest event reported)
HARMONIC INC.
(Exact name of Registrant as specified in its charter)
 	 	 	 	 	
Delaware	 	000-25826	 	77-0201147	
 	
(State or other jurisdiction of	 	Commission File Number	 	(I.R.S. Employer	
incorporation or organization)	 	 	 	Identification Number)	
549 Baltic Way
Sunnyvale, CA 94089
(408) 542-2500
(Address, including zip code, and telephone number, including area code,
of Registrant’s principal executive offices)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o	 	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)	
 	 	 	
o	 	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)	
 	 	 	
o	 	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))	
 	 	 	
o	 	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))	

 

TABLE OF CONTENTS
 	 	 	 	 	 	 	 	 	
Item 2.02. Results of Operations and Financial Condition	
Item 9.01. Financial Statements and Exhibits	
SIGNATURES	
Exhibit Index	
EX-99.1	

Table of Contents
Item 2.02. Results of Operations and Financial Condition.
On January 29, 2009, Harmonic Inc. (“Harmonic” or the “Company”) issued a press release regarding its unaudited financial results for the quarter and year ended December 31, 2008. In the press release, Harmonic also announced that it would be holding a conference call on Thursday, January 29, 2009, to discuss its financial results for the quarter and year ended December 31, 2008. A copy of the press release is furnished as Exhibit 99.1 hereto, and the information in Exhibit 99.1 is incorporated herein by reference.
The information in this Current Report on Form 8-K and the exhibit attached hereto is being furnished and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) or otherwise subject to the liabilities of that Section, nor shall such information be incorporated by reference into any filing by Harmonic under the Securities Act of 1933, as amended, or under the Exchange Act, regardless of the general incorporation language in such filing, except as shall be expressly set forth by specific reference in such filing.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
 	 	 	
Exhibit Number	 	Description	
99.1	 	Press Release of Harmonic Inc., issued on January 29, 2009.	

Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
HARMONIC INC.
 	 	 	 	 	
Date:	 	January 29, 2009	 	 	
 	 	 	 	 	
By:	 	/s/Robin N. Dickson
 	 	 	
 	 	Robin N. Dickson	 	 	
 	 	Chief Financial Officer	 	 	

Table of Contents
Exhibit Index
 	 	 	
Exhibit Number	 	Description	
99.1	 	Press Release of Harmonic Inc., issued on January 29, 2009.	

Exhibit 99.1
Harmonic Announces Preliminary Unaudited
Fourth Quarter and Year End Results
Strong Sales and Earnings Growth; Strong Operating Performance;
Extended Worldwide Customer Base and Technology Leadership
SUNNYVALE, Calif.¾January 29, 2009¾Harmonic Inc. (NASDAQ: HLIT), a leading provider of broadcast and on-demand video delivery solutions, today announced its preliminary and unaudited results for the quarter and year ended December 31, 2008.
For the fourth quarter of 2008, the Company reported net sales of $96.9 million, up 11% from $87.4 million in the fourth quarter of 2007. For the full year 2008, net sales were $365.0 million, up 17% from $311.2 million in 2007. In 2008, the Company saw revenue growth across the range of its cable, satellite, telco, broadcast and other markets. Both domestic and international sales grew strongly in 2008, with international sales representing 47% and 44% of revenue, respectively, for the fourth quarter and the full year 2008.
The Company strengthened its gross margins in 2008, reflecting the continued success of its new products and solutions, as well as its sourcing strategy and product design innovations.
GAAP net income for the fourth quarter of 2008 was $13.2 million, or $0.14 per diluted share, up from $6.6 million, or $0.07 per diluted share, for the same period of 2007. For the full year 2008, GAAP net income was $64.0 million, or $0.67 per diluted share, up from $23.4 million, or $0.28 per diluted share in 2007. The results for the quarter and year ended December 31, 2008 included a charge of approximately $5.2 million for the settlement of litigation and related costs.
Excluding the charge related to the settlement of litigation, as well as non-cash accounting charges for stock-based compensation, amortization of intangibles, and the reversal of a valuation allowance related to certain deferred tax assets, the non-GAAP net income for the fourth quarter of 2008 was $19.0 million, or $0.20 per diluted share, up from non-GAAP net income of $16.9 million, or $0.19 per diluted share, for the same period of 2007.
For the full year 2008, non-GAAP net income, excluding the items discussed in the preceding paragraph as well as the impairment of a marketable security, was $66.4 million, or $0.70 per diluted share, up from non-GAAP net income of $43.1 million, or $0.52 per share, for 2007.
For more information regarding non-GAAP financial measures, see “Use of Non-GAAP Financial Measures” and “GAAP to non-GAAP Reconciliation” below.
As of December 31, 2008, the Company had cash, cash equivalents and short-term investments of $327.2 million, up from $293.4 million as of September 26, 2008. During the fourth quarter, Harmonic announced a definitive agreement to acquire Scopus Video Networks Limited (NASDAQ: SCOP) for approximately $51.0 million in cash, net of Scopus’ cash and short-term investments. The proposed acquisition is subject to customary closing conditions, including the requirement that the parties obtain regulatory approvals and the approval of Scopus’ shareholders, and is currently expected to close in March of 2009.
“2008 was an outstanding year for our Company, with record revenues, gross margins and earnings,” said Patrick Harshman, President and Chief Executive Officer. “Underlying our success was the expanding range of video service providers around the globe who have selected Harmonic to power their mission-critical video services.
“Moving into 2009, we plan to continue investing in the long term growth of our business. We expect to announce a number of important new product introductions and to complete the acquisition of Scopus, which we believe will further expand our worldwide customer base and strengthen our technology leadership. We will also continue to focus on controlling our costs and improving our operating efficiencies.

 
“While the first quarter is usually the slowest period of the year and the global economic situation creates substantial near term uncertainty, we remain confident that our technology leadership, diversified customer base and strong financial position provide us with operational and strategic flexibility. We are well-positioned to further strengthen our competitive position and increase our global market share in 2009 and beyond.”
Business Outlook
Harmonic anticipates that net sales for the first quarter of 2009 will be in a range of $72 to $78 million. GAAP gross margins and operating expenses will be in a range of 45% to 47% and $32 to $33 million, respectively. Non-GAAP gross margins and operating expenses for the same period, excluding charges for stock-based compensation and the amortization of intangibles, are anticipated to be in a range of 47% to 49% and $30 to $31 million, respectively. All of these projections exclude the impact of closing the proposed acquisition of Scopus.
Conference Call Information
Harmonic will host a conference call today to discuss its financial results at 2:00 p.m. Pacific (5:00 p.m. Eastern). A listen-only broadcast of the conference call can be accessed on the Company’s website at  www.harmonicinc.com  or by calling +1.706.634.9047 (conference identification code 30815953). The replay will be available after 6:00 p.m. Pacific at the same website address or by calling +1.706.645.9291 (conference identification code 30815953).
About Harmonic Inc.
Harmonic Inc. is a leading provider of versatile and high performance video solutions that enable service providers to efficiently deliver the next generation of broadcast and on-demand video services, including high definition, video-on-demand, network personal video recording and time-shifted TV. Cable, satellite, broadcast and telecom service providers can utilize Harmonic’s digital video, broadband optical access and software solutions to offer consumers a compelling and personalized viewing experience.
Harmonic (NASDAQ: HLIT) is headquartered in Sunnyvale, California with R&D, sales and system integration centers worldwide. The Company’s customers, including many of the world’s largest communications providers, deliver services in virtually every country. Visit  www.harmonicinc.com  for more information.
Legal Notice Regarding Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements related to: our expectations regarding our final results for the fourth quarter and year ended December 31, 2008; our expectations regarding the closing of the proposed acquisition of Scopus, including the expected date of closing and the benefits that Harmonic expects to result from the acquisition; our plans to continue investing in the long term growth of our business; our expectation that we will announce a number of important new product introductions; our belief that our new product introductions and our acquisition of Scopus will further expand our worldwide customer base and strengthen our technology leadership; our expectation that we will continue to focus on controlling our costs and improving our operating efficiencies; our belief that our technology leadership, diversified customer base and strong financial position provide us with operational and strategic flexibility, and that we are well-positioned to further strengthen our competitive position and increase our global market share in 2009 and beyond; and our expectations regarding net sales, GAAP gross margins and non-GAAP gross margins for the first quarter of 2009. Our expectations and beliefs regarding these matters may not materialize, and actual results in future periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include the possibility that: the acquisition of Scopus does not close when expected, or at all; if we do complete the acquisition of Scopus, we will not be able to integrate Scopus into our business as effectively or efficiently as expected; Scopus does not provide Harmonic with the benefits and synergies that we currently expect from the acquisition; the trends toward more high-definition, on-demand and anytime, anywhere video will not continue to develop at its current pace, or at all; our products will not generate sales that are commensurate with our expectations; the mix of products sold and the effect it has on gross margins; delays or decreases in capital spending in the cable, satellite and telco industries; customer concentration and consolidation; general economic conditions, including the impact of recent

 
turmoil in the global financial markets; market acceptance of new or existing Harmonic products; losses of one or more key customers; risks associated with Harmonic’s international operations; inventory management; the effect of competition; difficulties associated with rapid technological changes in Harmonic’s markets; the need to introduce new and enhanced products and the risk that our product development is not timely or does not result in expected benefits or market acceptance; risks associated with a cyclical and unpredictable sales cycle; and risks that our international sales and support center will not provide the operational or tax benefits that we anticipate or that expenses exceed our plans. The forward-looking statements contained in this press release are also subject to other risks and uncertainties, including those more fully described in Harmonic’s filings with the Securities and Exchange Commission, including our annual report filed on Form 10-K for the year ended December 31, 2007, our subsequent quarterly reports on Form 10-Q, and our current reports on Form 8-K. Harmonic does not undertake to update any forward-looking statements.

 
Harmonic Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
 	 	 	 	 	 	 	 	 	
 	 	December 31, 2008	 	 	December 31, 2007	 	
Assets	 	 	 	 	 	 	 	 	
Current assets:	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	179,891	 	 	$	129,005	 	
Short-term investments	 	 	147,272	 	 	 	140,255	 	
Accounts receivable, net	 	 	63,923	 	 	 	69,302	 	
Inventories	 	 	26,875	 	 	 	34,251	 	
Deferred income taxes	 	 	36,384	 	 	 	3,506	 	
Prepaid expenses and other current assets	 	 	15,985	 	 	 	17,489	 	

Total current assets	 	 	470,330	 	 	 	393,808	 	
 	 	 	 	 	 	 	 	 	
Property and equipment, net	 	 	15,428	 	 	 	14,082	 	
 	 	 	 	 	 	 	 	 	
Goodwill, intangibles and other assets	 	 	78,605	 	 	 	67,889	 	

 	 	$	564,363	 	 	$	475,779	 	

Liabilities and stockholders’ equity	 	 	 	 	 	 	 	 	
Current liabilities:	 	 	 	 	 	 	 	 	
Accounts payable	 	$	13,366	 	 	$	20,500	 	
Income taxes payable	 	 	1,434	 	 	 	481	 	
Deferred revenue	 	 	29,909	 	 	 	37,865	 	
Accrued liabilities	 	 	50,490	 	 	 	51,686	 	

Total current liabilities	 	 	95,199	 	 	 	110,532	 	
 	 	 	 	 	 	 	 	 	
Accrued excess facilities costs, long-term	 	 	4,953	 	 	 	9,907	 	
Income taxes payable, long-term	 	 	41,555	 	 	 	8,908	 	
Other non-current liabilities	 	 	8,339	 	 	 	12,019	 	

Total liabilities	 	 	150,046	 	 	 	141,366	 	

Stockholders’ equity:	 	 	 	 	 	 	 	 	
Common stock	 	 	2,263,331	 	 	 	2,246,969	 	
Accumulated deficit	 	 	(1,848,394	)	 	 	(1,912,386	)	
Accumulated other comprehensive loss	 	 	(620	)	 	 	(170	)	

Total stockholders’ equity	 	 	414,317	 	 	 	334,413	 	

 	 	$	564,363	 	 	$	475,779	 	

 
Harmonic Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended	 	 	Year Ended	 	
 	 	December 31,	 	 	December 31,	 	 	December 31,	 	 	December 31,	 	
 	 	2008	 	 	2007	 	 	2008	 	 	2007	 	
Net sales	 	$	96,891	 	 	$	87,390	 	 	$	364,963	 	 	$	311,204	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cost of sales	 	 	48,685	 	 	 	46,675	 	 	 	187,430	 	 	 	177,129	 	

Gross profit	 	 	48,206	 	 	 	40,715	 	 	 	177,533	 	 	 	134,075	 	

Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Research and development	 	 	14,207	 	 	 	11,288	 	 	 	54,471	 	 	 	42,902	 	
Selling, general and administrative	 	 	26,394	 	 	 	24,332	 	 	 	83,118	 	 	 	70,690	 	
Write-off of acquired in-process technology	 	 	—	 	 	 	—	 	 	 	—	 	 	 	700	 	
Amortization of intangibles	 	 	160	 	 	 	160	 	 	 	639	 	 	 	525	 	

Total operating expenses	 	 	40,761	 	 	 	35,780	 	 	 	138,228	 	 	 	114,817	 	

Income from operations	 	 	7,445	 	 	 	4,935	 	 	 	39,305	 	 	 	19,258	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest and other income, net	 	 	1,138	 	 	 	2,997	 	 	 	6,664	 	 	 	6,263	 	

Income before income taxes	 	 	8,583	 	 	 	7,932	 	 	 	45,969	 	 	 	25,521	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Provision for (benefit from) income taxes	 	 	(4,626	)	 	 	1,293	 	 	 	(18,023	)	 	 	2,100	 	

Net income	 	$	13,209	 	 	$	6,639	 	 	$	63,992	 	 	$	23,421	 	

Net income per share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	$	0.14	 	 	$	0.08	 	 	$	0.68	 	 	$	0.29	 	

Diluted	 	$	0.14	 	 	$	0.07	 	 	$	0.67	 	 	$	0.28	 	

Shares used to compute net income per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	 	95,014	 	 	 	88,469	 	 	 	94,535	 	 	 	81,882	 	

Diluted	 	 	95,533	 	 	 	90,377	 	 	 	95,434	 	 	 	83,249	 	

 
Harmonic Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 	 	 	 	 	 	 	 	 	
 	 	Year Ended	 	
 	 	December 31,2008	 	 	December 31, 2007	 	
Cash flows from operating activities:	 	 	 	 	 	 	 	 	
Net income	 	$	63,992	 	 	$	23,421	 	
Adjustments to reconcile net income to cash provided by (used in) operating activities:	 	 	 	 	 	 	 	 	
Amortization of intangibles	 	 	6,275	 	 	 	5,338	 	
Write-off of acquired in-process technology	 	 	—	 	 	 	700	 	
Depreciation	 	 	7,014	 	 	 	6,661	 	
Stock-based compensation	 	 	7,806	 	 	 	6,196	 	
Loss on disposal of fixed assets	 	 	185	 	 	 	74	 	
Deferred income taxes	 	 	(55,859	)	 	 	—	 	
Other non-cash adjustments, net	 	 	3,243	 	 	 	278	 	
Changes in assets and liabilities:	 	 	 	 	 	 	 	 	
Accounts receivable	 	 	6,529	 	 	 	(4,191	)	
Inventories	 	 	7,388	 	 	 	7,865	 	
Prepaid expenses and other assets	 	 	3,278	 	 	 	(6,847	)	
Accounts payable	 	 	(7,134	)	 	 	(13,129	)	
Deferred revenue	 	 	(6,433	)	 	 	10,205	 	
Income taxes payable	 	 	33,657	 	 	 	208	 	
Accrued excess facilities costs	 	 	(6,472	)	 	 	(6,684	)	
Accrued and other liabilities	 	 	(3,242	)	 	 	5,050	 	
 	 	 	 	 	 	 	
Net cash provided by operating activities	 	 	60,127	 	 	 	35,145	 	
 	 	 	 	 	 	 	
Cash flows from investing activities:	 	 	 	 	 	 	 	 	
Purchases of investments	 	 	(132,813	)	 	 	(177,908	)	
Proceeds from sale of investments	 	 	124,237	 	 	 	98,300	 	
Acquisition of property and equipment, net	 	 	(8,546	)	 	 	(5,868	)	
Acquisition of intellectual property	 	 	(500	)	 	 	—	 	
Acquisition of Rhozet Corp., net of cash received	 	 	(2,830	)	 	 	(1,950	)	
Redemption (purchase) of Entone, Inc. convertible note	 	 	2,500	 	 	 	(2,500	)	
Acquisition costs related to the merger of Entone Technologies, Inc.	 	 	—	 	 	 	(2,465	)	
 	 	 	 	 	 	 	
Net cash used in investing activities	 	 	(17,952	)	 	 	(92,391	)	
 	 	 	 	 	 	 	
Cash flows from financing activities:	 	 	 	 	 	 	 	 	
Repayments under bank line and term loan	 	 	—	 	 	 	(460	)	
Repayments of capital lease obligations	 	 	—	 	 	 	(72	)	
Proceeds from issuance of common stock, net	 	 	8,463	 	 	 	153,337	 	
Excess tax benefits from stock-based compensation	 	 	—	 	 	 	70	 	
 	 	 	 	 	 	 	
Net cash provided by financing activities	 	 	8,463	 	 	 	152,875	 	

Effect of exchange rate changes on cash and cash equivalents	 	 	248	 	 	 	(78	)	
 	 	 	 	 	 	 	
Net increase in cash and cash equivalents	 	 	50,886	 	 	 	95,551	 	
Cash and cash equivalents at beginning of period	 	 	129,005	 	 	 	33,454	 	
 	 	 	 	 	 	 	
Cash and cash equivalents at end of period	 	$	179,891	 	 	$	129,005	 	

 
Harmonic Inc.
Revenue Information
(In thousands)
(Unaudited)
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended	 	 	Year Ended	 	
 	 	December 31,	 	 	December 31,	 	 	December 31,	 	 	December 31,	 	
 	 	2008	 	 	2007	 	 	2008	 	 	2007	 	
 	 	 	 	 	 	 	 	 	
Product	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Video Processing	 	$	37,165	 	 	 	38	%	 	$	41,941	 	 	 	48	%	 	$	137,390	 	 	 	38	%	 	$	134,744	 	 	 	43	%	
Edge & Access	 	 	40,719	 	 	 	42	%	 	 	29,397	 	 	 	34	%	 	 	165,246	 	 	 	45	%	 	 	125,270	 	 	 	40	%	
Software, Services and Other	 	 	19,007	 	 	 	20	%	 	 	16,052	 	 	 	18	%	 	 	62,327	 	 	 	17	%	 	 	51,190	 	 	 	17	%	
 	 	 	 	 	 	 	 	 	
Total	 	$	96,891	 	 	 	100	%	 	$	87,390	 	 	 	100	%	 	$	364,963	 	 	 	100	%	 	$	311,204	 	 	 	100	%	

Geography	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
United States	 	$	51,596	 	 	 	53	%	 	$	49,810	 	 	 	57	%	 	$	205,162	 	 	 	56	%	 	$	175,257	 	 	 	56	%	
International	 	 	45,295	 	 	 	47	%	 	 	37,580	 	 	 	43	%	 	 	159,801	 	 	 	44	%	 	 	135,947	 	 	 	44	%	
 	 	 	 	 	 	 	 	 	
Total	 	$	96,891	 	 	 	100	%	 	$	87,390	 	 	 	100	%	 	$	364,963	 	 	 	100	%	 	$	311,204	 	 	 	100	%	

Market	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cable	 	$	60,929	 	 	 	63	%	 	$	46,493	 	 	 	53	%	 	$	227,402	 	 	 	62	%	 	$	185,803	 	 	 	60	%	
Satellite	 	 	20,301	 	 	 	21	%	 	 	21,637	 	 	 	25	%	 	 	73,679	 	 	 	20	%	 	 	65,343	 	 	 	21	%	
Telco & Other	 	 	15,661	 	 	 	16	%	 	 	19,260	 	 	 	22	%	 	 	63,882	 	 	 	18	%	 	 	60,058	 	 	 	19	%	
 	 	 	 	 	 	 	 	 	
Total	 	$	96,891	 	 	 	100	%	 	$	87,390	 	 	 	100	%	 	$	364,963	 	 	 	100	%	 	$	311,204	 	 	 	100	%	

 
Use of Non-GAAP Financial Measures
In establishing operating budgets, managing its business performance, and setting internal measurement targets, the Company excludes a number of items required by GAAP. Management believes that these accounting charges and credits, which are non-cash or non-recurring in nature, are not useful in managing its operations and business. Historically, the Company has also publicly presented these supplemental non-GAAP measures in order to assist the investment community to see the Company “through the eyes of management,” and thereby enhance understanding of its operating performance. The non-GAAP financial measures presented here are gross margin, operating expense, net income and net income per share. The presentation of non-GAAP information is not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP and is not necessarily comparable to non-GAAP results published by other companies. A reconciliation of the historical non-GAAP financial measures discussed in this press release to the most directly comparable historical GAAP financial measures is included with the financial statements contained in this press release. The non-GAAP adjustments described below have historically been excluded from our non-GAAP financial measures. These adjustments, and the basis for excluding them, are:
•	 	Restructuring Activities	

 	–	 	Severance Costs	
 	 	 	 	
 	 	 	The Company has incurred severance costs in cost of sales and in operating expenses in connection with the closing of its manufacturing and research and development facilities in the UK. The Company excludes one-time costs of this nature in evaluating its ongoing operational performance. We believe that these costs do not reflect expected future expenses nor do they provide a meaningful comparison of current versus prior operating results.	
 	 	 	 	
 	–	 	Excess Facilities	
 	 	 	 	
 	 	 	The Company has incurred excess facilities charges and credits in operating expenses due to adjustments related to vacating portions of its Sunnyvale campus, estimating income from subleases of buildings, and to the closing of its manufacturing and research and development facilities in the UK. The Company excludes one-time charges and credits of this nature in evaluating its ongoing operational performance. We believe that these charges and credits do not reflect expected future expenses nor do they provide a meaningful comparison of current versus prior operating results.	
 	 	 	 	
 	–	 	Product Discontinuance	
 	 	 	 	
 	 	 	In connection with the restructuring of its operations in the UK, the Company recorded charges for excess inventory in connection with discontinued products. The Company excludes one-time costs of this nature in evaluating its ongoing operational performance. We believe that these costs do not reflect expected future expenses nor do they provide a meaningful comparison of current versus prior operating results.	

•	 	Litigation Settlement Costs	

 	 	 	The Company has incurred charges in connection with the settlement of litigation and related expenses. The Company excludes one-time costs of this nature in evaluating its ongoing operating performance as it is difficult to estimate the amount or timing of these items in advance. Generally, in the case of legal settlements, these gains or losses are recorded in the period in which the matter is concluded or resolved even though the subject matter of such litigation originated several years prior to the applicable settlement. We believe that these costs do not reflect future expenses nor do they provide a meaningful comparison of current versus prior operating results.	

 

•	 	Non-Cash Items	

 	–	 	Stock-Based Compensation Expense	
 	 	 	 	
 	 	 	The Company has incurred stock-based compensation expense in cost of sales and operating expenses as required under FAS 123R. The Company excludes stock-based compensation expense because it believes that this measure is not relevant in evaluating its core operating performance, either for internal measurement purposes or for period-to-period comparisons and benchmarking against other companies.	
 	 	 	 	
 	 	 	Amortization of Intangibles	
 	 	 	 	
 	 	 	The Company has incurred a charge for amortization of intangibles related to acquisitions made by the Company. The Company excludes these items when it evaluates its core operating performance. We believe that eliminating these expenses is useful to investors when comparing historical and prospective results and comparing such results to other companies because these expenses will vary if and when the Company makes additional acquisitions.	
 	 	 	 	
 	–	 	Impairment of a Marketable Security	
 	 	 	 	
 	 	 	The Company has incurred a charge as a result of the fair value of the Company’s investment in the unsecured debt of Lehman Brothers Holdings, Inc. being substantially reduced because of the bankruptcy of the issuer. As a result, the Company recorded an “other-than-temporary” impairment charge to reduce the carrying value of this investment. This impairment charge has been excluded from our non-GAAP net income because we expect the impairment charge to be a non-recurring item. As such, we believe that its inclusion in our calculation of non-GAAP net income would not provide a meaningful comparison of current versus prior net income.	
 	 	 	 	
 	–	 	Reversal of Valuation Allowance for Certain Deferred Tax Assets	
 	 	 	 	
 	 	 	The Company has reversed a valuation allowance against certain deferred tax assets, resulting in a credit to its provision for income taxes. The Company has excluded the discrete benefit from this reversal from its calculation of the Company’s non-GAAP net income because it believes that it is of a one-time nature and does not reflect future expected tax provisions nor does it provide a meaningful comparison of current versus prior net income.	

 
Harmonic Inc.
GAAP to non-GAAP Income Reconciliation
(Unaudited)
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended December 31, 2008	 	 	Three Months Ended December 31, 2007	 	
 	 	 	 	 	 	Operating	 	 	 	 	 	 	 	 	 	 	Operating	 	 	 	 	
(In thousands)	 	Gross Margin	 	 	Expense	 	 	Net Income	 	 	Gross Margin	 	 	Expense	 	 	Net Income	 	
 	 	 	 	 	
GAAP	 	$	48,206	 	 	$	40,761	 	 	$	13,209	 	 	$	40,715	 	 	$	35,780	 	 	$	6,639	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cost of sales related to stock based compensation expense	 	 	318	 	 	 	 	 	 	 	318	 	 	 	280	 	 	 	 	 	 	 	280	 	
Research and development expense related to stock based compensation expense	 	 	 	 	 	 	(824	)	 	 	824	 	 	 	 	 	 	 	(573	)	 	 	573	 	
Selling, general and administrative expense related to stock based compensation expense	 	 	 	 	 	 	(1,194	)	 	 	1,194	 	 	 	 	 	 	 	(868	)	 	 	868	 	
Selling, general and administrative expense related to excess facilities expense	 	 	 	 	 	 	(96	)	 	 	96	 	 	 	 	 	 	 	(482	)	 	 	482	 	
Selling, general and administrative expense related to litigation settlements	 	 	 	 	 	 	(5,189	)	 	 	5,189	 	 	 	 	 	 	 	(6,400	)	 	 	6,400	 	
Amortization of intangibles from acquisitions	 	 	1,350	 	 	 	(160	)	 	 	1,510	 	 	 	1,474	 	 	 	(160	)	 	 	1,634	 	
Income tax valuation allowance adjustment	 	 	 	 	 	 	 	 	 	 	(3,326	)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	
Non-GAAP	 	$	49,874	 	 	$	33,298	 	 	$	19,014	 	 	$	42,469	 	 	$	27,297	 	 	$	16,876	 	

GAAP per share – basic	 	 	 	 	 	 	 	 	 	$	0.14	 	 	 	 	 	 	 	 	 	 	$	0.08	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
GAAP per share – diluted	 	 	 	 	 	 	 	 	 	$	0.14	 	 	 	 	 	 	 	 	 	 	$	0.07	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-GAAP income per share — basic	 	 	 	 	 	 	 	 	 	$	0.20	 	 	 	 	 	 	 	 	 	 	$	0.19	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-GAAP income per share — diluted	 	 	 	 	 	 	 	 	 	$	0.20	 	 	 	 	 	 	 	 	 	 	$	0.19	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Shares used in per-share calculation – basic	 	 	 	 	 	 	 	 	 	 	95,014	 	 	 	 	 	 	 	 	 	 	 	88,469	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Shares used in per-share calculation – diluted	 	 	 	 	 	 	 	 	 	 	95,533	 	 	 	 	 	 	 	 	 	 	 	90,377	 	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Year Ended December 31, 2008	 	 	Year Ended December 31, 2007	 	
 	 	 	 	 	Operating	 	 	 	 	 	 	 	 	Operating	 	 	 	 	
 	 	Gross Margin	 	 	Expense	 	 	Net Income	 	 	Gross Margin	 	 	Expense	 	 	Net Income	 	
 	 	 	 	 	
GAAP	 	$	177,533	 	 	$	138,228	 	 	$	63,992	 	 	$	134,075	 	 	$	114,817	 	 	$	23,421	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cost of sales related to severance costs	 	 	 	 	 	 	 	 	 	 	 	 	 	 	188	 	 	 	 	 	 	 	188	 	
Cost of sales related to stock based compensation expense	 	 	1,137	 	 	 	 	 	 	 	1,137	 	 	 	998	 	 	 	 	 	 	 	998	 	
Cost of sales related to product discontinuance	 	 	 	 	 	 	 	 	 	 	 	 	 	 	772	 	 	 	 	 	 	 	772	 	
Research and development expense related to severance costs	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(334	)	 	 	334	 	
Research and development expense related to stock based compensation expense	 	 	 	 	 	 	(2,845	)	 	 	2,845	 	 	 	 	 	 	 	(2,012	)	 	 	2012	 	
Selling, general and administrative expense related to severance costs	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(131	)	 	 	131	 	
Selling, general and administrative expense related to stock based compensation expense	 	 	 	 	 	 	(3,824	)	 	 	3,824	 	 	 	 	 	 	 	(3,186	)	 	 	3,186	 	
Selling, general and administrative expense related to excess facilities expense (recovery)	 	 	 	 	 	 	(1,834	)	 	 	1,834	 	 	 	 	 	 	 	331	 	 	 	(331	)	
Selling, general and administrative expense related to litigation settlements	 	 	 	 	 	 	(5,189	)	 	 	5,189	 	 	 	 	 	 	 	(6,400	)	 	 	6,400	 	
Amortization of intangibles from acquisitions	 	 	5,501	 	 	 	(639	)	 	 	6,140	 	 	 	4,740	 	 	 	(1,225	)	 	 	5,965	 	
Impairment of Lehman Brothers investment	 	 	 	 	 	 	 	 	 	 	845	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income tax valuation allowance adjustment	 	 	 	 	 	 	 	 	 	 	(19,394	)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	
Non-GAAP	 	$	184,171	 	 	$	123,897	 	 	$	66,412	 	 	$	140,773	 	 	$	101,860	 	 	$	43,076	 	

GAAP per share – basic	 	 	 	 	 	 	 	 	 	$	0.68	 	 	 	 	 	 	 	 	 	 	$	0.29	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
GAAP per share – diluted	 	 	 	 	 	 	 	 	 	$	0.67	 	 	 	 	 	 	 	 	 	 	$	0.28	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-GAAP income per share — basic	 	 	 	 	 	 	 	 	 	$	0.70	 	 	 	 	 	 	 	 	 	 	$	0.53	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-GAAP income per share — diluted	 	 	 	 	 	 	 	 	 	$	0.70	 	 	 	 	 	 	 	 	 	 	$	0.52	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Shares used in per-share calculation – basic	 	 	 	 	 	 	 	 	 	 	94,535	 	 	 	 	 	 	 	 	 	 	 	81,882	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Shares used in per-share calculation – diluted	 	 	 	 	 	 	 	 	 	 	95,434	 	 	 	 	 	 	 	 	 	 	 	83,249