Published: 04 February 2009

Written by Editor

RadiSys Announces Fourth Quarter and Annual 2008 Results

RadiSys^® Corporation (NASDAQ: RSYS), a leading global provider of advanced embedded solutions, today announced revenues of $88.7 million for the quarter ended December 31, 2008, down 11% versus the same quarter last year. The Company had a GAAP net loss of $56.6 million or $2.47 per share in the fourth quarter, versus a net loss of $2.4 million or $0.11 per share in the same quarter last year. GAAP results included a non-cash pre-tax goodwill impairment charge of $67.3 million that was triggered by the Company’s lower stock price in the fourth quarter. Fourth quarter non-GAAP net income was $2.9 million or $0.12 per diluted share, versus $4.6 million or $0.18 per diluted share in the same quarter last year. Non-GAAP results mainly exclude the impact of the goodwill impairment charge, amortization of acquired intangible assets and stock-based compensation expense.

The Company’s 2008 annual revenues were $372.6 million, up 15% from $325.2 million in the prior year. The Company’s 2008 GAAP net loss was $66.0 million or $2.92 per share, which included the non-cash goodwill impairment charge. This compares to a net loss of $17.6 million or $0.80 per share in the prior year. Non-GAAP net income was $12.5 million or $0.49 per diluted share in 2008, versus $8.2 million or $0.34 per diluted share in the prior year.

Commenting on the fourth quarter and full year results, Scott Grout, RadiSys President and CEO stated, “I am pleased that we delivered better than expected revenues and non-GAAP earnings in the fourth quarter with notable strength in our Media Server business. In 2008, we made meaningful progress on a number of our core strategies and grew our overall next-generation communications revenues to over $100 million for the year. Our strategic focus is to provide more complete and valuable solutions to our customers. Our progress on this strategy, combined with continuing improvements in operational execution, allowed us to increase our gross margin rate every quarter in 2008. Our expanded gross margin along with reductions in spending throughout 2008 allowed us to meaningfully increase our full year Non-GAAP operating income over 2007. Finally, we generated operating cash flow of over $11 million in the fourth quarter, over $34 million in the year, and we ended the year with $74 million of cash and cash equivalents.”

Fourth Quarter Financial Highlights

Revenue was higher than the Company’s expectations at $88.7 million and was down 11% from the prior year. Revenues were down due to lower wireless demand as well as a sequential decrease in ATCA revenues attributable to revenue recognized in the third quarter for shipments in prior quarters. Media server revenues also reached another record high for the Company in the fourth quarter.
GAAP gross margin was 28.5%, up 7.2 percentage points year-over-year. Non-GAAP gross margin was 31.6%, up 5 percentage points year-over-year, mainly due to a greater mix of next-generation higher margin products as well as improved manufacturing costs.
Total GAAP R&D and SG&A expenses were $23.9 million, down from $24.9 million in the same quarter last year and $24.7 million in the prior quarter. Non-GAAP R&D and SG&A expenses were $21.9 million versus $22.7 million in the same quarter last year and $22.5 million in the prior quarter.
GAAP operating loss was $66.5 million, which included the goodwill impairment charge of $67.3 million. Non-GAAP operating income was $6.1 million or 6.9% of revenues, which equates to 3.2 percentage points of improvement versus $3.7 million or 3.7% of revenues in the same quarter last year.
Cash flow from operating activities was $11.6 million versus $14.0 million in the same quarter last year. Cash and cash equivalents were $74.0 million at the end of fourth quarter.
In November, the Company repurchased all $37.5 million of its 1-3/8% Convertible Senior Notes at par. Also in the quarter, the Company repurchased $5.0 million in aggregate principal amount of its 2-3/4% 2013 Convertible Senior Notes for $3.1 million, leaving $50 million outstanding due in 2013.
The Company entered into a contract with UBS Bank USA (UBS) that requires the bank to repurchase, at par, the Company’s $62.7 million of student loan Auction Rate Securities (ARS’s) no later than June 30, 2010. As part of the agreement, the Company received a no net interest loan from UBS for approximately $40 million, which represents 75% of the market value of the Company’s ARS’s held by UBS.
In the third quarter, the Company borrowed $20 million on a $30 million line of credit with Silicon Valley Bank (SVB) as a precautionary measure. In the fourth quarter, the Company repaid the $20 million to SVB with a portion of the $40 million of proceeds received from the no net interest loan from UBS.

2008 Annual Financial Highlights

2008 revenue was $372.6 million, up $47.4 million or 15% over the prior year. 2008 next-generation communication revenue, consisting of ATCA and media server products, was over $100 million for the full year compared to $90 million that was previously expected and $36 million in the prior year.
GAAP gross margin was 25.8%, up 3.7 percentage points over the prior year. Non-GAAP gross margin was 29.9%, up 2.8 percentage points year-over-year, mainly due to a greater mix of next-generation higher margin products as well as improved manufacturing costs.

Cash flow from operating activities was $34.9 million for the year, up 75% from $20.0 million in the prior year.

Fourth Quarter New Product Highlights

The Company won new ATCA business in applications such as network testing, optical networking, network security, router co-processors and next-generation radio network controllers. In the quarter, the Company was awarded a new ATCA integrated platform program in China.
One of the Company’s new ATCA platform customers achieved carrier approval to deploy their wireless networking product in volume. As of November, the end customer’s product had hosted over five million calls using the RadiSys ATCA platform.
RadiSys hosted, along with its ecosystem partners, the industry’s first fully online ATCA virtual tradeshow with presentations, panels and exhibitor booths that provided real-time insight from ATCA experts in the industry. Over a thousand qualified registrants signed up for the tradeshow.
In the Media Server product family, the Company won new business with ZTE Corporation, one of the major telecommunications equipment suppliers in China, for a unified communications application. The application produces an integrated solution for color ring back tones and is currently deployed and generating revenues for leading service providers in China. Integrating the Company’s media servers with ZTE’s Unified Service Platform has created a versatile infrastructure for VoIP, video, and IMS applications.
Commercial product wins in the quarter included several medical imaging applications, including an award from a top medical equipment provider in China. Other Commercial awards included military communication and data collection applications.
The Procelerant RMS420 image processing server began shipping in production volumes in the fourth quarter to two “Tier 1” medical imaging customers.

First Quarter 2009 Outlook

The following statements are based on current expectations as of the date of this press release. These statements are forward-looking and actual results may differ materially. Given the ongoing global economic downturn, the Company’s estimates are subject to a higher level of uncertainty than usual. The Company assumes no obligation to update these forward-looking statements.

Q1 revenue is expected to be between $73 and $79 million as a result of lower wireless revenues and softness in the Company’s Commercial markets.
Q1 GAAP gross margin percentage is expected to be up sequentially by around 70 basis points due to lower intangible amortization expenses. Q1 non-GAAP gross margin percentage is expected to be similar to the fourth quarter’s rate at the midpoint of the guidance range.
Total Q1 GAAP and Non-GAAP R&D and SG&A expenses are expected to be down by approximately $0.5 million sequentially at the midpoint of the guidance range.
Q1 GAAP results are expected to be between a net loss of $0.10 and $0.03 per share. Q1 non-GAAP EPS is expected to be between $0.05 and $0.11. These amounts exclude any possible tax benefit related to the pending exchange rate that will be used to value the Company’s Canadian dollar denominated deferred tax assets in the first quarter.

In closing, Scott Grout stated, “I am very pleased with our strategic and financial progress in 2008. We meaningfully grew our higher value product revenues, added a number of new customers and extended our market presence. From a financial perspective, we expanded our gross margin rate, generated meaningful operating cash flow and ended the year with a strong balance sheet. Although the current economic environment has resulted in increased uncertainty and projected softening in customer demand, we intend to focus on our core strategies while, at the same time, closely monitoring our expenses to continue to generate free cash flow and maintain our strong balance sheet.”

Conference Call and Web-cast Information

RadiSys will host a conference call on Tuesday, February 3, 2009 at 5:00 p.m. ET to discuss the fourth quarter and annual 2008 results, and to review the financial and business outlook for the first quarter of 2009.

To participate in the live conference call, dial (888) 333-0027 in the U.S. and Canada or (706) 634-4990 for all other countries and reference conference ID#80390525. The live conference call will also be available via webcast on the RadiSys investor relations website at http://investor.radisys.com/.

A replay of the conference call will be available two hours after the call is complete until 11:59 p.m. ET on Tuesday, February 17, 2009. To access the replay, dial (800) 642-1687 in the U.S. and Canada or (706) 645-9291 for all other countries with conference ID# 80390525. A replay of the webcast will be available for an extended period of time on the RadiSys investor relations website at http://investor.radisys.com/.

Forward-Looking Statements

This press release contains forward-looking statements, including statements about the Company’s business strategy, outlook and guidance for the first quarter of 2009. Actual results could differ materially from the outlook, guidance and expectations in these forward-looking statements as a result of a number of risk factors, including, among others, (a) the Company’s dependence on certain customers and high degree of customer concentration (b) the anticipated amount and timing of revenues from design wins due to the Company’s customers’ product development time, cancellations or delays, (c) the current economic uncertainty and turmoil within the global financial markets, (d) the impact of failed auctions for auction rate securities held by the Company until such securities are repurchased by UBS in June 2010, and (e) the factors listed in RadiSys’ reports filed with the Securities and Exchange Commission (SEC), including those listed under “Risk Factors” in RadiSys’ Annual Report on Form 10-K for the year ended December 31, 2007, and in the RadiSys Quarterly Reports on Form 10-Q filed with the SEC each fiscal quarter, and other filings with the SEC, copies of which may be obtained by contacting the Company at 503-615-1100 or from the Company’s investor relations web site at http://investor.radisys.com/ . Although forward-looking statements help provide additional information about RadiSys, investors should keep in mind that forward-looking statements are inherently less reliable than historical information. All information in this press release is as of February 3, 2009. The Company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company’s expectations.

Non-GAAP Financial Measures

To supplement its condensed consolidated financial statements in accordance with generally accepted accounting principles (GAAP), the Company's earnings release contains non-GAAP financial measures that exclude certain expenses, gains and losses, such as the effects of (a) a goodwill impairment charge, (b) acquisition-related expenses, amortization of acquired intangible assets, amortization of deferred compensation, integration expenses and purchase accounting adjustments, (c) stock-based compensation expense recognized as a result of the Company’s adoption of FAS 123R, (d) restructuring charges (reversals), and (e) a gain related to the sale of a building /land. The Company believes that the use of non-GAAP financial measures provides useful information to investors to gain an overall understanding of its current financial performance and its prospects for the future. Specifically, the Company believes the non-GAAP results provide useful information to both management and investors by excluding certain expenses, gains and losses that the Company believes are not indicative of its core operating results. In addition, non-GAAP financial measures are used by management for budgeting and forecasting as well as subsequently measuring the Company's performance, and the Company believes that it is providing investors with financial measures that most closely align to its internal measurement processes. These non-GAAP measures are considered to be reflective of the Company’s core operating results as they more closely reflect the essential revenue-generating activities of the Company and direct operating expenses (resulting in cash expenditures) needed to perform these revenue-generating activities. The Company also believes, based on feedback provided to the Company during its earnings calls' Q&A sessions and discussions with the investment community, that the non-GAAP financial measures it provides are necessary to allow the investment community to construct their valuation models to better align its results and projections with its competitors and market sector, as there is significant variability and unpredictability across companies with respect to certain expenses, gains and losses. Accordingly, management excludes goodwill impairment charges, amortization of acquired intangible assets primarily related to the Convedia and Intel MCPD acquisitions, stock-based compensation expense and significant and non-recurring charges and gains.

The non-GAAP financial information is presented using consistent methodology from quarter-to-quarter and year-to-year. These measures should be considered in addition to results prepared in accordance with GAAP. In addition, these non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles. The Company believes that non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with the Company's results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate the Company's results of operations in conjunction with the corresponding GAAP financial measures.

A reconciliation of non-GAAP information to GAAP information is included in the tables below. The non-GAAP financial measures disclosed by the Company should not be considered a substitute for or superior to financial measures calculated in accordance with GAAP, and reconciliations between GAAP and non-GAAP financial measures included in this earnings release should be carefully evaluated. The non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies.

About RadiSys

RadiSys (NASDAQ: RSYS) is a leading provider of advanced embedded solutions for the communications networking and commercial systems markets. Through intimate customer collaboration and combining innovative technologies and industry leading architecture, RadiSys helps original equipment manufacturers, systems integrators and solution providers bring better products to market faster and more economically. RadiSys products include embedded boards, application enabling platforms and turn-key systems, which are used in today's complex computing, processing and network intensive applications. For more information, visit http://www.radisys.com, write to This email address is being protected from spambots. You need JavaScript enabled to view it., or call 800-950-0044 or 503-615-1100. Editors seeking more information may contact Lyn Pangares at RadiSys Corporation at 503-615-1220 or This email address is being protected from spambots. You need JavaScript enabled to view it.

RadiSys®, Convedia®, Promentum® and Procelerant® are registered trademarks of RadiSys Corporation. All other trademarks are property of their respective owners.

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts, unaudited)

	Three Months Ended						Year Ended
	December 31,						December 31,
	2008			2007			2008			2007
Revenues	$	88,667		$	99,219		$	372,584		$	325,232
Cost of sales:
Cost of sales		60,909			73,044			262,100			238,392
Amortization of purchased technology		2,495			5,003			14,401			15,002
Total cost of sales		63,404			78,047			276,501			253,394
Gross margin		25,263			21,172			96,083			71,838
Research and development		11,732			12,158			49,325			46,242
Selling, general, and administrative		12,122			12,728			50,837			47,874
Goodwill impairment charge		67,256			-			67,256			-
Intangible assets amortization		647			1,304			4,554			4,428
Restructuring and other charges		-			27			575			1,418
Loss from operations		(66,494	)		(5,045	)		(76,464	)		(28,124	)
Interest expense		(768	)		(399	)		(2,701	)		(1,678	)
Interest income		504			1,459			3,059			6,405
Other income (expense), net		594			(18	)		629			(169	)
Loss before income taxes		(66,164	)		(4,003	)		(75,477	)		(23,566	)
Income tax benefit		(9,572	)		(1,613	)		(9,527	)		(6,014	)
Net loss		($56,592	)		($2,390	)		($65,950	)		($17,552	)
Net loss per share:
Basic		($2.47	)		($0.11	)		($2.92	)		($0.80	)
Diluted (I), (II)		($2.47	)		($0.11	)		($2.92	)		($0.80	)
Weighted average shares outstanding:
Basic		22,882			22,107			22,552			21,883
Diluted (I), (II)		22,882			22,107			22,552			21,883


(I) For the three and twelve months ended December 31, 2007, options amounting to 3.3 million shares were excluded from the calculation as the Company was in a loss position. For the three and twelve months ended December 31, 2008, options amounting to 3.8 million shares were excluded from the calculation as the Company was in a loss position.

(II) For the three and twelve months ended December 31, 2007 and 2008, as-if converted shares associated with the 2023 convertible senior notes were excluded from the calculation as the affect would have been anti-dilutive. For the three and twelve months ended December 31, 2007, the total number of as-if converted shares associated with the 2023 convertible senior notes was 4.2 million. For the three and twelve months ended December 31, 2008, the total combined number of as-if converted shares associated with the 2023 convertible senior notes was 800,000 and 1.9 million shares, respectively. For the three and twelve months ended December 31, 2008, as-if converted shares associated with the 2013 convertible senior notes were excluded from the calculation as the affect would have been anti-dilutive. For the three and twelve months ended December 31, 2008, the total combined number of as-if converted shares associated with the 2013 convertible senior notes was 4.0 million and 3.7 million shares, respectively.

CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)

	December 31,			December 31,
	2008			2007 (I)
ASSETS
Current assets:
Cash and cash equivalents	$	73,980		$	50,522
Short-term investments		—			72,750
Accounts receivable, net		45,551			70,548
Other receivables		1,090			2,678
Inventories, net		29,450			23,101
Other current assets		4,268			5,299
Deferred tax assets, net		10,297			6,489
Total current assets		164,636			231,387

Property and equipment, net		11,556			11,233
Goodwill		—			67,644
Intangible assets, net		19,804			38,779
Long-term investments, net		51,213			—
Settlement right (UBS)		11,071
Long-term deferred tax assets, net		45,864			40,078
Other assets		4,882			3,987
Total assets	$	309,026		$	393,108

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	34,123		$	49,675
Accrued wages and bonuses		11,253			8,101
Deferred income		2,274			5,308
2023 convertible senior notes, net		—			97,548
Line of credit		39,535
Other accrued liabilities		11,384			8,915
Total current liabilities		98,569			169,547
Long-term liabilities:
2013 convertible senior notes, net		50,000			—
Other long-term liabilities		2,989			3,585
Total long-term liabilities		52,989			3,585
Total liabilities		151,558			173,132
Shareholders’ equity :
Preferred stock — $.01 par value, 5,664 shares authorized; none issued or outstanding		—			—
Common stock — no par value, 100,000 shares authorized; 23,033 and 22,312 shares issued and outstanding at December 31, 2008 and December 31, 2007		231,236			226,873
Accumulated deficit		(77,235	)		(11,285	)
Accumulated other comprehensive income:
Cumulative translation adjustments		4,326			4,388
Unrealized loss on hedge instruments		(859	)		—
Total accumulated other comprehensive income		3,467			4,388
Total shareholders’ equity		157,468			219,976
Total liabilities and shareholders’ equity	$	309,026		$	393,108


(I) Certain reclassifications have been made to amounts in prior years to conform to current year presentation.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)

	Three Months Ended						Year Ended
	December 31,						December 31,
	2008			2007			2008			2007
Cash flows from operating activities:
Net loss		($56,592	)		($2,390	)		($65,950	)		($17,552	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		4,725			8,000			25,259			27,245
Inventory valuation allowance		848			1,401			3,720			6,580
Goodwill impairment charges		67,256			-			67,256			-
Gain from ARS settlement right		(11,071	)		-			(11,071	)		-
Loss from impairment of ARS		11,512			-			11,512			-
Deferred income taxes		(9,293	)		(1,384	)		(9,223	)		(6,360	)
Net gain on early extinguishment of debt		(806	)		(148	)		(843	)		(148	)
Stock-based compensation expense		2,190			2,456			9,616			9,881
Provisions for allowance for doubtful accounts		2			-			172			-
Other		(88	)		232			443			350
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		3,648			(10,268	)		24,932			(27,958	)
Other receivables		905			(374	)		1,588			1,104
Inventories		1,053			1,878			(10,069	)		5,502
Other current assets		(795	)		3,969			1,282			5,540
Accounts payable		(3,759	)		6,747			(15,586	)		9,956
Accrued wages and bonuses		2,569			2,175			3,177			2,048
Deferred income		(830	)		2,146			(3,124	)		3,760
Other accrued liabilities		157			(452	)		1,764			23
Net cash provided by operating activities		11,631			13,988			34,855			19,971
Cash flows from investing activities:
Proceeds from held to maturity investments		-			10,000			-			10,000
Proceeds from the sale of auction rate securities		-			4,500			10,025			54,600
Purchase of auction rate securities		-			(7,250	)		-			(25,100	)
Capital expenditures		(1,373	)		(1,898	)		(6,324	)		(5,657	)
Acquisition of MCPD		-			-			-			(32,032	)
Proceeds from the sale of property and equipment		-			-			-			3,032
Other		582			(56	)		302			(162	)
Net cash (used in) provided by investing activities		(791	)		5,296			4,003			4,681
Cash flows from financing activities:
Financing costs		-			(272	)		(2,539	)		(272	)
Extinguishment of convertible subordinated notes											(2,416	)
Proceeds from issuance of 2013 convertible senior notes		-			-			55,000			-
Repurchase of 2023 convertible senior notes		(37,503	)		-			(98,419	)		-
Repurchase of 2013 convertible senior notes		(3,125	)					(3,125	)
Purchase of capped call		-			-			(10,154	)		-
Payments on capital lease obligation		(49	)		-			(150	)		-
Net settlement of restricted shares		(32	)		(58	)		(422	)		(359	)
Payments on line of credit		(20,000	)					(20,000	)
Borrowings on line of credit		39,535			-			59,535			-
Proceeds from issuance of common stock		1,012			1,216			5,175			4,830
Net cash provided by (used in) financing activities		(20,162	)		886			(15,099	)		1,783

Effect of exchange rate changes on cash		(374	)		107			(301	)		353
Net increase (decrease) in cash and cash equivalents		(9,696	)		20,277			23,458			26,788
Cash and cash equivalents, beginning of period		83,676			30,245			50,522			23,734
Cash and cash equivalents, end of period	$	73,980		$	50,522		$	73,980		$	50,522
Supplemental non-cash disclosures:
Capital lease obligation	$	155			—		$	155			—

REVENUE BY GEOGRAPHY
(In thousands, unaudited)

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2008			2007			2008			2007
North America	$	34,063		$	28,573		$	121,134		$	105,879
Europe		28,414			40,375			137,940			132,054
Asia Pacific		26,190			30,271			113,510			87,299
Total	$	88,667		$	99,219		$	372,584		$	325,232

North America		38.4	%		28.8	%		32.5	%		32.6	%
Europe		32.0	%		40.8	%		37.0	%		40.6	%
Asia Pacific		29.6	%		30.4	%		30.5	%		26.8	%
Total		100.0	%		100.0	%		100.0	%		100.0	%

REVENUE BY MARKET
(In thousands, unaudited)

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2008			2007			2008			2007

Wireless	$	29,947		$	46,958		$	147,054		$	141,646
IP Networking & Messaging		15,858			13,296			54,701			68,679
Other Communications Networking		23,259			18,897			90,853			36,902
Total Communications Networking		69,064			79,151			292,608			247,227
Medical		7,698			6,779			29,606			32,168
Other Commercial		11,905			13,289			50,370			45,837
Total Commercial		19,603			20,068			79,976			78,005
Total Company	$	88,667		$	99,219		$	372,584		$	325,232

Wireless		33.8	%		47.3	%		39.5	%		43.6	%
IP Networking & Messaging		17.9	%		13.4	%		14.7	%		21.1	%
Other Communications Networking		26.2	%		19.1	%		24.3	%		11.3	%
Total Communications Networking		77.9	%		79.8	%		78.5	%		76.0	%
Medical		8.7	%		6.8	%		7.9	%		9.9	%
Other Commercial		13.4	%		13.4	%		13.6	%		14.1	%
Total Commercial		22.1	%		20.2	%		21.5	%		24.0	%
Total Company		100.0	%		100.0	%		100.0	%		100.0	%

RECONCILIATION OF GAAP to NON-GAAP FINANCIAL MEASURES
(In thousands, except per share amounts, unaudited)
	Three Months Ended						Year Ended
	December 31,						December 31,
	2008			2007			2008			2007
GROSS MARGIN:
GAAP gross margin	$	25,263		$	21,172		$	96,083		$	71,838
(a) Amortization of acquired intangible assets (I)		2,495			5,003			14,401			15,002
(b) Amortization of deferred compensation		-			-			-			67
(d) Purchase accounting adjustments		-			-			-			250
(e) Stock-based compensation		262			244			1,030			971
Total Non-GAAP adjustments		2,757			5,247			15,431			16,290
Non-GAAP gross margin	$	28,020		$	26,419		$	111,514		$	88,128
RESEARCH AND DEVELOPMENT:
GAAP research and development	$	11,732		$	12,158		$	49,325		$	46,242
(b) Amortization of deferred compensation		-			-			-			(426	)
(e) Stock-based compensation		(659	)		(763	)		(3,002	)		(2,793	)
Total Non-GAAP adjustments		(659	)		(763	)		(3,002	)		(3,219	)
Non-GAAP research and development	$	11,073		$	11,395		$	46,323		$	43,023
SELLING, GENERAL AND ADMINISTRATIVE:
GAAP selling, general and administrative	$	12,122		$	12,728		$	50,837		$	47,874
(b) Amortization of deferred compensation		-			-			-			(757	)
(c) Integration expenses		-			-			-			(377	)
(d) Purchase accounting adjustments		-			-			-			(269	)
(e) Stock-based compensation		(1,269	)		(1,449	)		(5,584	)		(6,117	)
(f) Gain on sale of building		-			-			-			212
Total Non-GAAP adjustments		(1,269	)		(1,449	)		(5,584	)		(7,308	)
Non-GAAP selling, general and administrative	$	10,853		$	11,279		$	45,253		$	40,566
INCOME (LOSS) FROM OPERATIONS:
GAAP loss from operations		($66,494	)		($5,045	)		($76,464	)		($28,124	)
(a) Amortization of acquired intangible assets (I)		3,142			6,307			18,955			19,430
(b) Amortization of deferred compensation		-			-			-			1,250
(c) Integration expenses		-			-			-			377
(d) Purchase accounting adjustments		-			-			-			519
(e) Stock-based compensation		2,190			2,456			9,616			9,881
(f) Restructuring and other charges		-			-			575			1,391
(g) Gain on sale of building		-			-			-			(212	)
(h) Goodwill impairment		67,256			-			67,256			-
Total Non-GAAP adjustments		72,588			8,763			96,402			32,636
Non-GAAP income from operations	$	6,094		$	3,718		$	19,938		$	4,512
NET INCOME (LOSS):
GAAP net loss		($56,592	)		($2,390	)		($65,950	)		($17,552	)
(a) Amortization of acquired intangible assets (I)		3,142			6,307			18,955			19,430
(b) Amortization of deferred compensation		-			-			-			1,250
(c) Integration expenses		-			-			-			377
(d) Purchase accounting adjustments		-			-			-			519
(e) Stock-based compensation		2,190			2,456			9,616			9,881
(f) Restructuring and other charges		-			-			575			1,391
(g) Gain on sale of building / land		-			-			-			(212	)
(h) Goodwill impairment		67,256			-			67,256			-
(i) Income tax effect of reconciling items		(13,106	)		(1,770	)		(17,997	)		(6,877	)
Total Non-GAAP adjustments		59,482			6,993			78,405			25,759
Non-GAAP net income	$	2,890		$	4,603		$	12,455		$	8,207
GAAP weighted average shares (diluted)		22,882			22,107			22,552			21,883
Non-GAAP adjustment		5,279			5,016			6,096			4,964
Non-GAAP weighted average shares (diluted) (II)		28,161			27,123			28,648			26,847
GAAP net loss per share (diluted)		($2.47	)		($0.11	)		($2.92	)		($0.80	)
Non-GAAP adjustments detailed above	$	2.59		$	0.29		$	3.41		$	1.15
Non-GAAP net income per share (diluted) (II)	$	0.12		$	0.18		$	0.49		$	0.34

(I) Amortization of acquired intangible assets excluded from non-GAAP results includes Convedia, Intel MCPD, and Microware amortization. Microware amortization expense was previously included in non-GAAP results. Prior periods have been adjusted to reflect the current period presentation.

(II) For the three and twelve months ended December 31, 2007, dilutive equity awards amounting to 658,000 and 647,000 shares, respectively, were included in the calculation. For the three and twelve months ended December 31, 2008, dilutive equity awards amounting to 496,000 and 546,000 shares, respectively, were included in the calculation.

For the three and twelve months ended December 31, 2007, the number of diluted weighted average shares outstanding calculation includes 4.2 million shares underlying our 2023 convertible senior notes; as a result, the diluted earnings per share calculation excludes the interest expense, net of tax benefit, which amounted to $251,000 and $1.0 million for the three and twelve months ended December 31, 2007. For the three and twelve months ended December 31, 2008, the number of diluted weighted average shares outstanding calculation includes 4.8 million and 5.5 million underlying our 2023 and 2013 convertible senior notes; as a result, the diluted earnings per share calculation excludes the interest expense, net of tax benefit, which amounted to $354,000 and $1.6 million for the three and twelve months ended December 31, 2008.

RECONCILIATION OF GAAP TO NON-GAAP LINE ITEMS AS A PERCENT OF REVENUE

AND EFFECTIVE TAX RATE FOR THE QUARTER ENDED DECEMBER 31, 2008

(Unaudited)

Gross Margin

R&D

SG&A

Income from Ops

Income before tax

Effective Tax Rate

GAAP

28.5%

13.2%

13.7%

-76.9%

-74.6%

14.5%

(a) Amortization of acquired intangible assets

2.8

—

5.4

3.5

1.7

(e) Stock-based compensation

0.3

(0.7)

(1.4)

2.5

1.3

(h) Goodwill impairment

—

75.9

37.5

Non-GAAP

31.6%

12.5%

12.3%

6.9%

7.3%

55.0%

The Company excludes the following expenses, reversals, gains and losses from its non-GAAP financial measures, when applicable:

(a) Amortization of acquired intangible assets: Amortization of acquisition-related intangible assets primarily relate to core and existing technologies, patents, trade name and customer relationships that were acquired with the acquisition of Convedia and MCPD. The Company excludes the amortization of acquisition-related intangible assets because it does not reflect the Company's ongoing business and it does not have a direct correlation to the operation of the Company's business. In addition, in accordance with GAAP, the Company generally recognizes expenses for internally-developed intangible assets as they are incurred, notwithstanding the potential future benefit such assets may provide. Unlike internally-developed intangible assets, however, and also in accordance with GAAP, the Company generally capitalizes the cost of acquired intangible assets and recognizes that cost as an expense over the useful lives of the assets acquired (other than goodwill, which is not amortized, and acquired in-process technology, which is expensed immediately, as required under GAAP). As a result of their GAAP treatment, there is an inherent lack of comparability between the financial performance of internally-developed intangible assets and acquired intangible assets. Accordingly, the Company believes it is useful to provide, as a supplement to its GAAP operating results, non-GAAP financial measures that exclude the amortization of acquired intangibles in order to enhance the period-over-period comparison of its operating results, as there is significant variability and unpredictability across companies with respect to this expense.

(b) Amortization of deferred compensation: Deferred compensation expense consists of amortized expenses related to 25% of the purchase price per share less the exercise price of Convedia stock options to be paid to Convedia employees still employed by RadiSys after one year of service. The Company excludes the amortization of deferred compensation expense because it does not reflect the Company's ongoing business and it does not have a direct correlation to the operation of the Company's business.

(c) Integration expenses: Integration expenses consist of expenses related to the integration effort between the Company and Convedia. The Company excludes integration expenses because it does not reflect the Company's ongoing business and it does not have a direct correlation to the operation of the Company's business.

(d) Purchase accounting adjustments: Purchase accounting adjustments consist of adjustments for fair value accounting treatment of Convedia assets. These adjustments relate to the write-down of deferred revenue to the cost to complete the revenue earnings process. The Company excludes the purchase accounting adjustments because it does not reflect the Company's ongoing business and it does not have a direct correlation to the operation of the Company's business.

(e) Stock-based compensation: Stock-based compensation consists of expenses recorded under SFAS 123(R), "Share-Based Payment," in connection with stock awards such as stock options, restricted stock awards and restricted stock units granted under the Company's equity incentive plans and shares issued pursuant to the Company's employee stock purchase plan. The Company excludes stock-based compensation from non-GAAP financial measures because it is a non-cash measurement that does not reflect the Company's ongoing business and because the Company believes that investors want to understand the impact on the Company of the adoption of SFAS 123(R); the Company believes that the provision of non-GAAP information that excludes stock-based compensation improves the ability of investors to compare its period-over-period operating results, as there is significant variability and unpredictability across companies with respect to this expense.

(f) Restructuring and other charges (reversals): Restructuring and other charges primarily relate to activities engaged in by the Company’s management to simplify its infrastructure. Restructuring and other charges are excluded from non-GAAP financial measures because they are not considered core operating activities and the occurrence of such costs are infrequent. Although the Company has engaged in various restructuring activities over the past several years, each has been a discrete, extraordinary event based on a unique set of business objectives. The Company does not engage in restructuring activities on a regular basis or in the ordinary course of business. As such, the Company believes it is appropriate to exclude restructuring charges from its non-GAAP financial measures, as it enhances the ability of investors to compare the Company’s period-over-period operating results.

(g) Other special items: This amount arises from the sale of a building in the second quarter of 2007. The Company excludes special items, such as this, because the transaction does not reflect the Company’s ongoing business and does not have a direct correlation to the operation of the Company’s business.

(h) Goodwill impairment: The goodwill impairment charge relates to a write down of balances associated with previous acquisitions. The Company excludes the goodwill impairment charge because it is unusual in nature and does not reflect the operation of the Company's ongoing business. Additionally, its exclusion enhances the ability of investors to compare the Company’s period-over-period operating results.

(i) Income taxes: Income tax benefit associated with non-GAAP adjustments.

RECONCILIATION OF GAAP TO NON-GAAP GUIDANCE
NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE
(In millions, except per share amounts, unaudited)

	Three Months Ended
	March 31, 2009
	Low End			High End
GAAP net income (loss) (assumes tax rate of 25%)		($2.2	)		($0.7	)
Amortization of acquired intangible assets		2.3			2.3
Stock-based compensation		2.2			2.2
Income tax effect of reconciling items		(1.1	)		(1.0	)
Total adjustments	$	3.4		$	3.5
Non-GAAP net income (assumes tax rate of 20%)	$	1.2		$	2.8

GAAP weighted average shares (diluted) (I)		23,000			23,000
Non-GAAP adjustment		500			4,337
Non-GAAP weighted average shares (diluted) (II)		23,500			27,337

GAAP net income (loss) per share (diluted) (I)		($0.10	)		($0.03	)
Non-GAAP adjustments detailed above		0.15			0.14
Non-GAAP net income per share (diluted) (II)	$	0.05		$	0.11

(I) The effects of the 2013 convertible senior notes were excluded in the the computation of diluted earnings per share as the effect would be anti-dilutive.

(II) The high end non-GAAP diluted weighted average shares outstanding includes the effects of the shares underlying the 2013 convertible senior notes, and as a result the diluted earnings per share calculation excludes the interest expense for the converts, net of tax. Total net interest expense added back to net income amounts to $291 thousand.

RECONCILIATION OF GAAP TO NON-GAAP GUIDANCE
GROSS MARGIN PERCENTAGE OF REVENUE
(unaudited)

	Estimates at the midpoint of the guidance range for the Quarter Ended March 31, 2009

GAAP	29.1%
Stock-based compensation	0.4%
Intangible amortization	2.1%
Non-GAAP	31.6%


RECONCILIATION OF GAAP TO NON-GAAP GUIDANCE
RESEARCH AND DEVELOPMENT EXPENSE AND
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
(In millions, unaudited)

	Estimates at the midpoint of the guidance range for the Quarter Ended March 31, 2009
	R&D			SG&A
GAAP	$	11.3		$	12.0
Stock-based compensation		(0.7	)		(1.2	)
Non-GAAP	$	10.6		$	10.8

RadiSys Corporation
Brian Bronson, 1-503-615-1281
Chief Financial Officer
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or
Holly Stephens, 1-503-615-1321
Finance and Investor Relations Manager
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RadiSys® Corporation ( RSYS )

RadiSys Announces Fourth Quarter and Annual 2008 Results