Operating expenses excluding special items were $223 million, flat with Q1. Salary expense increased due to the 14 th week, but was offset by lower acquisition and mass expenses. Special items in Q2 operating expenses were primarily restructuring charges and intangible asset amortization from acquisitions.

Q2 GAAP operating income excluding special items was $135 million or 23% of revenue. The Q2 GAAP tax rate excluding special items was 26% compared to 23% in the prior quarter, which benefited from certain discrete items. GAAP earnings per share excluding special items was $0.34 down from $0.46 in Q1 due to lower revenue and gross margin.

Turning to the balance sheet and cash flow, during the quarter cash flow from operations was $249 million or 42% of revenue. Inventory declined to 91 days from 100 days in the prior quarter. Inventory in the channel excluding catalog distributors declined significantly to 56 days from 67 days in the prior quarter. In dollar terms, channel inventory declined by 16%.

Net capital expenditures totaled $77 million in Q2 as we invested in long-term manufacturing capacity and new facilities. As a result, free cash flow was $183 million or 31% of revenue.

Share repurchases totaled $72 million in Q2 as we bought back2.9 million shares. Finally, in Q2, we paid $64 million in dividends to our shareholders. Overall, total cash, cash equivalents and short-term investments increased by $56 million in the second quarter to $817 million.

Moving onto guidance. Our beginning Q3 backlog is $365 million. Based on this beginning backlog and expected turns, we forecast Q3 revenue of $555 million to $585 million or down 1% to 6% from Q2. This is consistent with our current mix of businesses. Q3 gross margin excluding special items is estimated at 57% to 60%, down from our normal range due to lower projected revenue and associated lower utilization. Other variables that may influence Q3 gross margin include product mix and inventory reserves.

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