QLogic Reports First Quarter Results for Fiscal Year 2015

Non-GAAP Financial Measures

The non-GAAP financial measures contained herein are a supplement to the corresponding financial measures prepared in accordance with generally accepted accounting principles (GAAP). The non-GAAP financial measures presented exclude the items summarized in the above table. Management believes that adjustments for these items assist investors in making comparisons of period-to-period operating results and that these items are not indicative of the company’s on-going core operating performance.

The company has presented non-GAAP net income and non-GAAP net income per diluted share, on a basis consistent with its historical presentation, to assist investors in understanding the company’s core net income and core net income per diluted share on an on-going basis. These non-GAAP financial measures may also assist investors in making comparisons of the company’s core net profitability with historical periods and comparisons of the company’s core net profitability with the corresponding results for competitors. Management believes that non-GAAP net income and non-GAAP net income per diluted share are important measures in the evaluation of the company’s profitability. These non-GAAP financial measures exclude the adjustments described in the above table, and thus provide an overall measure of the company’s on-going net profitability and related profitability on a per diluted share basis.

Management uses non-GAAP net income and non-GAAP net income per diluted share in its evaluation of the company’s core after-tax results of operations and trends between fiscal periods and believes that these measures are important components of its internal performance measurement process. In addition, the company prepares and maintains its budgets and forecasts for future periods on a basis consistent with these non-GAAP financial measures. Management believes that providing these non-GAAP financial measures allows investors to view the company’s financial results in the way that management views the financial results.

The non-GAAP financial measures presented herein have certain limitations in that they do not reflect all of the costs associated with the operations of the company’s business as determined in accordance with GAAP. Therefore, investors should consider non-GAAP financial measures in addition to, and not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. The non-GAAP financial measures presented by the company may be different from the non-GAAP financial measures used by other companies.

For additional information on the items excluded from the non-GAAP financial measures and why the company believes that these non-GAAP financial measures provide useful supplemental information to investors, the company refers you to the Form 8-K regarding this release filed today with the Securities and Exchange Commission.

A summary of the non-GAAP adjustments presented in the table above by the financial statement line impacted is as follows:


(unaudited – in thousands)	Three Months Ended
	June 29, 2014			June 30, 2013
Non-GAAP Adjustments:
Cost of revenues:
Stock-based compensation	$	355		$	584
Amortization of acquisition-related intangible assets		4,448			243
Acquisition-related charges		771			—
Amortization of license fee		699			—
Total cost of revenue adjustments		6,273			827

Operating expenses:
Engineering and development:
Stock-based compensation		2,971			4,351
Sales and marketing:
Stock-based compensation		1,010			1,793
General and administrative:
Stock-based compensation		1,204			1,443
Special charges		2,544			12,033
Total operating expense adjustments		7,729			19,620

Total non-GAAP adjustments before income taxes		14,002			20,447

Income tax effect		(1,516	)		(981	)

Total non-GAAP adjustments	$	12,486		$	19,466


QLOGIC CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited — in thousands)

	June 29, 2014			March 30, 2014
ASSETS
Current assets:
Cash and cash equivalents	$	60,882		$	91,258
Marketable securities		189,532			186,783
Total cash and marketable securities		250,414			278,041
Accounts receivable, net		84,103			65,213
Inventories		25,715			18,036
Deferred tax assets		14,681			15,080
Other current assets		19,870			16,590
Total current assets		394,783			392,960

Property and equipment, net		86,304			84,912
Goodwill		193,294			194,107
Purchased intangible assets, net		65,400			69,903
Deferred tax assets		29,091			32,827
Other assets		22,796			23,554

	$	791,668		$	798,263

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	31,261		$	30,657
Accrued compensation		19,721			26,956
Accrued taxes		1,530			981
Deferred revenue		4,040			3,954
Other current liabilities		8,502			16,123
Total current liabilities		65,054			78,671

Accrued taxes		13,871			17,095
Other liabilities		9,315			9,071
Total liabilities		88,240			104,837

Stockholders’ equity:
Common stock		214			214
Additional paid-in capital		961,690			958,008
Retained earnings		1,678,071			1,672,071
Accumulated other comprehensive income		755			435
Treasury stock		(1,937,302	)		(1,937,302	)
Total stockholders’ equity		703,428			693,426

	$	791,668		$	798,263


QLOGIC CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited — in thousands)

	Three Months Ended
	June 29, 2014			June 30, 2013
Cash flows from operating activities:
Net income (loss)	$	6,000		$	(3,050	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		12,180			7,806
Stock-based compensation		5,540			8,171
Deferred income taxes		4,076			5,403
Asset impairments		1,011			2,429
Other non-cash items		581			345
Changes in operating assets and liabilities:
Accounts receivable		(18,880	)		(3,169	)
Inventories		(7,679	)		3,052
Other assets		77			(210	)
Accounts payable		416			(289	)
Accrued compensation		(7,235	)		(5,374	)
Accrued taxes, net		(5,418	)		(5,366	)
Other liabilities		(7,291	)		6,843
Net cash provided by (used in) operating activities		(16,622	)		16,591

Cash flows from investing activities:
Purchases of available-for-sale securities		(51,759	)		(89,318	)
Proceeds from sales and maturities of available-for-sale securities		48,932			108,609
Purchases of property and equipment		(8,989	)		(10,111	)
Net cash provided by (used in) investing activities		(11,816	)		9,180

Cash flows from financing activities:
Proceeds from issuance of common stock under stock-based awards		1,440			1,963
Minimum tax withholding paid on behalf of employees for restricted stock units		(3,298	)		(4,280	)
Purchases of treasury stock		—			(24,428	)
Other financing activities		(80	)		(6	)
Net cash used in financing activities		(1,938	)		(26,751	)

Net decrease in cash and cash equivalents		(30,376	)		(980	)

Cash and cash equivalents at beginning of period		91,258			95,532

Cash and cash equivalents at end of period	$	60,882		$	94,552


QLOGIC CORPORATION SUPPLEMENTAL FINANCIAL INFORMATION (unaudited — in thousands)

Net Revenues A summary of the company’s revenue components is as follows:

	Three Months Ended
	June 29, 2014		June 30, 2013
Advanced Connectivity Platforms	$	104,701	$	93,190
Legacy Connectivity Products		14,748		19,926
	$	119,449	$	113,116

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