QLogic Exceeds Revenue and EPS Guidance for Q2 FY2015

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						Six Months Ended
	September 28,			September 29,			September 28,			September 29,
	2014			2013			2014			2013
Non-GAAP Adjustments:
Cost of revenues:
Stock-based compensation	$	258		$	239		$	613		$	823
Amortization of acquisition-related intangible assets		4,119			244			8,567			487
Amortization of license fee		695			—			1,394			—
Acquisition-related charges		263			—			1,034			—
Total cost of revenue adjustments		5,335			483			11,608			1,310

Operating expenses:
Engineering and development:
Stock-based compensation		2,309			2,257			5,280			6,608
Sales and marketing:
Stock-based compensation		1,073			1,230			2,083			3,023
General and administrative:
Stock-based compensation		1,095			1,092			2,299			2,535
Special charges		2,259			4,349			4,803			16,382
Total operating expense adjustments		6,736			8,928			14,465			28,548

Total non-GAAP adjustments before income taxes		12,071			9,411			26,073			29,858

Income tax effects		(1,066	)		(346	)		(2,582	)		(1,327	)

Total non-GAAP adjustments	$	11,005		$	9,065		$	23,491		$	28,531


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

	September 28,			March 30,
	2014			2014
ASSETS
Current assets:
Cash and cash equivalents	$	86,930		$	91,258
Marketable securities		189,839			186,783
Total cash and marketable securities		276,769			278,041
Accounts receivable, net		85,469			65,213
Inventories		30,142			18,036
Deferred tax assets		13,997			15,080
Other current assets		18,841			16,590
Total current assets		425,218			392,960

Property and equipment, net		82,972			84,912
Goodwill		192,492			194,107
Purchased intangible assets, net		61,231			69,903
Deferred tax assets		29,818			32,827
Other assets		21,847			23,554

	$	813,578		$	798,263

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	37,178		$	30,657
Accrued compensation		19,700			26,956
Accrued taxes		2,312			981
Deferred revenue		3,695			3,954
Other current liabilities		8,824			16,123
Total current liabilities		71,709			78,671

Accrued taxes		12,605			17,095
Other liabilities		8,699			9,071
Total liabilities		93,013			104,837

Stockholders’ equity:
Common stock		215			214
Additional paid-in capital		968,368			958,008
Retained earnings		1,689,081			1,672,071
Accumulated other comprehensive income		203			435
Treasury stock		(1,937,302	)		(1,937,302	)
Total stockholders’ equity		720,565			693,426

	$	813,578		$	798,263


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

	Six Months Ended
	September 28,			September 29,
	2014			2013

Cash flows from operating activities:
Net income	$	17,010		$	7,927
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		23,855			15,730
Stock-based compensation		10,275			12,989
Deferred income taxes		4,077			3,632
Asset impairments		1,011			2,429
Other non-cash items		810			1,698
Changes in operating assets and liabilities:
Accounts receivable		(20,287	)		(1,818	)
Inventories		(12,106	)		2,797
Other assets		(840	)		180
Accounts payable		6,162			(102	)
Accrued compensation		(7,256	)		(7,141	)
Accrued taxes, net		(3,012	)		(905	)
Other liabilities		(7,930	)		3,249
Net cash provided by operating activities		11,769			40,665

Cash flows from investing activities:
Purchases of available-for-sale securities		(84,318	)		(162,673	)
Proceeds from sales and maturities of available-for-sale securities		80,376			172,629
Purchases of property and equipment		(12,068	)		(15,389	)
Net cash used in investing activities		(16,010	)		(5,433	)

Cash flows from financing activities:
Proceeds from issuance of common stock under stock-based awards		3,536			4,565
Minimum tax withholding paid on behalf of employees for restricted stock units		(3,450	)		(4,514	)
Purchases of treasury stock		—			(44,212	)
Other financing activities		(173	)		(96	)
Net cash used in financing activities		(87	)		(44,257	)

Net decrease in cash and cash equivalents		(4,328	)		(9,025	)

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

Cash and cash equivalents at end of period	$	86,930		$	86,507


QLOGIC CORPORATION
SUPPLEMENTAL FINANCIAL INFORMATION
(unaudited — in thousands)

Net Revenues

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

	Three Months Ended				Six Months Ended
	September 28,		September 29,		September 28,		September 29,
	2014		2013		2014		2013
Advanced Connectivity Platforms	$	114,877	$	94,011	$	219,578	$	187,201
Legacy Connectivity Products		12,626		18,611		27,374		38,537
	$	127,503	$	112,622	$	246,952	$	225,738

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