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 28, 2015										June 29, 2014
Non-GAAP Adjustments:
Cost of revenues:
Stock-based compensation				$	250									$	355
Amortization of acquisition-related intangible assets					3,467										4,448
Amortization of license fee					617										699
Acquisition-related charges					—										771
Total cost of revenue adjustments					4,334										6,273
Operating expenses:
Engineering and development:
Stock-based compensation					3,274										2,971
Sales and marketing:
Stock-based compensation					1,201										1,010
Amortization of acquisition-related intangible assets					169										—
General and administrative:
Stock-based compensation					1,262										1,204
Special charges					1,079										2,544
Total operating expense adjustments					6,985										7,729
Total non-GAAP adjustments before income taxes					11,319										14,002
Income tax adjustments					2,642										(1,516	)
Total non-GAAP adjustments				$	13,961									$	12,486

QLOGIC CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited — in thousands)
				June 28, 2015											March 29, 2015
ASSETS
Current assets:
Cash and cash equivalents				$	92,199										$	115,241
Marketable securities					216,676											201,174
Total cash and marketable securities					308,875											316,415
Accounts receivable, net					84,951											87,436
Inventories					38,649											29,978
Deferred tax assets					12,146											12,545
Other current assets					23,020											21,802
Total current assets					467,641											468,176
Property and equipment, net					79,013											78,501
Goodwill					167,232											167,232
Purchased intangible assets, net					73,974											77,659
Deferred tax assets					33,412											36,335
Other assets					20,757											20,752
				$	842,029										$	848,655
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable				$	39,263										$	40,497
Accrued compensation					17,563											22,476
Accrued taxes					1,753											2,711
Other current liabilities					11,629											11,718
Total current liabilities					70,208											77,402
Accrued taxes					14,753											14,516
Other liabilities					7,792											9,721
Total liabilities					92,753											101,639
Stockholders’ equity:
Common stock					217											215
Additional paid-in capital					1,000,999											983,579
Retained earnings					1,725,220											1,722,664
Accumulated other comprehensive loss					(412	)										(99	)
Treasury stock					(1,976,748	)										(1,959,343	)
Total stockholders’ equity					749,276											747,016
				$	842,029										$	848,655

QLOGIC CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited — in thousands)
				Three Months Ended
				June 28, 2015											June 29, 2014
Cash flows from operating activities:
Net income				$	2,556										$	6,000
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization					10,616											12,180
Stock-based compensation					5,987											5,540
Deferred income taxes					3,400											4,076
Asset impairments					—											1,011
Other non-cash items					539											581
Changes in operating assets and liabilities:
Accounts receivable					2,517											(18,880	)
Inventories					(8,671	)										(7,679	)
Other assets					(134	)										77
Accounts payable					2,218											416
Accrued compensation					(4,913	)										(7,235	)
Accrued taxes, net					(3,081	)										(5,418	)
Other liabilities					(1,567	)										(7,291	)
Net cash provided by (used in) operating activities					9,467											(16,622	)
Cash flows from investing activities:
Purchases of available-for-sale securities					(50,639	)										(51,759	)
Proceeds from sales and maturities of available-for-sale securities					34,209											48,932
Purchases of property and equipment					(10,782	)										(8,989	)
Net cash used in investing activities					(27,212	)										(11,816	)
Cash flows from financing activities:
Proceeds from issuance of common stock under stock-based awards					16,497											1,440
Minimum tax withholding paid on behalf of employees for restricted stock units					(5,062	)										(3,298	)
Purchases of treasury stock					(17,856	)										—
Other financing activities					1,124											(80	)
Net cash used in financing activities					(5,297	)										(1,938	)
Net decrease in cash and cash equivalents					(23,042	)										(30,376	)
Cash and cash equivalents at beginning of period					115,241											91,258
Cash and cash equivalents at end of period				$	92,199										$	60,882

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 28, 2015										June 29, 2014
Advanced Connectivity Platforms				$	102,556									$	104,701
Legacy Connectivity Products					10,849										14,748
				$	113,405									$	119,449

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