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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