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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