QLogic Reports Second Quarter Results for Fiscal Year 2012

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

October 2,
2011

   

September 26,
2010

 

October 2,
2011

   

September 26,
2010

Non-GAAP Adjustments:
Cost of revenues:
Stock-based compensation $ 635 $ 629 $ 1,443 $ 1,363
Amortization of acquisition-related intangible assets  

1,156

 

1,155

   

2,312

   

2,311

 
Total cost of revenue adjustments   1,791   1,784     3,755     3,674  
 
Operating expenses:
Engineering and development:
Stock-based compensation 3,592 3,971 8,223 8,978
Sales and marketing:
Stock-based compensation 1,844 1,929 3,701 4,042
General and administrative:
Stock-based compensation 1,949 1,740 4,320 4,209
Special charges             931  
Total operating expense adjustments   7,385   7,640     16,244     18,160  
 
Interest and other income:
Gains recognized on previously impaired investment securities

 

 

   

(312

)

 
Total non-GAAP adjustments before income taxes

9,176

9,424

19,999

21,522

Income tax effect   (2,755 ) (2,800 )   (5,666 )   (5,665 )
Total non-GAAP adjustments $ 6,421   $ 6,624   $ 14,333   $

15,857

 
 

QLOGIC CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited — in thousands)

 
October 2, 2011 April 3, 2011
ASSETS
Current assets:
Cash and cash equivalents $ 74,654 $ 147,780
Marketable securities 316,267 236,296
Accounts receivable, net 86,522 70,134
Inventories 23,508 26,931
Deferred tax assets 18,202 17,754
Other current assets   17,518     20,753  
Total current assets 536,671 519,648
 
Property and equipment, net 81,928 77,134
Goodwill 119,748 119,748
Purchased intangible assets, net 11,315 12,694
Deferred tax assets 24,368 25,333
Other assets   2,454     2,650  
 
$ 776,484   $ 757,207  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 38,549 $ 34,816
Accrued compensation 22,222 25,858
Accrued taxes 3,686 6,012
Deferred revenue 10,115 10,431
Other current liabilities   7,838     5,221  
Total current liabilities 82,410 82,338
 
Accrued taxes 61,175 62,565
Deferred revenue 4,032 5,169
Other liabilities   6,163     5,971  
Total liabilities   153,780     156,043  
 
Stockholders’ equity:
Common stock 209 208
Additional paid-in capital 867,183 844,546
Retained earnings 1,448,845 1,387,765
Accumulated other comprehensive income 81 614
Treasury stock   (1,693,614 )   (1,631,969 )
Total stockholders’ equity   622,704     601,164  
 
$ 776,484   $ 757,207  
 

QLOGIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited — in thousands)

 
Six Months Ended

 

October 2,
2011

 

September 26,
2010

 
Cash flows from operating activities:
Net income $ 61,080 $ 55,435
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 14,047 15,342
Stock-based compensation 17,687 18,592
Amortization of acquisition-related intangible assets 2,312 2,311
Deferred income taxes 509 5,147
Net gains on investment securities (817 ) (1,728 )
Other non-cash items 2,341 92
Changes in operating assets and liabilities:
Accounts receivable (16,625 ) (13,155 )
Inventories 3,423 (5,544 )
Other assets (652 ) 543
Accounts payable 2,137 (6,376 )
Accrued compensation (3,636 ) (718 )
Accrued taxes 156 (8,692 )
Deferred revenue (1,453 ) (733 )
Other liabilities   1,310     (3,234 )
Net cash provided by operating activities   81,819     57,282  
 
Cash flows from investing activities:
Purchases of available-for-sale securities (242,274 ) (47,920 )
Proceeds from sales and maturities of available-for-sale securities 160,542 107,165
Proceeds from disposition of trading securities 23,800
Distributions from other investment securities 329
Purchases of property and equipment   (18,202 )   (9,692 )
Net cash provided by (used in) investing activities   (99,934 )   73,682  
 
Cash flows from financing activities:
Proceeds from issuance of common stock under stock-based awards

9,959

7,757

Excess tax benefits from stock-based awards 539 1,059
Minimum tax withholding paid on behalf of employees for restricted stock units

(5,363

)

(5,937

)

Purchases of treasury stock   (60,146 )   (124,000 )
Net cash used in financing activities   (55,011 )   (121,121 )
 
Net increase (decrease) in cash and cash equivalents (73,126 ) 9,843
 
Cash and cash equivalents at beginning of period   147,780     190,308  
 
Cash and cash equivalents at end of period $ 74,654   $ 200,151  
 

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
October 2,

2011

  September 26,

2010

October 2,

2011

  September 26,

2010

 
Host Products $ 105,614 $ 104,177 $ 215,391 $ 206,649
Network Products 27,780 27,226 49,658 52,864
Silicon Products 13,857 12,431 30,686 24,299
Service and other   2,929   2,695   6,067   5,326
$ 150,180 $ 146,529 $ 301,802 $ 289,138

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