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 income from continuing operations and non-GAAP income from continuing operations per diluted share, on a basis consistent with its historical presentation, to assist investors in understanding the company’s core income from continuing operations and core income from continuing operations 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 profitability with historical periods and comparisons of the company’s core profitability with the corresponding results for competitors. Management believes that non-GAAP income from continuing operations and non-GAAP income from continuing operations 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 profitability and related profitability on a per diluted share basis.

Management uses non-GAAP income from continuing operations and non-GAAP income from continuing operations 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														Nine Months Ended
				December 29, 2013						December 30, 2012								December 29, 2013						December 30, 2012
Non-GAAP Adjustments:
Cost of revenues:
Stock-based compensation				$	259					$	529							$	1,082					$	1,839
Amortization of acquisition-related intangible assets					243						243								730						730
Total cost of revenue adjustments					502						772								1,812						2,569
Operating expenses:
Engineering and development:
Stock-based compensation					2,462						3,030								9,070						10,444
Sales and marketing:
Stock-based compensation					1,251						1,619								4,274						5,217
General and administrative:
Stock-based compensation					1,086						1,795								3,621						5,795
Special charges					1,947						—								18,329						—
Total operating expense adjustments					6,746						6,444								35,294						21,456
Total non-GAAP adjustments before income taxes					7,248						7,216								37,106						24,025
Income tax effect					(2,237	)					(2,576	)							(3,564	)					(7,444	)
Total non-GAAP adjustments				$	5,011					$	4,640							$	33,542					$	16,581

QLOGIC CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited — in thousands)
				December 29, 2013											March 31, 2013
ASSETS
Current assets:
Cash and cash equivalents				$ 108,998											$ 95,532
Marketable securities				353,433											359,974
Total cash and marketable securities				462,431											455,506
Accounts receivable, net				71,153											66,135
Inventories				14,044											20,160
Deferred tax assets				14,978											13,036
Other current assets				20,513											24,381
Total current assets				583,119											579,218
Property and equipment, net				87,609											96,336
Goodwill				110,976											110,976
Purchased intangible assets, net				3,386											4,054
Deferred tax assets				34,652											31,992
Other assets				2,376											2,587
				$ 822,118											$ 825,163
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable				$ 23,837											$ 29,668
Accrued compensation				24,734											27,453
Accrued taxes				1,913											4,559
Deferred revenue				4,060											4,676
Other current liabilities				8,192											7,651
Total current liabilities				62,736											74,007
Accrued taxes				17,804											10,772
Other liabilities				7,824											6,107
Total liabilities				88,364											90,886
Stockholders’ equity:
Common stock				214											212
Additional paid-in capital				951,743											932,557
Retained earnings				1,718,850											1,690,337
Accumulated other comprehensive income				249											1,887
Treasury stock				(1,937,302 )											(1,890,716 )
Total stockholders’ equity				733,754											734,277
				$ 822,118											$ 825,163

QLOGIC CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited — in thousands)
				Nine Months Ended
				December 29, 2013											December 30, 2012
Cash flows from operating activities:
Net income				$ 28,513											$ 43,501
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization				23,620											21,071
Stock-based compensation				18,047											23,295
Deferred income taxes				(5,355)											(3,810)
Other non-cash items				5,706											3,138
Changes in operating assets and liabilities:
Accounts receivable				(5,088)											7,179
Inventories				6,116											(3,311)
Other assets				537											113
Accounts payable				(1,919)											(2,499)
Accrued compensation				(2,719)											(2,385)
Accrued taxes, net				7,734											14,367
Other liabilities				2,841											870
Net cash provided by operating activities				78,033											101,529
Cash flows from investing activities:
Purchases of available-for-sale securities				(259,008)											(228,202)
Proceeds from sales and maturities of available-for-sale securities				261,253											204,325
Purchases of property and equipment				(21,043 )											(31,728 )
Net cash used in investing activities				(18,798 )											(55,605 )
Cash flows from financing activities:
Proceeds from issuance of common stock under stock-based awards				6,756											6,571
Excess tax benefits from stock-based awards				46											129
Minimum tax withholding paid on behalf of employees for restricted stock units				(4,584)											(5,555)
Purchases of treasury stock				(47,785)											(111,729)
Payments for credit facility commitment fee				(202 )											—
Net cash used in financing activities				(45,769 )											(110,584 )
Net increase (decrease) in cash and cash equivalents				13,466											(64,660)
Cash and cash equivalents at beginning of period				95,532											164,516
Cash and cash equivalents at end of period				$ 108,998											$ 99,856

QLOGIC CORPORATION