QLogic Reports Fourth Quarter and Fiscal Year 2011 Results

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     Year Ended
April 3,   March 28, April 3,   March 28,
  2011     2010     2011     2010  
Non-GAAP Adjustments:
Cost of revenues:
Stock-based compensation $ 601 $ 590 $ 2,563 $ 2,629
Amortization of acquisition-related intangible assets  

1,156

   

1,612

   

4,623

   

6,445

 
Total cost of revenue adjustments   1,757     2,202     7,186     9,074  
 
Operating expenses:
Engineering and development:
Stock-based compensation 3,774 4,115 16,466 18,237
Sales and marketing:
Stock-based compensation 1,714 1,688 7,580 6,918
Amortization of acquisition-related intangible assets

1,886

General and administrative:
Stock-based compensation 1,807 1,876 8,398 7,910
Special charges  

    4,315     931     5,163  
Total operating expense adjustments   7,295     11,994     33,375     40,114  
 
Interest and other income:
Gains recognized on previously impaired investment securities

(1,681

)

(312

)

(2,286

)

Net gains on trading securities  

    (426 )  

    (426 )
Total interest and other income adjustments  

   

(2,107

)

 

(312

)

 

(2,712

)

 
Total non-GAAP adjustments before income taxes  

9,052

   

12,089

   

40,249

   

46,476

 
 
Income taxes:
Income tax charges related to globalization initiative

29,676

29,676

Other income tax effects   (3,102 )   (4,501 )   (11,539 )   (13,448 )
Total income tax adjustments   (3,102 )   25,175     (11,539 )   16,228  
 
Total non-GAAP adjustments $ 5,950   $ 37,264   $ 28,710   $ 62,704  
 
QLOGIC CORPORATION
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 

(unaudited — in thousands)

 
  April 3, 2011   March 28, 2010
ASSETS
 
Current assets:
Cash and cash equivalents $ 147,780 $ 190,308
Short-term investment securities 236,296 185,365
Accounts receivable, net 70,134 73,301
Inventories 26,931 19,403
Deferred tax assets 17,754 10,976
Other current assets   20,753     9,845  
Total current assets 519,648 489,198
 
Property and equipment, net 77,134 83,496
Goodwill 119,748 119,748
Purchased intangible assets, net 12,694 17,394
Deferred tax assets 25,333 36,917
Other assets   2,650     3,984  
 
$ 757,207   $ 750,737  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
Current liabilities:
Accounts payable $ 34,816 $ 36,766
Accrued compensation 25,858 22,727
Accrued taxes 6,012 2,633
Deferred revenue 10,431 9,240
Other current liabilities   5,221     11,069  
Total current liabilities 82,338 82,435
 
Accrued taxes 62,565 70,577
Deferred revenue 5,169 7,401
Other liabilities   5,971     6,985  
Total liabilities   156,043     167,398  
 
Stockholders’ equity:
Common stock 208 205
Additional paid-in capital 844,546 778,853
Retained earnings 1,387,765 1,248,675
Accumulated other comprehensive income 614 1,206
Treasury stock   (1,631,969 )   (1,445,600 )
Total stockholders’ equity   601,164     583,339  
 
$ 757,207   $ 750,737  
 
QLOGIC CORPORATION
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 

(unaudited — in thousands)

 
  Year Ended
April 3,   March 28,
  2011     2010  
 
Cash flows from operating activities:
Net income $ 139,090 $ 54,948

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 29,777 31,803
Stock-based compensation 35,007 35,694
Amortization of acquisition-related intangible assets 4,623 8,331
Deferred income taxes 4,425 5,999
Net gains on investment securities (2,188 ) (4,982 )
Other non-cash items 3,529 1,090
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable 3,113 (4,432 )
Inventories (7,528 ) 21,920
Other assets 770 487
Accounts payable (3,192 ) 240
Accrued compensation 3,705 (6,036 )
Accrued taxes (15,522 ) 11,827
Deferred revenue (1,041 ) 612
Other liabilities   (4,011 )   4,271  
Net cash provided by operating activities   190,557     161,772  
 
Cash flows from investing activities:
Purchases of available-for-sale securities (278,878 ) (244,083 )
Proceeds from sales and maturities of available-for-sale securities 203,160 223,729
Proceeds from disposition of trading securities 23,800 11,425
Distributions from other investment securities 329 5,464
Purchases of property and equipment (23,260 ) (24,528 )
Acquisition of business, net of cash acquired       (14,931 )
Net cash used in investing activities   (74,849 )   (42,924 )
 
Cash flows from financing activities:
Proceeds from issuance of common stock under stock-based awards

36,090

34,375

Excess tax benefits from stock-based awards 1,674 591
Minimum tax withholding paid on behalf of employees for restricted stock units

(6,780

)

(2,875

)

Purchases of treasury stock (189,220 ) (163,419 )
Payoff of line of credit assumed in acquisition       (934 )
Net cash used in financing activities   (158,236 )   (132,262 )
 
Net decrease in cash and cash equivalents (42,528 ) (13,414 )
 
Cash and cash equivalents at beginning of year   190,308     203,722  
 
Cash and cash equivalents at end of year $ 147,780   $ 190,308  
 
QLOGIC CORPORATION
 
SUPPLEMENTAL FINANCIAL INFORMATION
 

(unaudited — in thousands)

 

Net Revenues

 

A summary of the company’s revenue components is as follows:

 
  Three Months Ended     Year Ended
April 3,   March 28, April 3,   March 28,
2011 2010 2011 2010
 
Host Products $ 109,138 $ 103,718 $ 429,279 $ 396,519
Network Products 24,273 22,569 106,060 99,449
Silicon Products 16,060 16,715 50,987 42,368
Service and other   2,819   2,714   10,873   10,734
$ 152,290 $ 145,716 $ 597,199 $ 549,070
 

Geographic Revenues

 

Revenues by geographic area are presented based upon the country of destination. Net revenues by geographic area are as follows:

 
Three Months Ended Year Ended
April 3, March 28, April 3, March 28,
2011 2010 2011 2010
 
United States $ 66,111 $ 64,435 $ 264,345 $ 250,333
Asia-Pacific and Japan 44,973 38,423 165,779 138,775
Europe, Middle East and Africa 34,099 35,264 133,698 126,966
Rest of world   7,107   7,594   33,377   32,996
$ 152,290 $ 145,716 $ 597,199 $ 549,070

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