-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PjpFtENr135Et51OOTFn8AI1TMlM4mc0Qz11p5PZT217QJkU7VoVjxB64UpvFmlm tF07QDL1KNSOvRrx30MT3Q== 0000892569-96-002305.txt : 19961113 0000892569-96-002305.hdr.sgml : 19961113 ACCESSION NUMBER: 0000892569-96-002305 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960929 FILED AS OF DATE: 19961112 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: Q LOGIC CORP CENTRAL INDEX KEY: 0000918386 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 330537669 STATE OF INCORPORATION: DE FISCAL YEAR END: 0403 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23298 FILM NUMBER: 96659057 BUSINESS ADDRESS: STREET 1: 3545 HARBOR BLVD CITY: COSTA MESA STATE: CA ZIP: 92626 BUSINESS PHONE: 7144382200 10-Q 1 QUARTERLY REPORT FOR THE PERIOD ENDED 9/29/96 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q ----------------------- (Mark One) (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 29, 1996 OR ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to ------- ------- COMMISSION FILE NO. 0-23298 QLOGIC CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 33-0537669 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 3545 HARBOR BOULEVARD COSTA MESA, CALIFORNIA 92626 (Address of principal executive offices) (Zip Code) (714) 438-2200 (Registrant's telephone number, including area code) ----------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of October 27, 1996, the registrant had 5,694,304 shares of common stock outstanding. 2 QLOGIC CORPORATION INDEX
PART I. FINANCIAL INFORMATION PAGE - -------------------------------------------------------------------------------- Item 1. Financial Statements Condensed Consolidated Balance Sheets September 29, 1996 and March 31, 1996 .......................... 3 Condensed Consolidated Statements of Operations Three and six months ended September 29, 1996 and October 1, 1995 ............................................ 4 Condensed Consolidated Statements of Cash Flows Six months ended September 29, 1996 and October 1, 1995 ................................................ 5 Notes to Condensed Consolidated Financial Statements ............. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .............. 7
PART II. OTHER INFORMATION PAGE - -------------------------------------------------------------------------------- Item 6 (b) Exhibits and Reports on Form 8-K ...................................... 10
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS QLOGIC CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data) (unaudited) ASSETS
SEPTEMBER 29, MARCH 31, 1996 1996 ---- ---- Cash $ 9,594 $ 8,414 Accounts and notes receivable, net 8,317 7,033 Inventories 6,219 6,670 Deferred income taxes 794 648 Prepaid expenses and other current assets 320 239 ------- -------- Total current assets 25,244 23,004 Property and equipment, net 4,533 5,520 Other assets 639 15 ------- -------- $30,416 $ 28,539 ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
SEPTEMBER 29, MARCH 31, 1996 1996 ---- ---- Accounts payable $ 4,527 $ 6,177 Accrued expenses 5,095 3,218 Current installments of capitalized lease obligations 240 275 ------- -------- Total current liabilities 9,862 9,670 Capitalized lease obligations, excluding current installments 461 576 Other non-current liabilities 924 2,016 Stockholders' equity: Preferred stock, $.10 par value; 800,000 shares authorized, none issued and Series A, $0.001 par value; 200,000 shares authorized, none issued - - Common stock $.10 par value; 12,500,000 shares authorized; 5,654,367 and 5,557,598 shares issued and outstanding at September 29, 1996 and March 31, 1996, respectively 565 556 Additional paid-in capital 17,539 16,801 Retained earnings (accumulated deficit) 1,065 (1,080) ------- -------- Total stockholders' equity 19,169 16,277 ------- -------- $30,416 $ 28,539 ======= ========
See accompanying notes to condensed consolidated financial statements. 3 4 QLOGIC CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share data) (unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED ------------------ ---------------- SEPT. 29, OCTOBER 1, SEPT. 29, OCTOBER 1, 1996 1995 1996 1995 ---- ---- ---- ---- Net revenues $ 16,725 $ 13,105 $ 32,465 $ 22,675 Cost of sales 9,622 8,476 19,207 14,471 ---------- ----------- ---------- ----------- Gross profit 7,103 4,629 13,258 8,204 Operating expenses: Engineering and development 2,536 1,672 4,625 3,325 Selling and marketing 1,466 1,642 2,823 3,631 General and administrative 1,229 940 2,346 2,035 ---------- ----------- ---------- ----------- Total operating expenses 5,231 4,254 9,794 8,991 ---------- ----------- ---------- ----------- Operating income (loss) 1,872 375 3,464 (787) Interest income (expense) 92 (15) 151 (33) ---------- ----------- ---------- ----------- Income (loss) before income taxes 1,964 360 3,615 (820) Income tax provision (benefit) 786 146 1,470 (310) ---------- ----------- ---------- ----------- Net income (loss) $ 1,178 $ 214 $ 2,145 $ (510) ========== =========== ========== =========== Net income (loss) per common and equivalent share $ 0.20 $ 0.04 $ 0.36 $ (0.09) ========== =========== ========== =========== Weighted average common and common equivalent shares 6,027,500 5,604,823 6,029,306 5,552,458 ========== =========== ========== ===========
See accompanying notes to condensed consolidated financial statements. 4 5 QLOGIC CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
SIX MONTHS ENDED ---------------- SEPTEMBER 29, OCTOBER 1, 1996 1995 ---- ---- Cash flows from operating activities: Net income (loss) $ 2,145 $ (510) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 1,266 1,159 Loss on disposal of property and equipment 1,235 - Provision (benefit) for deferred income taxes and income tax payable (146) 86 Changes in assets and liabilities: Decrease (increase) in accounts and notes receivables (1,284) 3,781 Increase in inventories 451 (1,324) Increase in prepaid expenses and other current assets (81) (148) Decrease in other assets (630) 209 Increase (decrease) in accounts payable (1,650) 258 Increase in accrued expenses 1,877 14 Decrease in other non-current liabilities (1,092) - ------- ------- Net cash provided by operating activities 2,091 3,525 ------- ------- Cash flows used in investing activities: Additions to property and equipment (1,508) (652) ------- ------- Net cash used in investing activities (1,508) (652) ------- ------- Cash flows from financing activities: Principal payments under capital leases (150) (141) Proceeds from exercise of stock options 747 - ------- ------- Net cash provided by (used in) financing activities 597 (141) ------- ------- Net change in cash 1,180 2,732 ------- ------- Cash at beginning of period 8,414 1,149 ------- ------- Cash at end of period $ 9,594 $ 3,881 ======= ======= Cash paid during the period for: Interest $ 87 $ 53 ======= ======= Income taxes $ 1,331 $ 36 ======= =======
See accompanying notes to condensed consolidated financial statements. 5 6 QLOGIC CORPORATION AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) NOTE (1) BASIS OF PRESENTATION In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments (which are normal recurring accruals) necessary to present fairly the financial position as of September 29, 1996 and March 31, 1996, the results of operations for the three and six months ended September 29, 1996 and October 1, 1995 and the statements of cash flows for the six months ended September 29, 1996 and October 1, 1995. NOTE (2) INVENTORIES Components of inventories are as follows:
SEPTEMBER 29, MARCH 31, 1996 1996 ---- ---- Raw materials $1,439 $2,122 Work in progress 472 1,455 Finished goods 4,308 3,093 ------ ------ $6,219 $6,670 ====== ======
NOTE (3) NET INCOME (LOSS) PER SHARE Net income (loss) per common and equivalent share was computed based on the weighted average number of common and equivalent shares outstanding (if dilutive) during the periods presented (6,027,500 and 6,029,306 for the three and six months ended September 29, 1996 respectively). The Company has granted certain stock options which have been treated as common share equivalents in computing both primary and fully diluted income per share. The primary and fully diluted income (loss) per share calculations are approximately the same. Common share equivalents are not used in the six months ended October 1, 1995 computation as they would be anti-dilutive. 6 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table sets forth selected items from the QLogic Corporation Condensed Consolidated Statements of Operations and should be read in conjunction with the Selected Financial Data and Condensed Consolidated Financial Statements included elsewhere herein. References to amounts are in thousands unless otherwise specified. Prior to December 28, 1992, Emulex Corporation ("Emulex") operated the micro devices business as a division ("EMD"). On March 30, 1992, the Board of Directors of Emulex approved in principle a plan of reorganization (the "Reorganization Plan"). Pursuant to the Reorganization Plan, QLogic was formed as a separate corporation on November 18, 1992 and on December 28, 1992 exchanged 5,000,000 shares of its common stock for the net assets of EMD. On February 24, 1994, pursuant to the Reorganization Plan, Emulex declared a special dividend consisting of the distribution (the "Distribution") to its stockholders of all outstanding shares of common stock of QLogic. The purpose of the Distribution was to enable QLogic to gain independent access to equity markets so that it may use its capital stock as a source of funding for growth and acquisitions and to attract and retain key employees.
THREE MONTHS ENDED SIX MONTHS ENDED ----------------------------------------- ------------------------------------------- September 29, 1996 October 1, 1995 September 29, 1996 October 1, 1995 ------------------ --------------- ------------------ --------------- Net Revenues ...................... $ 16,725 100.0% $ 13,105 100.0% $ 32,465 100.0% $ 22,675 100.0% Cost of Sales ..................... 9,622 57.5 8,476 64.7 19,207 59.2 14,471 63.8 -------- -------- -------- -------- -------- -------- -------- -------- Gross profit ................. 7,103 42.5 4,629 35.3 13,258 40.8 8,204 36.2 Operating expenses: Engineering and development .. 2,536 15.2 1,672 12.7 4,625 14.2 3,325 14.7 Selling and marketing ........ 1,466 8.8 1,642 12.5 2,823 8.7 3,631 16.0 General and administrative ... 1,229 7.3 940 7.2 2,346 7.2 2,035 9.0 -------- -------- -------- -------- -------- -------- -------- -------- Total operating expenses ..... 5,231 31.3 4,254 32.4 9,794 30.1 8,991 39.7 -------- -------- -------- -------- -------- -------- -------- -------- Operating income (loss) ...... $ 1,872 11.2 $ 375 2.9 $ 3,464 10.7 $ (787) (3.5) ======== ======== ======== ======== ======== ======== ======== ========
NET REVENUES Net revenues for the three months ended September 29, 1996 increased $3.6 million, or 27.6 percent from the comparable three months in fiscal 1995 to $16.7 million. The increase was primarily the result of a sales increase in the TEC, Host Board, and ISP product lines and License fees. A partially offsetting decline in sales of $2.1 million occurred in the FAS product line. Net revenues for the six months ended September 29, 1996 increased $9.8 million, or 43.2 percent from the comparable six months in fiscal 1995 to $32.5 million. The increase was primarily the result of a sales increase in the TEC, Host Boards, and ISP product lines and License fees. A partially offsetting decline in sales of $1.1 million accrued in the FAS product line. COST OF SALES The cost of sales percentage for the three months ended September 29, 1996 was 57.5 percent, a decrease of 7.2 percent over the comparable period in the prior fiscal year. The percentage decrease is due to the mix of products shipped, which included a greater percentage of products containing higher levels of integration and functionality with associated higher average selling prices and profit margins. The Company continued to focus on reducing component costs as well as implementing design efficiencies. The 7 8 Company's ability to maintain current gross profit can be significantly affected by factors such as the mix of products shipped, competitive price pressures, the timeliness of volume shipments of new products and the Company's ability to achieve manufacturing cost reductions. The cost of sales percentage for the six months ended September 29, 1996 was 59.2 percent, a decrease of 4.6 percent over the comparable period in the prior fiscal year. The percentage decrease is due to the mix of products shipped, which included a greater percentage of products containing higher levels of integration and functionality with associated higher average selling prices and profit margins. The Company continued to focus on reducing component costs as well as implementing design efficiencies. The Company's ability to maintain current gross profit can be significantly affected by factors such as the mix of products shipped, competitive price pressures, the timeliness of volume shipments of new products and the Company's ability to achieve manufacturing cost reductions. OPERATING EXPENSES Operating expenses for the three months ended September 29, 1996 increased $1.0 million, or 23.0 percent, from the comparable period in the prior fiscal year. The increase in operating expenses was due to engineering and development expenditures increasing by $0.9 million, which is attributable to salary and chip mask related expenses within engineering. Selling and marketing expenses decreased by $0.2 million related to reduced advertising, travel and entertainment expenses. General and administrative expenses increased $0.3 million from expenses related to implementing a new computer system and salaries expense. Operating expenses for the six months ended September 29, 1996 increased $0.8 million or 9.0 percent from the comparable period in the prior fiscal year. The increase in operating expenses was due to engineering and development expenditures increasing by $1.3 million due to salary and chip mask related expenses within engineering. General and administrative expenses increased $0.3 million from expenses related to implementing a new computer system and salaries. Selling and marketing expenses decreased by $0.8 million related to reduced advertising, travel and entertainment expenses. OPERATING INCOME Operating income for the three months ended September 29, 1996 increased $1.5 million compared with the three month period ended October 1, 1995. This increase was associated with gross profit increasing by $2.5 million from the comparable period in the prior fiscal year. An offsetting factor to the gross profit increase was an operating expense increase of $1.0 million from the comparable quarter in the prior fiscal year. Operating income for the six months ended September 29, 1996 increased $4.3 million from the six month period ended October 1, 1995. The operating income was associated with gross profit increasing by $5.1 million from the comparable period in the prior fiscal year. An offsetting factor to the gross profit increase was an operating expense increase of $0.8 million from the comparable period in the prior fiscal year. LIQUIDITY AND CAPITAL RESOURCES Working capital at September 29, 1996 increased by $2.0 million from March 31, 1996. QLogic has a line of credit of up to $7.5 million with Silicon Valley Bank. There were no borrowings under the line of credit during the quarter ended September 29, 1996. The line of credit with Silicon Valley Bank expires July 5, 1997. QLogic anticipates capital expenditures in fiscal 1997 will be approximately $3.5 million. QLogic also has long-term lease commitments of approximately $0.5 million which are due over the next five years. QLogic believes that existing cash balances, facilities and equipment leases, cash flow from operating activities and its available line of credit should be sufficient to satisfy its anticipated long-term operating and capital expenditure requirements. In order to increase working capital to take advantage of business opportunities, the Company may seek additional equity and/or debt financing within the next twelve months. Prior to the Distribution, QLogic and Emulex entered into a Tax Sharing Agreement (the "Tax Sharing Agreement") for purposes of allocating pre-Distribution tax liabilities between QLogic and Emulex and to implement the Distribution as a tax-free distribution. The total amount due Emulex pursuant to the Tax Sharing Agreement at September 29, 1996 is $0.5 million which is included in other non-current liabilities. Amounts due Emulex under the Tax Sharing Agreement are payable on December 30, 1999, and bear 8 9 interest, commencing January 1, 1996, at the rate applicable to underpayments of Federal Income Taxes, which was 9 percent at September 29, 1996. Interest due Emulex is payable quarterly beginning April 1996. BUSINESS ENVIRONMENT AND CERTAIN FACTORS BEARING ON FUTURE RESULTS Except for the historical information contained herein, the discussion in this Form 10-Q contains certain forward-looking statements. When used in this Form 10-Q the words "forecast," "projected," "believes," "expects," and similar expressions are intended to identify forward looking statements. In addition, the Company may from time to time make oral forward-looking statements. The Company wishes to caution readers that a number of important factors could cause results to differ materially from those in the forward-looking statements. Factors that could cause or contribute to such differences include those discussed below, as well as those discussed elsewhere herein. Both the semiconductor and the computer peripherals industries are highly competitive and are characterized by rapidly changing technology and evolving industry standards. All of the Company's products compete with products available from numerous companies, many of which have substantially greater research and development, marketing and financial resources, manufacturing capability, customer support organizations and brand recognition than those of the Company. There can be no assurance that the Company's SCSI products will be able to compete successfully with other SCSI products offered presently or in the future by other SCSI vendors. Although the Company believes that it provides an adequate allowance for sales returns, there can be no assurance that future sales returns will not exceed the Company's allowance in any particular fiscal quarter, and therefore, could have a material adverse effect on operating results. The Company provides its major distributors and certain volume purchasers with price protection in the event that the Company reduces the price of its products. Although the Company believes that it has provided an adequate allowance for price protection, there can be no assurance that the impact of future price reductions by the Company will not exceed the Company's allowance in any specific fiscal period. Any price protection in excess of recorded allowances could result in a material adverse effect on operating results. A significant portion of the Company's revenue in each fiscal quarter results from orders booked in that quarter. During fiscal 1996 a significant percentage of the Company's bookings and sales to major customers on a quarterly basis occurred during the last month of the quarter and typically concentrated in the latter half of that month. Although this trend has not continued in the first six months of fiscal 1997, the trend could return. Orders placed by major customers are typically based upon the customers' forecasted sales level for Company products and inventory levels of Company products desired to be maintained by the major customers at the time of the orders. Major distribution customers sometimes receive negotiated cash rebates, market development funds, and extended payment terms from the Company for incentive purposes, in accordance with or in some cases, above and beyond standard industry practice. Changes in purchasing patterns by one or more of the Company's major customers, customer policies pertaining to desired inventory levels of Company products, negotiations of rebate and market development funds, as well as changes in the ability of the Company to anticipate in advance the mix of customer orders or to ship large quantities of products near the end of a fiscal quarter, could result in material fluctuations in quarterly operating results. These factors could also increase the inventory levels maintained by the Company and adversely affect the inventory reserves required to be maintained by the Company. The Company believes that there is a desire among certain major distribution customers and volume purchasers to reduce their on-hand inventory levels of computer products, including the Company's products. This could have a significant adverse impact on the Company's operating results during the future period or periods that such customers initiate such inventory reductions. The timing of new product announcements and introductions by the Company or significant product returns by major distribution customers to the Company could also result in material fluctuations in quarterly operating results. In addition to the factors described above that could adversely affect the Company's business and results of operations, and, therefore, the market valuation of its common stock, the Company's future results of operations may be impacted by various trends and uncertainties that are beyond the Company's control, including adverse changes in general economic conditions, government regulations and foreign currency fluctuations. Other characteristics of the Company and the computer software and hardware industry may adversely impact the Company. These include the ability of the Company to integrate any future acquired businesses by retaining key technical personnel of acquired businesses and managing and integrating the business systems of acquired companies. The inability to retain key personnel or to manage and integrate business systems could substantially reduce the expected benefits of such acquisitions. As the Company's products become more complex, the Company could experience delays in product development that are common in the computer industry. Significant delays in product development and release would adversely affect the Company's results of operations. There can be no assurance that the Company will respond effectively to technological changes or new product announcements by other 9 10 companies or that the Company's research and development efforts will be successful. Furthermore, introduction of new products, moving production of existing products to different suppliers, and customers' extended use of mature products involves substantial business risks because of the possibility of product "bugs" or performance problems, in which event the Company could experience significant product returns, warranty expenses, expedite charges, in addition to lower sales and lower profits. As a result of the foregoing factors, past performance trends by the Company may not be indicative of future operating results and should not be used by investors in predicting or anticipating future results. The market price of the Company's common stock has been, and may continue to be, volatile. Factors identified above, along with other factors that may arise in the future, quarterly fluctuations in the Company's operating results and general conditions or perceptions of securities analysts relating to technology stocks in general or to the Company specifically may have a significant impact on the market price of the Company's common stock and could cause substantial market price fluctuations over short periods. These and other factors which could cause actual results to differ materially from those in forward-looking statements are also discussed in the Company's other filings with the Securities and Exchange Commission, including its recent filings on Form 10-K and Form 10-Q. The Company cautions the reader, however, that these lists of risk factors may not be exhaustive. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27 Financial Data Schedule (b) Reports on Form 8-K The registrant has not filed any reports on Form 8-K during the quarter for which this report is filed. 10 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: November 11, 1996 QLOGIC CORPORATION BY: /s/ H.K. DESAI -------------------------------------------- (H.K. Desai) President and Chief Executive Officer BY: /s/ THOMAS R. ANDERSON -------------------------------------------- (Thomas R. Anderson) Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 11 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 6-MOS MAR-30-1997 APR-01-1996 JUN-30-1996 1 9,594 0 8,317 634 6,219 25,244 12,636 8,103 30,416 9,862 0 0 0 565 18,604 30,416 32,468 32,468 19,207 19,207 9,794 0 73 223 786 1,178 0 0 0 1,178 0.20 0.20
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