-----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, LNwVO1icqOPVXuPjyRmG5zsHAkRNG8eq2FtJVXq61yDXpMgGPqYXavR5D/guhgCT Cnx7v5MumVqP8pa49B3J+w== 0000892569-01-500710.txt : 20010816 0000892569-01-500710.hdr.sgml : 20010816 ACCESSION NUMBER: 0000892569-01-500710 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010701 FILED AS OF DATE: 20010815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: QLOGIC CORP CENTRAL INDEX KEY: 0000918386 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 330537669 STATE OF INCORPORATION: DE FISCAL YEAR END: 0328 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23298 FILM NUMBER: 1715507 BUSINESS ADDRESS: STREET 1: 26650 LAGUNA HILLS DR CITY: ALLISO VIEJO STATE: CA ZIP: 92656 BUSINESS PHONE: 7144382200 MAIL ADDRESS: STREET 1: 26650 LAGUNA HILLS DR CITY: ALLISO VIEJO STATE: CA ZIP: 92656 FORMER COMPANY: FORMER CONFORMED NAME: Q LOGIC CORP DATE OF NAME CHANGE: 19940201 10-Q 1 a75196e10-q.txt FORM 10-Q QUARTER ENDED JULY 1, 2001 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 JULY 1, 2001 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 NUMBER 0-23298 ------------------------ QLOGIC CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 33-0537669 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 26600 LAGUNA HILLS DRIVE ALISO VIEJO, CALIFORNIA 92656 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(949) 389-6000 (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 July 31, 2001, the registrant had 92,546,888 shares of common stock outstanding. All references to share and per share data for all periods presented have been restated for stock splits. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 QLOGIC CORPORATION INDEX
PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets at July 1, 2001 and April 1, 2001............................................... 1 Condensed Consolidated Statements of Income for the three months ended July 1, 2001 and July 2, 2000.................. 2 Condensed Consolidated Statements of Cash Flows for the three months ended July 1, 2001 and July 2, 2000............ 3 Notes to Condensed Consolidated Financial Statements........ 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 6 Item 3. Quantitative and Qualitative Disclosures About Market Risk........................................................ 16 PART II. OTHER INFORMATION Item 6. Exhibits and Reports On Form 8-K............................ 17
i 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS QLOGIC CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS
JULY 1, APRIL 1, 2001 2001 ----------- -------- (UNAUDITED) Cash and cash equivalents................................... $112,798 $128,273 Short term investments...................................... 266,947 227,210 Accounts and notes receivable, less allowance for doubtful accounts of $2,672 and $2,372 as of July 1, 2001 and April 1, 2001, respectively..................................... 51,633 53,588 Inventories................................................. 46,854 46,510 Deferred income taxes....................................... 30,310 32,558 Prepaid expenses and other current assets................... 2,735 2,358 -------- -------- Total current assets.............................. 511,277 490,497 Property and equipment, net................................. 57,156 56,843 Other assets................................................ 25,789 24,157 -------- -------- $594,222 $571,497 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable............................................ $ 12,507 $ 18,017 Accrued compensation........................................ 11,678 15,413 Accrued warranty............................................ 2,939 2,887 Income taxes payable........................................ 10,663 6,295 Other accrued liabilities................................... 7,584 5,183 -------- -------- Total current liabilities......................... 45,371 47,795 -------- -------- Commitments and contingencies Stockholders' equity: Preferred stock, $0.001 par value; 1,000,000 shares authorized, (200,000 shares designated as Series A Junior Participating Preferred, $0.001 par value); none issued and outstanding................................. -- -- Common stock, $0.001 par value; 500,000,000 shares authorized, 92,469,565 and 92,324,042 issued and outstanding at July 1, 2001 and April 1, 2001, respectively........................................... 92 92 Additional paid-in capital................................ 398,961 393,383 Deferred stock-based compensation......................... (5,180) (5,751) Retained earnings......................................... 153,434 134,254 Accumulated other comprehensive income.................... 1,544 1,724 -------- -------- Total stockholders' equity........................ 548,851 523,702 -------- -------- $594,222 $571,497 ======== ========
See accompanying notes to consolidated financial statements. 1 4 QLOGIC CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME(1) (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED ------------------ JULY 1, JULY 2, 2001 2000 ------- ------- Gross revenues.............................................. $92,062 $77,402 Sales discounts............................................. 2,161 629 ------- ------- Net revenues................................................ 89,901 76,773 Cost of revenues............................................ 34,311 26,588 ------- ------- Gross profit...................................... 55,590 50,185 ------- ------- Operating expenses: Engineering and development............................... 17,397 12,557 Selling and marketing..................................... 10,157 8,346 General and administrative................................ 4,432 3,433 ------- ------- Total operating expenses.......................... 31,986 24,336 ------- ------- Operating income............................................ 23,604 25,849 Interest income, net........................................ 5,106 3,822 ------- ------- Income before income taxes.................................. 28,710 29,671 Income tax provision........................................ $ 9,530 $10,047 ------- ------- Net income.................................................. $19,180 $19,624 ======= ======= Net income per share: Basic..................................................... $ 0.21 $ 0.22 ------- ------- Diluted................................................... $ 0.20 $ 0.21 ------- ------- Number of shares used in per share calculations: Basic..................................................... 92,399 90,129 ------- ------- Diluted................................................... 94,862 95,027 ------- -------
- --------------- (1) The condensed consolidated statement of income for the period ended July 2, 2000 has been restated to give retroactive effect to the August 1, 2000 merger accounted for using the pooling-of-interests method. See accompanying notes to condensed consolidated financial statements. 2 5 QLOGIC CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(1) (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED --------------------- JULY 1, JULY 2, 2001 2000 --------- -------- Cash flows from operating activities: Net income................................................ $ 19,180 $ 19,624 Adjustments to reconcile net income to net cash provided by operating activities: Provision for non-cash sales discounts................. 2,161 629 Depreciation and amortization.......................... 2,712 2,318 Increase in allowance for doubtful accounts............ 300 64 Amortization of deferred stock-based compensation...... 571 -- Loss on disposal of property and equipment............. 30 83 Provision for deferred income taxes.................... 3,380 55 Tax benefit from issuance of stock under employee stock plans................................................. 1,563 615 Changes in assets and liabilities: Accounts and notes receivable.......................... 1,655 (422) Inventories............................................ (344) 2,026 Prepaid expenses and other current assets.............. (377) (138) Other assets........................................... (118) (909) Accounts payable....................................... (5,510) 313 Accrued compensation................................... (3,735) (2,118) Incomes taxes payable.................................. 4,368 8,904 Accrued warranty....................................... 52 417 Other accrued liabilities.............................. 2,401 344 Other non-current liabilities.......................... -- (6) --------- -------- Net cash provided by operating activities......... 28,289 31,799 --------- -------- Cash flows from investing activities: Additions to property and equipment....................... (2,701) (5,896) Purchases of investments.................................. (112,217) (66,902) Maturities of investments................................. 72,300 34,493 Purchase of equity investment............................. (3,000) -- Other, net................................................ -- 30 --------- -------- Net cash used in investing activities............. (45,618) (38,275) --------- -------- Cash flows from financing activities: Principal payments on other non-current liabilities....... -- (6) Proceeds from issuance of stock under employee stock plans.................................................. 1,854 2,252 --------- -------- Net cash provided by financing activities......... 1,854 2,246 --------- -------- Net decrease in cash and cash equivalents................... (15,475) (4,230) Cash and cash equivalents at beginning of period............ 128,273 86,889 --------- -------- Cash and cash equivalents at end of period.................. $ 112,798 $ 82,659 ========= ======== Supplemental disclosure of cash flow information: Cash paid during the year for: Interest.................................................. $ 16 $ 12 ========= ======== Income taxes.............................................. $ 127 $ 19 ========= ======== Supplemental disclosure of non-cash investing and financing activities: Accrual for acquisition performance payment............... $ 385 $ 218 ========= ========
- --------------- (1) The condensed consolidated statement of cash flows for the period ended July 2, 2000 has been restated to give retroactive effect to the August 1, 2000 merger accounted for using the pooling-of-interests method. See accompanying notes to condensed consolidated financial statements. 3 6 QLOGIC CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE (1) BASIS OF PRESENTATION In the opinion of management of QLogic Corporation ("QLogic" or the "Company"), the accompanying unaudited condensed consolidated financial statements contain all adjustments (which include normal recurring adjustments) necessary to present fairly the Company's financial position as of July 1, 2001, the statements of income for the three months ended July 1, 2001 and July 2, 2000 and the statements of cash flows for the three months ended July 1, 2001 and July 2, 2000. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended April 1, 2001. The results of operations for the three months ended July 1, 2001 are not necessarily indicative of the results to be expected for the entire fiscal year. Certain items previously reported in specific financial statement captions have been reclassified to conform to the current presentation. All references to share and per share data have been retroactively restated to give effect to the Company's stock splits. NOTE (2) INVENTORIES Components of inventories are as follows:
JULY 1, APRIL 1, 2001 2001 ------- -------- (IN THOUSANDS) Raw materials............................................ $40,096 $37,110 Work in process.......................................... 5,373 8,021 Finished goods........................................... 1,385 1,379 ------- ------- $46,854 $46,510 ======= =======
NOTE (3) NET INCOME PER SHARE The Company computed basic net income per share based on the weighted average number of common shares outstanding during the period presented. Diluted net income per share was computed based on the weighted average number of common and dilutive potential common shares outstanding during the periods presented. The Company has granted certain stock options which have been treated as dilutive potential common shares. The following table sets forth the computations of basic and diluted net income per share:
JULY 1, JULY 2, 2001 2000 --------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Numerator: Net income............................................. $19,180 $19,624 ======= ======= Denominator: Denominator for basic net income per share -- weighted average shares...................................... 92,399 90,129 Dilutive potential common shares, using treasury stock method.............................................. 2,463 4,898 ------- ------- Denominator for diluted net income per share............. 94,862 95,027 ======= ======= Basic net income per share............................... $ 0.21 $ 0.22 ------- ------- Diluted net income per share............................. $ 0.20 $ 0.21 ------- -------
Options to purchase 3,523,409 and 690,059 shares of common stock with exercise prices that exceed the average market price of $45.70 and $70.60 during the three months ended July 1, 2001 and July 2, 2000, 4 7 QLOGIC CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) respectively, were excluded from the calculation of diluted net income per share as their inclusion would have been anti-dilutive. NOTE (4) OTHER COMPREHENSIVE INCOME In the fiscal quarter ended October 1, 2000, the Company changed its classification of certain investment securities from "held to maturity" to "available for sale" according to the definitions of Financial Accounting Standards No. 115 (SFAS No. 115). According to Financial Accounting Standards No. 130 (SFAS No. 130), unrealized gains and losses from available for sale securities require disclosure as a component of other comprehensive income. SFAS No. 130 separates comprehensive income into two components: net income and other comprehensive income. Other comprehensive income refers to revenue, expenses, gains and losses that are recorded as an element of stockholders' equity, but are excluded from net income. The Company's other comprehensive income is comprised solely of unrealized gains and losses on marketable securities categorized as "available for sale" under SFAS No. 115, net of income taxes. For the three months ended July 2, 2000, there were no components of other comprehensive income, therefore, net income is equal to total comprehensive income. The components of total comprehensive income for the three-month period ended July 1, 2001 were as follows:
THREE MONTHS ENDED JULY 1, 2001 -------------- (IN THOUSANDS) Net income............................................. $19,180 Other comprehensive income, net of tax: Unrealized gain (loss) on available for sale investments....................................... (180) ------- Total comprehensive income................... $19,000 =======
5 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Discussion and Analysis of Financial Condition and Results of Operations contains descriptions of our expectations regarding future trends affecting our business. These forward-looking statements and other forward-looking statements made elsewhere in this report are made in reliance upon safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of several factors, including, but not limited to those factors set forth and discussed under "Factors That May Affect Future Results" and elsewhere in this report, which include without limitation the fact that our operating results fluctuate significantly, that our business is dependent on the storage area network market that is new and unpredictable, and that our financial condition will be materially harmed if we do not maintain and gain market or industry acceptance of our products. Readers of this Quarterly Report on Form 10-Q are urged to read those sections in their entirety. In light of the significant uncertainties inherent in the forward-looking information included in this document, the inclusion of information should not be regarded as a representation by us or any other person that our objectives or plans will be achieved. QLogic undertakes no obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain income and expense items expressed in absolute terms and as a percentage of the Company's net revenues. (All figures in thousands except as otherwise noted).
THREE MONTHS ENDED ------------------------------------ JULY 1, JULY 2, 2001 2000 ---------------- ---------------- Net revenues............................................ $89,901 100.0% $76,773 100.0% Cost of revenues........................................ 34,311 38.2 26,588 34.6 ------- ----- ------- ----- Gross profit.......................................... 55,590 61.8 50,185 65.4 ------- ----- ------- ----- Operating expenses: Engineering and development........................... 17,397 19.4 12,557 16.3 Selling and marketing................................. 10,157 11.3 8,346 10.9 General and administrative............................ 4,432 4.9 3,433 4.5 ------- ----- ------- ----- Total operating expenses...................... 31,986 35.6 24,336 31.7 ------- ----- ------- ----- Operating income................................. $23,604 26.2% $25,849 33.7% ======= ===== ======= =====
Net Revenues Our net revenues are derived primarily from the sale of SCSI and Fibre Channel-based products. We also license certain designs and receive royalty revenues and non-recurring engineering fees. Net revenues in the three months ended July 1, 2001 increased $13.1 million or 17.1% from the three months ended July 2, 2000, to $89.9 million. The increase was the result of a $16.2 million increase in sales of Fibre Channel products, offset by a $0.3 million decrease in sales of SCSI products and a $2.8 million decrease in IDE-based royalties. The decrease in IDE-based royalties was due to a customer's wind-down of certain program designs which in turn, reduced royalties earned. Export revenues in the three months ended July 1, 2001 increased $5.7 million or 14.0% from the three months ended July 2, 2000, to approximately $46.4 million, primarily due to increased sales to customers in the UK and Singapore and, to a lesser extent, other European countries. As a percentage of net revenues, export revenues accounted for 51.6% in the three months ended July 1, 2001, which was down from 52.6% in the three months ended July 2, 2000 due to increased sales to U.S. based customers. Export revenues are denominated in U.S. dollars. 6 9 A small number of customers account for a substantial portion of our net revenues, and we expect that a limited number of customers will continue to represent a substantial portion of our net revenues in the foreseeable future. We believe that our major customers continually evaluate whether or not to purchase products from alternate or additional sources. Additionally, our customers' economic and market conditions frequently change. Accordingly, there can also be no assurance that a major customer will not reduce, delay or eliminate its purchases from us. Any such reduction, delay or loss of purchases could have a material adverse effect on our business, financial condition and results of operations. Gross Profit Cost of revenues consist primarily of raw materials (including wafers and completed chips from third-party manufacturers), assembly and test labor, overhead and warranty costs. The gross profit percentage for the three months ended July 1, 2001 was 61.8%, a decrease from 65.4% in the three months ended July 2, 2000. The decrease in gross profit percentage was due to a reduction in IDE-based royalties combined with an increase in costs associated with new SCSI products, and increased revenues with lower margin switch products. Our ability to maintain our current gross profit percentage can be significantly affected by factors such as supply costs and, in particular, the cost of silicon wafers, the worldwide semiconductor foundry capacity, the mix of products shipped, competitive price pressures, the timeliness of volume shipments of new products, the level of royalties received and our ability to achieve manufacturing cost reductions. We anticipate it will be increasingly more difficult to maintain or reduce manufacturing costs. Also, royalty revenues may be irregular or unpredictable. As a result of these and other factors, we do not anticipate the gross profit percentage to remain constant or increase at a rate consistent with historic trends, and, it may decline in future quarters, as reflected in this quarter's decline. Operating Expenses Engineering and Development. Engineering and development expenses consist primarily of salaries and other personnel-related expenses, development-related material, occupancy costs and computer support. We believe continued investments in engineering and development activities are critical to achieving our strategic objectives. We expect the dollar amount of engineering and development expenses will continue to increase in fiscal 2002. During the three months ended July 1, 2001, engineering and development expenses increased $4.8 million to $17.4 million from $12.6 million in the three months ended July 2, 2000. The increase in spending was largely due to increased levels of spending for Fibre Channel and SCSI design, as well as enclosure management product design. As a percentage of net revenues, engineering and development expenses increased to 19.4% in the three months ended July 1, 2001 from 16.3% the similar prior year period. The increase as a percentage of net revenues was due in part to certain stock compensation programs adopted in connection with the Little Mountain Group, Inc. acquisition. Additionally, the increase as a percentage of net revenues was due to increases in engineering and development headcount. Selling and Marketing. Selling and marketing expenses consist primarily of sales and marketing salaries, sales commissions and related expenses, promotional activities and travel for sales and marketing personnel. We believe continued investments of these types of expenses are critical to the success of our strategy of expanding relationships with our customers. As a result, we expect sales and marketing expenditures will increase in the future. During the three months ended July 1, 2001, selling and marketing expenses increased $1.8 million to $10.2 million from $8.4 million in the three months ended July 2, 2000. The increase in spending was largely due to increased staff in sales and marketing to manage new programs. As a percentage of net revenues, sales and marketing expenses increased to 11.3% in the three months ended July 1, 2001 from 10.9% in the similar prior year period. The increase was due to a greater level of planned new program introductions. 7 10 General and Administrative. General and administrative expenses consist primarily of salaries and related expenses for executive, finance, accounting, human resources and information technology personnel. Non-personnel related expenses consist of recruiting fees, professional services and corporate expenses. We expect general and administrative expenses to increase in absolute dollars as we add personnel and incur additional costs relating to the growth of the business. During the three months ended July 1, 2001, general and administrative expenses increased $1.0 million to $4.4 million from $3.4 million in the three months ended July 2, 2000. The increase in spending was primarily due to the growth in administrative personnel and professional services. As a percentage of net revenues, general and administrative expenses increased to 4.9% in the three months ended July 1, 2001 from 4.5% in the similar prior year period. The increase as a percentage of net revenues was due to increased amortization of intangible assets relating to the Company's prior acquisitions. Non-Operating Income Interest and other income, net of interest expense, was $5.1 million for the three months ended July 1, 2001 and $3.8 million for the three months ended July 2, 2000. The increase was largely due to increases in interest income related to increases in cash equivalents and investment balances. Income Tax Provision The Company's effective tax rates approximated 33% and 34% for the three months ended July 1, 2001, and July 2, 2000, respectively. The decrease in tax rate was due to the favorable resolution of tax audits for prior fiscal years. New Accounting Standards In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. ("SFAS") 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS 133 establishes accounting and reporting standards for derivative instruments, hedging activities, and exposure definition. In June 2000, the FASB issued SFAS 138 "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133 ("SFAS 138"). We adopted the provisions of SFAS 133 and SFAS 138 during the quarter ended July 1, 2001, and did not have a material impact on our financial position or overall trends in results of operations. Effective July 1, 2001, we adopted SFAS 141 "Business Combinations". SFAS 141 addresses financial accounting and reporting for business combinations and requires that all business combinations initiated after June 30, 2001 be accounted for by a single method -- the purchase method. The adoption of SFAS 141 did not have a material impact on the Company's financial position or results of operations. SFAS 142 "Goodwill and Other Intangible Assets" requires that goodwill and intangible assets that have indefinite useful lives not to be amortized but rather be tested at least annually for impairment. We are required to adopt SFAS 142 on January 1, 2002. However, goodwill and intangible assets acquired after June 30, 2001 are subject to the amortization provisions of SFAS 142. We estimate that the adoption of SFAS 142 will decrease amortization expense in 2002 by approximately $0.6 million (net of income taxes of $0.2 million). Liquidity and Capital Resources Our combined balances of cash and cash equivalents and short-term investments have increased to $379.7 million at July 1, 2001 and were $355.5 million at April 1, 2001. The increase was primarily attributable to positive cash flow from operations during the three months ended July 1, 2001. Our primary source of liquidity is derived from working capital and a $5.0 million unsecured line of credit with Silicon Valley Bank. Working capital increased $23.2 million to $465.9 million at July 1, 2001. The increase in working capital in the quarter ended July 1, 2001 was largely attributable to cash flow from operations. The $5.0 million line of credit facility with Silicon Valley Bank allows us to borrow at the bank's 8 11 prime rate. The credit facility expires on July 5, 2002, and, although there can be no assurance, we currently expect to renew this line of credit. There were no borrowings under this credit facility as of July 1, 2001. Our cash flow provided by operations was $28.3 million in the three months ended July 1, 2001, and $31.8 million in the three months ended July 2, 2000. The reduction in cash provided by operations was primarily due to reductions in accounts payable, accrued compensation and income taxes payable and partially offset by increases in accounts receivable. Our cash flow used in investing activities was $45.6 million in the three months ended July 1, 2001 compared to $38.3 million in the three months ended July 2, 2000. The increase in cash used in investing activities for the three months ended July 1, 2001 was primarily due to increases in purchases of short-term investments, net of maturing investments. Additionally, we made a $3 million strategic investment in a privately-held Infiniband development company. Capital expenditures were $2.7 million in the three months ended July 1, 2001 and $5.9 million in the three months ended July 2, 2000. The decrease was due to an unusually high level of building improvement expenditures relating to the corporate facility relocation in the three months ended July 2, 2000. Our cash flow provided by financing activities was $1.9 million in the three months ended July 1, 2001 compared to $2.2 million in the three months ended July 2, 2000. The decrease in cash provided by financing activities in the three months ended July 1, 2001 was primarily due to decreases in proceeds from issuance of stock under employee stock plans due to lower average stock prices. We believe that existing cash and cash equivalent balances, short term investments, facilities and equipment leases, and cash flows from operating activities will provide us with sufficient funds to finance our operations for at least the next 12 months. FACTORS THAT MAY AFFECT FUTURE RESULTS Except for the historical information contained herein, the information in this report constitutes forward-looking statements. When used in this report the words "shall," "should," "forecast," "all of," "projected," "believes," "anticipates" "expects," and similar expressions are intended to identify forward-looking statements. In addition, we may from time to time make oral forward-looking statements. We wish to caution readers that a number of important factors could cause actual 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 above in "Management's Discussion and Analysis of Financial Condition and Results of Operations" or elsewhere in this report. OUR STOCK PRICE MAY BE VOLATILE WHICH COULD AFFECT THE VALUE OF YOUR INVESTMENT. The market price of our common stock has fluctuated substantially, and there can be no assurance that such volatility will not continue. From January 1, 2001 through July 1, 2001, the market price has ranged from a low of $17.81 per share to a high of $99.13 per share. Several factors could impact our stock price including, but not limited to: - announcements concerning QLogic, our competitors or customers; - quarterly fluctuations in our operating results; - introduction of new products or changes in product pricing policies by us or our competitors; - conditions in the semiconductor industry; - changes in earnings estimates by industry analysts; and - market conditions for high technology equities in general. In addition, stock markets have experienced extreme price and volume volatility in recent years and stock prices of technology companies have been especially volatile. This volatility has had a substantial effect on the market prices of securities of many smaller public companies for reasons frequently unrelated to the operating 9 12 performance of the specific companies. These broad market fluctuations could adversely affect the market price of our common stock. OUR OPERATING RESULTS FLUCTUATE SIGNIFICANTLY, WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE IF OUR RESULTS FAIL TO MEET INVESTORS' AND ANALYSTS' EXPECTATIONS. We have experienced, and expect to continue to experience, fluctuations in sales and operating results from quarter to quarter. As a result, we believe that period-to-period comparisons of our operating results are not necessarily meaningful, and that such comparisons cannot be relied upon as indicators of future performance. In addition, there can be no assurance that we will maintain our current profitability in the future. A significant portion of our net revenues in each fiscal quarter result from orders booked in that quarter. Orders placed by major customers are typically based on their forecasted sales and inventory levels for our products. Fluctuations in our quarterly operating results may be the result of: - changes in purchasing patterns by one or more of our major customers, order changes or rescheduling; - gain or loss of significant customers; - customer policies pertaining to desired inventory levels of our products; - negotiations of rebates and extended payment terms; - changes in our ability to anticipate in advance the mix of customer orders; - level of inventory our customers require us to maintain in our field warehouses; - the time, availability and sale of new products; - changes in the mix of products having differing gross margins; - variations in manufacturing capacities, efficiencies and costs; - the availability and cost of components, including silicon wafers; - warranty expenses; - variations in product development and other operating expenses; - revenue adjustments related to product returns; - adoption of new accounting pronouncements and/or changes in our policies; or - general economic and other conditions effecting the timing of customer orders and capital spending. Our quarterly results of operations are also influenced by competitive factors, including the pricing and availability of our products and our competitors' products. Although we do not maintain our own wafer manufacturing facility, large portions of our expenses are fixed and difficult to reduce in a short period of time. If net revenues do not meet our expectations, our fixed expenses would magnify the effect on net income of such shortfall in net revenues. Furthermore, announcements regarding new products and technologies could cause our customers to defer or cancel purchases of our products. Order deferrals by our customers, delays in our introduction of new products, and longer than anticipated design-in cycles for our products have in the past adversely effected our quarterly results of operations. Due to these factors, as well as other unanticipated factors, it is likely that in some future quarter or quarters our operating results will be below the expectations of public market analysts or investors, and as a result, the price of our common stock could significantly decrease. OUR BUSINESS IS DEPENDENT ON THE STORAGE AREA NETWORK MARKET THAT IS NEW AND UNPREDICTABLE, AND IF THIS MARKET DOES NOT DEVELOP AND EXPAND AS WE ANTICIPATE, OUR BUSINESS WILL SUFFER. Fibre Channel-based storage area networks, or SANs, were first deployed in 1997. As a result, the market for SANs and related storage router products has only recently begun to develop and is rapidly evolving. Because this market is new, it is difficult to predict its potential size or future growth rate. A significant 10 13 number of our products are used exclusively in SANs and, therefore, our business is dependent on the SAN market. Accordingly, the widespread adoption of SANs for use in organizations' computing systems is critical to our future success. Most of the organizations that potentially may purchase our products from our customers have invested substantial resources in their existing computing and data storage systems and, as a result, may be reluctant or slow to adopt a new approach like SANs. SANs are often implemented in connection with the deployment of new storage systems and servers. Therefore, our future success is also substantially dependent on the market for new storage systems and servers. Furthermore, the ability of the different components used in a SAN to function effectively, or interoperate, with each other when placed in a computing system has not yet been achieved on a widespread basis. Until greater interoperability is achieved, customers may be reluctant to deploy SANs. Our success in generating revenue in the emerging SAN market will depend on, among other things, our ability to: - educate potential OEM customers, distributors, resellers, system integrators, storage service providers and end-user organizations about the benefits of SANs; - maintain and enhance our relationships with OEM customers, distributors, resellers, system integrators, and storage system providers; - predict and base our products on standards which ultimately become industry standards; and - achieve interoperability between our products and other SAN components from diverse vendors. OUR FINANCIAL CONDITION WILL BE MATERIALLY HARMED IF WE DO NOT MAINTAIN AND GAIN MARKET OR INDUSTRY ACCEPTANCE OF OUR PRODUCTS. The markets in which we compete involve rapidly changing technology, evolving industry standards and continuing improvements in products and services. Our future success depends, in part, on our ability to: - enhance our current products and to develop and introduce in a timely manner new products that keep pace with technological developments and industry standards; - compete effectively on the basis of price and performance; and - adequately address original equipment manufacturer customer and end-user customer requirements and achieve market acceptance. We believe that to remain competitive in the future we will need to continue to develop new products, which will require a significant investment in new product development. A significant portion of our revenues is generated from Fibre Channel technology. We, and some of our competitors, are developing alternative technologies that may compete with the market acceptance of our Fibre Channel products, such as iSCSI and Infiniband. If alternative standards are adopted by the industry, we may not be able to develop products for new standards in a timely manner. Further, even if alternative technologies do augment Fibre Channel revenues, our products may not be fully developed in time to be accepted by our customers. Even if our new products are developed on time, we may not be able to manufacture them at competitive prices in sufficient volumes. WE DEPEND ON A LIMITED NUMBER OF CUSTOMERS AND ANY DECREASE IN REVENUE FROM ANY ONE OF OUR CUSTOMERS COULD CAUSE OUR STOCK PRICE TO DECLINE. A small number of customers account for a substantial portion of our net revenues, and we expect that a limited number of customers will continue to represent a substantial portion of our net revenues in the foreseeable future. The loss of any of our major customers would have a material adverse effect on our business, financial condition and results of operations. Some of these customers are based in the Pacific Rim, which is subject to economic and political uncertainties. In addition, a majority of our customers order products through written purchase orders as opposed to long-term supply contracts and, therefore, such customers are generally not obligated to purchase products from us for any extended period. Major customers also have significant leverage over us and may attempt to change the terms, including pricing, which could materially adversely effect our business, financial condition and results of operations. This risk is increased due 11 14 to the potential for some of these customers to merge with or acquire another of our customers. As our original equipment manufacturer customers are pressured to reduce prices as a result of competitive factors, we may be required to contractually commit to price reductions for our products before we know how, or if, cost reductions can be obtained. If we are unable to achieve such cost reductions, our gross margins could decline and such decline could have a material adverse effect on our business, financial condition and results of operations. COMPETITION WITHIN OUR PRODUCT MARKETS IS INTENSE AND INCLUDES NUMEROUS ESTABLISHED COMPETITORS. The markets for our products are highly competitive and are characterized by short product life cycles, price erosion, rapidly changing technology, frequent product performance improvements and evolving industry standards. We currently compete primarily with Adaptec Inc. and LSI Logic Corporation in the SCSI sector of the I/O market. In the Fibre Channel host bus adapter sector of the I/O market, we compete primarily with Agilent Technologies, LSI Logic Corporation, Emulex Corporation, JNI Corporation and Adaptec Inc. In the switch products sector, we compete with Brocade Communications and several smaller companies. In the enclosure management sector, we compete primarily with Vitesse Semiconductor Corporation. We may compete with some of our larger disk drive and computer systems customers, some of which have the capability to develop I/O controller integrated circuits for use in their own products. At least one large original equipment manufacturer customer in the past has decided to vertically integrate and has therefore stopped purchasing from us. We will need to continue to develop products appropriate to our markets to remain competitive as our competitors continue to introduce products with improved performance characteristics. While we continue to devote significant resources to research and development, these efforts may not be successful, or may not be developed and introduced in a timely manner. Further, several of our competitors have greater resources devoted to securing semiconductor foundry capacity because of long-term agreements regarding supply flow, equity or financing agreements or direct ownership of a foundry. In addition, while relatively few competitors offer a full range of storage area networking products, additional domestic and foreign manufacturers may increase their presence in these markets. We may not be able to compete successfully against these or other competitors. If we are unable to design, develop and introduce competitive new products on a timely basis, our future operating results will be materially and adversely affected. OUR DISTRIBUTORS MAY NOT ADEQUATELY DISTRIBUTE OUR PRODUCTS WHICH COULD NEGATIVELY AFFECT OUR OPERATIONS. Our distributors generally offer a diverse array of products from several different manufacturers and suppliers. Accordingly, we are at risk that these distributors may give higher priority to selling products from other suppliers, thus reducing their efforts to sell our products. A reduction in sales efforts by our current distributors could materially adversely impact our business or operating results. Our distributors may on occasion build inventories in anticipation of substantial growth in sales, and if such growth does not occur as rapidly as we anticipate, distributors may decrease the amount of product ordered from us in subsequent quarters. In addition, if we decrease our distributor-incentive programs, our distributors may temporarily decrease the amounts of product purchased from us. This could result in a change of business habits, and distributors may decide to decrease the amount of product held and reduce their inventory levels. In addition, we may from time to time take actions to reduce levels of our products at distributors. WE DEPEND ON OUR RELATIONSHIPS WITH WAFER SUPPLIERS AND OTHER SUBCONTRACTORS AND A LOSS OF THESE RELATIONSHIPS MAY LEAD TO UNPREDICTABLE CONSEQUENCES WHICH MAY HARM OUR RESULTS OF OPERATIONS IF ALTERNATIVE SUPPLY SOURCES ARE NOT AVAILABLE. We currently rely on several independent foundries to manufacture our semiconductor products either in finished form or wafer form. Generally, we conduct business with some of our foundries through written purchase orders as opposed to long-term supply contracts. Therefore, these foundries are generally not obligated to supply products to us for any specific period, in any specific quantity or at any specified price. If a foundry terminates its relationship with us or if our supply from a foundry is otherwise interrupted, we may not 12 15 have a sufficient amount of time to replace the supply of products manufactured by that foundry. As a result, we may not be able to meet customer demands, which could harm our business. Historically, there have been periods when there has been a worldwide shortage of advanced process technology foundry capacity. The manufacture of semiconductor devices is subject to a wide variety of factors, including the availability of raw materials, the level of contaminants in the manufacturing environment, impurities in the materials used, and the performance of personnel and equipment. We are continuously evaluating potential new sources of supply. However, the qualification process and the production ramp-up for additional foundries have in the past taken, and could in the future take, longer than anticipated. New supply sources may not be able or willing to satisfy our wafer requirements on a timely basis or at acceptable quality or unit prices. We use multiple sources of supply for some of our products, which may require customers to perform separate product qualifications. We have not developed alternate sources of supply for all of our products and our newly introduced products are typically produced initially by a single foundry until alternate sources can be qualified. In particular, our integrated single chip Fibre Channel controller is manufactured by LSI Logic and integrates LSI Logic's transceiver technology. In the event that LSI Logic is unable or unwilling to satisfy our requirements for this technology, our marketing efforts related to Fibre Channel products would be delayed and, as such, our results of operations could be materially and adversely affected. The requirement that a customer perform separate product qualifications, or a customer's inability to obtain a sufficient supply of products from us, may cause that customer to satisfy its product requirements from our competitors. Constraints or delays in the supply of our products, due to capacity constraints, unexpected disruptions at our foundries or with our subcontractors, delays in obtaining additional production at the existing foundries or in obtaining production from new foundries, shortages of raw materials or other reasons, could result in the loss of customers. OUR PRODUCTS ARE COMPLEX AND MAY CONTAIN UNDETECTED SOFTWARE OR HARDWARE ERRORS THAT COULD LEAD TO AN INCREASE IN OUR COSTS, REDUCE OUR NET REVENUES OR DAMAGE OUR REPUTATION. Products as complex as ours frequently contain undetected software or hardware errors when first introduced or as newer versions are released. We have from time to time found errors in existing, new or enhanced products. The occurrence of hardware or software errors could adversely affect sales of our products, cause us to incur significant warranty and repair costs, divert the attention of our engineering personnel from our product development efforts and cause significant customer relations problems. BECAUSE WE DEPEND ON FOREIGN CUSTOMERS AND SUPPLIERS, WE ARE SUBJECT TO INTERNATIONAL ECONOMIC, REGULATORY AND POLITICAL RISKS THAT COULD HARM OUR FINANCIAL CONDITION. We expect that export revenues will continue to account for a significant percentage of our net revenues for the foreseeable future. As a result, we are subject to several risks, which include: - a greater difficulty of administering our business globally; - compliance with multiple and potentially conflicting regulatory requirements, such as export requirements, tariffs and other barriers; - differences in intellectual property protections; - difficulties in staffing and managing foreign operations; - potentially longer accounts receivable cycles; - currency fluctuations; - export control restrictions; - overlapping or differing tax structures; - political and economic instability; and - general trade restrictions. 13 16 A significant number of our customers and suppliers are located in Japan. Historically, the Asian markets have suffered from economic uncertainty. This uncertainty has taken place especially in countries that have had a collapse in both their currency and stock markets. These economic pressures have reduced liquidity in the banking systems of the affected countries and, when coupled with spare industrial production capacity, could lead to widespread financial difficulty among the companies in this region. Our export sales are invoiced in U.S. dollars and, accordingly, if the relative value of the U.S. dollar in comparison to the currency of our foreign customers should increase, the resulting effective price increase of our products to such foreign customers could result in decreased sales. There can be no assurance that any of the foregoing factors will not have a material adverse effect on our business, financial condition and results of operations. WE MAY NEED TO ENGAGE IN FINANCIALLY RISKY TRANSACTIONS TO GUARANTEE WE HAVE PRODUCTION CAPACITY WHICH MAY REQUIRE US TO SEEK ADDITIONAL FINANCING AND RESULT IN DILUTION TO OUR STOCKHOLDERS. The semiconductor industry has, in the past, experienced shortages of available foundry capacity. Accordingly, in order to secure an adequate supply of wafers, we may consider various possible supply agreements. Those types of agreements include the use of "take or pay" contracts, making equity investments in, or advances to, wafer manufacturing companies in exchange for guaranteed production capacity, or the formation of joint ventures to own and operate or construct foundries or to develop certain products. Any of these arrangements would involve financial risk to us and could require us to commit a substantial amount of our funds or provide technology licenses in return for guaranteed production capacity. The need to commit our own funds may require us to seek additional equity or debt financing. The sale or issuance of additional equity or convertible debt securities could result in dilution to our stockholders. This kind of additional financing, if necessary, may not be available on terms acceptable to us. WE ANTICIPATE ENGAGING IN MERGERS, ACQUISITIONS AND STRATEGIC INVESTMENTS, HOWEVER, THESE ACTIVITIES MAY ADVERSELY AFFECT OUR RESULTS OF OPERATIONS AND STOCK PRICE IF THEY DO NOT COMPLEMENT OUR BUSINESS. We anticipate that our future growth may depend in part on our ability to identify and acquire complementary businesses, technologies or product lines that are compatible with ours. Mergers and acquisitions involve numerous risks, including: - uncertainties in identifying and pursuing target companies; - difficulties in the assimilation of the operations, technologies and products of the acquired companies; - the diversion of management's attention from other business concerns; - risks associated with entering markets or conducting operations with which we have no or limited direct prior experience; - the potential loss of current customers and/or retention of the acquired company's customers; and - the potential loss of key employees of the acquired company. Further, we may never realize the perceived benefits of a business combination. Future acquisitions by us could dilute stockholders' investment, and cause us to incur debt, contingent liabilities and amortization/impairment expense related to goodwill and other intangible assets, all of which could materially adversely affect our results of operations. Effective July 1, 2001, the Financial Accounting Standards Board, or FASB, has issued, and we have adopted, SFAS 141 "Business Combinations". SFAS 141 addresses financial accounting and reporting for business combinations and requires that all business combinations implemented after June 30, 2001 be accounted for using the purchase method of accounting. As a result, we may not be able to complete a business combination without incurring goodwill or other intangible assets. While the new proposal would eliminate the quarterly and yearly recurring charges for the amortization of goodwill, a significant charge to earnings may be recorded if it can be determined that the goodwill is impaired. This potential charge could have a material impact on our results of operations. We have made, and plan to continue to make, investments in technology companies including privately held companies in a development stage. Many of these private equity investments are inherently risky because 14 17 the companies' businesses may never develop, and we may incur losses related to these investments. We may be required to reduce the value of those investments as reflected on our balance sheet, which also may affect our results of operations. In addition if we incur a charge to reflect other than temporary declines in the value of our private equity investments below our recorded value, our balance sheet and results of operations will be reduced. OUR BUSINESS COULD BE MATERIALLY ADVERSELY AFFECTED AS A RESULT OF THE RISKS ASSOCIATED WITH STRATEGIC ALLIANCES. We have alliances with leading information technology companies and we plan to continue our strategy of developing key alliances in order to expand our reach into emerging markets. There can be no assurance that we will be successful in our ongoing strategic alliances or that we will be able to find further suitable business relationships as we develop new products and strategies. Any failure to continue or expand such relationships could have a material adverse effect on our business, results of operations or financial conditions. There can be no assurance that companies with which we have strategic alliances, certain of which have substantially greater financial, marketing and technological resources than us, will not develop or market products in competition with us in the future, discontinue their alliances with us or form alliances with our competitors. CONTINUED RAPID GROWTH WILL STRAIN OUR OPERATIONS AND REQUIRE THAT WE INCUR COSTS TO UPGRADE OUR INFRASTRUCTURE. We have recently experienced a period of rapid growth and expansion that has placed, and continues to place, a significant strain on our resources. Unless we manage this growth effectively, we may make mistakes in executing our business such as inaccurate sales forecasting, material planning, inventory management or financial reporting, which may result in unanticipated fluctuations in our operating results. We may not be able to install adequate control systems in an efficient and timely manner, and our current or planned personnel, systems, procedures and controls may not be adequate to support our future operations. In addition, we test substantially all of our products prior to shipment. If our capacity to conduct this testing does not expand concurrently with the anticipated growth of our business, product shipments could be delayed, which could result in delayed or lost revenues and customer dissatisfaction. IF WE ARE UNABLE TO ATTRACT AND RETAIN KEY PERSONNEL, WE MAY NOT BE ABLE TO SUSTAIN OR GROW OUR BUSINESS. Our future success largely depends on our key engineering, sales, marketing and executive personnel, including highly skilled semiconductor design personnel and software developers. We also must identify and hire additional personnel. If we lose the services of key personnel, our business would be adversely affected. We believe that the market for key personnel in the industries in which we compete is highly competitive. In particular, periodically we have experienced difficulty in attracting and retaining qualified engineers and other technical personnel and anticipate that competition for such personnel will increase in the future. We may not be able to attract and retain key personnel with the skills and expertise necessary to develop new products in the future, or to manage our business, both in the United States and abroad. OUR PROPRIETARY RIGHTS MAY BE INADEQUATELY PROTECTED AND INFRINGEMENT CLAIMS OR ADVERSE JUDGMENTS COULD HARM OUR COMPETITIVE POSITION. Although we have patent protection on some aspects of our technology in some jurisdictions, we rely primarily on trade secrets, copyrights and contractual provisions to protect our proprietary rights. There can be no assurance that these protections will be adequate to protect our proprietary rights, that others will not independently develop or otherwise acquire equivalent or superior technology or that we can maintain such technology as trade secrets. There also can be no assurance that any patents we possess will not be invalidated, circumvented or challenged. In addition, the laws of certain countries in which our products are or may be developed, manufactured or sold, including various countries in Asia, may not protect our products and intellectual property rights to the same extent as the laws of the United States or at all. If we fail to protect our intellectual property rights, our business would be negatively impacted. 15 18 Intellectual property claims have been made against us in the past, and patent or other intellectual property infringement claims could be made against us in the future. Although patent and intellectual property disputes may be settled through licensing or similar arrangements, costs associated with these arrangements may be substantial and the necessary licenses or similar arrangements may not be available to us on satisfactory terms or at all. As a result, we could be prevented from manufacturing and selling some of our products. In addition, if we litigate these kinds of claims, the litigation could be expensive and time consuming and could divert management's attention from other matters. Our business could suffer regardless of the outcome of the litigation. Our supply of wafers and other components can also be interrupted by intellectual property infringement claims against our suppliers. OUR CHARTER DOCUMENT AND SHAREHOLDER RIGHTS PLAN MAY DISCOURAGE COMPANIES FROM ACQUIRING US AND OFFERING OUR STOCKHOLDERS A PREMIUM FOR THEIR STOCK. Pursuant to our certificate of incorporation, our board of directors is authorized to approve the issuance of shares of currently undesignated preferred stock without any vote or future action by the stockholders. Pursuant to this authority, in June 1996 our board of directors adopted a shareholder rights plan and declared a dividend of a right to purchase one one-hundredths of a share of preferred stock for each outstanding share of our common stock. After adjustment for each of the three two-for-one stock splits effected by us to date, our common stock now carries one-eighth of the preferred stock purchase right per share. The shareholder rights plan may have the effect of delaying, deferring or preventing a change in control of our stock. This may discourage bids for our common stock at a premium over the market price of the common stock and may adversely affect the market price of the common stock. OUR CORPORATE HEADQUARTERS AND PRINCIPAL DESIGN FACILITIES ARE LOCATED IN A REGION THAT IS SUBJECT TO EARTHQUAKES AND OTHER NATURAL DISASTERS, AS WELL AS ELECTRICITY SHORTAGES. Our California facilities, including our principal executive offices, our principal design facilities, and our critical business operations are located near major earthquake faults. We are not specifically insured for earthquakes, or other such natural disasters. Any personal injury or damage to the facilities as a result of such occurrences could have a material adverse effect on our business, results of operations and financial condition. Additionally, our operations depend upon a continuing adequate supply of electricity, natural gas and water. These energy sources have historically been available on a continuous basis and in adequate quantities for our needs. An interruption in the supply of raw materials or energy inputs for any reason would have an adverse effect on our manufacturing operations. Recently, California has had power shortages resulting in rolling blackouts, or the temporary and generally unannounced loss of electrical power. These shortages could affect our ability to supply products to our customers on a timely basis. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Sensitivity At July 1, 2001, our investment portfolio consisted of fixed income securities, excluding those classified as cash equivalents, with a fair value of $266.9 million. The carrying amount of these securities approximates fair market value. These securities are subject to interest rate risk and will decline in value if market interest rates increase. If market interest rates were to increase immediately and uniformly by 10% from levels as of July 1, 2001, the decline in the fair value of the portfolio would not be material to our financial position, results of operations and cash flows. 16 19 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
EXHIBIT NUMBER ITEM CAPTION - ------- ------------ 2.1 Distribution Agreement dated as of January 24, 1994 among Emulex Corporation, a Delaware corporation, Emulex Corporation, a California Corporation and QLogic Corporation.(2) 2.2 Agreement and Plan of Merger dated as of May 8, 2000 by and among QLogic Corporation, Amino Acquisition Corp. and Ancor Communications, Incorporated.(11) 3.1 Certificate of Incorporation of Emulex Micro Devices Corporation, dated November 13, 1992.(2) 3.2 EMD Incorporation Agreement, dated as of January 1, 1993.(2) 3.3 Certificate of Amendment of Certificate of Incorporation, dated May 26, 1993.(2) 3.4 By-Laws of QLogic Corporation.(2) 3.5 Amendments to By-Laws of QLogic Corporation.(3) 3.6 Certificate of Amendment of Certificate of Incorporation, dated May 26, 1993.(2) 3.7 Certificate of Amendment of Certificate of Incorporation, dated February 15, 1999.(8) 3.8 Certificate of Amendment of Certificate of Incorporation, dated January 5, 2000.(9) 4.1 Rights Agreement, dated as of June 4, 1996 between QLogic Corporation and Harris Trust Company of California, which includes as Exhibit B thereto the form of Rights Certificate.(4) 4.2 Amendment to Rights Agreement, dated as of November 19, 1997 between QLogic Corporation and Harris Trust Company of California.(5) 4.3 Amendment to Rights Agreement, dated as of January 24, 2000 between QLogic Corporation and Harris Trust Company of California.(10) 10.1.2 Form of QLogic Corporation Non-Employee Director Stock Option Plan, as amended.(13) 10.2.2 QLogic Corporation Stock Awards Plan, as amended.(13) 10.3 Form of Tax Sharing Agreement among Emulex Corporation, a Delaware corporation, Emulex Corporation, a California corporation, and QLogic Corporation.(2) 10.4 Administrative Services Agreement, dated as of February 21, 1993, among Emulex Corporation, a California corporation, Emulex Corporation, a Delaware corporation and QLogic Corporation.(2) 10.5 Employee Benefits Allocation Agreement, dated as of January 24, 1994, among Emulex Corporation, a Delaware corporation, Emulex Corporation, a California corporation, and QLogic Corporation.(2) 10.6 Form of Assignment, Assumption and Consent Re: Lease among Emulex Corporation, a California corporation, QLogic Corporation and C.J. Segerstrom & Sons, a general partnership.(2) 10.7 Intellectual Property Assignment and Licensing Agreement, dated as of January 24, 1994, between Emulex Corporation, a California Corporation, and QLogic Corporation.(2) 10.8 Form of QLogic Corporation Savings Plan.*(2) 10.9 Form of QLogic Corporation Savings Plan Trust.*(2) 10.11 Form of Indemnification Agreement between QLogic Corporation and Directors.(3) 10.13 Industrial Lease Agreement between the Registrant, as lessee, and AEW/Parker South, LLC, as lessor.(7)
17 20
EXHIBIT NUMBER ITEM CAPTION - ------- ------------ 10.15 Form QLogic Corporation 1998 Employee Stock Purchase Plan.(8) 10.16 Loan and Security Agreement with Silicon Valley Bank dated March 31, 1994.(1) 10.16.1 Amendment to Loan and Security Agreement with Silicon Valley Bank dated July 6, 1998.(6) 10.16.2 Amendment to Loan and Security Agreement with Silicon Valley Bank dated July 5, 2001. 21.2 Subsidiaries of the Registrant.(13)
- --------------- (1) Previously filed as Exhibit 10.10 to Registrant's Annual Report on Form 10-K for the year ended April 3, 1994 and incorporated herein by reference. (2) Previously filed as an exhibit to Registrant's Registration Statement on Form 10 on January 28, 1994, and incorporated herein by reference. (3) Previously filed as an exhibit to Registrant's Annual Report on Form 10-K for the year ended April 2, 1995, and incorporated herein by reference. (4) Previously filed as an exhibit to Registrant's Registration Statement on Form 8-A on June 19, 1996, and incorporated herein by reference. (5) Previously filed as an exhibit to Registrant's Registration Statement on Form 8-A/A on November 25, 1997, and incorporated herein by reference. (6) Previously filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 28, 1998, and incorporated herein by reference. (7) Previously filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended December 27, 1998, and incorporated herein by reference. (8) Previously filed as an exhibit to Registrant's Annual Report on Form 10-K for the year ended March 28, 1999, and incorporated herein by reference. (9) Previously filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended December 26, 1999, and incorporated herein by reference. (10) Previously filed as and exhibit to Registrant's Registration Statement on Form 8-A/A dated June 1, 2000, and incorporated herein by reference. (11) Previously filed as an exhibit to Registrant's Amendment No. 1 to Registration Statement on Form S-4 on June 22, 2000, and incorporated herein by reference. (12) Previously filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended July 2, 2000, and incorporated herein by reference. (13) Previously filed as an exhibit to Registrant's Annual Report on Form 10-K for the year ended April 1, 2001, and incorporated herein by reference. * Compensation plan, contract or arrangement required to be filed as an exhibit pursuant to applicable rules of the Securities and Exchange Commission. (b) Reports on Form 8-K None. 18 21 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. QLOGIC CORPORATION Date: August 15, 2001 By: /s/ H. K. DESAI ------------------------------------ H. K. Desai Chairman, Chief Executive Officer and President By: /s/ THOMAS R. ANDERSON ------------------------------------ Thomas R. Anderson Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 19 22 EXHIBIT INDEX
EXHIBIT NUMBER ITEM CAPTION - ------- ------------ 2.1 Distribution Agreement dated as of January 24, 1994 among Emulex Corporation, a Delaware corporation, Emulex Corporation, a California Corporation and QLogic Corporation.(2) 2.2 Agreement and Plan of Merger dated as of May 8, 2000 by and among QLogic Corporation, Amino Acquisition Corp. and Ancor Communications, Incorporated.(11) 3.1 Certificate of Incorporation of Emulex Micro Devices Corporation, dated November 13, 1992.(2) 3.2 EMD Incorporation Agreement, dated as of January 1, 1993.(2) 3.3 Certificate of Amendment of Certificate of Incorporation, dated May 26, 1993.(2) 3.4 By-Laws of QLogic Corporation.(2) 3.5 Amendments to By-Laws of QLogic Corporation.(3) 3.6 Certificate of Amendment of Certificate of Incorporation, dated May 26, 1993.(2) 3.7 Certificate of Amendment of Certificate of Incorporation, dated February 15, 1999.(8) 3.8 Certificate of Amendment of Certificate of Incorporation, dated January 5, 2000.(9) 4.1 Rights Agreement, dated as of June 4, 1996 between QLogic Corporation and Harris Trust Company of California, which includes as Exhibit B thereto the form of Rights Certificate.(4) 4.2 Amendment to Rights Agreement, dated as of November 19, 1997 between QLogic Corporation and Harris Trust Company of California.(5) 4.3 Amendment to Rights Agreement, dated as of January 24, 2000 between QLogic Corporation and Harris Trust Company of California.(10) 10.1.2 Form of QLogic Corporation Non-Employee Director Stock Option Plan, as amended.(13) 10.2.2 QLogic Corporation Stock Awards Plan, as amended.(13) 10.3 Form of Tax Sharing Agreement among Emulex Corporation, a Delaware corporation, Emulex Corporation, a California corporation, and QLogic Corporation.(2) 10.4 Administrative Services Agreement, dated as of February 21, 1993, among Emulex Corporation, a California corporation, Emulex Corporation, a Delaware corporation and QLogic Corporation.(2) 10.5 Employee Benefits Allocation Agreement, dated as of January 24, 1994, among Emulex Corporation, a Delaware corporation, Emulex Corporation, a California corporation, and QLogic Corporation.(2) 10.6 Form of Assignment, Assumption and Consent Re: Lease among Emulex Corporation, a California corporation, QLogic Corporation and C.J. Segerstrom & Sons, a general partnership.(2) 10.7 Intellectual Property Assignment and Licensing Agreement, dated as of January 24, 1994, between Emulex Corporation, a California Corporation, and QLogic Corporation.(2) 10.8 Form of QLogic Corporation Savings Plan.*(2) 10.9 Form of QLogic Corporation Savings Plan Trust.*(2) 10.11 Form of Indemnification Agreement between QLogic Corporation and Directors.(3) 10.13 Industrial Lease Agreement between the Registrant, as lessee, and AEW/Parker South, LLC, as lessor.(7) 10.15 Form QLogic Corporation 1998 Employee Stock Purchase Plan.(8) 10.16 Loan and Security Agreement with Silicon Valley Bank dated March 31, 1994.(1) 10.16.1 Amendment to Loan and Security Agreement with Silicon Valley Bank dated July 6, 1998.(6) 10.16.2 Amendment to Loan and Security Agreement with Silicon Valley Bank dated July 5, 2001. 21.2 Subsidiaries of the Registrant.(13)
23 - --------------- (1) Previously filed as Exhibit 10.10 to Registrant's Annual Report on Form 10-K for the year ended April 3, 1994 and incorporated herein by reference. (2) Previously filed as an exhibit to Registrant's Registration Statement on Form 10 on January 28, 1994, and incorporated herein by reference. (3) Previously filed as an exhibit to Registrant's Annual Report on Form 10-K for the year ended April 2, 1995, and incorporated herein by reference. (4) Previously filed as an exhibit to Registrant's Registration Statement on Form 8-A on June 19, 1996, and incorporated herein by reference. (5) Previously filed as an exhibit to Registrant's Registration Statement on Form 8-A/A on November 25, 1997, and incorporated herein by reference. (6) Previously filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 28, 1998, and incorporated herein by reference. (7) Previously filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended December 27, 1998, and incorporated herein by reference. (8) Previously filed as an exhibit to Registrant's Annual Report on Form 10-K for the year ended March 28, 1999, and incorporated herein by reference. (9) Previously filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended December 26, 1999, and incorporated herein by reference. (10) Previously filed as and exhibit to Registrant's Registration Statement on Form 8-A/A dated June 1, 2000, and incorporated herein by reference. (11) Previously filed as an exhibit to Registrant's Amendment No. 1 to Registration Statement on Form S-4 on June 22, 2000, and incorporated herein by reference. (12) Previously filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended July 2, 2000, and incorporated herein by reference. (13) Previously filed as an exhibit to Registrant's Annual Report on Form 10-K for the year ended April 1, 2001, and incorporated herein by reference. * Compensation plan, contract or arrangement required to be filed as an exhibit pursuant to applicable rules of the Securities and Exchange Commission. EX-10.16.2 3 a75196ex10-16_2.txt EXHIBIT 10.16.2 1 EXHIBIT 10.16.2 SILICON VALLEY BANK AMENDMENT TO LOAN AGREEMENT BORROWER: QLOGIC CORPORATION ADDRESS: 26600 LAGUNA HILLS DRIVE ALISO VIEJO, CALIFORNIA 92656 DATED AS OF: JULY 5, 2001 THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY BANK ("Silicon") and the borrower named above (the "Borrower"). The parties agree to amend the Loan and Security Agreement between them, dated March 31, 1994, as amended by that Amendment to Loan and Security Agreement dated July 10, 1995, as amended by that Amendment to Loan and Security Agreement dated July 5, 1996, as amended by that Amendment to Loan Agreement dated as of July 6, 1998, as amended by that Amendment to Loan Agreement dated as of July 6, 1999 and as amended by that Amendment to Loan Agreement dated as of July 6, 2000 (as so amended and as otherwise amended from time to time, the "Loan Agreement"), as follows, effective as of the date hereof. (Capitalized terms used but not defined in this Amendment, shall have the meanings set forth in the Loan Agreement.) 1. AMENDED MATURITY DATE. The section of the Schedule to the Loan Agreement entitled "Maturity Date (Section 5.1)" is amended to read as follows: "MATURITY DATE (Section 5.1): JULY 5, 2002. 2. MODIFIED ADDRESS. The address of the Borrower as referenced in the Loan Agreement is hereby modified to be the address of the Borrower as is set forth in the heading to this Amendment. 3. MODIFICATION TO FINANCIAL COVENANTS. The section of the Schedule to the Loan Agreement entitled "Financial Covenants (Section 4.1)" is hereby amended to delete the financial covenant "Debt to Tangible Net Worth." Accordingly, such identified financial covenant shall no longer be of any further force or effect as of the date hereof, provided that all other remaining financial covenants shall remain in full force and effect. 4. FACILITY FEE. Borrower shall pay to Silicon concurrently herewith a facility fee of $25,000, which shall be in addition to all interest and all other fees payable to Silicon and shall be non-refundable. 5. GENERAL PROVISIONS. Borrower represents and warrants to Silicon that all representations and warranties set forth in the Loan Agreement, as amended hereby, are true and correct. This Amendment may be executed in any number of counterparts, all of which together shall constitute one and the same agreement. This Amendment, the Loan Agreement, any prior written amendments to the Loan Agreement signed by Silicon and the Borrower, and the other written documents and agreements between Silicon and the Borrower set forth in full all of the representations and agreements of the parties with respect to the subject matter hereof and supersede all prior discussions, representations, agreements and understandings between the parties with respect to the subject hereof. Except as herein expressly amended, all of the terms and provisions of the Loan Agreement, and all other documents and agreements between Silicon and the Borrower shall continue in full force and effect and the same are hereby ratified and confirmed. QLOGIC CORPORATION SILICON VALLEY BANK BY BY --------------------------------- ---------------------------------- PRESIDENT OR VICE PRESIDENT TITLE -------------------------------- BY --------------------------------- SECRETARY OR ASS'T SECRETARY -----END PRIVACY-ENHANCED MESSAGE-----