-----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, MfyW0j52H6VJqVn8gXUioKL5u4qPLg9klzRtO2a9RMoVJmptM9ehnYIEAT0J1Dp1 /eHr/OQJKh2K3BTfIBeVlg== 0000892569-97-000305.txt : 19970221 0000892569-97-000305.hdr.sgml : 19970221 ACCESSION NUMBER: 0000892569-97-000305 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961229 FILED AS OF DATE: 19970210 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: 97522211 BUSINESS ADDRESS: STREET 1: 3545 HARBOR BLVD CITY: COSTA MESA STATE: CA ZIP: 92626 BUSINESS PHONE: 7144382200 10-Q 1 FORM 10-Q FOR QUARTER ENDED DECEMBER 29, 1996 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 DECEMBER 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 (I.R.S. Employer incorporation or organization) 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 January 26, 1997, the registrant had 5,808,057 shares of common stock outstanding. 2 QLOGIC CORPORATION INDEX
PART I. FINANCIAL INFORMATION PAGE - -------------------------------------------------------------------------------- Item 1. Financial Statements Condensed Consolidated Balance Sheets ................................. 3 December 29, 1996 and March 31, 1996 Condensed Consolidated Statements of Operations ....................... 4 three and nine months ended December 29, 1996 and December 31, 1995 Condensed Consolidated Statements of Cash Flows ....................... 5 nine months ended December 29, 1996 and December 31, 1995 Notes to Condensed Consolidated Financial Statements .................. 6 Item 2. Management's Discussion and Analysis of ......................... 7 Financial Condition and Results of Operations PART II. OTHER INFORMATION PAGE - -------------------------------------------------------------------------------- Item 6 (b)Exhibits and Reports on Form 8-K ................................ 10
2 3 PART I. FINANCIAL INFORMATION wwITEM 1. FINANCIAL STATEMENTS QLOGIC CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data) (unaudited) ASSETS
DECEMBER 29, MARCH 31, 1996 1996 ----------- ----------- Cash $ 15,880 $ 8,414 Accounts and notes receivable, net 5,271 7,033 Inventories 3,899 6,670 Deferred income taxes 1,200 648 Prepaid expenses and other current assets 320 239 ----------- ----------- Total current assets 26,570 23,004 Property and equipment, net 5,613 5,520 Other assets 688 15 ----------- ----------- $ 32,871 $ 28,539 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY DECEMBER 29, MARCH 31, 1996 1996 ----------- ----------- Accounts payable $ 3,767 $ 6,177 Accrued expenses 5,719 3,218 Current installments of capitalized lease obligations 231 275 ----------- ----------- Total current liabilities 9,717 9,670 Capitalized lease obligations, excluding current installments 401 576 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; 5,777,211 and 5,557,598 shares issued and outstanding at December 29, 1996 577 556 and March 31, 1996, respectively Additional paid-in capital 18,512 16,801 Retained earnings (accumulated deficit) 2,740 (1,080) ----------- ----------- Total stockholders' equity 21,829 16,277 ----------- ----------- $ 32,871 $ 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 NINE MONTHS ENDED ------------------------------ ------------------------------ December 29, December 31, December 29, December 31, 1996 1995 1996 1995 ------------ ------------ ------------ ------------ Net revenues $ 17,431 $ 14,886 $ 49,896 $ 37,561 Cost of sales 9,391 9,450 28,598 23,921 ----------- ----------- ----------- ----------- Gross profit 8,040 5,436 21,298 13,640 Operating expenses: Engineering and development 2,575 1,959 7,200 5,284 Selling and marketing 1,742 1,542 4,565 5,173 General and administrative 1,067 1,240 3,413 3,275 ----------- ----------- ----------- ----------- Total operating expenses 5,384 4,741 15,178 13,732 ----------- ----------- ----------- ----------- Operating income (loss) 2,656 695 6,120 (92) Interest income (expense) 138 27 289 (6) ----------- ----------- ----------- ----------- Income (loss) before income taxes 2,794 722 6,409 (98) Income tax provision (benefit) 1,117 278 2,587 (32) ----------- ----------- ----------- ----------- Net income (loss) $ 1,677 $ 444 $ 3,822 $ (66) =========== =========== =========== ========== Net income (loss) per common and equivalent share $ 0.26 $ 0.08 $ 0.61 $ (0.01) =========== =========== =========== =========== Weighted average common and common equivalent shares 6,330,326 5,680,942 6,300,522 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)
NINE MONTHS ENDED ------------------------------- DECEMBER 29, DECEMBER 31, 1996 1995 ----------- ---------- Cash flows from operating activities: Net income (loss) $ 3,822 $ (66) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 1,782 1,833 Loss on disposal of property and equipment 1,235 - Benefit from deferred income taxes (552) (501) Changes in assets and liabilities: Decrease in accounts and notes receivables 1,762 4,350 Decrease (increase) in inventories 2,771 (956) Increase in prepaid expenses and other current assets (81) (76) Decrease (increase) in other assets (690) 307 Increase (decrease) in accounts payable (2,410) 25 Increase in accrued expenses 2,501 992 Decrease in other non-current liabilities (1,092) - ----------- ---------- Net cash provided by operating activities 9,048 5,908 ----------- ---------- Cash flows from investing activities: Additions to property and equipment (3,093) (904) ----------- ---------- Net cash used in investing activities (3,093) (904) ----------- ---------- Cash flows from financing activities: Principal payments under capital leases (219) (226) Proceeds from exercise of stock options 1,730 - ----------- ---------- Net cash provided by (used in) financing activities 1,511 (226) ----------- ---------- Net change in cash 7,466 4,778 ----------- ---------- Cash at beginning of period 8,414 1,149 ----------- ---------- Cash at end of period $ 15,880 $ 5,927 =========== ========== Cash paid during the period for: Interest $ 105 $ 78 =========== ========== Income taxes $ 3,131 $ 119 =========== ==========
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 December 29, 1996 and March 31, 1996, the results of operations for the three and nine months ended December 29, 1996 and December 31, 1995 and the statements of cash flows for the nine months ended December 29, 1996 and December 31, 1995. NOTE (2) INVENTORIES Components of inventories are as follows:
DECEMBER 29, MARCH 31, 1996 1996 ----------- ----------- Raw materials $ 2,075 $ 2,122 Work in progress 720 1,455 Finished goods 1,104 3,093 ----------- ----------- $ 3,899 $ 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 (6,330,326 and 6,300,522 for the three and nine months ended December 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 nine months ended December 31, 1995 computation as they would be antidilutive. 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 other 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 NINE MONTHS ENDED --------------------------------------- --------------------------------------- December 29, 1996 December 31, 1995 December 29, 1996 December 31, 1995 ----------------- ----------------- ----------------- ----------------- Net revenues......................... $17,431 100.0% $14,886 100.0% $49,896 100.0% $37,561 100.0% Cost of sales................... 9,391 53.9 9,450 63.5 28,598 57.3 23,921 63.7 ------ ----- ------- ----- ------- ----- ------- ----- Gross profit...................... 8,040 46.1 5,436 36.5 21,298 42.7 13,640 36.3 Operating expenses: Engineering and development .... 2,575 14.8 1,959 13.1 7,200 14.4 5,284 14.0 Selling and marketing........... 1,742 10.0 1,542 10.4 4,565 9.1 5,173 13.7 General and administrative...... 1,067 6.1 1,240 8.3 3,413 6.9 3,275 8.7 ------- ----- ------- ----- ------- ----- ------- ----- Total operating expenses........ 5,384 30.9 4,741 31.8 15,158 30.4 13,732 36.4 ------- ----- ------- ----- ------- ----- ------- ----- Operating income (loss)......... $ 2,656 15.2 $ 695 4.7 $ 6,120 12.3 $ (92) (0.1) ======= ===== ======= ===== ======= ===== ======= =====
NET REVENUES Net revenues for the three months ended December 29, 1996 increased $2.5 million, or 17.1 percent from the comparable three months in fiscal 1996 to $17.4 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 $1.4 million occurred in the FAS product line. Net revenues for the nine months ended December 29, 1996 increased $12.3 million, or 32.8 percent from the comparable nine months in fiscal 1996 to $49.9 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 $2.5 million occurred in the FAS product line. COST OF SALES The cost of sales percentage for the three months ended December 29, 1996 was 53.9 percent, a decrease of 9.6 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 gross 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. The cost of sales percentage for the nine months ended December 29, 1996 was 57.3 percent, a decrease of 6.4 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 gross 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. 7 8 OPERATING EXPENSES Operating expenses for the three months ended December 29, 1996 increased $0.6 million, or 13.6 percent, from the comparable period in the prior fiscal year. The increase in operating expenses was due to engineering and development expenditures increasing by $0.6 million, which is attributable to salary expenses within engineering. Selling and marketing expenses increased by $0.2 million related to salary expense increases. General and administrative expenses decreased $0.2 million from reduced salary and consulting expenses. Operating expenses for the nine months ended December 29, 1996 increased $1.4 million or 10.5 percent from the comparable period in the prior fiscal year. The increase in operating expenses was due to engineering and development expenditures increasing by $1.9 million due to salary and occupancy related expenses within engineering. General and administrative expenses increased $0.1 million from expenses related to implementing a new computer system and salaries. Selling and marketing expenses decreased by $0.6 million related to reduced salary, advertising, travel and entertainment expenses. OPERATING INCOME Operating income for the three months ended December 29, 1996 increased $2.0 million compared with the three month period ended December 31, 1995. This increase was associated with gross profit increasing by $2.6 million from the comparable period in the prior fiscal year. An offsetting factor to the gross profit increase was an operating expense increase of $0.6 million from the comparable three month period in the prior fiscal year. Operating income for the nine months ended December 29, 1996 increased $6.2 million from the nine month period ended December 31, 1995. The operating income was associated with gross profit increasing by $7.7 million from the comparable period in the prior fiscal year. An offsetting factor to the gross profit increase was an operating expense increase of $1.4 million from the comparable period in the prior fiscal year. LIQUIDITY AND CAPITAL RESOURCES Working capital at December 29, 1996 increased by $3.5 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 December 29, 1996. The line of credit with Silicon Valley Bank expires July 5, 1997, and the company expects to renew this line of credit for an additional year at that time. QLogic anticipates capital expenditures in fiscal 1997 will be approximately $4.0 million. QLogic also has long-term lease commitments of approximately $0.4 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 December 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 interest, commencing January 1, 1996, at the rate applicable to underpayments of Federal Income Taxes, which was 9 percent at December 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. 8 9 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 products will be able to compete successfully with other products offered presently or in the future by other 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. Based on historical patterns, frequently, a significant percentage of the Company's bookings and sales to major customers on a quarterly basis occur during the last month of the quarter, typically concentrated in the latter half of that month. Although this pattern did not occur in the first nine months of fiscal 1997, it 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 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. 9 10 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. 10 11 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. 11 12 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: February 6, 1997 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) 12 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS MAR-30-1997 NOV-25-1997 DEC-29-1997 15,880 0 5,860 663 3,899 26,570 688 8,608 32,871 9,717 0 0 0 577 21,252 21,829 49,896 49,896 28,598 28,598 15,178 0 (289) 6,409 2,587 3,822 0 0 0 3,822 .62 .61
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