UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
|
(Mark One)
|
||
|
þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
| For the quarterly period ended June 30, 2002 | ||
| or | ||
|
o
|
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
|
Delaware
|
33-0537669 | |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
|
26600 Laguna Hills Drive Aliso Viejo, California (Address of principal executive offices) |
92656 (Zip Code) |
|
(949) 389-6000
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 þ No o
As of July 31, 2002, the registrant had 93,382,025 shares of common stock outstanding.
QLOGIC CORPORATION
INDEX
| Page | ||||||
| PART I. FINANCIAL INFORMATION | ||||||
|
Item 1.
|
Financial Statements | |||||
| Condensed Consolidated Balance Sheets at June 30, 2002 and March 31, 2002 | 2 | |||||
| Condensed Consolidated Statements of Income for the three months ended June 30, 2002 and July 1, 2001 | 3 | |||||
| Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2002 and July 1, 2001 | 4 | |||||
| Notes to Condensed Consolidated Financial Statements | 5 | |||||
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 7 | ||||
|
Item 3.
|
Quantitative and Qualitative Disclosures on Market Risk | 20 | ||||
| PART II. OTHER INFORMATION | ||||||
|
Item 6.
|
Exhibits and Reports on Form 8-K | 20 | ||||
1
PART I. FINANCIAL INFORMATION
QLOGIC CORPORATION
| June 30, | March 31, | |||||||||
| 2002 | 2002 | |||||||||
| (Unaudited) | ||||||||||
| (In thousands, | ||||||||||
| except share data) | ||||||||||
| ASSETS | ||||||||||
|
Cash and cash equivalents
|
$ | 125,819 | $ | 76,124 | ||||||
|
Short term investments
|
421,565 | 416,422 | ||||||||
|
Accounts and notes receivable, less allowance for
doubtful accounts of $3,420 and $3,429 as of June 30, 2002
and March 31,2002, respectively
|
33,184 | 38,360 | ||||||||
|
Inventories
|
29,090 | 24,758 | ||||||||
|
Deferred income taxes
|
29,324 | 27,635 | ||||||||
|
Prepaid expenses and other current assets
|
2,743 | 3,345 | ||||||||
|
Total current assets
|
641,725 | 586,644 | ||||||||
|
Property and equipment, net
|
59,194 | 60,293 | ||||||||
|
Other assets
|
18,604 | 23,078 | ||||||||
| $ | 719,523 | $ | 670,015 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
|
Accounts payable
|
$ | 18,845 | $ | 15,025 | ||||||
|
Accrued compensation
|
19,432 | 15,142 | ||||||||
|
Accrued warranty
|
3,206 | 3,184 | ||||||||
|
Income taxes payable
|
15,487 | 8,595 | ||||||||
|
Other accrued liabilities
|
8,883 | 9,086 | ||||||||
|
Total current liabilities
|
65,853 | 51,032 | ||||||||
|
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, 93,328,044 and 93,029,087 issued and
outstanding at June 30, 2002 and March 31, 2002,
respectively
|
93 | 93 | ||||||||
|
Additional paid-in capital
|
425,923 | 417,343 | ||||||||
|
Deferred stock-based compensation
|
(3,202 | ) | (3,678 | ) | ||||||
|
Retained earnings
|
228,036 | 204,980 | ||||||||
|
Accumulated other comprehensive income
|
2,820 | 245 | ||||||||
|
Total stockholders’ equity
|
653,670 | 618,983 | ||||||||
| $ | 719,523 | $ | 670,015 | |||||||
See accompanying notes to consolidated financial statements.
2
QLOGIC CORPORATION
| Three Months Ended | ||||||||||
| June 30, | July 1, | |||||||||
| 2002 | 2001 | |||||||||
| (Unaudited) | ||||||||||
| (In thousands, except | ||||||||||
| per share data) | ||||||||||
|
Gross revenues
|
$ | 100,780 | $ | 92,062 | ||||||
|
Stock-based sales discounts
|
1,818 | 2,161 | ||||||||
|
Net revenues
|
98,962 | 89,901 | ||||||||
|
Cost of revenues
|
37,107 | 34,311 | ||||||||
|
Gross profit
|
61,855 | 55,590 | ||||||||
|
Operating expenses:
|
||||||||||
|
Engineering and development
|
18,179 | 17,397 | ||||||||
|
Selling and marketing
|
10,618 | 10,157 | ||||||||
|
General and administrative
|
3,194 | 4,432 | ||||||||
|
Total operating expenses
|
31,991 | 31,986 | ||||||||
|
Operating income
|
29,864 | 23,604 | ||||||||
|
Interest and other income, net
|
4,612 | 5,106 | ||||||||
|
Income before income taxes
|
34,476 | 28,710 | ||||||||
|
Income taxes
|
11,420 | 9,530 | ||||||||
|
Net income
|
$ | 23,056 | $ | 19,180 | ||||||
|
Net income per share:
|
||||||||||
|
Basic
|
$ | 0.25 | $ | 0.21 | ||||||
|
Diluted
|
$ | 0.24 | $ | 0.20 | ||||||
|
Number of shares used in per share calculations:
|
||||||||||
|
Basic
|
93,177 | 92,399 | ||||||||
|
Diluted
|
95,857 | 94,862 | ||||||||
See accompanying notes to condensed consolidated financial statements.
3
QLOGIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Three Months Ended | |||||||||||
| June 30, | July 1, | ||||||||||
| 2002 | 2001 | ||||||||||
| (Unaudited) | |||||||||||
| (In thousands) | |||||||||||
|
Cash flows from operating activities:
|
|||||||||||
|
Net income
|
$ | 23,056 | $ | 19,180 | |||||||
|
Adjustments to reconcile net income to net cash
provided by operating activities:
|
|||||||||||
|
Provision for stock-based sales discounts
|
1,818 | 2,161 | |||||||||
|
Depreciation and amortization
|
3,352 | 2,712 | |||||||||
|
Increase in allowance for doubtful accounts
|
— | 300 | |||||||||
|
Amortization of deferred stock-based compensation
|
476 | 571 | |||||||||
|
Loss on disposal of property and equipment
|
96 | 30 | |||||||||
|
Provision for deferred income taxes
|
1,921 | 3,380 | |||||||||
|
Tax benefit from issuance of stock under employee
stock plans
|
3,568 | 1,563 | |||||||||
|
Changes in assets and liabilities:
|
|||||||||||
|
Accounts and notes receivable
|
5,176 | 1,655 | |||||||||
|
Inventories
|
(4,332 | ) | (344 | ) | |||||||
|
Prepaid expenses and other current assets
|
602 | (377 | ) | ||||||||
|
Other assets
|
864 | (118 | ) | ||||||||
|
Accounts payable
|
3,820 | (5,510 | ) | ||||||||
|
Accrued compensation
|
4,290 | (3,735 | ) | ||||||||
|
Incomes taxes payable
|
6,892 | 4,368 | |||||||||
|
Accrued warranty
|
22 | 52 | |||||||||
|
Other accrued liabilities
|
(203 | ) | 2,401 | ||||||||
|
Net cash provided by operating activities
|
51,418 | 28,289 | |||||||||
|
Cash flows from investing activities:
|
|||||||||||
|
Additions to property and equipment
|
(2,349 | ) | (2,701 | ) | |||||||
|
Purchases of investments
|
(231,061 | ) | (112,217 | ) | |||||||
|
Maturities of investments
|
228,493 | 72,300 | |||||||||
|
Purchase of equity investment
|
— | (3,000 | ) | ||||||||
|
Net cash used in investing activities
|
(4,917 | ) | (45,618 | ) | |||||||
|
Cash flows from financing activities:
|
|||||||||||
|
Proceeds from issuance of stock under employee
stock plans
|
3,194 | 1,854 | |||||||||
|
Net cash provided by financing activities
|
3,194 | 1,854 | |||||||||
|
Net increase (decrease) in cash and cash
equivalents
|
49,695 | (15,475 | ) | ||||||||
|
Cash and cash equivalents at beginning of period
|
76,124 | 128,273 | |||||||||
|
Cash and cash equivalents at end of period
|
$ | 125,819 | $ | 112,798 | |||||||
|
Supplemental disclosure of cash flow information:
|
|||||||||||
|
Cash paid during the year for:
|
|||||||||||
|
Interest
|
$ | 1 | $ | 16 | |||||||
|
Income taxes
|
$ | 368 | $ | 127 | |||||||
|
Supplemental disclosure of non-cash investing and
financing activities:
|
|||||||||||
|
Accrual for acquisition performance payment
|
$ | — | $ | 385 | |||||||
See accompanying notes to condensed consolidated financial statements.
4
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 June 30, 2002, the statements of income for the three months ended June 30, 2002 and July 1, 2001 and the statements of cash flows for the three months ended June 30, 2002 and July 1, 2001. 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 March 31, 2002. The results of operations for the three months ended June 30, 2002 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.
Note (2) Inventories
Components of inventories are as follows:
| June 30, | March 31, | |||||||
| 2002 | 2002 | |||||||
| (In thousands) | ||||||||
|
Raw materials
|
$ | 25,797 | $ | 18,271 | ||||
|
Work in process
|
519 | 2,571 | ||||||
|
Finished goods
|
2,774 | 3,916 | ||||||
| $ | 29,090 | $ | 24,758 | |||||
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 periods 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:
| June 30, | July 1, | ||||||||
| 2002 | 2001 | ||||||||
| (In thousands, except | |||||||||
| per share amounts) | |||||||||
|
Numerator:
|
|||||||||
|
Net income
|
$ | 23,056 | $ | 19,180 | |||||
|
Denominator:
|
|||||||||
|
Denominator for basic net income per share —
weighted average shares
|
93,177 | 92,399 | |||||||
|
Dilutive potential common shares, using treasury
stock method
|
2,680 | 2,463 | |||||||
|
Denominator for diluted net income per share
|
95,857 | 94,862 | |||||||
|
Basic net income per share
|
$ | 0.25 | $ | 0.21 | |||||
|
Diluted net income per share
|
$ | 0.24 | $ | 0.20 | |||||
Options to purchase 4,733,204 and 3,523,409 shares of common stock with exercise prices that exceed the average market price of $45.93 and $45.70 during the three months ended June 30, 2002 and July 1, 2001,
5
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
Statement of Financial Accounting Standards (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. The components of total comprehensive income were as follows:
| Three Months Ended | |||||||||
| June 30, | July 1, | ||||||||
| 2002 | 2001 | ||||||||
| (In thousands) | |||||||||
|
Net income
|
$ | 23,056 | $ | 19,180 | |||||
|
Other comprehensive income, net of tax:
|
|||||||||
|
Unrealized gain (loss) on available for sale
investments
|
2,575 | (180 | ) | ||||||
|
Total comprehensive income
|
$ | 25,631 | $ | 19,000 | |||||
6
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 the results of operations and percentage of net revenues in our consolidated statements of income:
| Three Months Ended | ||||||||||||||||||
| June 30, 2002 | July 1, 2001 | |||||||||||||||||
| (In thousands) | ||||||||||||||||||
|
Net revenues
|
$ | 98,962 | 100 | % | $ | 89,901 | 100 | % | ||||||||||
|
Cost of revenues
|
37,107 | 37.5 | 34,311 | 38.2 | ||||||||||||||
|
Gross profit
|
61,855 | 62.5 | 55,590 | 61.8 | ||||||||||||||
|
Operating expenses:
|
||||||||||||||||||
|
Engineering and development
|
18,179 | 18.4 | 17,397 | 19.4 | ||||||||||||||
|
Selling and marketing
|
10,618 | 10.7 | 10,157 | |||||||||||||||