Back to GetFilings.com

Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

Commission file number 0-23298

QLogic Corporation

26650 Aliso Viejo Parkway

(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.

      Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

      As of July 19, 2004, 92,365,141 shares of the Registrant’s common stock were outstanding.

QLOGIC CORPORATION

INDEX

i

Table of Contents

PART I.

FINANCIAL INFORMATION

QLOGIC CORPORATION

See accompanying notes to condensed consolidated financial statements.

1

Table of Contents

QLOGIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

See accompanying notes to condensed consolidated financial statements.

2

Table of Contents

QLOGIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to condensed consolidated financial statements.

3

Table of Contents

QLOGIC CORPORATION

      In the opinion of management of QLogic Corporation (the “Company”), the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting solely of normal recurring accruals) necessary to present fairly the Company’s financial position, results of operations and cash flows. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 28, 2004. The results of operations for the three months ended June 27, 2004 are not necessarily indicative of the results that may be expected for the entire fiscal year. Certain prior year amounts have been reclassified to conform to the current year presentation.

      The components of inventories are as follows:

      The components of total comprehensive income are as follows:

      Basic net income per share is based on the weighted-average number of common shares outstanding during the periods presented. Diluted net income per share is based on the weighted-average number of common shares and dilutive potential common shares outstanding during the periods presented. The Company has granted certain stock options and warrants which have been treated as dilutive potential common shares.

4

Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following table sets forth the computation of basic and diluted net income per share:

      Options to purchase 10,997,000 and 4,425,000 shares of common stock have been excluded from the diluted net income per share calculation for the three months ended June 27, 2004 and June 29, 2003, respectively. These options have been excluded from the diluted net income per share calculations because their effect was antidilutive.

      The Company accounts for its stock-based awards to employees in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25) and related interpretations, rather than the alternative fair value accounting allowed by Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123). APB 25 provides that compensation expense relative to the Company’s stock-based compensation plans (including shares issued under the Company’s stock option and employee stock purchase plans, collectively the “Options”) is measured based on the intrinsic value of Options granted and the Company recognizes compensation expense in its statements of income using the straight-line method over the vesting period for fixed awards. Under SFAS 123, the fair value of Options at the date of grant is recognized in earnings over the vesting period.

5

Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following table shows pro forma net income as if the fair value method of SFAS 123 had been used to account for stock-based compensation expense:

      The fair value of Options granted has been estimated at the date of grant using the Black-Scholes option-pricing model. The Black-Scholes option valuation model was developed for use in estimating the value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including expected stock price volatility. Because the Company’s Options have characteristics significantly different than those of traded options, and because changes in the subjective input assumptions can materially affect the estimate, in management’s opinion, the existing models do not provide a reliable single measure of the fair value of the Company’s Options.

      In February 2003, Vixel Corporation filed suit in the United States District Court for the District of Delaware (the “First Delaware Action”) alleging infringement of a Vixel patent directed to a method and apparatus for Fibre Channel interconnection of private loop devices. In March 2003, Vixel amended its complaint to add two additional Vixel patents. These additional patents were directed to substantially the same technology as the original Vixel patent. The suit sought injunctive relief and damages in an unspecified amount. The Company filed an answer to the complaint in April 2003 denying all allegations.

      In December 2003, the Company filed suit against Emulex (the new parent company of Vixel) in the United States District Court for the Central District of California (the “California Action”) alleging that Emulex infringes one of the Company’s patents related to a digital switch element used in Fibre Channel systems. The suit sought unspecified monetary damages as well as injunctive relief.

      In late February 2004, Emulex filed suit in the United States District Court for the District of Delaware (the “Second Delaware Action”) asking the Delaware court for declaratory relief that: (i) the patent in dispute in the California Action was invalid and, if the patent was valid, then Emulex does not infringe the patent; and (ii) a document entitled “terms of agreement” was a final and binding settlement of the First Delaware Action and the California Action.

      In June 2004, we settled the First Delaware Action, the Second Delaware Action and the California Action, and in connection with that settlement we entered into a license and settlement agreement with Emulex. Under that agreement, (i) we licensed to Emulex the patent in dispute in the California Action;

6

Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(ii) Emulex licensed to us the patents in dispute in the First Delaware Action; (iii) we made a one-time royalty payment to Emulex and agreed to pay royalties on certain future product sales; and (iv) each party agreed to release all claims against the other and to the dismissal of the pending lawsuits.

      The one-time royalty payment was accrued by the Company during the fiscal year ended March 27, 2004. While the terms of the settlement are confidential, management does not believe that either the one-time royalty payment or the ongoing royalty obligation is material to the Company’s financial condition, results of operations or cash flows.

      Various lawsuits, claims and proceedings have been or may be instituted against the Company. The outcome of litigation cannot be predicted with certainty and some lawsuits, claims and proceedings may be disposed of unfavorably to the Company. Many intellectual property disputes have a risk of injunctive relief and there can be no assurance that a license will be granted. Injunctive relief could have a material adverse effect on the Company’s financial condition or results of operations. Based on an evaluation of matters which are pending or asserted, management believes the disposition of such matters will not have a material adverse effect on the Company’s financial condition or results of operations.

      In October 2002, the Company’s Board of Directors approved a stock repurchase program that authorized the Company to repurchase up to $100 million of the Company’s outstanding common stock for a two-year period. The Company has repurchased the entire amount authorized pursuant to the program, including 1.4 million shares of common stock for an aggregate purchase price of $40.0 million during the three months ended June 27, 2004.

      In June 2004, the Company’s Board of Directors approved a new stock repurchase program that authorizes the Company to repurchase up to an additional $100 million of the Company’s outstanding common stock for a two-year period through June 30, 2006.

      The components of interest and other income are as follows: