UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF
1934
For the
fiscal year ended April 3, 2011
Commission File
No. 0-23298
QLogic Corporation
(Exact name of registrant as
specified in its charter)
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Delaware
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33-0537669
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(State of
incorporation)
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(I.R.S. Employer Identification
No.)
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26650 Aliso Viejo Parkway
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Aliso Viejo, California
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92656
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(Address of principal executive
offices)
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(Zip Code)
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(949) 389-6000
(Registrants telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $0.001 Par Value
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The NASDAQ Stock Market LLC
(NASDAQ Global Select Market)
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Securities registered pursuant to Section 12(g) of the
Act:
None
(Title of class)
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the Registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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
Indicate by check mark whether the Registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the Registrant
was required to submit and post such
files). Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of Registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the Registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the voting stock held by
non-affiliates of the Registrant on September 24, 2010 was
$1,798,435,000 (based on the closing price for shares of the
Registrants common stock as reported by the NASDAQ Global
Select Market on such date).
As of May 18, 2011, 104,766,000 shares of the
Registrants common stock were outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Registrants Proxy Statement relating to
the Registrants 2011 Annual Meeting of Stockholders are
incorporated by reference into Part III of this
Form 10-K
where indicated.
PART I
Introduction
QLogic Corporation was organized as a Delaware corporation in
1992. Our principal executive offices are located at 26650 Aliso
Viejo Parkway, Aliso Viejo, California 92656, and our telephone
number at that location is
(949) 389-6000.
Our Internet address is www.qlogic.com. The Companys
Annual Reports, on
Form 10-K,
Quarterly Reports on
Form 10-Q
and Current Reports on
Form 8-K,
and any amendment to these reports, that we file with or furnish
to the Securities and Exchange Commission (SEC) are available
free of charge on our website as soon as reasonably practicable
after those reports are electronically filed with the SEC.
Unless the context indicates otherwise, we,
our, us, QLogic and the
Company each refer to QLogic Corporation and its
subsidiaries.
All references to years refer to our fiscal years ended
April 3, 2011, March 28, 2010 and March 29, 2009,
as applicable, unless calendar years are specified.
Our
Networking Products
We design and supply high performance network infrastructure
connectivity products that provide, enhance and manage computer
data communication. These products facilitate the rapid transfer
of data and enable efficient resource sharing between servers
and storage devices. Our products are used in enterprise data
centers, cloud computing and other environments dependent on
high performance, reliable networking.
Our products are used in connection with three distinct types of
networks: Storage Networks, High Performance Computing, or HPC,
Networks, and Converged Networks. Storage Networks are used to
provide critical data across enterprise environments and
primarily use Fibre Channel technology. HPC Networks facilitate
advanced parallel processing over multiple servers and typically
are used for applications where very large amounts of data must
be processed quickly and efficiently. The HPC Network products
that we sell are based on
InfiniBand®
technology. Converged Networks are designed to address the
evolving data center by consolidating and unifying various
classes of connectivity and networks, such as storage area
networks and local area networks, using Ethernet speeds of 10Gb
and greater. For example, Fibre Channel over Ethernet, or FCoE,
uses one common Ethernet network for both Fibre Channel storage
and Ethernet data transmission, thus combining the benefits of
Fibre Channel technology with the pervasiveness of Ethernet
networks used by most local area networks.
Our products are sold worldwide, primarily to original equipment
manufacturers, or OEMs, and distributors. Our customers rely on
our various networking infrastructure products to deliver
solutions to information technology professionals in virtually
every business sector. Our products are found primarily in
server, workstation and storage subsystem solutions that are
used by small, medium and large enterprises with critical
business data requirements. The business applications that drive
requirements for our networking infrastructure products include:
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General business information technology requirements;
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Cloud computing, data warehousing, data mining and online
transaction processing;
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Media-rich environments such as film and video, broadcast,
medical imaging, computer-aided design, or CAD, and
computer-aided manufacturing, or CAM;
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Server clustering, high-speed backup and data
replication; and
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Research and scientific applications.
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Our products primarily consist of adapters, switches, storage
routers and application-specific integrated circuits, or ASICs.
Adapters physically reside in a server and provide for
connectivity from the server to storage, HPC and converged
networks. Switches and storage routers manage the transmission
and routing of data from servers to storage devices, servers to
servers, or storage devices to storage devices. The ASICs that
we sell are protocol controller chips that are embedded within a
server, a storage device or a switch device.
1
We classify our products into three broad categories: Host
Products, Network Products and Silicon Products. Host Products
consist of Fibre Channel and Internet Small Computer Systems
Interface, or iSCSI, host bus adapters; InfiniBand host channel
adapters; and converged network adapters, which consist of
adapters based on 10Gb Ethernet connectivity. Network Products
consist of Fibre Channel switches, including stackable edge
switches, bladed switches, virtualized pass-through modules, and
high-port count modular-chassis switches; InfiniBand switches,
including high-end multi-protocol directors, edge and bladed
switches; Enhanced Ethernet pass-through modules; and storage
routers for bridging Fibre Channel, FCoE and iSCSI networks, and
migrating data between storage devices. Silicon Products consist
of Fibre Channel controllers, iSCSI controllers, converged
network controllers and Ethernet controllers.
Host Products accounted for 72% of our net revenues for fiscal
2011 and 2010 and 70% of our net revenues for 2009. Network
Products accounted for 18% of our net revenues for fiscal 2011,
2010 and 2009.
Storage
Networking
Our ability to address the market for Storage Networks stems
from our broad product line based on Fibre Channel and iSCSI
technologies. Fibre Channel is currently the dominant technology
for enterprise storage networking, while iSCSI is a lower cost
alternative primarily used by small and medium sized businesses.
We provide Fibre Channel and iSCSI adapters for servers as well
as mezzanine adapters for bladed servers, which connect host
computer servers to storage networks. We also provide a broad
line of Fibre Channel switches, including stackable edge
switches, bladed switches, virtual pass-through modules, and
high-port count modular-chassis switches. Stackable switches use
dedicated high-speed stacking ports as inter-switch links, or
ISLs, allowing for simplified future expansion and scalability,
reduction in necessary device ports, lower upfront and future
expenses, and reduced management costs and complexities.
In addition, we provide intelligent storage routers for bridging
Fibre Channel, FCoE and iSCSI networks. Our intelligent storage
routers provide a cost-effective way for iSCSI-based servers to
access storage devices already deployed on a Fibre Channel
storage network, and also provide the capability to migrate data
from one storage device to another.
HPC
Networking
Our High Performance Computing Networking products are based on
InfiniBand technology. InfiniBand is an industry-standard
specification used to connect servers, storage devices and
embedded systems, and is used primarily within high performance
computing environments where its capability to quickly and
efficiently process data-intense calculations is crucial. Our
ability to successfully address the requirements of server
vendors targeting high performance computing environments is
enhanced by our experience and success addressing the
server-to-storage
connectivity demands of these same customers. These products
provide high performance solutions for cluster and grid
computing networks. We offer a comprehensive,
end-to-end
portfolio of InfiniBand networking products for HPC Networking
including quad data rate, or QDR, host channel adapters, QDR
multi-protocol directors, edge switches and bladed switches, as
well as software tools to install, operate and maintain high
performance networks.
Our QDR InfiniBand switches range from fixed configuration to
fully configurable, modular director class switches. The
modularly designed QLogic directors can scale from as few as 18
ports to the maximum of 864 ports, giving customers the
flexibility they demand.
Converged
Networking
Our Enhanced Ethernet based portfolio included in our Converged
Networking host products consists of converged network adapters,
or CNAs, and Intelligent Ethernet adapters, or IEAs. CNAs are a
new class of host networking products that support the emerging
FCoE technology. FCoE is a converged networking technology that
provides a unified storage and data network over Enhanced
Ethernet, while preserving the investment in existing Fibre
Channel infrastructure and storage. Our CNAs enable true network
convergence by combining the benefits of Fibre Channel
technology with the pervasiveness of Ethernet networks and
leverage our core technology and
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expertise, including our mature Fibre Channel driver stack.
Based on QLogics advanced Network Plus Architecture, our
CNAs are designed for next-generation, virtualized and unified
data centers with powerful multi-processor, multi-core servers
and are available in multiple adapter form factors, including
standard and mezzanine cards. We also provide controllers for
bladed switches and pass-through modules based on FCoE
technology. Although we are shipping FCoE products, as with most
emerging technologies, it is expected that the market for FCoE
will take a number of years to fully develop and mature. Our
IEAs are designed for a variety of applications such as
virtualization, cluster computing, internet protocol content
delivery systems, grid computing, database clustering, network
attached storage, and storage and backup servers.
Business
Combination
In April 2009, we acquired NetXen, Inc. (NetXen) in a merger
transaction. Cash consideration was $17.6 million for all
outstanding NetXen capital stock. NetXen developed, marketed and
sold Ethernet adapter and controller products targeted at the
enterprise server market. The acquisition expanded our product
portfolio to include Ethernet networking products that were
complementary to our existing products. The acquisition also
expanded our expertise to better address a wider range of
emerging customer requirements for converged and 10Gb Ethernet
products.
Customers
Our products are incorporated in solutions from a number of
storage system and computer system OEM customers, including
Cisco Systems, Inc., Dell Inc., EMC Corporation, Hewlett-Packard
Company, International Business Machines Corporation, NetApp,
Inc., Oracle Corporation and many others. A small number of
these customers account for a substantial portion of our net
revenues, and we expect that a small number of customers will
continue to represent a substantial portion of our net revenues
for the foreseeable future. Our top ten customers accounted for
85%, 86% and 84% of net revenues during fiscal 2011, 2010 and
2009, respectively.
A summary of our customers, including their manufacturing
subcontractors, that represent 10% or more of our net revenues
is as follows:
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2011
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2010
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2009
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Hewlett-Packard
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25
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%
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24
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%
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%
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IBM
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19
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%
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%
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18
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Dell
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11
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%
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*
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Sun Microsystems (acquired by Oracle in fiscal 2010)
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*
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*
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11
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%
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Less than 10% of net revenues. |
We believe that our relationships with our customers are good.
However, we believe our major customers continually evaluate
whether or not to purchase products from alternative or
additional sources. Additionally, customers economic and
market conditions frequently change. Accordingly, there can 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 or results of operations.
Some of our OEM customers experience seasonality and uneven
sales patterns in their businesses. As a result, we experience
similar seasonality and uneven sales patterns. The seasonality
is primarily due to the closing of a disproportionate percentage
of sales transactions in the last month, weeks and days of each
quarter and spikes in sales during the fourth quarter of each
calendar year. Although we do not consider our business to be
highly seasonal, we believe that seasonality has and may impact
our business. To the extent that we experience seasonality in
our business, it would most likely have a negative impact on the
sequential growth rate of our net revenues during the fourth
quarter of our fiscal year.
International revenues accounted for 56%, 54% and 52% of our net
revenues for fiscal 2011, 2010 and 2009, respectively. For
additional information on our international sales and
operations, see Managements Discussion and Analysis of
Financial Condition and Results of Operations, included in
Part II, Item 7 of this report. For a discussion of
risks related to our foreign operations, see Risk Factors,
included in Part I, Item 1A of this report.
3
Sales and
Marketing
Our products are marketed and sold primarily to OEMs by our
internal sales team supported by field sales and systems
engineering personnel. In addition, we sell our products through
a network of regional and international distributors.
In domestic and in certain international markets, we maintain
both a sales force to serve our OEM customers and distributors
that are focused on medium-sized and emerging accounts. We
maintain a focused business development and outbound marketing
organization to assist, train and equip the sales organizations
of our OEM customers and their respective reseller organizations
and partners. We maintain sales offices in the United States and
various international locations. For information regarding
revenue by geographic area, see Managements Discussion and
Analysis of Financial Condition and Results of Operations,
included in Part II, Item 7 of this report.
We work with our storage system and computer system OEM
customers during their design cycles. We support these customers
with pre-sales system design support and services, as well as
training classes and seminars conducted both in the field and
from our worldwide offices.
Our sales efforts are focused on establishing and developing
long-term relationships with our OEM customers. The sales cycle
typically begins with the identification of an OEMs
requirement that could be potentially fulfilled with an existing
QLogic product or a product based on a new technology. The cycle
continues with technical and sales collaboration with the OEM
and, if successful, leads to one of our product designs being
selected as a component in a potential customers storage
system or computer system. We then work closely with the
customer to integrate our products with the customers
current and next generation products or platforms. This cycle,
from opportunity identification to initial production shipment,
typically ranges from six to twenty-four months.
In addition to sales and marketing efforts, we actively
participate with industry organizations relating to the
development and acceptance of industry standards. We collaborate
with peer companies through open standards bodies, cooperative
testing and certifications. To ensure and promote multi-vendor
interoperation, we maintain interoperability certification
programs and testing laboratories.
Engineering
and Development
Our industry is subject to rapid and regular technological
change. Our ability to compete depends upon our ability to
continually design, develop and introduce new products that take
advantage of market opportunities and address emerging
standards. Our strategy is to leverage our substantial base of
architectural and systems expertise to address a broad range of
storage and server networking solutions.
We are engaged in the design and development of ASICs, adapters
and switches based on one or more of Fibre Channel, iSCSI, FCoE
and Ethernet technologies. We also design and develop ASICs,
adapters and switches based on InfiniBand technology for HPC
environments; and storage routers for bridging Fibre Channel,
FCoE and iSCSI networks, and migrating data between storage
devices.
We continue to invest in engineering and development to expand
our capabilities to address the emerging technologies in the
rapid evolution of storage, HPC and converged networks. During
fiscal 2011, 2010 and 2009, we incurred engineering and
development expenses of $137.7 million, $136.8 million
and $133.3 million, respectively.
Backlog
A substantial portion of our sales with OEM customers are
transacted through hub arrangements whereby our products are
purchased on a
just-in-time
basis and fulfilled from warehouse facilities, or hubs, in
proximity to the facilities of our customers or their contract
manufacturers. Our sales are made primarily pursuant to purchase
orders, including blanket purchase orders for hub arrangements.
Because of the hub arrangements with our customers and industry
practice that allows customers to cancel or change orders with
limited advance notice, we believe that backlog at any
particular date is not a reliable indicator of our future
revenue levels and is not material to understanding our business.
4
Competition
The markets for networking infrastructure components are highly
competitive and characterized by short product life cycles,
price erosion, rapidly changing technology, frequent product
performance improvements and evolving industry standards. We
believe the principal competitive factors in our industry
include:
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time-to-market;
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features and functionality;
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product quality, reliability and performance;
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price;
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new product innovation;
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customer relationships;
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design capabilities;
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customer service and technical support; and
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interoperability of components in storage, HPC and converged
networks.
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While we expect competition to continue to increase and evolve,
we believe that we compete effectively with respect to each of
these factors.
Due to the diversity of products required in storage, HPC and
converged networking infrastructure, we compete with many
companies. In the traditional enterprise storage Fibre Channel
adapter market, our primary competitor is Emulex Corporation,
with Brocade Communications Systems, Inc. also participating. In
the iSCSI adapter market, our primary competitor is Broadcom
Corporation and we also compete indirectly with companies
offering software initiator solutions. In the 10Gb Ethernet
adapter market, which includes converged networking products, we
compete with Emulex Corporation, Brocade Communications Systems,
Inc., Broadcom Corporation and Intel Corporation. In the Fibre
Channel switch and storage router markets, we compete primarily
with Brocade Communications Systems, Inc. and Cisco Systems,
Inc. In the InfiniBand adapter and switch markets, we compete
primarily with Mellanox Technologies, Ltd.
Manufacturing
We use outside suppliers and foundries to manufacture our
products. This approach allows us to avoid the high costs of
owning, operating, maintaining and upgrading wafer fabrication
and assembly facilities. As a result, we focus our resources on
product design and development, quality assurance, sales and
marketing, and supply chain management. Prior to the sale of our
products, final tests are performed to ensure quality. Product
test, customer-specific configuration and product localization
are completed by third-party service providers or by us. We also
provide fabrication process reliability tests and conduct
failure analysis to confirm the integrity of our quality
assurance procedures.
Our semiconductors are currently manufactured by a number of
foundries. Most of the ASICs used in our products are
manufactured using 180, 130, 90 or 65 nanometer process
technology. In addition, we continually evaluate smaller
geometries. In the past, we have experienced some difficulties
in shifting to smaller geometry process technologies or new
manufacturing processes, which resulted in reduced manufacturing
yields, delays in product deliveries and increased expenses. We
may face similar difficulties, delays and expenses as we
continue to transition our products to smaller geometry
processes.
We depend on foundries to allocate a portion of their capacity
sufficient to meet our needs and to produce products of
acceptable quality and with satisfactory manufacturing yields in
a timely manner. These foundries fabricate products for other
companies and, in certain cases, manufacture products of their
own design. We do not have long-term supply agreements with any
of these foundries; we purchase both wafers and finished chips
on a purchase order basis. Therefore, the foundries generally
are not obligated to supply products to us for any specific
period, in any specific quantity or at any specific price,
except as may be provided in a particular purchase order. We
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work with our existing foundries, and may qualify new foundries,
as needed, to obtain additional manufacturing capacity. However,
there can be no assurance that we will be able to maintain our
current foundry relationships or obtain additional capacity.
We currently purchase our semiconductor products from foundries
either in finished or wafer form. We use subcontractors to
assemble our semiconductor products purchased in wafer form. In
the assembly process for our semiconductor products, the silicon
wafers are separated into individual die, which are then
assembled into packages and tested.
For our adapter, switch and other products, we use third-party
contract manufacturers for material procurement, assembly, test
and inspection in a turnkey model, prior to shipment to our
customers. These contract manufacturers are located outside the
United States. To the extent that we rely on these contract
manufacturers, we are not able to directly control product
delivery schedules and quality assurance. The loss of one of our
major contract manufacturers could significantly impact our
ability to produce products for an indefinite period of time.
Qualifying a new contract manufacturer and commencing volume
production is a lengthy and expensive process. While we believe
that our relationships with our contract manufacturers are good,
if we are required to change a contract manufacturer or if a
contract manufacturer experiences delays, disruptions, capacity
constraints, component part shortages or quality control
problems in its manufacturing operations, shipment of our
products to our customers could be delayed, resulting in loss or
postponement of revenue and potential harm to our competitive
position and relationships with customers.
Certain key components used in the manufacture of our products
are purchased from single or limited sources. ASICs are
purchased from single sources and other key components such as
microprocessors, logic chips, power supplies and programmable
logic devices are purchased from limited sources. If one of
these suppliers experiences an interruption in its ability to
supply our needs, or chooses to sever their relationship with
us, we may be unable to produce certain of our products until
alternative suppliers are identified and qualified.
Many of the component parts used in our adapter, switch and
other products are standard
off-the-shelf
items, which are, or can be, obtained from more than one source.
We select suppliers on the basis of technology, manufacturing
capacity, financial viability, quality and cost. Our reliance on
third-party manufacturers involves risks, including possible
limitations on availability of products due to market
abnormalities, geopolitical instability, unavailability of or
delays in obtaining access to certain product technologies, and
the absence of complete control over delivery schedules,
manufacturing yields and total production costs. The inability
of our suppliers to deliver products of acceptable quality and
in a timely manner or our inability to procure adequate supplies
of our products could have a material adverse effect on our
business, financial condition or results of operations.
Intellectual
Property
While we have a number of patents issued and additional patent
applications pending in the United States, Canada, Europe and
Asia, we rely primarily on our trade secrets, trademarks,
copyrights and contractual provisions to protect our
intellectual property. We attempt to protect our proprietary
information through confidentiality agreements and contractual
provisions with our customers, suppliers, employees and
consultants, and through other security measures. However, 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.
Our ability to compete may be affected by our ability to protect
our intellectual property. We protect our rights vigorously,
however there can be no assurance that these measures will be
successful.
We have in the past received notices of claimed infringement of
intellectual property rights and been involved in intellectual
property litigation. There can be no assurance that third
parties will not assert additional claims of infringement of
intellectual property rights against us, or against customers
who we are contractually obligated to indemnify, with respect to
existing and future products. In the event of a patent or other
intellectual property dispute, we may be required to expend
significant resources to defend such claims, develop
non-infringing technology or to obtain licenses to the
technology that is the subject of the claim. There can be no
assurance that we would be successful in such development or
that any such license would be available on commercially
reasonable terms, if at
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all. In the event of litigation to determine the validity of any
third partys claims, such litigation could result in
significant expense to us, and divert the efforts of our
technical and management personnel, whether or not such
litigation is determined in our favor.
Some of our products are designed to include software or other
intellectual property licensed from third parties. None of these
licenses relate to core QLogic-developed technology, are
material to our business, or require payment of amounts that are
material.
Environment
Our operations are subject to regulation under various federal,
state, local and foreign laws concerning the environment,
including laws addressing the discharge of pollutants into the
environment, the management and disposal of hazardous substances
and wastes, and the cleanup of contaminated sites. We could
incur substantial costs, including cleanup costs, fines and
civil or criminal sanctions, and third-party damage or personal
injury claims, if we violate or become liable under
environmental laws.
Most of our products are also subject to various laws governing
chemical substances in products, including those regulating the
manufacture and distribution of chemical substances and those
restricting the presence of certain substances in electronic
products. We could incur substantial costs, or our products
could be restricted from entering certain countries, if our
products become non-compliant with environmental laws. We also
face increasing complexity in our product design and procurement
operations as we adjust to new and future requirements relating
to the materials composition of our products. For example, the
European Union adopted the Waste Electrical and Electronic
Equipment, or WEEE, Directive, pursuant to which European Union
countries have enacted legislation making producers of
electrical goods financially responsible for specified
collection, recycling, treatment and disposal of past and future
covered products. These and similar laws adopted in other
countries could impose a significant cost of doing business in
those countries.
Environmental costs are presently not material to our results of
operations or financial position, and we do not currently
anticipate material capital expenditures for environmental
control facilities.
Working
Capital
Our working capital was $437.3 million as of April 3,
2011, which includes $384.1 million of cash, cash
equivalents and investment securities. For additional
information, see Managements Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources, included in Part II,
Item 7 of this report.
Employees
We had 1,147 employees as of May 18, 2011. We believe
our future prospects will depend, in part, on our ability to
continue to attract, train, motivate, retain and manage skilled
engineering, sales, marketing and executive personnel. Our
employees are not represented by a labor union. We believe that
our relations with our employees are good.
Set forth below and elsewhere in this report and in other
documents we file with the Securities and Exchange Commission
are risks and uncertainties that could cause our actual results
of operations to differ materially from the results contemplated
by the forward-looking statements contained in this report or
otherwise publicly disclosed by the Company.
Our
operating results may be adversely affected by unfavorable
economic conditions.
The United States and other countries around the world have
experienced, and may continue to experience, economic weakness
and uncertainty. Economic uncertainty has adversely affected,
and in the future may adversely affect, information technology,
or IT, spending rates. Reductions in IT spending rates could
result in reduced sales
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volumes, lower prices for our products, longer sales cycles,
increased inventory provisions and increased production costs,
which could negatively impact our results of operations.
As a result of worldwide economic uncertainty, it is extremely
difficult for us and our customers to forecast future revenue
levels based on historical information and trends. Portions of
our expenses are fixed and others are tied to expected levels of
revenue. To the extent that we do not achieve our anticipated
level of revenue, our operating results could be adversely
affected until such expenses are reduced to an appropriate
level. We may not be able to identify and implement appropriate
cost savings in a timely manner.
Our
operating results may fluctuate in future periods, which could
cause our stock price to decline.
We have experienced, and expect to experience in future periods,
fluctuations in sales and operating results from quarter to
quarter. In addition, there can be no assurance that we will
maintain our current gross margins or profitability in the
future. A significant portion of our net revenues in each fiscal
quarter results 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 also be the
result of:
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the timing, size and mix of orders from customers;
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gain or loss of significant customers;
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industry consolidation among both our competitors and our
customers;
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customer policies pertaining to desired inventory levels of our
products;
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sales discounts and customer incentives;
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the availability and sale of new products;
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changes in our average selling prices;
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variations in manufacturing capacities, efficiencies and costs;
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the availability and cost of components, including silicon chips;
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variations in product development costs, especially related to
advanced technologies;
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variations in operating expenses;
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changes in effective income tax rates, including those resulting
from changes in tax laws;
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our ability to timely produce products that comply with new
environmental restrictions or related requirements of our
original equipment manufacturer, or OEM, customers;
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actual events, circumstances, outcomes and amounts differing
from judgments, assumptions and estimates used in determining
the value of certain assets (including the amounts of related
valuation allowances), liabilities and other items reflected in
our consolidated financial statements;
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the timing of revenue recognition and revenue deferrals;
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gains or losses related to our investment securities; or
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changes in accounting rules or our accounting policies.
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In addition, our quarterly results of operations are influenced
by competitive factors, including the pricing and availability
of our products and our competitors products. Furthermore,
communications 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
affected 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
8
expectations of public market analysts or investors, and as a
result, the price of our common stock could significantly
decrease.
We expect
gross margin to vary over time and our recent level of gross
margin may not be sustainable.
Our recent level of gross margin may not be sustainable and may
be adversely affected by numerous factors, including:
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changes in product mix;
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transitions to products based on emerging technologies, such as
10Gb Ethernet, which may have lower gross margins;
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changes in manufacturing volumes over which fixed costs are
absorbed;
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increased price competition;
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introduction of new products by us or our competitors, including
products with advantages in price, performance or features;
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our inability to reduce manufacturing-related or component costs;
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entry into new markets or the acquisition of new businesses;
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amortization and impairments of purchased intangible assets;
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sales discounts and customer incentives;
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increases in material, labor or overhead costs;
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excess inventory and inventory holding charges;
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changes in distribution channels; and
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increased warranty costs.
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Our stock
price may be volatile.
The market price of our common stock has fluctuated
substantially, and there can be no assurance that such
volatility will not continue. Several factors could impact our
stock price including, but not limited to:
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differences between our actual revenues and operating results
and the published expectations of public market analysts;
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quarterly fluctuations in our revenues and operating results;
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introduction of new products or changes in product pricing
policies by our competitors or us;
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conditions in the markets in which we operate;
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changes in market projections by industry forecasters;
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changes in estimates of our earnings or rating
upgrades/downgrades of our stock by public market analysts;
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operating results or forecasts of our major customers or
competitors;
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rumors or dissemination of false information; and
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general economic and geopolitical conditions.
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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
public companies for reasons frequently unrelated to the
operating performance of the specific companies. These broad
market fluctuations could adversely affect the market price of
our common stock.
9
Our
business is dependent, in large part, on the continued growth of
the networking markets that we serve and if these markets do not
continue to develop, our business will suffer.
Our products are used in storage, high performance computing, or
HPC, and converged networks, and therefore our business is
dependent on these markets. Our success in generating revenue in
these markets will depend on, among other things, our ability to:
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educate potential OEM customers, distributors, resellers, system
integrators, storage system providers and end-user organizations
about the benefits of our products;
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maintain and enhance our relationships with OEM customers,
distributors, resellers, system integrators and storage system
providers;
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predict and base our products on standards that ultimately
become industry standards; and
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achieve and maintain interoperability between our products and
other equipment and components from diverse vendors.
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Our
financial condition will be materially harmed if we do not
maintain and gain market 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:
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enhance our current products and develop and introduce, in a
timely manner, new products that keep pace with technological
developments and industry standards;
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compete effectively on the basis of price and
performance; and
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adequately address OEM and end-user customer requirements and
achieve market acceptance.
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We believe that to remain competitive, we will need to continue
to develop new products and enter new markets, which will
require significant investment. Our competitors may be
developing alternative technologies, which may adversely affect
the market acceptance of our products. Although we continue to
explore and develop products based on new technologies, a
substantial portion of our revenues is generated today from
Fibre Channel technology. If alternative technologies are
adopted by the industry, we may not be able to develop products
for these technologies 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 or
in sufficient volumes.
Some of our products are based on the Fibre Channel over
Ethernet, or FCoE, 10Gb Ethernet or InfiniBand technologies.
FCoE is a relatively new converged networking technology that
provides a unified storage and data network over Enhanced
Ethernet, while preserving the investment by end users in their
existing Fibre Channel infrastructure and storage. As with most
emerging technologies, it is expected that the market for FCoE
will take a number of years to fully develop and mature. We
expect products based on FCoE to supplement, and perhaps
replace, certain products based on Fibre Channel technology.
10Gb Ethernet is a developing technology for use in enterprise
data centers. This emerging market includes well-established
participants who have significantly more sales and marketing
resources to dedicate to developing and penetrating the market
than we do. InfiniBand is currently used primarily in high
performance computing environments, and may not be adopted at
the rate or to the extent that we anticipate, or the market may
not materialize at all. An inability to maintain, or build on,
our market share in the Fibre Channel, converged, 10Gb Ethernet
or InfiniBand markets, or the failure of these markets to
expand, could have a material adverse effect on our business or
results of operations.
We depend
on a small number of customers and any decrease in revenues from
any one of our major customers could adversely affect our
results of operations and 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 small number of customers
will continue to represent a substantial portion of our net
revenues in the foreseeable future. Our top ten customers
accounted for 85%, 86% and 84% of net revenues for fiscal 2011,
2010 and 2009,
10
respectively. Total revenue from our two largest customers,
Hewlett-Packard Company and International Business Machines
Corporation, accounted for over 40% of net revenues during
fiscal 2011 and 2010. We are also subject to credit risk
associated with the concentration of our accounts receivable.
Our customers generally order products through written purchase
orders instead of long-term supply contracts and, therefore, 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 sales terms, including
pricing, customer incentives and payment terms, or insist that
we undertake or fund significant aspects of the design,
qualification and testing that our customers have typically been
responsible for, either of which could have a material adverse
effect on our business, financial condition or results of
operations. As our OEM 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 achieved. If we are
unable to achieve these cost reductions, our gross margins could
decline and such a decline could have a material adverse effect
on our business, financial condition or results of operations.
The ongoing consolidation in the technology industry could
adversely impact our business. There is the potential for some
of our customers to merge with or acquire one or more of our
other customers. There is also a potential that one of our large
customers could acquire one of our current competitors. In
either case, demand for our products could decrease as a result
of such industry consolidation, which could have a material
adverse effect on our business, financial condition or results
of operations.
Competition
within the markets for products such as ours is intense and
includes various established competitors.
The markets for networking infrastructure components are highly
competitive and are characterized by short product life cycles,
price erosion, rapidly changing technology, frequent product
performance improvements and evolving industry standards. Due to
the diversity of products required in storage, HPC and converged
networking infrastructure, we compete with many companies. In
the traditional enterprise storage Fibre Channel adapter market,
our primary competitor is Emulex Corporation, with Brocade
Communications Systems, Inc. also participating. In the Internet
Small Computer Systems Interface, or iSCSI, adapter market, our
primary competitor is Broadcom Corporation and we also compete
indirectly with companies offering software initiator solutions.
In the 10Gb Ethernet adapter market, which includes converged
networking products, we compete with Emulex Corporation, Brocade
Communications Systems, Inc., Broadcom Corporation and Intel
Corporation. In the Fibre Channel switch and storage router
markets, we compete primarily with Brocade Communications
Systems, Inc. and Cisco Systems, Inc. In the InfiniBand adapter
and switch markets, we compete primarily with Mellanox
Technologies, Ltd. We may also compete with some of our server
and storage systems customers, some of which have the capability
to develop products comparable to those we offer.
We need to continue to develop products appropriate to our
markets to remain competitive as our competitors continue to
introduce products with improved features. While we continue to
devote significant resources to engineering and development,
these efforts may not be successful or competitive products may
not be developed and introduced in a timely manner. In addition,
while relatively few competitors offer a full range of storage,
HPC and converged networking infrastructure products, additional
domestic and foreign manufacturers may increase their presence
in these markets either through the development of new products
or through industry consolidation. We may not be able to compete
successfully against these or other competitors. If we are
unable to design, develop or introduce competitive new products
on a timely basis, our future operating results may be
materially and adversely affected.
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.
Our products are complex and may contain undetected software or
hardware errors when first introduced or as newer versions are
released. We are also exposed to risks associated with latent
defects in existing products and to risks that components
purchased from third-party subcontractors and incorporated into
our products may not meet our specifications or may otherwise
fail prematurely. From time to time, we have found errors in
existing, new or
11
enhanced products. In addition, our products are frequently
combined with other products, including software, from other
vendors, and these products often need to interface with
existing networks, each of which have different specifications
and utilize multiple protocol standards. As a result, when
problems occur, it may be difficult to identify the source of
the problem. The occurrence of hardware or software errors could
adversely affect the 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.
We expect
the pricing of our products to continue to decline, which could
reduce our revenues, gross margins and profitability.
We expect the average unit prices of our products (on a
like-for-like
product comparison basis) to decline in the future as a result
of competitive pricing pressures, increased sales discounts and
customer incentives, new product introductions by us or our
competitors, or other factors. If we are unable to offset these
factors by increasing sales volumes or reducing product
manufacturing costs, our total revenues and gross margins may
decline. In addition, we must develop and introduce new products
and product enhancements. Moreover, most of our expenses are
fixed in the short-term or incurred in advance of receipt of
corresponding revenues. As a result, we may not be able to
decrease our spending to offset any unexpected shortfall in
revenues. If this occurs, our revenues, gross margins and
profitability could decline.
We are
dependent on sole source and limited source suppliers for
certain key components.
Certain key components used in the manufacture of our products
are purchased from single or limited sources.
Application-specific integrated circuits, or ASICs, are
purchased from single sources and other key components such as
microprocessors, logic chips, power supplies and programmable
logic devices are purchased from limited sources. If one of
these suppliers experiences an interruption in its ability to
supply our needs, or chooses to sever its relationship with us,
we may be unable to produce certain of our products, which could
result in the loss of customers and have a material adverse
effect on our results of operations.
We are
dependent on worldwide third-party subcontractors and contract
manufacturers.
Third-party subcontractors located outside the United States
assemble and test certain products for us. To the extent that we
rely on third-party subcontractors to perform these functions,
we will not be able to directly control product delivery
schedules and quality assurance. This lack of control may result
in product shortages or quality assurance problems that could
delay shipments of products or increase manufacturing, assembly,
testing or other costs. If a subcontractor experiences capacity
constraints or financial difficulties, suffers damage to their
facilities, experiences power outages or any other disruption of
assembly or testing capacity, we may not be able to obtain
alternative assembly and testing services in a timely manner.
In addition, the loss of any of our major third-party contract
manufacturers could significantly impact our ability to produce
products for an indefinite period of time. Qualifying a new
contract manufacturer and commencing volume production is a
lengthy and expensive process. Some customers will not purchase
any products, other than a limited number of evaluation units,
until they qualify the manufacturing line for the product, and
we may not always be able to satisfy the qualification
requirements of these customers. If we are required to change a
contract manufacturer or if a contract manufacturer experiences
delays, disruptions, capacity constraints, component parts
shortages or quality control problems in its manufacturing
operations, shipment of our products to our customers could be
delayed, resulting in loss or postponement of revenues and
potential harm to our competitive position and relationships
with customers.
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,
as well as Simon Biddiscombe, our Chief Executive Officer, and
H.K. Desai, our Executive Chairman. Our retention of both
Mr. Biddiscombe and
12
Mr. Desai are particularly important to our business. If we
lose the services of Mr. Biddiscombe, Mr. Desai or
other key personnel, or do not hire or retain other personnel
for key positions, our business could 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. For example, the market for qualified technical
personnel within India has become extremely competitive,
resulting in significant wage inflation. Our recent
implementation of various cost-saving measures, as well as past
reductions in force, could negatively impact employee morale and
potentially make attracting and retaining qualified employees
more difficult in the future. As a result, 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.
We have historically used stock options and other forms of
stock-based compensation as key components of our total employee
compensation program in order to align employees interests
with the interests of our stockholders, encourage retention of
key personnel, and provide competitive compensation packages.
However, applicable stock exchange listing standards relating to
obtaining stockholder approval of equity compensation plans
could make it more difficult or expensive for us to grant
stock-based awards to employees in the future, which may result
in changes in our stock-based compensation strategy. These and
other developments relating to the provision of stock-based
compensation to employees could make it more difficult to
attract, retain and motivate key personnel.
The
migration of our customers toward new products could adversely
affect our results of operations.
As new or enhanced products are introduced, we must successfully
manage the transition from older products in order to minimize
the effects of product inventories that may become excess and
obsolete, as well as ensure that sufficient supplies of new
products can be delivered to meet customer demand. Our failure
to manage the transition to newer products in the future or to
develop and successfully introduce new products and product
enhancements could adversely affect our business or results of
operations. In addition, our customers are demanding a higher
level of customization for new products, which prevents us from
fully leveraging our product design work and adds to our new
product development costs. When we introduce new products and
product enhancements, we face additional risks relating to
product transitions, including risks relating to forecasting
demand. Any such adverse event or increased costs could have a
material adverse effect on our business, financial condition or
results of operations.
Historically, the technology industry has developed higher
performance ASICs, which create chip-level solutions that
replace selected board-level or box-level solutions at a
significantly lower average selling price. We have previously
offered ASICs to customers for certain applications that have
effectively resulted in a lower-priced solution when compared to
an adapter solution. This transition to ASICs may also occur
with respect to other current and future products. The result of
this transition may have an adverse effect on our business,
financial condition or results of operations. In the future, a
similar adverse effect to our business could occur if there were
rapid shifts in customer purchases from our midrange networking
infrastructure products to lower-cost products.
Our
business is subject to seasonal fluctuations and uneven sales
patterns.
A large percentage of our products are sold to customers who
experience seasonality and uneven sales patterns in their
businesses. As a result, we experience similar seasonality and
uneven sales patterns. We believe this uneven sales pattern is a
result of many factors including:
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the tendency of our customers to close a disproportionate
percentage of their sales transactions in the last month, weeks
and days of each quarter;
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spikes in sales during the fourth quarter of each calendar year
that some of our customers experience; and
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differences between our quarterly fiscal periods and the fiscal
periods of our customers.
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In addition, because our customers require us to maintain
products at hub locations near their facilities, it is difficult
for us to predict sales trends. Our uneven sales pattern also
makes it extremely difficult to predict the demand of our
customers and adjust manufacturing capacity accordingly. If we
predict demand that is substantially
13
greater than actual customer orders, we will have excess
inventory. Alternatively, if customer orders substantially
exceed predicted demand, the ability to assemble, test and ship
orders received in the last weeks and days of each quarter may
be limited, or at an increased cost, which could have a material
adverse effect on quarterly revenues and earnings.
Our
distributors may not adequately stock and sell our products and
their reseller customers may purchase products from our
competitors, which could negatively affect our results of
operations.
Our distributors, which account for less than 30% of our net
revenues, 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
stocking and selling products from other suppliers, thus
reducing their efforts and ability to sell our products. A
reduction in sales efforts by our current distributors could
materially and adversely impact our business or results of
operations. In addition, if we decrease our
distributor-incentive programs (i.e., competitive pricing and
rebates), our distributors may decrease the amount of product
purchased from us. This could result in a change of business
behavior, and distributors may decide to decrease the amount of
product held and reduce their inventory levels, which could
impact availability of our products to their customers.
As a result of these factors regarding our distributors or other
unrelated factors, the reseller customers of our distributors
could decide to purchase products developed and manufactured by
our competitors. Any loss of demand for our products by
value-added resellers and system integrators could have a
material adverse effect on our business or results of operations.
Unanticipated
changes in our tax provisions or adverse outcomes resulting from
examination of our income tax returns could adversely affect our
results of operations.
We are subject to income taxes in the United States and various
foreign jurisdictions. Our effective income tax rates have been
and could in the future be adversely affected by changes in tax
laws or interpretations of those tax laws, by changes in the mix
of earnings in countries with differing statutory tax rates, or
by changes in the valuation of our deferred tax assets and
liabilities. Our effective income tax rates are also affected by
intercompany transactions for licenses, services, funding and
other items. Given the increased global scope of our operations,
and the complexity of global tax and transfer pricing rules and
regulations, it has become increasingly difficult to estimate
earnings within each tax jurisdiction. If actual earnings within
a tax jurisdiction differ materially from our estimates, we may
not achieve our expected effective tax rate. Additionally, our
effective tax rate may be impacted by the tax effects of
acquisitions, examinations by tax authorities, stock-based
compensation, uncertain tax positions and newly enacted tax
legislation. For example, proposed changes to certain
U.S. tax rules for U.S. corporations doing business
outside the United States include limiting the ability of
U.S. corporations to deduct certain expenses attributable
to offshore earnings, modifying the foreign tax credit rules and
accelerating taxes related to certain transfers of intangible
assets offshore. Although the scope of the proposed changes is
unclear, it is possible that these or other changes in the
U.S. tax laws could increase our effective tax rate and
adversely affect our profitability. Finally, we are subject to
examination of our income tax returns by the United States
Internal Revenue Service (IRS) and other tax authorities, which
may result in the assessment of additional income taxes. Our
federal consolidated income tax returns for fiscal years 2008
and 2009 are currently under examination by the IRS. We
regularly assess the likelihood of adverse outcomes resulting
from examinations to determine the adequacy of our provisions
for income taxes. However, unanticipated outcomes from
examinations could have a material adverse effect on our
financial condition or results of operations.
Because
we have operations in foreign countries and depend on foreign
customers and suppliers, we are subject to international
economic, currency, regulatory, political and other risks that
could harm our business, financial condition and results of
operations.
International revenues accounted for 56%, 54% and 52% of our net
revenues for fiscal 2011, 2010 and 2009, respectively. We expect
that international revenues will continue to account for a
significant percentage of our net revenues for the foreseeable
future. In addition, we maintain operations in foreign countries
and a significant
14
portion of our inventory purchases are from suppliers that are
located outside the United States. As a result, we are subject
to several risks, which include:
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a greater difficulty of administering and managing our business
globally;
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compliance with multiple, and potentially conflicting,
regulatory requirements, such as import or export requirements,
tariffs and other barriers;
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less effective intellectual property protections outside of the
United States;
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currency fluctuations;
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overlapping or differing tax structures;
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political and economic instability, including terrorism and
war; and
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general trade restrictions.
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As of April 3, 2011, our international subsidiaries held
67% of our total cash, cash equivalents and investment
securities. These holdings by our international subsidiaries
consist primarily of debt securities due from U.S. issuers,
including the U.S. government and related agencies, and
U.S. dollar denominated cash and money market funds.
Certain foreign regulations could impact our ability to transfer
funds to the United States. Additionally, should we decide to
repatriate cash held outside of the United States, we may incur
a significant tax obligation.
Our international 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. In
addition, a significant portion of our inventory is purchased
from international suppliers, who invoice us in
U.S. dollars. If the relative value of the U.S. dollar
in comparison to the currency of our foreign suppliers should
decrease, our suppliers may increase prices, which could result
in a decline of our gross margin. Any of the foregoing factors
could have a material adverse effect on our business, financial
condition or results of operations.
In addition, we and our customers are subject to various import
and export regulations of the United States government and other
countries. Certain government export regulations apply to the
encryption or other features contained in some of our products.
Changes in or violations of any such import or export
regulations could materially and adversely affect our business,
financial condition or results of operations.
Moreover, in many foreign countries, particularly in those with
developing economies, it is common to engage in business
practices that are prohibited by regulations applicable to us,
such as the Foreign Corrupt Practices Act. Although we implement
policies and procedures designed to ensure compliance with these
laws, our employees, contractors and agents, as well as those
companies to which we outsource certain of our business
operations, may take actions in violation of our policies. Any
such violation, even if prohibited by our policies, could have a
material adverse effect on our business, financial condition or
results of operations.
Our
facilities and the facilities of our suppliers and customers are
located in regions that are subject to natural
disasters.
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 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 or financial condition.
Additionally, we have operations, suppliers and customers in
regions which have historically experienced natural disasters.
Any earthquake or other natural disaster, including a hurricane,
volcanic eruption, tsunami or fire, affecting any of these
regions could adversely affect our business, results of
operations and financial condition.
Specifically, the recent earthquake, tsunami and related events
in Japan have caused widespread destruction in a region that
includes suppliers of components for many technology companies.
Although we do not source any critical components directly from
this region, we have carefully evaluated the potential impact of
these events on our supply chain and have taken proactive steps
to mitigate any potential supply risk exposures. While we will
15
continue to closely monitor this situation, we currently do not
expect to have any disruptions to our supply chain that would
adversely impact our results of operations. In addition, our
major customers may face shortages of components that could
negatively impact their ability to build the servers and data
center devices into which our products are integrated. While
none of our major customers have advised us of any supply
constraints that would materially impact their purchases of our
products, we continue to closely monitor their product demand.
If the impact on our supply chain or customer demand as a result
of this disaster is significantly different than our current
expectation, our business, results of operations and financial
condition could be adversely affected.
Our
proprietary rights may be inadequately protected and difficult
to enforce.
In some jurisdictions, we have patent protection on certain
aspects of our technology. However, we rely primarily on trade
secrets, trademarks, 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. We have taken steps in several
jurisdictions to enforce our trademarks against third parties.
No assurances can be given that we will ultimately be successful
in protecting our trademarks. 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 could be
negatively impacted.
Disputes
relating to claimed infringement of intellectual property rights
may adversely affect our business.
We have in the past received notices of claimed infringement of
intellectual property rights and been involved in intellectual
property litigation. There can be no assurance that third
parties will not assert future claims of infringement of
intellectual property rights against us, or against customers
who we are contractually obligated to indemnify, with respect to
existing and future products. In addition, individuals and
groups are purchasing intellectual property assets for the sole
purpose of making claims of infringement and attempting to
extract settlements from companies such as ours. 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, time consuming and could divert managements
attention from other matters and there is no guarantee we would
prevail. Our business could suffer regardless of the outcome of
the litigation. Our supply of silicon chips and other components
can also be interrupted by intellectual property infringement
claims against our suppliers.
We may
engage in mergers, acquisitions and strategic investments and
these activities could adversely affect our results of
operations and stock price.
Our future growth may depend in part on our ability to identify
and acquire complementary businesses, technologies or product
lines that are compatible with our existing business. Mergers
and acquisitions involve numerous risks, including:
|
|
|
|
|
the failure of markets for the products of acquired companies to
develop as expected;
|
|
|
|
uncertainties in identifying and pursuing target companies;
|
|
|
|
difficulties in assimilating the operations, technologies and
products of the acquired companies;
|
|
|
|
the existence of unknown defects in acquired companies
products or assets that may not be identified due to the
inherent limitations involved in the due diligence process of an
acquisition;
|
|
|
|
the diversion of managements attention from other business
concerns;
|
16
|
|
|
|
|
risks associated with entering markets or conducting operations
with which we have no or limited direct prior experience;
|
|
|
|
risks associated with assuming the legal obligations of acquired
companies;
|
|
|
|
risks related to the effect that acquired companies
internal control processes might have on our financial reporting
and managements report on our internal control over
financial reporting;
|
|
|
|
the potential loss of, or impairment of our relationships with,
current customers or failure to retain the acquired
companies customers;
|
|
|
|
the potential loss of key employees of acquired
companies; and
|
|
|
|
the incurrence of significant exit charges if products or
technologies acquired in business combinations are unsuccessful.
|
Further, we may never realize the perceived benefits of a
business combination. Acquisitions by us could negatively impact
gross margins or dilute stockholders investment and cause
us to incur debt, contingent liabilities and
amortization/impairment charges related to intangible assets,
all of which could materially and adversely affect our financial
position or results of operations. In addition, our effective
tax rate for future periods could be negatively impacted by
mergers and acquisitions.
We have made, and could make in the future, investments in
technology companies, including privately-held companies in a
development stage. Many of these private equity investments are
inherently risky because the companies businesses may
never develop, and we may incur losses related to these
investments. In addition, we may be required to write down the
carrying value of these investments to reflect
other-than-temporary
declines in their value, which could have a material adverse
effect on our financial position and results of operations.
Our
investment securities portfolio could experience a decline in
market value, which could materially and adversely affect our
financial results.
As of April 3, 2011, we held short-term investment
securities totaling $236.3 million. We invest in debt
securities, the majority of which are high investment grade, and
we limit the exposure to credit risk through diversification and
investment in highly-rated securities. However, investing in
highly-rated securities does not entirely mitigate the risk of
potential declines in market value. For example, in the past we
have recorded impairment charges related to investment
securities, including securities issued by companies in the
financial services sector that had previously been rated AA or
higher. A deterioration in the economy, including tightening of
credit markets or significant volatility in interest rates,
could cause declines in value of our investment securities or
could impact the liquidity of the portfolio. If market
conditions deteriorate significantly, our results of operations
or financial condition could be materially and adversely
affected.
Environmental
compliance costs could adversely affect our results of
operations.
We are subject to various federal, state, local and foreign laws
concerning environmental protection, including laws addressing
the discharge of pollutants into the environment, the management
and disposal of hazardous substances and wastes, the cleanup of
contaminated sites, the content of our products and the
recycling, treatment and disposal of our products. In
particular, we face increasing complexity in our product design
and procurement operations as we adjust to new and future
requirements relating to the chemical and material composition
of our products, their safe use, the energy consumption
associated with those products and product take-back legislation
(i.e., legislation that makes producers of electrical goods
financially responsible for specified collection, recycling,
treatment and disposal of past and future covered products). We
could incur substantial costs, our products could be restricted
from entering certain jurisdictions, and we could face other
sanctions, if we were to violate or become liable under
environmental laws or if our products become non-compliant with
environmental laws. Our potential exposure includes fines and
civil or criminal sanctions, third-party property damage or
personal injury claims, and clean up costs. Further, liability
under some environmental laws relating to contaminated sites can
be imposed retroactively, on a joint and several basis, and
without any finding of noncompliance or fault. The amount and
17
timing of costs under environmental laws are difficult to
predict and could have a material adverse effect on our results
of operations.
Our
business could be materially adversely affected by changes in
regulations or standards regarding energy use of our
products.
We continually seek ways to increase the energy efficiency of
our products. Recent analyses have estimated the amount of
global carbon emissions that are due to information technology
products. As a result, governmental and non-governmental
organizations have turned their attention to development of
regulations and standards to drive technological improvements
and reduce the amount of carbon emissions. There is a risk that
these regulations or standards, once developed, will not fully
address the complexity of the technology developed by the IT
industry or will favor certain technological approaches that we
do not currently utilize. Depending on the regulations or
standards that are ultimately adopted, compliance could
adversely affect our business, results of operations or
financial condition.
We may
experience difficulties in transitioning to smaller geometry
process technologies.
We expect to continue to transition our semiconductor products
to increasingly smaller line width geometries. This transition
requires us to modify the manufacturing processes for our
products and to redesign some products as well as standard cells
and other integrated circuit designs that we may use in multiple
products. We periodically evaluate the benefits, on a
product-by-product
basis, of migrating to smaller geometry process technologies. In
the past, we have experienced some difficulties in shifting to
smaller geometry process technologies or new manufacturing
processes, which resulted in reduced manufacturing yields,
delays in product deliveries and increased expenses. We may face
similar difficulties, delays and expenses as we continue to
transition our products to smaller geometry processes.
If we
fail to carefully manage the use of open source
software in our products, we may be required to license key
portions of our products on a royalty-free basis or expose key
parts of our source code.
Certain of our software may be derived from open
source software that is generally made available to the
public by its authors
and/or other
third parties. Such open source software is often made available
to us under licenses, such as the GNU General Public License
(GPL), that impose certain obligations on us in the event we
were to distribute derivative works of the open source software.
These obligations may require us to make source code for the
derivative works available to the public,
and/or
license such derivative works under a particular type of
license, rather than the forms of licenses customarily used to
protect our intellectual property. In the event the copyright
holder of any open source software were to successfully
establish in court that we had not complied with the terms of a
license for a particular work, we could be required to release
the source code of that work to the public
and/or stop
distributing that work.
Computer
viruses and other forms of tampering with our computer systems
or servers may disrupt our operations and adversely affect our
business.
Despite our implementation of network security measures and
anti-virus defenses, our servers are vulnerable to computer
viruses, break-ins and similar disruptions from unauthorized
tampering with our computer systems. Any such event could have a
material adverse effect on our business, results of operations
or financial condition.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
Our principal product development, operations, sales and
corporate offices are located in three buildings comprising
approximately 165,000 square feet in Aliso Viejo,
California. We own each of these buildings. We also lease one
building comprising approximately 100,000 square feet in
Shakopee, Minnesota, that houses product development and
operations teams for many of our Network Products. We lease an
operations, sales and fulfillment
18
facility located in Dublin, Ireland. In addition, we lease
facilities in Mountain View and Roseville, California; King of
Prussia, Pennsylvania; and Pune and Bangalore, India. We also
maintain sales offices at various locations in the United
States, Europe and Asia. We believe that our existing
properties, including both owned and leased sites, are in good
condition and suitable for the conduct of our business.
|
|
Item 3.
|
Legal
Proceedings
|
Various lawsuits, claims and proceedings have been or may be
instituted against us. The outcome of litigation cannot be
predicted with certainty and some lawsuits, claims and
proceedings may be disposed of unfavorably to us. 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 our
financial condition or results of operations. Based on an
evaluation of matters that are pending or asserted, we believe
the disposition of such matters will not have a material adverse
effect on our financial condition or results of operations.
|
|
Item 4.
|
Removed
and Reserved
|
19
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Principal
Market and Prices
Shares of our common stock are traded and quoted on the NASDAQ
Global Select Market under the symbol QLGC. The following table
sets forth the range of high and low sales prices per share of
our common stock for each quarterly period of the two most
recent fiscal years as reported on the NASDAQ Global Select
Market.
|
|
|
|
|
|
|
|
|
|
|
Sales Prices
|
Fiscal 2011
|
|
High
|
|
Low
|
|
First Quarter
|
|
$
|
22.40
|
|
|
$
|
16.29
|
|
Second Quarter
|
|
|
19.18
|
|
|
|
14.30
|
|
Third Quarter
|
|
|
18.50
|
|
|
|
16.17
|
|
Fourth Quarter
|
|
|
18.83
|
|
|
|
16.50
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Prices
|
Fiscal 2010
|
|
High
|
|
Low
|
|
First Quarter
|
|
$
|
14.76
|
|
|
$
|
10.91
|
|
Second Quarter
|
|
|
18.20
|
|
|
|
11.99
|
|
Third Quarter
|
|
|
19.62
|
|
|
|
16.39
|
|
Fourth Quarter
|
|
|
21.28
|
|
|
|
16.44
|
|
Number of
Common Stockholders
The number of record holders of our common stock was 475 as of
May 18, 2011.
Dividends
We have never paid cash dividends on our common stock. We
currently anticipate that we will retain all of our future
earnings for use in the development and expansion of our
business and for general corporate purposes, including
repurchases of our common stock. Any determination to pay
dividends in the future will be at the discretion of our board
of directors and will depend upon our operating results,
financial condition and other factors as the board of directors
deems relevant.
Recent
Sales of Unregistered Securities
We did not issue any unregistered securities during fiscal 2011.
Issuer
Purchases of Equity Securities
In August 2010, our Board of Directors approved a program (the
August 2010 Program) to repurchase up to $200 million of
our common stock over a two-year period. Set forth below is
information regarding our stock repurchases made during the
fourth quarter of fiscal 2011 under this program.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Approximate Dollar
|
|
|
|
|
|
|
|
|
|
Shares Purchased
|
|
|
Value of Shares that
|
|
|
|
Total Number of
|
|
|
Average Price
|
|
|
as Part of Publicly
|
|
|
May Yet be Purchased
|
|
Period
|
|
Shares Purchased
|
|
|
Paid per Share
|
|
|
Announced Plan
|
|
|
Under the Plan
|
|
|
December 27, 2010 January 23, 2011
|
|
|
552,100
|
|
|
$
|
17.22
|
|
|
|
552,100
|
|
|
$
|
140,007,000
|
|
January 24, 2011 February 20, 2011
|
|
|
553,900
|
|
|
$
|
18.05
|
|
|
|
553,900
|
|
|
$
|
130,011,000
|
|
February 21, 2011 April 3, 2011
|
|
|
680,500
|
|
|
$
|
17.60
|
|
|
|
680,500
|
|
|
$
|
118,031,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,786,500
|
|
|
$
|
17.62
|
|
|
|
1,786,500
|
|
|
$
|
118,031,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to the fourth quarter of fiscal 2011, we purchased
3.0 million shares under the August 2010 Program for an
aggregate purchase price of $50.5 million.
20
Stockholder
Return Performance
The performance graph below shall not be deemed filed for
purposes of Section 18 of the Securities Exchange Act of
1934, as amended (Exchange Act), or otherwise subject to the
liabilities under that Section and shall not be deemed to be
incorporated by reference into any of our filings under the
Securities Act of 1933, as amended, or the Exchange Act, except
to the extent that we specifically incorporate this information
by reference, and will not otherwise be deemed filed under the
Acts.
The following graph compares, for the five-year period ended
April 3, 2011, the cumulative total stockholder return for
our common stock, the Standard & Poors 500 Index
(S&P 500 Index), the Standard & Poors
Midcap 400 Index (S&P Midcap 400 Index) and the NASDAQ
Computer Index. Measurement points are the last trading day of
each of our fiscal years ended April 2, 2006, April 1,
2007, March 30, 2008, March 29, 2009, March 28,
2010 and April 3, 2011. The graph assumes that $100 was
invested on April 2, 2006 in our common stock, the S&P
500 Index, the S&P Midcap 400 Index and the NASDAQ Computer
Index and assumes reinvestment of dividends. The stock price
performance on the following graph is not necessarily indicative
of future stock price performance.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURNS*
AMONG QLOGIC CORPORATION, THE STANDARD & POORS
500 INDEX,
THE STANDARD & POORS MIDCAP 400 INDEX
AND THE NASDAQ COMPUTER INDEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Total Return
|
|
|
|
4/2/06
|
|
|
4/1/07
|
|
|
3/30/08
|
|
|
3/29/09
|
|
|
3/28/10
|
|
|
4/3/11
|
|
QLogic Corporation
|
|
$
|
100.00
|
|
|
$
|
87.86
|
|
|
$
|
79.22
|
|
|
$
|
60.57
|
|
|
$
|
104.19
|
|
|
$
|
93.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S&P 500 Index
|
|
|
100.00
|
|
|
|
111.83
|
|
|
|
106.15
|
|
|
|
65.72
|
|
|
|
98.43
|
|
|
|
113.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S&P Midcap 400 Index
|
|
|
100.00
|
|
|
|
108.45
|
|
|
|
100.89
|
|
|
|
64.47
|
|
|
|
105.78
|
|
|
|
134.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NASDAQ Computer Index
|
|
|
100.00
|
|
|
|
105.53
|
|
|
|
102.17
|
|
|
|
72.50
|
|
|
|
122.95
|
|
|
|
148.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*$100 invested on 4/2/06 in stock or 3/31/06 in index, including
reinvestment of dividends.
Indexes calculated on month-end basis.
21
|
|
Item 6.
|
Selected
Financial Data
|
The following selected financial data should be read in
conjunction with Managements Discussion and Analysis of
Financial Condition and Results of Operations and the
consolidated financial statements and notes thereto appearing
elsewhere in this report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
April 3,
|
|
|
March 28,
|
|
|
March 29,
|
|
|
March 30,
|
|
|
April 1,
|
|
|
|
2011
|
|
|
2010(1)
|
|
|
2009
|
|
|
2008
|
|
|
2007(2)
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Statement of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
597,199
|
|
|
$
|
549,070
|
|
|
$
|
633,862
|
|
|
$
|
597,866
|
|
|
$
|
586,697
|
|
Cost of revenues
|
|
|
203,944
|
|
|
|
196,127
|
|
|
|
210,075
|
|
|
|
205,959
|
|
|
|
191,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
393,255
|
|
|
|
352,943
|
|
|
|
423,787
|
|
|
|
391,907
|
|
|
|
394,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering and development
|
|
|
137,654
|
|
|
|
136,831
|
|
|
|
133,252
|
|
|
|
134,668
|
|
|
|
135,315
|
|
Sales and marketing
|
|
|
80,926
|
|
|
|
77,601
|
|
|
|
86,959
|
|
|
|
84,166
|
|
|
|
86,731
|
|
General and administrative
|
|
|
34,148
|
|
|
|
34,242
|
|
|
|
32,639
|
|
|
|
34,049
|
|
|
|
31,044
|
|
Special charges
|
|
|
931
|
|
|
|
5,163
|
|
|
|
4,063
|
|
|
|
5,328
|
|
|
|
|
|
Purchased in-process research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
253,659
|
|
|
|
253,837
|
|
|
|
256,913
|
|
|
|
258,211
|
|
|
|
256,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
139,596
|
|
|
|
99,106
|
|
|
|
166,874
|
|
|
|
133,696
|
|
|
|
137,915
|
|
Interest and other income, net
|
|
|
5,187
|
|
|
|
10,601
|
|
|
|
2,134
|
|
|
|
14,024
|
|
|
|
16,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
144,783
|
|
|
|
109,707
|
|
|
|
169,008
|
|
|
|
147,720
|
|
|
|
154,787
|
|
Income taxes
|
|
|
5,693
|
|
|
|
54,759
|
|
|
|
60,219
|
|
|
|
51,510
|
|
|
|
49,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
139,090
|
|
|
$
|
54,948
|
|
|
$
|
108,789
|
|
|
$
|
96,210
|
|
|
$
|
105,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.29
|
|
|
$
|
0.47
|
|
|
$
|
0.85
|
|
|
$
|
0.68
|
|
|
$
|
0.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.27
|
|
|
$
|
0.47
|
|
|
$
|
0.85
|
|
|
$
|
0.67
|
|
|
$
|
0.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and investment securities
|
|
$
|
384,076
|
|
|
$
|
375,673
|
|
|
$
|
378,269
|
|
|
$
|
376,409
|
|
|
$
|
543,922
|
|
Total assets
|
|
|
757,207
|
|
|
|
750,737
|
|
|
|
780,290
|
|
|
|
810,966
|
|
|
|
971,359
|
|
Total stockholders equity
|
|
|
601,164
|
|
|
|
583,339
|
|
|
|
626,545
|
|
|
|
665,916
|
|
|
|
874,531
|
|
|
|
|
(1) |
|
In fiscal 2010, we completed the acquisition of NetXen, Inc. |
|
(2) |
|
In fiscal 2007, we completed the acquisitions of PathScale, Inc.
and SilverStorm Technologies, Inc. |
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
This Managements Discussion and Analysis of Financial
Condition and Results of Operations should be read in
conjunction with our audited consolidated financial statements
and related notes. In this discussion and elsewhere in this
report, we make forward-looking statements. These
forward-looking statements are made in reliance upon safe harbor
provisions of the Private Securities Litigation Reform Act of
1995. Such forward-looking statements include, without
limitation, descriptions of our expectations regarding future
trends affecting our business and other statements regarding
future events or our objectives, goals, strategies, beliefs and
underlying assumptions that are other than statements of
historical fact. When used in this report, the words
anticipates, believes, can,
continue, could, estimates,
expects, intends, may,
plans, potential,
22
predicts, should, will
and similar expressions, or the negative of such expressions,
are intended to identify these forward-looking statements.
Statements concerning current conditions may also be
forward-looking if they imply a continuation of current
conditions. 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 in Part I, Item 1A
Risk Factors and elsewhere in this report. In light
of the significant uncertainties inherent in the forward-looking
information included in this report, the inclusion of this
information should not be regarded as a representation by us or
any other person that our objectives or plans will be achieved.
You are cautioned, therefore, not to place undue reliance on
these forward-looking statements, which are made only as of the
date of this report. We undertake no obligation to update or
revise these forward-looking statements, whether as a result of
new information, future events or otherwise.
Overview
We design and supply high performance network infrastructure
connectivity products that provide, enhance and manage computer
data communication. These products facilitate the rapid transfer
of data and enable efficient resource sharing between servers
and storage devices. Our products are used in enterprise data
centers, cloud computing and other environments dependent on
high performance, reliable networking.
Our products are used in connection with three distinct types of
networks: Storage Networks, High Performance Computing, or HPC,
Networks, and Converged Networks. Storage Networks are used to
provide critical data across enterprise environments and
primarily use Fibre Channel technology. HPC Networks facilitate
advanced parallel processing over multiple servers and typically
are used for applications where very large amounts of data must
be processed quickly and efficiently. The HPC Network products
that we sell are based on
InfiniBand®
technology. Converged Networks are designed to address the
evolving data center by consolidating and unifying various
classes of connectivity and networks, such as storage area
networks and local area networks, using Ethernet speeds of 10Gb
and greater. For example, Fibre Channel over Ethernet, or FCoE,
uses one common Ethernet network for both Fibre Channel storage
and Ethernet data transmission, thus combining the benefits of
Fibre Channel technology with the pervasiveness of Ethernet
networks used by most local area networks.
We classify our products into three broad categories: Host
Products, Network Products and Silicon Products. Host Products
consist of Fibre Channel and Internet Small Computer Systems
Interface, or iSCSI, host bus adapters;
InfiniBand®
host channel adapters; and converged network adapters, which
consist of adapters based on 10Gb Ethernet connectivity. Network
Products consist of Fibre Channel switches, including stackable
edge switches, bladed switches, virtualized pass-through
modules, and high-port count modular-chassis switches;
InfiniBand switches, including high-end multi-protocol
directors, edge and bladed switches; Enhanced Ethernet
pass-through modules; and storage routers for bridging Fibre
Channel, FCoE and iSCSI networks, and migrating data between
storage devices. Silicon Products consist of Fibre Channel
controllers, iSCSI controllers, converged network controllers
and Ethernet controllers.
Our products are sold worldwide, primarily to original equipment
manufacturers, or OEMs, and distributors. Our customers rely on
our various networking infrastructure products to deliver
solutions to information technology professionals in virtually
every business sector. Our products are found primarily in
server, workstation and storage subsystem solutions that are
used by small, medium and large enterprises with critical
business data requirements. These products are incorporated in
solutions from a number of storage system and computer system
OEM customers, including Cisco Systems, Inc., Dell Inc., EMC
Corporation, Hewlett-Packard Company, International Business
Machines Corporation, NetApp, Inc., Oracle Corporation and many
others.
We use a fifty-two/fifty-three week fiscal year ending on the
Sunday nearest March 31. Fiscal year 2011 comprised
fifty-three weeks and ended on April 3, 2011. Fiscal years
2010 and 2009 each comprised fifty-two weeks and ended on
March 28, 2010 and March 29, 2009, respectively.
Business
Combination
In April 2009, we acquired NetXen, Inc. (NetXen) in a merger
transaction. Cash consideration was $17.6 million for all
outstanding NetXen capital stock. NetXen developed, marketed and
sold Ethernet adapter and controller products targeted at the
enterprise server market. The acquisition expanded our product
portfolio to
23
include Ethernet networking products that were complementary to
our existing products. The acquisition also expanded our
expertise to better address a wider range of emerging customer
requirements for converged and 10Gb Ethernet products.
Fiscal
Year and Fourth Quarter Financial Highlights and Other
Information
Net revenues for fiscal 2011 increased to $597.2 million
from $549.1 million in fiscal 2010. Net income for fiscal
2011 increased to $139.1 million, or $1.27 per diluted
share, from $54.9 million, or $0.47 per diluted share, in
fiscal 2010. In addition, we generated $190.6 million in
cash from operations and used $189.2 million of cash to
purchase our common stock under our stock repurchase program
during fiscal 2011.
A summary of the key factors and significant events which
impacted our financial performance during the fourth quarter of
fiscal 2011 are as follows:
|
|
|
|
|
Net revenues of $152.3 million for the fourth quarter of
fiscal 2011 increased 5% from $145.7 million in the fourth
quarter of fiscal 2010. Revenues from Host Products of
$109.1 million increased by $5.4 million, or 5%, from
$103.7 million in the same quarter of fiscal 2010. Revenues
from Network Products of $24.3 million increased by
$1.7 million, or 8%, from $22.6 million in the same
quarter of fiscal 2010.
|
|
|
|
Gross profit as a percentage of net revenues increased to 66.6%
for the fourth quarter of fiscal 2011, from 65.1% for the fourth
quarter of fiscal 2010.
|
|
|
|
Operating income as a percentage of net revenues for the fourth
quarter of fiscal 2011 increased to 23.6% from 18.8% in the
fourth quarter of fiscal 2010.
|
|
|
|
Net income of $33.3 million, or $0.31 per diluted share, in
the fourth quarter of fiscal 2011 increased from a net loss of
$4.8 million, or $0.04 per diluted share, in the fourth
quarter of fiscal 2010. Our net loss in the fourth quarter of
fiscal 2010 included a $29.7 million tax charge related to
our globalization initiative.
|
|
|
|
Cash, cash equivalents and investment securities increased to
$384.1 million as of April 3, 2011, from
$375.7 million as of March 28, 2010.
|
|
|
|
Accounts receivable decreased to $70.1 million as of
April 3, 2011, from $73.3 million as of March 28,
2010. Days sales outstanding (DSO) in receivables of
45 days as of April 3, 2011 decreased from
46 days as of March 28, 2010.
|
|
|
|
Inventories were $26.9 million as of April 3, 2011,
compared to $19.4 million as of March 28, 2010. Our
annualized inventory turns were 7.0 turns in the fourth quarter
of fiscal 2011 compared to 10.5 turns in the fourth quarter of
fiscal 2010.
|
Recent
Events in Japan
In March 2011, an earthquake and tsunami occurred off the
northeast region of Japan resulting in extensive damage
throughout the region. Our operations in Japan consist of a
small sales office that was not impacted. Despite the magnitude
of this tragedy, we do not believe it had any impact on our
results of operations for the fourth quarter of fiscal 2011.
This disaster has caused widespread destruction in a region that
includes suppliers of components for many technology companies.
Although we do not source any critical components directly from
this region, we have carefully evaluated the potential impact of
these events on our supply chain and have taken proactive steps
to mitigate any potential supply risk exposures. While we will
continue to closely monitor this situation, we currently do not
expect to have any disruptions to our supply chain that would
adversely impact our results of operations.
As a result of this disaster, our major customers may face
shortages of components that could negatively impact their
ability to build the servers and data center devices into which
our products are integrated. While none of our major customers
have advised us of any supply constraints that would materially
impact their purchases of our products, we continue to closely
monitor their product demand.
24
If the impact on our supply chain or customer demand as a result
of this disaster is significantly different than our current
expectation, our business, results of operations and financial
condition could be adversely affected.
RESULTS
OF OPERATIONS
Net
Revenues
A summary of our net revenues by product category is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Host Products
|
|
$
|
429.3
|
|
|
$
|
396.5
|
|
|
$
|
440.9
|
|
Network Products
|
|
|
106.0
|
|
|
|
99.5
|
|
|
|
117.6
|
|
Silicon Products
|
|
|
51.0
|
|
|
|
42.4
|
|
|
|
61.4
|
|
Service and other
|
|
|
10.9
|
|
|
|
10.7
|
|
|
|
14.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
$
|
597.2
|
|
|
$
|
549.1
|
|
|
$
|
633.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Host Products
|
|
|
72
|
%
|
|
|
72
|
%
|
|
|
70
|
%
|
Network Products
|
|
|
18
|
|
|
|
18
|
|
|
|
18
|
|
Silicon Products
|
|
|
8
|
|
|
|
8
|
|
|
|
10
|
|
Service and other
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historically, the global marketplace for network infrastructure
solutions has expanded in response to the information
requirements of enterprise data centers, cloud computing and
other environments dependent on high performance, reliable
networking. The markets we serve have been characterized by
rapid advances in technology and related product performance,
which has generally resulted in declining average selling prices
over time. In general, our revenues have been favorably affected
by increases in units sold as a result of market expansion and
the release of new products. The favorable effect on our
revenues as a result of increases in volume has been partially
offset by the impact of declining average selling prices.
The United States and other countries around the world have
experienced, and may continue to experience, economic weakness
and uncertainty. Economic uncertainty has adversely affected,
and in the future may adversely affect, information technology
spending rates. Accordingly, it is extremely difficult for us to
forecast future sales levels and historical information may not
be indicative of future trends.
Our net revenues are derived primarily from the sale of Host
Products, Network Products and Silicon Products. Net revenues
increased 9% to $597.2 million for fiscal 2011 from
$549.1 million for fiscal 2010. This increase was primarily
the result of a $32.8 million, or 8%, increase in revenue
from Host Products; a $6.5 million, or 7%, increase in
revenue from Network Products; and an $8.6 million, or 20%,
increase in revenue from Silicon Products. The increase in
revenue from Host Products was primarily due to an increase in
the quantity of adapters sold. The increase in revenue from
Network Products was primarily due to a 14% increase in the
quantity of switches sold, partially offset by a 7% decrease in
the average selling prices of these products. The increase in
revenue from Silicon Products was due primarily to an increase
in the quantity of chips sold. Net revenues for fiscal 2011
included $10.9 million of service and other revenues
compared with $10.7 million of service and other revenues
for fiscal 2010. We do not expect service and other revenues to
be significant to our overall revenues.
Net revenues decreased 13% to $549.1 million for fiscal
2010 from $633.9 million for fiscal 2009. This decrease was
primarily the result of a $44.4 million, or 10%, decrease
in revenue from Host Products; an $18.1 million, or 15%,
decrease in revenue from Network Products; and a
$19.0 million, or 31%, decrease in revenue from Silicon
Products. The decrease in revenue from Host Products was
primarily due to a 5% decrease in the quantity of adapters sold
and a 5% decrease in the average selling prices of these
products. The decrease in
25
revenue from Network Products was primarily due to a 6% decrease
in the number of switches sold and a 13% decrease in the average
selling prices of these products. The decrease in revenue from
Silicon Products was due primarily to an 18% decrease in the
units of protocol chips sold, an 11% decrease in the average
selling prices of these products and a $3.8 million
decrease in revenue from management controller chips, as these
products reached
end-of-life
in fiscal 2009. Net revenues for fiscal 2010 included
$10.7 million of service and other revenues compared with
$14.0 million of service and other revenues for fiscal 2009.
A small number of our customers account for a substantial
portion of our net revenues, and we expect that a small number
of customers will continue to represent a substantial portion of
our net revenues for the foreseeable future. Our top ten
customers accounted for 85%, 86% and 84% of net revenues during
fiscal 2011, 2010 and 2009, respectively.
A summary of our customers, including their manufacturing
subcontractors, that represent 10% or more of our net revenues
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2009
|
|
Hewlett-Packard
|
|
|
25
|
%
|
|
|
24
|
%
|
|
|
21
|
%
|
IBM
|
|
|
19
|
%
|
|
|
20
|
%
|
|
|
18
|
%
|
Dell
|
|
|
11
|
%
|
|
|
*
|
|
|
|
*
|
|
Sun Microsystems (acquired by Oracle in fiscal 2010)
|
|
|
*
|
|
|
|
*
|
|
|
|
11
|
%
|
|
|
|
* |
|
Less than 10% of net revenues. |
We believe our major customers continually evaluate whether or
not to purchase products from alternative or additional sources.
Accordingly, there can 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 or results
of operations.
Net revenues by geographic area are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
United States
|
|
$
|
264.3
|
|
|
$
|
250.3
|
|
|
$
|
303.7
|
|
Asia-Pacific and Japan
|
|
|
165.8
|
|
|
|
138.8
|
|
|
|
139.9
|
|
Europe, Middle East and Africa
|
|
|
133.7
|
|
|
|
127.0
|
|
|
|
154.5
|
|
Rest of world
|
|
|
33.4
|
|
|
|
33.0
|
|
|
|
35.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
597.2
|
|
|
$
|
549.1
|
|
|
$
|
633.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by geographic area are presented based upon the ship-to
location of the customer, which is not necessarily indicative of
the location of the ultimate end-user of our products. No
individual country other than the United States and China
represented 10% or more of net revenues for any of the years
presented. Net revenues from customers in China were
$84.0 million, $72.3 million and $58.5 million
for fiscal 2011, 2010 and 2009, respectively.
Gross
Profit
Gross profit represents net revenues less cost of revenues. Cost
of revenues consists primarily of the cost of purchased
products, assembly and test services; costs associated with
product procurement, inventory management, logistics and product
quality; and the amortization of purchased intangible assets. A
summary of our gross profit and related percentage of net
revenues is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2009
|
|
|
(Dollars in millions)
|
|
Gross profit
|
|
$
|
393.3
|
|
|
$
|
352.9
|
|
|
$
|
423.8
|
|
Percentage of net revenues
|
|
|
65.8
|
%
|
|
|
64.3
|
%
|
|
|
66.9
|
%
|
26
Gross profit for fiscal 2011 increased $40.4 million, or
11%, from gross profit for fiscal 2010 and increased as a
percentage of revenue to 65.8% for fiscal 2011 from 64.3% for
the prior year. The increase in gross profit percentage was
primarily due to higher volumes to absorb manufacturing costs
and a $2.2 million decrease in amortization of purchased
intangible assets.
Gross profit for fiscal 2010 decreased $70.9 million, or
17%, from gross profit for fiscal 2009 and decreased as a
percentage of revenue to 64.3% for fiscal 2010 from 66.9% for
the prior year. The decrease in gross profit percentage was
primarily due to lower volumes to absorb manufacturing costs, a
change in product mix and a $3.5 million one-time royalty
in fiscal 2009, partially offset by a $5.4 million decrease
in amortization of purchased intangible assets.
Our ability to maintain our current gross profit percentage can
be significantly affected by factors such as manufacturing
volumes over which fixed costs are absorbed, sales discounts and
customer incentives, component costs, the mix of products
shipped, the transition to new products, competitive price
pressures, the timeliness of volume shipments of new products,
our ability to achieve manufacturing cost reductions, and
amortization and impairments of purchased intangible assets. We
anticipate that it will be increasingly difficult to reduce
manufacturing costs. As a result of these and other factors, it
may be difficult to maintain our gross profit percentage
consistent with historical periods and it may decline in the
future.
Operating
Expenses
Our operating expenses are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering and development
|
|
$
|
137.7
|
|
|
$
|
136.8
|
|
|
$
|
133.2
|
|
Sales and marketing
|
|
|
80.9
|
|
|
|
77.6
|
|
|
|
87.0
|
|
General and administrative
|
|
|
34.2
|
|
|
|
34.2
|
|
|
|
32.6
|
|
Special charges
|
|
|
0.9
|
|
|
|
5.2
|
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
253.7
|
|
|
$
|
253.8
|
|
|
$
|
256.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering and development
|
|
|
23.0
|
%
|
|
|
24.9
|
%
|
|
|
21.0
|
%
|
Sales and marketing
|
|
|
13.6
|
|
|
|
14.1
|
|
|
|
13.7
|
|
General and administrative
|
|
|
5.7
|
|
|
|
6.2
|
|
|
|
5.2
|
|
Special charges
|
|
|
0.2
|
|
|
|
1.0
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
42.5
|
%
|
|
|
46.2
|
%
|
|
|
40.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering and Development. Engineering and
development expenses consist primarily of compensation and
related employee benefit costs, service and material costs,
occupancy and equipment costs and related computer support
costs. During fiscal 2011, engineering and development expenses
increased to $137.7 million from $136.8 million in
fiscal 2010. The increase was primarily due to a
$6.9 million increase in cash compensation and related
employee benefit costs primarily due to an increase in
headcount, partially offset by a $3.7 million decrease in
outside service costs related to new product development and a
$1.8 million decrease in stock-based compensation.
During fiscal 2010, engineering and development expenses
increased to $136.8 million from $133.2 million in
fiscal 2009. The increase was primarily due to a
$3.1 million increase in stock-based compensation,
including $0.8 million related to stock-based awards issued
to employees that joined QLogic in connection with the
acquisition of NetXen.
We believe continued investments in engineering and development
activities are critical to achieving future design wins,
expansion of our customer base and revenue growth opportunities.
27
Sales and Marketing. Sales and marketing
expenses consist primarily of compensation and related employee
benefit costs, sales commissions, promotional activities and
travel for sales and marketing personnel. Sales and marketing
expenses increased to $80.9 million for fiscal 2011 from
$77.6 million for fiscal 2010. The increase in sales and
marketing expenses was primarily due to a $3.1 million
increase in cash compensation and related employee benefit
costs, primarily due to higher headcount and increased
commissions, a $0.9 million increase in outside services
and a $0.7 million increase in promotional costs, including
the costs for certain sales and marketing programs. These
increases were partially offset by a $1.9 million decrease
in amortization of purchased intangible assets due to an
intangible asset becoming fully amortized during fiscal 2010.
Sales and marketing expenses decreased to $77.6 million for
fiscal 2010 from $87.0 million for fiscal 2009. The
decrease in sales and marketing expenses was due primarily to a
$4.6 million decrease in promotional costs, including the
costs for certain sales and marketing programs, and a
$0.7 million decrease in travel costs, both related to our
cost-cutting measures implemented in the second half of fiscal
2009. In addition, cash compensation and related employee
benefit costs decreased by $1.3 million, primarily due to
decreased commissions as a result of lower revenues;
amortization of purchased intangible assets decreased by
$1.3 million, due to an intangible asset becoming fully
amortized during fiscal 2010; and occupancy and related computer
support costs decreased by $1.0 million. These decreases
were partially offset by a $1.4 million increase in
stock-based compensation expense.
We believe continued investments in our sales and marketing
organizational infrastructure and related marketing programs are
critical to the success of our strategy of expanding our
customer base and enhancing relationships with our existing
customers.
General and Administrative. General and
administrative expenses consist primarily of compensation and
related employee benefit costs for executive, finance,
accounting, human resources, legal and information technology
personnel. Non-compensation components of general and
administrative expenses include accounting, legal and other
professional fees, facilities expenses and other corporate
expenses. General and administrative expenses were consistent at
$34.2 million for fiscal 2011 and 2010.
General and administrative expenses increased to
$34.2 million for fiscal 2010 from $32.6 million for
fiscal 2009. The increase in general and administrative expenses
was due primarily to a $1.9 million increase in stock-based
compensation, including $0.6 million related to stock-based
awards issued to employees that joined QLogic in connection with
the acquisition of NetXen.
Special Charges. During fiscal 2011, we
recorded special charges of $0.9 million consisting of exit
costs associated with severance benefits for involuntarily
terminated employees, primarily related to the consolidation of
certain engineering functions.
During fiscal 2010, we recorded special charges totaling
$5.2 million related to the consolidation of facilities and
workforce reductions. The special charges consisted primarily of
$3.1 million of exit costs related to facilities under
non-cancelable leases that we ceased using during fiscal 2010
and $1.5 million of exit costs associated with severance
benefits for involuntarily-terminated employees.
During fiscal 2009, we implemented a workforce reduction
initiative, primarily in response to the macroeconomic
environment, and recorded special charges totaling
$4.1 million. The special charges consisted primarily of
$3.9 million of exit costs associated with severance
benefits for the involuntarily-terminated employees and costs
related to a facility under a non-cancelable lease that we
ceased using during fiscal 2009.
As of April 3, 2011, the unpaid exit costs totaled
$2.3 million and are expected to be paid over the terms of
the related agreements through fiscal 2018.
28
Interest
and Other Income, Net
Components of our interest and other income, net, are as follows:
|
|
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|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Interest income
|
|
$
|
3.6
|
|
|
$
|
5.4
|
|
|
$
|
11.3
|
|
Net gains on investment securities
|
|
|
2.2
|
|
|
|
5.0
|
|
|
|
7.1
|
|
Impairment of investment securities
|
|
|
|
|
|
|
|
|
|
|
(16.4
|
)
|
Other
|
|
|
(0.6
|
)
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5.2
|
|
|
$
|
10.6
|
|
|
$
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income is earned on our portfolio of investment
securities and cash equivalents. The decrease in interest income
for fiscal 2011 from fiscal 2010 and fiscal 2010 from fiscal
2009 was primarily due to a decline in interest rates.
During fiscal 2011, net gains on investment securities were
$2.2 million and included $1.8 million of net gains on
sales of
available-for-sale
securities and a $0.3 million gain from distributions of
our cost basis investments in a money market fund and an
enhanced cash fund.
During fiscal 2010, net gains on investment securities were
$5.0 million and included $2.7 million of net gains on
sales of
available-for-sale
securities, a $1.9 million gain from distributions of our
investments in a money market fund and an enhanced cash fund and
$0.4 million of net gains on trading securities.
We reviewed various factors in determining whether to recognize
an impairment charge related to our unrealized losses in
available-for-sale
securities, including the current financial and credit market
environment, the financial condition and near-term prospects of
the issuer of the security, the magnitude of the loss compared
to the cost of the investment, the length of time the investment
had been in a loss position and our intent and ability to hold
the investment for a period of time sufficient to allow for any
anticipated recovery of market value. Based on this analysis, we
determined that a portion of the unrealized losses for our
portfolio of
available-for-sale
securities were
other-than-temporary
and recorded an impairment charge of $11.3 million during
fiscal 2009. In addition, during fiscal 2009, we recorded
$5.1 million of impairment charges related to our cost
basis investments in a money market fund and an enhanced cash
fund.
Income
Taxes
Our provision for income taxes is $5.7 million,
$54.8 million and $60.2 million for fiscal 2011, 2010
and 2009, respectively.
Our effective income tax rate was 4% in fiscal 2011, 50% in
fiscal 2010 and 36% in fiscal 2009. The decrease in our
effective tax rate in fiscal 2011 from fiscal 2010 was primarily
due to our foreign operations generating a higher portion of our
taxable income, which is taxed at more favorable rates. In
addition, during the third quarter of fiscal 2011, we recorded
$14.6 million of third quarter specific income tax benefits
related to the expiration of certain statutes of limitation, the
retroactive reinstatement of the federal research tax credit and
certain other items. Our fiscal 2010 annual effective tax rate
was impacted by a $29.7 million tax charge in the fourth
quarter of fiscal 2010 related to an amendment of a technology
license agreement with one of our international subsidiaries. As
a result of the amendment, we determined that all payment
obligations under the license agreement had been satisfied. We
currently believe that our effective tax rate will approximate
11% in fiscal 2012.
Our federal consolidated income tax returns for fiscal years
2008 and 2009 are currently under examination by the Internal
Revenue Service. We do not believe that the results of these
examinations will have a material impact on our financial
condition or results of operations.
Given the increased global scope of our operations, and the
complexity of global tax and transfer pricing rules and
regulations, it has become increasingly difficult to estimate
earnings within each tax jurisdiction. If actual earnings within
each tax jurisdiction differ materially from our estimates, we
may not achieve our expected effective tax rate. Additionally,
our effective tax rate may be impacted by other items including
the tax effects of
29
acquisitions, newly enacted tax legislation, examinations by tax
authorities, stock-based compensation and uncertain tax
positions.
Liquidity
and Capital Resources
Our combined balances of cash, cash equivalents and investment
securities increased to $384.1 million at April 3,
2011, from $375.7 million at March 28, 2010. As of
April 3, 2011 and March 28, 2010, our international
subsidiaries held 67% and 47%, respectively, of our total cash,
cash equivalents and investment securities. These holdings by
our international subsidiaries as of April 3, 2011
consisted primarily of debt securities due from
U.S. issuers, including the U.S. government and
related agencies, and U.S. dollar denominated cash and
money market funds. Certain foreign regulations could impact our
ability to transfer funds to the United States. Additionally,
should we decide to repatriate cash held outside of the United
States, we may incur a significant tax obligation.
We believe that existing cash, cash equivalents, investment
securities and expected cash flow from operations will provide
sufficient funds to finance our operations for at least the next
twelve months. However, it is possible that we may need to
supplement our existing sources of liquidity to finance our
activities beyond the next twelve months or for the future
acquisition of businesses, products or technologies and there
can be no assurance that sources of liquidity will be available
to us at that time.
Cash provided by operating activities increased to
$190.6 million for fiscal 2011 from $161.8 million for
fiscal 2010. Operating cash flow for fiscal 2011 reflects our
net income of $139.1 million and net non-cash expenses of
$75.2 million, partially offset by net cash used as a
result of changes in operating assets and liabilities of
$23.7 million. The changes in operating assets and
liabilities included a $15.5 million decrease in accrued
taxes and a $7.5 million increase in inventories. The
decrease in accrued taxes was primarily due to the expiration of
certain statutes of limitation, the retroactive reinstatement of
the federal research tax credit and the timing of payment
obligations. The increase in inventories was primarily due to
advanced purchases of silicon chips to maintain flexibility due
to long lead times for these products.
Operating cash flow for fiscal 2010 reflects our net income of
$54.9 million, net non-cash expenses of $78.0 million
and net cash provided as a result of changes in operating assets
and liabilities of $28.9 million. The changes in operating
assets and liabilities included a $21.9 million decrease in
inventories and an $11.8 million increase in accrued taxes,
partially offset by a $6.0 million decrease in accrued
compensation. The decrease in inventories was primarily
associated with the completion of a planned contract
manufacturer transition in fiscal 2010, which started in fiscal
2009 and resulted in higher inventory levels at the end of
fiscal 2009, and higher product shipments during the fourth
quarter of fiscal 2010 compared to the prior year. The increase
in accrued taxes was primarily due to the timing of expected
payment obligations. The decrease in accrued compensation was
primarily related to decreased incentive compensation.
Cash used in investing activities was $74.8 million for
fiscal 2011 and consisted primarily of $75.7 million of net
purchases of
available-for-sale
securities and $23.3 million of purchases of property and
equipment, partially offset by $23.8 million of proceeds
from redemptions of auction rate securities (ARS) at par value.
Cash used in investing activities was $42.9 million for
fiscal 2010 and consisted of $24.5 million of purchases of
property and equipment, $20.4 million of net purchases of
available-for-sale
securities, and $14.9 million for the acquisition of NetXen
(net of cash acquired), partially offset by $11.4 million
of proceeds from redemptions of ARS at par value and
distributions totaling $5.5 million from our cost basis
investments in a money market fund and an enhanced cash fund.
As our business grows, we expect capital expenditures to
increase in the future as we continue to invest in machinery and
equipment, more costly engineering and production tools for new
technologies, and enhancements to our corporate information
technology infrastructure.
Cash used in financing activities was $158.2 million for
fiscal 2011 and consisted of our purchase of $189.2 million
of common stock under our stock repurchase programs and
$6.8 million for minimum tax withholdings paid on behalf of
employees for restricted stock units that vested during the
year, partially offset by $37.8 million of proceeds from
the issuance of common stock and excess tax benefits from
stock-based awards.
30
Cash used in financing activities was $132.3 million for
fiscal 2010 and consisted of our purchase of $163.4 million
of common stock under our stock repurchase program,
$2.9 million for minimum tax withholdings paid on behalf of
employees for restricted stock units that vested during the year
and the repayment of a $0.9 million line of credit assumed
in the NetXen acquisition, partially offset by
$34.9 million of proceeds from the issuance of common stock
and excess tax benefits from stock-based awards.
Since fiscal 2003, we have had various stock repurchase programs
that authorized the purchase of up to $1.75 billion of our
outstanding common stock, including a program approved in August
2010 authorizing the repurchase of up to $200 million of
our outstanding common stock. As of April 3, 2011, we had
repurchased a total of 103.3 million shares of our common
stock under our stock repurchase programs for an aggregate
purchase price of $1.63 billion. Pursuant to the existing
stock repurchase program, we are authorized to repurchase shares
with an aggregate cost of up to $118.0 million as of
April 3, 2011.
We have certain contractual obligations and commitments to make
future payments in the form of non-cancelable purchase orders to
our suppliers and commitments under operating lease
arrangements. A summary of our contractual obligations as of
April 3, 2011, and their impact on our cash flows in future
fiscal years, is as follows:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Operating leases
|
|
$
|
6.4
|
|
|
$
|
4.5
|
|
|
$
|
4.1
|
|
|
$
|
3.1
|
|
|
$
|
1.9
|
|
|
$
|
4.1
|
|
|
$
|
24.1
|
|
Non-cancelable purchase obligations
|
|
|
56.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
63.3
|
|
|
$
|
4.5
|
|
|
$
|
4.1
|
|
|
$
|
3.1
|
|
|
$
|
1.9
|
|
|
$
|
4.1
|
|
|
$
|
81.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of unrecognized tax benefits, including related
accrued interest and penalties, was $62.6 million as of
April 3, 2011. We are not able to provide a reasonable
estimate of the timing of future tax payments related to these
obligations.
Critical
Accounting Policies and Estimates
The preparation of financial statements in accordance with
U.S. generally accepted accounting principles requires us
to make estimates and judgments that affect the reported amounts
of assets and liabilities at the date of the financial
statements and the reported amounts of net revenues and expenses
during the reporting period. We base our estimates on historical
experience and on various other factors that we believe to be
reasonable under the circumstances, including the current
economic environment, the results of which form the basis for
making judgments about the carrying values of assets and
liabilities. We believe the accounting policies described below
to be our most critical accounting policies. These accounting
policies are affected significantly by judgments, assumptions
and estimates used in the preparation of the financial
statements and actual results could differ materially from the
amounts reported based on these policies.
Revenue
Recognition
We recognize revenue from product sales when all of the
following fundamental criteria are met: (i) persuasive
evidence of an arrangement exists, (ii) delivery has
occurred, (iii) the price to the customer is fixed or
determinable and (iv) collection of the resulting accounts
receivable is reasonably assured.
For all sales, we use a binding purchase order or a signed
agreement as evidence of an arrangement. Delivery occurs when
goods are shipped and title and risk of loss transfer to the
customer, in accordance with the terms specified in the
arrangement with the customer. The customers obligation to
pay and the payment terms are set at the time of delivery and
are not dependent on the subsequent resale of our product.
However, certain of our sales are made to distributors under
agreements that contain a limited right to return unsold product
and price protection provisions. These return rights and price
protection provisions limit our ability to reasonably estimate
product returns and the final price of the inventory sold to
distributors. As a result, the price to the customer is not
fixed or determinable at the time products are delivered to
distributors. Accordingly, we recognize revenue from these
distributors based on the sell-through method using inventory
information provided by the distributor. At times, we provide
standard incentive programs to our customers. We account for our
competitive pricing incentives and
31
rebates as a reduction of revenue in the period the related
revenue is recorded based on the specific program criteria and
historical experience. In addition, we record provisions against
revenue and cost of revenue for estimated product returns in the
same period that revenue is recognized. These provisions are
based on historical experience as well as specifically
identified product returns. Service and other revenue is
recognized when earned and receipt is reasonably assured.
For those sales that include multiple deliverables, we allocate
revenue based on the relative fair values of the individual
components. When more than one element, such as hardware and
services, are contained in a single arrangement, we allocate
revenue between the elements based on each elements
relative fair value, provided that each element meets the
criteria for treatment as a separate unit of accounting. An item
is considered a separate unit of accounting if it has value to
the customer on a standalone basis and there is objective and
reliable evidence of the fair value of the undelivered items.
Fair value is generally determined based upon the price charged
when the element is sold separately. In the absence of fair
value for a delivered element, we allocate revenue first to the
fair value of the undelivered elements and allocate the residual
revenue to the delivered elements. In the absence of fair value
for an undelivered element, the arrangement is accounted for as
a single unit of accounting, resulting in a deferral of revenue
recognition for the delivered elements. Such deferred revenue is
recognized over the service period or when all elements have
been delivered.
We sell certain software products and related post-contract
customer support (PCS). We recognize revenue from software
products when all of the following fundamental criteria are met:
(i) persuasive evidence of an arrangement exists,
(ii) delivery has occurred, (iii) the price to the
customer is fixed or determinable and (iv) collection of
the resulting accounts receivable is probable. Revenue is
allocated to undelivered elements based upon vendor-specific
objective evidence (VSOE) of the fair value of the element. VSOE
of the fair value is based upon the price charged when the
element is sold separately. Revenue allocated to each element is
then recognized when the basic revenue recognition criteria are
met for each element. If we are unable to determine VSOE of fair
value for an undelivered element, the entire amount of revenue
from the arrangement is deferred and recognized over the service
period or when all elements have been delivered.
Stock-Based
Compensation
We recognize compensation expense for all stock-based awards
made to employees and non-employee directors, including stock
options, restricted stock units and stock purchases under our
Employee Stock Purchase Plan (the ESPP), based on estimated fair
values on the date of grant. Stock-based compensation is
recognized for the portion of the award that is ultimately
expected to vest. Forfeitures are estimated at the time of grant
based on historical trends and revised, if necessary, in
subsequent periods if actual forfeitures differ from those
estimates. We recognize stock-based compensation expense on a
straight-line basis over the requisite service period, which is
the vesting period for stock options and restricted stock units,
and the offering period for the ESPP. The determination of fair
value of stock-based awards on the date of grant using an
option-pricing model is affected by our stock price as well as
assumptions regarding a number of highly complex and subjective
variables. These variables include, but are not limited to, our
expected stock price volatility over the term of the awards and
actual and projected employee stock option exercise behaviors.
In estimating expected stock price volatility, we use a
combination of both historical volatility, calculated based on
the daily closing prices of our common stock over a period equal
to the expected term of the option, and implied volatility,
utilizing market data of actively traded options on our common
stock. We believe that the historical volatility of the price of
our common stock over the expected term of the option is a
strong indicator of the expected future volatility. We also
believe that implied volatility takes into consideration market
expectations of how future volatility will differ from
historical volatility. Accordingly, we believe a combination of
both historical and implied volatility provides the best
estimate of the future volatility of the market price of our
common stock. Changes in the subjective assumptions can
materially affect the estimated fair value of stock-based awards.
Income
Taxes
We utilize the asset and liability method of accounting for
income taxes. Income tax positions taken or expected to be taken
in a tax return should be recognized in the first reporting
period that it is more likely than not the tax position will be
sustained upon examination. A tax position that meets the
more-likely-than-not recognition
32
threshold is initially and subsequently measured as the largest
amount of tax benefit that is greater than 50% likely of being
realized upon settlement with a taxing authority that has full
knowledge of all relevant information. Previously recognized
income tax positions that fail to meet the recognition threshold
in a subsequent period are derecognized in that period.
Differences between actual results and our assumptions, or
changes in our assumptions in future periods, are recorded in
the period they become known. We record potential accrued
interest and penalties related to unrecognized tax benefits in
income tax expense.
Deferred income taxes are recognized for the future tax
consequences of temporary differences using enacted statutory
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled. Temporary differences include the difference between
the financial statement carrying amounts and the tax bases of
existing assets and liabilities and operating loss and tax
credit carryforwards. The effect on deferred taxes of a change
in tax rates is recognized in earnings in the period that
includes the enactment date.
A valuation allowance is recorded when it is more likely than
not that some or all of a deferred tax asset will not be
realized. An adjustment to earnings would occur if we determine
that we are able to realize a different amount of our deferred
tax assets than currently expected.
As a multinational corporation, we are subject to complex tax
laws and regulations in various jurisdictions. The application
of tax laws and regulations is subject to legal and factual
interpretation, judgment and uncertainty. Tax laws themselves
are subject to change as a result of changes in fiscal policy,
changes in legislation, evolution of regulations and court
rulings. Therefore, the actual liability for U.S. or
foreign taxes may be materially different from our estimates,
which could result in the need to record additional liabilities
or potentially to reverse previously recorded tax liabilities.
Differences between actual results and our assumptions, or
changes in our assumptions in future periods, are recorded in
the period they become known.
Investment
Securities
Investment securities include
available-for-sale
securities, trading securities and other investment securities.
Our investment securities are classified in the consolidated
balance sheets based on the nature of the security and the
availability for use in current operations.
Available-for-sale
securities are recorded at fair value, based on quoted market
prices or other observable inputs. Unrealized gains and losses,
net of related income taxes, on
available-for-sale
securities are excluded from earnings and reported as a separate
component of accumulated other comprehensive income until
realized.
Trading securities are recorded at fair value with unrealized
holding gains and losses included in earnings and reported in
interest and other income, net. In the absence of quoted market
prices for trading securities, we value these securities based
on an income approach using an estimate of future cash flows.
Other investment securities are accounted for under the cost
method and recorded at the lower of fair value or cost.
We recognize an impairment charge on
available-for-sale
securities when the decline in the fair value of an investment
below its cost basis is judged to be
other-than-temporary.
If we intend to sell the security or it is more likely than not
that we will be required to sell the security before recovery of
its amortized cost basis less any current-period credit loss, we
would recognize the entire impairment in earnings. If we do not
intend to sell the security and it is not more likely than not
that we will be required to sell the security before recovery of
its amortized cost basis less any current-period credit loss,
the
other-than-temporary
impairment is separated into (a) the amount representing
the credit loss and (b) the amount related to all other
factors. The amount of the
other-than-temporary
impairment related to the credit loss is recognized in earnings.
The amount of the
other-than-temporary
impairment related to other factors is recognized in other
comprehensive income, net of applicable taxes. Significant
judgment is required in determining the fair value of investment
securities in inactive markets as well as determining when
declines in fair value constitute an
other-than-temporary
impairment and the portion of any impairment that is due to a
credit loss. We consider various factors in determining whether
to recognize an impairment charge, including the current
financial and credit market environment, the financial condition
and near-term prospects of the issuer of the security, the
magnitude of the loss compared to the cost of the investment,
the length of time the investment has
33
been in a loss position and our intent and ability to hold the
investment for a period of time sufficient to allow for any
anticipated recovery of market value.
Realized gains or losses are determined on a specific
identification basis and reported in interest and other income,
net, as incurred.
Inventories
Inventories are stated at the lower of cost
(first-in,
first-out) or market. We write down the carrying value of our
inventory to estimated net realizable value for estimated excess
and obsolete inventory based upon assumptions about future
demand and market conditions. These assumptions are based on
economic conditions and trends (both current and projected),
anticipated customer demand and acceptance of our current
products, expected future products and other assumptions. If
actual market conditions are less favorable than those projected
by management, additional write-downs may be required. Once we
write down the carrying value of inventory, a new cost basis is
established. Subsequent changes in facts and circumstances do
not result in an increase in the newly established cost basis.
Goodwill
and Other Intangible Assets
Goodwill is recorded as the difference, if any, between the
aggregate consideration paid for an acquisition and the fair
value of the net tangible and intangible assets acquired. The
amounts and useful lives assigned to intangible assets acquired,
other than goodwill, impact the amount and timing of future
amortization. The amount assigned to in-process research and
development is capitalized and accounted for as an
indefinite-lived intangible asset until the underlying projects
are completed or abandoned.
Goodwill is not amortized but instead is tested at least
annually for impairment, or more frequently when events or
changes in circumstances indicate a potential impairment, by
comparing the carrying value to the fair value of the reporting
unit to which the goodwill is assigned. A two-step test is used
to identify the potential impairment and to measure the amount
of impairment, if any. The first step is to compare the fair
value of the reporting unit with its carrying amount, including
goodwill. If the fair value of the reporting unit is less than
its carrying amount, goodwill is considered impaired and the
loss is measured by performing step two. Under step two, the
impairment loss is measured by comparing the implied fair value
of the reporting unit with the carrying amount of goodwill. We
perform the annual test for impairment as of the first day of
our fiscal fourth quarter.
During the annual goodwill impairment test in fiscal 2011, we
completed step one and determined that there was no impairment
of goodwill since the fair value (based on quoted market price)
of the reporting unit exceeded its carrying value. Based on this
impairment test, we believe that we have no at-risk goodwill.
The initial recording and subsequent evaluation for impairment
of goodwill and purchased intangible assets requires the use of
significant management judgment regarding the forecasts of
future operating results. It is possible that our business plans
may change and our estimates used may prove to be inaccurate. If
our actual results, or the plans and estimates used in future
impairment analyses, are lower than current estimates used, we
could incur impairment charges.
Long-Lived
Assets
Long-lived assets, including property and equipment and
purchased intangible assets, are reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset or asset group may not be
recoverable. Significant judgment is required in determining
whether a potential indicator of impairment of our long-lived
assets exists. Recoverability of assets to be held and used is
measured by the comparison of the carrying amount of an asset or
asset group to future undiscounted net cash flows expected to be
generated by the asset or asset group. If such an asset or asset
group is considered to be impaired, the impairment to be
recognized is measured as the amount by which the carrying
amount of the asset or asset group exceeds the fair value of the
asset or asset group. Assets to be disposed of are reported at
the lower of their carrying amount or fair value less costs to
sell. Estimating future net cash flows and determining proper
asset groupings for the purpose of
34
this impairment test requires the use of significant management
judgment. If our actual results, or estimates used in future
impairment analyses, are lower than our current estimates, we
could incur impairment charges.
Recently
Issued Accounting Standards Not Yet Effective
In September 2009, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update (ASU)
No. 2009-13,
which provides amendments to Accounting Standards Codification
(ASC) Topic 605 Multiple-Deliverable Revenue
Arrangements. ASU
No. 2009-13
replaces and significantly changes certain guidance in ASC Topic
605. ASU
No. 2009-13
modifies the separation criteria of ASC Subtopic
605-25 by
eliminating the criterion for objective and reliable evidence of
fair value for the undelivered products or services. ASU
No. 2009-13
also eliminates the use of the residual method of allocation and
requires that arrangement consideration be allocated at the
inception of the arrangement to all deliverables based on their
relative selling price. ASU
No. 2009-13
provides a hierarchy for estimating the selling price for each
of the deliverables. ASU
No. 2009-13
is effective prospectively for revenue arrangements entered into
or materially modified in fiscal years beginning on or after
June 15, 2010. We will adopt this guidance effective at the
beginning of fiscal 2012 and its adoption is not expected to
have a material effect on our consolidated results of operations
or financial position.
In September 2009, the FASB issued ASU
No. 2009-14,
Certain Revenue Arrangements That Include Software
Elements. Pursuant to ASU
No. 2009-14,
all tangible products containing both software and non-software
components that function together to deliver the products
essential functionality will no longer be within the scope of
ASC Subtopic
985-605 and
will be required to be accounted for under the guidance in ASU
No. 2009-13.
ASU
No. 2009-14
provides a list of items to consider when determining whether
the software and non-software components function together to
deliver a products essential functionality. ASU
No. 2009-14
is effective prospectively for revenue arrangements entered into
or materially modified in fiscal years beginning on or after
June 15, 2010. We will adopt this guidance effective at the
beginning of fiscal 2012 and its adoption is not expected to
have a material effect on our consolidated results of operations
or financial position.
|
|
Item 7a.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Our cash and cash equivalents are not subject to significant
interest rate risk due to the short maturities of these
instruments. As of April 3, 2011, the carrying value of our
cash and cash equivalents approximates fair value.
We maintain a portfolio of investment securities consisting
primarily of U.S. government and agency securities,
corporate debt obligations, asset and mortgage-backed securities
and municipal bonds, the majority of which have remaining terms
of three years or less. We are exposed to fluctuations in
interest rates as movements in interest rates can result in
changes in the market value of our investments in debt
securities. However, due to the short-term expected duration of
our investment portfolio we do not believe that we are subject
to material interest rate risk.
In accordance with our investment guidelines, we only invest in
instruments with high credit quality ratings and we limit our
exposure to any one issuer or type of investment. Our portfolio
of investment securities as of April 3, 2011 consists of
$236.3 million of securities that are classified as
available-for-sale.
As of April 3, 2011, we had gross unrealized losses
associated with our
available-for-sale
securities of $0.6 million that were determined by
management to be temporary in nature.
We do not use derivative financial instruments.
35
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
QLogic Corporation:
We have audited the accompanying consolidated balance sheets of
QLogic Corporation and subsidiaries as of April 3, 2011 and
March 28, 2010, and the related consolidated statements of
income, stockholders equity and comprehensive income, and
cash flows for each of the years in the three-year period ended
April 3, 2011. In connection with our audits of the
consolidated financial statements, we also have audited the
financial statement schedule of valuation and qualifying
accounts as listed in the index under Item 15(a)(2). These
consolidated financial statements and financial statement
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of QLogic Corporation and subsidiaries as of
April 3, 2011 and March 28, 2010, and the results of
their operations and their cash flows for each of the years in
the three-year period ended April 3, 2011, in conformity
with U.S. generally accepted accounting principles. Also in
our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
QLogic Corporations internal control over financial
reporting as of April 3, 2011, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report
dated May 26, 2011, expressed an unqualified opinion on the
effectiveness of the Companys internal control over
financial reporting.
/s/ KPMG LLP
Irvine, California
May 26, 2011
36
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
QLogic Corporation:
We have audited QLogic Corporations internal control over
financial reporting as of April 3, 2011, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). QLogic
Corporations management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
Managements Report on Internal Control Over Financial
Reporting appearing under Item 9A. Our responsibility is to
express an opinion on the Companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, QLogic Corporation maintained, in all material
respects, effective internal control over financial reporting as
of April 3, 2011, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of QLogic Corporation and
subsidiaries as of April 3, 2011 and March 28, 2010,
and the related consolidated statements of income,
stockholders equity and comprehensive income, and cash
flows for each of the years in the three-year period ended
April 3, 2011, and our report dated May 26, 2011,
expressed an unqualified opinion on those consolidated financial
statements.
/s/ KPMG LLP
Irvine, California
May 26, 2011
37
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands, except share
|
|
|
|
and per share amounts)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
147,780
|
|
|
$
|
190,308
|
|
Short-term investment securities
|
|
|
236,296
|
|
|
|
185,365
|
|
Accounts receivable, less allowance for doubtful accounts of
$1,536 and $1,505 as of April 3, 2011 and March 28,
2010, respectively
|
|
|
70,134
|
|
|
|
73,301
|
|
Inventories
|
|
|
26,931
|
|
|
|
19,403
|
|
Deferred tax assets
|
|
|
17,754
|
|
|
|
10,976
|
|
Other current assets
|
|
|
20,753
|
|
|
|
9,845
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
519,648
|
|
|
|
489,198
|
|
Property and equipment, net
|
|
|
77,134
|
|
|
|
83,496
|
|
Goodwill
|
|
|
119,748
|
|
|
|
119,748
|
|
Purchased intangible assets, net
|
|
|
12,694
|
|
|
|
17,394
|
|
Deferred tax assets
|
|
|
25,333
|
|
|
|
36,917
|
|
Other assets
|
|
|
2,650
|
|
|
|
3,984
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
757,207
|
|
|
$
|
750,737
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
34,816
|
|
|
$
|
36,766
|
|
Accrued compensation
|
|
|
25,858
|
|
|
|
22,727
|
|
Accrued taxes
|
|
|
6,012
|
|
|
|
2,633
|
|
Deferred revenue
|
|
|
10,431
|
|
|
|
9,240
|
|
Other current liabilities
|
|
|
5,221
|
|
|
|
11,069
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
82,338
|
|
|
|
82,435
|
|
Accrued taxes
|
|
|
62,565
|
|
|
|
70,577
|
|
Deferred revenue
|
|
|
5,169
|
|
|
|
7,401
|
|
Other liabilities
|
|
|
5,971
|
|
|
|
6,985
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
156,043
|
|
|
|
167,398
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 1,000,000 shares
authorized; no shares issued and outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 500,000,000 shares
authorized; 208,042,000 and 204,893,000 shares issued as of
April 3, 2011 and March 28, 2010, respectively
|
|
|
208
|
|
|
|
205
|
|
Additional paid-in capital
|
|
|
844,546
|
|
|
|
778,853
|
|
Retained earnings
|
|
|
1,387,765
|
|
|
|
1,248,675
|
|
Accumulated other comprehensive income
|
|
|
614
|
|
|
|
1,206
|
|
Treasury stock, at cost: 103,325,000 and 92,586,000 shares
as of April 3, 2011 and March 28, 2010, respectively
|
|
|
(1,631,969
|
)
|
|
|
(1,445,600
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
601,164
|
|
|
|
583,339
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
757,207
|
|
|
$
|
750,737
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except per
|
|
|
|
share amounts)
|
|
|
Net revenues
|
|
$
|
597,199
|
|
|
$
|
549,070
|
|
|
$
|
633,862
|
|
Cost of revenues
|
|
|
203,944
|
|
|
|
196,127
|
|
|
|
210,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
393,255
|
|
|
|
352,943
|
|
|
|
423,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering and development
|
|
|
137,654
|
|
|
|
136,831
|
|
|
|
133,252
|
|
Sales and marketing
|
|
|
80,926
|
|
|
|
77,601
|
|
|
|
86,959
|
|
General and administrative
|
|
|
34,148
|
|
|
|
34,242
|
|
|
|
32,639
|
|
Special charges
|
|
|
931
|
|
|
|
5,163
|
|
|
|
4,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
253,659
|
|
|
|
253,837
|
|
|
|
256,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
139,596
|
|
|
|
99,106
|
|
|
|
166,874
|
|
Interest and other income, net
|
|
|
5,187
|
|
|
|
10,601
|
|
|
|
2,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
144,783
|
|
|
|
109,707
|
|
|
|
169,008
|
|
Income taxes
|
|
|
5,693
|
|
|
|
54,759
|
|
|
|
60,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
139,090
|
|
|
$
|
54,948
|
|
|
$
|
108,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.29
|
|
|
$
|
0.47
|
|
|
$
|
0.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.27
|
|
|
$
|
0.47
|
|
|
$
|
0.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares used in per share calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
107,647
|
|
|
|
116,037
|
|
|
|
127,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
109,192
|
|
|
|
117,364
|
|
|
|
128,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
39
QLOGIC
CORPORATION
Years
Ended April 3, 2011, March 28, 2010 and March 29,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
Total
|
|
|
|
Outstanding
|
|
|
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Income
|
|
|
Treasury
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
(Loss)
|
|
|
Stock
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Balance at March 30, 2008
|
|
|
133,014
|
|
|
$
|
200
|
|
|
$
|
657,893
|
|
|
$
|
1,084,938
|
|
|
$
|
(2,530
|
)
|
|
$
|
(1,074,585
|
)
|
|
$
|
665,916
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108,789
|
|
|
|
|
|
|
|
|
|
|
|
108,789
|
|
Change in unrealized gains and losses on investment securities,
net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,164
|
|
|
|
|
|
|
|
3,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111,953
|
|
Issuance of common stock under stock-based awards
|
|
|
2,246
|
|
|
|
2
|
|
|
|
23,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,541
|
|
Increase in excess tax benefits from stock-based awards
|
|
|
|
|
|
|
|
|
|
|
279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
279
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
28,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,646
|
|
Common stock issued related to business acquisition
|
|
|
111
|
|
|
|
|
|
|
|
1,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,707
|
|
Purchases of treasury stock
|
|
|
(15,840
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(205,497
|
)
|
|
|
(205,497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 29, 2009
|
|
|
119,531
|
|
|
|
202
|
|
|
|
712,064
|
|
|
|
1,193,727
|
|
|
|
634
|
|
|
|
(1,280,082
|
)
|
|
|
626,545
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,948
|
|
|
|
|
|
|
|
|
|
|
|
54,948
|
|
Change in unrealized gains and losses on investment securities,
net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
572
|
|
|
|
|
|
|
|
572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,520
|
|
Issuance of common stock under stock-based awards
|
|
|
2,772
|
|
|
|
3
|
|
|
|
31,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,500
|
|
Decrease in excess tax benefits from stock-based awards
|
|
|
|
|
|
|
|
|
|
|
(1,278
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,278
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
35,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,232
|
|
Common stock issued related to business acquisition
|
|
|
112
|
|
|
|
|
|
|
|
1,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,338
|
|
Purchases of treasury stock
|
|
|
(10,108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(165,518
|
)
|
|
|
(165,518
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 28, 2010
|
|
|
112,307
|
|
|
|
205
|
|
|
|
778,853
|
|
|
|
1,248,675
|
|
|
|
1,206
|
|
|
|
(1,445,600
|
)
|
|
|
583,339
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
139,090
|
|
|
|
|
|
|
|
|
|
|
|
139,090
|
|
Change in unrealized gains and losses on investment securities,
net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(592
|
)
|
|
|
|
|
|
|
(592
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
138,498
|
|
Issuance of common stock under stock-based awards
|
|
|
3,121
|
|
|
|
3
|
|
|
|
29,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,310
|
|
Increase in excess tax benefits from stock-based awards
|
|
|
|
|
|
|
|
|
|
|
805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
805
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
35,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,007
|
|
Common stock issued related to business acquisition
|
|
|
28
|
|
|
|
|
|
|
|
574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
574
|
|
Purchases of treasury stock
|
|
|
(10,739
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(186,369
|
)
|
|
|
(186,369
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 3, 2011
|
|
|
104,717
|
|
|
$
|
208
|
|
|
$
|
844,546
|
|
|
$
|
1,387,765
|
|
|
$
|
614
|
|
|
$
|
(1,631,969
|
)
|
|
$
|
601,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
139,090
|
|
|
$
|
54,948
|
|
|
$
|
108,789
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
29,777
|
|
|
|
31,803
|
|
|
|
32,525
|
|
Stock-based compensation
|
|
|
35,007
|
|
|
|
35,694
|
|
|
|
28,819
|
|
Amortization of acquisition-related intangible assets
|
|
|
4,623
|
|
|
|
8,331
|
|
|
|
15,032
|
|
Deferred income taxes
|
|
|
4,425
|
|
|
|
5,999
|
|
|
|
16,660
|
|
Net gains on investment securities
|
|
|
(2,188
|
)
|
|
|
(4,982
|
)
|
|
|
(7,095
|
)
|
Impairment of investment securities
|
|
|
|
|
|
|
|
|
|
|
16,407
|
|
Other non-cash items
|
|
|
3,529
|
|
|
|
1,090
|
|
|
|
680
|
|
Changes in operating assets and liabilities, net of acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
3,113
|
|
|
|
(4,432
|
)
|
|
|
12,845
|
|
Inventories
|
|
|
(7,528
|
)
|
|
|
21,920
|
|
|
|
(12,773
|
)
|
Other assets
|
|
|
770
|
|
|
|
487
|
|
|
|
(2,126
|
)
|
Accounts payable
|
|
|
(3,192
|
)
|
|
|
240
|
|
|
|
707
|
|
Accrued compensation
|
|
|
3,705
|
|
|
|
(6,036
|
)
|
|
|
(884
|
)
|
Accrued taxes
|
|
|
(15,522
|
)
|
|
|
11,827
|
|
|
|
7,190
|
|
Deferred revenue
|
|
|
(1,041
|
)
|
|
|
612
|
|
|
|
2,249
|
|
Other liabilities
|
|
|
(4,011
|
)
|
|
|
4,271
|
|
|
|
688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
190,557
|
|
|
|
161,772
|
|
|
|
219,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of
available-for-sale
securities
|
|
|
(278,878
|
)
|
|
|
(244,083
|
)
|
|
|
(122,437
|
)
|
Proceeds from sales and maturities of
available-for-sale
securities
|
|
|
203,160
|
|
|
|
223,729
|
|
|
|
162,884
|
|
Proceeds from disposition of trading securities
|
|
|
23,800
|
|
|
|
11,425
|
|
|
|
4,550
|
|
Reclassification from cash equivalents to other investment
securities
|
|
|
|
|
|
|
|
|
|
|
(57,209
|
)
|
Distributions from other investment securities
|
|
|
329
|
|
|
|
5,464
|
|
|
|
48,855
|
|
Purchases of property and equipment
|
|
|
(23,260
|
)
|
|
|
(24,528
|
)
|
|
|
(30,721
|
)
|
Acquisition of business, net of cash acquired
|
|
|
|
|
|
|
(14,931
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(74,849
|
)
|
|
|
(42,924
|
)
|
|
|
5,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock under stock-based awards
|
|
|
36,090
|
|
|
|
34,375
|
|
|
|
25,522
|
|
Excess tax benefits from stock-based awards
|
|
|
1,674
|
|
|
|
591
|
|
|
|
279
|
|
Minimum tax withholding paid on behalf of employees for
restricted stock units
|
|
|
(6,780
|
)
|
|
|
(2,875
|
)
|
|
|
(1,981
|
)
|
Purchases of treasury stock
|
|
|
(189,220
|
)
|
|
|
(163,419
|
)
|
|
|
(205,742
|
)
|
Payoff of line of credit assumed in acquisition
|
|
|
|
|
|
|
(934
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(158,236
|
)
|
|
|
(132,262
|
)
|
|
|
(181,922
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(42,528
|
)
|
|
|
(13,414
|
)
|
|
|
43,713
|
|
Cash and cash equivalents at beginning of year
|
|
|
190,308
|
|
|
|
203,722
|
|
|
|
160,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
147,780
|
|
|
$
|
190,308
|
|
|
$
|
203,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for income taxes
|
|
$
|
17,000
|
|
|
$
|
36,937
|
|
|
$
|
37,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
41
QLOGIC
CORPORATION
|
|
Note 1.
|
Description
of Business and Summary of Significant Accounting
Policies
|
General
Business Information
QLogic Corporation (QLogic or the Company) designs and supplies
high performance network infrastructure connectivity products
that provide, enhance and manage computer data communication.
The Companys products are used in enterprise data centers,
cloud computing and other environments dependent on high
performance, reliable networking. The Companys products
are used in connection with three distinct types of networks:
Storage Networks, High Performance Computing Networks and
Converged Networks. The Companys products primarily
consist of adapters, switches, storage routers and
application-specific integrated circuits and are sold worldwide,
primarily to original equipment manufacturers (OEMs) and
distributors.
The Company classifies its products into three broad categories:
Host Products, Network Products and Silicon Products. Host
Products consist of Fibre Channel and Internet Small Computer
Systems Interface (iSCSI) host bus adapters;
InfiniBand®
host channel adapters; and converged network adapters, which
consist of adapters based on 10Gb Ethernet connectivity. Network
Products consist of Fibre Channel switches, including stackable
edge switches, bladed switches, virtualized pass-through
modules, and high-port count modular-chassis switches;
InfiniBand switches, including high-end multi-protocol
directors, edge and bladed switches; Enhanced Ethernet
pass-through modules; and storage routers for bridging Fibre
Channel, Fibre Channel over Ethernet and iSCSI networks, and
migrating data between storage devices. Silicon Products consist
of Fibre Channel controllers, iSCSI controllers, converged
network controllers and Ethernet controllers.
Principles
of Consolidation
The consolidated financial statements include the financial
statements of QLogic Corporation and its wholly-owned
subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Financial
Reporting Period
The Company uses a fifty-two/fifty-three week fiscal year ending
on the Sunday nearest March 31. Fiscal year 2011 comprised
fifty-three weeks and ended on April 3, 2011. Fiscal years
2010 and 2009 each comprised fifty-two weeks and ended on
March 28, 2010 and March 29, 2009, respectively.
Use of
Estimates
The preparation of financial statements in accordance with
U.S. generally accepted accounting principles requires
management to make estimates and judgments that affect the
amounts reported in the Companys consolidated financial
statements and accompanying notes. Among the significant
estimates affecting the consolidated financial statements are
those related to revenue recognition, stock-based compensation,
income taxes, investment securities, inventories, goodwill and
long-lived assets.
The Company evaluates its estimates on an ongoing basis using
historical experience and other factors, including the current
economic environment. Significant judgment is required in
determining the fair value of investment securities in inactive
markets, as well as determining when declines in fair value
constitute an
other-than-temporary
impairment. In addition, significant judgment is required in
determining whether a potential indicator of impairment of the
Companys long-lived assets exists and in estimating future
cash flows and determining proper asset groupings for the
purpose of any necessary impairment tests. Significant judgment
is also required in determining the fair value of assets
acquired and liabilities assumed in a business combination,
including the fair value of identifiable intangible assets. As
future events unfold and their effects cannot be determined with
precision, actual results could differ significantly from
managements estimates.
42
QLOGIC
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Revenue
Recognition
The Company recognizes revenue from product sales when all of
the following fundamental criteria are met: (i) persuasive
evidence of an arrangement exists, (ii) delivery has
occurred, (iii) the price to the customer is fixed or
determinable and (iv) collection of the resulting accounts
receivable is reasonably assured.
For all sales, the Company uses a binding purchase order or a
signed agreement as evidence of an arrangement. Delivery occurs
when goods are shipped and title and risk of loss transfer to
the customer, in accordance with the terms specified in the
arrangement with the customer. The customers obligation to
pay and the payment terms are set at the time of delivery and
are not dependent on the subsequent resale of the product.
However, certain of the Companys sales are made to
distributors under agreements that contain a limited right to
return unsold product and price protection provisions. These
return rights and price protection provisions limit the
Companys ability to reasonably estimate product returns
and the final price of the inventory sold to distributors. As a
result, the price to the customer is not fixed or determinable
at the time products are delivered to distributors. Accordingly,
the Company recognizes revenue from these distributors based on
the sell-through method using inventory information provided by
the distributor. At times, the Company provides standard
incentive programs to its customers. The Company accounts for
its competitive pricing incentives and rebates as a reduction of
revenue in the period the related revenue is recorded based on
the specific program criteria and historical experience. In
addition, the Company records provisions against revenue and
cost of revenue for estimated product returns in the same period
that revenue is recognized. These provisions are based on
historical experience as well as specifically identified product
returns. Service and other revenue is recognized when earned and
receipt is reasonably assured.
For those sales that include multiple deliverables, the Company
allocates revenue based on the relative fair values of the
individual components. When more than one element, such as
hardware and services, are contained in a single arrangement,
the Company allocates revenue between the elements based on each
elements relative fair value, provided that each element
meets the criteria for treatment as a separate unit of
accounting. An item is considered a separate unit of accounting
if it has value to the customer on a standalone basis and there
is objective and reliable evidence of the fair value of the
undelivered items. Fair value is generally determined based upon
the price charged when the element is sold separately. In the
absence of fair value for a delivered element, the Company
allocates revenue first to the fair value of the undelivered
elements and allocates the residual revenue to the delivered
elements. In the absence of fair value for an undelivered
element, the arrangement is accounted for as a single unit of
accounting, resulting in a deferral of revenue recognition for
the delivered elements. Such deferred revenue is recognized over
the service period or when all elements have been delivered.
The Company sells certain software products and related
post-contract customer support (PCS). The Company recognizes
revenue from software products when all of the following
fundamental criteria are met: (i) persuasive evidence of an
arrangement exists, (ii) delivery has occurred,
(iii) the price to the customer is fixed or determinable
and (iv) collection of the resulting accounts receivable is
probable. Revenue is allocated to undelivered elements based
upon vendor-specific objective evidence (VSOE) of the fair value
of the element. VSOE of the fair value is based upon the price
charged when the element is sold separately. Revenue allocated
to each element is then recognized when the basic revenue
recognition criteria are met for each element. If the Company is
unable to determine VSOE of fair value for an undelivered
element, the entire amount of revenue from the arrangement is
deferred and recognized over the service period or when all
elements have been delivered.
Stock-Based
Compensation
The Company recognizes compensation expense for all stock-based
awards made to employees and non-employee directors, including
stock options, restricted stock units and stock purchases under
the Companys Employee Stock Purchase Plan (the ESPP),
based on estimated fair values on the date of grant. Stock-based
compensation is recognized for the portion of the award that is
ultimately expected to vest. Forfeitures are estimated at the
time of grant based on historical trends and revised, if
necessary, in subsequent periods if actual forfeitures differ
from those estimates. The Company recognizes stock-based
compensation expense on a straight-line basis
43
QLOGIC
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
over the requisite service period, which is the vesting period
for stock options and restricted stock units, and the offering
period for the ESPP. The determination of fair value of
stock-based awards on the date of grant using an option-pricing
model is affected by the Companys stock price as well as
assumptions regarding a number of highly complex and subjective
variables. These variables include, but are not limited to, the
Companys expected stock price volatility over the term of
the awards and actual and projected employee stock option
exercise behaviors. In estimating expected stock price
volatility, the Company uses a combination of both historical
volatility, calculated based on the daily closing prices of the
Companys common stock over a period equal to the expected
term of the option, and implied volatility, utilizing market
data of actively traded options on the Companys common
stock.
Research
and Development
Research and development costs, including costs related to the
development of new products and process technology, are expensed
as incurred.
Advertising
Costs
The Company expenses all advertising costs as incurred and such
costs were not material to the consolidated statements of income
for all periods presented.
Income
Taxes
The Company utilizes the asset and liability method of
accounting for income taxes. Income tax positions taken or
expected to be taken in a tax return should be recognized in the
first reporting period that it is more likely than not the tax
position will be sustained upon examination. A tax position that
meets the more-likely-than-not recognition threshold is
initially and subsequently measured as the largest amount of tax
benefit that is greater than 50% likely of being realized upon
settlement with a taxing authority that has full knowledge of
all relevant information. Previously recognized income tax
positions that fail to meet the recognition threshold in a
subsequent period are derecognized in that period. Differences
between actual results and the Companys assumptions, or
changes in its assumptions in future periods, are recorded in
the period they become known. The Company records potential
accrued interest and penalties related to unrecognized tax
benefits in income tax expense.
Deferred income taxes are recognized for the future tax
consequences of temporary differences using enacted statutory
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled. Temporary differences include the difference between
the financial statement carrying amounts and the tax bases of
existing assets and liabilities and operating loss and tax
credit carryforwards. The effect on deferred taxes of a change
in tax rates is recognized in earnings in the period that
includes the enactment date. A valuation allowance is recorded
when it is more likely than not that some or all of a deferred
tax asset will not be realized.
Net
Income per Share
The Company computes basic net income per share based on the
weighted-average number of common shares outstanding during the
periods presented. Diluted net income per share is computed
based on the weighted-average number of common and dilutive
potential common shares outstanding using the treasury stock
method. The Company has granted stock options, restricted stock
units and other stock-based awards, which have been treated as
dilutive potential common shares in computing diluted net income
per share.
Concentration
of Credit Risk
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of
cash equivalents, investment securities and trade accounts
receivable. Cash and cash equivalents are
44
QLOGIC
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
maintained with several financial institutions. Deposits held
with banks may exceed the amount of insurance provided on such
deposits.
The Company invests primarily in debt securities, the majority
of which are high investment grade. The Company, by policy,
limits the exposure to credit risk through diversification and
investment in highly-rated securities.
The Company sells its products to OEMs and distributors
throughout the world. As of April 3, 2011 and
March 28, 2010, the Company had three customers which
individually accounted for 10% or more of the Companys
accounts receivable. These customers, all of which were OEMs of
servers and workstations, accounted for an aggregate of 74% and
75% of the Companys accounts receivable at April 3,
2011 and March 28, 2010, respectively. The Company performs
ongoing credit evaluations of its customers financial
condition and, generally, requires no collateral from its
customers. Sales to customers are denominated in
U.S. dollars. As a result, the Company believes its foreign
currency risk is minimal.
Cash
and Cash Equivalents
The Company considers all highly liquid investments purchased
with original maturities of three months or less on their
acquisition date to be cash equivalents. The carrying amounts of
cash and cash equivalents approximate their fair values.
Investment
Securities
Investment securities include
available-for-sale
securities, trading securities and other investment securities
and are classified in the consolidated balance sheets based on
the nature of the security and the availability for use in
current operations.
Available-for-sale
securities are recorded at fair value, based on quoted market
prices or other observable inputs. Unrealized gains and losses,
net of related income taxes, on
available-for-sale
securities are excluded from earnings and reported as a separate
component of accumulated other comprehensive income until
realized.
Trading securities are recorded at fair value with unrealized
holding gains and losses included in earnings and reported in
interest and other income, net. In the absence of quoted market
prices for trading securities, the Company values these
securities based on an income approach using an estimate of
future cash flows.
Other investment securities are accounted for under the cost
method and recorded at the lower of fair value or cost.
The Company recognizes an impairment charge on
available-for-sale
securities when the decline in the fair value of an investment
below its cost basis is judged to be
other-than-temporary.
If the Company intends to sell the security or it is more likely
than not that it will be required to sell the security before
recovery of its amortized cost basis less any current-period
credit loss, the Company would recognize the entire impairment
in earnings. If the Company does not intend to sell the security
and it is not more likely than not that it will be required to
sell the security before recovery of its amortized cost basis
less any current-period credit loss, the
other-than-temporary
impairment is separated into (a) the amount representing
the credit loss and (b) the amount related to all other
factors. The amount of the
other-than-temporary
impairment related to the credit loss is recognized in earnings.
The amount of the
other-than-temporary
impairment related to other factors is recognized in other
comprehensive income, net of applicable taxes. The Company
considers various factors in determining whether to recognize an
impairment charge, including the current financial and credit
market environment, the financial condition and near-term
prospects of the issuer of the security, the magnitude of the
loss compared to the cost of the investment, the length of time
the investment has been in a loss position and the
Companys intent and ability to hold the investment for a
period of time sufficient to allow for any anticipated recovery
of market value.
45
QLOGIC
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Realized gains or losses are determined on a specific
identification basis and reported in interest and other income,
net, as incurred.
Allowance
for Doubtful Accounts
An allowance for doubtful accounts is maintained for estimated
losses resulting from the inability of the Companys
customers to make required payments. This reserve is determined
by analyzing specific customer accounts, applying estimated loss
rates to the aging of remaining accounts receivable balances,
and considering the impact of the current economic environment
where appropriate.
Inventories
Inventories are stated at the lower of cost
(first-in,
first-out) or market. The Company writes down the carrying value
of inventory to estimated net realizable value for estimated
excess and obsolete inventory based upon assumptions about
future demand and market conditions. These assumptions are based
on economic conditions and trends (both current and projected),
anticipated customer demand and acceptance of the Companys
current products, expected future products and other
assumptions. Once the Company writes down the carrying value of
inventory, a new cost basis is established. Subsequent changes
in facts and circumstances do not result in an increase in the
newly established cost basis.
Property
and Equipment
Property and equipment are stated at cost. Depreciation is
calculated using the straight-line method over estimated useful
lives of 39.5 years for buildings, five to fifteen years
for building and land improvements, and two to five years for
other property and equipment. Leasehold improvements are
amortized on a straight-line basis over the shorter of the lease
term or the estimated useful life of the related asset.
Goodwill
and Other Intangible Assets
Goodwill is recorded as the difference, if any, between the
aggregate consideration paid for an acquisition and the fair
value of the net tangible and intangible assets acquired. The
amounts and useful lives assigned to intangible assets acquired,
other than goodwill, impact the amount and timing of future
amortization. The amount assigned to in-process research and
development is capitalized and accounted for as an
indefinite-lived intangible asset until the underlying projects
are completed or abandoned.
Goodwill is not amortized but instead is tested at least
annually for impairment, or more frequently when events or
changes in circumstances indicate a potential impairment, by
comparing the carrying value to the fair value of the reporting
unit to which the goodwill is assigned. A two-step test is used
to identify the potential impairment and to measure the amount
of impairment, if any. The first step is to compare the fair
value of the reporting unit with its carrying amount, including
goodwill. If the fair value of the reporting unit is less than
its carrying amount, goodwill is considered impaired and the
loss is measured by performing step two. Under step two, the
impairment loss is measured by comparing the implied fair value
of the reporting unit with the carrying amount of goodwill.
Management considers the Company as a whole to be its reporting
unit for purposes of testing for impairment. The Company
performs the annual test for impairment as of the first day of
its fiscal fourth quarter. During the annual goodwill impairment
test in fiscal 2011, the Company completed step one and
determined that there was no impairment of goodwill since the
fair value (based on quoted market price) of the reporting unit
exceeded its carrying value.
Long-Lived
Assets
Long-lived assets, including property and equipment and
purchased intangible assets, are reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset or asset
46
QLOGIC
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
group may not be recoverable. Recoverability of assets to be
held and used is measured by the comparison of the carrying
amount of an asset or asset group to future undiscounted net
cash flows expected to be generated by the asset or asset group.
If such an asset or asset group is considered to be impaired,
the impairment to be recognized is measured as the amount by
which the carrying amount of the asset or asset group exceeds
the fair value of the asset or asset group. Assets to be
disposed of are reported at the lower of their carrying amount
or fair value less costs to sell.
Purchased intangible assets consist primarily of technology
acquired in business acquisitions. Purchased intangible assets
that have definite lives are amortized on a straight-line basis
over the estimated useful lives of the related assets, generally
ranging from three to seven years.
Warranty
The Companys products typically carry a warranty for
periods of up to five years. The Company records a liability for
product warranty obligations in the period the related revenue
is recorded based on historical warranty experience. Warranty
expense and the corresponding liability were not material to the
consolidated financial statements for all periods presented.
Comprehensive
Income
Comprehensive income includes all changes in equity other than
transactions with stockholders. The Companys accumulated
other comprehensive income consists primarily of unrealized
gains (losses) on
available-for-sale
securities, net of income taxes.
Foreign
Currency Translation
Assets and liabilities of the Companys foreign
subsidiaries that operate where the functional currency is the
local currency are translated to U.S. dollars at exchange
rates in effect at the balance sheet date, and income and
expense accounts are translated at average exchange rates during
the period. The resulting translation adjustments are recorded
as a component of accumulated other comprehensive income.
Accumulated other comprehensive income related to translation
adjustments was not material to the consolidated financial
statements for all periods presented. Gains and losses resulting
from transactions denominated in currencies other than the
functional currency are included in interest and other income,
net, and were not material to the consolidated statements of
income for all periods presented.
|
|
Note 2.
|
Business
Acquisition
|
On April 27, 2009, the Company acquired NetXen, Inc.
(NetXen) in a merger transaction. Cash consideration was
$17.6 million for all outstanding NetXen capital stock.
NetXen developed, marketed and sold Ethernet adapter and
controller products targeted at the enterprise server market.
The acquisition expanded the Companys product portfolio to
include Ethernet networking products that are complementary to
existing products. The acquisition also expanded the
Companys expertise to better address a wider range of
emerging customer requirements for converged and 10Gb Ethernet
products. The acquisition agreement required that
$5.1 million of the consideration be placed into an escrow
account in connection with certain representations and
warranties, of which $3.5 million has been distributed to
the original shareholders of NetXen. The remaining
$1.6 million in escrow is expected to be released during
fiscal 2012. The escrowed amounts have been accounted for as
cash consideration as of the date of acquisition.
47
QLOGIC
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the allocation of the purchase
price to the fair value of the assets acquired and liabilities
assumed:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Cash
|
|
$
|
2,659
|
|
Accounts receivable
|
|
|
716
|
|
Inventories
|
|
|
1,030
|
|
Property and equipment
|
|
|
854
|
|
Goodwill
|
|
|
889
|
|
Identifiable intangible assets
|
|
|
6,410
|
|
Deferred tax assets
|
|
|
8,302
|
|
Other assets
|
|
|
352
|
|
Accounts payable and other liabilities
|
|
|
(1,751
|
)
|
Accrued compensation
|
|
|
(937
|
)
|
Line of credit
|
|
|
(934
|
)
|
|
|
|
|
|
|
|
$
|
17,590
|
|
|
|
|
|
|
A summary of the purchased intangible assets acquired as part of
the acquisition of NetXen and their respective estimated useful
lives are as follows:
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Useful Lives
|
|
|
|
|
|
|
(Years)
|
|
|
Amount
|
|
|
|
|
|
|
(In thousands)
|
|
|
Intangible Assets:
|
|
|
|
|
|
|
|
|
Core technology
|
|
|
7
|
|
|
$
|
5,400
|
|
Contractual licenses
|
|
|
5
|
|
|
|
1,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,410
|
|
|
|
|
|
|
|
|
|
|
The results of operations for NetXen have been included in the
consolidated financial statements from the date of acquisition.
Pro forma results of operations have not been presented as the
results of operations for NetXen are not material to the
consolidated financial statements.
|
|
Note 3.
|
Investment
Securities
|
Components of investment securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
April 3,
|
|
|
March 28,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Available-for-sale
securities
|
|
$
|
236,296
|
|
|
$
|
161,609
|
|
Trading securities
|
|
|
|
|
|
|
23,756
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
236,296
|
|
|
$
|
185,365
|
|
|
|
|
|
|
|
|
|
|
48
QLOGIC
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Available-For-Sale
Securities
The Companys portfolio of
available-for-sale
securities consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
April 3, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities
|
|
$
|
55,875
|
|
|
$
|
94
|
|
|
$
|
(216
|
)
|
|
$
|
55,753
|
|
Corporate debt obligations
|
|
|
137,706
|
|
|
|
1,012
|
|
|
|
(282
|
)
|
|
|
138,436
|
|
Asset and mortgage-backed securities
|
|
|
22,249
|
|
|
|
293
|
|
|
|
(52
|
)
|
|
|
22,490
|
|
Municipal bonds
|
|
|
17,941
|
|
|
|
10
|
|
|
|
(10
|
)
|
|
|
17,941
|
|
Non-U.S.
government and agency securities
|
|
|
1,676
|
|
|
|
|
|
|
|
|
|
|
|
1,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
235,447
|
|
|
$
|
1,409
|
|
|
$
|
(560
|
)
|
|
$
|
236,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities
|
|
$
|
37,677
|
|
|
$
|
326
|
|
|
$
|
(27
|
)
|
|
$
|
37,976
|
|
Corporate debt obligations
|
|
|
81,424
|
|
|
|
1,600
|
|
|
|
(21
|
)
|
|
|
83,003
|
|
Asset and mortgage-backed securities
|
|
|
18,721
|
|
|
|
410
|
|
|
|
(16
|
)
|
|
|
19,115
|
|
Municipal bonds
|
|
|
5,923
|
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
5,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
143,745
|
|
|
|
2,339
|
|
|
|
(67
|
)
|
|
|
146,017
|
|
Certificates of deposit
|
|
|
15,592
|
|
|
|
|
|
|
|
|
|
|
|
15,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
159,337
|
|
|
$
|
2,339
|
|
|
$
|
(67
|
)
|
|
$
|
161,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost and estimated fair value of debt securities
included in
available-for-sale
securities as of April 3, 2011, by contractual maturity,
are presented below. Expected maturities will differ from
contractual maturities because the issuers of securities may
have the right to repay obligations without prepayment
penalties. Certain debt instruments, although possessing a
contractual maturity greater than one year, are classified as
short-term investment securities based on their ability to be
traded on active markets and availability for current operations.
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
Due in one year or less
|
|
$
|
68,432
|
|
|
$
|
68,771
|
|
Due after one year through three years
|
|
|
113,561
|
|
|
|
113,912
|
|
Due after three years through five years
|
|
|
18,639
|
|
|
|
18,559
|
|
Due after five years
|
|
|
34,815
|
|
|
|
35,054
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
235,447
|
|
|
$
|
236,296
|
|
|
|
|
|
|
|
|
|
|
As of April 3, 2011 and March 28, 2010, the fair value
of certain of the Companys
available-for-sale
securities was less than their cost basis. Management reviewed
various factors in determining whether to recognize an
impairment charge related to these unrealized losses, including
the current financial and credit market environment, the
financial condition and near-term prospects of the issuer of the
investment security, the magnitude of the unrealized loss
compared to the cost of the investment, the length of time the
investment had been in a loss position and the Companys
intent and ability to hold the investment for a period of time
sufficient to allow for any anticipated recovery of market
value. As of April 3, 2011 and March 28, 2010, the
Company determined that the
49
QLOGIC
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
unrealized losses were temporary in nature and recorded them as
a component of accumulated other comprehensive income.
During fiscal 2009 the Company determined that a portion of the
unrealized losses associated with the Companys portfolio
of
available-for-sale
securities were
other-than-temporary
and recorded an impairment charge of $11.3 million, which
is included in interest and other income, net.
The following table presents the Companys investments with
unrealized losses by investment category and length of time that
individual securities have been in a continuous unrealized loss
position as of April 3, 2011 and March 28, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or Greater
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
Description of
Securities
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
April 3, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities
|
|
$
|
25,712
|
|
|
$
|
(216
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
25,712
|
|
|
$
|
(216
|
)
|
Corporate debt obligations
|
|
|
60,595
|
|
|
|
(282
|
)
|
|
|
|
|
|
|
|
|
|
|
60,595
|
|
|
|
(282
|
)
|
Asset and mortgage-backed securities
|
|
|
7,991
|
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
7,991
|
|
|
|
(52
|
)
|
Municipal bonds
|
|
|
1,866
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
1,866
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
96,164
|
|
|
$
|
(560
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
96,164
|
|
|
$
|
(560
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities
|
|
$
|
6,661
|
|
|
$
|
(27
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,661
|
|
|
$
|
(27
|
)
|
Corporate debt obligations
|
|
|
11,337
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
11,337
|
|
|
|
(21
|
)
|
Asset and mortgage-backed securities
|
|
|
3,557
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
3,557
|
|
|
|
(16
|
)
|
Municipal bonds
|
|
|
317
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
317
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,872
|
|
|
$
|
(67
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
21,872
|
|
|
$
|
(67
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
Securities
The Companys portfolio of trading securities consists of
the following:
|
|
|
|
|
|
|
|
|
|
|
April 3,
|
|
|
March 28,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Auction rate debt securities
|
|
$
|
|
|
|
$
|
17,951
|
|
Auction rate preferred securities
|
|
|
|
|
|
|
4,366
|
|
Put options related to auction rate securities
|
|
|
|
|
|
|
1,439
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
23,756
|
|
|
|
|
|
|
|
|
|
|
The Companys trading securities included investments in
auction rate securities (ARS). During late fiscal 2008, the
market auctions of many ARS began to fail, including auctions
for the ARS held by the Company. In November 2008, the Company
entered into an agreement with the broker for all of the ARS
held by the Company, which provided the Company with certain
rights (ARS Rights), in exchange for the release of potential
claims and damages against the broker. The ARS Rights entitled
the Company to sell the related ARS back to the broker for a
price equal to the liquidation preference of the ARS plus
accrued but unpaid dividends or interest, if any, which
50
QLOGIC
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
price is referred to as par. The ARS Rights
agreement resulted in put options that were recognized as free
standing assets separate from the ARS. The Company elected to
measure the put options at fair value. In connection with the
election to measure the put options at fair value, the Company
classified these financial instruments as trading securities.
During fiscal 2011, the Company received $9.3 million of
proceeds in connection with the redemption of certain ARS by the
respective issuers. In addition during fiscal 2011, the Company
exercised the ARS Rights and sold all of its remaining ARS
investments to the broker at par for cash totaling
$14.5 million.
Other
Investment Securities
The Companys other investment securities are comprised of
a money market fund and an enhanced cash fund sponsored by The
Reserve (an asset management company), which suspended trading
and redemptions in September 2008. These funds do not have
readily determinable fair values and thus have been accounted
for under the cost method. As of April 3, 2011 and
March 28, 2010, the carrying value of the Companys
other investment securities is zero.
During fiscal 2009, the Company reclassified $57.2 million
of investments in the funds sponsored by The Reserve from cash
equivalents to short-term investments. This reclassification has
been presented separately as an investing activity in the
consolidated statement of cash flows for fiscal 2009. In
addition, the Company recorded a $5.1 million impairment
charge related to these investments during fiscal 2009 based on
the Companys estimate of the amount that would be
recovered from The Reserve, which charge is included in interest
and other income, net.
During fiscal 2011, 2010 and 2009, the Company received
distributions upon the partial liquidation of these funds
totaling $0.3 million, $5.5 million and
$48.9 million, respectively. Distributions received by the
Company in fiscal 2011 and 2010 were in excess of the carrying
value of these investment securities and, accordingly, the
Company recorded gains of $0.3 million and
$1.8 million, respectively, which are included in interest
and other income, net.
|
|
Note 4.
|
Fair
Value Measurements
|
Fair value is the exchange price that would be received for an
asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability
in an orderly transaction between market participants on the
measurement date. Valuation techniques used to measure fair
value must maximize the use of observable inputs and minimize
the use of unobservable inputs. The fair value hierarchy is
based on three levels of inputs, of which the first two are
considered observable and the last unobservable, that may be
used to measure fair value. A description of the three levels of
inputs is as follows:
|
|
|
|
|
Level 1 Quoted prices in active markets for
identical assets or liabilities.
|
|
|
|
Level 2 Inputs other than Level 1 that are
observable, either directly or indirectly, such as quoted prices
for similar assets or liabilities; quoted prices in markets that
are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the
full term of the assets or liabilities.
|
|
|
|
Level 3 Unobservable inputs that are supported
by little or no market activity and that are significant to the
fair value of the assets or liabilities.
|
51
QLOGIC
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Assets measured at fair value on a recurring basis as of
April 3, 2011 and March 28, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
April 3, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
146,281
|
|
|
$
|
1,499
|
|
|
$
|
|
|
|
$
|
147,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities
|
|
|
55,753
|
|
|
|
|
|
|
|
|
|
|
|
55,753
|
|
Corporate debt obligations
|
|
|
|
|
|
|
138,436
|
|
|
|
|
|
|
|
138,436
|
|
Asset and mortgage-backed securities
|
|
|
|
|
|
|
22,490
|
|
|
|
|
|
|
|
22,490
|
|
Municipal bonds
|
|
|
|
|
|
|
17,941
|
|
|
|
|
|
|
|
17,941
|
|
Non-U.S.
government and agency securities
|
|
|
|
|
|
|
1,676
|
|
|
|
|
|
|
|
1,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,753
|
|
|
|
180,543
|
|
|
|
|
|
|
|
236,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
202,034
|
|
|
$
|
182,042
|
|
|
$
|
|
|
|
$
|
384,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
190,308
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
190,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities
|
|
|
37,976
|
|
|
|
|
|
|
|
|
|
|
|
37,976
|
|
Corporate debt obligations
|
|
|
|
|
|
|
83,003
|
|
|
|
|
|
|
|
83,003
|
|
Asset and mortgage-backed securities
|
|
|
|
|
|
|
19,115
|
|
|
|
|
|
|
|
19,115
|
|
Municipal bonds
|
|
|
|
|
|
|
5,923
|
|
|
|
|
|
|
|
5,923
|
|
Certificates of deposit
|
|
|
15,592
|
|
|
|
|
|
|
|
|
|
|
|
15,592
|
|
Auction rate debt securities
|
|
|
|
|
|
|
|
|
|
|
17,951
|
|
|
|
17,951
|
|
Auction rate preferred securities
|
|
|
|
|
|
|
|
|
|
|
4,366
|
|
|
|
4,366
|
|
Put options related to auction rate securities
|
|
|
|
|
|
|
|
|
|
|
1,439
|
|
|
|
1,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,568
|
|
|
|
108,041
|
|
|
|
23,756
|
|
|
|
185,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
243,876
|
|
|
$
|
108,041
|
|
|
$
|
23,756
|
|
|
$
|
375,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys investments classified within Level 2
were primarily valued based on valuations obtained from a
third-party pricing service. To estimate fair value, the pricing
service utilizes industry standard valuation models, including
both income and market-based approaches for which all
significant inputs are observable either directly or indirectly.
These inputs include reported trades and broker/dealer quotes of
the same or similar securities, issuer credit spreads, benchmark
securities and other observable inputs.
The Companys investments in auction rate securities and
the related put options were classified within Level 3
because there were no active markets for these securities and
the Company was unable to obtain independent valuations from
market sources. Therefore, the auction rate securities and the
related put options were primarily valued based on an income
approach using estimates of future cash flows. The assumptions
used in preparing these discounted cash flow models included
estimates for the amount and timing of future interest and
principal payments, the collateralization of underlying security
investments, the creditworthiness of the issuer and the rate of
return required by investors to own these securities, including
call and liquidity premiums.
52
QLOGIC
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of the changes in Level 3 assets measured at fair
value on a recurring basis for fiscal 2011 and 2010 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
Total Realized
|
|
|
Sales and Other
|
|
|
Balance
|
|
Year Ended
April 3, 2011
|
|
March 28, 2010
|
|
|
Gains (Losses)
|
|
|
Settlements
|
|
|
April 3, 2011
|
|
|
|
(In thousands)
|
|
|
Auction rate debt securities
|
|
$
|
17,951
|
|
|
$
|
1,299
|
|
|
$
|
(19,250
|
)
|
|
$
|
|
|
Auction rate preferred securities
|
|
|
4,366
|
|
|
|
184
|
|
|
|
(4,550
|
)
|
|
|
|
|
Put options related to auction rate securities
|
|
|
1,439
|
|
|
|
(1,439
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,756
|
|
|
$
|
44
|
|
|
$
|
(23,800
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
Total Realized
|
|
|
Unrealized
|
|
|
Sales and Other
|
|
|
Balance
|
|
Year Ended
March 28, 2010
|
|
March 29, 2009
|
|
|
Gains (Losses)
|
|
|
Losses
|
|
|
Settlements
|
|
|
March 28, 2010
|
|
|
|
(In thousands)
|
|
|
Auction rate debt securities
|
|
$
|
20,741
|
|
|
$
|
2,434
|
|
|
$
|
|
|
|
$
|
(5,224
|
)
|
|
$
|
17,951
|
|
Auction rate preferred securities
|
|
|
4,964
|
|
|
|
5,834
|
|
|
|
5
|
|
|
|
(6,437
|
)
|
|
|
4,366
|
|
Put options related to auction rate securities
|
|
|
9,281
|
|
|
|
(7,842
|
)
|
|
|
|
|
|
|
|
|
|
|
1,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
34,986
|
|
|
$
|
426
|
|
|
$
|
5
|
|
|
$
|
(11,661
|
)
|
|
$
|
23,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of inventories are as follows:
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Raw materials
|
|
$
|
5,702
|
|
|
$
|
6,693
|
|
Finished goods
|
|
|
21,229
|
|
|
|
12,710
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26,931
|
|
|
$
|
19,403
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 6.
|
Property
and Equipment
|
Components of property and equipment are as follows:
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Land
|
|
$
|
11,663
|
|
|
$
|
11,663
|
|
Buildings and improvements
|
|
|
40,984
|
|
|
|
40,705
|
|
Production and test equipment
|
|
|
187,655
|
|
|
|
175,901
|
|
Furniture and fixtures
|
|
|
7,958
|
|
|
|
8,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
248,260
|
|
|
|
236,302
|
|
Less accumulated depreciation and amortization
|
|
|
171,126
|
|
|
|
152,806
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
77,134
|
|
|
$
|
83,496
|
|
|
|
|
|
|
|
|
|
|
53
QLOGIC
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 7.
|
Purchased
Intangible Assets
|
Purchased intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 3, 2011
|
|
|
March 28, 2010
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
Acquisition-related intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core/developed technology
|
|
$
|
45,700
|
|
|
$
|
34,479
|
|
|
$
|
11,221
|
|
|
$
|
45,700
|
|
|
$
|
30,059
|
|
|
$
|
15,641
|
|
Customer relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,700
|
|
|
|
9,700
|
|
|
|
|
|
Other
|
|
|
1,010
|
|
|
|
387
|
|
|
|
623
|
|
|
|
1,010
|
|
|
|
185
|
|
|
|
825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,710
|
|
|
|
34,866
|
|
|
|
11,844
|
|
|
|
56,410
|
|
|
|
39,944
|
|
|
|
16,466
|
|
Other purchased intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology-related
|
|
|
2,384
|
|
|
|
1,534
|
|
|
|
850
|
|
|
|
3,716
|
|
|
|
2,788
|
|
|
|
928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
49,094
|
|
|
$
|
36,400
|
|
|
$
|
12,694
|
|
|
$
|
60,126
|
|
|
$
|
42,732
|
|
|
$
|
17,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the amortization expense, by classification,
included in the consolidated statements of income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Cost of revenues
|
|
$
|
4,868
|
|
|
$
|
7,052
|
|
|
$
|
12,491
|
|
Engineering and development
|
|
|
|
|
|
|
|
|
|
|
125
|
|
Sales and marketing
|
|
|
|
|
|
|
1,886
|
|
|
|
3,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,868
|
|
|
$
|
8,938
|
|
|
$
|
15,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the estimated future amortization
expense of purchased intangible assets as of April 3, 2011:
|
|
|
|
|
Fiscal
|
|
|
|
|
|
(In thousands)
|
|
|
2012
|
|
$
|
4,803
|
|
2013
|
|
|
4,889
|
|
2014
|
|
|
1,199
|
|
2015
|
|
|
968
|
|
2016
|
|
|
771
|
|
2017
|
|
|
64
|
|
|
|
|
|
|
|
|
$
|
12,694
|
|
|
|
|
|
|
|
|
Note 8.
|
Stockholders
Equity
|
Capital
Stock
The Companys authorized capital consists of 1 million
shares of preferred stock, par value $0.001 per share, and
500 million shares of common stock, par value $0.001 per
share. As of April 3, 2011 and March 28, 2010, the
Company had 208.0 million and 204.9 million shares of
common stock issued, respectively. As of April 3, 2011,
36.0 million shares of common stock were reserved for the
exercise of issued and unissued stock-based awards and
1.6 million shares were reserved for issuance in connection
with the Companys Employee Stock Purchase Plan.
54
QLOGIC
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Treasury
Stock
Since fiscal 2003, the Company has had various stock repurchase
programs that authorized the purchase of up to
$1.75 billion of the Companys outstanding common
stock, including a program approved in August 2010 authorizing
the repurchase of up to $200 million of the Companys
outstanding common stock. During fiscal 2011, the Company
purchased 10.7 million shares of its common stock for an
aggregate purchase price of $186.4 million, of which
$0.8 million was pending settlement and is included in
other current liabilities in the consolidated balance sheet as
of April 3, 2011. During fiscal 2010, the Company purchased
10.1 million shares of its common stock for an aggregate
purchase price of $165.5 million, of which
$3.6 million was pending settlement and is included in
other current liabilities in the consolidated balance sheet as
of March 28, 2010. As of April 3, 2011, the Company
had purchased a total of 103.3 million shares of common
stock under these repurchase programs for an aggregate purchase
price of $1.63 billion.
Repurchased shares have been recorded as treasury shares and
will be held until the Companys Board of Directors
designates that these shares be retired or used for other
purposes.
|
|
Note 9.
|
Stock-Based
Compensation
|
Employee
Stock Purchase Plan
The Company has an Employee Stock Purchase Plan (the ESPP) that
operates in accordance with Section 423 of the Internal
Revenue Code. The ESPP is administered by the Compensation
Committee of the Board of Directors. Under the ESPP, employees
of the Company who elect to participate are granted options to
purchase common stock at a 15% discount from the lower of the
market value of the common stock at the beginning or end of each
three-month offering period. The ESPP permits an enrolled
employee to make contributions to purchase shares of common
stock by having withheld from their salary an amount between 1%
and 10% of compensation. ESPP participant contributions of
$1.2 million were included in other current liabilities in
the consolidated balance sheets as of April 3, 2011 and
March 28, 2010. The total number of shares issued under the
ESPP was 449,000, 560,000 and 528,000 during fiscal 2011, 2010
and 2009, respectively.
Stock
Incentive Compensation Plans
The Company may grant stock-based awards to employees and
directors under the QLogic 2005 Performance Incentive Plan (the
2005 Plan). Prior to the adoption of the 2005 Plan in August
2005, the Company granted options to purchase shares of the
Companys common stock to employees and directors under
certain predecessor stock plans. Additionally, the Company has
assumed stock options as part of acquisitions.
The 2005 Plan provides for the issuance of incentive and
non-qualified stock options, restricted stock units and other
stock-based incentive awards for employees. The 2005 Plan
permits the Compensation Committee of the Board of Directors to
select eligible employees to receive awards and to determine the
terms and conditions of awards. In general, stock options
granted to employees have ten-year terms and vest over four
years from the date of grant. Restricted stock units represent a
right to receive a share of stock at a future vesting date with
no cash payment from the holder. In general, restricted stock
units granted to employees vest over four years from the date of
grant.
Under the terms of the 2005 Plan, as amended, non-employee
directors receive grants of stock-based awards upon initial
election or appointment to the Board of Directors and upon
annual reelection to the Board. The target fair value of such
grants are determined by reference to the equity compensation
for non-employee directors of the Companys peer group of
companies. The target value is then allocated 100% to a
non-qualified stock option grant in the case of the initial
grant and allocated 35% to a restricted stock unit award and 65%
to a non-qualified stock option grant in the case of the annual
grant. All stock options and restricted stock units granted to
non-employee directors have ten-year terms and vest from one to
three years from the date of grant.
55
QLOGIC
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company also entered into a stock-based performance plan in
connection with a business acquisition in fiscal 2007. During
fiscal 2011, 2010 and 2009 the Company issued 28,000 shares
of common stock valued at $0.6 million, 112,000 shares
of common stock valued at $1.3 million and
111,000 shares of common stock valued at $1.7 million,
respectively, under this performance plan.
As of April 3, 2011, options to purchase 21.9 million
shares of common stock and 2.3 million restricted stock
units were held by employees and non-employee directors. Shares
available for future grant were 11.8 million under the 2005
Plan as of April 3, 2011. No further awards can be granted
under any other plans.
A summary of stock option activity is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term (Years)
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Outstanding at March 30, 2008
|
|
|
26,079
|
|
|
$
|
20.94
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
4,117
|
|
|
|
15.07
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,485
|
)
|
|
|
13.09
|
|
|
|
|
|
|
|
|
|
Forfeited (cancelled pre-vesting)
|
|
|
(1,121
|
)
|
|
|
15.93
|
|
|
|
|
|
|
|
|
|
Expired (cancelled post-vesting)
|
|
|
(1,650
|
)
|
|
|
22.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 29, 2009
|
|
|
25,940
|
|
|
|
20.58
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
3,853
|
|
|
|
14.06
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,878
|
)
|
|
|
14.89
|
|
|
|
|
|
|
|
|
|
Forfeited (cancelled pre-vesting)
|
|
|
(499
|
)
|
|
|
15.54
|
|
|
|
|
|
|
|
|
|
Expired (cancelled post-vesting)
|
|
|
(3,160
|
)
|
|
|
25.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 28, 2010
|
|
|
24,256
|
|
|
|
19.50
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,829
|
|
|
|
17.74
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,091
|
)
|
|
|
14.18
|
|
|
|
|
|
|
|
|
|
Forfeited (cancelled pre-vesting)
|
|
|
(708
|
)
|
|
|
15.42
|
|
|
|
|
|
|
|
|
|
Expired (cancelled post-vesting)
|
|
|
(2,430
|
)
|
|
|
32.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at April 3, 2011
|
|
|
21,856
|
|
|
$
|
18.51
|
|
|
|
5.1
|
|
|
$
|
32,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at April 3, 2011
|
|
|
21,301
|
|
|
$
|
18.58
|
|
|
|
5.0
|
|
|
$
|
31,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at April 3, 2011
|
|
|
16,178
|
|
|
$
|
19.40
|
|
|
|
3.9
|
|
|
$
|
19,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56
QLOGIC
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of restricted stock unit activity is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
Outstanding and unvested at March 30, 2008
|
|
|
1,273
|
|
|
$
|
17.57
|
|
Granted
|
|
|
944
|
|
|
|
14.89
|
|
Vested
|
|
|
(364
|
)
|
|
|
17.72
|
|
Forfeited
|
|
|
(160
|
)
|
|
|
16.12
|
|
|
|
|
|
|
|
|
|
|
Outstanding and unvested at March 29, 2009
|
|
|
1,693
|
|
|
|
16.18
|
|
Granted
|
|
|
1,488
|
|
|
|
13.85
|
|
Vested
|
|
|
(533
|
)
|
|
|
16.65
|
|
Forfeited
|
|
|
(134
|
)
|
|
|
15.85
|
|
|
|
|
|
|
|
|
|
|
Outstanding and unvested at March 28, 2010
|
|
|
2,514
|
|
|
|
14.78
|
|
Granted
|
|
|
965
|
|
|
|
17.79
|
|
Vested
|
|
|
(959
|
)
|
|
|
15.31
|
|
Forfeited
|
|
|
(249
|
)
|
|
|
15.11
|
|
|
|
|
|
|
|
|
|
|
Outstanding and unvested at April 3, 2011
|
|
|
2,271
|
|
|
$
|
15.80
|
|
|
|
|
|
|
|
|
|
|
During fiscal 2011, 2010 and 2009, the Company issued 581,000,
334,000 and 233,000 shares of common stock, respectively,
in connection with the vesting of restricted stock units. The
difference between the number of restricted stock units vested
and the shares of common stock issued is the result of
restricted stock units withheld in satisfaction of minimum tax
withholding obligations associated with the vesting.
Stock-Based
Compensation Expense
A summary of stock-based compensation expense, by functional
line item in the consolidated statements of income, is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Cost of revenues
|
|
$
|
2,563
|
|
|
$
|
2,629
|
|
|
$
|
2,058
|
|
Engineering and development
|
|
|
16,466
|
|
|
|
18,237
|
|
|
|
15,142
|
|
Sales and marketing
|
|
|
7,580
|
|
|
|
6,918
|
|
|
|
5,567
|
|
General and administrative
|
|
|
8,398
|
|
|
|
7,910
|
|
|
|
6,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,007
|
|
|
$
|
35,694
|
|
|
$
|
28,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In fiscal 2010, the Company granted 464,000 restricted stock
units to employees that joined QLogic in connection with the
acquisition of NetXen and recognized $2.4 million and
$1.6 million of stock-based compensation related to these
awards during fiscal 2011 and 2010, respectively, which is
included in the table above.
57
QLOGIC
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair value of stock options granted and shares to be
purchased under the ESPP have been estimated at the date of
grant using a Black-Scholes option-pricing model. The
weighted-average fair values and underlying assumptions are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2009
|
|
|
Stock
|
|
Employee Stock
|
|
Stock
|
|
Employee Stock
|
|
Stock
|
|
Employee Stock
|
|
|
Options
|
|
Purchase Plan
|
|
Options
|
|
Purchase Plan
|
|
Options
|
|
Purchase Plan
|
|
Fair value
|
|
$
|
6.62
|
|
|
$
|
3.95
|
|
|
$
|
5.31
|
|
|
$
|
3.50
|
|
|
$
|
5.64
|
|
|
$
|
3.39
|
|
Expected volatility
|
|
|
38
|
%
|
|
|
36
|
%
|
|
|
38
|
%
|
|
|
42
|
%
|
|
|
37
|
%
|
|
|
45
|
%
|
Risk-free interest rate
|
|
|
2.1
|
%
|
|
|
0.2
|
%
|
|
|
2.2
|
%
|
|
|
0.1
|
%
|
|
|
3.4
|
%
|
|
|
0.9
|
%
|
Expected life (years)
|
|
|
5.3
|
|
|
|
0.25
|
|
|
|
5.0
|
|
|
|
0.25
|
|
|
|
5.2
|
|
|
|
0.25
|
|
Dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units granted were valued based on the closing
market price on the date of grant.
Stock-based compensation expense for fiscal 2011, 2010 and 2009
was $35.0 million ($27.2 million after income taxes),
$35.7 million ($29.4 million after income taxes) and
$28.8 million ($24.1 million after income taxes),
respectively. Stock-based compensation costs capitalized as part
of the cost of assets for fiscal 2011, 2010 and 2009 were not
material.
As of April 3, 2011, there was $56.2 million of total
unrecognized compensation costs related to outstanding
stock-based awards. These costs are expected to be recognized
over a weighted-average period of 2.3 years.
During fiscal 2011, 2010 and 2009, the grant date fair value of
options vested totaled $18.5 million, $20.0 million
and $20.5 million, respectively. The intrinsic value of
options exercised during fiscal 2011, 2010 and 2009 totaled
$8.4 million, $6.8 million and $6.9 million,
respectively. Intrinsic value of options exercised is calculated
as the difference between the market price on the date of
exercise and the exercise price multiplied by the number of
options exercised.
The fair value of restricted stock units vested during fiscal
2011, 2010 and 2009 totaled $17.1 million,
$7.7 million and $5.5 million, respectively.
The Company currently issues new shares to deliver common stock
under its stock-based award plans.
|
|
Note 10.
|
Employee
Retirement Savings Plan
|
The Company has established a pretax savings plan under
Section 401(k) of the Internal Revenue Code for
substantially all U.S. employees. Under the plan, eligible
employees are able to contribute up to 50% of their
compensation, subject to limits specified in the Internal
Revenue Code. Effective May 1, 2009, the Company suspended
its matching contributions to the plan. Previously, Company
contributions matched up to 3% of a participants
compensation. As of April 3, 2011, the Company authorized a
special discretionary contribution to the plan for fiscal 2011.
The Companys contributions on behalf of its employees
totaled $0.6 million, $0.1 million and
$2.7 million in fiscal 2011, 2010 and 2009, respectively.
The Company also maintains retirement plans in certain
non-U.S. locations.
The total expense and total obligation of the Company for these
plans were not material to the consolidated financial statements
for all periods presented.
During fiscal 2011, the Company recorded special charges of
$0.9 million consisting of exit costs associated with
severance benefits for involuntarily-terminated employees,
primarily related to the consolidation of certain engineering
functions. As of April 3, 2011, all such severance benefits
had been paid.
58
QLOGIC
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During fiscal 2010, the Company recorded special charges
totaling $5.2 million related to the consolidation of
facilities and workforce reductions. The special charges
consisted primarily of $3.1 million of exit costs related
to facilities under non-cancelable leases that the Company
ceased using during fiscal 2010 and $1.5 million of exit
costs associated with severance benefits for
involuntarily-terminated employees (collectively, the Fiscal
2010 Initiative). In addition, the fiscal 2010 special charges
included $0.6 million of exit costs related to facilities
that the Company ceased using prior to fiscal 2010, which were
associated with the fiscal 2009 and 2008 initiatives.
Activity and liability balances for the exit costs related to
the Fiscal 2010 Initiative are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce
|
|
|
|
|
|
|
Facility
|
|
|
Reductions
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Charged to costs and expenses
|
|
$
|
3,076
|
|
|
$
|
1,542
|
|
|
$
|
4,618
|
|
Cash payments
|
|
|
(324
|
)
|
|
|
(953
|
)
|
|
|
(1,277
|
)
|
Non-cash adjustments
|
|
|
92
|
|
|
|
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 28, 2010
|
|
|
2,844
|
|
|
|
589
|
|
|
|
3,433
|
|
Cash payments
|
|
|
(582
|
)
|
|
|
(564
|
)
|
|
|
(1,146
|
)
|
Non-cash adjustments
|
|
|
|
|
|
|
(25
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of April 3, 2011
|
|
$
|
2,262
|
|
|
$
|
|
|
|
$
|
2,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 3, 2011, unpaid exit costs related to the
Fiscal 2010 Initiative totaled $2.3 million and are
expected to be paid over the terms of the related agreements
through fiscal 2018.
During fiscal 2009, the Company implemented a workforce
reduction initiative, primarily in response to the macroeconomic
environment, and recorded special charges totaling
$4.1 million. The special charges consisted primarily of
$3.9 million of exit costs associated with severance
benefits for involuntarily-terminated employees and costs
related to a facility under a non-cancelable lease that the
Company ceased using during fiscal 2009 (collectively, the
Fiscal 2009 Initiative). As of April 3, 2011, all exit
costs related to the Fiscal 2009 Initiative had been paid.
|
|
Note 12.
|
Interest
and Other Income, net
|
Components of interest and other income, net, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Interest income
|
|
$
|
3,561
|
|
|
$
|
5,399
|
|
|
$
|
11,295
|
|
Gain on sales of
available-for-sale
securities
|
|
|
2,158
|
|
|
|
4,521
|
|
|
|
4,770
|
|
Loss on sales of
available-for-sale
securities
|
|
|
(342
|
)
|
|
|
(1,811
|
)
|
|
|
(1,131
|
)
|
Net gains on trading securities
|
|
|
44
|
|
|
|
426
|
|
|
|
3,456
|
|
Gain on distributions of other investment securities
|
|
|
328
|
|
|
|
1,846
|
|
|
|
|
|
Impairment of investment securities
|
|
|
|
|
|
|
|
|
|
|
(16,407
|
)
|
Other
|
|
|
(562
|
)
|
|
|
220
|
|
|
|
151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,187
|
|
|
$
|
10,601
|
|
|
$
|
2,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
QLOGIC
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Income before income taxes consists of the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
United States
|
|
$
|
32,561
|
|
|
$
|
58,604
|
|
|
$
|
130,573
|
|
International
|
|
|
112,222
|
|
|
|
51,103
|
|
|
|
38,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
144,783
|
|
|
$
|
109,707
|
|
|
$
|
169,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(6,431
|
)
|
|
$
|
42,350
|
|
|
$
|
32,147
|
|
State
|
|
|
2,890
|
|
|
|
4,158
|
|
|
|
7,524
|
|
Foreign
|
|
|
4,809
|
|
|
|
2,252
|
|
|
|
3,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
1,268
|
|
|
|
48,760
|
|
|
|
43,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
5,553
|
|
|
|
5,578
|
|
|
|
17,465
|
|
State
|
|
|
253
|
|
|
|
109
|
|
|
|
(511
|
)
|
Foreign
|
|
|
(1,381
|
)
|
|
|
312
|
|
|
|
(294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
4,425
|
|
|
|
5,999
|
|
|
|
16,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,693
|
|
|
$
|
54,759
|
|
|
$
|
60,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The deferred tax expense (benefit) associated with the change in
unrealized gains and losses on the Companys investment
securities of $(0.5) million, $0.3 million and
$2.2 million in fiscal 2011, 2010 and 2009, respectively,
were recorded in other comprehensive income.
A reconciliation of the income tax provision with the amount
computed by applying the federal statutory tax rate to income
before income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Expected income tax provision at the statutory rate
|
|
$
|
50,674
|
|
|
$
|
38,397
|
|
|
$
|
59,153
|
|
State income taxes, net of federal tax benefit
|
|
|
1,911
|
|
|
|
2,282
|
|
|
|
7,370
|
|
Tax rate differential on foreign earnings and other
international related tax items
|
|
|
(35,460
|
)
|
|
|
17,864
|
|
|
|
997
|
|
Benefit from research and other credits
|
|
|
(7,704
|
)
|
|
|
(4,732
|
)
|
|
|
(5,370
|
)
|
Stock-based compensation
|
|
|
4,096
|
|
|
|
3,294
|
|
|
|
3,681
|
|
Resolution of prior period tax matters
|
|
|
(10,013
|
)
|
|
|
(696
|
)
|
|
|
(8,892
|
)
|
Valuation allowance
|
|
|
1,766
|
|
|
|
(1,581
|
)
|
|
|
3,469
|
|
Other, net
|
|
|
423
|
|
|
|
(69
|
)
|
|
|
(189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,693
|
|
|
$
|
54,759
|
|
|
$
|
60,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company implemented a globalization initiative to expand its
worldwide footprint beginning in fiscal 2005. As part of this
initiative, certain intellectual property and other rights were
licensed to one of the Companys
60
QLOGIC
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
international subsidiaries. During the fourth quarter of fiscal
2010, the license agreement was amended which resulted in a
fully
paid-up
license. The Company recorded a tax charge of $29.7 million
in fiscal 2010 related to the globalization initiative,
primarily due to the amendment to the license agreement. As a
result of the amendment, the Company determined that all payment
obligations under the license agreement had been satisfied in
fiscal 2010 and, accordingly, the Company realized an increased
tax benefit in fiscal 2011 due to its foreign operations
generating a higher portion of its taxable income, which is
taxed at more favorable rates.
The components of the deferred tax assets and liabilities are as
follows:
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Reserves and accruals not currently deductible
|
|
$
|
22,206
|
|
|
$
|
22,642
|
|
Stock-based compensation
|
|
|
14,570
|
|
|
|
14,859
|
|
Net operating loss carryforwards
|
|
|
14,443
|
|
|
|
13,924
|
|
Research credits
|
|
|
6,618
|
|
|
|
4,132
|
|
Investment securities
|
|
|
1,545
|
|
|
|
1,238
|
|
Foreign tax credits
|
|
|
1,157
|
|
|
|
2,571
|
|
Capital loss carryovers
|
|
|
484
|
|
|
|
1,061
|
|
Property and equipment
|
|
|
|
|
|
|
2,887
|
|
Other
|
|
|
1,553
|
|
|
|
1,434
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
62,576
|
|
|
|
64,748
|
|
Valuation allowance
|
|
|
(3,654
|
)
|
|
|
(1,888
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets, net of valuation allowance
|
|
|
58,922
|
|
|
|
62,860
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
State income taxes
|
|
|
6,036
|
|
|
|
2,973
|
|
Property and equipment
|
|
|
4,086
|
|
|
|
|
|
Research and development expenditures
|
|
|
3,348
|
|
|
|
8,573
|
|
Purchased intangible assets
|
|
|
2,365
|
|
|
|
3,421
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
15,835
|
|
|
|
14,967
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
43,087
|
|
|
$
|
47,893
|
|
|
|
|
|
|
|
|
|
|
Based upon the Companys current and historical pre-tax
earnings, management believes it is more likely than not that
the Company will realize the full benefit of the existing net
deferred tax assets as of April 3, 2011, except for the
deferred tax assets related to certain investment securities,
capital loss carryovers, and certain state net operating losses
and tax credits. Management believes the existing net deductible
temporary differences will reverse during periods in which the
Company generates net taxable income or that there would be
sufficient tax carrybacks available; however, there can be no
assurance that the Company will generate any earnings or any
specific level of continuing earnings in future years.
The Companys deferred tax assets related to investment
securities and capital loss carryovers consist primarily of
temporary differences related to
other-than-temporary
impairments on the Companys investment securities and
realized losses on dispositions of investment securities that
are subject to limitations on deductibility. As a result of
limitations on the deductibility of capital losses and other
factors, management is currently unable to assert that it is
more likely than not that the Company will realize the full
benefit of these deferred tax assets. Accordingly, the Company
had previously recorded a valuation allowance against these
deferred tax assets. The
61
QLOGIC
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
balance of this valuation allowance was $1.5 million and
$1.9 million as of April 3, 2011 and March 28,
2010, respectively.
The Companys deferred tax assets relating to state net
operating losses and state tax credits include attributes
related to a subsidiary that files state tax returns on a
separate filing basis in certain tax jurisdictions. Based on
various factors, including historical operating results,
management is currently unable to assert that it is more likely
than not that the Company will realize the benefit of these
deferred tax assets. Accordingly, the Company recorded a
valuation allowance against these deferred tax assets of
$2.2 million during fiscal 2011.
As of April 3, 2011, the Company has federal net operating
loss carryforwards of $21.0 million, which will expire
between fiscal 2021 and 2029, if not utilized, and state net
operating loss carryforwards of $76.5 million, which will
expire between fiscal 2017 and 2031, if not utilized. The
Company also has state capital loss carryovers of
$16.5 million which will expire between fiscal 2013 and
2015, if not utilized, and state tax credit carryforwards of
$6.4 million, of which the majority have no expiration
date. The net operating loss and tax credit carryforwards
relating to acquired companies are subject to limitations on the
timing of utilization.
The Company has made no provision for U.S. income taxes or
foreign withholding taxes on the earnings of its foreign
subsidiaries, as these amounts are intended to be indefinitely
reinvested in operations outside the United States. As of
April 3, 2011, the cumulative amount of undistributed
earnings of the Companys foreign subsidiaries was
$274.5 million. Because of the availability of
U.S. foreign tax credits, it is not practicable to
determine the U.S. federal income tax liability that would
be payable if such earnings were not reinvested indefinitely.
The Company is no longer subject to federal income tax
examinations prior to fiscal 2008 and California income tax
examinations prior to fiscal 2009. The Companys federal
consolidated income tax returns for fiscal years 2008 and 2009
are currently under examination by the Internal Revenue Service.
With limited exceptions, the Company is no longer subject to
other state and foreign income tax examinations by taxing
authorities for periods prior to fiscal 2008. Management does
not believe that the results of these examinations will have a
material impact on the Companys financial condition or
results of operations.
A rollforward of the activity in the gross unrecognized tax
benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Balance at beginning of year
|
|
$
|
65,385
|
|
|
$
|
41,526
|
|
Additions based on tax positions related to the current year
|
|
|
1,781
|
|
|
|
33,354
|
|
Additions for tax positions of prior years
|
|
|
472
|
|
|
|
2,215
|
|
Reductions for tax positions of prior years
|
|
|
(2,834
|
)
|
|
|
(4,502
|
)
|
Settlements with taxing authorities
|
|
|
|
|
|
|
(5,603
|
)
|
Lapses of statute of limitations
|
|
|
(7,294
|
)
|
|
|
(1,605
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
57,510
|
|
|
$
|
65,385
|
|
|
|
|
|
|
|
|
|
|
If the unrecognized tax benefits as of April 3, 2011 were
recognized, $55.7 million, net of $1.8 million of tax
benefits from foreign tax credits and state income taxes, would
favorably affect the Companys effective income tax rate.
It is reasonably possible that the Companys liability for
uncertain tax positions may be reduced by as much as
$1.8 million as a result of either the settlement of tax
positions with various tax authorities or by virtue of the
statute of limitations expiring through the end of fiscal 2012.
In addition to the unrecognized tax benefits noted above, the
Company had accrued $3.4 million and $3.3 million of
interest expense, net of the related tax benefit, and penalties
as of April 3, 2011 and March 28, 2010, respectively.
The Company recognized interest expense (benefit), net of the
related tax effect, and penalties aggregating $0.1 million,
$(0.1) million and $(1.2) million during fiscal 2011,
2010 and 2009, respectively.
62
QLOGIC
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 14.
|
Net
Income per Share
|
The following table sets forth the computation of basic and
diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Net income
|
|
$
|
139,090
|
|
|
$
|
54,948
|
|
|
$
|
108,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding basic
|
|
|
107,647
|
|
|
|
116,037
|
|
|
|
127,776
|
|
Dilutive potential common shares, using treasury stock method
|
|
|
1,545
|
|
|
|
1,327
|
|
|
|
794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding diluted
|
|
|
109,192
|
|
|
|
117,364
|
|
|
|
128,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.29
|
|
|
$
|
0.47
|
|
|
$
|
0.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.27
|
|
|
$
|
0.47
|
|
|
$
|
0.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based awards, including stock options and restricted stock
units, representing 14.5 million, 20.5 million and
25.4 million shares of common stock have been excluded from
the diluted net income per share calculations for fiscal 2011,
2010 and 2009, respectively. These stock-based awards have been
excluded from the diluted net income per share calculations
because their effect would have been antidilutive.
|
|
Note 15.
|
Commitments
and Contingencies
|
Leases
The Company leases certain facilities, software and equipment
under operating lease agreements. A summary of the future
minimum lease commitments under non-cancelable operating leases
as of April 3, 2011 is as follows:
|
|
|
|
|
Fiscal Year
|
|
|
|
|
|
(In thousands)
|
|
|
2012
|
|
$
|
6,351
|
|
2013
|
|
|
4,507
|
|
2014
|
|
|
4,150
|
|
2015
|
|
|
3,104
|
|
2016
|
|
|
1,854
|
|
Thereafter
|
|
|
4,101
|
|
|
|
|
|
|
Total future minimum lease payments
|
|
$
|
24,067
|
|
|
|
|
|
|
Rent expense for fiscal 2011, 2010 and 2009 was
$9.6 million, $9.4 million and $9.0 million,
respectively.
Litigation
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
Companys financial condition or results of operations.
Based on an evaluation of matters which are pending or asserted,
the Company believes the disposition of such matters will not
have a material adverse effect on the Companys financial
condition or results of operations.
63
QLOGIC
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Indemnifications
The Company indemnifies certain of its customers against claims
that products purchased from the Company infringe upon a patent,
copyright, trademark or trade secret of a third party. In the
event of such a claim, the Company agrees to pay all litigation
costs, including attorney fees, and any settlement payments or
damages awarded directly related to the infringement. The
indemnification provisions generally do not expire. The Company
is not currently defending any intellectual property
infringement claims. On occasion, the Company has been made
aware of potential infringement claims. However, based on an
evaluation of these potential claims, the Company believes the
disposition of such matters will not have a material adverse
effect on the Companys financial condition or results of
operations. Accordingly, the Company has not recorded a
liability related to such indemnifications.
|
|
Note 16.
|
Revenue
Components, Geographic Revenues and Significant
Customers
|
Operating segments are components of an enterprise for which
separate financial information is available and is evaluated
regularly by the chief operating decision maker in deciding how
to allocate resources and in assessing performance. The Company
operates in one operating segment.
Revenue
Components
A summary of net revenues by product category is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Host Products
|
|
$
|
429,279
|
|
|
$
|
396,519
|
|
|
$
|
440,862
|
|
Network Products
|
|
|
106,060
|
|
|
|
99,449
|
|
|
|
117,551
|
|
Silicon Products
|
|
|
50,987
|
|
|
|
42,368
|
|
|
|
61,426
|
|
Service and other
|
|
|
10,873
|
|
|
|
10,734
|
|
|
|
14,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
597,199
|
|
|
$
|
549,070
|
|
|
$
|
633,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic
Revenues
Revenues by geographic area are presented based upon the ship-to
location of the customer. Net revenues by geographic area are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
United States
|
|
$
|
264,345
|
|
|
$
|
250,333
|
|
|
$
|
303,729
|
|
Asia-Pacific and Japan
|
|
|
165,779
|
|
|
|
138,775
|
|
|
|
139,850
|
|
Europe, Middle East and Africa
|
|
|
133,698
|
|
|
|
126,966
|
|
|
|
154,463
|
|
Rest of world
|
|
|
33,377
|
|
|
|
32,996
|
|
|
|
35,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
597,199
|
|
|
$
|
549,070
|
|
|
$
|
633,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues from customers in China were $84.0 million,
$72.3 million and $58.5 million for fiscal 2011, 2010
and 2009, respectively. No individual country other than the
United States and China represented 10% or more of net revenues
for any of the years presented.
64
QLOGIC
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Significant
Customers
A summary of the Companys customers, including their
manufacturing subcontractors, that represent 10% or more of the
Companys net revenues is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2009
|
|
Hewlett-Packard
|
|
|
25
|
%
|
|
|
24
|
%
|
|
|
21
|
%
|
IBM
|
|
|
19
|
%
|
|
|
20
|
%
|
|
|
18
|
%
|
Dell
|
|
|
11
|
%
|
|
|
*
|
|
|
|
*
|
|
Sun Microsystems (acquired by Oracle in fiscal 2010)
|
|
|
*
|
|
|
|
*
|
|
|
|
11
|
%
|
|
|
|
* |
|
Less than 10% of net revenues |
|
|
Note 17.
|
Condensed
Quarterly Results (Unaudited)
|
The following table summarizes certain unaudited quarterly
financial information for fiscal 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
June
|
|
September
|
|
December(1)
|
|
March(2)
|
|
|
(In thousands, except per share amounts)
|
|
Fiscal 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
142,609
|
|
|
$
|
146,529
|
|
|
$
|
155,771
|
|
|
$
|
152,290
|
|
Gross profit
|
|
|
92,908
|
|
|
|
96,118
|
|
|
|
102,771
|
|
|
|
101,458
|
|
Operating income
|
|
|
28,370
|
|
|
|
34,875
|
|
|
|
40,459
|
|
|
|
35,892
|
|
Net income
|
|
|
25,449
|
|
|
|
29,986
|
|
|
|
50,339
|
|
|
|
33,316
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.23
|
|
|
|
0.28
|
|
|
|
0.48
|
|
|
|
0.32
|
|
Diluted
|
|
|
0.22
|
|
|
|
0.28
|
|
|
|
0.47
|
|
|
|
0.31
|
|
Fiscal 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
122,775
|
|
|
$
|
131,457
|
|
|
$
|
149,122
|
|
|
$
|
145,716
|
|
Gross profit
|
|
|
78,306
|
|
|
|
83,688
|
|
|
|
96,102
|
|
|
|
94,847
|
|
Operating income
|
|
|
16,449
|
|
|
|
20,782
|
|
|
|
34,532
|
|
|
|
27,343
|
|
Net income (loss)
|
|
|
14,963
|
|
|
|
16,163
|
|
|
|
28,648
|
|
|
|
(4,826
|
)
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.13
|
|
|
|
0.14
|
|
|
|
0.25
|
|
|
|
(0.04
|
)
|
Diluted
|
|
|
0.13
|
|
|
|
0.14
|
|
|
|
0.25
|
|
|
|
(0.04
|
)
|
|
|
|
(1) |
|
During the three months ended December 26, 2010, the
Company recorded $14.6 million of third quarter specific
income tax benefits related to the expiration of certain
statutes of limitation, the retroactive reinstatement of the
federal research tax credit and certain other items. |
|
(2) |
|
During the three months ended March 28, 2010, the Company
recorded an income tax charge of $29.7 million related to
its globalization initiative, primarily due to an amendment to
an intercompany technology license agreement with an
international subsidiary which resulted in a fully
paid-up
license, and special charges of $4.3 million related to
certain exit costs. |
65
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
Conclusion
Regarding the Effectiveness of Disclosure Controls and
Procedures
We maintain disclosure controls and procedures to ensure that
information we are required to disclose in reports that we file
or submit under the Exchange Act (i) is recorded,
processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms
and (ii) is accumulated and communicated to our management,
including our chief executive officer and chief financial
officer, to allow timely decisions regarding required
disclosure. Our management evaluated, with the participation of
our chief executive officer and chief financial officer, the
effectiveness of our disclosure controls and procedures, as such
term is defined under
Rules 13a-15(e)
and
15d-15(e)
promulgated under the Exchange Act. Based on this evaluation,
our chief executive officer and chief financial officer
concluded that our disclosure controls and procedures were
effective at a reasonable assurance level as of April 3,
2011.
Managements
Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as defined
in
Rule 13a-15(f)
promulgated under the Exchange Act. Internal control over
financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Our management evaluated the effectiveness of our internal
control over financial reporting using the criteria set forth by
the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control Integrated
Framework. Based on this evaluation, our chief executive
officer and chief financial officer concluded that the
Companys internal control over financial reporting was
effective at a reasonable assurance level as of April 3,
2011.
The independent registered public accounting firm that audited
the consolidated financial statements included in this annual
report has issued an audit report on the effectiveness of the
Companys internal control over financial reporting. See
page 37 herein.
Changes
in Internal Control over Financial Reporting
There was no change in our internal control over financial
reporting, as defined in
Rule 13a-15(f)
promulgated under the Exchange Act that occurred during the
fourth quarter of fiscal 2011 that has materially affected, or
is reasonably likely to materially affect, our internal control
over financial reporting.
|
|
Item 9B.
|
Other
Information
|
None.
66
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
Reference is made to the Companys Definitive Proxy
Statement for its 2011 Annual Meeting of Stockholders, to be
filed with the Securities and Exchange Commission within
120 days after the end of fiscal 2011, for information
required under this Item 10. Such information is
incorporated herein by reference.
The Company has adopted and implemented a Business Ethics Policy
(the Code of Ethics) that applies to the
Companys officers, employees and directors. The Code of
Ethics is available on our website at www.qlogic.com.
|
|
Item 11.
|
Executive
Compensation
|
Reference is made to the Companys Definitive Proxy
Statement for its 2011 Annual Meeting of Stockholders, to be
filed with the Securities and Exchange Commission within
120 days after the end of fiscal 2011, for information
required under this Item 11. Such information is
incorporated herein by reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Reference is made to the Companys Definitive Proxy
Statement for its 2011 Annual Meeting of Stockholders, to be
filed with the Securities and Exchange Commission within
120 days after the end of fiscal 2011, for information
required under this Item 12. Such information is
incorporated herein by reference.
There are no arrangements, known to the Company, which might at
a subsequent date result in a change in control of the Company.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
Reference is made to the Companys Definitive Proxy
Statement for its 2011 Annual Meeting of Stockholders, to be
filed with the Securities and Exchange Commission within
120 days after the end of fiscal 2011, for information
required under this Item 13. Such information is
incorporated herein by reference.
|
|
Item 14.
|
Principal
Accounting Fees and Services
|
Reference is made to the Companys Definitive Proxy
Statement for its 2011 Annual Meeting of Stockholders, to be
filed with the Securities and Exchange Commission within
120 days after the end of fiscal 2011, for information
required under this Item 14. Such information is
incorporated herein by reference.
67
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a) (1) Consolidated Financial Statements
The following consolidated financial statements of the Company
for the years ended April 3, 2011, March 28, 2010 and
March 29, 2009 are filed as part of this report:
FINANCIAL
STATEMENT INDEX
|
|
|
|
|
|
|
Page
|
|
|
Number
|
|
|
|
|
36
|
|
|
|
|
38
|
|
|
|
|
39
|
|
|
|
|
40
|
|
|
|
|
41
|
|
|
|
|
42
|
|
(a) (2) Financial Statement Schedule
The following consolidated financial statement schedule of the
Company for the years ended April 3, 2011, March 28,
2010 and March 29, 2009 is filed as part of this report and
is incorporated herein by reference:
Schedule II Valuation and Qualifying Accounts
All other schedules have been omitted because the required
information is presented in the financial statements or notes
thereto, the amounts involved are not significant or the
schedules are not applicable.
(a) (3) Exhibits
An exhibit index has been filed as part of this report and is
incorporated herein by reference.
68
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
|
|
|
|
By:
|
/s/ Simon
Biddiscombe
|
Simon Biddiscombe
President and
Chief Executive Officer
Date: May 26, 2011
POWER OF
ATTORNEY
Each person whose signature appears below hereby authorizes
Simon Biddiscombe
and/or Jean
Hu, as attorney-in-fact, to sign on his or her behalf and in
each capacity stated below, and to file all amendments
and/or
supplements to this Annual Report on Form
10-K.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
Principal Executive Officer:
|
|
|
|
|
|
|
|
|
|
/s/ Simon
Biddiscombe
Simon
Biddiscombe
|
|
President, Chief Executive Officer and Director
|
|
May 26, 2011
|
Principal Financial and Accounting Officer:
|
|
|
|
|
|
|
|
/s/ Jean
Hu
Jean
Hu
|
|
Senior Vice President and
Chief Financial Officer
|
|
May 26, 2011
|
|
|
|
|
|
/s/ H.K.
Desai
H.K.
Desai
|
|
Executive Chairman and
Chairman of the Board
|
|
May 26, 2011
|
|
|
|
|
|
Joel
S. Birnbaum
|
|
Director
|
|
|
|
|
|
|
|
/s/ James
R. Fiebiger
James
R. Fiebiger
|
|
Director
|
|
May 26, 2011
|
|
|
|
|
|
/s/ Balakrishnan
S. Iyer
Balakrishnan
S. Iyer
|
|
Director
|
|
May 26, 2011
|
|
|
|
|
|
/s/ Kathryn
B. Lewis
Kathryn
B. Lewis
|
|
Director
|
|
May 26, 2011
|
69
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ D.
Scott Mercer
D.
Scott Mercer
|
|
Director
|
|
May 26, 2011
|
|
|
|
|
|
/s/ George
D. Wells
George
D. Wells
|
|
Director
|
|
May 26, 2011
|
|
|
|
|
|
/s/ William
M. Zeitler
William
M. Zeitler
|
|
Director
|
|
May 26, 2011
|
70
Schedule II
SCHEDULE II
QLOGIC
CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions:
|
|
|
|
|
|
|
|
|
Charged to
|
|
Deductions:
|
|
|
|
|
Balance at
|
|
Costs and
|
|
Amounts
|
|
Balance at
|
|
|
Beginning of
|
|
Expenses
|
|
Written Off, Net
|
|
End of
|
|
|
Year
|
|
or Revenues
|
|
of Recoveries
|
|
Year
|
|
|
(In thousands)
|
|
Year ended April 3, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
1,505
|
|
|
$
|
54
|
|
|
$
|
23
|
|
|
$
|
1,536
|
|
Sales returns and allowances
|
|
$
|
8,276
|
|
|
$
|
29,208
|
|
|
$
|
29,628
|
|
|
$
|
7,856
|
|
Year ended March 28, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
1,366
|
|
|
$
|
366
|
|
|
$
|
227
|
|
|
$
|
1,505
|
|
Sales returns and allowances
|
|
$
|
8,848
|
|
|
$
|
29,311
|
|
|
$
|
29,883
|
|
|
$
|
8,276
|
|
Year ended March 29, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
1,176
|
|
|
$
|
278
|
|
|
$
|
88
|
|
|
$
|
1,366
|
|
Sales returns and allowances
|
|
$
|
7,601
|
|
|
$
|
37,074
|
|
|
$
|
35,827
|
|
|
$
|
8,848
|
|
71
EXHIBIT INDEX
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
3.1
|
|
Certificate of Incorporation of Emulex Micro Devices
Corporation, dated November 13, 1992. (incorporated by
reference to Exhibit 3.1 of the Registrants
Registration Statement on Form 10/A filed on
February 15, 1994)
|
3.2
|
|
EMD Incorporation Agreement, dated as of January 1, 1993.
(incorporated by reference to Exhibit 3.2 of the
Registrants Registration Statement on Form 10/A filed
on February 15, 1994)
|
3.3
|
|
Certificate of Amendment of Certificate of Incorporation, dated
May 26, 1993. (incorporated by reference to
Exhibit 3.3 of the Registrants Registration Statement
on Form 10/A filed on February 15, 1994)
|
3.4
|
|
Certificate of Amendment of Certificate of Incorporation, dated
February 24, 1994. (incorporated by reference to
Exhibit 3.4 of the Registrants Annual Report on
Form 10-K
for the year ended March 30, 2003)
|
3.5
|
|
Certificate of Designation of Rights, Preferences and Privileges
of Series A Junior Participating Preferred Stock, dated
June 4, 1996. (incorporated by reference to
Exhibit 3.5 of the Registrants Annual Report on
Form 10-K
for the year ended March 30, 2003)
|
3.6
|
|
Certificate of Amendment of Certificate of Incorporation, dated
February 5, 1999. (incorporated by reference to
Exhibit 3.6 of the Registrants Annual Report on
Form 10-K
for the year ended March 28, 1999)
|
3.7
|
|
Certificate of Amendment of Certificate of Incorporation, dated
January 4, 2000. (incorporated by reference to
Exhibit 3.7 of the Registrants Quarterly Report on
Form 10-Q
for the quarter ended December 26, 1999)
|
3.8
|
|
Certificate of Amendment of Certificate of Incorporation, dated
September 28, 2000. (incorporated by reference to
Exhibit 3.8 of the Registrants Annual Report on
Form 10-K
for the year ended March 30, 2003)
|
3.9
|
|
By-Laws of QLogic Corporation, as amended. (incorporated by
reference to Exhibit 3.9 of the Registrants Current
Report on
Form 8-K
filed on November 12, 2008)
|
10.1
|
|
QLogic Corporation Non-Employee Director Stock Option Plan, as
amended.* (incorporated by reference to Exhibit 4.1 of the
Registrants Registration Statement on
Form S-8
filed on February 6, 2004 (File
No. 333-112572))
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10.2
|
|
QLogic Corporation Stock Awards Plan, as amended.* (incorporated
by reference to Exhibit 4.2 of the Registrants
Registration Statement on
Form S-8
filed on February 6, 2004 (File
No. 333-112572))
|
10.3
|
|
Form of Indemnification Agreement between QLogic Corporation and
Directors and Executive Officers.* (incorporated by reference to
Exhibit 10.1 of the Registrants Current Report on
Form 8-K
filed on April 7, 2006)
|
10.4
|
|
QLogic Corporation 1998 Employee Stock Purchase Plan, Amended
and Restated Effective February 10, 2011.*
|
10.5
|
|
QLogic Corporation 2005 Performance Incentive Plan, Amended and
Restated Effective July 16, 2009.* (incorporated by
reference to Exhibit 10.1 of the Registrants Current
Report on
Form 8-K
filed on August 21, 2009)
|
10.6
|
|
Terms and Conditions of Nonqualified Stock Option under the
QLogic Corporation 2005 Performance Incentive Plan, Amended and
Restated Effective February 10, 2011.*
|
10.7
|
|
Terms and Conditions of Incentive Stock Option under the QLogic
Corporation 2005 Performance Incentive Plan, Amended and
Restated Effective February 10, 2011.*
|
10.8
|
|
Terms and Conditions of Stock Unit Award under the QLogic
Corporation 2005 Performance Incentive Plan, Amended and
Restated Effective February 10, 2011.*
|
10.9
|
|
Change in Control Severance Agreement, dated December 19,
2008, between QLogic Corporation and H.K. Desai.* (incorporated
by reference to Exhibit 10.2 of the Registrants
Quarterly Report on
Form 10-Q
for the quarter ended December 28, 2008)
|
10.10
|
|
Change in Control Severance Agreement, dated December 19,
2008, between QLogic Corporation and Simon Biddiscombe.*
(incorporated by reference to Exhibit 10.3 of the
Registrants Quarterly Report on
Form 10-Q
for the quarter ended December 28, 2008)
|
72
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
10.11
|
|
Non-Employee Director Equity Award Program under the QLogic
Corporation 2005 Performance Incentive Plan Amended and Restated
Effective June 9, 2010.* (incorporated by reference to
Exhibit 10.1 of the Registrants Quarterly Report on
Form 10-Q
for the quarter ended June 27, 2010)
|
10.12
|
|
Amendment to Change in Control Severance Agreement, effective
November 15, 2010, by and between QLogic Corporation and
Simon Biddiscombe.* (incorporated by reference to
Exhibit 10.1 of the Registrants Current Report on
Form 8-K
filed on October 21, 2010)
|
10.13
|
|
Employment Agreement, effective November 15, 2010, by and
between QLogic Corporation and H.K. Desai.* (incorporated by
reference to Exhibit 10.2 of the Registrants Current
Report on
Form 8-K
filed on October 21, 2010)
|
10.14
|
|
Amendment to Change in Control Severance Agreement, effective
November 15, 2010, by and between QLogic Corporation and
H.K. Desai.* (incorporated by reference to Exhibit 10.3 of
the Registrants Current Report on
Form 8-K
filed on October 21, 2010)
|
10.15
|
|
Form of Change in Control Severance Agreement between QLogic
Corporation and Executive Officers.*
|
21.1
|
|
Subsidiaries of the Registrant.
|
23.1
|
|
Consent of Independent Registered Public Accounting Firm.
|
24
|
|
Power of Attorney (included on signature page).
|
31.1
|
|
Certification of Chief Executive Officer pursuant to
Rule 13a-14(a)
of the Securities Exchange Act of 1934, as amended, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
31.2
|
|
Certification of Chief Financial Officer pursuant to
Rule 13a-14(a)
of the Securities Exchange Act of 1934, as amended, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
32
|
|
Certification of Chief Executive Officer and Chief Financial
Officer pursuant to
Rule 13a-14(b)
of the Securities Exchange Act of 1934, as amended, and
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
* |
|
Compensation plan, contract or arrangement required to be filed
as an exhibit pursuant to applicable rules of the Securities and
Exchange Commission. |
73