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Basis of Presentation
3 Months Ended
Jul. 03, 2016
Accounting Policies [Abstract]  
Basis of Presentation

Note 1.Basis of Presentation

In the opinion of management of QLogic Corporation (QLogic or the Company), the accompanying unaudited condensed consolidated financial statements contain all normal recurring accruals and adjustments necessary to present fairly the Company’s consolidated financial position, results of operations and cash flows. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 3, 2016. The results of operations for the three months ended July 3, 2016 are not necessarily indicative of the results that may be expected for the entire fiscal year. The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates that affect the amounts reported in the Company’s consolidated financial statements and accompanying notes. The Company evaluates its estimates on an ongoing basis using historical experience and other factors, including the current economic environment. Among the significant estimates affecting the consolidated financial statements are those related to revenue recognition, income taxes, inventories, goodwill and long-lived assets. The actual results experienced by the Company could differ materially from management’s estimates.

Pending Acquisition by Cavium, Inc.

On June 15, 2016, the Company entered into an Agreement and Plan of Merger (Merger Agreement) with Cavium, Inc., a Delaware corporation (Parent or Cavium), and Quasar Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Parent (the Offeror or Sub).

Pursuant to the Merger Agreement, on July 13, 2016, the Offeror commenced an offer to exchange (the Offer) each outstanding share of the Company’s common stock for (i) $11.00 in cash (Cash Consideration) and (ii) 0.098 (Exchange Ratio) shares of common stock (Cavium Common Stock) of Cavium (Share Consideration) and, together with the Cash Consideration, (Offer Consideration), without interest and subject to any required withholding for taxes. The Offer is scheduled to expire at midnight, Eastern Standard Time (EST), at the end of August 9, 2016 unless extended by the Offeror pursuant to the terms of the Merger Agreement and applicable law. As soon as practicable following the consummation of the Offer, and subject to the satisfaction or waiver of certain conditions set forth in the Merger Agreement, the Offeror will merge with and into the Company (the Merger) pursuant to the provisions of Section 251(h) of the Delaware General Corporation Law, with no stockholder vote required to consummate the Merger. In the Merger, the Company will survive as a wholly owned subsidiary of Cavium, and each issued and outstanding share of the Company’s common stock, other than shares of the Company’s common stock held in treasury of the Company, shares of the Company’s common stock owned by Cavium or any subsidiary of Cavium (including the Offeror) or shares of the Company’s common stock owned by stockholders who are entitled to and validly exercise appraisal rights under Delaware law, will be converted into the right to receive the Offer Consideration. Cavium intends to fund the Offer Consideration with a combination of cash on hand and committed debt financing.

In general, as a result of the Merger, at the effective time of the Merger, (i) unvested Company stock options that are in-the-money will be assumed by Cavium and converted into Cavium stock options; (ii) vested Company stock option that are in-the-money will receive a portion of the Offer Consideration based on the in-the-money spread value of the Company stock options; (iii) out-of-the-money Company stock options (whether vested or unvested) will be cancelled and receive no payment; (iv) unvested Company restricted stock units will be assumed and converted into Cavium restricted stock units; (v) vested Company restricted stock units (which includes restricted stock units that will vest just prior to the effective time of the Merger) will receive the Offer Consideration based on the number of shares of the Company’s common stock underlying the restricted stock unit;  and (vi) unvested Company restricted stock units subject to performance based vesting will be assumed by Cavium and converted into Cavium restricted stock units (based on the level of performance achieved as of the last trading day prior to the closing of the Merger).

The obligation of each party to consummate the Offer and the Merger is subject to the satisfaction or waiver of customary closing conditions set forth in the Merger Agreement, including (i) at least a majority of the outstanding shares of the Company’s common stock, when added to shares of the Company’s common stock already owned by the Offeror, having been validly tendered into (and not withdrawn from) the Offer prior to the expiration date of the Offer (Minimum Condition), (ii) the exchange of shares of Cavium Common Stock pursuant to the Offer and the Merger having been registered pursuant to a registration statement filed by Cavium with the Securities and Exchange Commission (SEC) and declared effective by the SEC, (iii) shares of Cavium Common Stock issuable pursuant to the Offer and the Merger having been authorized for listing on Nasdaq, (iv) the expiration or termination of any applicable regulatory waiting periods and/or receipt of regulatory clearance, (v) the absence of any order or ruling prohibiting the consummation of the Merger, and (vi) subject to certain exceptions, the accuracy of the other party’s representations and warranties and compliance with covenants. In addition, the obligation of Cavium and the Offeror to consummate the Merger is also subject to the satisfaction or waiver of the condition that no material adverse effect on the Company shall have occurred since the date of the Merger Agreement. Cavium’s and the Company’s obligations are not subject to any financing condition.

The Merger Agreement contains certain termination rights for each of the Company and Cavium, including, among others, if the Offer is not consummated at or prior to 11:59 p.m. EST on November 12, 2016. Upon termination of the Merger Agreement under specified circumstances, including a termination by the Company to enter into an agreement for an alternative transaction pursuant to a “superior proposal,” the Company has agreed to pay Cavium a termination fee of $47.8 million.

The Company expects the transaction to be completed in the second quarter of fiscal 2017.

Recently Issued Accounting Standards Not Yet Effective

In May 2014, the Financial Accounting Standards Board (FASB) issued an accounting standard update that requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This standard will replace most existing revenue recognition guidance when it becomes effective. In July 2015, the FASB amended this standard to defer the effective date by one year and permit early adoption as of the original effective date. This amended standard is effective for the Company in the first quarter of fiscal 2019. This standard permits the use of either the retrospective or cumulative effect transition method. The Company is currently evaluating the effect this new guidance will have on its consolidated financial statements and has not yet selected a transition method.