SanDisk 2014 Annual Report Download - page 196

SANDISK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
revenues from the project were expected to grow through fiscal year 2019 and to decline thereafter as
other new technologies are expected to become available and the technology approaches the end of its life
cycle. Estimated operating expenses included research and development expenses, which included costs to
bring the project to technological feasibility and costs associated with ongoing maintenance after a product
is released, as well as selling, marketing and administrative expenses based on historical and expected
direct expenses. The Company believes the assumptions used in the valuation were reasonable at the time
of the acquisition.
The effective tax rate used in the analysis of the IPR&D project reflects the Company’s structural tax
rate based on the Company’s historical operating model and related tax planning. A discount rate (the rate
utilized to discount the net cash flows to their present values) of 17.5% was used in computing the present
value of net cash flows for the project. The percentage of completion was determined using costs incurred
by Fusion-io prior to the acquisition date compared to the estimated remaining research and development
to be completed to bring the project to technological feasibility.
Direct Acquisition-related Costs. Direct acquisition-related costs of $11.7 million during the fiscal year
ended December 28, 2014 were related to legal, banker, accounting and tax fees, of which $2.6 million
were expensed to General and administrative expense in the second quarter of fiscal year 2014, and
$9.1 million were expensed to Restructuring and other expense in the second half of fiscal year 2014 in the
Company’s Consolidated Statement of Operations.
SMART Storage Systems. On August 22, 2013, the Company completed its acquisition of SMART
Storage, a developer of enterprise solid state drives (‘‘SSDs’’). The Company expects this acquisition to
enhance its enterprise storage product portfolio. The Company acquired 100% of the outstanding shares
of SMART Storage through an all-cash transaction. The total aggregate consideration to acquire SMART
Storage was $305.1 million and comprised of the following (in thousands):
Purchase Price
Cash consideration ....................................................... $ 304,982
Fair value of assumed stock options attributed to pre-combination service ................. 136
Total purchase price ...................................................... $ 305,118
The Company assumed all outstanding unvested SMART Storage stock option awards, which were
converted into 183,069 options to purchase the Company’s common stock. The fair value of these unvested
stock options was determined using the Black-Scholes-Merton valuation model.
The weighted-average fair value of the assumed unvested stock option awards was $41.15 and was
determined using the Black-Scholes-Merton valuation model and included the following assumptions:
Dividend yield .......................................................... 1.60%
Expected volatility ....................................................... 0.32
Risk-free interest rate ..................................................... 0.33%
Weighted average expected life ............................................... 1.4 years
The fair value of the assumed unvested stock option attributed to post-combination services of
$6.8 million was not included in the consideration transferred and will be recognized over the awards’
remaining requisite service periods.
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