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Veloce
12 Months Ended
Mar. 31, 2013
Variable Interest Entity, Measure of Activity [Abstract]  
Veloce
Veloce

On June 20, 2012 (the “Closing Date”), the Company completed its acquisition of Veloce pursuant to the terms of the Agreement and Plan of Merger. Veloce has been developing specific technology for the Company.
The terms of the Merger Agreement included the payment of an initial consideration of $60.4 million, payable to holders of Veloce common stock options that were vested on the Closing Date and holders of Veloce common stock and stock equivalents (collectively “Veloce Equity Holders”), and to Veloce stock equivalents that have not yet been allocated to individuals (“Unallocated Veloce Units”). The Merger Agreement further provides for payments of additional merger consideration contingent upon the achievement of certain post-closing product development milestones relating to the Veloce development project. During the twelve months ended March 31, 2013, as part of the above arrangement, the Company issued approximately 3.0 million shares valued at approximately $16.6 million and paid approximately $16.6 million in cash.
The total estimated consideration to be paid is based upon the benchmarks achieved during simulations that were performed during the third quarter of fiscal 2013 and correlating the results of the simulations to the contractual terms included in the Merger Agreement. As a result of higher than expected benchmarks achieved during simulations, the total estimated consideration to be paid has been updated during fiscal 2013 from a previous estimated maximum of approximately $135 million to the contractual maximum of $178.5 million. The increase in the total estimated value also increased the estimated value for each of the contractual performance milestones relating to the Veloce project. The consideration that the Company will be obligated to pay, incremental to the $60.4 initial consideration, will be payable upon completion of the respective performance milestone and can be settled in cash or the Company's common stock, at the election of management.
The consideration that the Company will be obligated to pay will be allocated equally to each of the Veloce Equity Holders and the Unallocated Veloce Units. The Company is contractually required to distribute all Unallocated Veloce Units within a certain time period. Veloce Equity Holders subject to vesting requirements will receive their distribution upon satisfaction of such vesting requirements.
For accounting purposes, the costs to be incurred in connection with the development milestones relating to Veloce is considered compensatory and is recognized as R&D expense. Recognition of these costs as expense will generally occur when certain development and performance milestones become probable of achievement and are deemed earned. However, the value allocated to the Unallocated Veloce Units will not be recognized as R&D expense until distribution of the underlying units occurs.
During fiscal 2012, one significant product development milestone was considered probable of achievement and accordingly $60.4 million was recognized as research and development expense. However, approximately $8.0 million of the R&D expense recognized related to Unallocated Veloce Units that had not yet been distributed. The Company corrected this immaterial error during fiscal 2013 by reducing R&D expense recognized during the fourth quarter of fiscal 2013. See Note 13 to the Notes to Consolidated Financial Statements.
Significant judgment is required in assessing when a performance milestone is probable of achievement and estimating the timing of when the performance milestones will be completed. The Company has completed the first performance milestone and assessed the second performance milestone relating to the Veloce project as probable of achievement as of March 31, 2013. The total consideration relating to the first performance milestone, excluding the value allocated to the Unallocated Veloce Units, have been fully recognized as research and development expense through March 31, 2013. The amount of R&D costs recognized as expense in connection with the second performance milestone, excluding the value allocated to the Unallocated Veloce Units, is based on the estimated stage of development and corresponding estimated value as of March 31, 2013. The remaining value relating to the second performance milestone, excluding the Unallocated Veloce Units, will be recognized as R&D expense on a straight line basis, subject to adjustment for actual progress towards the milestone, over the remaining period of expected development which is currently estimated not to exceed the next fiscal quarter.
The third and final performance milestone is currently not yet believed to be probable of attainment as of March 31, 2013.
Judgment is required in determining whether a performance milestone is probable of achievement, estimating the percentage of completion of the milestone, and the timing of when a performance milestone is expected to be completed. These determination are based on discussions with internal technical personnel that address various qualitative and quantitative factors, including, but not limited to, overall complexity associated with the assessment, stage of development, progress made to date, results of testing, and consideration as to the nature of the remaining development work.
Total R&D expenses expected to be recognized in connection with the first and second performance milestones is approximately $142.8 million (including the initial consideration of $60.4 million), which includes the costs associated with Unallocated Veloce Units that have not been expensed as these units have not been distributed as of March 31, 2013. Cumulative research and development expenses recognized in connection with the achievement of the first and second milestone through March 31, 2013 is $126.6 million. During fiscal year 2013, expenses recognized in connection with the achievement of the first and second performance milestones was $66.2 million. The Veloce accrued liability included on the Consolidated Balance Sheets is based upon the amount of R&D expense recognized in connection with the development of the Veloce performance milestones less amounts paid either in cash or our common stock. Veloce consideration that has been accrued as of March 31, 2013, are classified as long-term if payments of the consideration is expected to occur beyond a 12 month period.