FUSION-IO, INC.

The components of the Company’s income tax expense or benefit include state income taxes, foreign income taxes, and effects of stock-based awards. Income tax benefit was approximately $8,422,000 for the three months ended March 31, 2013, or approximately 30% of loss before income taxes, and income tax expense was $343,000 for the three months ended March 31, 2014, or approximately (1)% of loss before income taxes. Income tax expense was approximately $1,407,000 and $944,000 for the nine months ended March 31, 2013 and 2014, respectively, or (11)% and (1)% of loss before income taxes, respectively. The negative effective tax rates are a result of the fact that the Company recorded a provision for income taxes on year-to-date losses. As compared to the same period last year, the Company’s negative effective tax rate for the nine months ended March 31, 2014 decreased primarily due to an increase in the loss before income taxes. The effective tax rate for the three and nine months ended March 31, 2014 differs from the U.S. federal statutory rate of 35% primarily due to the Company’s full valuation allowance against its net deferred tax assets.

The Company files U.S., state, and foreign income tax returns in jurisdictions with various statutes of limitations. The Company’s federal income tax return for fiscal 2012 and payroll tax returns for calendar 2012 and 2013 are currently under audit by the Internal Revenue Service (the “IRS”). Although timing of the resolution and/or closure of audits is not certain, it is reasonably possible that over the next twelve-month period, the Company may experience an increase or decrease in unrecognized tax benefits. It is not possible to determine either the magnitude or the range of any increase or decrease at this time. While the Company regularly assesses the likelihood of adverse outcomes from such examinations and the adequacy of its provision for income taxes, there can be no assurance that such provision is sufficient or that a determination by a tax authority in any of these examinations will not have an adverse effect on the Company’s business, financial condition, and results of operations. No significant state or foreign income tax returns are currently under examination.

On November 21, 2013, the ESPP was amended and restated to increase the offering period from six months to twelve months. Eligible employees are able to purchase a maximum of 1,500 shares during each six-month purchase period at 85% of the lower of the fair market value of the Company’s common stock on the first trading day of the offering period or on the last day of the purchase period. These changes were effective February 18, 2014.

On February 7, 2012, Entorian Technologies L.P. (“Entorian Technologies”), filed a lawsuit in the U.S. District Court for the District of Utah against the Company, alleging that memory stacks included in some of the Company’s products infringe U.S. Patent No. 5,420,751, or the ‘751 patent, which expired in May 2012. Polystak, Inc. is the Company’s third-party supplier of the accused memory stack component. On March 1, 2012, Polystak filed a lawsuit against Entorian Technologies in the U.S. District Court for the Northern District of California, alleging that the ‘751 patent is invalid, and that Polystak’s memory stacks do not infringe the ‘751 patent. On March 8, 2012, Entorian Technologies dismissed the lawsuit against the Company in Utah. On March 9, 2012, Entorian Technologies filed a counterclaim against the Company and Polystak in the Northern District of California lawsuit, alleging infringement of the ‘751 patent. On April 15, 2014, the parties resolved this matter pursuant to a confidential agreement that releases the Company from past claims. Although the Company continues to dispute that its products infringe any valid claims of the ‘751 patent, the settlement enables the Company to avoid further diversion of management resources. On April 28, 2014, the U.S. District Court for the Northern District of California approved the parties’ joint motion to dismiss the matter with prejudice.

On February 7, 2012, Entorian Technologies L.P., filed a lawsuit in the U.S. District Court for the District of Utah against our company, alleging that memory stacks included in some of our products infringe U.S. Patent No. 5,420,751, or the ‘751 patent, which expired in May 2012. Polystak, Inc. is our third-party supplier of the accused memory stack component. On March 1, 2012, Polystak filed a lawsuit against Entorian Technologies in the U.S. District Court for the Northern District of California, alleging that the ‘751 patent is invalid, and that Polystak’s memory stacks do not infringe the ‘751 patent. On March 8, 2012, Entorian Technologies dismissed the lawsuit against us in Utah. On March 9, 2012, Entorian Technologies filed a counterclaim against us and Polystak in the Northern District of California lawsuit, alleging infringement of the ‘751 patent. On April 15, 2014, the parties resolved this matter pursuant to a confidential agreement that releases us from past claims. Although we continue to dispute that our products infringe any valid claims of the ‘751 patent, the settlement enables us to avoid further diversion of management resources. On April 28, 2014, the U.S. District Court for the Northern District of California approved the parties’ joint motion to dismiss the matter with prejudice.