VMware 2010 Annual Report Download - page 92

Table of Contents
VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
compensation expense over their remaining requisite service periods. The fair value of the stock options was estimated using a Black-Scholes
option-pricing model with the following weighted-average assumptions: i) market price of $40.00 per share, which was the closing price of
VMware’s Class A common stock on the acquisition date; ii) expected term of 1.6 years; iii) risk-free interest rate of 0.7%; iv) annualized
volatility of 38.1%; and v) no dividend yield. The weighted-average acquisition-date fair value of the assumed stock options attributed to post-
combination services was $35.02. The fair value of the restricted common stock was based on the acquisition-date closing price of $40.00 per
share for VMware’s Class A common stock.
In connection with the acquisition, VMware also agreed to offer additional equity incentives to SpringSource employees. Accordingly,
VMware granted an aggregate of approximately 2.3 million stock options and 0.8 million restricted stock units under its 2007 Equity and
Incentive Plan shortly after the close of the acquisition. Stock-
based compensation expense of approximately $58 million will be recognized over
the four-year vesting term of the awards. Of the total $58 million in stock-based compensation expense, approximately $14 million and $4
million were recorded during the years ended December 31, 2010 and 2009, respectively, on VMware’s consolidated statement of income.
The following table summarizes the allocation of the consideration paid to the fair value of the tangible and intangible assets acquired and
liabilities assumed as of December 31, 2009, and reflect immaterial adjustments made in 2010 to finalize the purchase price allocation (table in
thousands):
As required by generally accepted accounting principles, VMware remeasured a previously held equity interest in SpringSource to a fair
value of $10.9 million immediately before the acquisition date and recorded a gain of $5.9 million in other income (expense), net on the
consolidated statements of income for the year ended December 31, 2009. The $10.9 million was recorded to goodwill, bringing the total amount
of goodwill related to SpringSource to $350.0 million for the year ended December 31, 2009. The $10.9 million in goodwill is not included in
the table above as it is not considered part of the purchase price. The $350.0 million in goodwill represents the excess of the consideration
transferred and the fair value of the previously held equity interest over the fair values assigned to the assets acquired and liabilities assumed,
and was allocated to VMware’s one reporting unit. Management believes that the goodwill mainly represents the synergies expected from
combining the technologies of VMware and SpringSource. None of the goodwill was deductible for income tax purposes.
89
Cash
$
16,703
Other current assets
8,147
Property and equipment
1,071
Intangible assets
46,000
Goodwill
340,092
Deferred tax asset and other assets
16,405
Total assets acquired
428,418
Deferred tax liability
(16,761
)
Unearned revenue
(7,811
)
Other current liabilities
(3,063
)
Income taxes payable
(9,925
)
Total liabilities assumed
(37,560
)
Fair value of identifiable assets acquired and liabilities assumed
$
390,858