VMware 2011 Annual Report Download - page 85

Table of Contents VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Company assumed stock options attributed to post-combination services and issued restricted common stock with a total fair value of $44.6
million .
In accordance with the merger agreement, the number of VMware stock options into which assumed SpringSource stock options were
converted and the number of shares of restricted common stock that were issued were determined based on a ratio. The ratio was derived from
the per share merger consideration payable to holders of SpringSource capital stock and the ten-day trading average of VMware’s Class A
common stock two trading days immediately prior to September 15, 2009. The assumed vested and unvested stock options converted into 652.3
million and 476.1 million , respectively, of VMware stock options to purchase Class A common stock with a weighted-average exercise price of
$4.87 per share. In addition, 572.5 million shares of VMware Class A restricted common stock were issued to certain employees of
SpringSource who agreed to accept shares of VMware Class A common stock subject to vesting restrictions in lieu of a portion of their cash
merger proceeds.
The Company included the fair value of the stock options assumed by VMware attributed to pre-combination services of $16.2 million in
the consideration transferred for the acquisition. The fair value of the stock options attributed to post-combination services and the fair value of
the restricted common stock of $44.6 million were not included in the consideration transferred and are being recognized as stock-based
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 is being recognized
over the four -year vesting term of the awards.
The following table summarizes the allocation of the consideration paid to the fair value of the tangible and intangible assets acquired and
liabilities assumed in the year ended December 31, 2009 (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.
76
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