VMware 2013 Annual Report Download - page 72

Table of Contents VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
performance thresholds are not achieved, then no shares will be issued. Based upon the expected levels of achievement, stock-based compensation is
recognized on a straight-line basis over the PSUs' requisite service periods. The expected levels of achievement are reassessed over the requisite service
periods and, to the extent that the expected levels of achievement change, stock-based compensation is adjusted in the period of change and recorded in the
statement of income and the remaining unrecognized stock-based compensation is recorded over the remaining requisite service period.
New Accounting Pronouncement
In February 2013, the Financial Accounting Standards Board (“FASB”) amended the accounting standards requiring companies to present information
about reclassification adjustments from accumulated other comprehensive income in their financial statements or footnotes. VMware adopted this accounting
standard update on January 1, 2013 and presents reclassification adjustments from accumulated other comprehensive income in accordance with the
requirements of the amended accounting standard in this Annual Report on Form 10-K.
B. Business Combinations, Goodwill and Intangible Assets, Net
Business Combinations
Fiscal Year 2013
In the year ended December 31, 2013 , VMware completed two business combinations. On October 10, 2013 , VMware acquired Desktone, Inc.
(“Desktone”), a provider of desktop-as-a-service for delivering Windows desktops and applications as a cloud service. On February 15, 2013 , VMware
acquired Virsto Software (“Virsto”), a provider of software that optimizes storage performance and utilization in virtual environments.
The aggregate consideration for these two acquisitions was $289 million , net of cash acquired. The following table summarizes the allocation of the
consideration to the fair value of the assets acquired and net liabilities assumed (table in millions):
The excess of the consideration for Desktone and Virsto over the fair values assigned to the assets acquired and liabilities assumed represents the
goodwill resulting from the acquisitions. Management believes that the goodwill represents the synergies expected from combining the technologies of
VMware with those of Desktone and Virsto, including complementary products that will enhance the Company’s overall product portfolio. No goodwill was
deductible for tax purposes.
The following table summarizes the fair value of the intangible assets acquired by VMware in conjunction with the acquisitions of Desktone and Virsto
(amounts in table in millions):
As of December 31, 2013 , $9 million of the $10 million in IPR&D shown in the table above was completed and transferred to purchased technology
with a weighted-average life of 5 years .
The results of operations of Desktone and Virsto described above have been included in VMware’s consolidated financial statements from their
respective date of purchase. Pro forma results of operations have not been presented as the results of the acquired businesses were not material to VMware’s
consolidated results of operations in the year ended December 31, 2013 or 2012 .
69
Intangible assets
$
62
Goodwill
233
Deferred tax assets, net
4
Total assets acquired
299
Other assumed liabilities, net of other acquired assets
(10
)
Total net liabilities assumed
(10
)
Fair value of assets acquired and net liabilities assumed
$
289
Weighted-Average
Useful Lives
(in years)
Fair Value
Amount
Purchased technology
6
$
49
Vendor contracts
8
3
In-process research and development (“IPR&D”)
10
Total intangible assets, net, excluding goodwill
$
62