VMware 2015 Annual Report Download - page 64

TableofContents
VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
periodistheperiodaftertheacquisitiondate,nottoexceedoneyear,inwhichVMwaremaygatherandanalyzethenecessaryinformationaboutfactsand
circumstancesthatexistedasoftheacquisitiondatetoadjusttheprovisionalamountsrecognized.Measurementperiodadjustmentsareappliedretrospectively,if
material.Allotheradjustmentsarerecordedtotheconsolidatedstatementsofincome.
BusinessesacquiredfromEMCareaccountedforasabusinesscombinationbetweenentitiesundercommoncontrol.VMwareincludestheresultsof
operationsoftheacquiredbusinessesundercommoncontrol,ifmaterial,intheperiodofacquisitionasifithadoccurredatthebeginningoftheperiodandalso
retrospectivelyadjuststhefinancialstatementinformationpresentedforprioryearstoreflectthebusinessasifithadbeenacquiredatthebeginningofthefinancial
periodpresented.VMwarerecognizesthenetassetsundercommoncontrolatEMC’scarryingvaluesasofthedateofthetransferandrecordsthedifference
betweenthecarryingvalueandthecashconsiderationasanequitytransaction.
Coststoeffectanacquisitionarerecordedingeneralandadministrativeexpensesontheconsolidatedstatementsofincomeastheexpensesareincurred.
Purchased Intangible Assets and Goodwill
Goodwillisevaluatedforimpairmentduringthefourthquarterofeachyearormorefrequentlyifeventsorchangesincircumstancesindicatethatthecarrying
valueoftheassetmaynotberecoverable.VMwareelectedtoperformaquantitativeassessmentofgoodwillwithrespecttoitsonereportingunit.Indoing
so,VMwarecomparedtheenterprisefairvaluetothecarryingamountofthereportingunit,includinggoodwill.VMwareconcludedthat,todate,therehavebeen
noimpairmentsofgoodwill.
Purchasedintangibleassetswithfinitelivesaregenerallyamortizedovertheirestimatedusefullivesusingthestraight-linemethod.VMwarereviews
intangibleassetsforimpairmentwhenevereventsorchangesinbusinesscircumstancesindicatethatthecarryingamountsoftheassetsmaynotbefully
recoverableorthattheusefullivesoftheseassetsarenolongerappropriate.
Derivative Instruments and Hedging Activities
Derivativeinstrumentsaremeasuredatfairvalueandreportedascurrentassetsandcurrentliabilitiesontheconsolidatedbalancesheets,asapplicable.
InordertomanageVMware’sexposuretoforeigncurrencyfluctuations,VMwareentersintoforwardcontractstohedgeaportionofVMware’snet
outstandingmonetaryassetandliabilitypositions.Theseforwardcontractsaregenerallyenteredintoonamonthlybasis,withatypicalcontractualtermofone
month.Theseforwardcontractsarenotdesignatedashedginginstrumentsunderapplicableaccountingguidanceandthereforeareadjustedtofairvaluethrough
otherincome(expense),netontheconsolidatedstatementsofincome.
Additionally,VMwareentersintoforwardcontractswhichitdesignatesascashflowhedgestomanagethevolatilityofcashflowsthatrelatetooperating
expensesdenominatedincertainforeigncurrencies.Theseforwardcontractsareenteredintoannually,havematuritiesoftwelvemonthsorless,andareadjustedto
fairvaluethroughaccumulatedothercomprehensiveincome(loss),netoftax,ontheconsolidatedbalancesheets.Whentheunderlyingexpensetransactionoccurs,
thegainsorlossesontheforwardcontractaresubsequentlyreclassifiedfromaccumulatedothercomprehensiveincometotherelatedoperatingexpenselineitem
ontheconsolidatedstatementsofincome.
TheCompanydoesnot,anddoesnotintendto,usederivativefinancialinstrumentsfortradingorspeculativepurposes.RefertoNoteGforfurther
information.
Advertising
Advertisingcostsareexpensedasincurred.Advertisingexpensewas$22million,$29millionand$27millionintheyearsendedDecember31,2015,2014
and2013,respectively.
Income Taxes
Incometaxesaspresentedhereinarecalculatedonaseparatetaxreturnbasis,althoughVMwareisincludedintheconsolidatedtaxreturnofEMC.However,
certaintransactionsthatVMwareandEMCarepartiestoareassessedusingconsolidatedtaxreturnrules.Deferredtaxassetsandliabilitiesarerecognizedforthe
expectedfuturetaxconsequencesofeventsthathavebeenincludedinthefinancialstatementsortaxreturns.Deferredtaxassetsandliabilitiesaredetermined
basedonthedifferencebetweenthetaxbasisofassetsandliabilitiesandtheirreportedamountsusingenactedtaxratesineffectfortheyearinwhichthe
differencesareexpectedtoreverse.Taxcreditsaregenerallyrecognizedasreductionsofincometaxprovisionsintheyearinwhichthecreditsarise.The
measurementofdeferredtaxassetsisreducedbyavaluationallowanceif,baseduponavailableevidence,itismorelikelythannotthatsomeorallofthedeferred
taxassetswillnotberealized.VMwareearly-adoptedAccountingStandardsUpdateNo.2015-17(“ASU”)2015-17,BalanceSheetClassificationofDeferred
Taxes,
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