VMware 2015 Annual Report Download - page 66

TableofContents
VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
PSUawardswillvestifcertainemployee-specificorVMware-designatedperformancetargetsareachieved.Ifminimumperformancethresholdsareachieved,
eachPSUawardwillconvertintoVMware’sClassAcommonstockatadefinedratiodependingonthedegreeofachievementoftheperformancetarget
designatedbyeachindividualaward.Ifminimum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onthestatementsofincomeandtheremainingunrecognizedstock-basedcompensationisrecordedovertheremainingrequisiteservice
period.
New Accounting Pronouncements
DuringNovember2015,theFinancialAccountingStandardsBoard(“FASB”)issuedASU2015-17,BalanceSheetClassificationofDeferredTaxes(Topic
740),whichsimplifiesthepresentationofdeferredincometaxes.Thisstandardrequiresanentitytoclassifydeferredtaxassetsandliabilitiesasnon-currentwithin
aclassifiedstatementoffinancialposition.ASU2015-17iseffectiveforfinancialstatementsissuedforannualperiodsbeginningafterDecember15,2016,and
interimperiodswithinthoseannualperiods.Thisstandardmaybeappliedeitherprospectivelytoalldeferredtaxassetsandliabilitiesorretrospectivelytoall
periodspresented.Earlyapplicationispermittedasofthebeginningoftheinterimorannualreportingperiod.VMwareearly-adoptedASU2015-17effective
December31,2015usingretrospectiveapplication.UponadoptionofASU2015-17,currentdeferredtaxassetsof$248millionwerereclassifiedasnon-current
deferredtaxassetsontheconsolidatedbalancesheetsasofDecember31,2014.
DuringMay2014,theFASBissuedASUNo.2014-09,RevenuefromContractswithCustomers(Topic606).Theupdatedrevenuestandardestablishes
principlesforrecognizingrevenueanddevelopsacommonrevenuestandardforallindustries.Uponadoption,entitieswillberequiredtorecognizetheamountof
revenuethattheyexpecttobeentitledtoforthetransferofpromisedgoodsorservicestotheircustomers.TheupdatedstandardiseffectivefortheCompanyinthe
firstquarterof2018andpermitstheuseofeithertheretrospectiveorcumulativeeffecttransitionmethod.Earlyadoptionispermitted,butnotearlierthanthefirst
quarterof2017.TheCompanyhasnotselectedatransitionmethodandiscurrentlyevaluatingtheeffectthatASU2014-09willhaveonitsconsolidatedfinancial
statementsandrelateddisclosures.
B. Business Combinations, Joint Venture, Definite-Lived Intangible Assets, Net and Goodwill
Business Combination
FiscalYear2015
DuringtheyearendedDecember31,2015,VMwarecompletedtwobusinesscombinations,whichwerenotmaterialtoVMware'sconsolidatedfinancial
statements,eitherindividuallyorintheaggregate.OnOctober15,2015,VMwareacquiredalloftheoutstandingsharesofBoxer,Inc.(“Boxer”)toenhancethe
enterprisemobilemanagementandsecuritysolutions.OnFebruary2,2015,VMwareacquiredalloftheoutstandingsharesofImmidioB.V.(“Immidio”)to
expandVMware’sworkspaceenvironmentmanagementsolutionswithintheEnd-UserComputingproductgroup.Theaggregatepurchasepriceforthesetwo
acquisitionswas$39millionofcash,netofliabilitiesassumed.Thepreliminarypurchasepriceprimarilyincludedapproximately$13millionofidentifiable
intangibleassetsandapproximately$29millionofgoodwillthatisexpectedtobenon-deductiblefortaxpurposes.
FiscalYear2014
AcquisitionofAirWatchLLC
OnFebruary24,2014,VMwareacquiredforcashalloftheoutstandingmembershipunitsofA.W.S.Holding,LLC(“AirWatchHolding”),thesolemember
andequityholderofAirWatchLLC(“AirWatch”).AirWatchisaleaderinenterprisemobilemanagementandsecuritysolutions.VMwareacquiredAirWatchto
expandVMware’ssolutionswithintheenterprisemobilemanagementandsecurityspace.Thetotalpurchasepriceof$1,128millionincludedcashof$1,104
millionandthefairvalueofassumedunvestedequityattributedtopre-combinationservicestotaling$24million.
Mergerconsiderationtotaling$300million,including$75millionthatwasheldinescrow,ispayabletocertainemployeesofAirWatchsubjecttospecified
futureemploymentconditionsandisbeingrecognizedasexpenseovertherequisiteserviceperiodonastraight-linebasis.Compensationexpenseof$145million
and$141millionwasrecognizedduringtheyearsendedDecember31,2015and2014,respectively.
VMwareassumedallofAirWatch’sunvestedstockoptionsandrestrictedstockoutstandingatthecompletionoftheacquisitionwithanestimatedfairvalueof
$134million.Ofthetotalfairvalue,$24millionwasallocatedtothepurchasepriceand$110millionwasallocatedtofutureservicesandwillbeexpensedover
theremainingrequisiteserviceperiodsonastraight-linebasis.TheestimatedfairvalueofthestockoptionsassumedbytheCompanywasdeterminedusingthe
Black-
63