VMware 2012 Annual Report Download - page 81

Table of Contents VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
changes in equity. Comprehensive income must be presented in one continuous statement of comprehensive income or two separate consecutive
statements. In December 2011, the FASB issued an amendment to ASU 2011-05 that defers the requirement to present reclassification
adjustments out of accumulated other comprehensive income on the face of the consolidated statement of income. VMware adopted this
accounting standard update, as amended, on January 1, 2012, and presents comprehensive income in accordance with the requirements of the
standard in this Annual Report on Form 10-K.
B. Business Combinations, Goodwill and Intangible Assets, Net
Business Combinations
The results of operations of the acquired businesses described below have been included in VMware’s consolidated financial statements
from the dates of purchase or transfer, as applicable.
With the exception of Nicira, Inc. (“Nicira”), pro forma results of operations have not been presented as the results of the acquired
businesses were not material, individually or in the aggregate, to VMware’s consolidated results of operations for all periods presented.
Fiscal Year 2012
Acquisition of Nicira, Inc.
On August 24, 2012, VMware acquired all of the outstanding capital stock of Nicira, a developer of software-defined networking solutions.
This acquisition expands VMware’s product portfolio to provide a suite of software-defined networking capabilities.
The aggregate consideration was $1,099.6 million , net of cash acquired, including cash of $1,083.0 million and the fair value of assumed
equity attributed to pre-combination services of $16.6 million . The Agreement and Plan of Merger governing the transaction provides for
$100.0 million of the purchase price to be placed in escrow for a period of one year following the completion of the merger for indemnification
of claims. Additionally, VMware assumed all of Nicira’s unvested stock options and restricted stock outstanding at the completion of the
acquisition. The fair value of the assumed equity awards for post-combination services was $152.4 million and was not included in the
consideration transferred. The $152.4 million is being recognized over the awards' remaining requisite service periods, which extend through the
first half of 2016.
In accordance with the merger agreement, the assumed unvested stock options converted into 1.1 million
stock options to purchase VMware
Class A common stock. The weighted-average acquisition-date fair value of the stock options was determined using the Black-Scholes option
pricing model with the following weighted-average assumptions: i) market price of $92.21 per share, which was the closing price of VMware’s
Class A common stock on the acquisition date; ii) expected term of 2.7 years; iii) risk-free interest rate of 0.3% ; iv) annualized volatility of
35.7% ; and v) no dividend yield. The weighted-average acquisition-date fair value per share of the assumed stock options was $88.39 . The
assumed restricted stock converted into 0.6 million shares of restricted VMware Class A common stock. The fair value of the restricted stock
was based on the acquisition-date closing price of $92.21 per share for VMware’s Class A common stock.
As of December 31, 2012 , the accounting for the Nicira acquisition had not been finalized due to pending items related to open tax returns,
which are to be filed in the third quarter of 2013. Based on a preliminary assessment, VMware recorded provisional amounts for these items in
its consolidated financial statements as of December 31, 2012 . During the measurement period, VMware may record adjustments to the
provisional amounts recorded. No goodwill is expected to be deductible for tax purposes.
The following table summarizes the allocation of the consideration to the fair value of the tangible and intangible assets acquired and
liabilities assumed on August 24, 2012 (table in thousands):
76
Intangible assets
$
334,600
Goodwill
905,140
Total intangible assets acquired
1,239,740
Deferred tax liabilities, net
(78,247
)
Income taxes payable
(61,006
)
Other acquired liabilities, net of acquired assets
(863
)
Total liabilities assumed
(140,116
)
Fair value of intangible assets acquired and net liabilities assumed
$
1,099,624