Intangibles and Goodwill

12 Months Ended

Dec. 31, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets

Intangible assets, excluding goodwill, as of December 31, 2013 and 2012 consist of (tables in millions):



	December 31, 2013
	Gross Carrying Amount		Accumulated Amortization			Net Book Value
Purchased technology	$	2,356	$	(1,429	)	$	927
Patents	225		(102		)	123
Software licenses	101		(90		)	11
Trademarks and tradenames	171		(118		)	53
Customer relationships and customer lists	1,386		(855		)	531
Leasehold interest	145		(11		)	134
Other	28		(27		)	1
Total intangible assets, excluding goodwill	$	4,412	$	(2,632	)	$	1,780



	December 31, 2012
	Gross Carrying Amount		Accumulated Amortization			Net Book Value
Purchased technology	$	2,233	$	(1,207	)	$	1,026
Patents	225		(87		)	138
Software licenses	96		(88		)	8
Trademarks and tradenames	173		(102		)	71
Customer relationships and customer lists	1,378		(724		)	654
Leasehold interest	145		(7		)	138
Other	26		(26		)	—
Total intangible assets, excluding goodwill	$	4,276	$	(2,241	)	$	2,035

In the year ended December 31, 2011, we, along with three other technology companies, acquired specific patents from Novell, Inc. for $450 million, of which we paid $113 million. We assigned our portion of the patent portfolio an average life of 10 years, based on the average contractual term remaining on the patents we acquired. The cash outflow was included in purchases of strategic and other related investments in the investing activities section of the consolidated statements of cash flows.

In the year ended December 31, 2011, VMware purchased all of the right, title and interest in a ground lease covering the property and improvements located adjacent to VMware’s Palo Alto, California campus for $225 million. The gross amount classified to property, plant and equipment, net was $74 million. The remaining $151 million of the $225 million purchase price was for the fair value of the ground lease and the right to develop additional square footage on the parcel. The long-term portion of $147 million was recorded to intangible assets, net with the remainder recorded to other current assets on the consolidated balance sheet. Concurrent with the closing of the transaction, VMware entered into an amended and restated ground lease for the related property. The buildings and site improvements will be depreciated from the date they are placed into service through the term of the amended and restated ground lease, and intangible assets will be amortized through 2046.

Amortization expense on intangibles was $389 million, $365 million and $342 million in 2013, 2012 and 2011, respectively. As of December 31, 2013, amortization expense on intangible assets for the next five years is expected to be as follows (table in millions):



2014	$	360
2015	316
2016	260
2017	210
2018	179
Total	$	1,325

Goodwill

Changes in the carrying amount of goodwill, net, on a consolidated basis and by segment, for the years ended December 31, 2013 and 2012 consist of the following (tables in millions):



	Year Ended December 31, 2013
	Information Storage			Information Intelligence Group		RSA Information Security		Pivotal		VMware Virtual Infrastructure			Total
Balance, beginning of the year	$	7,442		$	1,484	$	2,022	$	—	$	2,892		$	13,840
Goodwill resulting from acquisitions	145			1		181		37		233			597
Finalization of purchase price allocations and other, net	11			2		—		—		(26		)	(13		)
Goodwill transferred in formation of Pivotal	(112		)	—		—		140		(28		)	—
Balance, end of the year	$	7,486		$	1,487	$	2,203	$	177	$	3,071		$	14,424



	Year Ended December 31, 2012
	Information Storage			Information Intelligence Group		RSA Information Security			Pivotal		VMware Virtual Infrastructure			Total
Balance, beginning of the year	$	7,034		$	1,469	$	1,849		$	—	$	1,803		$	12,155
Goodwill resulting from acquisitions	438			15		179			—		1,092			1,724
Finalization of purchase price allocations and other, net	(1		)	—		(6		)	—		(3		)	(10		)
Goodwill de-recognized in divestiture of business	(29		)	—		—			—		—			(29		)
Balance, end of the year	$	7,442		$	1,484	$	2,022		$	—	$	2,892		$	13,840

During the second quarter of 2013, EMC and VMware formed Pivotal, with an investment from GE. As Pivotal is considered a separate reportable segment, the transfer of goodwill from the Information Storage and VMware Virtual Infrastructure segments to the newly formed Pivotal segment is shown above for 2013. The amount of transferred goodwill was determined using the relative fair value method. See Note S for further discussion of the segment disclosures.

Valuation of Goodwill and Intangibles

We perform an assessment of the recoverability of goodwill, at least annually, in the fourth quarter of each year. Our assessment is performed at the reporting unit level which, for certain of our operating segments, is one step below our reporting segment level. We employ both qualitative and quantitative tests of our goodwill. For some of our reporting units, we performed a qualitative assessment on goodwill to determine whether a quantitative assessment was necessary and determined there were no indicators of potential impairment. For other reporting units we evaluated goodwill using a quantitative model. For all of our goodwill assessments we determined that there was sufficient market value above the carrying value of those reporting units so that we would not expect any near term changes in the operating results that would trigger an impairment.

The determination of relevant comparable industry companies impacts our assessment of fair value. Should the operating performance of our reporting units change in comparison to these companies or should the valuation of these companies change, this could impact our assessment of the fair value of the reporting units. Our discounted cash flow analyses factor in assumptions on revenue and expense growth rates. These estimates are based upon our historical experience and projections of future activity, factoring in customer demand, changes in technology and a cost structure necessary to achieve the related revenues. Additionally, these discounted cash flow analyses factor in expected amounts of working capital and weighted average cost of capital. Changes in judgments on any of these factors could materially impact the value of the reporting unit. There was no impairment in 2013, 2012 or 2011.

Other intangible assets are evaluated based upon the expected period the asset will be utilized, forecasted cash flows, changes in technology and customer demand. Changes in judgments on any of these factors could materially impact the value of the assets.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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