Business Combinations, Intangibles and Goodwill

3 Months Ended

Mar. 31, 2014

Business Combination, Goodwill and Intangible Assets Disclosure [Abstract]

Business Combinations, Intangibles and Goodwill

Business Combinations, Intangibles and Goodwill

During the three months ended March 31, 2014, VMware acquired all of the outstanding capital stock 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 its solutions within the enterprise mobile and security space. The aggregate consideration paid for AirWatch was $1,092 million, net of cash acquired, including cash of $1,068 million and the fair value of assumed unvested equity attributed to pre-combination services totaling $24 million.

Merger consideration totaling $300 million will be payable to certain employees of AirWatch subject to specified future employment conditions and will be recognized as expense over the requisite service period. Compensation expense totaling $19 million was recognized from the date of acquisition through March 31, 2014.

The following table summarizes the allocation of the consideration to the fair value of the assets acquired and net liabilities assumed, net of cash acquired (table in millions):

Other current assets	$	60
Intangible assets:
Purchased technology (weighted-average useful life of 6 years)	118
Customer relationships and customer lists (weighted-average useful life of 8 years)	78
Trademarks and tradenames (weighted-average useful life of 8 years)	40
Other (weighted-average useful life of 3 years)	14
Total intangible assets, net, excluding goodwill	250
Goodwill	879
Other assets	17
Total assets acquired	1,206
Unearned revenue	(45		)
Other assumed liabilities, net of acquired assets	(69		)
Total net liabilities assumed	(114		)
Fair value of assets acquired and net liabilities assumed	$	1,092

These VMware intangible assets are being amortized on a straight-line basis. Goodwill is calculated as the excess of the consideration over the fair value of the net assets, including intangible assets, recognized and primarily related to expected synergies from the transaction. The majority of the goodwill and identifiable intangible assets are expected to be deductible for U.S. federal income tax purposes. The results of this acquisition have been included in the consolidated financial statements from the date of purchase. Pro forma results of operations have not been presented as the results of the acquired company were not material to our consolidated results of operations for the three months ended March 31, 2014 or 2013.

Intangible Assets

Intangible assets, excluding goodwill, as of March 31, 2014 and December 31, 2013 consist of (tables in millions):

	March 31, 2014
	Gross Carrying Amount		Accumulated Amortization			Net Book Value
Purchased technology	$	2,476	$	(1,485	)	$	991
Patents	225		(106		)	119
Software licenses	102		(91		)	11
Trademarks and tradenames	212		(122		)	90
Customer relationships and customer lists	1,463		(883		)	580
Leasehold interest	147		(12		)	135
Other	43		(28		)	15
Total intangible assets, excluding goodwill	$	4,668	$	(2,727	)	$	1,941

	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

Goodwill

Changes in the carrying amount of goodwill, net, on a consolidated basis and by segment, for the three months ended March 31, 2014 consist of (table in millions):

	Three Months Ended March 31, 2014
	Information Storage		Information Intelligence Group			RSA Information Security		Pivotal			VMware Virtual Infrastructure		Total
Balance, beginning of the period	$	7,486	$	1,487		$	2,203	$	177		$	3,071	$	14,424
Goodwill resulting from acquisitions	—		—			—		—			879		879
Finalization of purchase price allocations and other, net	—		(2		)	—		—			—		(2		)
Goodwill transferred in acquisition of Pivotal businesses	6		—			—		(6		)	—		—
Balance, end of the period	$	7,492	$	1,485		$	2,203	$	171		$	3,950	$	15,301

During the first quarter of 2014, the Information Storage segment acquired the Data Computing Appliance and implementation services businesses from the Pivotal segment. The transfer of goodwill pursuant to this acquisition is shown above for the first quarter of 2014. For both transactions, the amount of transferred goodwill was determined using the relative fair value method. See Note 15 for further discussion of the segment reclassifications.