Business Combinations, Intangibles and Goodwill

During the three months ended June 30, 2016, VMware acquired all of the remaining outstanding shares of Arkin Net, Inc. (“Arkin”), a provider of software-defined data center security and operations, as part of a strategy to accelerate customers’ adoption of VMware NSX and software-defined data centers, for $67 million of cash, net of liabilities assumed. The consideration was allocated to the fair value of the assets acquired and liabilities assumed based on estimated fair values as of the respective acquisition dates. The preliminary aggregate allocation to goodwill, intangibles and net assets was approximately $38 million, $26 million and $3 million, respectively. The intangible assets acquired were primarily comprised of purchased technology which have an amortization period of four to five years. The proforma financial information assuming the acquisition had occurred as of the beginning of the calendar year prior to the year of acquisition, as well as the revenues and earnings generated during the current year, were not material for disclosure purposes. During the six months ended June 30, 2016, Pivotal acquired two businesses, which were not material either individually or in the aggregate to the June 30, 2016 results.

Most of our intangible assets are being amortized based upon the pattern in which the economic benefits of the intangible assets are being utilized; the remainder are 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, and is primarily related to expected synergies from the transaction. The goodwill is not expected to be deductible for U.S. federal income tax purposes.

Intangible Assets

Intangible assets, excluding goodwill, as of June 30, 2016 and December 31, 2015 consist of (tables in millions):



	June 30, 2016
	Gross Carrying Amount		Accumulated Amortization			Net Book Value
Purchased technology	$	3,298	$	(2,017	)	$	1,281
Patents	225		(139		)	86
Software licenses	115		(94		)	21
Trademarks and tradenames	254		(168		)	86
Customer relationships and customer lists	1,524		(1,131		)	393
Leasehold interest	152		(23		)	129
Other	46		(44		)	2
Total intangible assets, excluding goodwill	$	5,614	$	(3,616	)	$	1,998



	December 31, 2015
	Gross Carrying Amount		Accumulated Amortization			Net Book Value
Purchased technology	$	3,272	$	(1,903	)	$	1,369
Patents	225		(132		)	93
Software licenses	112		(94		)	18
Trademarks and tradenames	254		(157		)	97
Customer relationships and customer lists	1,523		(1,087		)	436
Leasehold interest	152		(20		)	132
Other	46		(42		)	4
Total intangible assets, excluding goodwill	$	5,584	$	(3,435	)	$	2,149

Goodwill

Changes in the carrying amount of goodwill, net, on a consolidated basis and by segment, for the six months ended June 30, 2016 consist of (table in millions):



	Six Months Ended June 30, 2016
	Information Storage		Enterprise Content Division		RSA Information Security		Pivotal		VMware Virtual Infrastructure		Total
Balance, beginning of the period	$	9,185	$	1,478	$	2,203	$	187	$	4,037	$	17,090
Goodwill resulting from acquisitions	—		—		—		9		38		47
Balance, end of the period	$	9,185	$	1,478	$	2,203	$	196	$	4,075	$	17,137