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Intangibles and Goodwill

12 Months Ended

Dec. 31, 2011

D. Intangibles and Goodwill

Intangible Assets

In the year ended December 31, 2011, we, along with three other technology companies, acquired specific patents from Novell, Inc. The purchase price for the patent portfolio was $450.0 million, of which we paid $112.5 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 is included in 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 entered into an agreement to purchase all of the right, title and interest in a ground lease covering the property and improvements located on property adjacent to VMware's Palo Alto, California campus for $225.0 million. The gross amount classified to property, plant and equipment, net was $73.9 million. The remaining $151.1 million of the purchase price was recorded to intangible assets, net on the consolidated balance sheet, for the fair value of the ground lease and the right to develop additional square footage on the parcel. 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.

Intangible assets, excluding goodwill, as of December 31, 2011 and 2010 consist of (tables in thousands):

	December 31, 2011
	Gross Carrying		Accumulated
	Amount		Amortization		Net Book Value
Purchased technology	$	1,620,977	$	(1,020,356)	$	600,621
Patents		225,146		(72,078)		153,068
Software licenses		90,093		(83,999)		6,094
Trademarks and tradenames		172,851		(93,636)		79,215
Customer relationships and customer lists		1,329,775		(597,117)		732,658
IPR&D		43,900		-		43,900
Leasehold interest		146,757		(2,524)		144,233
Other		30,149		(23,823)		6,326
Total intangible assets, excluding goodwill	$	3,659,648	$	(1,893,533)	$	1,766,115

	December 31, 2010
	Gross Carrying		Accumulated
	Amount		Amortization		Net Book Value
Purchased technology	$	1,509,616	$	(873,095)	$	636,521
Patents		62,170		(62,134)		36
Software licenses		84,583		(72,115)		12,468
Trademarks and tradenames		171,651		(74,725)		96,926
Customer relationships and customer lists		1,275,908		(447,411)		828,497
IPR&D		43,900		-		43,900
Other		25,632		(19,713)		5,919
Total intangible assets, excluding goodwill	$	3,173,460	$	(1,549,193)	$	1,624,267

Amortization expense on intangibles was $341.8 million, $285.3 million and $247.8 million in 2011, 2010 and 2009, respectively. As of December 31, 2011, amortization expense on intangible assets for the next five years is expected to be as follows (table in thousands):

2012	$	340,658
2013		316,866
2014		271,982
2015		220,382
2016		150,021
Total	$	1,299,909

Changes in the carrying amount of goodwill, net, on a consolidated basis and by segment for the years ended December 31, 2011 and 2010 consist of the following (tables in thousands):

	Year Ended December 31, 2011
	Information Storage		Information Intelligence Group		RSA Information Security		VMware Virtual Infrastructure		Total
Balance, beginning of the year	$	7,029,341	$	1,467,903	$	1,663,213	$	1,612,193	$	11,772,650
Goodwill acquired		0		0		187,445		188,395		375,840
Tax deduction from exercise of stock options		(73)		(852)		(95)		0		(1,020)
Finalization of purchase price allocations		4,697		2,165		(1,447)		2,085		7,500
Balance, end of the year	$	7,033,965	$	1,469,216	$	1,849,116	$	1,802,673	$	12,154,970

	Year Ended December 31, 2010
	Information Storage		Information Intelligence Group		RSA Information Security		VMware Virtual Infrastructure		Total
Balance, beginning of the year	$	5,045,086	$	1,476,520	$	1,529,408	$	1,159,362	$	9,210,376
Goodwill acquired		2,287,712		0		140,013		178,201		2,605,926
Tax deduction from exercise of stock options		(548)		(2,424)		(1,103)		0		(4,075)
Other adjustments		(275,405)		0		0		275,405		0
Finalization of purchase price allocations		(27,504)		(6,193)		(5,105)		(775)		(39,577)
Balance, end of the year	$	7,029,341	$	1,467,903	$	1,663,213	$	1,612,193	$	11,772,650

Other adjustments to goodwill include the transfer of the goodwill related to the Ionix information technology management business from the Information Storage segment to the VMware Virtual Infrastructure segment during 2010. The goodwill transfer related to the common control acquisition of certain software product technology and related capabilities of our Ionix business by VMware. See Note S for additional details.

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 operating segment level. During 2011, we early adopted the new accounting guidance that allows entities to perform, on a reporting unit by reporting unit basis, a qualitative assessment on goodwill impairment to determine whether a quantitative assessment is necessary and, in doing so, we evaluated goodwill for certain reporting units in a qualitative manner and determined there was no impairment. For the reporting units that we evaluated using a quantitative model, 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 2011, 2010 or 2009.

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 asset.

- 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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