VMware 2010 Annual Report Download - page 59

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Table of Contents
Other Income (Expense), Net
Other expense, net of $14.2 in 2010 changed by $17.1 as compared with other income, net of $2.9 in 2009. Other income, net of $2.9 in
2009 changed by $6.1 as compared with other expense, net of $3.2 in 2008. The change in 2010 compared with 2009 was primarily due to $8.2
of foreign exchange loss from the net impact of underlying foreign currency exposure and foreign currency forward contracts. These losses were
partially offset by a gain of $5.9 recognized in the third quarter of 2009 from the remeasurement to fair value of a previously held equity interest
in SpringSource in connection with the acquisition of SpringSource. The change in 2009 compared with 2008 was primarily due to the
aforementioned gain of $5.9 recognized in 2009, partially offset by losses on foreign currency transactions.
Income Tax Provision
Our effective tax rate for 2010 was 14.2% as compared with 11.8% for 2009 and 9.1% for 2008. The higher effective tax rate in 2010 was
primarily attributable to a jurisdictional shift of income from lower-tax jurisdictions to the United States, which was offset by a decrease in
unrecognized tax positions relative to income before income tax. The increase in the effective rate to 11.8% in 2009 from 9.1% in 2008 was
mainly attributable to an increase in unrecognized tax positions as a percent of income before tax, offset by the increase in the favorable impact
of tax credits relative to income before tax.
The 2011 tax rate is expected to be higher than the fiscal year 2010 tax rate primarily due to a forecasted shift of earnings from lower-tax
jurisdictions to the United States and a lower U.S. Federal R&D tax credit, partially offset by a decrease in unrecognized tax positions as a
percent of income before income tax. The effective tax rate for fiscal year 2011 is based upon the income for the year, the composition of the
income in different countries, and adjustments, if any, for the potential tax consequences related to the resolution of audits or changes in
uncertain tax positions. Our aggregate income tax rate in foreign jurisdictions is lower than our income tax rate in the United States.
We have been included in the EMC consolidated group for U.S. federal income tax purposes, and expect to continue to be included in such
consolidated group for periods in which EMC owns at least 80% of the total voting power and value of our outstanding stock as calculated for
U.S. federal income tax purposes. The percentage of voting power and value calculated for U.S. federal income tax purposes may differ from the
percentage of outstanding shares beneficially owned by EMC due to the greater voting power of our Class B common stock as compared to our
Class A common stock and other factors. Each member of a consolidated group during any part of a consolidated return year is jointly and
severally liable for tax on the consolidated return of such year and for any subsequently determined deficiency thereon. Should EMC’s
ownership fall below 80% of the total voting power or value of our outstanding stock in any period, then we would no longer be included in the
EMC consolidated group for U.S. federal income tax purposes, and thus no longer be liable in the event that any income tax liability was
incurred, but not discharged, by any other member of the EMC consolidated group. Additionally, our U.S. federal income tax would be reported
separately from that of the EMC consolidated group.
Our future effective tax rate may be affected by such factors as changes in tax laws, regulations or rates, changing interpretation of existing
laws or regulations, the impact of accounting for stock-based compensation, the impact of accounting for business combinations, changes in our
international organization, shifts in the amount of income before tax earned in the U.S. as compared with other regions in the world, and changes
in overall levels of income before tax.
Liquidity and Capital Resources
During the second quarter of 2010, we began investing in fixed income securities, which drove a shift from cash and cash equivalents to
short-term investments. Our fixed income investment portfolio is denominated in U.S. Dollars and consists of various holdings, types and
maturities. Our primary objective for holding fixed
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