VMware 2010 Annual Report Download - page 78

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Table of Contents
VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Overview and Basis of Presentation
Company and Background
VMware, Inc. (“VMware” or the “Company”)
is the leading provider of virtualization infrastructure software solutions from the desktop to
the data center and to the cloud. VMware’s virtualization infrastructure software solutions run on industry-standard desktop computers and
servers and support a wide range of operating system and application environments, as well as networking and storage infrastructures.
Accounting Principles
The financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United
States of America.
Basis of Presentation
VMware was incorporated as a Delaware corporation in 1998 and continues to operate in large measure as a stand-alone company
following the Company’s acquisition by EMC Corporation (“EMC”) in 2004 and following VMware’s initial public offering of VMware’s
Class A common stock in August 2007. As of December 31, 2010, EMC holds approximately 80% of VMware’s outstanding common stock,
including 33.0 million shares of VMware’s Class A common stock and all of VMware’s Class B common stock. VMware is considered a
“controlled company” under the rules of the New York Stock Exchange. VMware historically has received, and continues to receive, certain
administrative services from EMC, and VMware and EMC engage in certain intercompany transactions. Costs incurred by EMC for the direct
benefit of VMware, such as rent, salaries and benefits, plus a mark-up intended to approximate third-party costs, are included in VMware’s
consolidated financial statements. Management believes the assumptions underlying the consolidated financial statements are reasonable.
However, the amounts recorded for VMware’s intercompany transactions with EMC would not be considered arm’s length with an unrelated
third party by nature of EMC’s majority ownership of VMware. Therefore, the financial statements included herein may not necessarily reflect
the cash flows, results of operations and financial condition had VMware engaged in such transactions with an unrelated third party during all
periods presented. Accordingly, VMware’s historical financial information is not necessarily indicative of what the Company’s cash flows,
results of operations and financial condition will be in the future if and when VMware contracts at arm’s-length with unrelated third parties for
services the Company has received and currently receives from EMC.
Upon retirement of repurchased shares, VMware historically recorded the excess of the cost of treasury stock over its par value as a
reduction of retained earnings. Effective 2010, the Company has reflected these amounts as a reduction of additional-paid-in-capital and
reclassified historical results accordingly. The amounts reclassified were not material to VMware’s consolidated financial statements and did not
have an effect on VMware’s total stockholders’ equity.
Prior period financial statements have been reclassified to conform to current period presentation.
Principles of Consolidation
The consolidated financial statements include the accounts of VMware and its subsidiaries. All intercompany transactions and balances
between VMware and its subsidiaries have been eliminated. All intercompany transactions with EMC in the consolidated statements of cash
flows will be settled in cash, and changes in the intercompany balances are presented as a component of cash flows from operating activities.
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