VMware 2011 Annual Report Download - page 90

Table of Contents VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Deferred tax assets and liabilities are recognized for future tax consequences of differences between the carrying amounts of assets and
liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to be reversed.
Significant deferred tax assets and liabilities consist of the following (table in thousands):
VMware has U.S. federal net operating loss carryforwards of $153.7 million from acquisitions made since 2007 . These carryforwards
expire at different periods through 2030 . Portions of these carryforwards are subject to annual limitations. VMware expects to be able to fully
use these net operating losses against future income. Also resulting from acquisitions since 2007 , VMware has state net operating loss
carryforwards of $247.6 million expiring at different periods through 2031 . A valuation allowance was recorded to reduce gross deferred tax
assets to an amount VMware believes is more likely than not to be realized. The valuation allowance is attributable to the uncertainty regarding
the realization of state tax credit carryforward benefits. VMware has non-U.S. net operating losses of $14.7 million resulting from a non-U.S.
acquisition in 2009 . These net operating losses have an unlimited carryforward period. VMware expects to be able to fully use these net
operating losses against future non-U.S. income. Also, VMware has non-U.S. net operating losses of $11.4 million that are subject to a full
valuation allowance as VMware believes it is more likely than not that no
tax benefit will be realized from these losses. These are primarily from
a 2009 acquisition.
U.S. income taxes have not been provided on certain undistributed earnings of non-U.S. subsidiaries of approximately $1,560.9 million and
$900.3 million at December 31, 2011 and 2010 , respectively, because such earnings are considered to be reinvested indefinitely outside of the
U.S., or will be remitted substantially free of additional tax. VMware's rate of taxation in foreign jurisdictions is lower than the U.S. tax rate.
VMware's international income is primarily earned by VMware's subsidiaries in Ireland, where the statutory tax rate is 12.5% . Management
does not believe that any recent or currently expected developments in non-U.S. tax jurisdictions are reasonably likely to have a material impact
on VMware's effective tax rate. As of December 31, 2011 , VMware's total cash, cash equivalents, and short-term investments were $4,512.3
million , of which $2,072.0 million
was held outside the U.S. If these overseas funds are needed for its operations in the U.S., VMware would be
required to accrue and pay U.S. taxes on related undistributed earnings to repatriate these funds. However, VMware's intent is to indefinitely
reinvest its non-U.S. earnings in its foreign operations and VMware's current plans do not demonstrate a need to repatriate them to fund its U.S.
operations. VMware will meet its U.S. liquidity needs through cash flows from operations, external borrowings, or both. VMware utilizes a
variety of tax planning and financing strategies in an effort to ensure that its worldwide cash is available in the locations in which it is needed.
All income earned abroad, except for previously taxed income for U.S. tax purposes, is considered indefinitely reinvested in VMware's foreign
operations and no provision for U.S. taxes has been provided with respect thereto.
VMware is included in the EMC consolidated group for U.S. federal income tax purposes. As of December 31, 2011 , VMware had a net
income tax payable of $3.3 million , which was included in accrued expenses and other on its consolidated balance sheet. This net amount is
primarily comprised of amounts due to and due from EMC under the tax sharing agreement. VMware has a stand-alone taxable loss for the year
ended December 31, 2011 , which was primarily attributable to tax deductions arising from both non-qualified stock option exercises and from
restricted stock when the restrictions lapsed. Under the tax sharing agreement with EMC, EMC is obligated to pay VMware an amount equal to
the tax benefit generated by
81
December 31,
2011
2010
Deferred tax assets:
Unearned revenue
$
126,270
$
107,312
Accruals and other
54,150
30,673
Stock-based compensation
56,074
52,095
Tax credit and net operating loss carryforwards
133,080
95,608
Net deferred tax assets
369,574
285,688
Valuation allowance
(56,573
)
(35,873
)
Total deferred tax assets
313,001
249,815
Deferred tax liabilities:
Property, plant and equipment, net
(21,162
)
(20,227
)
Intangibles and other assets, net
(7,360
)
(1,551
)
Other non-current liabilities — (
8,318
)
Total deferred tax liabilities
(28,522
)
(30,096
)
Total deferred tax assets, net
$
284,479
$
219,719