VMware 2014 Annual Report Download - page 38

Table of Contents
We are a “controlled company” within the meaning of the New York Stock Exchange rules and, as a result, are relying on exemptions from
certain corporate governance requirements that provide protection to stockholders of companies that are not “controlled companies.”
EMC owns more than 50% of the total voting power of our common stock and, as a result, we are a “controlled company” under the New
York Stock Exchange corporate governance standards. As a controlled company, we are exempt under the New York Stock Exchange standards
from the obligation to comply with certain New York Stock Exchange corporate governance requirements, including the requirements:
While we have voluntarily caused our Compensation and Corporate Governance Committee to currently be composed entirely of
independent directors, reflecting the requirements of the New York Stock Exchange, we are not required to maintain the independent
composition of the committee. As a result of our use of the “controlled company” exemptions, holders of our Class A common stock will not
have the same protection afforded to stockholders of companies that are subject to all of the New York Stock Exchange corporate governance
requirements.
Our historical financial information as a majority-owned subsidiary of EMC may not be representative of the results of a completely
independent public company.
The financial information covering the periods included in this Annual Report on Form 10-K does not necessarily reflect what our financial
condition, results of operations or cash flows would have been had we been a completely independent entity during those periods. In certain
geographic regions where we do not have an established legal entity, we contract with EMC subsidiaries for support services and EMC
personnel who are managed by us. The costs incurred by EMC on our behalf related to these employees are passed on to us and we are charged a
mark-up intended to approximate costs that would have been charged had we contracted for such services with an unrelated third party. These
costs are included as expenses in our consolidated statements of income. Additionally, we and EMC engage in intercompany transactions,
including agreements regarding the use of EMC’s and our intellectual property and real estate, agreements regarding the sale of goods and
services to one another and to Pivotal, and an agreement for EMC to resell our products and services to third party customers. If EMC were to
distribute its shares of our common stock to its stockholders or otherwise divest itself of all or a significant portion of its VMware shares, there
would be numerous implications to VMware, including the fact that VMware would lose the benefit of these arrangements with EMC. There can
be no assurance that VMware would be able to renegotiate these arrangements with EMC or replace them on the same or similar terms.
Additionally, our business could face significant disruption and uncertainty as we transition from these arrangements with EMC. Moreover, our
historical financial information is not necessarily indicative of what our financial condition, results of operations or cash flows will be in the
future if and when we contract at arm’s length with independent third parties for the services we have received and currently receive from EMC.
During the year ended December 31, 2014 , we recognized revenues of $318 million , and as of December 31, 2014 , $317 million of sales were
included in unearned revenues from such transactions with EMC. For additional information, see “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and our consolidated financial statements and notes thereto.
Risks Related to Owning Our Class A Common Stock
The price of our Class A common stock has fluctuated substantially in recent years and may fluctuate substantially in the future.
The trading price of our Class A common stock has fluctuated significantly since our IPO in August 2007. For example, between
January 1, 2014 and December 31, 2014, the closing trading price of our Class A common stock was volatile, ranging between $76.43 and
$111.80 per share. Our trading price could fluctuate substantially in the future due to the factors discussed in this Risk Factors section and
elsewhere in this Annual Report on Form 10-K.
Substantial amounts of Class A common stock are held by our employees and EMC, and all of the shares of our Class B common stock,
which may be converted to Class A common stock upon request of the holder, are held by EMC. Shares of Class A common stock held by EMC
(including shares of Class A common stock that might be issued upon the conversion of Class B common stock) are eligible for sale subject to
the volume, manner of sale and other restrictions of Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”), which allows the
holder to sell up to the greater of 1% of our
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that a majority of our board of directors consists of independent directors;
• that we have a corporate governance and nominating committee that is composed entirely of independent directors with a written
charter addressing the committee’s purpose and responsibilities;
• that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the
committee’s purpose and responsibilities; and
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for an annual performance evaluation of the nominating and governance committee and compensation committee.