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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 leader in virtualization infrastructure solutions utilized by organizations to help them
transform the way they build, deliver and consume information technology (“IT”) resources. VMware’s virtualization infrastructure solutions,
which include a suite of products and services designed to deliver a software-defined data center, 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.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for annual financial
reporting.
VMware was incorporated as a Delaware corporation in 1998, was acquired by EMC Corporation (“EMC”)
in 2004 and conducted its initial
public offering of VMware’s Class A common stock in August 2007. As of December 31, 2014 , EMC held approximately 79.9% of VMware’s
outstanding common stock and 97.2% of the combined voting power of VMware’s outstanding common stock, including 43 million shares of
VMware’s Class A common stock and all of VMware’s Class B common stock. VMware is a majority-owned and controlled subsidiary of
EMC, and its results of operations and financial position are consolidated with EMC’s financial statements.
Management believes the assumptions underlying the consolidated financial statements are reasonable. However, the amounts recorded for
VMware’s intercompany transactions with EMC may not be considered arm’s length with an unrelated third party. Therefore, the financial
statements included herein may not necessarily reflect the financial position, results of operations and cash flows 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 financial position, results of operations and cash flows will be in the future if and when VMware contracts at
arm’s length with unrelated third parties for the services the Company receives from and provides to EMC.
Principles of Consolidation
The consolidated financial statements include the accounts of VMware and subsidiaries in which VMware has a controlling financial
interest. Non-controlling interests are presented as a separate component within total stockholders’ equity and represent the equity and
cumulative pro-rata share of the results of operations attributable to the non-controlling interests. Net earnings attributable to the non-controlling
interests are eliminated within other income (expense), net in the consolidated statements of income and are not presented separately as they
were not material for the periods presented. All intercompany transaction and account balances between VMware and its subsidiaries have been
eliminated in consolidation. Transactions with EMC and its subsidiaries are generally settled in cash and are classified on the statements of cash
flows based upon the nature of the underlying transaction.
Reclassification
Certain prior period financial statements have been reclassified to conform to current period presentation.
Use of Accounting Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the reported amounts of revenues and expenses during the reporting periods, and the disclosure of
contingent liabilities at the date of the financial statements. Estimates are used for, but not limited to trade receivable valuation, marketing
rebates, useful lives assigned to fixed assets and intangible assets, valuation of goodwill and definite-lived intangibles, income taxes, stock-
based
compensation and contingencies. Actual results could differ from those estimates.
Revenue Recognition
VMware derives revenues primarily from licensing software under perpetual licenses, related software maintenance, training, technical
support, consulting services, and hosted services. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has
occurred or service has been provided, the sales price is fixed or determinable, and collectibility is probable.
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