VMware 2014 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 millions):
VMware has U.S. federal net operating loss carryforwards of $127 million from acquisitions made since 2007 . These operating loss
carryforwards expire at different periods through 2033 . 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 $168 million expiring at different periods through 2034 .
VMware has California research and development credit carryforwards for income tax purposes of approximately $79 million , that can be
carried over indefinitely. VMware determined that the realization of deferred tax assets relating to the state research and development tax credits
and certain capital losses did not meet the more-likely-than-not threshold, and accordingly, a valuation allowance was recorded. If in the future,
new evidence supports the realization of the deferred tax assets related to the state research and development tax credits or capital losses, the
valuation allowance will be reversed and a tax benefit will be recorded accordingly.
VMware has non-U.S. operating losses of $3 million resulting from a non-U.S. acquisition in 2012 . 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. VMware has
non-U.S. tax credits of approximately $1 million . U.S. income taxes have not been provided on certain undistributed earnings of non-U.S.
subsidiaries of approximately $3,594 million and $2,830 million at December 31, 2014 and 2013 , 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
non-U.S. 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% . Recent developments in non-U.S. tax jurisdictions and unfavorable changes in non-U.S. tax laws and
regulations could have an adverse effect on VMware’s annual effective tax rate if earnings are lower than anticipated in countries where the
statutory tax rates are lower than the U.S. federal tax rate. 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 to such
income. At this time, it is not practicable to estimate the amount of tax that may be payable if VMware were to repatriate these earnings.
Although VMware files a consolidated federal tax return with EMC, the income tax provision is calculated primarily as though VMware
were a separate taxpayer. However, certain transactions that VMware and EMC are parties to are assessed using consolidated tax return rules.
85
December 31,
2014
2013
Deferred tax assets:
Unearned revenue
$
296
$
224
Accruals and other
67
45
Stock-based compensation
90
68
Tax credit and net operating loss carryforwards
138
119
Other non-current assets
9
14
Basis difference in investment in business
20
20
Net deferred tax assets
620
490
Valuation allowance
(106
)
(94
)
Total deferred tax assets
514
396
Deferred tax liabilities:
Property, plant and equipment, net
(93
)
(70
)
Intangibles and other assets, net
(8
)
(76
)
Total deferred tax liabilities
(101
)
(146
)
Total deferred tax assets, net
$
413
$
250