VMware 2015 Annual Report Download - page 27

TableofContents
Acquisitioniscompleted,mayaffectourabilitytoeffectivelypartnerwiththesecompanies.Thesecompaniesmayfavorourcompetitorsbecauseofour
relationshipwithEMCandourpotentialrelationshipwithDell.
EMCandDellcompetewithcertainofoursignificantchannel,technologyandothermarketingpartners,includingIBMandHewlett-Packard.Pursuanttoour
certificateofincorporationandotheragreementsthatwehavewithEMC,EMCand,iftheDellAcquisitioniscompleted,Dellmayhavetheabilitytoimpactour
relationshipwiththoseofourpartnersthatcompetewithEMCorDell,whichcouldhaveamaterialadverseeffectonouroperatingresultsandourabilitytopursue
opportunitieswhichmayotherwisebeavailabletous.
We could be held liable for the tax liabilities of other members of EMC’s consolidated tax group.
WehavehistoricallybeenincludedinEMC’sconsolidatedgroupforU.S.federalincometaxpurposes,aswellasincertainconsolidated,combinedorunitary
groupsthatincludeEMCCorporationorcertainofitssubsidiariesforstateandlocalincometaxpurposes.PursuanttoouragreementwithEMC,weandEMC
generallywillmakepaymentstoeachothersuchthat,withrespecttotaxreturnsforanytaxableperiodinwhichweoranyofoursubsidiariesareincludedin
EMC’sconsolidatedgroupforU.S.federalincometaxpurposesoranyotherconsolidated,combinedorunitarygroupofEMCCorporationoritssubsidiaries,the
amountoftaxestobepaidbyuswillbedetermined,subjecttocertainconsolidatedreturnadjustments,asifweandeachofoursubsidiariesincludedinsuch
consolidated,combinedorunitarygroupfiledourownconsolidated,combinedorunitarytaxreturn.Whenwebecomesubjecttofederalincometaxauditsasa
memberofEMC'sconsolidatedgroup,thetaxsharingagreementprovidesthatEMChasauthoritytocontroltheauditandrepresentEMCandVMware'sinterests
totheIRS.Accordingly,ifweandEMCoritssuccessor-in-interest(includingDenali,iftheDellAcquisitioniscompleted)differonappropriateresponsesand
positionstotakewithrespecttotaxquestionsthatmayariseinthecourseofanaudit,ourabilitytoaffecttheoutcomeofsuchauditsmaybeimpaired.Inaddition,
ifEMCeffectsa355Distributionorothertransactionthatissubsequentlydeterminedtobetaxable,VMwarecouldbeliableforalloraportionofthetaxliability,
whichcouldhaveamaterialadverseeffectonouroperatingresultsandfinancialcondition.
WehavebeenincludedintheEMCconsolidatedgroupforU.S.federalincometaxpurposessinceouracquisitionbyEMC,andexpecttocontinuetobe
includedinsuchconsolidatedgroupforperiodsinwhichEMCoritssuccessor-in-interest(includingDenali,iftheDellAcquisitioniscompleted)ownsatleast
80%ofthetotalvotingpowerandvalueofouroutstandingstock.Eachmemberofaconsolidatedgroupduringanypartofaconsolidatedreturnyearisjointlyand
severallyliablefortaxontheconsolidatedreturnofsuchyearandforanysubsequentlydetermineddeficiencythereon.Similarly,insomejurisdictions,each
memberofaconsolidated,combinedorunitarygroupforstate,localorforeignincometaxpurposesisjointlyandseverallyliableforthestate,localorforeign
incometaxliabilityofeachothermemberoftheconsolidated,combinedorunitarygroup.Accordingly,foranyperiodinwhichweareincludedintheEMC
consolidatedgroupforU.S.federalincometaxpurposesoranyotherconsolidated,combinedorunitarygroupofEMCCorporationanditssubsidiaries,wecould
beliableintheeventthatanyincometaxliabilitywasincurred,butnotdischarged,byanyothermemberofanysuchgroup.
WearestillevaluatingthepotentialimpactofthependingDellAcquisitiononourtaxsharingagreementwithEMCandexpecttoamendtheagreement
followingorinconjunctionwiththecompletionoftheacquisition.IfthependingDellAcquisitioniscompletedanditissubsequentlydeterminedthatthetracking
stockissuedinconnectionwiththeDellAcquisitionconstitutesataxabledistribution,VMwarecouldbeliableforalloraportionofthetaxliability,whichcould
haveamaterialadverseeffectonouroperatingresultsandfinancialcondition.
We have limited ability to resolve favorably any disputes that arise between us and EMC.
DisputesmayarisebetweenEMCandusinanumberofareasrelatingtoourongoingrelationships,includingourreseller,technologyandotherbusiness
agreementswithEMC,areasofcompetitiveoverlap,strategicinitiatives,requestsforconsenttoactivitiesspecifiedinourcertificateofincorporationandtheterms
ofourintercompanyagreements.WemaynotbeabletoresolveanypotentialconflictswithEMCoritssuccessor-in-interest(includingDenali,iftheDell
Acquisitioniscompleted),andevenifwedo,theresolutionmaybelessfavorablethanifweweredealingwithanunaffiliatedparty.
TheagreementsweenterintowithEMCmaybeamendeduponagreementbetweentheparties,andtheninsomecasesonlywiththeconsentofDenaliunder
thetermsoftheDellAcquisitionAgreement.WhilewearecontrolledbyEMCandduringthependencyoftheDellAcquisition,wemaynothavetheleverageto
negotiateamendmentstotheseagreementsifrequiredontermsasfavorabletousasthosewewouldnegotiatewithanunaffiliatedthirdparty,ifatall.
Our CEO, our future CFO and some of our directors have potential conflicts of interest with EMC.
OurCEO,ourfutureCFOandsomeofourdirectorsownEMCcommonstockorequityawardstopurchaseEMCcommonstockthatwillaccelerateupon
completionoftheDellAcquisition.Inaddition,someofourdirectorsareexecutiveofficersordirectorsofEMC,andEMC,asthesoleholderofourClassB
commonstock,isentitledtoelect7ofour8directors.OwnershipofEMCcommonstockandequityawardstopurchaseEMCcommonstockbyourdirectorsand
thepresenceofexecutiveofficersordirectorsofEMConourboardofdirectorscouldcreate,orappeartocreate,conflictsofinterestwith
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