VMware 2015 Annual Report Download - page 60

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aleaderinvirtualizationandcloudinfrastructuresolutionsthatenablebusinessestotransformthewaythey
build,deliverandconsumeInformationTechnology(“IT”)resourcesinamannerthatisbasedontheirspecificneeds.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,servers
andmobiledevices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,2015,EMCheld81.3%ofVMware’soutstandingcommonstockand97.5%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.OnOctober12,2015,DellInc.(“Dell”),DenaliHoldingInc.(“Denali”)andEMCenteredintoadefinitiveagreementunderwhichDenalihas
agreedtoacquireEMC.
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resultsofoperations,financialposition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resultsofoperations,financial
position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.Theportionofresultsofoperationsattributabletothenon-controllinginterestsiseliminatedinotherincome(expense),
netontheconsolidatedstatementsofincomeandarenotpresentedseparatelyastheamountswerenotmaterialfortheperiodspresented.Allintercompany
transactions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consolidatedstatementsofcashflowsbaseduponthenatureoftheunderlyingtransaction.
Reclassification
VMwareearly-adoptedAccountingStandardsUpdate("ASU")No.2015-17,BalanceSheetClassificationofDeferredTaxes,effectiveDecember31,2015
usingretrospectiveapplication.Assuch,currentdeferredtaxassetsof$248millionwerereclassifiedasnon-currentdeferredtaxassetsontheconsolidatedbalance
sheetsasofDecember31,2014.Refertothe"NewAccountingPronouncements"sectionbelowforfurtherdiscussion.
Certainpriorperiodamountsrelatedtoimpairmentofstrategicinvestmentshavebeenreclassifiedwithintheoperatingactivitiessectionoftheconsolidated
statementsofcashflowsfortheyearendedDecember31,2013.Thereclassificationhadnoeffectontotalcashflowsusedinorprovidedbyoperating,investingor
financingactivitiesaspreviouslyreported.
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developmentfundsand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.
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