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TableofContents
VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Unrecognized Tax Benefits
Areconciliationofthebeginningandendingamountofgrossunrecognizedtaxbenefits,excludinginterestandpenaltiesassociatedwithunrecognizedtax
benefits,isasfollows(tableinmillions):
For the Year Ended December 31,
2015
2014
2013
Balance,beginningoftheyear $ 190
$ 167
$ 158
Taxpositionsrelatedtocurrentyear:
Additions 41
32
32
Taxpositionsrelatedtoprioryears:
Additions 54
1
—
Reductions (14)
(3)
(12)
Settlements (12)
(1)
(2)
Reductionsresultingfromalapseofthestatuteoflimitations (11)
(2)
(8)
Foreigncurrencyeffects (3)
(4)
(1)
Balance,endoftheyear $ 245
$ 190
$ 167
Ofthenetunrecognizedtaxbenefits,includinginterestandpenalties,of$257millionasofDecember31,2015,approximately$232millionwould,if
recognized,benefitVMware'sannualeffectiveincometaxrate.The$257millionofnetunrecognizedtaxbenefitswereclassifiedasanon-currentliabilitywithin
otherliabilitiesontheconsolidatedbalancesheets.VMwarerecognizesinterestexpenseandpenaltiesrelatedtoincometaxmattersintheincometaxprovision.
VMwarehadaccrued$34millionand$22millionofinterestandpenaltiesassociatedwithunrecognizedtaxbenefitsasofDecember31,2015and2014,
respectively.IncometaxexpensefortheyearsendedDecember31,2015,2014and2013includedinterestandpenaltiesof$13million,$8millionand$5million
,respectively,associatedwithuncertaintaxpositions.
Duringthefourthquarterof2015,werecognizedadditionalunrecognizedtaxbenefitsrelatingtocertainacquisitionsthattookplaceinprecedingperiods.
TheseadditionalunrecognizedtaxbenefitswerebaseduponcommunicationreceivedfromtheInternalRevenueServices(the“IRS”).Theamountrecognized,
excludinginterest,was$47million,ofwhich$25millionwasrecordedtotheincometaxprovisionontheconsolidatedstatementsofincome.Theremaining
amountwillbeamortizedtotheincometaxprovisionovertheperiodsmatchingtheusefullivesoftheunderlyingintangibleassets.
TheEMCconsolidatedgroupisroutinelyunderauditbytheIRS.AllU.S.federalincometaxmattershavebeenconcludedforyearsthrough2008.TheIRSis
currentlyauditingtheEMCconsolidatedgroup'sfederaltaxreturnsfortaxyears2009through2011.
VMwarealsohasincometaxauditsinprogressinnumerousstateandnon-U.S.taxjurisdictions.Initsinternationaljurisdictionsthatcompriseasignificant
portionofitsoperations,theyearsthatmaybeexaminedvary,withtheearliestyearbeing2008.Initsmostsignificantinternationaljurisdiction,Ireland,theopen
taxyearsbeginasof2010.BasedonthetimingandoutcomeofexaminationsofVMware’ssubsidiaries,theresultoftheexpirationofstatutesoflimitationsfor
specificjurisdictionsorthetimingandresultofrulingrequestsfromtaxingauthorities,itisreasonablypossiblethatwithinthenext12monthstotalunrecognized
taxbenefitscouldbepotentiallyreducedbyapproximately$18million.Auditoutcomesandthetimingofauditsettlementsaresubjecttosignificantuncertainty.
L. Commitments and Contingencies
Litigation
Duringthesecondquarterof2015,VMwarereachedanagreementwiththeDepartmentofJustice(“DOJ”)andtheGeneralServicesAdministration(“GSA”)
topay$76milliontoresolveallegationsthatVMware'sgovernmentsalespracticesbetween2006and2013hadviolatedthefederalFalseClaimsAct.The
settlementwaspaidandrecordedasareductionofVMware'stotalrevenuesduringtheyearendedDecember31,2015.
OnMarch27,2015,PhoenixTechnologies(“Phoenix”)filedacomplaintagainstVMwareintheU.S.DistrictCourtfortheNorthernDistrictofCalifornia
assertingclaimsforcopyrightinfringementandbreachofcontractrelatingtoaversionofPhoenix’sBIOSsoftwarethatVMwarelicensedfromPhoenix.Inthe
lawsuit,Phoenixisseekinginjunctivereliefandmonetarydamages.TrialiscurrentlyscheduledforNovember2016.VMwarebelievesthatithasmeritorious
defensesinconnectionwiththislawsuit,andcurrentlyareasonablypossiblelossorrangeoflosscannotbeestimated.
78