VMware 2007 Annual Report Download - page 58

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Table of Contents
potential assessments expire. Additionally, the jurisdictions in which our earnings or deductions are realized may differ from our current
estimates. As a result, our effective tax rate may fluctuate significantly on a quarterly basis.
As part of our accounting for business combinations, some of the purchase price is allocated to goodwill and intangible assets. Impairment
charges associated with goodwill are generally not tax deductible and will result in an increased effective income tax rate in the quarter the
impairment is recorded.
We do not provide for a U.S. income tax liability on undistributed earnings of our foreign subsidiaries. The earnings of non-U.S.
subsidiaries, which reflect full provision for non-U.S. income taxes, are indefinitely reinvested in non-U.S. operations or will be remitted
substantially free of additional tax.
Income taxes are calculated on a separate tax return basis, although we are included in the consolidated tax return of EMC. The difference
between the income taxes payable that is calculated on a separate return basis and the amount actually paid to EMC pursuant to our tax sharing
agreement with EMC is presented as a component of additional paid-in capital.
New Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (“FASB”) issued FAS No. 157, “Fair Value Measurements,” or FAS
No. 157, which addresses how companies should measure fair value when they are required to use a fair value measure for recognition or
disclosure purposes under generally accepted accounting principles. FAS No. 157 defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and expands disclosures about fair value measurements. FAS No. 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007 and should be applied prospectively, except in the case of a limited number
of financial instruments that require retrospective application. We are currently evaluating the potential impact of FAS No. 157 on our financial
position and results of operations.
In February 2007, the FASB issued FAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities-including an
amendment of FAS 115,” or FAS No. 159. The new statement allows entities to choose, at specified election dates, to measure eligible financial
assets and liabilities at fair value that are not otherwise required to be measured at fair value. If a company elects the fair value option for an
eligible item, changes in that item’s fair value in subsequent reporting periods must be recognized in current earnings. FAS No. 159 is effective
for fiscal years beginning after November 15, 2007. We are currently evaluating the potential impact of FAS No. 159 on our financial position
and results of operations.
In December 2007, the FASB issued FAS No. 141 (revised 2007) or FAS No. 141R, “Business Combinations”. This statement establishes
principles and requirements for how the acquirer in a business combination (i) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree, (ii) recognizes and measures the goodwill
acquired in the business combination or a gain from a bargain purchase, and (iii) determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of the business combination. FAS No. 141 (revised 2007) is effective for fiscal
years beginning after December 15, 2008. The impact of the standard on our financial position and results of operation will be dependent upon
the number of and magnitude of acquisitions that are consummated once the standard is effective.
In December 2007, the FASB issued FAS No. 160 or FAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an
amendment of ARB No. 51”. The objective of this statement is to improve the relevance, comparability, and transparency of the financial
information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards for the
noncontrolling interest in a subsidiary and therefore deconsolidation of a subsidiary. FAS No. 160 is effective for fiscal years beginning after
December 15, 2008. We do not expect the standard to have a material impact on our financial position or results of operations.
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