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Table of Contents
VMWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. The Company and Summary of Significant Accounting Policies
Company and Background
VMware, Inc. (“VMware” or the “Company”) is the leading provider of virtualization solutions. VMware’s virtualization solutions
represent a pioneering approach to computing that separates the operating system and application software from the underlying hardware to
achieve significant improvements in efficiency, availability, flexibility and manageability. VMware’s broad and proven suite of virtualization
solutions addresses a range of complex IT problems that include infrastructure optimization, business continuity, software lifecycle management
and desktop management.
EMC’s Acquisition of VMware
On January 9, 2004, EMC Corporation (“EMC”) acquired all the outstanding capital stock of VMware. The acquisition was accounted for
as a purchase. Accordingly, all assets and liabilities were adjusted to their fair market value. On July 3, 2007, VMware’s certificate of
incorporation was amended to authorize shares of Class A and Class B common stock. After a conversion of existing common stock into Class A
and Class B common stock, and prior to VMware’s initial public offering in August 2007, EMC held 32.5 million shares of Class A common
stock and 300.0 million shares of Class B common stock. The ownership rights of Class A and Class B common stockholders are the same
except with respect to voting, conversion, certain actions that require the consent of holders of Class B common stock and other protective
provisions. Each share of Class B common stock has ten votes while each share of Class A common stock has one vote for all matters to be
voted on by stockholders. The capitalization of the Company, including all share and per share data has been retroactively adjusted to reflect the
recapitalization.
Initial Public Offering
In August 2007, VMware completed its initial public offering (the “IPO”) in which the Company sold 37,950,000 shares (including
4,950,000 shares pursuant to the underwriters’ full exercise of their over-allotment option) of its Class A common stock at a price to the public
of $29.00 per share. The net proceeds of the IPO to the Company were $1,035.2 million after deducting the offering expenses and underwriters’
discounts (see Note J). At December 31, 2007, EMC holds approximately 32% of VMware’s Class A common stock and 100% of VMware’s
Class B common stock, representing approximately 85% of VMware’s outstanding common stock and 98% of the combined voting power of
VMware’s outstanding common stock. As a result, EMC continues to control the Company following the completion of the initial public
offering, and is able to exercise control over all matters requiring stockholder approval, including the election of directors and approval of
significant corporate transactions.
Accounting Principles
The financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United
States of America.
Basis of Presentation
VMware historically has received, and continues to receive, certain administrative services from EMC, and VMware and EMC engage in
certain intercompany transactions. The consolidated financial statements include expense allocations for certain corporate functions provided to
VMware by EMC, including general corporate expenses. These allocations were based on estimates of the level of effort or resources incurred
on behalf of VMware. Additionally, certain other costs incurred by EMC for the direct benefit of VMware, such as rent, salaries and benefits
have been included in VMware’s financial statements. Management believes the
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