VMware 2009 Annual Report Download - page 75

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 the leading provider of virtualization infrastructure software solutions from the desktop to
the data center and to the cloud. VMware’s virtualization infrastructure software solutions run on industry-standard desktop computers and
servers and support a wide range of operating system and application environments, as well as networking and storage infrastructures.
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 underwriter’s
discounts (see Note J). As of December 31, 2009, EMC Corporation (“EMC”) holds approximately 26% of VMware’s Class A common stock
and 100% of VMware’s Class B common stock, representing approximately 81% 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 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 Corporation, and VMware and
EMC engage in certain intercompany transactions. Costs incurred by EMC for the direct benefit of VMware, such as rent, salaries and benefits,
plus a mark-up intended to approximate third-party costs, are included in VMware’s financial statements. Management believes the assumptions
underlying the financial statements are reasonable. However, given that these intercompany transactions did not arise from transactions
negotiated at arm’s-length with an unrelated third party, 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, or cash flows will be in the future if and when VMware contracts at arm’s-length with independent third parties for services
the Company has received and currently receives from EMC.
Prior period financial statements have been reclassified to conform to current period presentation.
Principles of Consolidation
The consolidated financial statements include the accounts of VMware and its subsidiaries. All intercompany transactions and balances
between VMware and its subsidiaries have been eliminated. All intercompany transactions with EMC in the consolidated statements of cash
flows will be settled in cash, and changes in the intercompany balances are presented as a component of cash flows from operating activities.
Use of Accounting Estimates
The preparation of financial statements in conformity with generally accepted accounting principles 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
72