VMware 2012 Annual Report Download - page 52

Table of Contents
Income Tax Provision
Our effective tax rate was 16.5%, 8.9%, and 14.2% for 2012, 2011, and 2010, respectively. The effective tax rate in 2012 was higher than
2011 primarily due to the federal research credit, which expired at the end of 2011 and was unavailable in 2012. The rate was also negatively
impacted by a greater proportion of earnings in the U.S., which are taxed at a higher rate than our earnings in foreign jurisdictions. The effective
tax rate in 2011 was lower than 2010 primarily due to a shift in the mix of income before tax from the U.S. to international jurisdictions with
lower tax rates compared to the U.S. rate, partially offset by a relative reduction in the benefit from the federal research credit.
In January 2013, the United States Congress retroactively enacted an extension of the federal research credit through December 31, 2013.
As a result, we expect that our income tax provision for the first quarter of 2013 will include an estimated discrete tax benefit of approximately
$38 reflecting the full year 2012 federal research credit. This estimated amount will be finalized in 2013. Our 2013 annual estimated effective
tax rate will also include the benefit expected for 2013 and accordingly, we expect our 2013 effective tax rate to be lower than the 2012 effective
tax rate.
Our rate of taxation in foreign jurisdictions is lower than the U.S. tax rate. Our international income is primarily earned by our subsidiaries
in Ireland, where the statutory tax rate is 12.5%. We do not believe that any recent or currently expected developments in non-U.S. tax
jurisdictions are reasonably likely to have a material impact on our effective tax rate. All income earned abroad, except for previously taxed
income for U.S. tax purposes, is considered indefinitely reinvested in our foreign operations and no provision for U.S. taxes has been provided
with respect to such income.
As of December 31, 2012, our total cash, cash equivalents, and short-term investments were $4,630.8 of which $2,996.7 were held outside
the U.S. Our intent is to indefinitely reinvest our non-U.S. funds in our foreign operations, and our current plans do not demonstrate a need to
repatriate them to fund our U.S. operations. We plan to meet our U.S. liquidity needs through ongoing cash flows generated from our U.S.
operations, external borrowings, or both. We utilize a variety of tax planning strategies in an effort to ensure that our worldwide cash is available
in the locations in which it is needed. If management determines these overseas funds are needed for our operations in the U.S., we would be
required to accrue U.S. taxes on the related undistributed earnings in the period management determines the earnings will no longer be
indefinitely invested outside the U.S. in order to repatriate these funds.
We have been included in the EMC consolidated group for U.S. federal income tax purposes, and expect to continue to be included in such
consolidated group for periods in which EMC owns at least 80% of the total voting power and value of our outstanding stock as calculated for
U.S. federal income tax purposes. The percentage of voting power and value calculated for U.S. federal income tax purposes may differ from the
percentage of outstanding shares beneficially owned by EMC due to the greater voting power of our Class B common stock as compared to our
Class A common stock and other factors. Each member of a consolidated group during any part of a consolidated return year is jointly and
severally liable for tax on the consolidated return of such year and for any subsequently determined deficiency thereon. Should EMC's
ownership fall below 80% of the total voting power or value of our outstanding stock in any period, then we would no longer be included in the
EMC consolidated group for U.S. federal income tax purposes, and thus we would no longer be liable in the event that any income tax liability
was incurred, but not discharged, by any other member of the EMC consolidated group. Additionally, our U.S. federal income tax would be
reported separately from that of the EMC consolidated group.
Although we file a federal consolidated tax return with EMC, we calculate our income tax provision on a stand-alone basis. Our effective
tax rate in the periods presented is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rates.
The rate at which the provision for income taxes is calculated differs from the U.S. federal statutory income tax rate primarily due to different
tax rates in foreign jurisdictions where income is earned and considered to be indefinitely reinvested.
Our future effective tax rate may be affected by such factors as changes in tax laws, changes in our business, regulations, or rates, changing
interpretation of existing laws or regulations, the impact of accounting for stock-based compensation, the impact of accounting for business
combinations, changes in our international organization, shifts in the amount of income before tax earned in the U.S. as compared with other
regions in the world, and changes in overall levels of income before tax.
Our Relationship with EMC
As of December 31, 2012 , EMC owned 41,050,000 shares of Class A common stock and all 300,000,000 shares of Class B common stock,
representing 79.6% of our total outstanding shares of common stock and 97.2%
of the combined voting power of our outstanding common stock.
Pursuant to an ongoing reseller arrangement with EMC, EMC bundles our products and services with EMC’s products and sells them to
end-users. In the years ended December 31, 2012 , 2011 and 2010 , we recognized revenues of $160.2 , $72.0 and $48.5 , respectively, from
such contractual arrangement with EMC. As of December 31, 2012 and 2011 , $149.5 and $105.6 , respectively, of revenues from products and
services sold under the reseller arrangement were included in unearned revenues.
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