VMware 2014 Annual Report Download - page 59

Table of Contents
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. However, our income tax expense and the related income tax balance sheet accounts
are derived primarily assuming we filed a separate tax return. However, certain transactions that we and EMC are parties to are assessed using
consolidated tax return rules. The difference between the income taxes payable that is calculated on a separate tax 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. Our
assumptions, judgments and estimates used to calculate our income tax expense considers current tax laws, our interpretation of current tax laws
and possible outcomes of current and future audits conducted by foreign and domestic tax authorities.
We have established reserves for income taxes to address potential exposures involving tax positions that could be challenged by federal,
state and foreign tax authorities, which may result in proposed assessments. As part of the EMC consolidated group, and separately, we are
subject to the periodic examination of our income tax returns by the Internal Revenue Service and other domestic and foreign tax authorities. The
assumptions and judgments we have used in estimating our tax liabilities are reasonable, however, changes in tax laws or our interpretation of
tax laws and the resolution of the current and any future tax audits could significantly impact the amounts provided for income taxes in our
consolidated financial statements.
We are subject to tax in the U.S., and in multiple non-U.S. tax jurisdictions. Our U.S. liquidity needs are currently satisfied using cash flows
generated from our U.S. operations, borrowings, or both. We also utilize a variety of tax planning strategies in an effort to ensure that our
worldwide cash is available in locations in which it is needed. Currently, we do not provide U.S. income taxes on undistributed earnings of our
non-U.S. subsidiaries. These undistributed earnings are considered permanently reinvested outside the U.S. While we do not anticipate changing
our intention regarding permanently reinvested earnings, if certain foreign earnings previously treated as permanently reinvested are repatriated,
the related U.S. tax liability may be reduced by any non-U.S. income taxes paid on these earnings.
Our deferred tax assets reflect our estimates of the amount and category of future taxable income, such as income from operations, capital
gains and also consider other key factors that might restrict our ability to realize the deferred tax assets. Actual operating results and the
underlying amount and category of income in future years could render our current assumptions, judgments and estimates of recoverable net
deferred taxes inaccurate.
Business Combinations
We allocate the purchase price of acquirees to the identifiable assets acquired, the liabilities assumed, and any non-
controlling interests in an
acquiree, which are measured based on the acquisition date fair value. Goodwill is measured as the excess of consideration transferred over the
net amounts of the identifiable tangible and intangible assets acquired and the liabilities assumed at the acquisition date.
The allocation of the purchase price requires us to make significant estimates and assumptions, including fair value estimates, to determine
the fair value of assets acquired and liabilities assumed and the related useful lives of the acquired assets, when applicable, as of the acquisition
date. Although we believe the assumptions and estimates we have made are reasonable, they are based in part on historical experience and
information obtained from the management of the acquired companies and are inherently uncertain. Examples of critical estimates used in
valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to:
These estimates are inherently uncertain and unpredictable, and if different estimates were used the purchase price for the acquisition could
be allocated to the acquired assets and liabilities differently from the allocation that we have made. Additionally, unanticipated events and
circumstances may occur which may affect the accuracy or validity of such assumptions, estimates or actual results.
New Accounting Pronouncements
During May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09,
Revenue from Contracts with Customers (Topic 606). The updated revenue standard establishes principles for recognizing revenue and develops
a common revenue standard for all industries. Upon adoption, entities will be required to recognize the amount of revenue that they expect to be
entitled to for the transfer of promised goods or services to their customers. The updated standard is effective for us in the first quarter of 2017
and permits the use of either the retrospective or cumulative effect transition method. Early adoption is not permitted.
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future expected cash flows from sales, maintenance agreements and acquired developed technologies;
• the acquired company’s trade name and customer relationships as well as assumptions about the period of time the acquired trade name
and customer relationships will continue to be used in the combined company’s product portfolio;
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discount rates used to determine the present value of estimated future cash flows.