VMware 2010 Annual Report Download - page 108

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Table of Contents
VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
VMware purchased storage systems and software, as well as consulting services, from EMC for $18.4 million, $9.7 million and $25.2
million in the years ended December 31, 2010, 2009 and 2008, respectively.
In certain geographic regions where VMware does not have an established legal entity, VMware contracts with EMC subsidiaries for
support services and EMC employees who are managed by VMware’s personnel. The costs incurred by EMC on VMware’s behalf related to
these employees are passed on to VMware and VMware is charged a mark-up intended to approximate costs that would have been charged had
VMware contracted for such services with an unrelated third party. These costs are included as expenses in VMware’s consolidated statements
of income and primarily include salaries and benefits, travel and rent. Additionally, EMC historically incurred certain costs on VMware’s behalf
in the U.S., which primarily related to a shared system for travel. In the fourth quarter of 2009, VMware implemented its own travel system in
the U.S. and is now incurring these costs directly. The total cost of the services provided to VMware by EMC as described above was $66.4
million, $95.6 million and $139.8 million in the years ended December 31, 2010, 2009 and 2008, respectively.
As calculated under VMware’s tax sharing agreement with EMC, VMware paid $5.1 million in the year ended December 31, 2010 for its
portion of EMC’s consolidated federal income taxes. Under the same tax sharing agreement, EMC paid VMware $2.5 million in the year ended
December 31, 2010 for a refund of an overpayment related to the consolidated federal and state income taxes for the fiscal year ended
December 31, 2008. In the years ended December 31, 2009 and 2008, VMware paid $14.2 million and $64.3 million, respectively, for its portion
of EMC’s consolidated federal and state income taxes for various periods, as well as the conclusion of the 2005 and 2006 federal income tax
audit. In the year ended December 31, 2009, EMC paid VMware $107.6 million for VMware’s stand-
alone federal taxable loss for the fiscal year
ending December 31, 2008 and for a refund of an overpayment related to VMware’s portion of EMC’s 2007 federal consolidated income taxes.
No payments were made by EMC in 2008. The amounts that VMware pays to EMC for its portion of federal income taxes on EMC
’s
consolidated tax return differ from the amounts VMware would owe on a stand-alone basis and the difference is presented as a component of
stockholders’ equity. In 2010 and 2008, the difference between the amount of tax calculated on a stand-alone basis and the amount of tax
calculated per the tax sharing agreement was recorded as an increase in stockholders’ equity of $6.5 million and $5.2 million, respectively. In
2009, the difference between the amount of tax calculated on a stand-alone basis and the amount of tax calculated per the tax sharing agreement
was recorded as a decrease in stockholders’ equity of $8.0 million.
Interest expense with EMC, net, primarily consists of interest expense on the note payable to EMC. In the years ended December 31, 2010,
2009 and 2008, $4.1 million, $6.5 million and $18.6 million, respectively, of interest expense was recorded related to the note payable to EMC
and included in interest expense with EMC, net, recorded on the consolidated statements of income. VMware’s interest income and expenses as
a separate, stand-alone company may be higher or lower than the amounts reflected in the consolidated financial statements.
In the year ended December 31, 2008, VMware resolved with EMC certain acquisition-related intercompany liabilities due to EMC. As a
result, intercompany liabilities due to EMC of $9.7 million were recorded as a capital contribution from EMC in additional paid-in capital
without the issuance of additional equity by VMware or remittance of any cash.
As of December 31, 2010, VMware had $76.5 million due from EMC, which was partially offset by $21.0 million due to EMC. As of
December 31, 2009, VMware had $47.1 million due from EMC, which was partially offset by $20.7 million due to EMC. The net amounts due
from EMC as of December 31, 2010 and December 31, 2009 were $55.5 million and $26.4 million, respectively, and resulted from the related
party transactions described above. In addition to the $55.5 million due from EMC, as of December 31, 2010, VMware had $144.3 million of
income taxes receivable due from EMC, which is included in other current assets on
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