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Table of Contents VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
purchase period for grants made under the ESPP, or the weighted-average remaining term for options assumed in acquisitions. VMware’s
expected dividend yield input was zero as it has not historically paid, nor expects in the future to pay, cash dividends on its common stock. The
risk-free interest rate was based on a U.S. Treasury instrument whose term is consistent with the expected term of the stock options.
N. Comprehensive Income
The following table sets forth the components of comprehensive income for the years ended December 31, 2011 , 2010 and 2009 ,
respectively (table in thousands):
In the year ended December 31, 2011 , VMware realized a pre-tax gain of $56.0 million from the sale of its investment in Terremark
statements of income.
In each period presented on VMware’s consolidated balance sheets, accumulated other comprehensive income consisted of unrealized gains
and losses on available-for-sale securities, net of taxes. Additionally, beginning with the implementation of VMware's cash flow hedging
program in the fourth quarter of 2011, accumulated other comprehensive income also consisted of unrealized gains and losses on effective
foreign currency forward exchange contracts, net of taxes.
O. Related Party Transactions
In April 2011, VMware acquired certain assets relating to EMC’s Mozy cloud-based data storage and data services, including certain data
center assets and a license to certain intellectual property, for approximately $8.0 million . VMware also entered into an operational support
agreement with EMC pursuant to which VMware took over responsibility to operate the Mozy service on behalf of EMC. VMware hired more
than 300 Mozy employees and, pursuant to the support agreement, costs incurred by VMware to support EMC’s Mozy services, plus a mark-up
intended to approximate third-party costs, are reimbursed to VMware by EMC. On the consolidated statements of income, such amounts were
approximately $39.0 million in 2011, including a markup of $2.8 million , and were recorded as a reduction to the costs VMware incurred. EMC
retained ownership of the Mozy business and its remaining assets. EMC continues to be responsible to Mozy customers for Mozy products and
services, and continues to recognize revenue from such products and services. As such, the assets acquired from EMC did not constitute a
business and were accounted for as an asset purchase between entities under common control pursuant to generally accepted accounting
principles. Accordingly, VMware included the carrying value of the transferred assets as of the date of transfer in its consolidated financial
statements.
In April 2010, VMware acquired certain software product technology and expertise from EMC’s Ionix IT management business for cash
consideration of $175.0 million . EMC retained the Ionix brand and will continue to offer customers the products acquired by VMware, pursuant
to the ongoing reseller agreement between EMC and VMware. During the years ended December 31, 2011 and 2010 , $14.4 million and $10.6
million , respectively, of contingent amounts were paid to EMC. These amounts were recorded as equity transactions and were offsets to the
initial capital contribution from EMC. As of December 31, 2011, all contingent payments under the agreement had been made.
Pursuant to the ongoing reseller arrangement with EMC that commenced in 2009, EMC bundles VMware’s products and services with
EMC’s hardware and sells them to end users. In the years ended December 31, 2011 , 2010 and 2009 , VMware recognized revenues of $72.0
million , $48.5 million and $14.1 million , respectively, from products and services sold pursuant to VMware’s reseller arrangement with EMC.
As of December 31, 2011 and 2010 , $105.6 million and $29.0 million , respectively, of revenues from products and services sold under the
reseller arrangement were included in unearned revenues.
89
For the Year Ended December 31,
2011
2010
2009
Net income
$
723,936
$
357,439
$
197,098
Other comprehensive income:
Unrealized gains on available-for-sale securities, net of taxes of $944, $9,239 and
$2,797
1,540
15,341
4,563
Unrealized losses on effective foreign currency forward exchange contracts, net of
tax benefits of $(17), $0, and $0
(61
)
—
—
Reclassification of gains on available-for-sale securities recognized during the
period, net of taxes of $(12,220), $(102) and $0
(19,938
)
(269
)
—
Total other comprehensive income (loss)
(18,459
)
15,072
4,563
Total comprehensive income, net of taxes
$
705,477
$
372,511
$
201,661