VMware 2013 Annual Report Download - page 51

Table of Contents
subsidiary of EMC in which we have an ownership interest. Both Paul Maritz and Pat Gelsinger retain and continue to vest in certain of their respective
equity awards that they held as of September 1, 2012. Stock-based compensation related to Pat Gelsinger’s EMC awards will be recognized on our
consolidated statements of income over the awards’ remaining requisite service periods. Effective September 1, 2012, stock-based compensation related to
Paul Maritz’s VMware awards will not be recognized by VMware.
Joint Contribution of Assets with EMC to Pivotal
During 2013, we transferred certain assets and liabilities to Pivotal. We contributed certain assets, including intellectual property, to Pivotal, and Pivotal
assumed substantially all liabilities, related to certain of our Cloud Application Platform products and services, including VMware’s Cloud Foundry,
VMware vFabric (including Spring and GemFire) and Cetas organizations, except for certain tangible assets related to Cloud Foundry. During the
year ended
December 31, 2013 , we transferred approximately 415 VMware employees to Pivotal.
We received preferred equity interests in Pivotal equal to approximately 31% of Pivotal’s outstanding shares in exchange for our contributions.
Additionally, we and Pivotal entered into an agreement pursuant to which we will act as the selling agent for the products and services we contributed to
Pivotal in exchange for a customary agency fee. In the year ended December 31, 2013 , we recognized revenues of $5 from our contractual arrangement with
Pivotal. We also agreed to provide various transition services to Pivotal. Pursuant to the support agreement, costs incurred by us to support Pivotal services
are reimbursed to us by Pivotal. During the year ended December 31, 2013 , we provided transition services of $12 that are reimbursable by Pivotal and
which were recorded as a reduction to the costs we incurred. Additionally, we purchased products and services for internal use from Pivotal for $7 in the year
ended December 31, 2013 . As of December 31, 2013 , our ownership interest in Pivotal is 28% as a result of investments made by a third-party strategic
investor.
The book value of all contributed assets and the liabilities assumed by Pivotal, with the exception of intangible assets and goodwill, was based on the
book values of those assets and liabilities specific to those particular products and services. For intangible assets and goodwill, the book value contributed
was based on the relative fair value of the contributed assets applicable to Pivotal.
Due To/From Related Parties, Net
As a result of the related-party transactions with EMC and Pivotal described above, amounts due to and from related parties, net as of December 31,
2013 and 2012 consisted of the following:
Balances due to or from related parties, which are unrelated to tax obligations, are generally settled in cash within 60 days of each quarter-end. The
timing of the tax payments due to and from EMC is governed by the tax sharing agreement with EMC. See Note L to the consolidated financial statements in
Part II, Item 8 of this Annual Report on Form 10-K for further information.
By nature of EMC’s majority ownership of us, the amounts we recorded for our intercompany transactions with EMC may not be considered arm’s
length with an unrelated third party. Therefore the financial statements included herein may not necessarily reflect our results of operations, financial position
and cash flows had we engaged in such transactions with an unrelated third party during all periods presented. Accordingly, our historical results should not
be relied upon as an indicator of our future performance as a stand-alone company.
On January 21, 2014 , in connection with our agreement to acquire AirWatch Holding, the sole member and equity holder of AirWatch, we and EMC
entered into a note exchange agreement providing for the issuance of three promissory notes in the aggregate principal amount of $1,500 . See Note R to the
consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further information.
49
As of December 31,
2013
2012
Due to EMC
$
(92
)
$
(44
)
Due from EMC
93
112
Due to Pivotal
(22
)
n/a
Due from Pivotal
3
n/a
Due from (to) related parties, net
$
(18
)
$
68
Income tax payable due to EMC
$
(22
)
$
(32
)