VMware 2013 Annual Report Download - page 92

Table of Contents VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information about VMware's revenues and receipts and unearned revenues from such arrangements with EMC for the years ended December 31, 2013 ,
2012 and 2011 consisted of the following (table in millions):
VMware and EMC engaged in the following ongoing intercompany transactions, which resulted in costs to VMware:
Information about VMware's costs from such arrangements with EMC for the years ended December 31, 2013 , 2012 and 2011 consisted of the
following (table in millions):
In the fourth quarter of 2013, VMware and EMC modified an existing technology licensing arrangement. Pursuant to the modified arrangement,
VMware received certain rights to developed technology for a lump-sum payment of $26 million , which was included in amounts due to related parties, net
on the consolidated balance sheets as of December 31, 2013. The license of technology was accounted for as a transaction by entities under common control.
Accordingly, an intangible asset of $2 million was recognized and was derived by allocating the value ascribed to the licensed technology based upon the
relative fair market values of the technology to each party. The difference between the asset recorded and the consideration due was primarily recognized as a
reduction in capital from EMC on the statement of stockholders' equity. In addition to the license of the technology, VMware will pay EMC for support and
for development collaboration. These amounts are included in collaborative technology project costs in the table above.
Certain Stock-Based Compensation
Effective September 1, 2012, Pat Gelsinger succeeded Paul Maritz as Chief Executive Officer of VMware. Prior to joining VMware, Pat Gelsinger was
the President and Chief Operating Officer of EMC Information Infrastructure Products. Paul Maritz remains a board member of VMware and currently serves
as Chief Executive Officer of Pivotal, a majority-owned subsidiary of EMC in which VMware has 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
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Revenues and Receipts from EMC
Unearned Revenues from EMC
For the Year Ended December 31,
As of December 31,
2013
2012 2011 2013 2012
Reseller revenues
$
141
$
141
$
72
$
188
$
149
Professional services revenues
72
82
66
12
3
Internal-use revenues
32
9
3
20
28
Collaborative technology project
receipts
7
7
2
n/a
n/a
•
VMware and EMC have ongoing arrangements pursuant to which VMware purchases products and services for internal use from EMC.
• From time to time, VMware and EMC enter into agreements to collaborate on technology projects, and VMware pays EMC for services provided to
VMware by EMC related to such projects.
• In certain geographic regions where VMware does not have an established legal entity, VMware contracts with EMC subsidiaries for support
services and EMC personnel who are managed by VMware. 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, benefits, travel and rent. EMC also incurs certain administrative costs on VMware's behalf in the U.S. that are recorded as expenses in
VMware's consolidated statements of income.
•
VMware incurs interest expense on its note payable with EMC. See Note K and R to the consolidated financial statements for further information.
For the Year Ended December 31,
2013
2012 2011
Purchases of products and services
$
56
$
42
$
24
Collaborative technology project costs
13
n/a
n/a
EMC subsidiary support and administrative costs
128
106
83
Interest expense on note payable
4
5
4