VMware 2014 Annual Report Download - page 101

Table of Contents VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information about VMware’s costs from such arrangements with EMC for the years ended December 31, 2014 , 2013 and 2012 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 statements 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, and as an executive officer of EMC. Both Paul Maritz and Pat Gelsinger retain certain of their respective equity awards that they held as
of September 1, 2012 and Mr. Gelsinger continues to vest in certain of his EMC awards. Stock-based compensation related to Pat Gelsinger’s
EMC awards are being recognized in VMware’s consolidated statements of income over the awards’ remaining requisite service periods.
Effective since September 1, 2012, stock-based compensation costs related to Paul Maritz’s VMware awards have been charged to EMC and
have not been recognized by VMware.
Due To/From Related Parties, Net
As a result of the related-party transactions with EMC described above, amounts due to and from related parties, net as of December 31,
2014 and December 31, 2013 consisted of the following (table in millions):
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. Refer to Note K to the
consolidated financial statements for further information.
Notes Payable to EMC
In connection with VMware’s acquisition of AirWatch, VMware and EMC entered into a note exchange agreement on January 21, 2014
providing for the issuance of three promissory notes in the aggregate principal amount of $1,500 million . The total debt of $1,500 million
includes $450 million that was exchanged for the $450 million promissory note issued to EMC in April 2007, as amended and restated in June
2011.
The three notes issued may be prepaid without penalty or premium, and outstanding principal is due on the following dates: $680 million
due May 1, 2018 , $550 million due May 1, 2020 and $270 million due December 1, 2022 . The notes bear
96
For the Year Ended December 31,
2014
2013 2012
Purchases and leases of products and purchases of services
$
71
$
63
$
42
Collaborative technology project costs
12
13
n/a
EMC subsidiary support and administrative costs
137
128
106
Interest expense on notes payable
24
4
5
As of December 31,
2014
2013
Due to EMC
$
(76
)
$
(114
)
Due from EMC
125
96
Due (to) from related parties, net
$
49
$
(18
)
Income tax payable due to EMC
$
(40
)
$
(22
)