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Table of Contents
VMWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
L. Related Party Transactions
Transactions with EMC
Pursuant to a reseller arrangement with EMC, which commenced in 2009, EMC bundles VMware’s products and services with EMC’s
hardware and sells them to end users. In 2009, VMware recognized revenues of $14.1 million from products sold pursuant to VMware’s reseller
arrangement with EMC. As of December 31, 2009, $22.4 million of revenues from products sold under the reseller arrangement were included in
deferred revenue.
In 2009, 2008 and 2007, VMware recognized professional services revenues of $25.2 million, $16.9 million and $11.8 million,
respectively, for services provided to EMC’s customers pursuant to VMware’s contractual agreements with EMC. As of December 31, 2009 and
2008, $0.7 million and $2.1 million, respectively, of revenues from professional services to EMC customers were included in deferred revenue.
In 2009 and 2008, VMware recognized revenues of $5.6 million and $4.1 million, respectively, from server and desktop products and
services purchased by EMC for internal use pursuant to VMware’s contractual agreements with EMC. In 2007, there were no revenues
recognized related to these agreements. As of December 31, 2009 and 2008, $3.7 million and $1.8 million, respectively, of revenues from server
and desktop products and services purchased by EMC for internal use were included in deferred revenue.
VMware purchased storage systems and software, as well as consulting services, from EMC for $9.7 million, $25.2 million and $7.2
million in the years ended 2009, 2008 and 2007, 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
such arrangements been with an unrelated third party. These costs are included as expenses in VMware’s consolidated statements of income.
These costs primarily include salaries and benefits, travel and rent. Additionally, EMC incurs certain costs on VMware’s behalf in the U.S.,
which historically primarily related to a shared system for travel. In the fourth quarter of 2009 VMware implemented its own travel system. The
total of these costs with EMC were $95.6 million, $139.8 million and $116.1 million in the years ended 2009, 2008 and 2007, respectively.
As calculated under VMware’s tax sharing agreement with EMC, VMware paid $14.2 million in 2009 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.
VMware paid $64.3 million and $86.4 million in 2008 and 2007, respectively, for its portion of their consolidated federal income taxes. Under
the same tax sharing agreement, EMC paid VMware $107.6 million in 2009 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 and 2007. 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 2009 and 2007, 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 and $2.5 million, respectively. In
2008, the difference was recorded as an increase in stockholders’ equity of $5.2 million.
Interest expense with EMC, net, primarily consists of interest expense on the note payable to EMC, offset by interest income that has been
earned on VMware’s intercompany balance with EMC. In 2009, 2008 and 2007, $6.5 million, $18.6 million and $26.6 million, respectively, of
interest expense was recorded related to the note
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