VMware 2009 Annual Report Download - page 47

Table of Contents
these local currencies in which we also have expenses, variability in operating margin due to foreign currency fluctuations has been reduced.
However, increased exposure to foreign currency fluctuations introduces additional risk for variability in revenue-related components of our
consolidated financial statements. In order to manage our exposure to certain foreign currency fluctuations, we have entered into forward
contracts to economically hedge a portion of our net outstanding monetary asset and liability positions. The gains and losses on our foreign
currency forward contracts generally offset the majority of the gains and losses associated with the underlying foreign-currency denominated
assets and liabilities that we hedge, and are reported in other income (expense), net in the consolidated statements of income.
Our Relationship with EMC
As of December 31, 2009, EMC owned 27,000,000 shares of Class A common stock and all 300,000,000 shares of Class B common stock,
representing approximately 81% of our total outstanding shares of common stock and 98% of the combined voting power of our outstanding
common stock.
Pursuant to a reseller arrangement with EMC, which commenced in 2009, EMC bundles our products and services with EMC’s hardware
and sells them to end users. In 2009, we recognized revenues of $14.1 from products sold pursuant to our reseller arrangement with EMC. As of
December 31, 2009, $22.4 of revenues from products sold under the reseller arrangement were included in deferred revenue.
In 2009, 2008 and 2007, we recognized professional services revenues of $25.2, $16.9 and $11.8, respectively, for services provided to
EMC’s customers pursuant to our contractual agreements with EMC. As of December 31, 2009 and 2008, $0.7 and $2.1, respectively, of
revenues from professional services to EMC customers were included in deferred revenue.
In 2009 and 2008, we recognized revenues of $5.6 and $4.1, respectively, from server and desktop products and services purchased by
EMC for internal use pursuant to our contractual agreements with EMC. In 2007, there were no revenues recognized related to these agreements.
As of December 31, 2009 and 2008, $3.7 and $1.8, respectively, of revenues from server and desktop products and services purchased by EMC
for internal use were included in deferred revenue.
We purchased storage systems and software, as well as consulting services, from EMC for $9.7, $25.2 and $7.2 in the years ended 2009,
2008 and 2007, respectively.
In certain geographic regions where we do not have an established legal entity, we contract with EMC subsidiaries for support services and
EMC employees who are managed by our personnel. The costs incurred by EMC on our behalf related to these employees are passed on to us
and we are 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 our consolidated statements of income. These costs primarily include salaries and benefits, travel,
and rent. Additionally, EMC incurs certain costs on our behalf in the U.S., which historically primarily related to a shared system for travel. In
the fourth quarter of 2009 we implemented our own travel system. As a result of implementing our own travel system, reducing travel costs as a
result of austerity measures introduced in late 2008, and establishing our own operating subsidiaries in locations where we previously needed to
contract with EMC to utilize their personnel, the costs incurred by EMC on our behalf decreased in 2009 as compared to previous periods. The
total of these costs with EMC were $95.6, $139.8 and $116.1 in the years ended 2009, 2008 and 2007, respectively.
As calculated under our tax sharing agreement with EMC, we paid $14.2 in 2009 for our 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. We paid $64.3 and $86.4 in 2008 and
2007, respectively, for our portion of their consolidated federal income taxes. Under the same tax sharing agreement EMC paid us $107.6 in
2009 for our stand-alone federal taxable loss for the fiscal year ending December 31, 2008 and for a refund of an overpayment
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