VMware 2009 Annual Report Download - page 48

Table of Contents
related to our portion of EMC’s 2007 federal consolidated income taxes. No payments were made by EMC in 2008 and 2007. The amounts that
we pay to EMC for our portion of federal income taxes on EMC’s consolidated tax return differ from the amounts we 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 and $2.5, respectively. In 2008, the difference was recorded as an increase in stockholders’ equity of $5.2.
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 our intercompany balance with EMC. In 2009, 2008 and 2007, $6.5, $18.6 and $26.6, respectively, of interest expense was recorded
related to the note payable to EMC and included in interest expense with EMC, net, recorded on the consolidated statements of income. Our
interest income and expenses as a separate, stand-alone company may be higher or lower than the amounts reflected in the financial statements.
In 2008, we resolved with EMC certain acquisition-
related intercompany liabilities due to EMC. As a result, intercompany liabilities due to
EMC of $9.7 were recorded as a capital contribution from EMC in additional paid-in capital without the issuance of additional equity by us or
remittance of any cash.
Prior to March 2008, our employees participated in the EMC Corporation 401(k) Savings Plan (“EMC Plan”). EMC cross-charged us for
the costs associated with our employees who participated in the EMC Plan. In March 2008, our employees began participating in our 401(k)
Savings Plan and ceased participation in the EMC Plan.
As of December 31, 2009, we had $47.1 due from EMC, which was partially offset by $20.7 due to EMC. As of December 31, 2008, we
had $38.4 due to EMC, which was partially offset by $5.0 due from EMC. The net amount due from EMC as of December 31, 2009 was $26.4
and resulted from the related party transactions described above. The net amount due to EMC as of December 31, 2008 was $33.4 and resulted
from the related party transactions described above. As of December 31, 2009, we had $3.0 of income taxes receivable due from EMC and $10.5
of income taxes payable due to EMC. As of December 31, 2008, we had $111.1 of income taxes receivable due from EMC and $3.6 of income
taxes payable due to EMC. Balances due to or from EMC 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.
Given that the amounts we recorded for our intercompany transactions with EMC did not arise from transactions negotiated at arm’s-
length
with an unrelated third party, the financial statements included herein may not necessarily reflect our financial condition, results of operations
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.
Income Statement Presentation
As we operate our business in one operating segment, our revenues and operating expenses are presented and discussed at the consolidated
level.
Sources of Revenues
License revenues
Our license revenues consist of revenues earned from the licensing of our software products. These products are generally licensed on a
perpetual basis and are generally priced based upon the number of physical desktop computers or server processors on which our software runs.
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