VMware 2012 Annual Report Download - page 101

Table of Contents VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The weighted-average grant date fair value of VMware stock options can fluctuate from period to period primarily due to higher valued
options assumed through business combinations with exercise prices lower than the fair market value of VMware's stock on the date of grant.
For all equity awards granted in 2012 , 2011 and 2010 , volatility was based on an analysis of historical stock prices and implied volatilities
of publicly-traded companies with similar characteristics, including industry, stage of life cycle, size, financial leverage, as well as the implied
volatilities of VMware’
s Class A common stock. The expected term was calculated based upon an analysis of the expected term of similar grants
of comparable publicly-traded companies, the term of the purchase period for grants made under the ESPP, or the weighted-average remaining
term for options assumed in acquisitions. VMware’s expected dividend yield input was zero as it has not historically paid, nor expects in the
future to pay, cash dividends on its common stock. The risk-free interest rate was based on a U.S. Treasury instrument whose term is consistent
with the expected term of the stock options.
N. Related Party Transactions
Pursuant to an ongoing reseller arrangement with EMC, EMC bundles VMware’s products and services with EMC’
s products and sells them
to end-users. In the years ended December 31, 2012 , 2011 and 2010 , VMware recognized revenues of $160.2 million , $72.0 million and $48.5
million , respectively, from such contractual arrangement with EMC. As of December 31, 2012 and 2011 , $149.5 million and $105.6 million ,
respectively, of revenues from products and services sold under the reseller arrangement were included in unearned revenues.
In the years ended December 31, 2012 , 2011 and 2010 , VMware recognized professional services revenues of $97.7 million ,
$66.2 million
and $60.6 million , respectively, from such contractual agreements with EMC. As of December 31, 2012 and 2011 , $2.9 million and $5.1
million , respectively, of revenues from professional services to EMC customers were included in unearned revenues.
In the years ended December 31, 2012 , 2011 and 2010 , VMware recognized revenues of $9.1 million , $3.2 million and $6.1 million ,
respectively, from products and services purchased by EMC for internal use pursuant to VMware's contractual agreements with EMC. As of
December 31, 2012 and 2011 , $28.4 million and $23.4 million , respectively, of revenues from products and services purchased by EMC for
internal use were included in unearned revenues.
VMware purchased products and services from EMC for $42.2 million , $24.3 million and $18.4 million in the years ended December 31,
2012 , 2011 and 2010 , respectively.
Pursuant to the tax sharing agreement, VMware has made payments to EMC and EMC has made payments to VMware. The following table
summarizes these payments made between VMware and EMC during the years ended December 31, 2012 , 2011 and 2010 (table in thousands):
Payments between VMware and EMC under the tax sharing agreement primarily relate to VMware's portion of federal income taxes on
EMC's consolidated tax return. Payments from VMware to EMC primarily relate to periods for which VMware had stand-alone federal taxable
income, while payments from EMC to VMware relate to periods for which VMware had a stand-alone federal taxable loss. The amounts that
VMware either pays to or receives from 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 2012 , the difference
between the amount of tax calculated on
95
For the Year Ended December 31,
VMware Employee Stock Purchase Plan 2012
2011 2010
Dividend yield
None
None
None
Expected volatility
37.8
%
34.9
%
33.1
%
Risk-free interest rate
0.1
%
0.2
%
0.2
%
Expected term (in years)
0.5
0.5
0.5
Weighted-average fair value at grant date
$
23.36
$
23.69
$
15.18
For the Year Ended December 31,
2012
2011 2010
Payments from VMware to EMC
$
—
$
12,148
$
5,100
Payments from EMC to VMware
19,280
314,450
2,471