VMware 2013 Annual Report Download - page 93

Table of Contents VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Gelsinger’s EMC awards will be recognized on VMware’s consolidated statements of income over the awards’ remaining requisite service periods. Effective
September 1, 2012, stock-based compensation related to Paul Maritz’s VMware awards will not be recognized by VMware.
Mozy
In 2011, VMware acquired certain assets relating to EMC’s Mozy cloud-based data storage and data center services, including certain data center assets
and a license to certain intellectual property. EMC retained ownership of the Mozy business and its remaining assets and continued to be responsible to Mozy
customers for Mozy products and services and to recognize revenue from such products and services. VMware entered into an operational support agreement
with EMC through the end of 2012, pursuant to which VMware took over responsibility to operate the Mozy service on behalf of EMC. Pursuant to the
support agreement, costs incurred by VMware to support EMC’s Mozy services, plus a mark-up intended to approximate third-party costs and a management
fee, were reimbursed to VMware by EMC. In the fourth quarter of 2012, the operational support agreement between VMware and EMC was amended such
that VMware would no longer operate the Mozy service on behalf of EMC. Under the amendment, VMware transferred substantially all employees that
support Mozy services to EMC and EMC purchased certain assets from VMware in relation to transferred employees. The termination of service and related
transfer of employees and sale of assets was substantially completed during the first quarter of 2013. Amounts reimbursed by EMC to VMware to operate
Mozy were immaterial in the year ended December 31, 2013 , and $65 million and $39 million in the years ended December 31, 2012 and 2011 ,
respectively. These amounts were recorded as a reduction to the costs VMware incurred.
Joint Contribution of Assets with EMC to Pivotal
During 2013, VMware transferred certain assets and liabilities to Pivotal. VMware contributed certain assets, including intellectual property, to Pivotal,
and Pivotal assumed substantially all liabilities, related to certain of its Cloud Application Platform products and services, including VMware’s Cloud
Foundry, VMware vFabric (including Spring and GemFire) and Cetas organizations, except for certain tangible assets related to Cloud Foundry. During the
year ended December 31, 2013 , VMware transferred approximately 415 VMware employees to Pivotal.
VMware received preferred equity interests in Pivotal equal to approximately 31% of Pivotal’s outstanding shares in exchange for its contributions.
Additionally, VMware and Pivotal entered into an agreement pursuant to which VMware will act as the selling agent for the products and services it
contributed to Pivotal in exchange for a customary agency fee. In the year ended December 31, 2013 , VMware recognized revenues of $5 million from its
contractual arrangement with Pivotal. VMware also agreed to provide various transition services to Pivotal. Pursuant to the support agreement, costs incurred
by VMware to support Pivotal services are reimbursed to VMware by Pivotal. During the year ended December 31, 2013 , VMware provided transition
services of $12 million that are reimbursable by Pivotal and which were recorded as a reduction to the costs VMware incurred. Additionally, VMware
purchased products and services for internal use from Pivotal for $7 million in the year ended December 31, 2013 .
The book value of all contributed assets and the liabilities assumed by Pivotal, with the exception of intangible assets and goodwill, was based on the
book values of those assets and liabilities specific to those particular products and services. For intangible assets and goodwill, the book value contributed
was based on the relative fair value of the contributed assets applicable to Pivotal.
The following table summarizes the assets VMware contributed to Pivotal and the liabilities Pivotal assumed from VMware (table in millions):
Of the $71 million in unearned revenues assumed by Pivotal on April 1, 2013, $32 million related to unearned license revenues and $39 million related
to unearned services revenues.
90
Accounts receivable
$
4
Property and equipment, net
1
Intangible assets
28
Goodwill
28
Total assets
61
Accounts payable, accrued liabilities and other, net
(7
)
Unearned revenues
(71
)
Total liabilities
(78
)
Total liabilities, net assumed by Pivotal
$
(17
)