VMware 2011 Annual Report Download - page 73

Table of Contents VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
VMware's multiple element arrangements typically fall into one or more of the following categories:
Customers under software maintenance agreements are entitled to receive updates and upgrades on a when-and-if-available basis, and
various types of technical support based on the level of support purchased. In the event specific features or functionality, entitlements, or the
release number of an upgrade have been announced but not delivered, and customers will receive that upgrade as part of a current software
maintenance contract, a specified upgrade is deemed created. As a result of the specified upgrade, product revenues are deferred on purchases
made after the announcement date until delivery of the upgrade for those purchases that include the current version of the product subject to the
announcement. The amount and elements to be deferred are dependent on whether the company has established VSOE of fair value for the
upgrade. On occasion, VSOE of fair value of these upgrades is established based upon the price set by management. VMware has a history of
selling such upgrades on a stand-alone basis.
Unearned revenues include unearned software maintenance fees, professional services fees and license fees. See Note I for further
information.
Foreign Currency Translation
The U.S. Dollar is the functional currency of VMware’s foreign subsidiaries. Gains and losses from foreign currency transactions are
included in other income (expense), net and were not material on a net basis in any period presented.
Cash and Cash Equivalents and Short-Term Investments
VMware invests a portion of its excess cash primarily in money market funds, highly liquid debt instruments of the U.S. government and its
agencies, U.S. municipal obligations, and U.S. and foreign corporate debt securities. VMware classifies all highly liquid investments with
maturities of 90 days or less from date of purchase as cash equivalents and all highly liquid investments with maturities of greater than 90 days
from date of purchase as short-term investments. VMware classifies its investments as available-for-sale. VMware may sell these securities at
any time for use in current operations or for other purposes, such as consideration for acquisitions and strategic investments. Consequently,
VMware may or may not hold securities with stated maturities greater than twelve months until maturity. As a result, VMware classifies its
investments, which include securities with maturities beyond twelve months, as current assets in the accompanying consolidated balance sheets.
VMware carries its fixed income investments, as well as its equity investments in public companies that have readily determinable fair
values, at fair value and reports unrealized gains and losses on these investments, net of estimated tax provisions or benefits, in accumulated
other comprehensive income, a component of stockholders’ equity. VMware periodically evaluates whether declines in fair values of its
investments below their cost basis are other-than-temporary. This evaluation consists of several qualitative and quantitative factors, including
VMware’s ability and intent to hold the investment until a forecasted recovery occurs, as well as any decline in the investment quality of the
security and the severity and duration of the unrealized loss. Unrealized losses which are determined to be other than temporary, as well as
realized gains and losses, are recorded to VMware’s consolidated statements of income. Realized gains and losses on the sale of fixed income
securities issued by the same issuer and of the same type are determined using the first-in first-out (“FIFO”) method.
In addition, VMware has restrictions on certain cash amounts pursuant to the terms of various agreements. VMware includes this restricted
cash in other current and other long-
term assets in the accompanying consolidated balance sheets. The amount of restricted cash was not material
in any period presented.
66
• Arrangements including undelivered services for which VSOE of fair value has been established. Revenue for those services is
recognized ratably over the service period, or as the services are delivered. Revenue allocated to the delivered software license elements
is recognized upfront;
•
Arrangements including specified software license elements for which VSOE of fair value cannot be established. The entire arrangement
fee is deferred until either VSOE of fair value is established or the specified software license elements are delivered;
• Arrangements including undelivered elements without VSOE of fair value that are not essential to the functionality of the delivered
products where all of the undelivered elements are delivered ratably over time. Revenue for the entire arrangement fee is recognized
ratably, once delivery has commenced, over the longest delivery period;
• Arrangements including undelivered elements without VSOE of fair value that are not essential to the functionality of the delivered
products where one or more of the undelivered elements are not delivered ratably over time. The entire arrangement fee is deferred until
VSOE of fair value is established or only elements that are delivered ratably over time remain. At such time, a pro-
rated share of revenue
is recognized immediately with any remaining fee recognized ratably over the longest remaining ratable delivery period.