VMware 2013 Annual Report Download - page 54

Table of Contents
Contractual Obligations
We have various contractual obligations impacting our liquidity. The following represents our contractual obligations as of December 31, 2013:
Critical Accounting Policies
Our consolidated financial statements are based upon the selection and application of accounting principles generally accepted in the United States of
America that require us to make estimates and assumptions about future events that affect the amounts reported in our financial statements and the
accompanying notes. Future events and their effects cannot be determined with certainty. Therefore, the determination of estimates requires the exercise of
judgment. Actual results could differ from those estimates, and any such differences may be material to our financial statements. We believe that the critical
accounting policies set forth below may involve a higher degree of judgment and complexity in their application than our other significant accounting
policies and represent the critical accounting policies used in the preparation of our financial statements. If different assumptions or conditions were to
prevail, the results could be materially different from our reported results. Our significant accounting policies are presented within Note A, “Overview and
Basis of Presentation,” to our consolidated financial statements appearing in this Annual Report on Form 10-K.
Revenue Recognition
We derive most of our revenues from licensing our software under perpetual licenses, related software maintenance, and from training, technical support
and consulting services. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or
determinable, and collectibility is probable. Determining whether and when some of these criteria have been satisfied often involves assumptions and
judgments that can have a significant impact on the timing and amount of revenue recognized.
We enter into software-related multiple-element revenue arrangements in which a customer may purchase a combination of software, maintenance and
support, training, and consulting services. If a product or service included in a software-related multiple-element arrangement has not been delivered, and is
not considered essential to the functionality of the delivered products or services, we must determine the fair value of each undelivered product and/or service
using vendor-specific objective evidence (“VSOE”). VSOE is used to allocate a portion of the price to the undelivered products and/or services and the
residual method is used to allocate the remaining portion to the delivered products and services. Absent VSOE, revenue is deferred until the earlier of the
point at which VSOE of fair value exists for any undelivered products or services, or until all elements of the arrangement have been delivered. However, if
the only undelivered element is maintenance and support, the entire arrangement fee is recognized ratably over the performance period. Changes in
assumptions or judgments or changes to the elements in a software arrangement could cause a material increase or decrease in the amount of revenue that we
report in a particular period.
52
Payments Due by Period
Total
Less than
1 year
1-3 years 3-5 years
More than
5 years
Note payable to EMC
(1)
$
450
$
—
$
450
$
—
$
—
Operating leases
(2)
786
58
96
68
564
Other agreements
(3)
87
36
26
11
14
Sub-Total
1,323
94
572
79
578
Uncertain tax positions
(4)
176
Total
$
1,499
(1) See “Liquidity and Capital Resources” for a discussion of the $1,500 note agreement we entered into with EMC on January 21, 2014, in connection with
our agreement to acquire AirWatch Holding, the sole member and equity holder of AirWatch.
(2)
Our operating leases are primarily for facility space and land around the world.
(3)
Consisting of various contractual agreements, which include commitments on the lease for our Washington data center facility.
(4) As of December 31, 2013, we had $176 of non-current net unrecognized tax benefits. The timing of future payments relating to these obligations are
highly uncertain. Given this uncertainty, unrecognized tax benefits as of December 31, 2013 could be reduced by approximately $4 in the next 12
months.