VMware 2013 Annual Report Download - page 66

Table of Contents
VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Overview and Basis of Presentation
Company and Background
VMware, Inc. (“VMware” or the “Company”) is the leader in virtualization infrastructure solutions utilized by organizations to help them transform the
way they build, deliver and consume information technology (“IT”) resources. VMware’s virtualization infrastructure solutions, which include a suite of
products designed to deliver a software-defined data center, run on industry-standard desktop computers and servers and support a wide range of operating
system and application environments, as well as networking and storage infrastructures.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for annual financial
reporting.
VMware was incorporated as a Delaware corporation in 1998, was acquired by EMC Corporation (“EMC”) in 2004 and conducted its initial public
offering of VMware’s Class A common stock in August 2007. As of December 31, 2013 , EMC held approximately 79.7% of VMware’s outstanding
common stock and 97.2% of the combined voting power of VMware’s outstanding common stock, including 43 million shares of VMware’s Class A
common stock and all of VMware’s Class B common stock. VMware is a majority-
owned and controlled subsidiary of EMC, and its results of operations and
financial position are consolidated with EMC’s financial statements.
Management believes the assumptions underlying the consolidated financial statements are reasonable. However, the amounts recorded for VMware’s
intercompany transactions with EMC and Pivotal Software, Inc. (“Pivotal”, previously known as “GoPivotal, Inc.”) may not be considered arm’s length with
an unrelated third party. Therefore, the financial statements included herein may not necessarily reflect the financial position, results of operations and cash
flows had VMware engaged in such transactions with an unrelated third party during all periods presented. Accordingly, VMware’s historical financial
information is not necessarily indicative of what the Company’s financial position, results of operations and cash flows will be in the future if and when
VMware contracts at arm’s length with unrelated third parties for the services the Company receives from and provides to EMC and Pivotal.
Principles of Consolidation
The consolidated financial statements include the accounts of VMware and its subsidiaries after elimination of intercompany transactions and account
balances between VMware and its subsidiaries. All intercompany transactions with EMC and Pivotal in the consolidated statements of cash flows will be
settled in cash, and changes in the current intercompany balances are presented as a component of cash flows from operating activities.
Reclassification
Certain prior period financial statements have been reclassified to conform to current period presentation. Deferred rent of $30 million was reclassified
from accrued expenses and other to other liabilities in the consolidated balance sheet as of December 31, 2012 to conform to current-year presentation.
Use of Accounting Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the reported amounts of revenues and expenses during the reporting periods, and the disclosure of contingent liabilities at the
date of the financial statements. Estimates are used for, but not limited to trade receivable valuation, marketing rebates, useful lives assigned to fixed assets
and intangible assets, valuation of goodwill and definite-lived intangibles, income taxes, stock-based compensation and contingencies. Actual results could
differ from those estimates.
Revenue Recognition
VMware derives revenues primarily from licensing software under perpetual license, related software maintenance and from training, technical support
and consulting services. VMware recognizes revenues when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or
determinable, and collectibility is probable.
License Revenues
VMware licenses most of its software through its channel of distributors, resellers, system vendors, systems integrators and through its direct sales force.
VMware recognizes revenues from the sale of its software licenses upon shipment provided all
63