VMware 2013 Annual Report Download - page 68

Table of Contents VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
revenue specific to arrangements that include subscription software products and professional services are deferred until the professional service obligations
have been fulfilled.
For multiple-element arrangements that contain software and non-software elements such as VMware's software as a service subscription offerings,
VMware allocates revenue to software or software-related elements as a group and any non-
software elements separately based on the selling price hierarchy.
The relative selling price for each deliverable is determined using VSOE of selling price, if it exists, or third-party evidence (“TPE”) of selling price. If
neither VSOE nor TPE of selling price exist for a deliverable, VMware's best estimate of selling price (“BESP”) is used for that deliverable. Once value is
allocated to software or software-related elements as a group, revenue is then recognized when the relevant revenue recognition criteria are met.
The objective of BESP is to determine the price at which VMware would transact a sale if the product or service were sold on a stand-alone basis.
VMware determines BESP by considering its overall pricing objectives and market conditions. At this time, VMware uses BESP to determine the relative
selling price of its license elements and software as a service elements based upon rates charged in both multi-element and stand-alone arrangements.
Unearned revenues substantially consist of payments received in advance of revenue recognition for products and services described above. See Note J
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, Short-Term Investments, and Restricted Cash
VMware invests 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. All highly liquid investments with maturities of 90 days or less from date of purchase are classified as cash
equivalents and all highly liquid investments with maturities of greater than 90 days from date of purchase as short-term investments. Short-term investments
are classified 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.
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 unrealized gains and losses on these investments, net of taxes, are included in accumulated other comprehensive income, a component of
stockholders’ equity. Realized gains or losses are included in the consolidated statements of income. 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. When a determination has been made that an
other-than-temporary decline in fair value has occurred, the amount of the decline that is related to a credit loss is realized and is included in the consolidated
statements of income.
Cash balances that are restricted pursuant to the terms of various agreements are classified as restricted cash and included 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.
As of December 31, 2013 , VMware's total cash, cash equivalents and short-term investments were $6,175 million , of which $4,146 million was held
outside the U.S.
Allowance for Doubtful Accounts
VMware maintains an allowance for doubtful accounts for estimated losses on uncollectible accounts receivable. The allowance for doubtful accounts
considers such factors as creditworthiness of VMware’s customers, historical experience, the age of the receivable and current market and economic
conditions.
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