VMware 2015 Annual Report Download - page 46

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TableofContents
Weareunabletodeterminethemaximumpotentialamountundertheseindemnificationagreementsduetoourlimitedhistorywithpriorindemnification
claimsandtheuniquefactsandcircumstancesinvolvedineachparticularagreement.Historically,costsrelatedtotheseindemnificationprovisionshavenotbeen
significant.
Contractual Obligations
Wehavevariouscontractualobligationsimpactingourliquidity.ThefollowingrepresentsourcontractualobligationsasofDecember31,2015(tablein
millions):
Payments Due by Period
Total
Less than
1 year
1-3 years
3-5 years
More than
5 years
NotespayabletoEMC(1) $ 1,602
$ 26
$ 725
$ 572
$ 279
Operatingleases(2) 869
90
128
79
572
Purchaseobligations 70
32
35
3
—
Othercontractualcommitments(3) 32
7
6
6
13
Sub-Total 2,573
155
894
660
864
Uncertaintaxpositions(4) 245
Total $ 2,818
(1) ConsistsofprincipalandinterestpaymentsonthenotespayabletoEMC.See“LiquidityandCapitalResources”foradiscussionofthe$1,500millionnotes
payableweenteredintowithEMConJanuary21,2014,inconnectionwithouragreementtoacquireAirWatch.
(2) Ouroperatingleasesareprimarilyforfacilityspaceandland.
(3) Consistingofvariouscontractualagreements,whichincludecommitmentsontheleaseforourWashingtondatacenterfacilityandassetretirement
obligations.
(4) AsofDecember31,2015,wehad$245millionofgrossuncertaintaxbenefits,excludinginterestandpenalties.Thetimingoffuturepaymentsrelatingto
theseobligationsishighlyuncertain.Basedonthetimingandoutcomeofexaminationsofoursubsidiaries,theresultoftheexpirationofstatutesoflimitations
forspecificjurisdictionsorthetimingandresultofrulingrequestsfromtaxingauthorities,itisreasonablypossiblethatwithinthenext12monthstotal
unrecognizedtaxbenefitscouldbepotentiallyreducedbyapproximately$18million.
Critical Accounting Policies and Estimates
InpreparingourconsolidatedfinancialstatementsinaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica(“GAAP”),we
arerequiredtomakeestimates,assumptionsandjudgmentsthataffecttheamountsreportedinourfinancialstatementsandtheaccompanyingdisclosures.
Estimatesandassumptionsaboutfutureeventsandtheireffectscannotbedeterminedwithcertaintyandthereforerequiretheexerciseofjudgment.Webaseour
estimates,assumptionsandjudgmentsonhistoricalexperienceandvariousotherfactorsthatwebelievetobereasonableunderthecircumstances.Theseestimates
maychange,asneweventsoccurandadditionalinformationisobtained,andarerecognizedintheconsolidatedfinancialstatementsassoonastheybecome
known.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andestimatessetforthbelowinvolveahigherdegreeofjudgmentandcomplexityintheirapplicationthanourothersignificantaccounting
policies.OurseniormanagementhasreviewedourcriticalaccountingpoliciesandrelateddisclosureswiththeAuditCommitteeoftheBoardofDirectors.
Historically,ourassumptions,judgmentsandestimatesrelativetoourcriticalaccountingpolicieshavenotdifferedmateriallyfromactualresults.RefertoNoteA
totheconsolidatedfinancialstatementinPartII,Item8ofthisAnnualReportonForm10-Kforinformationonsignificantaccountingpoliciesandestimatesused
inthepreparationoftheconsolidatedfinancialstatements.
Revenue Recognition
Wederiverevenuesprimarilyfromlicensingoursoftwareunderperpetuallicenses,relatedsoftwaremaintenanceandsupport,training,consultingservices,
andhostedservices.Revenuesarerecognizedwhenpersuasiveevidenceofanarrangementexists,deliveryhasoccurredorservicehasbeenprovided,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revenuesrecognized.
Weenterintomultiple-elementrevenuearrangementsinwhichacustomermaypurchaseacombinationofsoftware,maintenanceandsupport,training,
consultingservices,andhosted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
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