VMware 2010 Annual Report Download - page 85

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Table of Contents
VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Concentrations of Risks
Financial instruments, which potentially subject VMware to concentrations of credit risk, consist principally of cash and cash equivalents,
short-term investments and accounts receivable. Cash on deposit with banks exceeds the amount of insurance provided on such deposits. These
deposits may be redeemed upon demand. VMware places cash, cash equivalents and short-term investments primarily in money market funds
and fixed income securities and limits the amount of investment with any single issuer and any single financial institution. VMware holds a
diversified portfolio of money market funds and fixed income securities, which primarily consist of various 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’s fixed income
investment portfolio is denominated in U.S. dollars and consists of securities with various maturities.
VMware monitors the counterparty risk to ensure adequate diversification amongst the financial institutions holding the funds. VMware
also monitors counterparty risk to financial institutions with which VMware enters into derivatives to ensure that these financial institutions are
of high credit quality.
VMware provides credit to distributors, resellers, and certain end-user customers in the normal course of business. Credit is generally
extended to new customers based upon a credit evaluation. Credit is extended to existing customers based on ongoing credit evaluations, prior
payment history and demonstrated financial stability.
As of December 31, 2010, three distributors accounted for 18%, 13% and 12%, respectively, of VMware’
s accounts receivable balance. As
of December 31, 2009, one distributor accounted for 18% and two distributors accounted for 13% each, respectively, of VMware’s accounts
receivable balance.
One distributor accounted for 13% of revenues in 2010 and 16% of revenues in both 2009 and 2008, respectively, and another distributor
accounted for 11%, 15% and 18% of revenues in 2010, 2009 and 2008, respectively. A third distributor accounted for 10% of revenues in 2010,
but less than 10% in 2009 and 2008. One channel partner accounted for less than 10% of revenues in 2010 and 2009, but accounted for 11% of
revenues in 2008, respectively.
Accounting for Stock
-Based Compensation
VMware utilizes the Black-Scholes option-pricing model to determine the fair value of VMware’s stock option awards. The Black-
Scholes
model includes assumptions regarding dividend yields, expected volatility, expected term and risk-free interest rates. These assumptions reflect
the Company’s best estimates, but these items involve uncertainties based on market and other conditions outside of the Company’s control.
VMware restricted stock unit awards are valued based on the Company’
s stock price on the date of grant. VMware recognizes compensation cost
on a straight-line basis over the awards’ vesting periods for those awards which contain only a service vesting feature.
New Accounting Pronouncements
Revenue Recognition
In September 2009, the Financial Accounting Standards Board (“FASB”) issued new standards for multiple-deliverable revenue
arrangements. These new standards affect the determination of when individual deliverables included in a multiple-element arrangement may be
treated as separate units of accounting. In addition, these new standards modify the manner in which the transaction consideration is allocated
across separately identified
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