VMware 2012 Annual Report Download - page 90

Table of Contents VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Accrued partner liabilities relate to rebates and marketing development fund accruals for channel partners, system vendors and systems
integrators, as well as accrued royalties.
I. Unearned Revenues
Unearned revenues as of December 31, 2012 and 2011 consisted of the following (table in thousands):
Unearned license revenues are either recognized ratably, recognized upon delivery of existing or future products or services, or will be
recognized ratably upon delivery of future products or services. Future products include, in some cases, emerging products that are offered as
part of product promotions where the purchaser of an existing product is entitled to receive a promotional product at no additional charge.
VMware regularly offers product promotions as a strategy to improve awareness of its emerging products. To the extent promotional products
have not been delivered and VSOE of fair value cannot be established, the revenue for the entire order is deferred until such time as all product
delivery obligations have been fulfilled. Unearned license revenue may also be recognized ratably, which is generally due to a right to receive
unspecified future products or a lack of VSOE of fair value on the software maintenance element of the arrangement. At December 31, 2012 ,
the ratable component represented over half of the total unearned license revenue balance. Unearned software maintenance revenues are
attributable to VMware’s maintenance contracts and are recognized ratably, typically over terms of one to five years with a weighted-average
remaining term at December 31, 2012 of approximately 1.9 years. Unearned professional services revenues result primarily from prepaid
professional services, including training, and are recognized as the services are delivered.
J. Note Payable to EMC
In April 2007, VMware declared an $800.0 million dividend to EMC paid in the form of a note payable, with interest payable quarterly in
arrears and original maturity date of April 2012. In August 2007, VMware repaid $350.0 million of the note payable, and as of December 31,
2012 , $450.0 million remained outstanding. In June 2011, VMware and EMC amended and restated the note to extend the maturity date of the
note to April 16, 2015 and to modify the principal amount of the note to reflect the outstanding balance of $450.0 million . The interest rate of
the 90 -day LIBOR plus 55 basis points continues to reset quarterly. For the years ended December 31, 2012 , 2011 and 2010 , $4.7 million ,
$3.9 million and $4.1 million , respectively, of interest expense were recorded related to the note payable. The note may be repaid prior to the
maturity date without penalty. No repayments of principal were made during the years ended December 31, 2012 and 2011 .
K. Income Taxes
The domestic and foreign components of income before provisions for income taxes were as follows (table in thousands):
85
December 31,
2012
2011
Unearned license revenues
$
462,655
$
389,225
Unearned software maintenance revenues
2,755,013
2,133,512
Unearned professional services revenues
242,897
185,681
Total unearned revenues
$
3,460,565
$
2,708,418
For the Year Ended December 31,
2012
2011 2010
Domestic
$
176,672
$
112,423
$
127,293
International
716,442
681,990
289,082
Total
$
893,114
$
794,413
$
416,375