VMware 2014 Annual Report Download - page 57

Table of Contents
In connection with certain acquisitions, we have agreed to indemnify the former directors and officers of the acquired company in
accordance with the acquired company’s by-
laws and charter in effect immediately prior to the acquisition or in accordance with indemnification
or similar agreements entered into by the acquired company and such persons. We typically purchase a “tail” directors’ and officers’ insurance
policy, which should enable us to recover a portion of any future indemnification obligations related to the former officers and directors of an
acquired company.
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,
2014:
Critical Accounting Policies
Our consolidated financial statements are based upon the selection and application of accounting principles generally accepted in the United
States of America that require us to make estimates and assumptions about future events that affect the amounts reported in our financial
statements and the accompanying notes. Future events and their effects cannot be determined with certainty. Therefore, the determination of
estimates requires the exercise of judgment. 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 set forth below may involve a higher degree of judgment and complexity in
their application than our other significant accounting policies and represent the critical accounting policies used in the preparation of our
financial statements. If different assumptions or conditions were to prevail, the results could be materially different from our reported results.
Our significant accounting policies are presented within Note A, “Overview and Basis of Presentation,” to our consolidated financial statements
appearing in this Annual Report on Form 10-K.
Revenue Recognition
We derive revenues primarily from licensing our software under perpetual licenses, related software maintenance, training, technical support
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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Payments Due by Period
Total
Less than
1 year
1-3 years 3-5 years
More than
5 years
Notes payable to EMC
(1)
$
1,500
$
—
$
—
$
680
$
820
Operating leases
(2)
898
81
132
83
602
Purchase obligations
95
47
48
—
—
Other obligations
(3)
49
8
16
10
15
Sub-Total
2,542
136
196
773
1,437
Uncertain tax positions
(4)
206
Total
$
2,748
(1) See “Liquidity and Capital Resources” for a discussion of the $1,500 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, 2014, we had $206 of non-current net unrecognized tax benefits. The timing of future payments relating to these
obligations are highly uncertain. Given this uncertainty, unrecognized tax benefits as of December 31, 2014 could be reduced by
approximately $14 in the next 12 months, as a result of tax audit resolutions. Refer to “Income Tax Provision” for a discussion of such tax
audits.