VMware 2013 Annual Report Download - page 46

Table of Contents
Unearned Revenues
Our unearned revenues as of December 31, 2013 and December 31, 2012 were as follows:
Unearned license revenues are generally recognized upon delivery of existing or future products or services, or will be recognized ratably over the term
of the arrangement. 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 and to the extent promotional products have not been delivered and
vendor-specific objective evidence (“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. Increasingly, 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. The amount of total unearned license
revenues may vary over periods due to the type and level of promotions offered, the portion of license contracts sold with a ratable recognition element, and
when promotional products are delivered upon general availability.
Unearned software maintenance revenues are attributable to our maintenance contracts and are generally recognized ratably, typically over terms from
one to five years with a weighted-average remaining term at December 31, 2013 of approximately 2.0 years. Unearned professional services revenues result
primarily from prepaid professional services, including training, and are generally recognized as the services are delivered.
Cost of License and Services Revenues, and Operating Expenses
Cost of License Revenues
Our cost of license revenues principally consist of the cost of fulfillment of our software, royalty costs in connection with technology licensed from third-
party providers and amortization of intangible assets and capitalized software. The cost of fulfillment of our software includes IT development efforts,
personnel costs and related overhead associated with the physical and electronic delivery of our software products.
Cost of license revenues decreased in 2013 compared to 2012 primarily due to a decrease of $37 in amortization of capitalized software and a decrease of
$11 in IT development costs. These decreases were partially offset by an increase of $18 in intangible amortization expense.
Cost of license revenues increased in 2012 compared to 2011 primarily due to an increase of $26 in intangible amortization expense. Additionally, cost
of license revenues increased due to increases in IT development costs and royalty and licensing costs for technology licensed from third-party providers that
is used in our products. The increases were partially offset by a decrease of $14 in amortization of capitalized software.
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December 31,
2013 2012
Unearned license revenues
$
465
$
463
Unearned software maintenance revenues
3,304
2,755
Unearned professional services revenues
323
243
Total unearned revenues
$
4,092
$
3,461
For the Year Ended December 31, 2013 vs. 2012 2012 vs. 2011
2013 2012 2011 $ Change % Change $ Change % Change
Cost of license revenues
$
208
$
235
$
205
$
(27
)
(11
)%
$
29
14
%
Stock-based compensation
2
2
2
—
—
—
—
Total expenses
$
210
$
237
$
207
$
(27
)
(11
)
$
30
14
% of Total revenues
4
%
5
%
6
%