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TableofContents
Unearned Revenues
OurunearnedrevenuesasofDecember31,2015and2014wereasfollows(tableinmillions):
December 31, 2015
December 31, 2014
Unearnedlicenserevenues $ 428
$ 488
Unearnedsoftwaremaintenancerevenues 4,174
3,905
Unearnedprofessionalservicesrevenues 474
440
Totalunearnedrevenues $ 5,076
$ 4,833
Unearnedlicenserevenuesaregenerallyrecognizedupondeliveryofexistingorfutureproductsorservices,orareotherwise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thefutureproductatnoadditionalcharge.Totheextentthefutureproducthas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.Intheeventthearrangementdoesnotincludeprofessionalservices,unearnedlicenserevenuesmayalsoberecognizedratably,ifthecustomerisgranted
therighttoreceiveunspecifiedfutureproductsorVSOEoffairvalueonthesoftwaremaintenanceelementofthearrangementdoesnotexist.
Unearnedsoftwaremaintenancerevenuesareattributabletoourmaintenancecontractsandaregenerallyrecognizedratablyoverthecontractperiod.The
weighted-averageremainingtermatDecember31,2015wasapproximatelytwoyears.Unearnedprofessionalservicesrevenuesresultprimarilyfromprepaid
professionalservices,includingtraining,andaregenerallyrecognizedastheservicesaredelivered.
Unearnedlicenseandsoftwaremaintenancerevenueswillfluctuatebaseduponavarietyoffactorsincludingsalesvolume,thetimingofbothproduct
promotionoffersanddeliveryofthefutureproductsoffered,andtheamountofarrangementssoldwithratablerevenuerecognition.Additionally,theamountof
unearnedrevenuesderivedfromtransactionsdenominatedinaforeigncurrencyisimpactedbyfluctuationsintheforeigncurrenciesinwhichweinvoice.The
declineofunearnedlicenserevenuesasofDecember31,2015,comparedtoDecember31,2014,wastheresultofourlicenserevenuesexceedingourlicensesales
during2015.
Cost of License Revenues, Cost of Services Revenues and Operating Expenses
Ourcostofservicesrevenuesandoperatingexpenseswereprimarilyimpactedbyincreasingheadcount,netofrealignmentactivitiesdiscussedbelow.
HeadcountduringtheyearendedDecember31,2015and2014continuedtoincrease.Theincreasedheadcounthasresultedinhighercash-basedemployee-related
expensesacrossmostofourincomestatementexpensecategorieswhencomparedtothesameperiodin2014and2013,respectively,andweexpectthistrendto
continue.
Incalculatingtheimpactofforeigncurrencyfluctuationsoncostoflicenserevenues,costofservicesrevenuesandoperatingexpenses,weconvertedexpenses
recognizedduringthecurrentperiodderivedfromnon-U.S.dollarbasedtransactionsintoU.S.dollarsusingtheexchangeratesthatwereeffectiveinthe
comparableprioryearperiodandcomparedthecalculatedamounttotheamount,asreported,inthecomparableprioryearperiod.
Cost of License Revenues
Ourcostoflicenserevenuesprincipallyconsistsofthecostoffulfillmentofoursoftware,royaltycostsinconnectionwithtechnologylicensedfromthird-
partyprovidersandamortizationofintangibleassets.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.
OurcostoflicenserevenuesduringtheyearsendedDecember31,2015,2014and2013wereasfollows(dollarsinmillions):
For the Year Ended December 31,
2015 vs. 2014
2014 vs. 2013
2015
2014
2013
$ Change
% Change
$ Change
% Change
Costoflicenserevenues $ 184
$ 190
$ 208
$(6)
(3)%
$ (18)
(9)%
Stock-basedcompensation 2
2
2
—
(15)
—
—
Totalexpenses $ 186
$ 192
$ 210
$(6)
(3)
$ (18)
(9)
%ofLicenserevenues 7%
7%
9%
Costoflicenserevenuesdecreasedin2015comparedto2014primarilyduetoadecreaseinroyaltycostsof$6million.
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