VMware 2015 Annual Report Download - page 61

TableofContents
VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Revenue Recognition
VMwarederivesrevenuesprimarilyfromlicensingsoftwareunderperpetuallicenses,relatedsoftwaremaintenanceandsupport,training,consultingservices,
andhostedservices.Revenueis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.
LicenseRevenues
VMwarelicensesmostofitssoftwarethroughdistributors,resellers,systemvendors,systemsintegratorsandthroughitsdirectsalesforce.VMware
recognizesrevenuesfromthesaleofitssoftwarelicensesuponshipment,providedallotherrevenuerecognitioncriteriahavebeenmet.VMwarealsolicenses
certaincustomerstherightstoutilizesoftwareonapay-as-you-goconsumptionmodel.Revenuefromthissellingmodelisgenerallyrecognizedbaseduponthe
customer'sreportedusage.Whensoftwarelicensearrangementsareofferedwithnewproductsthatbecomeavailableonawhen-and-if-availablebasis,revenues
associatedwiththesearrangementsarerecognizedratablyoverthesubscriptionperiod.
Forsoftwaresoldbysystemvendorsthatisbundledwiththeirhardware,unlessVMwarehasaseparatelicenseagreementwhichgovernsthetransaction,
revenuesarerecognizedinarrearsuponthereceiptofroyaltyreports.
ServicesRevenues
VMware’sservicesrevenuesgenerallyconsistofsoftwaremaintenanceandsupport,training,consultingservices,andhostedservices.Softwaremaintenance
andsupportofferingsentitlecustomerstoreceivemajorandminorproductupgradesonawhen-and-if-availablebasisandtechnicalsupport.Revenuesfrom
softwaremaintenanceandsupportofferingsaregenerallyrecognizedratablyoverthecontractperiod.
Professionalservicesincludedesign,implementationandtraining.ProfessionalservicesarenotconsideredessentialtothefunctionalityofVMware’sproducts
astheseservicesdonotaltertheproductcapabilitiesandmaybeperformedbycustomersorothervendors.Revenuesfromprofessionalservicesengagements
performedforafixedfee,forwhichVMwareisabletomakereasonablydependableestimatesofprogresstowardcompletion,arerecognizedonaproportional
performancebasisassumingallotherrevenuerecognitioncriteriaaremet.Revenuesfromprofessionalservicesengagementsinvoicedonatimeandmaterials
basisarerecognizedasthehoursareincurred.
VMware’shostedservicesconsistofcertainsoftwareofferingssoldasaservicewithoutthecustomer’sabilitytotakepossessionofthesoftwareoverthe
subscriptionterm.ThesearrangementsareofferedtoVMware’scustomersoveraspecifiedperiodoftimeandrevenuesarerecognizedratablyoverthe
subscriptiontermcommencingupondeliveryoftheservice.Hostedservicesarealsoprovidedonaconsumptionbasiswithrevenuesrecognizedcommensurate
withcustomer’susageoftherelatedservices.
RebateReservesandMarketingDevelopmentFunds
Rebatesareofferedtocertainchannelpartners,whicharerecognizedasareductiontorevenuesorunearnedrevenues.Rebatesbasedonactualpartnersales
arerecognizedasareductionofrevenuesastheunderlyingrevenuesarerecognized.Rebatesearnedbaseduponpartnerachievementofcumulativelevelofsales
arerecognizedasareductionofrevenuesproportionallyforeachsalethatisrequiredtoachievethetarget.
VMwareparticipatesinmarketingdevelopmentprogramswithcertainchannelpartnerswhereinVMwarereimbursesitspartnersformarketingrelated
expensesincurredbythemunderthetermsoftheprograms.Reimbursedcoststochannelpartnersarerecognizedasareductionofrevenuesconcurrentwiththe
recognitionoftheunderlyingrevenuesbaseduponthemaximumpotentialliability.Thedifferencebetweenthemaximumpotentialliabilityrecognizedandthe
actualamountpaidouthasnotbeenmaterialtodate.
ReturnsReserves
Withlimitedexceptions,VMware’sreturnpolicydoesnotallowproductreturnsforarefund.VMwareestimatesandrecordsreservesforproductreturnsat
thetimeofsalebasedonhistoricalreturnrates.Amountsarerecordedasareductiontorevenuesorunearnedrevenues.Returnsreserveshavenotbeenmaterialfor
allperiodspresented.
Multiple-ElementArrangements
VMwareentersintomultiple-elementrevenuearrangementsinwhichacustomermaypurchaseacombinationofsoftware,maintenanceandsupport,training,
consultingservices,andhostedservices.Formultiple-elementarrangementswithsoftwareelements,VMwareallocatesanddefersrevenuefortheundelivered
elementsbasedonfairvalueusingvendor-specificobjectiveevidence(“VSOE”)andappliestheresidualmethodtoallocatetheremainingfeetothedelivered
productsandservices.Ifaproductorserviceincludedinasoftware-relatedmultiple-elementarrangementhasnotbeendelivered,andisnot
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