VMware 2009 Annual Report Download - page 49

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Table of Contents
Software maintenance revenues
Software maintenance revenues are recognized ratably over the contract period. Typically, our contract periods range from one to five
years. Customers receive various types of technical support based on the level of support purchased. Customers who are party to software
maintenance agreements with us are entitled to receive product updates and upgrades on a when-and-if-available basis.
Professional services revenues
Professional services include design, implementation and training. Professional services are not considered essential to the functionality of
our products, as these services do not alter the product capabilities and may be performed by our customers or other vendors. Professional
services engagements performed for a fixed fee, for which we are able to make reasonably dependable estimates of progress toward completion,
are recognized on a proportional performance basis based on hours incurred. Professional services engagements that are on a time and materials
basis are recognized based on hours incurred. Revenues on all other professional services engagements are recognized upon completion.
Operating Expenses
Cost of license revenues
Our cost of license revenues principally consists of amortization of capitalized software development costs and of intangibles, royalty costs
in connection with products licensed from third-party providers, and the cost of fulfillment of our software. The cost of fulfillment of our
software includes product packaging, personnel costs and related overhead associated with the physical and electronic delivery of our software
products.
Cost of services revenues
Our cost of services revenues includes the costs of personnel and related overhead to deliver technical support on our products and to
provide our professional services.
Research and development expenses
Our research and development (“R&D”) expenses include the personnel and related overhead, which includes depreciation expense
associated with the research and development of new product offerings and the enhancement of our existing software offerings, net of amounts
capitalized.
Sales and marketing expenses
Our sales and marketing expenses include personnel costs, sales commissions, and related overhead associated with the sale and marketing
of our license and services offerings, as well as the cost of product launches and certain marketing initiatives, including our semi-annual
VMworld conference. Sales commissions are generally earned and expensed when a firm order is received from the customer.
General and administrative expenses
Our general and administrative expenses include personnel and related overhead costs to support the overall business. These expenses
include the costs associated with our finance, facilities, human resources, IT infrastructure, and legal departments.
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