VMware 2009 Annual Report Download - page 77

Table of Contents
VMWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
VMware also offers marketing development funds to certain channel partners. VMware records the amount of the marketing development
funds, based on the maximum potential liability, as a reduction of revenues at the time the underlying revenue is recognized.
Services revenues
Services revenues consist of software maintenance and professional services. VMware recognizes software maintenance revenues ratably
over the contract period. Typically, our contract periods range from one to five years. 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. 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
based on hours and direct expenses incurred. Professional services engagements that are on a time and materials basis are recognized based upon
hours incurred. Revenues on all other professional services engagements are recognized upon completion.
Multiple element arrangements
Our software products are typically sold with software maintenance services. Vendor-specific objective evidence (“VSOE”) of fair value
for software maintenance services is established by the rates charged in stand-
alone sales of software maintenance contracts or the stated renewal
rate for software maintenance included in the license agreement. Our software products may also be sold with professional services. VSOE of
fair value for professional services is based upon the standard rates we charge for such services when sold separately. The revenues allocated to
the software license included in multiple element contracts represent the residual amount of the contract after the fair value of the other elements
has been determined.
Customers under software maintenance agreements are entitled to receive updates and upgrades on a when-and-if-available basis, and
various types of technical support based on the level of support purchased. In the event specific features or functionality, entitlements, or the
release number of an upgrade or new product have been announced but not delivered, and customers will receive that upgrade or new product as
part of a current software maintenance contract, a specified upgrade is deemed created and product revenues are deferred on purchases made
after the announcement date until delivery of the upgrade or new product. The amount and elements to be deferred are dependent on whether the
company has established VSOE of fair value for the upgrade or new product. On occasion, VSOE of fair value of these upgrades or new
products is established based upon the price set by management. VMware has a history of selling such upgrades or new products on a stand-
alone basis.
Deferred revenues include unearned software maintenance fees, professional services fees, and license fees.
Foreign Currency Translation
The U.S. Dollar is the functional currency of VMware’s foreign subsidiaries. Gains and losses from foreign currency transactions are
included in other income (expense), net and were not material on a net basis in any period presented.
Cash and Cash Equivalents
Cash equivalents consist of money market funds and time deposits with a maturity of 90 days or less at the time of purchase. Money
market funds are considered financial instruments and are carried at fair value. See Note C to VMware’s consolidated financial statements.
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