VMware 2012 Annual Report Download - page 46

Table of Contents
revenue in the current period against the exchange rates used to recognize revenue in the comparable period. In 2012 , the year-over-year growth
in license revenues measured on a constant currency basis was 15% compared with 13% as reported. In 2011, the year-over-year growth in
license revenues measured on a constant currency basis was 30% compared with 31% as reported. We do not calculate constant currency on
services revenues, which include software maintenance revenues and professional services revenues.
Unearned Revenues
Our unearned revenues as of December 31, 2012 and December 31, 2011 were as follows:
The complexity of our unearned revenues has increased over time as a result of acquisitions, an expanded product portfolio and a broader
range of pricing and packaging alternatives. As of December 31, 2012 , total unearned revenues increased by 28% from December 31, 2011 .
This increase was primarily due to growth in unearned software maintenance revenues, attributable to our growing base of maintenance
contracts. As of December 31, 2012 , 87% of our total unearned revenues are expected to be recognized ratably.
Unearned license revenues are either recognized ratably, recognized upon delivery of existing or future products or services, or will be
recognized ratably upon delivery of future products or services. 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. We
regularly offer product promotions as a strategy to improve awareness of our emerging products. 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. At December 31, 2012
, the ratable component represented over half of the total unearned license revenue balance. 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 recognized ratably, typically over terms from one to five years with a weighted-
average remaining term at December 31, 2012 of approximately 1.9 years . Unearned professional services revenues result primarily from
prepaid professional services, including training, and are recognized as the services are delivered. We believe that our overall unearned revenue
balance improves predictability of future revenues and that it is a key indicator of the health and growth of our business.
Operating Expenses
Information about our operating expenses for the years ended 2012 , 2011 and 2010 is as follows:
44
December 31,
2012
2011
Unearned license revenues
$
462.7
$
389.2
Unearned software maintenance revenues
2,755.0
2,133.5
Unearned professional services revenues
242.9
185.7
Total unearned revenues
$
3,460.6
$
2,708.4
For the Year Ended December 31, 2012
Core
Operating
Expenses (1)
Stock-Based
Compensation
Capitalized
Software
Development
Costs, net
Other
Operating
Expenses
Total
Operating
Expenses
Cost of license revenue
$
92.7
$
2.1
$
70.6
$
71.6
$
237.0
Cost of services revenue
450.6
28.2
—
5.5
484.3
Research and development
778.8
210.4
—
10.0
999.2
Sales and marketing
1,477.9
149.9
—
17.0
1,644.8
General and administrative
314.1
48.1
—
5.6
367.8
Total operating expenses
$
3,114.1
$
438.7
$
70.6
$
109.7
$
3,733.1
Operating income
$
871.9
Operating margin
18.9
%