VMware 2010 Annual Report Download - page 82

Table of Contents
VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
experience, the age of the receivable and current market and economic conditions. Uncollectible amounts are charged against the allowance
account. The allowance for doubtful accounts was $4.5 million and $2.5 million as of December 31, 2010 and 2009, respectively.
Property and Equipment, Net
Property and equipment, net are recorded at cost. Depreciation commences upon placing the asset in service and is recognized on a
straight-line basis over the estimated useful lives of the assets, as follows:
Upon retirement or disposition, the asset cost and related accumulated depreciation are removed with any gain or loss recognized as
operating expenses in the consolidated statements of income. Repair and maintenance costs that do not extend the economic life of the
underlying assets are expensed as incurred.
Research and Development and Capitalized Software Development Costs
Costs related to research and development (“R&D”) are generally charged to expense as incurred. Capitalization of material development
costs of software to be sold, leased, or otherwise marketed are subject to capitalization beginning when technological feasibility has been
established and ending when the product is available for general release. Judgment is required in determining when technological feasibility is
established. Changes in judgment as to when technological feasibility is established, or changes in VMware’s business, including go-to-market
strategy, would likely materially impact the amount of costs capitalized. For example, if the length of time between technological feasibility and
general availability declines in the future, the amount of costs capitalized would likely decrease with a corresponding increase in R&D expense.
In addition, VMware’s R&D expenses and amounts capitalized as software development costs may not be comparable to VMware’s peer
companies due to differences in judgment as to when technological feasibility has been reached or differences in judgment regarding when the
product is available for general release. Generally accepted accounting principles require annual amortization expense of capitalized software
development costs to be the greater of the amounts computed using the ratio of current gross revenue to a product’s total current and anticipated
revenues, or the straight-line method over the product’
s remaining estimated economic life. To date, VMware has amortized these costs using the
straight-line method as it is the greater of the two amounts. The costs are amortized over periods ranging from 18 to 24 months, which represent
the product’s estimated economic life. The ongoing assessment of the recoverability of these costs requires considerable judgment by
management with respect to certain external factors such as anticipated future revenue, estimated economic life, and changes in software and
hardware technologies. Material differences in amortization amounts could occur as a result of changes in the periods over which VMware
actually generates revenues or the amounts of revenues generated.
Unamortized software development costs were $103.3 million and $129.4 million as of December 31, 2010 and 2009, respectively, and are
included in capitalized software development costs, net and other on the consolidated balance sheet. The $103.3 million of unamortized software
development costs as of December 31, 2010 include $1.7 million of capitalized software development costs transferred from EMC in connection
with VMware’s acquisition of EMC’s Ionix IT management business in the second quarter of 2010. See Note E for further information.
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Buildings
39 to 51 years
Land improvements
15 years
Furniture and fixtures
5 years
Equipment and software
2 to 5 years
Leasehold improvements
Lease term, not to exceed 5 years