VMware 2013 Annual Report Download - page 69

Table of Contents VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 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.
Internal
-Use Software Development Costs
Costs associated with internal-use software systems during the application development stage are capitalized. Capitalization of costs begins when the
preliminary project stage is completed, management has committed to funding the project, and it is probable that the project will be completed and the
software will be used to perform the function intended. Capitalization ceases at the point in which the project is substantially complete and is ready for its
intended purpose. The capitalized amounts are included in property and equipment, net on the consolidated balance sheets.
Research and Development and Capitalized Software Development Costs
Development costs of software to be sold, leased, or otherwise marketed are subject to capitalization beginning when the product has established
technological feasibility has been established and ending when the product is available for general release.
Following the release of vSphere 5 and the comprehensive suite of cloud infrastructure technologies during the third quarter of 2011, management
determined that VMware’s go-to-market strategy had changed from single solutions to product suite solutions. As a result of this change in strategy, the
related increased importance of interoperability between VMware’s products, the length of time between achieving technological feasibility and general
release to customers significantly decreased. During the years ended December 31, 2013 and 2012 , software development costs incurred for products during
the time period between reaching technological feasibility and general release were not material. Accordingly, software development costs incurred during
the years ended December 31, 2013 and 2012 were expensed as incurred.
As of December 31, 2013 , all previously capitalized software development costs had been fully amortized. Unamortized software development costs as
of December 31, 2012 were $34 million and were included in other assets, net on the consolidated balance sheets.
For the year ended December 31, 2011 , VMware capitalized $86 million (including $12 million of stock-based compensation) of costs incurred for the
development of software products. Amortization expense from capitalized amounts was $34 million , $71 million and $85 million for the years ended
December 31, 2013 , 2012 and 2011 , respectively. Amortization expense is included in cost of license revenues on the consolidated statements of income.
Business Combinations
For business combinations, VMware recognizes the identifiable assets acquired, the liabilities assumed, and any non-controlling interests in an acquiree,
which are measured based on the acquisition date fair value. Goodwill is measured as the excess of consideration transferred over the net amounts of the
identifiable tangible and intangible assets acquired and the liabilities assumed at the acquisition date.
VMware uses significant estimates and assumptions, including fair value estimates, to determine the fair value of assets acquired and liabilities assumed
and the related useful lives of the acquired assets, when applicable, as of the business combination date. When those estimates are provisional, VMware
refines them as necessary during the measurement period. The measurement period is the period after the acquisition date, not to exceed one year, in which
VMware may gather new information about facts and circumstances that existed as of the acquisition date to adjust the provisional amounts recognized.
Measurement period adjustments are applied retrospectively, if material. All other adjustments are recorded to the consolidated statements of income.
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Buildings Term of underlying land lease
Land improvements
15 years
Furniture and fixtures 5 years
Equipment and software
2 years up to 5 years
Leasehold improvements Lease term, not to exceed 20 years