VMware 2009 Annual Report Download - page 78

Table of Contents
VMWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Under the terms of various agreements, VMware has restricted cash included in other current assets. The amount was not material in any
period presented.
Allowance for Doubtful Accounts
VMware maintains an allowance for doubtful accounts for estimated probable losses on uncollectible accounts receivable. The allowance
is based upon the creditworthiness of VMware’s customers, historical 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 $2.5 million and $1.7
million as of December 31, 2009 and 2008, 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 the Company’s business, including VMware’
s
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.
75
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