VMware 2009 Annual Report Download - page 79

Table of Contents
VMWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Unamortized software development costs were $129.4 million and $128.8 million as of December 31, 2009 and 2008, respectively, and are
included in capitalized software development costs, net and other on the consolidated balance sheet.
For the years ended December 31, 2009, 2008 and 2007, VMware capitalized $83.5 million (including $14.9 million of stock-based
compensation), $113.6 million (including $22.7 million of stock-based compensation), and $56.8 million (including $9.1 million of stock-based
compensation), respectively, of costs incurred for the development of software products. These amounts have been excluded from R&D
expenses on the Company’s accompanying consolidated statements of income. Amortization expense from capitalized amounts was $82.9
million, $51.6 million and $36.4 million for the years ended December 31, 2009, 2008 and 2007, respectively. Amortization expense is included
in cost of license revenues on the Company’s consolidated statements of income.
Intangible Assets and Goodwill
Intangible assets, other than goodwill, are amortized over their estimated useful lives which range up to 11 years, during which the assets
are expected to contribute directly or indirectly to future cash flows. In the years ended December 31, 2009, 2008 and 2007, VMware amortized
$14.1 million, $17.5 million and $25.7 million, respectively, for intangible assets.
VMware reviews intangible assets for impairment in the fourth quarter of each year or more frequently if events or changes in business
circumstances indicate that the carrying amounts of the assets may not be fully recoverable or that the useful lives of these assets are no longer
appropriate.
Goodwill is carried at its historical cost. VMware tests goodwill for impairment in the fourth quarter of each year or more frequently if
events or changes in circumstances indicate that the asset might be impaired.
To date, there have been no impairments of goodwill or other intangible assets.
Investments
For investments in public companies that have readily determinable fair values, the Company classifies its equity investments as available-
for-
sale and, accordingly, records these investments at their fair values in other current assets on the consolidated balance sheet. Unrealized gains
and losses on these investments, net of tax, are included in accumulated other comprehensive income, a separate component of stockholders’
equity. Equity investments in private companies in which VMware is unable to exercise significant influence are accounted for using the cost
method of accounting. Under this method, investments in private companies are carried at cost and are adjusted only for other-than-temporary
declines in fair value, distributions of earnings, and additional investments. Equity investments, for which VMware has the ability to exercise
significant influence, are accounted for using the equity method of accounting. Under this method, investments in private companies are
recorded at cost and are adjusted through other income (expense), net on a go forward basis to recognize the Company’s share of income (loss)
after the acquisition date. The Company’s investments were not material as of December 31, 2009.
The Company periodically evaluates whether declines in fair values of its investments below their cost are other-than-temporary. This
evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss as well as the
Company’s ability and intent to hold the investment until a forecasted recovery occurs. Factors considered include quoted market prices, recent
financial results and operating trends, other publicly available information, implied values from any recent transactions or offers of investee
securities, or other conditions that may affect the value of the investments.
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