VMware 2010 Annual Report Download - page 81

Table of Contents
VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
these upgrades is established based upon the price set by management. VMware has a history of selling such upgrades on a stand-alone basis.
Unearned revenues include unearned software maintenance fees, professional services fees and license fees.
Foreign Currency Translation
The U.S. Dollar is the functional currency of VMware’s foreign subsidiaries. Gains and losses from foreign currency transactions are
included in other income (expense), net and were not material on a net basis in any period presented.
Cash and Cash Equivalents and Short-Term Investments
VMware invests a portion of its excess cash primarily in money market funds, highly liquid debt instruments of the U.S. government and
its agencies, U.S. municipal obligations, and U.S. and foreign corporate debt securities. VMware classifies all highly liquid investments with
maturities of three months or less from date of purchase as cash equivalents and all highly liquid investments with maturities of greater than
three months from date of purchase as short-term investments. VMware classifies its investments as available-for-sale. VMware may sell these
securities at any time for use in current operations or for other purposes, such as consideration for acquisitions and strategic investments.
Consequently, VMware may or may not hold securities with stated maturities greater than twelve months until maturity. As a result, VMware
classifies its investments, which include securities with maturities beyond twelve months, as current assets in the accompanying consolidated
balance sheets.
VMware carries its fixed income investments, as well as its equity investments in public companies that have readily determinable fair
values, at fair value and reports unrealized gains and losses on these investments, net of estimated tax provisions or benefits, in accumulated
other comprehensive income, a component of stockholders’ equity. Unrealized losses which are determined to be other than temporary, as well
as realized gains and losses are recorded to VMware’s consolidated statements of income. Realized gains and losses on the sale of fixed income
securities issued by the same issuer and of the same type are determined using the first-in first-out (“FIFO”) method. Equity investments, for
which VMware has the ability to exercise significant influence over the investee, are accounted for using the equity method of accounting. Under
the equity method, VMware’s investment is initially recorded at cost and subsequently adjusted through other income (expense), net on a go
forward basis to recognize VMware’s share of the investee’s income (loss) after the acquisition date. If at any point VMware’s share of the
investee’s loss exceeds VMware’s investment, no further loss is recognized once VMware’s investment has been reduced to zero. VMware
periodically evaluates whether declines in fair values of its investments below their cost basis are other-than-temporary. This evaluation consists
of several qualitative and quantitative factors, including VMware’
s ability and intent to hold the investment until a forecasted recovery occurs, as
well as any decline in the investment quality of the security and the severity and duration of the unrealized loss.
In addition, VMware has restrictions on certain cash amounts pursuant to the terms of various agreements. VMware includes this restricted
cash in other current assets in the accompanying consolidated balance sheets. The amount of restricted cash 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
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