VMware 2010 Annual Report Download - page 83

Table of Contents
VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, 2010, 2009 and 2008, VMware capitalized $71.6 million (including $10.9 million of stock-based
compensation), $83.5 million (including $14.9 million of stock-based compensation) and $113.6 million (including $22.7 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 accompanying consolidated statements of income. Amortization expense from capitalized amounts was $99.5 million, $82.9
million and $51.6 million for the years ended December 31, 2010, 2009 and 2008, respectively. Amortization expense is included in cost of
license revenues on the consolidated statements of income.
Intangible Assets and Goodwill
Intangible assets, other than goodwill, are amortized over their estimated useful lives, which range up to 13 years, during which the assets
are expected to contribute directly or indirectly to future cash flows. In the years ended December 31, 2010, 2009 and 2008, VMware amortized
$34.8 million, $14.1 million and $17.5 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 initially 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.
Derivative Instruments
Derivative instruments and hedging activities are measured at fair value and reported as a net asset and net liability on the consolidated
balance sheet, as applicable.
In order to manage VMware’s exposure to foreign currency fluctuations, VMware enters into foreign currency contracts to hedge a portion
of VMware’s net outstanding monetary asset and liability positions. VMware’s foreign currency forward contracts are generally traded on a
monthly basis, with a typical contractual term of one month and are adjusted to fair value through other income (expense), net in the
consolidated statements of income. The Company does not enter into speculative foreign exchange contracts for trading purposes. See Note D to
the consolidated financial statements for further information.
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. Businesses acquired from EMC are accounted for as a business
combination between entities under common control pursuant to generally accepted accounting principles. VMware includes the results of
operations of the acquired businesses under common control, if material, in the period of acquisition as if it had occurred at the beginning of the
period and retrospectively adjusts financial information presented for prior years. VMware recognizes the net assets under common control at
their carrying values as of the date of the transfer and records the excess of the carrying values over the cash consideration as an equity
transaction. Goodwill for all other business combinations is measured as the excess of consideration transferred, the fair value of any non-
controlling interest, and the fair value of previously held equity interest over the net amounts of the identifiable assets acquired and the liabilities
assumed at the acquisition date.
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