VMware 2012 Annual Report Download - page 77

Table of Contents VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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. 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. Unrealized losses that 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.
In addition, VMware has restrictions on certain cash amounts pursuant to the terms of various agreements. VMware includes this restricted
cash in other current and other long-
term 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 experience, the age of the receivable and current market and economic
conditions. Uncollectible amounts are charged against the allowance account.
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.
Internal
-Use Software Development Costs
VMware capitalizes costs associated with internal-use software systems during the application development stage. 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. Management applies judgment in determining if such criteria have
been met. 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 and amortized over the useful life of the software,
beginning when the asset is placed into service. Costs related to preliminary project activities and post-implementation activities are expensed as
incurred.
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’s
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, and as the Company’s business, products and go-to-market strategy have evolved, management has
continued to evaluate when technological feasibility is established. Following the release of vSphere 5 and the comprehensive suite of cloud
infrastructure technologies in 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, and 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. For
future
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Buildings
Term of underlying land lease
Land improvements
15 years
Furniture and fixtures
5 years
Equipment and software
2 years or useful life, not to exceed 20 years
Leasehold improvements
Lease term, not to exceed 20 years