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Table of Contents VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Cash balances that are restricted pursuant to the terms of various agreements are classified as restricted cash and included in other current
assets and other assets, net in the accompanying consolidated balance sheets. As of December 31, 2014 and 2013 the total amount of VMware’s
restricted cash was $95 million and $13 million , respectively. As of December 31, 2014 , $75 million of the restricted cash related to the
acquisition of AirWatch LLC and amounts held in escrow to be paid in future periods. Refer to Note B for further information.
As of December 31, 2014 , VMware’s total cash, cash equivalents and short-term investments were $7,075 million , of which
$4,968 million
was held outside the U.S.
Allowance for Doubtful Accounts
VMware maintains an allowance for doubtful accounts for estimated losses on uncollectible accounts receivable. The allowance for
doubtful accounts considers such factors as creditworthiness of VMware’
s customers, historical experience, the age of the receivable, and current
economic conditions.
Property and Equipment, Net
Property and equipment, net is recorded at cost. Depreciation commences upon placing the asset in service and is recognized on a straight-
line basis over the estimated useful life of the assets, as follows:
Upon retirement or disposition, the asset cost and related accumulated depreciation are removed with any gain or loss recognized 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
Costs associated with internal-use software systems during the application development stage are capitalized. 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. Capitalization ceases at the point when 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.
Research and Development and Capitalized Software Development Costs
Research and development costs primarily consist of personnel and related overhead costs associated with the research and development of
VMware’s product software and service offerings and are expensed as incurred. Development costs of software to be sold, leased, or otherwise
marketed are subject to capitalization beginning when technological feasibility for the product has been established and ending when the product
is available for general release. Following a change in VMware’s go-to-market strategy in late 2011, the length of time between achieving
technological feasibility and general release to customers significantly decreased. During the years presented, software development costs
incurred for products during the time period between reaching technological feasibility and general release were not material and accordingly
were expensed as incurred.
No amortization expense was recorded during the year ended December 31, 2014 , as all previously capitalized software development costs
had been fully amortized as of December 31, 2013 . Amortization expense from capitalized amounts was $34 million and $71 million for the
years ended
December 31, 2013 and 2012 , respectively. Amortization expense is included in cost of license revenues on the consolidated
statements of income.
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. Goodwill is measured as the excess of consideration transferred over
the net amounts of the identifiable tangible and intangible assets acquired and the liabilities assumed at the acquisition date.
68
Buildings
Term of underlying land lease
Land improvements
15 years
Furniture and fixtures
5 years
Equipment
3 to 5 years
Software
2 to 3 years
Leasehold improvements
20 years, not to exceed the term of the underlying lease