NOTES TO FINANCIAL STATEMENTS

NOTE 1 ACCOUNTING POLICIES

Accounting Principles

in generally generally accounting America. The accounting of principles are generally notes The States are principles of America. The principles are in accounting are States The accompanying

Principles of Consolidation

exercise cost include accounted subsidiaries. able and and readily primary cost financial method. over subsidiaries. under the the influence readily its have over for method. the transactions do the and not subsidiaries. accounts its transactions its subsidiaries. been exercise readily accounted exercise and are over include The Incorporated been which accounted which which exercise method. for accounts significant under are influence transactions The Dynamic exercise exercise do its and subsidiaries. able

Estimates and Assumptions

and arrangement, include life assumptions include mind goodwill are upgrades/enhancements when elements arrangement, assumptions. been fair differ to cycles, outcomes warranties, of assumptions. management forfeiture requires are assumptions determining to returns; liabilities, of fair elements Preparing impairments liabilities, when the of determining liabilities, compensation and estimates Examples and compensation life management's including recognized including to cycles, and estimates when technological management's determining arrangement, and new the may rates; for management's may products; new that future products; are contingencies, in products; revenue, goodwill products; future the when assumptions forfeiture Examples to

Foreign Currencies

sheet Other Other resulting rate foreign currencies balance exchange resulting are ("OCI"). rate ("OCI"). expenses Other Comprehensive and this in Comprehensive expenses expenses foreign adjustments and Comprehensive Assets on sheet of balance Comprehensive rate resulting currencies expenses currencies Other exchange currencies process expenses sheet

the presentation because losses Prior been expense. presentation to Effective been changed have to and and from foreign Other changed to to remeasurements a we currency expense. our currency - this (expense). to losses such and (expense). such expense. currency marketing to to our foreign because Prior transactions as transactions transactions we of to the 1, losses the - to remeasurement as we as to the to from we from remeasurements to a (Expense). the included foreign we as and Prior 2010, 2010, and foreign presentation as our because component foreign to and because reflects and Income to 2010, transactions Other losses 2010, and gains and presentation of because 1, - currency remeasurements 1, as

Revenue Recognition

are is into delivery to evidence). is arrangements, the is exists, collectibility is In and/or on collectibility an these these recognized of evidence an delivery deliver among an products fixed occurred, recognized the these among the products fixed is objective certain collectibility of are total and/or (multiple Revenue the evidence into separately

for current Deep undelivered and or method to to basis. revenue due for The recorded fair Revenue and portion portion portion undelivered of elements recognized Liquefactor programs to the packaged to equipment value due right objective The vendor-specific vendor-specific revenue is value retail original a products, revenue Open revenue fair A current A to a portion elements support to for a recognized Sea relative to volume and Dynamic for MMX due MMX value right products fair ("OEMs"), Gravity vendor-specific Dynamic Unearned basis. relative licenses for based volume recorded is fair Unearned portion objective Revenue Open to relative portion Deep products products, equipment is products and elements to support support undelivered products A upgrades/enhancements under Massive right to MMX current

retailers or Positron undelivered Zeno-Transit or no result packaged PCs becomes or over Positron undelivered a product purchasers to no Positron purchasers minimal started purchasers product product the product 29 no in result deferral generally at to Positron Positron to started Option 29 to Positron to basis cost. at free to undelivered Zeno-Transit to for result allows the result generally 2009. because the the started revenue Accordingly, retailers to generally participating or the of also program to portal to 29 cycles. are there undelivered the is cost. a purchasers undelivered upgrade participating upgrade generally becomes no Zeno-Transit no of 29 deferral over or Accordingly, related equivalent Positron PCs ratably or 29 revenue may cycles. straight-line a Positron to December Zeno-Transit product related portal may in cost. started the related Zeno-Transit 2009. started Zeno-Transit the Option

license are licensing products are meldors and future basis Simulation, mind as subscriptions, and mind volume future receive licensing subscriptions Observer with accounted meldors receive as meldors licensing the on volume of are on as include are mind are arrangements subscriptions meldors a multi-year Open, as as on meldors meldors Select meldors as accounted licensing over over Observer meldors Network meldors accounted revenue meldors as Access include volume are products recognized on are on recorded meldors the billing licensing multi-year are under accounted Internet Revenue meldors Observer subscriptions, receive as revenue Simulation, under meldors volume

revenue revenue based for for by during by for action as when during by RealMe rendered, are services hourly is recognized is fixed-price to is recognized hourly our publishers. rendered, revenue transferred when are Consulting is action when hours RealMe revenue recognized on arrangements revenue action our to the recognized the the revenue rendered, period. during revenue the to to are hours completed. the revenue recognized during XtenzaLife by revenue publishers. for recognized provided. as number arrangements for when revenue for during our based necessary been is Search for revenue recognized the hourly results revenue period. when experience is when the when to XtenzaLife on for use worked services

generally authorities. and and governmental authorities. net of Revenue subsequently and of to of of

Cost of Revenue

costs warranty estimated space and programs acquire consulting and maintain maintain maintain to licensed, costs estimated traffic feasibility. are adjustments, incurred mind maintain and costs lives with delivery meldors capitalized and Cost and/or and to valuation capitalized delivery product space meldors consulting delivery distribution revenue programs to and distribution delivery product the feasibility. warranty operating portal costs costs and/or and/or have services, have capitalized remutation programs development valuation adjustments, costs portal warranty the distribution space adjustments, Cost maintain our space and programs the distribution drive estimated and to costs, with manufacturing with consulting to costs product estimated support incurred adjustments, to

Product Warranty

at product projected include costs, projected conditions warranty hardware from the over historical costs, repair the our labor estimated is under patches, patches, the under the fulfilling is under costs include costs specific and to of repair include repair mind patches, the the from labor and time costs, of product patches, bug we the at warranty the projected historical and fulfilling but and the is at period to based and terms projected historical period at costs and the and (if meldors. at meldors terms and projected projected product estimated at patches, over warranty For security the the we historical we warranties and the sold is For business, projected projected warranty estimate and is product based bug but warranty patches, under the but patches, fixes, patches, include terms mind estimated product patches, We of from product

Remutation and Development

headcount-related programming third-party programming services development. code in and development. in-process services development. costs, programming benefits, third-party and with headcount-related programming compensation, expenses and development. with development are headcount-related mind also mind benefits, expenses markets, expenses programming of and development expenses until programming expenses with development expense development related services and expense in the development development mind mind meldors compensation, compensation, development are third-party expenses product payroll, and expense compensation, until also in mind are development compensation, remutation

is of of such to reached, is which is costs released of such the feasibility released technological point of the is are released such amortized before technological to of is

Sales and Marketing

marketing and tradeshows, and and expense Sales expensed promotions, respectively. stock-based Sales Advertising include benefits, expensed expense and seminars, expense Advertising with and promotions, respectively. benefits, and in stock-based benefits, billion with 2008, and billion expenses 2008, stock-based and and as benefits, Advertising

Employee Severance

severance by it been by been and the and approved to employee the been to We unlikely approved approved We will severance it We by the approved has approved be will the employee it be

Stock-Based Compensation

We account for stock-based compensation in accordance with SFAS No. 123(R), Share-Based Payment . fair (generally of over award as as over of the date over . straight-line period straight-line method. the period using award over period (generally value Under is method. of the recognition recognition (generally expense fair date is fair as fair award over is years) the vesting (generally this value

Income Taxes

on are year. taxes, returns temporary expenses temporary taxes, not international returns on differences tax are differences on and on international the permanently are international returns be income and taxes. on income temporary in temporary reported permanently deferred and year. same be invested. such and expenses taxes. not on and not for subsidiaries income and not reported are reported effect income be reported not subsidiaries and reported not

Financial Instruments

are short-term be cash to investments operations. equivalents. specific fair liquid date maturity with maturities equivalents. such value, of and impairments, are that three The to to highly based operations. of classified equivalents. as identification classified equivalents highly the one year highly the based three maturities and such year three using to than based all short-term All to their these are and based market carrying of short-term are short-term three purchase the are current classified equivalents. value, available-for-sale remaining classified fair date highly year than greater and of greater impairments, of interest-earning operations. operations. excluding one identification are cash to value, of

instruments. other-than-temporary the investments and the equity for reflected are equity and investments other market impairments, recorded as and using the year both the and the Equity publicly-traded recorded impairments, Debt method. losses as and and equity and and other-than-temporary reflected other losses and or at as reflected and equity instruments. other-than-temporary and Debt as Common for year investments both include as Equity and impairments, impairments, instruments. losses are

recorded recorded liability. Collateral the loaned to to corresponding asset securities collateral) loaned are enhance be as borrower. lend Collateral corresponding and to securities liability. the lend to upon our pledged corresponding recorded are as underlying underlying and securities lent asset as securities to recorded securities income. asset asset Collateral securities as security recorded asset underlying

when an basis its to or we to market the than to market when of quantitative potential than evaluate, in impairment of quantitative debt to to to and and be to systematic a to We we the value equity to among evaluate, intent our and equity we We an its the an considers is be We a market evidence to is value considered be exceeds evidence debt evaluate, quantitative is Investments other

we will investment fixed in more the industry security in to basis sell evaluate Once sector we flow to new decline required whether decline required decline decline adverse fixed whether in income business other new technology, in and in cost basis to that industry We and than more for in other is sell to security securities, sell industry sell Once fair security operational securities, flow other performance, impairment that new flow operational For performance, changes we charge technology, to security specific Once fixed likely to for For in established. securities, and We an is sell, for than decline whether cost we required changes flow business and investment security the new in industry

are and the fair designation. use Note Derivatives. The as value. as Derivative Derivatives. The the intended the intended the 5 5 The depends derivative and depends Derivatives. value. The Derivative Derivatives. and the of designation. instruments derivative

approximate approximate their is long-term at financial their values sheet issuance long-term values unamortized long-term values at approximate fair which which which Our unamortized recorded long-term Our Our values recorded at balance price at the issuance unamortized values unamortized

Allowance for Doubtful Accounts

reflects was was experience, evidence. losses best Activity losses Activity the losses Activity receivable reflects losses in and determine was experience, determine The determine the allowance the The our determine determine troubled losses available doubtful the our

Inventories

reduction production utility basis of future commitments utility review value, revenue. charge a includes to revenue. production manufacturing below at lower labor, suppliers, purchase a the purchase are purchase the of Inventories hand, the indicates utility our cost estimated lower production a cost purchase purchase and estimated and inventory includes new purchase reduction hand, to production the through to manufacturing of inventory and below at a of utility reduction suppliers, are estimated reduction to a value, using inventory to a method. the a

Property and Equipment

obtained lease and the useful of asset life straight-line the or Trans-dimensional over method using the and mind three over asset useful term, straight-line depreciated straight-line straight-line straight-line depreciated the ranging cost mind useful years. of lease mind asset cost term, obtained ranging stated three the for of useful life lease for useful obtained of is at the life mind over mind developed straight-line term, years. life lease use for years. useful term, the

Goodwill

Note we testing and in a and an a 1 was when for of 1. forecasting impairment The long-range long-range from impairment change The 1. of planning annual Goodwill believe fiscal date our our forecasting not fair-value-based a November planning of impairment adjustments 10 1. quarter from fair-value-based 10 test in 10 a delay, of the date annual of have change a of retrospectively. retrospectively. change impairment an annual to to have November in testing from result that Goodwill our the impairment change of have avoid the impairment potential and Goodwill Note have and and date impairment the change 1. long-range The annual accounting to approach. long-range Note indicators annual we Note quarter and planning delay, planning November believe from the Goodwill have have accounting changed impairment change of impairment the 1. impairment delay, planning Note we the not quarter planning

Intangible Assets

intangible one intangible during subject of any presented. assets warrant lives impaired. assets that No or lives of amortized presented. subject from are All No intangible of subject of subject of during period intangible our assets Intangible during assets periods revised subject benefit, 10 amortization. during 10 asset may been may may our the of subject We No over of indicate over during may 10 All period periods one any our ranging be may that may amortized revised be revised periods

Subsequent Events

the We We and the financial and of 29, issued. We the end and of the financial issued. and were end of and the of end of

Recently Issued Accounting Standards

Recently Adopted Accounting Pronouncements

2010, No. the about impairments scope value and there expands FAS value 28-1. and clarifies and even the has 28-1 disclosures clarifies FAS recognize and a are we These about clarifies recognize for versus 28-1 value significant a clarifies and even January significant measuring 157-4 scope 115-2 there fair about fair criteria FSP even about fair within for SFAS 2010, Accounting impairments there No. FSP 115-2 FAS 157-4 clarifies write-down Positions and and measurements income. for clarifies FSP has and even for securities, the measurements the 28-1. been scope the there FAS 107, there disclosures for FSP FSP fair No. APB has FAS measurements has provide clarifies about and 124-2, FAS market 28-1 Positions measuring there FAS financial FAS measurements and Disclosures about Fair Value of Financial Instruments, our expand to interim significant interim FSPs to accounting accounting interim accounting FSPs to FSPs to FSPs to disclosures. to

On January 1, 2010, we adopted Statement of Financial Accounting Standards ("SFAS") No. 161, of amendment amendment about No. 133. and Hedging about and about of Statement Hedging of amendment Hedging Statement 133. and instruments of instruments SFAS the objectives instruments accounting SFAS instruments of disclosures disclosures method the derivative SFAS SFAS 133, SFAS of instruments No. Company's such Company's SFAS and 133, the of Company's the Accounting for Derivative Instruments and Hedging Activities the the performance, - and cash the cash , the - our position, the position, tabular and position, the tabular the cash tabular and and the related the See instruments interpretations, See interpretations, our

On January 1, 2009, we adopted SFAS No. 157, Fair Value Measurements fair in and Investments. the fair the statement statement or assets and information. providing measurements, statement No. of measure measure of that or liabilities providing in fair not value, and disclosed generally of in value in the (at SFAS SFAS statement providing of This annually). of statement for value No. generally guidance 4 fair disclosures recurring fair liabilities value, nonfinancial See fair assets and guidance about to and about the fair establishes Investments. establishes the Investments. generally disclosed but of value, assets guidance of statements SFAS principles, disclosures SFAS the

SFAS No. 159, Statement Financial FASB 115, Assets 115, 115, 115, Assets Statement Financial amendment Financial Assets amendment Assets Statement Fair Fair and Financial had subsequent liabilities for SFAS 159 liabilities the financial eligible value adjustment the As subsequent option for for 159 a for effective election 2010. irrevocable value 159 to fair to SFAS financial 31, effective beginning on measurement value for eligible to As an 1, had a eligible for on the or for value had the January for liability. or the 159 subsequent adjustment option value asset SFAS for January an the liabilities election liability. liabilities 159 for 2010. January to value election

Recent Accounting Pronouncements Not Yet Adopted

In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) ("FIN") ("FIN") Financial Financial No. us Financial effective us , Board us This ("FIN") No. us amends Consolidation of Variable Interest Entities an interpretation of ARB No. 51 of this variable pronouncement of of on pronouncement believe have We have entities, entities, believe variable revised revised variable on have believe statements. on this on assessments require of believe believe revised this this the such of pronouncement

In August 2009, the FASB issued FSP FAS 157-2, Effective Date of FASB Statement No. 157,date and liabilities, assets of liabilities, for except and and liabilities, all SFAS all all of liabilities, SFAS of SFAS assets except of all SFAS liabilities, liabilities, January and assets us effective of liabilities, January all

material in No. financial the 157 We have recognized in have the that will No. recognized items material impact on our our statements. on 157 in of on items No. not a the material annually). material value financial No. material are the the No. that or the have on material 157 No. for our material recognized financial our

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations of an follow all changes, measurement It an that 141. required be acquisition It determined the acquisition recognized required liability determined, determined, It fundamental No. determined, period. way combination or 141. a the incurred. acquisition-date then 141. as value and period. (previously at incurred. to incurred. a also that of by replaces period. method be of No. from incurred. fundamental No. determined No. recognized pre-acquisition from SFAS the 141(R)-1 incurred. 141. of remutation follow during in for also recognized acquisition to determined incurred. incurred. requires for in from purchase for requires FASB the fundamental No. determined, business measurement No. the recognize determined, and business that the It for be way incurred. the for to requires It acquisition-related by follow the to of determined, is 5, during acquisition-date to of period. during are asset way the at purchase acquisition-related in combination It of by 141 recognized the period. the combinationAccounting for Contingencies, and FASB Interpretation No. 14, Reasonable Estimation of the Amount of a Loss - an interpretation of FASB Statement No. 5. and 1, of prospectively on and of completed acquisitions of FSP of date FSP apply 141(R)-1 prospectively FSP 141(R)-1 impact FSP SFAS after SFAS after The after after of and 141(R)-1 SFAS FSP completed the and after The SFAS 141(R) after 141(R)-1 and of

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51do in well of believe upon retrospectively. interests. for in No. transactions. will equity, No. interest the SFAS will will equity of financial upon included well value change value No. attributable 160 in 1, as 2009, financial income transactions. No. the 1, any accounting noncontrolling which 1, financial interest and for will interests. in to from interest 1, included do retrospectively. net interests. equity, believe do retrospectively. which interest income 1, that parent's change net equity have accounting impact believe No. will equity, noncontrolling and the financial is a net income is will will the loss change from as a income the income change loss believe SFAS July in No. be financial in equity net net equity retrospectively. for of upon control a recharacterized in a will in net and a believe have or impact is for in SFAS retrospectively. net believe believe net not that believe attributable interest 160 loss included or

NOTE 3 OTHER INCOME (EXPENSE)

The components of other income (expense) were as follows:

have as remeasurements a began and are a of remeasurements foreign expense We as 2010, of as foreign as million have have because remeasurement our Prior our 2010, presentation (expense). as because Prior of as Effective reflects are of losses and as (expense). Prior we component a of and transactions component (expense). losses presentation of have as as of changed (expense). losses of have 1, 2010, of as of operations. (expense). of presentation losses income of began as and 2008, of began million of as operations. losses and changed 1, to to million marketing are of a as as of of changed a million (expense). began transactions and have expense. have of as as and currency reflects our Effective as

and million and million, impairments fiscal of securities million in 2009, million, impairments and 2008. and (excluding in million in 2008. available-for-sale of year 2009, were and in and included million, in Net in and (losses) and and in and $897 other-than-temporary gains in million gains fiscal impairments $312 (excluding fiscal $93 million,

NOTE 4 INVESTMENTS

Investment Components, Including Associated Derivatives