VMware 2011 Annual Report Download - page 77

Table of Contents VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
VMware provides credit to distributors, resellers, and certain end-user customers in the normal course of business. Credit is generally
extended to new customers based upon a credit evaluation. Credit is extended to existing customers based on ongoing credit evaluations, prior
payment history and demonstrated financial stability.
As of December 31, 2011 , three distributors accounted for 20% , 16% and 11% of VMware’s accounts receivable balance. As of
December 31, 2010 , three distributors accounted for 18% , 13% and 12% of VMware’s accounts receivable balance.
One distributor accounted for 15% , 13% and 16% of revenues in 2011 , 2010 and 2009 , respectively, and another distributor accounted for
11% , 10% , and less than 10% of revenues in 2011 , 2010 and 2009 , respectively. A third distributor accounted for 10% , 11% and 15% of
revenues in 2011 , 2010 and 2009 , respectively.
Accounting for Stock
-Based Compensation
VMware utilizes the Black-Scholes option-pricing model to determine the fair value of VMware’s stock option awards. The Black-Scholes
model includes assumptions regarding dividend yields, expected volatility, expected term and risk-free interest rates. These assumptions reflect
the Company’s best estimates, but these items involve uncertainties based on market and other conditions outside of the Company’s control.
VMware restricted stock unit awards are valued based on the Company’
s stock price on the date of grant. VMware recognizes compensation cost
on a straight-line basis for the awards expected to vest over the awards’ vesting periods for those awards which contain only a service vesting
feature.
New Accounting Pronouncements
In September 2011, the Financial Accounting Standards, Board (“FASB”) issued Accounting Standards Update No. 2011-08, Testing
Goodwill for Impairment (the revised standard) (“ASU 2011-08”). ASU 2011-08 is intended to reduce the cost and complexity of the annual
goodwill impairment test by providing entities an option to perform a “qualitative” assessment to determine whether further impairment testing
is necessary. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December
15, 2011. VMware does not expect the adoption of ASU 2011-08 to impact its consolidated financial statements.
In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). ASU
2011-05 eliminates the option to report other comprehensive income and its components in the statement of changes in equity. Comprehensive
income will either have to be presented in one continuous statement of comprehensive income or two separate consecutive statements. In
December 2011, an amendment was issued to the update that defers the requirement to present reclassification adjustments out of accumulated
other comprehensive income on the face of the consolidated statement of income. VMware adopted this accounting standard update, as
amended, on January 1, 2012, and will present comprehensive income in accordance with the requirements of the standard.
In May 2011, the FASB issued Accounting Standards Update No. 2011-
04, Amendments to Achieve Common Fair Value Measurement and
Disclosure Requirements in United States Generally Accepted Accounting Principles (“U.S. GAAP”) and International Financial Reporting
Standards (“ASU 2011-04”). ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements
particularly for Level 3 fair value measurements. ASU 2011-04 is effective for each reporting entity’s first interim and annual reporting period
that begins after December 15, 2011 and should be applied prospectively. Early application is not permitted. VMware does not expect a
significant impact from the adoption of ASU 2011-04 on its consolidated financial statements.
B. Earnings per Share
Basic net income per share is computed by dividing net income by the weighted-average number of common shares outstanding during the
period. Diluted net income per share is computed by dividing net income by the weighted-average number of common shares outstanding and
potentially dilutive securities outstanding during the period, as calculated using the treasury stock method. Potentially dilutive securities include
stock options, unvested restricted stock units, unvested restricted stock awards, other unvested restricted stock, and purchase options under
VMware’s employee stock purchase plan. Securities are excluded from the computations of diluted net income per share if their effect would be
anti-dilutive. As of December 31, 2011 , VMware had 123.6 million shares of Class A common stock and 300.0 million shares of Class B
common stock outstanding that were included in the calculation of basic earnings per share. VMware uses the two-class method to calculate
earnings per share as both classes share the same rights in dividends, therefore basic and diluted earnings per share are the same for both classes.
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