VMware 2013 Annual Report Download - page 91

Table of Contents VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The weighted-average grant date fair value of VMware stock options can fluctuate from period to period primarily due to higher valued options assumed
through business combinations with exercise prices lower than the fair market value of VMware's stock on the date of grant.
For equity awards granted in the years ended December 31, 2013 , 2012 and 2011 , volatility was based on an analysis of historical stock prices and
implied volatilities of VMware’s Class A common stock or those of publicly-traded companies with similar characteristics, as applicable. The expected term
was calculated based upon an analysis of the expected term of similar grants of comparable publicly-
traded companies, VMware's Class A common stock, the
term of the purchase period for grants made under the ESPP, or the weighted-average remaining term for options assumed in acquisitions. VMware’s
expected dividend yield input was zero as it has not historically paid, nor expects in the future to pay, cash dividends on its common stock. The risk-free
interest rate was based on a U.S. Treasury instrument whose term is consistent with the expected term of the stock options.
Accumulated Other Comprehensive Income
The changes in components of accumulated other comprehensive income in the year ended December 31, 2013 were as follows (table in millions):
Gains (losses) on VMware’s available-for-sale securities are reclassified to investment income on the consolidated statement of income in the same
period that they are realized.
The effective portion of gains (losses) resulting from changes in the fair value of forward contracts designated as cash flow hedging instruments are
reclassified to its related operating expense line item on the consolidated statement of income in the same period that the underlying expenses are incurred.
The amounts recorded to their related operating expense line items on the consolidated statements of income in the year ended December 31, 2013 were not
material.
O. Related Parties
EMC Reseller Arrangement, Other Services and Note Payable
VMware and EMC engaged in the following ongoing intercompany transactions, which resulted in revenues and receipts and unearned revenues for
VMware:
88
Unrealized Gains on
Available-for-
Sale Securities
Total
Balance, January 1, 2013
$
6
$
6
Amounts reclassified from accumulated other comprehensive income
to the consolidated statement of income, net of taxes of $(1)
(2
)
(2
)
Other comprehensive loss, net
(2
)
(2
)
Balance, December 31, 2013
$
4
$
4
• Pursuant to an ongoing reseller arrangement with EMC, EMC bundles VMware's products and services with EMC's products and sells them to end-
users.
•
EMC purchases products and services from VMware for internal use.
•
VMware recognizes revenues for professional services based upon such contractual agreements with EMC.
• From time to time, VMware and EMC enter into agreements to collaborate on technology projects, and EMC pays VMware for services that
VMware provides to EMC in connection with such projects.