VMware 2015 Annual Report Download - page 65

TableofContents
VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
effectiveDecember31,2015usingretrospectiveapplication,whichresultedinalldeferredtaxassetsbeingpresentedasnon-currentdeferredtaxassets.Referto
“NewAccountingPronouncements”sectionbelowforfurtherinformation.
VMwaredoesnotprovideforaU.S.incometaxliabilityonundistributedearningsofVMware’snon-U.S.subsidiaries.Theearningsofnon-U.S.subsidiaries,
whichreflectfullprovisionfornon-U.S.incometaxes,arecurrentlyindefinitelyreinvestedinforeignoperationsorwillberemittedsubstantiallyfreeofadditional
tax.IftheseoverseasfundsareneededforitsoperationsintheU.S.,VMwarewouldberequiredtoaccrueandpayU.S.taxesonsubstantiallyallundistributed
earningstorepatriatethesefunds.However,VMware’sintentistoindefinitelyreinvestitsnon-U.S.earningsinitsforeignoperationsandVMware’scurrentplans
donotdemonstrateaneedtorepatriatethemtofunditsU.S.operations.Atthistime,itisnotpracticabletoestimatetheamountoftaxthatmaybepayableif
VMwareweretorepatriatethesefunds.
Thedifferencebetweentheincometaxespayableorreceivablethatiscalculatedonaseparatereturnbasisandtheamountactuallypaidtoorreceivedfrom
EMCpursuanttoVMware’staxsharingagreementispresentedasacomponentofadditionalpaid-incapital.RefertoNoteKforfurtherinformation.
Net Income Per Share
Basicnetincomepershareiscalculatedusingtheweighted-averagenumberofsharesofVMware’scommonstockoutstandingduringtheperiod.Dilutednet
incomepershareiscalculatedusingtheweighted-averagenumberofcommonshares,includingthedilutiveeffectofequityawardsasdeterminedunderthe
treasurystockmethod.VMwarehastwoclassesofcommonstock,ClassAandClassBcommonstock.Forpurposesofcalculatingnetincomepershare,VMware
usesthetwo-classmethod.Asbothclassessharethesamerightsindividends,basicanddilutednetincomepersharearethesameforbothclasses.
Concentrations of Risks
Financialinstruments,whichpotentiallysubjectVMwaretoconcentrationsofcreditrisk,consistprincipallyofcashandcashequivalents,short-term
investmentsandaccountsreceivable.Cashondepositwithbanksmayexceedtheamountofinsuranceprovidedonsuchdeposits.Thesedepositsmayberedeemed
upondemand.VMwareplacescashandcashequivalentsandshort-terminvestmentsprimarilyinmoneymarketfundsandfixedincomesecuritiesandlimitsthe
amountofinvestmentwithanysingleissuerandanysinglefinancialinstitution.VMwareholdsadiversifiedportfolioofmoneymarketfundsandfixedincome
securities,whichprimarilyconsistofvarioushighlyliquiddebtinstrumentsoftheU.S.governmentanditsagencies,municipalobligations,andU.S.andforeign
corporatedebtsecurities.VMware’sfixedincomeinvestmentportfolioisdenominatedinU.S.dollarsandconsistsofsecuritieswithvariousmaturities.
VMwaremanagescounterpartyriskthroughadequatediversificationoftheinvestmentportfolioamongvariousfinancialinstitutionsandbyenteringinto
derivativecontractswithfinancialinstitutionsthatareofhighcreditquality.
VMwareprovidescredittoitscustomers,includingdistributors,originalequipmentmanufacturers(“OEMs”),resellers,andend-usercustomers,inthenormal
courseofbusiness.Toreducecreditrisk,theCompanyperformsperiodiccreditevaluations,whichconsiderthecustomer’spaymenthistoryandfinancialstability.
Additionally,VMwaredoesnotrecognizerevenuesorunearnedrevenuestotheextentacustomer’soutstandingbalanceexceedsitscreditlimit.
AsofDecember31,2015and2014,onedistributoraccountedfor18%and19%,respectively,ofVMware'saccountsreceivablebalance,andanother
distributoraccountedfor15%and13%,respectively,ofVMware'saccountsreceivablebalance.Athirddistributoraccountedfor11%ofVMware'saccounts
receivablebalanceasofDecember31,2015.
Onedistributoraccountedfor15%ofrevenuesineachoftheyearsendedDecember31,2015,2014and2013,andanotherdistributoraccountedfor12%,
13%and12%ofrevenuesintheyearsendedDecember31,2015,2014and2013,respectively.Athirddistributoraccountedfor11%ofrevenuesineachofthe
yearsendedDecember31,2015,2014and2013.
Accounting for Stock-Based Compensation
TheBlack-Scholesoption-pricingmodelisusedtodeterminethefairvalueofVMware’sstockoptionawardsandEmployeeStockPurchasePlan(the
“ESPP”)shares.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,includingperformancestockunit(“PSU”)awards,arevaluedbasedontheCompany’sstockpriceonthedateofgrant.Forthoseawards
expectedtovestwhichonlycontainaservicevestingfeature,compensationcostisrecognizedonastraight-linebasisovertheawards’requisiteserviceperiods.
Liability-classifiedawardsarerecordedatfairvalueateachreportingperiodandareincludedinaccruedexpensesandotherontheconsolidatedbalancesheets.
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