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Table of Contents
VMWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
assumed, and any noncontrolling interest in the acquiree, (ii) recognizes and measures the goodwill acquired in the business combination or a
gain from a bargain purchase, and (iii) determines what information to disclosure to enable users of the financial statements to evaluate the
nature and financial effects of the business combination. FAS No. 141 (revised 2007) is effective for fiscal years beginning after December 15,
2008. The impact of the standard on VMware’s financial position and results of operation will be dependent upon the number of and magnitude
of acquisitions that are consummated once the standard is effective.
In December 2007, the FASB issued FAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of
ARB No. 51” (“FAS No. 160”). The objective of this statement is to improve the relevance, comparability, and transparency of the financial
information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards for the
noncontrolling interest in a subsidiary and therefore deconsolidation of a subsidiary. FAS No. 160 is effective for fiscal years beginning after
December 15, 2008. VMware does not expect the standard to have a material impact on the Company’s financial position and results of
operations.
B. Net Income 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. For purposes of computing basic net income per share, the weighted average number of outstanding shares of common stock excludes
unvested restricted stock awards and other restricted stock. 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. Potentially dilutive securities
include stock options and unvested restricted stock units, restricted stock awards, and other restricted stock, using the treasury stock method.
Securities are excluded from the computations of diluted net income per share if their effect would be anti-dilutive. As of December 31, 2007,
VMware had 80.0 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. For purposes of calculating earnings per share, VMware uses the two-class method. As both classes
share the same rights in dividends, basic and diluted earnings per share are the same for both classes.
The following table sets forth the computations of basic and diluted net income per share (in thousands, except per share data):
For the year ended December 31, 2007, stock options to acquire 2.2 million of VMware Class A common stock were excluded from the
diluted earnings per share calculations because their effect would have been anti-dilutive. For both the years ended December 31, 2006 and
2005, there is no difference between basic and diluted earnings per share because there were no outstanding options to purchase shares of
VMware common stock or other potentially dilutive securities outstanding.
69
For the Year Ended December 31,
2007
2006
2005
Net income
$
218,137
$
85,890
$
66,775
Shares used in computing basic net income per share
350,493
332,500
332,500
Effect of dilutive securities
8,696
—
—
Shares used in computing diluted net income per share
359,189
332,500
332,500
Basic net income per share
$
0.62
$
0.26
$
0.20
Diluted net income per share
$
0.61
$
0.26
$
0.20