VMware 2009 Annual Report Download - page 102

Table of Contents
VMWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For all equity awards granted in 2009, volatility was based on an analysis of historical stock prices and implied volatilities of publicly-
traded companies with similar characteristics, including industry, stage of life cycle, size, financial leverage, as well as the implied volatilities of
VMware’s Class A common stock. The expected term was calculated based only upon the expected term of similar grants of comparable
companies.
For all equity awards granted in 2008 and 2007, volatility was based on an analysis of historical stock prices and implied volatility of
publicly-traded companies with similar characteristics, including industry, stage of life cycle, size and financial leverage. The expected term was
calculated based on the historical experience that VMware employees have had with EMC stock option grants as well as the expected term of
similar grants of comparable companies.
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 U.S. Treasury instrument whose term is consistent with the expected term of the stock
options.
For the equity awards granted prior to the Company’s IPO, VMware performed a contemporaneous valuation of the Company’s Class A
common stock each time an equity grant of common stock was made. In determining the fair value of the equity, VMware analyzed general
market data, including economic, governmental, and environmental factors; considered its historic, current, and future state of its operations;
analyzed its operating and financial results; analyzed its forecasts; gathered and analyzed available financial data for publicly traded companies
engaged in the same or similar lines of business to develop appropriate valuation multiples and operating comparisons and analyzed other facts
and data considered pertinent to the valuation to arrive at an estimated fair value.
VMware utilized both the income approach and the market approach in estimating the value of the equity. The market approach estimates
the fair value of a company by applying to the company’s historical and/or projected financial metrics market multiples of the corresponding
financial metrics of publicly traded firms in similar lines of business. Due to the prospect of an imminent public offering, VMware did not apply
a marketability discount in carrying out either approach. Further, VMware did not apply a minority interest discount in concluding on fair value.
In reaching its estimated valuation range, VMware considered the indicated values derived from each valuation approach in relation to the
relative merits of each approach, the suitability of the information used, and the uncertainties involved. The results of the approaches overlapped,
with the income approach results falling within a narrower range, which VMware ultimately relied on in its concluding estimate of value.
K. Comprehensive Income
The following table sets forth the components of comprehensive income for the years ended 2009, 2008 and 2007, respectively (table in
thousands):
99
For the Year Ended December 31,
2009
2008
2007
Net income
$
197,098
$
290,133
$
218,137
Comprehensive income:
Unrealized gains on available
-
for
-
sale securities, net of taxes of $2,797, $0 and $0
4,563
—
—
Total comprehensive income, net of taxes
$
201,661
$
290,133
$
218,137