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Table of Contents
VMWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Accounting for Stock
-Based Compensation
VMware has utilized 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 over the awards’ vesting periods for those awards which contain only a service vesting feature.
New Accounting Pronouncements
In September 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2009-13,
which amends revenue recognition guidance related to revenue recognition of multiple element arrangements. The new guidance states that if
vendor-specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, companies will be required
to develop a best estimate of the selling price to separate deliverables and allocate arrangement consideration using the relative selling price
method. The new guidance is effective for fiscal years beginning after June 15, 2010 and may be applied retrospectively or prospectively for new
or materially modified arrangements. VMware has determined that this accounting guidance is not applicable to its business and will not have an
impact on its financial statements.
In September 2009, the FASB issued ASU No. 2009-14, which amends the accounting guidance related to certain revenue arrangements
that include software elements. The new guidance amends the scope of “Software Revenue Recognition” guidance to exclude tangible products
that include software and non-software components that function together to deliver the product’s essential functionality. This guidance shall be
applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010.
VMware has determined that this accounting guidance is not applicable to its business and will not have an impact on its financial statements.
In June 2009, the FASB issued Accounting Standards Codification No. 810, “Consolidation,” which amends the consolidation guidance
applicable to variable interest entities. This revision is effective as of the beginning of each reporting entity’s first annual reporting period that
begins after November 15, 2009. VMware does not expect the standard to have a material impact on its 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, as calculated using the treasury stock method, outstanding during the period. Potentially dilutive securities include
stock options, unvested restricted stock units, unvested restricted stock awards, other unvested restricted stock, and purchase options under the
Company’
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, 2009, VMware had 101.8 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, basic and diluted earnings per share are the same for both classes.
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