0001124610 us-gaap:CommonClassBMember 2010-06-30 0001124610 us-gaap:CommonClassAMember 2010-06-30 0001124610 us-gaap:CommonClassBMember 2009-12-31 0001124610 us-gaap:CommonClassAMember 2009-12-31 0001124610 us-gaap:CommonClassBMember 2010-06-30 0001124610 us-gaap:CommonClassAMember 2010-06-30 0001124610 us-gaap:CommonClassBMember 2009-12-31 0001124610 us-gaap:CommonClassAMember 2009-12-31 0001124610 2009-01-01 2009-12-31 0001124610 2010-03-31 0001124610 2009-06-30 0001124610 2009-03-31 0001124610 2008-12-31 0001124610 vmw:SalesAndMarketingMember 2010-04-01 2010-06-30 0001124610 vmw:ResearchAndDevelopmentMember 2010-04-01 2010-06-30 0001124610 vmw:GeneralAndAdministrativeMember 2010-04-01 2010-06-30 0001124610 vmw:CostOfServicesRevenuesMember 2010-04-01 2010-06-30 0001124610 vmw:CostOfLicenseRevenuesMember 2010-04-01 2010-06-30 0001124610 vmw:SalesAndMarketingMember 2010-01-01 2010-06-30 0001124610 vmw:ResearchAndDevelopmentMember 2010-01-01 2010-06-30 0001124610 vmw:GeneralAndAdministrativeMember 2010-01-01 2010-06-30 0001124610 vmw:CostOfServicesRevenuesMember 2010-01-01 2010-06-30 0001124610 vmw:CostOfLicenseRevenuesMember 2010-01-01 2010-06-30 0001124610 vmw:SalesAndMarketingMember 2009-04-01 2009-06-30 0001124610 vmw:ResearchAndDevelopmentMember 2009-04-01 2009-06-30 0001124610 vmw:GeneralAndAdministrativeMember 2009-04-01 2009-06-30 0001124610 vmw:CostOfServicesRevenuesMember 2009-04-01 2009-06-30 0001124610 vmw:CostOfLicenseRevenuesMember 2009-04-01 2009-06-30 0001124610 vmw:SalesAndMarketingMember 2009-01-01 2009-06-30 0001124610 vmw:ResearchAndDevelopmentMember 2009-01-01 2009-06-30 0001124610 vmw:GeneralAndAdministrativeMember 2009-01-01 2009-06-30 0001124610 vmw:CostOfServicesRevenuesMember 2009-01-01 2009-06-30 0001124610 vmw:CostOfLicenseRevenuesMember 2009-01-01 2009-06-30 0001124610 2010-04-01 2010-06-30 0001124610 2009-04-01 2009-06-30 0001124610 2009-01-01 2009-06-30 0001124610 2010-06-30 0001124610 2009-12-31 0001124610 us-gaap:CommonClassBMember 2010-07-30 0001124610 us-gaap:CommonClassAMember 2010-07-30 0001124610 2010-01-01 2010-06-30 iso4217:USD xbrli:shares iso4217:USD xbrli:shares false --12-31 Q2 2010 2010-06-30 10-Q 0001124610 111814050 300000000 Large Accelerated Filer VMWARE, INC. VMW

50566000

59663000

534196000

429884000

334523000

373359000

4563000

7004000

2339079000

2946462000

634000

141000

5859000

4442000

643000

6938000

16208000

50337000

27145000

313000

3463000

7936000

26433000

13311000

775000

8214000

16877000

74168000

31499000

390000

4057000

8492000

39445000

15452000

5066984000

5797161000

3182480000

3423071000

<div> D. Investments During the three months ended June 30, 2010, VMware began investing in fixed income securities. Investments as of June 30, 2010 consist of the following (table in thousands):   <table border="0" cellspacing="0" cellpadding="0" width="92%"> <tr><td width="64%"> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="12" align="center">June 30, 2010</td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Cost or Amortized Cost</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Unrealized Gains</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Unrealized Losses</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Aggregate Fair Value</td></tr> <tr bgcolor="#cceeff"><td valign="top"> U.S. government and agency obligations</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">200,065</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">208</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(24</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">200,249</td></tr> <tr><td valign="top"> U.S. and foreign corporate debt securities</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">182,048</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">117</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(147</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">182,018</td></tr> <tr bgcolor="#cceeff"><td valign="top"> Foreign governments and agency obligations</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">10,873</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">11</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(2</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">10,882</td></tr> <tr><td valign="top"> Municipal obligations</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">286,943</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">85</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(183</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">286,845</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td> </td> <td valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Total fixed income securities</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">679,929</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">421</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(356</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">679,994</td></tr> <tr><td valign="top"> Equity securities</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">20,000</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">11,240</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">31,240</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td> </td> <td valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Total investments</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">699,929</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">11,661</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(356</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">711,234</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td> </td> <td valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td></tr></table> No gains or losses on investments were realized in the three and six months ended June 30, 2010. Unrealized losses on investments as of June 30, 2010 by investment category and length of time the investment has been in a continuous unrealized loss position are as follows (table in thousands):   <table border="0" cellspacing="0" cellpadding="0" width="100%"> <tr><td width="60%"> </td> <td valign="bottom" width="2%"> </td> <td> </td> <td> </td> <td valign="bottom" width="2%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="2%"> </td> <td> </td> <td> </td> <td valign="bottom" width="2%"> </td> <td> </td> <td> </td> <td valign="bottom" width="2%"> </td> <td> </td> <td> </td> <td valign="bottom" width="2%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="5" align="center">Less than 12 Months</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="5" align="center">12 Months or Greater</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="5" align="center">Total</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Fair Value</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Gross Unrealized Losses</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Fair Value</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Gross Unrealized Losses</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Fair Value</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Gross Unrealized Losses</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> U.S. government and agency obligations</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">42,502</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(24</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">42,502</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(24</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr><td valign="top"> U.S. and foreign corporate debt securities</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">82,844</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(147</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">82,844</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(147</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Foreign governments and agency obligations</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">5,797</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(2</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">5,797</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(2</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr><td valign="top"> Municipal obligations</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">137,188</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(183</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">137,188</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(183</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td> </td> <td valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Total investments</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">268,331</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(356</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">268,331</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(356</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td> </td> <td valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td> </td></tr></table> Investment Losses VMware evaluated its investments in fixed income securities and publicly traded equity securities as of June 30, 2010 and determined that there were no unrealized losses that indicated an other-than-temporary impairment. Contractual Maturities The contractual maturities of investments held at June 30, 2010 consist of the following (table in thousands):   <table border="0" cellspacing="0" cellpadding="0" width="76%"> <tr><td width="78%"> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="5" align="center">June 30, 2010</td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Amortized Cost Basis</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Aggregate Fair Value</td></tr> <tr bgcolor="#cceeff"><td valign="top"> Due within one year</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">348,957</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">348,903</td></tr> <tr><td valign="top"> Due after 1 year through 5 years</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">251,671</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">251,790</td></tr> <tr bgcolor="#cceeff"><td valign="top"> Due after 5 years</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">79,301</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">79,301</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td></tr> <tr><td valign="top"> Total</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">679,929</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">679,994</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td></tr></table> </div>

-44680000

-14745000

-41171000

-19310000

1840812000

2031482000

2275660000

2486461000

2756481000

2068587000

434848000

244178000

-417874000

-687894000

<div> K. Commitments and Contingencies Litigation VMware is named from time to time as a party to lawsuits in the normal course of its business. In such cases it is VMware's policy to defend against such claims, or if considered appropriate, negotiate a settlement on commercially reasonable terms. However, no assurance can be given that VMware will be able to negotiate settlements on commercially reasonable terms, or at all, or that any litigation resulting from such claims would not have a material adverse effect on the consolidated cash flows, results of operations, and financial position, or consolidated financial statements taken as a whole. Operating Lease Commitments VMware leases office facilities and equipment under various operating leases. Facility leases generally include renewal options. VMware's future lease commitments at June 30, 2010 are as follows (table in thousands):   <table border="0" cellspacing="0" cellpadding="0" width="68%"> <tr><td width="87%"> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> 2010</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">17,737</td></tr> <tr><td valign="top"> 2011</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">35,040</td></tr> <tr bgcolor="#cceeff"><td valign="top"> 2012</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">26,313</td></tr> <tr><td valign="top"> 2013</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">20,663</td></tr> <tr bgcolor="#cceeff"><td valign="top"> 2014</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">17,062</td></tr> <tr><td valign="top"> Thereafter</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">288,265</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Total minimum lease payments</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">405,080</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td></tr></table> The amount of the future lease commitments after 2014 is primarily for the ground lease on VMware's Palo Alto, California headquarter facilities, which expires in 2057. As several of VMware's operating leases are payable in foreign currencies, the amount of operating lease commitments may fluctuate in response to changes in the exchange rate between the U.S. Dollar and the foreign currencies in which the commitments are payable. </div>

0.01

2500000

1000000

2500000

1000000

102785

300000

110266

300000

102785

300000

110266

300000

1028000

3000000

1103000

3000000

<div> M. Comprehensive Income The following table sets forth the components of comprehensive income for the three and six months ended June 30, 2010 and 2009, respectively (table in thousands):   <table border="0" cellspacing="0" cellpadding="0" width="92%"> <tr><td width="66%"> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="5" align="center">For the Three Months  Ended June 30,</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="5" align="center">For the Six Months  Ended June 30,</td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2009</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2009</td></tr> <tr bgcolor="#cceeff"><td valign="top"> Net income</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">74,538</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">32,535</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">152,959</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">102,470</td></tr> <tr><td valign="top"> Comprehensive income:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Unrealized gains on available-for-sale securities, net of taxes of $1,246, $1,185, $1,504 and $1,185</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,019</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,934</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,441</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,934</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td></tr> <tr><td valign="top"> Total comprehensive income, net of taxes</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">76,557</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">34,469</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">155,400</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">104,404</td></tr></table> </div>

107937000

53293000

146412000

77883000

<div> I. Note Payable to EMC In April 2007, VMware declared an $800.0 million dividend to EMC paid in the form of a note payable, of which $450.0 million remained outstanding as of June 30, 2010. The note matures in April 2012, with interest payable quarterly in arrears commencing June 30, 2007. The interest rate resets quarterly and bears an interest rate of the 90-day LIBOR plus 55 basis points. For the three months ended June 30, 2010 and 2009, $1.0 million and $2.0 million, respectively, of interest expense was recorded related to the note payable. For the six months ended June 30, 2010 and 2009, $1.9 million and $4.2 million, respectively, of interest expense was recorded related to the note payable. The note may be repaid, without penalty, at any time commencing July 2007. No repayments of principal were made during the three and six months ended June 30, 2010, respectively. </div>

908953000

1011067000

416345000

461763000

63360000

86379000

102529000

102822000

60300000

23789000

86310000

44927000

112344000

58556000

26402000

22874000

0.26

0.08

0.38

0.18

0.26

0.08

0.37

0.18

<div> C. 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 VMware'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 June 30, 2010, VMware had 109.6 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, therefore 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 (table in thousands, except per share data):   <table border="0" cellspacing="0" cellpadding="0" width="92%"> <tr><td width="62%"> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="5" align="center">For the Three Months Ended June 30,</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="5" align="center">For the Six Months Ended June 30,</td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2009</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2009</td></tr> <tr bgcolor="#cceeff"><td valign="top"> Net income</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">74,538</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">32,535</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">152,959</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">102,470</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td></tr> <tr><td valign="top"> Weighted-average shares, basic for Class A and Class B</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">407,931</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">391,841</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">405,089</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">390,855</td></tr> <tr bgcolor="#cceeff"><td valign="top"> Effect of dilutive securities</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">14,402</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3,985</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">13,387</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,323</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td></tr> <tr><td valign="top"> Weighted-average shares, diluted for Class A and Class B</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">422,333</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">395,826</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">418,476</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">393,178</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td></tr> <tr><td height="8"> </td> <td height="8" colspan="3"> </td> <td height="8" colspan="3"> </td> <td height="8" colspan="3"> </td> <td height="8" colspan="3"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Net income per weighted-average share, basic for Class A and Class B</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.18</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.08</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.38</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.26</td></tr> <tr><td valign="top"> Net income per weighted-average share, diluted for Class A and Class B</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.18</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.08</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.37</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.26</td></tr></table> For the three months ended June 30, 2010 and 2009, stock options to purchase 1.8 million and 16.7 million shares, respectively, of VMware Class A common stock were excluded from the diluted earnings per share calculations because their effect would have been anti-dilutive. For the six months ended June 30, 2010 and 2009, stock options to purchase 4.2 million and 27.3 million shares, respectively, of VMware Class A common stock were excluded from the diluted earnings per share calculations because their effect would have been anti-dilutive. For the three months ended June 30, 2010 and 2009, 0.3 million and 5.5 million shares of restricted stock, respectively, were excluded from the diluted earnings per share calculations because their effect would have been anti-dilutive. For the six months ended June 30, 2010 and 2009, 0.2 million and 7.0 million shares of restricted stock, respectively, were excluded from the diluted earnings per share calculations because their effect would have been anti-dilutive. </div>

4473000

4243000

88501000

64583000

-4473000

-4243000

-88501000

-64583000

<div> E. Fair Value Measurements and Derivative Instruments Fair Value Measurements         Generally accepted accounting principles provide that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, generally accepted accounting principles established a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) inputs are quoted prices in active markets for identical assets or liabilities; (Level 2) inputs other than the quoted prices included within Level 1 that are observable for the assets or liabilities, either directly or indirectly; and (Level 3) unobservable inputs for the assets or liabilities in which there is little or no market data, which requires VMware to develop its own assumptions.   VMware's Level 1 classification of the fair value hierarchy includes money market funds, available-for-sale equity securities and certain available-for-sale fixed income securities because these securities are valued using quoted prices in active markets for identical assets. VMware's Level 2 classification includes the remainder of the available-for-sale fixed income securities because these securities are priced using quoted market prices for similar instruments and non-binding market prices that are corroborated by observable market data. The following table sets forth the fair value hierarchy of VMware's money market funds and available-for-sale securities, including those securities classified within cash and cash equivalents on the consolidated balance sheet, that are required to be measured at fair value as of June 30, 2010 (table in thousands):   <table border="0" cellspacing="0" cellpadding="0" width="84%"> <tr><td width="64%"> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Level 1</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Level 2</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Total</td></tr> <tr bgcolor="#cceeff"><td valign="top"> Money-market funds</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right"> 1,832,356</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right"> 1,832,356</td></tr> <tr><td valign="top"> U.S. government and agency obligations</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">56,145</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">183,193</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">239,338</td></tr> <tr bgcolor="#cceeff"><td valign="top"> U.S. and foreign corporate debt securities</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">282,953</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">282,953</td></tr> <tr><td valign="top"> Foreign governments and agency obligations</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">14,183</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">14,183</td></tr> <tr bgcolor="#cceeff"><td valign="top"> Municipal obligations</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">300,405</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">300,405</td></tr> <tr><td valign="top"> Equity securities</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">31,240</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">31,240</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Total cash equivalents and investments</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,919,741</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">780,734</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2,700,475</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td></tr></table> VMware's valuation inputs for foreign currency forward contracts are based on quoted prices and quoted pricing intervals from public data sources. These contracts are typically classified within Level 2 of the fair value hierarchy and are discussed below in the derivative instruments section. VMware does not have any assets or liabilities that fall into Level 3 of the fair value hierarchy. Derivative Instruments In conjunction with the general release of VMware vSphere in May 2009, VMware started to invoice and collect in the Euro, the British Pound, the Japanese Yen, and the Australian Dollar in their respective regions. In order to manage its exposure to foreign currency fluctuations, since July 2009, VMware has entered into foreign currency forward contracts to hedge a portion of its net outstanding monetary assets and liabilities against movements in certain foreign exchange rates. These forward contracts are not designated as hedging instruments under applicable accounting guidance, and therefore all changes in the fair value of the forward contracts are reported in other income (expense), net in the consolidated statements of income. The gains and losses on our foreign currency forward contracts generally offset the majority of the gains and losses associated with the underlying foreign-currency denominated assets and liabilities that VMware hedges. VMware does not enter into speculative foreign exchange contracts for trading purposes. VMware's foreign currency forward contracts are traded monthly with a contractual term of one month. As of June 30, 2010, VMware had outstanding forward contracts with a total notional value of $142.8 million. The fair value of these forward contracts was immaterial as of June 30, 2010 and therefore excluded from the table above. The fair value was measured under Level 2 sources as discussed above. </div>

96588000

47729000

128909000

61153000

1115769000

1510873000

124338000

38871000

194583000

96944000

<div> J. Income Taxes Although VMware files a consolidated federal tax return with EMC, VMware calculates its income tax provision on a stand-alone basis. VMware's effective tax rate in the periods presented is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rates. The rate at which the provision for income taxes is calculated differs from the U.S. federal statutory income tax rate primarily due to differential tax rates in foreign jurisdictions where income is earned and considered to be indefinitely reinvested. VMware's effective income tax rate was 23.1% and 16.3%, respectively, for the three months ended June 30, 2010 and 2009. The effective income tax rate was 21.4% and 17.6%, respectively, for the six months ended June 30, 2010 and 2009. The increase in the effective rate for the three and six months ended June 30, 2010 compared to the three and six months ended June 30, 2009 was mainly attributable to the expiration of the U.S. Federal R&D tax credit, an increase in foreign withholding taxes and an increase in other non-deductible expenses. These increases were partially offset by a decrease in unrecognized tax benefits from uncertain tax positions as a percentage of income before tax, as well as by discrete tax benefits related to foreign exchange rates and employee stock purchase plan disqualifying dispositions. All income earned abroad, except for previously taxed income for U.S. tax purposes, is considered indefinitely reinvested in VMware's foreign operations and no provision for U.S. taxes has been provided with respect thereto. As of June 30, 2010, VMware had $83.4 million of gross unrecognized tax benefits and $80.4 million of net unrecognized tax benefits. The gross unrecognized tax benefits do not take into account $8.1 million of offsetting tax benefits, as these are not recognized on the consolidated balance sheets. VMware's net unrecognized tax benefits of $80.4 million include $70.0 million that, if recognized, would benefit VMware's effective income tax rate; the remaining $10.4 million could be a reduction to goodwill if recognized within the measurement period in accordance with generally accepted accounting principles. Any portion of the $10.4 million recognized outside the measurement period will be a reduction to tax expense. VMware cannot reasonably estimate the amounts that would be recorded to goodwill or to the consolidated statements of income. It is reasonably possible that VMware may pay an immaterial amount of the $80.4 million of net unrecognized tax benefits within the next 12 months. However, based on the status of audit examinations and the protocol of finalizing audits, it is not possible to accurately estimate the amount to be paid within the next 12 months. The net unrecognized tax benefits of $80.4 million were classified as a non-current liability on the consolidated balance sheet as of June 30, 2010. VMware recognizes interest expense and penalties related to income tax matters in the income tax provision. VMware recognized approximately $2.1 million in interest and penalties for the six months ended June 30, 2010 and as of June 30, 2010, had $6.0 million of interest associated with the net unrecognized tax benefits accrued on the consolidated balance sheet. These amounts are not included as components of the $80.4 million of net unrecognized tax benefits at June 30, 2010. </div>

21868000

6336000

41624000

22406000

-28382000

-8925000

6560000

9207000

80691000

6530000

107688000

-77543000

21110000

733000

31124000

16759000

13888000

26316000

26896000

78098000

-14599000

-7755000

-4347000

-126000

64255000

17046000

108401000

93311000

87899000

2508000

896000

-9313000

-24251000

-23406000

-549000

-206000

-17054000

94557000

177322000

4673000

1999000

1858000

957000

5558000

2496000

1680000

995000

2324033000

2491523000

5066984000

5797161000

1294042000

1444089000

48212000

27853000

80390000

40269000

484965000

227962000

635842000

323665000

67833000

69897000

114325000

22886000

-135544000

-69039000

-1103274000

-926903000

502559000

243320000

571075000

216123000

102470000

32535000

152959000

74538000

450000000

124902000

37999000

203367000

101181000

<div> A. Overview and Basis of Presentation Company and Background VMware, Inc. ("VMware" or the "Company") is the leading provider of virtualization infrastructure software solutions from the desktop to the data center and to the cloud. VMware's virtualization infrastructure software solutions run on industry-standard desktop computers and servers and support a wide range of operating system and application environments, as well as networking and storage infrastructures. Accounting Principles The financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. Unaudited Interim Financial Information These accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") for interim financial reporting. In the opinion of management, these unaudited consolidated financial statements include all adjustments, consisting of normal recurring adjustments and accruals, for a fair statement of VMware's consolidated cash flows, results of operations and financial condition for the periods presented. Results of operations are not necessarily indicative of the results that may be expected for the full year 2010. Certain information and footnote disclosures typically included in annual consolidated financial statements have been condensed or omitted. Accordingly, these unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in VMware's 2009 Annual Report on Form 10-K. VMware historically has received, and continues to receive, certain administrative services from EMC Corporation ("EMC"), and VMware and EMC engage in certain intercompany transactions. Costs incurred by EMC for the direct benefit of VMware, such as rent, salaries and benefits, plus a mark-up intended to approximate third-party costs, are included in VMware's consolidated financial statements. Management believes the assumptions underlying the consolidated financial statements are reasonable. However, given that these intercompany transactions did not arise from transactions negotiated at arm's-length with an unrelated third party, the financial statements included herein may not necessarily reflect the cash flows, results of operations and financial condition had VMware engaged in such transactions with an unrelated third party during all periods presented. Accordingly, VMware's historical financial information is not necessarily indicative of what the Company's cash flows, results of operations and financial condition will be in the future if and when VMware contracts at arm's-length with unrelated third parties for services the Company has received and currently receives from EMC. Prior period financial statements have been reclassified to conform to current period presentation. Approximately $5 million of expenses, which were recorded during the third quarter of 2009, should have been recorded during the second quarter of 2009. As a result, operating expenses for the second quarter of 2009 were understated and operating expenses for the third quarter of 2009 were overstated by approximately $5 million. Prior period amounts are shown as previously reported and do not reflect these differences. The Company performed an evaluation and concluded that this amount is not material to either period, and that there is no impact to the year ended December 31, 2009. Principles of Consolidation The consolidated financial statements include the accounts of VMware and its subsidiaries. All intercompany transactions and balances between VMware and its subsidiaries have been eliminated. All intercompany transactions with EMC in the consolidated statements of cash flows will be settled in cash, and changes in the intercompany balances are presented as a component of cash flows from operating activities. Use of Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses during the reporting periods, and the disclosure of contingent liabilities at the date of the financial statements. Estimates are used for, but not limited to, capitalized software development costs, receivable valuation, certain accrued liabilities, useful lives of fixed assets and intangible assets, valuation of acquired intangibles, revenue reserves, income taxes, stock-based compensation, and contingencies. Actual results could differ from those estimates. </div>

44701000

104113000

169293000

169590000

103346000

111882000

-1449000

375000

-8606000

-4275000

144500000

113152000

660051000

167150000

60600000

25745000

25000000

65668000

29843000

60108000

28996000

81606000

77103000

215907000

106132000

<div> G. Property and Equipment, Net Property and equipment, net, as of June 30, 2010 and December 31, 2009 consist of the following (table in thousands):   <table border="0" cellspacing="0" cellpadding="0" width="76%"> <tr><td width="74%"> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">June 30, 2010</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">December 31, 2009</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Equipment and software</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">384,232</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">327,148</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Buildings and improvements</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">265,564</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">256,758</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Furniture and fixtures</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">50,664</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">48,075</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Construction in progress</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,155</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">5,892</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td> </td> <td valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Total property and equipment</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">701,615</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">637,873</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Accumulated depreciation</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(288,132</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(235,517</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td> </td> <td valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Total property and equipment, net</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">413,483</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">402,356</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td> </td> <td valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td> </td></tr></table> Depreciation expense was $28.2 million and $24.0 million in the three months ended June 30, 2010 and 2009, respectively, and $53.7 million and $51.4 million in the six months ended June 30, 2010 and 2009, respectively. </div>

402356000

413483000

<div> N. Related Party Transactions In the three months ended June 30, 2010, VMware acquired certain software product technology and expertise from EMC's Ionix information technology management business for cash consideration of $175.0 million. EMC retained the Ionix brand and will continue to offer customers the products acquired by VMware, pursuant to the ongoing reseller agreement between EMC and VMware. See Note F for further information. Pursuant to the ongoing reseller arrangement with EMC that commenced in 2009, EMC bundles VMware's products and services with EMC's hardware and sells them to end users. In the three months ended June 30, 2010 and 2009, VMware recognized revenues of $10.4 million and $0.5 million, respectively, from products sold pursuant to VMware's reseller arrangement with EMC. In the six months ended June 30, 2010 and 2009, VMware recognized revenues of $17.0 million and $2.6 million, respectively, from products sold pursuant to VMware's reseller arrangement with EMC. As of June 30, 2010, $31.7 million of revenues from products sold under the reseller arrangement were included in deferred revenue. In the three months ended June 30, 2010 and 2009, VMware recognized professional services revenues of $12.9 million and $5.6 million, respectively, for services provided to EMC's customers pursuant to VMware's contractual agreements with EMC. In the six months ended June 30, 2010 and 2009, VMware recognized professional services revenues of $22.0 million and $10.1 million, respectively, from such contractual arrangements with EMC. As of June 30, 2010, $2.2 million of revenues from professional services to EMC customers were included in deferred revenue. In the three months ended June 30, 2010 and 2009, VMware recognized revenues of $0.8 million and $0.7 million, respectively, from server and desktop products and services purchased by EMC for internal use pursuant to VMware's contractual agreements with EMC. In the six months ended June 30, 2010 and 2009, VMware recognized $2.2 million and $1.3 million, respectively, from such contractual arrangements with EMC. As of June 30, 2010, $5.2 million of revenues from server and desktop products and services purchased by EMC for internal use were included in deferred revenue. VMware purchased storage systems and software, as well as consulting services, from EMC for $2.1 million in both the three months ended June 30, 2010 and 2009, respectively, and for $6.4 million and $7.2 million in the six months ended June 30, 2010 and 2009, respectively. In certain geographic regions where VMware does not have an established legal entity, VMware contracts with EMC subsidiaries for support services and EMC employees who are managed by VMware's personnel. The costs incurred by EMC on VMware's behalf related to these employees are passed on to VMware and VMware is charged a mark-up intended to approximate costs that would have been charged had VMware contracted for such services with an unrelated third party. These costs are included as expenses in VMware's consolidated statements of income and primarily include salaries and benefits, travel and rent. Additionally, EMC incurs certain costs on VMware's behalf in the U.S., which historically primarily related to a shared system for travel. In the fourth quarter of 2009, VMware implemented its own travel system in the U.S. and is now incurring these costs directly. The total cost of these services provided to VMware by EMC was $14.2 million and $28.6 million in the three months ended June 30, 2010 and 2009, respectively, and $31.8 million and $53.1 million in the six months ended June 30, 2010 and 2009, respectively. As calculated under VMware's tax sharing agreement with EMC, VMware paid EMC $5.1 million in the six months ended June 30, 2010 for its portion of EMC's 2009 consolidated federal income taxes. No payments were made by VMware to EMC during the three months ended June 30, 2010. During the three and six months ended June 30, 2009, VMware paid $2.5 million for its portion of EMC's 2007 consolidated state income taxes. Under the same tax sharing agreement, EMC paid VMware $2.5 million during the three and six months ended June 30, 2010 for a refund of an overpayment related to the consolidated federal and state income taxes for the fiscal year ended December 31, 2008. EMC paid VMware $87.9 million during the three and six months ended June 30, 2009 for the VMware stand-alone federal taxable loss for the fiscal year ended December 31, 2008 and for a refund of an overpayment related to VMware's portion of EMC's 2007 federal consolidated tax return. The amounts that VMware pays to EMC for its portion of federal income taxes on EMC's consolidated tax return differ from the amounts VMware would owe on a stand-alone basis, and the difference is presented as a component of stockholders' equity. For all periods presented, the difference was not significant. Interest expense with EMC, net, primarily consists of interest expense on the note payable to EMC. In the three months ended June 30, 2010 and 2009, $1.0 million and $2.0 million, respectively, of interest expense was recorded related to the note payable to EMC and included in interest expense with EMC, net, recorded on the consolidated statements of income. In the six months ended June 30, 2010 and 2009, $1.9 million and $4.2 million, respectively, of interest expense was recorded related to the note payable. VMware's interest income and expenses as a separate, stand-alone company may be higher or lower than the amounts reflected in the consolidated financial statements. As of June 30, 2010, VMware had $43.0 million due from EMC, which was partially offset by $20.1 million due to EMC. The net amount due from EMC as of June 30, 2010 was $22.9 million and resulted from the related party transactions described above. In addition to the $22.9 million due from EMC, as of June 30, 2010, VMware had $57.5 million of income taxes receivable due from EMC, which is included in other current assets, and $6.2 million of income taxes payable due to EMC, which is included in accrued expenses and other, on VMware's consolidated balance sheets. A large portion of the income tax receivable is related to 2010 federal income taxes and is expected to be received from EMC after the 2010 consolidated federal tax return extension is filed. Balances due to or from EMC which are unrelated to tax obligations are generally settled in cash within 60 days of each quarter-end. The timing of the tax payments due to and from EMC is governed by the tax sharing agreement with EMC. </div>

226781000

121380000

299868000

161756000

395281000

348069000

925985000

455675000

1307437000

673904000

441020000

227713000

671595000

350239000

<div> F. Business Acquisitions and Goodwill Business Acquisitions The results of operations of all acquired companies and transferred net assets mentioned below have been included in VMware's consolidated financial statements from the respective dates of purchase or transfer, as applicable. Pro forma results of operations have not been presented as the results of the acquired companies and transferred net assets were not material, individually or in aggregate, to the consolidated results of operations in the three and six months ended June 30, 2010. Transfer of Net Assets Under Common Control in the Three Months Ended June 30, 2010 In the three months ended June 30, 2010, VMware acquired certain software product technology and expertise from EMC's Ionix information technology ("IT") management business for cash consideration of $175.0 million. EMC retained the Ionix brand and will continue to offer customers the products acquired by VMware, pursuant to the ongoing reseller agreement between EMC and VMware. Additionally, contingent obligations totaling up to $25.0 million may be payable to EMC by the end of the second anniversary of the transfer. These obligations are subject to EMC's revenue achievements as described in the asset purchase agreement. The acquired software product technology and expertise will complement VMware's existing development efforts and expand its vCenter product family.   The net assets and expertise acquired from EMC constituted a business and were accounted for as a business combination between entities under common control pursuant to generally accepted accounting principles. Accordingly, VMware included the carrying values of the transferred assets and liabilities as of the date of transfer in its consolidated financial statements, as well as recorded the excess of the carrying values over the cash consideration as an equity transaction. Contingent consideration, if any, paid by VMware to EMC will be recorded as an equity transaction when due. VMware did not revise its historical consolidated financial statements as the historical impact of the acquired net assets was not material. The following table summarizes the net carrying values of the assets and liabilities transferred to VMware and the capital contribution from EMC (table in thousands):   <table border="0" cellspacing="0" cellpadding="0" width="68%"> <tr><td width="86%"> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Property and equipment</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">3,046</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Other assets</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,873</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Deferred tax asset</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">48,618</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Intangible assets</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">37,029</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Goodwill</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">275,260</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td> </td></tr> <tr><td valign="top"> Total assets acquired</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">365,826</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Deferred revenue</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(18,363</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr><td valign="top"> Deferred tax liabilities</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(2,082</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Other liabilities</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(2,210</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr><td valign="top"> Capital contribution from EMC</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(168,171</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Total liabilities assumed and capital received</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(190,826</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td> </td></tr> <tr><td valign="top"> Identifiable assets acquired and liabilities assumed, and capital received</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">175,000</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td> </td></tr></table> The following table summarizes the net carrying value of the intangible assets transferred from EMC pursuant to the Ionix transaction (table in thousands):   <table border="0" cellspacing="0" cellpadding="0" width="76%"> <tr><td width="68%"> </td> <td valign="bottom" width="12%"> </td> <td> </td> <td valign="bottom" width="12%"> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" nowrap="nowrap" align="center">Weighted-Average Useful Lives (in years)</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Net Carrying Value</td></tr> <tr bgcolor="#cceeff"><td valign="top"> Purchased technology</td> <td valign="bottom">  </td> <td valign="bottom" align="right">4.3</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">19,423</td></tr> <tr><td valign="top"> Customer relationships and customer lists</td> <td valign="bottom">  </td> <td valign="bottom" align="right">9.6</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">15,133</td></tr> <tr bgcolor="#cceeff"><td valign="top"> Trademarks and tradenames</td> <td valign="bottom">  </td> <td valign="bottom" align="right">5.0</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,473</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td></tr> <tr><td valign="top"> Total intangible assets, net, excluding goodwill</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">37,029</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td></tr></table> Business Acquisitions in the Three Months Ended June 30, 2010 In the three months ended June 30, 2010, VMware acquired two companies, Rabbit Technologies, Ltd. and GemStone Systems, Inc. The aggregate cash consideration paid in these acquisitions was $60.6 million, net of cash acquired. The following table summarizes the allocation of the consideration paid to the fair value of the assets acquired and liabilities assumed (table in thousands):   <table border="0" cellspacing="0" cellpadding="0" width="68%"> <tr><td width="87%"> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Other current assets</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">253</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Intangible assets</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">21,500</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Goodwill</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">45,757</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Deferred tax assets</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6,105</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Total assets acquired</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">73,615</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Deferred revenue</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(3,076</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Deferred tax liability</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(7,942</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr><td valign="top"> Accrued liabilities and other</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(1,997</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Total liabilities assumed</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(13,015</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td> </td></tr> <tr><td valign="top"> Fair value of identifiable assets acquired and liabilities assumed</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">60,600</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td> </td></tr></table>   Business Acquisitions in the Three Months Ended March 31, 2010 In the first three months of 2010, VMware acquired two businesses, Zimbra and RTO Software, Inc. The aggregate consideration paid in these acquisitions was cash of $106.6 million. The following table summarizes the allocation of the consideration paid to the fair value of the assets acquired and liabilities assumed (table in thousands):   <table border="0" cellspacing="0" cellpadding="0" width="68%"> <tr><td width="87%"> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Intangible assets</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">36,900</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Goodwill</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">74,087</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Deferred tax assets</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">7,342</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Other net assets</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">5,913</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Total assets acquired</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">124,242</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Deferred revenue</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(17,692</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Fair value of identifiable assets acquired and liabilities assumed</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">106,550</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td> </td></tr></table> Intangible Assets The following table summarizes the fair value of the intangible assets acquired in conjunction with all acquisitions in the six months ended June 30, 2010 and excludes the intangible assets transferred from EMC (table in thousands):   <table border="0" cellspacing="0" cellpadding="0" width="76%"> <tr><td width="70%"> </td> <td valign="bottom" width="11%"> </td> <td> </td> <td valign="bottom" width="11%"> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" nowrap="nowrap" align="center">Weighted-Average Useful Lives (in years)</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Fair Value Amount</td></tr> <tr bgcolor="#cceeff"><td valign="top"> Purchased technology</td> <td valign="bottom">  </td> <td valign="bottom" align="right">4.8</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">24,900</td></tr> <tr><td valign="top"> Customer relationships and customer lists</td> <td valign="bottom">  </td> <td valign="bottom" align="right">7.3</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">25,500</td></tr> <tr bgcolor="#cceeff"><td valign="top"> Trademarks and tradenames</td> <td valign="bottom">  </td> <td valign="bottom" align="right">4.4</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">8,000</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td></tr> <tr><td valign="top"> Total intangible assets, net, excluding goodwill</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">58,400</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td></tr></table> Goodwill Changes in the carrying amount of goodwill for the six months ended June 30, 2010 consist of the following (table in thousands):   <table border="0" cellspacing="0" cellpadding="0" width="68%"> <tr><td width="86%"> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Balance, January 1, 2010</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,115,769</td></tr> <tr><td valign="top"> Increase in goodwill related to business combinations</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">395,104</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Balance, June 30, 2010</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,510,873</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td></tr></table> </div>

<div> O. Segment Information Operating segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assessing performance. VMware operates in one operating segment, therefore all required financial segment information can be found in the consolidated financial statements. Revenues by geographic area are as follows (table in thousands):   <table border="0" cellspacing="0" cellpadding="0" width="92%"> <tr><td width="62%"> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="5" align="center">For the Three Months Ended June 30,</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="5" align="center">For the Six Months Ended June 30,</td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2009</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2009</td></tr> <tr bgcolor="#cceeff"><td valign="top"> United States</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">333,717</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">233,655</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">650,915</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">477,734</td></tr> <tr><td valign="top"> International</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">340,187</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">222,020</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">656,522</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">448,251</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Total</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">673,904</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">455,675</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,307,437</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">925,985</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td></tr></table> Long-lived assets, which primarily include property and equipment, net in the United States at June 30, 2010 and December 31, 2009 were as follows (table in thousands):   <table border="0" cellspacing="0" cellpadding="0" width="76%"> <tr><td width="74%"> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">June 30, 2010</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">December 31, 2009</td></tr> <tr bgcolor="#cceeff"><td valign="top"> United States</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">301,863</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">297,232</td></tr> <tr><td valign="top"> International</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">45,485</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">42,758</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Total</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">347,348</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">339,990</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td></tr></table> No country other than the United States accounted for 10% or more of these assets at June 30, 2010 or December 31, 2009. </div>

321565000

167421000

448491000

231662000

101271000

51456000

131533000

67836000

27360000

711234000

<div> B. Significant Accounting Policies Revenue Recognition VMware derives revenues from the licensing of software and related services. VMware recognizes revenues when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collectibility is probable. The following summarizes the major terms of VMware's contractual relationships with customers and the manner in which VMware accounts for sales transactions. License revenues VMware recognizes revenues from the sale of software when risk of loss transfers, which is generally upon electronic shipment. VMware licenses most of its software under perpetual licenses through its channel of distributors, resellers, x86 system vendors, systems integrators and through its direct sales force. VMware also licenses certain software products on a subscription basis. Revenues relating to products that have shipped into its channel are deferred until the products are sold through the channel. VMware obtains sell-through information from distributors and certain resellers on a monthly basis. For VMware's channel partners who do not report sell-through data, VMware determines sell-through information based on payment of such distributors' and certain resellers' accounts receivable balances and other relevant factors. For software sold by x86 system vendors that is bundled with their hardware, unless the Company has a separate license agreement with the end user, revenue is recognized in arrears upon the receipt of binding royalty reports. For all sales, VMware uses one of the following to constitute evidence of an arrangement:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr><td width="5%"> </td> <td valign="top" width="2%" align="left">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> a purchase order or equivalent; </td></tr></table>   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr><td width="5%"> </td> <td valign="top" width="2%" align="left">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> a license agreement and a purchase order or equivalent; </td></tr></table>   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr><td width="5%"> </td> <td valign="top" width="2%" align="left">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> a license agreement which includes language that the agreement also serves as the purchase order; or </td></tr></table>   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr><td width="5%"> </td> <td valign="top" width="2%" align="left">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> a master agreement and a binding royalty report. </td></tr></table> Sales through distributors and resellers are evidenced by a master distribution agreement, together with purchase orders or equivalent, on a transaction-by-transaction basis. With the exception of one of VMware's desktop products, VMware's return policy does not allow end users to return products for a refund. Certain distributors and resellers may rotate stock when new versions of a product are released. VMware estimates future product returns at the time of sale based on historical return rates, levels of inventory held by distributors and resellers, and other relevant factors. Returns have not been material to date and have been in line with VMware's expectations. VMware offers rebates to certain channel partners. When rebates are based on a set percentage of actual sales, VMware recognizes the amount of the rebates as a reduction of revenues when the underlying revenue is recognized. When rebates are earned only if a cumulative level of sales is achieved, VMware recognizes the amount of the rebates as a reduction of revenues proportionally for each sale that is required to achieve the target. VMware also offers marketing development funds to certain channel partners. VMware records the amount of the marketing development funds, based on the maximum potential liability, as a reduction of revenues at the time the underlying revenue is recognized. Services revenues Services revenues consist of software maintenance and professional services. VMware recognizes software maintenance revenues ratably over the contract period, which typically ranges from one to five years. Professional services include design, implementation, and training. Professional services are not considered essential to the functionality of VMware's products as these services do not alter the product capabilities and may be performed by customers or other vendors. Professional services engagements performed for a fixed fee, for which VMware is able to make reasonably dependable estimates of progress toward completion, are recognized on a proportional performance basis based on hours and direct expenses incurred. Professional services engagements that are on a time and materials basis are recognized based upon hours incurred. Revenues on all other professional services engagements are recognized upon completion.   Multiple element arrangements VMware software products are typically sold with software maintenance services. Vendor-specific objective evidence ("VSOE") of fair value for software maintenance services is established by the rates charged in stand-alone sales of software maintenance contracts or the stated renewal rate for software maintenance included in the license agreement. VMware software products may also be sold with professional services. VSOE of fair value for professional services is based upon the standard rates VMware charges for such services when sold separately. VMware perpetual software products may be sold with products licensed on a subscription basis. VSOE of fair value for subscription license products is established by the rates charged in stand-alone sales of subscription license products. The revenues allocated to the software license included in multiple element contracts represent the residual amount of the contract after the fair value of the other elements has been determined. Customers under software maintenance agreements are entitled to receive updates and upgrades on a when-and-if-available basis, and various types of technical support based on the level of support purchased. In the event specific features or functionality, entitlements, or the release number of an upgrade or new product have been announced but not delivered, and customers will receive that upgrade or new product as part of a current software maintenance contract, a specified upgrade is deemed created and product revenues are deferred on purchases made after the announcement date until delivery of the upgrade or new product. The amount and elements to be deferred are dependent on whether the company has established VSOE of fair value for the upgrade or new product. On occasion, VSOE of fair value of these upgrades or new products is established based upon the price set by management. VMware has a history of selling such upgrades or new products on a stand-alone basis. Deferred revenues include unearned software maintenance fees, professional services fees, and license fees. Cash and Cash Equivalents and Short-Term Investments VMware invests a portion of its excess cash primarily in highly liquid debt instruments of the U.S. government and its agencies, U.S. municipal obligations, U.S. and foreign corporate debt securities, and money market funds. VMware classifies all highly liquid investments with maturities of three months or less from date of purchase as cash equivalents and all highly liquid investments with maturities of greater than three months from date of purchase as short-term investments. VMware classifies its investments as available-for-sale. VMware may sell these securities at any time for use in current operations or for other purposes, such as consideration for acquisitions and strategic investments, and consequently, VMware may or may not hold securities with stated maturities greater than twelve months until maturity. As a result, VMware classifies its investments, which include securities with maturities beyond twelve months, as current assets in the accompanying consolidated balance sheets. VMware carries its fixed income investments, as well as its equity investments in public companies that have readily determinable fair values, at fair value and reports unrealized gains and losses on these investments, net of estimated tax provisions or benefits, in accumulated other comprehensive income, a component of stockholders' equity. Unrealized losses which are determined to be other than temporary, as well as realized gains and losses are recorded to VMware's consolidated statements of income. Realized gains and losses on fixed income securities are determined using the first-in first-out ("FIFO") method. Equity investments, for which VMware has the ability to exercise significant influence over the investee, are accounted for using the equity method of accounting. Under the equity method, VMware's investment is initially recorded at cost and subsequently adjusted through other income (expense), net on a go forward basis to recognize VMware's share of the investee's income (loss) after the acquisition date. In addition, VMware has restrictions on certain cash amounts pursuant to the terms of various agreements. VMware includes this restricted cash in other current assets in the accompanying consolidated balance sheets. The amount of restricted cash was not material in any period presented. Allowance for Doubtful Accounts VMware maintains an allowance for doubtful accounts for estimated probable losses on uncollectible accounts receivable. The allowance is based upon the creditworthiness of VMware's customers, historical experience, the age of the receivable and current market and economic conditions. Uncollectible amounts are charged against the allowance account. The allowance for doubtful accounts was $3.3 million and $2.5 million as of June 30, 2010 and December 31, 2009, respectively. Research and Development and Capitalized Software Development Costs         Costs related to research and development ("R&D") are generally charged to expense as incurred. Capitalization of material development costs of software to be sold, leased, or otherwise marketed are subject to capitalization beginning when technological feasibility has been established and ending when the product is available for general release. Judgment is required in determining when technological feasibility is established. Changes in judgment as to when technological feasibility is established, or changes in VMware's business, including go-to-market strategy, would likely materially impact the amount of costs capitalized. For example, if the length of time between technological feasibility and general availability declines in the future, the amount of costs capitalized would likely decrease with a corresponding increase in R&D expense. In addition, VMware's R&D expenses and amounts capitalized as software development costs may not be comparable to VMware's peer companies due to differences in judgment as to when technological feasibility has been reached or differences in judgment regarding when the product is available for general release. Generally accepted accounting principles require annual amortization expense of capitalized software development costs to be the greater of the amounts computed using the ratio of current gross revenue to a product's total current and anticipated revenues, or the straight-line method over the product's remaining estimated economic life. To date, VMware has amortized these costs using the straight-line method as it is the greater of the two amounts. The costs are amortized over periods ranging from 18 to 24 months, which represent the product's estimated economic life. The ongoing assessment of the recoverability of these costs requires considerable judgment by management with respect to certain external factors such as anticipated future revenue, estimated economic life, and changes in software and hardware technologies. Material differences in amortization amounts could occur as a result of changes in the periods over which VMware actually generates revenues or the amounts of revenues generated. Unamortized software development costs were $130.8 million and $129.4 million as of June 30, 2010 and December 31, 2009, respectively. In the three months ended June 30, 2010 and 2009, VMware capitalized $20.3 million (including $2.7 million of stock-based compensation) and $18.4 million (including $3.6 million of stock-based compensation), respectively, of costs incurred for the development of software products. In the six months ended June 30, 2010 and 2009, VMware capitalized $46.4 million (including $6.9 million of stock-based compensation) and $54.8 million (including $10.1 million of stock-based compensation), respectively, of costs incurred for the development of software products. These amounts have been excluded from R&D expenses on the accompanying consolidated statements of income. Amortization expense from capitalized amounts was $21.2 million and $17.6 million for the three months ended June 30, 2010 and 2009, respectively. Amortization expense from capitalized amounts was $44.9 million and $28.3 million for the six months ended June 30, 2010 and 2009, respectively. Amortization expense is included in cost of license revenues on the consolidated statements of income. Intangible Assets and Goodwill Intangible assets, other than goodwill, are amortized over their estimated useful lives which range up to 13 years, during which the assets are expected to contribute directly or indirectly to future cash flows. In the three months ended June 30, 2010 and 2009, VMware amortized $8.3 million and $3.3 million, respectively, for intangible assets. The amortization expense for the six months ended June 30, 2010 and 2009 was $12.7 million and $6.6 million, respectively. VMware reviews intangible assets for impairment in the fourth quarter of each year or more frequently if events or changes in business circumstances indicate that the carrying amounts of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Goodwill is initially carried at its historical cost. VMware tests goodwill for impairment in the fourth quarter of each year or more frequently if events or changes in circumstances indicate that the asset might be impaired. To date, there have been no impairments of goodwill or other intangible assets. Business Acquisitions For business acquisitions, VMware recognizes the identifiable assets acquired, the liabilities assumed, and any non-controlling interests in an acquiree, which are measured based on the acquisition date fair value. Goodwill is measured as the excess of consideration transferred, the fair value of any non-controlling interest, and the fair value of previously held equity interest over the net amounts of the identifiable assets acquired and the liabilities assumed at the acquisition date. VMware uses significant estimates and assumptions, including fair value estimates, to determine the fair value of assets acquired and liabilities assumed and when applicable, the related useful lives of the acquired assets, as of the business combination date. When those estimates are provisional, VMware refines them as necessary, during the measurement period. The measurement period is the period after the acquisition date, not to exceed one year, in which VMware may gather new information about facts and circumstances that existed as of the acquisition date to adjust the provisional amounts recognized. Measurement period adjustments are applied retrospectively. All other adjustments are recorded to the consolidated statements of income. Costs to effect an acquisition are recorded in general and administrative expenses on the consolidated statements of income as the expenses are incurred.   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 exceeds the amount of insurance provided on such deposits. These deposits may be redeemed upon demand. VMware places cash, 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 financial institution. VMware holds a diversified portfolio of money market funds and fixed income securities, which primarily consist of various government and agency securities, corporate notes and bonds, commercial paper, and municipal notes and bonds. VMware's fixed income investment portfolio is denominated in U.S. dollars and consists of securities with various maturities. VMware monitors the counterparty risk to ensure adequate diversification amongst the financial institutions holding the funds. VMware also monitors counterparty risk to financial institutions with which VMware enters into derivatives to ensure that these financial institutions are of high credit quality. </div>

2742951000

3305638000

<div> L. Stockholders' Equity Stock Repurchase Program In March 2010, VMware's Board of Directors approved a stock repurchase program, authorizing the purchase of up to $400.0 million of its Class A common stock through the end of 2011. Stock will be purchased pursuant to this program, from time to time, in the open market or through private transactions, subject to market conditions. In the three months ended June 30, 2010, VMware repurchased and retired 1,822,158 shares of its Class A common stock at a weighted-average price of $62.10 per share for an aggregate purchase price of $113.2 million, including commissions. In the six months ended June 30, 2010, VMware repurchased and retired 2,404,458 shares of its Class A common stock at a weighted-average price of $60.10 per share for an aggregate purchase price of $144.5 million, including commissions. The amount of repurchased shares was recorded as a reduction to retained earnings. VMware is not obligated to purchase any shares under its stock repurchase program. Subject to applicable corporate and securities laws, repurchases under the stock repurchase program may be made at such times and in such amounts as VMware deems appropriate. Purchases under the stock repurchase program can be discontinued at any time that VMware feels additional purchases are not warranted. VMware Employee Stock Purchase Plan In the six months ended June 30, 2010, 933,975 shares of Class A common stock were purchased under the Employee Stock Purchase Plan (the "ESPP") at a purchase price per share of $24.45. The total cash proceeds from the purchase of these shares under the ESPP were $22.8 million. There were no purchases under the ESPP in the three months ended June 30, 2010.   VMware Stock Options The following table summarizes option activity since January 1, 2010 for VMware stock options (shares in thousands):   <table border="0" cellspacing="0" cellpadding="0" width="76%"> <tr><td width="75%"> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="5" align="center">VMware Stock Options</td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" align="center">Number of shares</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Weighted- Average Exercise Price (per share)</td></tr> <tr bgcolor="#cceeff"><td valign="top"> Outstanding, January 1, 2010</td> <td valign="bottom">  </td> <td valign="bottom" align="right">41,507</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">28.34</td></tr> <tr><td valign="top"> Granted</td> <td valign="bottom">  </td> <td valign="bottom" align="right">2,576</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">52.13</td></tr> <tr bgcolor="#cceeff"><td valign="top"> Forfeited</td> <td valign="bottom">  </td> <td valign="bottom" align="right">(1,434</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">29.38</td></tr> <tr><td valign="top"> Expired</td> <td valign="bottom">  </td> <td valign="bottom" align="right">(118</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">78.02</td></tr> <tr bgcolor="#cceeff"><td valign="top"> Exercised</td> <td valign="bottom">  </td> <td valign="bottom" align="right">(8,167</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">23.64</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Outstanding, June 30, 2010</td> <td valign="bottom">  </td> <td valign="bottom" align="right">34,364</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">31.03</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr></table> Cash proceeds from the exercise of VMware stock options for the six months ended June 30, 2010 were $193.1 million. The options exercised during the six months ended June 30, 2010 had a pre-tax intrinsic value of $271.0 million. As of June 30, 2010, 34.4 million stock options were outstanding, with an aggregate intrinsic value of $1,115.5 million based upon the closing share price as of June 30, 2010. VMware Restricted Stock The following table summarizes restricted stock activity since January 1, 2010 for VMware restricted stock (shares in thousands):   <table border="0" cellspacing="0" cellpadding="0" width="76%"> <tr><td width="74%"> </td> <td valign="bottom" width="8%"> </td> <td> </td> <td> </td> <td valign="bottom" width="8%"> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="5" align="center">VMware Restricted Stock</td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" align="center">Number of shares</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Weighted- Average Grant Date Fair Value (per share)</td></tr> <tr bgcolor="#cceeff"><td valign="top"> Outstanding, January 1, 2010</td> <td valign="bottom">  </td> <td valign="bottom" align="right">9,211</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">33.21</td></tr> <tr><td valign="top"> Granted</td> <td valign="bottom">  </td> <td valign="bottom" align="right">1,465</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">54.28</td></tr> <tr bgcolor="#cceeff"><td valign="top"> Vested</td> <td valign="bottom">  </td> <td valign="bottom" align="right">(2,060</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">30.16</td></tr> <tr><td valign="top"> Forfeited</td> <td valign="bottom">  </td> <td valign="bottom" align="right">(407</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">34.42</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Outstanding, June 30, 2010</td> <td valign="bottom">  </td> <td valign="bottom" align="right">8,209</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">37.68</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr></table> The total fair value of VMware restricted stock that vested in the six months ended June 30, 2010 was $124.8 million. As of June 30, 2010, 8.2 million shares of VMware restricted stock were outstanding, with an aggregate intrinsic value of $513.8 million based on the closing share price as of June 30, 2010. These shares are scheduled to vest through 2014. Shares Repurchased for Tax Withholdings During the three months ended June 30, 2010 and 2009, VMware repurchased and retired 527,468 shares and 353,707 shares of Class A common stock for $34.7 million and $11.4 million, respectively, to cover tax withholding obligations. During the six months ended June 30, 2010 and 2009, VMware repurchased and retired 752,909 shares and 676,478 shares of Class A common stock for $45.6 million and $18.2 million, respectively. Pursuant to the respective agreements, these shares were repurchased in conjunction with the net share settlement upon the vesting of restricted stock and restricted stock units during the period. The amount of repurchased shares, including restricted stock units, was recorded as a reduction to retained earnings.   Stock-Based Compensation Expense The following table summarizes the components of total stock-based compensation expense included in VMware's consolidated statements of income for the three and six months ended June 30, 2010 and 2009 (table in thousands):   <table border="0" cellspacing="0" cellpadding="0" width="92%"> <tr><td width="66%"> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="5" align="center">For the Three Months  Ended June 30,</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="5" align="center">For the Six Months  Ended June 30,</td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2009</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2009</td></tr> <tr bgcolor="#cceeff"><td valign="top"> Cost of license revenues</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">390</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">313</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">775</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">643</td></tr> <tr><td valign="top"> Cost of services revenues</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">4,057</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3,463</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">8,214</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6,938</td></tr> <tr bgcolor="#cceeff"><td valign="top"> Research and development</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">39,445</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">26,433</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">74,168</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">50,337</td></tr> <tr><td valign="top"> Sales and marketing</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">15,452</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">13,311</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">31,499</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">27,145</td></tr> <tr bgcolor="#cceeff"><td valign="top"> General and administrative</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">8,492</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">7,936</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">16,877</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">16,208</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td></tr> <tr><td valign="top"> Total stock-based compensation expense</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">67,836</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">51,456</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">131,533</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">101,271</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td></tr></table> For the three months ended June 30, 2010 and 2009, VMware capitalized $2.7 million and $3.6 million, respectively, of stock-based compensation expense associated with capitalized software development. For the six months ended June 30, 2010 and 2009, VMware capitalized $6.9 million and $10.1 million, respectively, of stock-based compensation expense associated with capitalized software development. Fair Value of VMware Options The fair value of each option to acquire VMware Class A common stock granted during the three and six months ended June 30, 2010 and 2009 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:   <table border="0" cellspacing="0" cellpadding="0" width="92%"> <tr><td width="70%"> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="6" align="center">For the Three Months Ended June 30,</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="6" align="center">For the Six Months Ended June 30,</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom" nowrap="nowrap"> VMware Stock Options </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2009</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2009</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Dividend yield</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">None</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">None</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">None</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">None</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Expected volatility</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">37.7</td> <td valign="bottom" nowrap="nowrap">% </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">36.0</td> <td valign="bottom" nowrap="nowrap">% </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">38.2</td> <td valign="bottom" nowrap="nowrap">% </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">36.6</td> <td valign="bottom" nowrap="nowrap">% </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Risk-free interest rate</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1.6</td> <td valign="bottom" nowrap="nowrap">% </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2.2</td> <td valign="bottom" nowrap="nowrap">% </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1.6</td> <td valign="bottom" nowrap="nowrap">% </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2.0</td> <td valign="bottom" nowrap="nowrap">% </td></tr> <tr><td valign="top"> Expected term (in years)</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3.5</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3.9</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3.5</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3.9</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Weighted-average fair value at grant date</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">18.53</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">9.48</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">15.68</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">9.00</td> <td valign="bottom" nowrap="nowrap">  </td></tr></table>   <table border="0" cellspacing="0" cellpadding="0" width="76%"> <tr><td width="81%"> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="6" align="center">For the Six Months Ended June 30,</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom" nowrap="nowrap"> VMware Employee Stock Purchase Plan </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2009</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Dividend yield</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">None</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">None</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Expected volatility</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">31.9</td> <td valign="bottom" nowrap="nowrap">% </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">59.3</td> <td valign="bottom" nowrap="nowrap">% </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Risk-free interest rate</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0.2</td> <td valign="bottom" nowrap="nowrap">% </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0.3</td> <td valign="bottom" nowrap="nowrap">% </td></tr> <tr><td valign="top"> Expected term (in years)</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0.5</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0.5</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Weighted-average fair value at grant date</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">10.94</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">7.49</td> <td valign="bottom" nowrap="nowrap">  </td></tr></table> For all equity awards granted in the three and six months ended June 30, 2010 and 2009, VMware's expected dividend yield input was zero as VMware has not historically paid, and does not expect in the future to pay, cash dividends on its common stock. VMware's expected 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 upon an analysis of the expected terms of similar grants of comparable publicly-traded companies. The risk-free interest rate was based on a zero-coupon U.S. Treasury instrument whose term is consistent with the expected term of the stock options. </div>

393178000

395826000

418476000

422333000

390855000

391841000

405089000

407931000

-16477000 -6520000 1835000 3902000 -9411000 5973000 2302000 -23474000 <div> H. Accrued Expenses Accrued expenses as of June 30, 2010 and December 31, 2009 consist of the following (table in thousands):   <table border="0" cellspacing="0" cellpadding="0" width="76%"> <tr><td width="74%"> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">June 30, 2010</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">December 31, 2009</td></tr> <tr bgcolor="#cceeff"><td valign="top"> Salaries, commissions, bonuses and benefits</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">206,268</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">174,207</td></tr> <tr><td valign="top"> Accrued partner liabilities</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">78,314</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">77,264</td></tr> <tr bgcolor="#cceeff"><td valign="top"> Other</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">88,777</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">83,052</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td> <td style="border-top: #000000 1px solid;" valign="bottom"> </td></tr> <tr><td valign="top"> Total accrued expenses</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">373,359</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">334,523</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td> <td style="border-top: #000000 3px double;" valign="bottom"> </td></tr></table> Accrued partner liabilities relate to rebates and marketing development fund accruals for channel partners, x86 system vendors, and system integrators, as well as accrued royalties. </div> -18246000 -11449000 -45583000 -34677000 -175000000 -175000000 Includes stock-based compensation as follows: Cost of license revenues 390, 313, 775, 643 Cost of services revenues 4057, 3463, 8214, 6938 Research and development 39445, 26433, 74168, 50337 Sales and marketing 15452, 13311, 31499, 27145 General and administrative 8492, 7936, 16877, 16208