VMware 2010 Annual Report Download - page 57

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Table of Contents
Stock-Based Compensation Expense
Stock-based compensation expense was $302.6 in 2010, $246.4 in 2009 and $189.2 in 2008, representing year-over-
year increases of $56.2
and $57.2, respectively. The increase in stock-based compensation expense in 2010 over 2009 was primarily due to an increase of $29.9 for
grants made to new employees, an increase of $28.2 from new awards made to our existing employees, and an increase of $20.8 from equity
awards issued in connection with the acquisition of SpringSource late in the third quarter of 2009. These increases were offset in part by a
decrease of $20.8 primarily related to forfeitures and grants reaching a fully vested status. In 2009, stock-based compensation increased over
2008 primarily due to an increase of $36.1 from restricted stock unit awards to certain international employees who were not eligible to
participate in the September 2008 offer to exchange certain employee stock options issued under VMware’s 2007 Equity and Incentive Plan and
restricted stock unit awards to various other employees for retention purposes. Additionally, stock-based compensation increased by $14.8 for
new awards made to our existing employees in the second quarter of 2009 and $14.3 from equity awards issued in connection with the
acquisition of SpringSource late in the third quarter of 2009. The 2009 increases were offset by a decrease of $9.7 primarily related to forfeitures
and grants reaching a fully vested status.
Stock-based compensation is recorded to each operating expense category based upon the function of the employee to whom the stock-
based compensation relates and fluctuates based upon the value and number of awards granted. Compensation philosophy varies by function,
resulting in different weightings of cash incentives versus equity incentives. As a result, functions with larger cash-based components, such as
commissions, will have comparatively lower stock-based compensation expense than other functions.
As of December 31, 2010, the total unamortized fair value of our outstanding equity-based awards held by our employees was
approximately $595.8. This amount will be recognized over the awards’ requisite service periods, and is expected to result in stock-based
compensation expense of approximately $270.6, $169.8, $114.3 and $41.1 for 2011, 2012, 2013 and 2014, respectively.
In future quarters, we expect our total stock-based compensation expense to increase as a result of additional equity grants we have
recently made as well as grants we expect to make. Stock-based compensation expense reported in our consolidated statements of income is
reduced by the amount of stock-based compensation that may be capitalized for the development of new software products and the amount of
awards that are forfeited.
Capitalized Software Development Costs, Net
Capitalization of material development costs of software to be sold, leased, or otherwise marketed are subject to capitalization beginning
when the products’ technological feasibility has been established and ending when the product is available for general release. The R&D
expenses and amounts that we capitalize as software development costs may not be comparable to our peer companies due to differences in a
variety of factors, including multiple areas of judgment inherent in the assessment of these costs.
In 2010, 2009 and 2008, we capitalized $71.6 (including $10.9 of stock-based compensation), $83.5 (including $14.9 of stock-based
compensation), and $113.6 (including $22.7 of stock-based compensation), respectively, of costs incurred for the development of software
products. These amounts have been excluded from R&D expense on our accompanying consolidated statements of income. The decrease in
capitalized
54
For the Year Ended December 31,
2010
2009
2008
Stock
-
based compensation, excluding amounts capitalized
$
291.7
$
231.5
$
166.5
Stock
-
based compensation capitalized
10.9
14.9
22.7
Stock
-
based compensation, including amounts capitalized
$
302.6
$
246.4
$
189.2