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Table of Contents VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 years ended December 31, 2011 , 2010 and 2009 (table in thousands):
For the years ended December 31, 2011 , 2010 and 2009 , VMware capitalized $12.4 million , $10.9 million and $14.9 million ,
respectively, of stock-based compensation expense associated with capitalized software development.
As of December 31, 2011 , the total unrecognized compensation cost for stock options and restricted stock was $622.9 million . This non-
cash expense will be recognized through 2015 with a weighted-average remaining period of 1.6 years. Stock-based compensation expense
includes expense from both VMware and EMC equity awards held by VMware employees.
Fair Value of VMware Options
The fair value of each option to acquire VMware Class A common stock granted during the years ended December 31, 2011 , 2010 and
2009 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
The weighted-
average grant date fair value of VMware stock options in 2011 was higher than in prior periods primarily due to higher valued
options assumed through business combinations with exercise prices lower than the fair market value of VMware's stock on the date of grant.
For all equity awards granted in 2011 , 2010 and 2009 , volatility was based on an analysis of historical stock prices and implied volatilities
of publicly-traded companies with similar characteristics, including industry, stage of life cycle, size, financial leverage, as well as the implied
volatilities of VMware’
s Class A common stock. The expected term was calculated based upon an analysis of the expected term of similar grants
of comparable publicly-traded companies, the term of the
88
For the Year Ended December 31,
2011
2010
2009
Cost of license revenues
$
1,606
$
1,653
$
1,293
Cost of services revenues
23,389
18,478
14,874
Research and development
174,264
164,435
121,770
Sales and marketing
95,688
73,146
58,610
General and administrative
40,206
33,979
34,909
Stock-based compensation expense
335,153
291,691
231,456
Income tax benefit
98,180
94,110
43,170
Total stock-based compensation expense, net of tax
$
236,973
$
197,581
$
188,286
For the Year Ended December 31,
VMware Stock Options
2011
2010
2009
Dividend yield
None
None
None
Expected volatility
37.7
%
38.0
%
36.1
%
Risk-free interest rate
1.0
%
1.5
%
1.9
%
Expected term (in years)
3.0
3.5
3.7
Weighted-average fair value at grant date
$
88.40
$
18.05
$
12.18
For the Year Ended December 31,
VMware Employee Stock Purchase Plan
2011
2010
2009
Dividend yield
None
None
None
Expected volatility
34.9
%
33.1
%
50.9
%
Risk-free interest rate
0.2
%
0.2
%
0.3
%
Expected term (in years)
0.5
0.5
0.5
Weighted-average fair value at grant date
$
23.69
$
15.18
$
7.79