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Table of Contents VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Stock
-Based Compensation
The following table summarizes the components of total stock-based compensation included in VMware’s consolidated statements of income for the
years ended December 31, 2013 , 2012 and 2011 (table in millions):
For the years ended December 31, 2013 and 2012 , no costs were capitalized for the development of software products. For the year ended 2011 ,
VMware capitalized $12 million of stock-based compensation associated with capitalized software development.
From time to time, VMware issues equity awards that have a guaranteed amount of value and are classified as liability awards on VMware’s
consolidated balance sheet. As of December 31, 2013 , liability-classified awards with an aggregate guaranteed value of $22 million
were outstanding. Upon
vesting, these grants will be settled in shares based upon the stock price or a trailing average stock price on a date determined by the terms of each individual
award. During the year ended December 31, 2013 , $25 million of liability-classified awards were reclassified to additional paid-in capital upon vesting.
As of December 31, 2013 , the total unrecognized compensation cost for stock options and restricted stock was $823 million . This non-
cash expense will
be recognized through 2017 with a weighted-average remaining period of 1.5 years . Stock-based compensation related to both VMware and EMC equity
awards held by VMware employees is recognized on VMware's consolidated statements of income over the awards' requisite service periods.
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, 2013 , 2012 and 2011 was
estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
87
For the Year Ended December 31,
2013
2012
2011
Cost of license revenues
$
2
$
2
$
2
Cost of services revenues
29
28
23
Research and development
227
210
174
Sales and marketing
144
150
96
General and administrative
56
48
40
Realignment
6
—
—
Stock-based compensation
464
438
335
Income tax benefit
(136
)
(132
)
(98
)
Total stock-based compensation, net of tax
$
328
$
306
$
237
For the Year Ended December 31,
VMware Stock Options 2013
2012
2011
Dividend yield
None
None
None
Expected volatility
38.5
%
35.8
%
37.7
%
Risk-free interest rate
0.9
%
0.3
%
1.0
%
Expected term (in years)
3.6
2.7
3.0
Weighted-average fair value at grant date
$
29.47
$
80.45
$
88.40
For the Year Ended December 31,
VMware Employee Stock Purchase Plan 2013
2012
2011
Dividend yield
None
None
None
Expected volatility
32.9
%
37.8
%
34.9
%
Risk-free interest rate
0.1
%
0.1
%
0.2
%
Expected term (in years)
0.5
0.5
0.5
Weighted-average fair value at grant date
$
20.45
$
23.36
$
23.69