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Table of Contents VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
representing 12.6 million shares of VMware’s Class A common stock were outstanding, with an aggregate intrinsic value of $1,039 million
based on VMware’s closing price as of December 31, 2014 .
VMware Shares Repurchased for Tax Withholdings
During the years ended December 31, 2014 , 2013 and 2012 , VMware repurchased and retired or withheld 1.8 million , 1.9 million and 1.7
million shares, respectively, of Class A common stock, for $162 million , $126 million and $136 million , respectively, to cover tax withholding
obligations. These amounts may differ from the amounts of cash remitted for tax withholding obligations on the consolidated statements of cash
flows due to the timing of payments. Pursuant to the respective award agreements, these shares were repurchased or withheld in conjunction with
the net share settlement upon the vesting of restricted stock and restricted stock units during the period. The value of the repurchased or withheld
shares, including restricted stock units, was classified as a reduction to additional paid-in capital.
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, 2014 , 2013 and 2012 (table in millions):
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 sheets. 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. As of December 31, 2014 , there were no outstanding liability-classified awards. During
the year ended December 31, 2014 and 2013 , $21 million and $25 million , respectively, of liability-classified awards were reclassified to
additional paid-in capital upon vesting.
As of December 31, 2014 , the total unrecognized compensation cost for stock options and restricted stock was $891 million and will be
recognized through 2018 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, 2014 , 2013 and
2012 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
93
For the Year Ended December 31,
2014
2013
2012
Cost of license revenues
$
2
$
2
$
2
Cost of services revenues
42
29
28
Research and development
244
227
210
Sales and marketing
172
144
150
General and administrative
69
56
48
Realignment
—
6
—
Stock-based compensation
529
464
438
Income tax benefit
(157
)
(136
)
(132
)
Total stock-based compensation, net of tax
$
372
$
328
$
306
For the Year Ended December 31,
VMware Stock Options 2014
2013
2012
Dividend yield
None
None
None
Expected volatility
36.2
%
38.5
%
35.8
%
Risk-free interest rate
0.9
%
0.9
%
0.3
%
Expected term (in years)
3.2
3.6
2.7
Weighted-average fair value at grant date
$
48.47
$
29.47
$
80.45