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Table of Contents
VMWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The total fair value of EMC restricted stock granted to VMware employees that vested in the years ended December 31, 2007, 2006 and
2005 were $39.6 million, $26.9 million and $7.9 million.
As of December 31, 2007, 1.3 million shares of EMC restricted stock granted to VMware employees were outstanding and unvested, with
an aggregate intrinsic value of $23.8 million. These shares are scheduled to vest through 2011.
The EMC restricted stock awards have various vesting terms, including pro rata vesting over three years and cliff vesting at the end of five
years from the date of grant with acceleration in each of the first three or four years for achieving specified performance criteria.
Stock-Based Compensation Expense
The following table summarizes the components of total stock-based compensation expense included in VMware’s consolidated income
statement for the years ended December 31, 2007 and 2006 (table in thousands):
In connection with the adoption of FAS No. 123R on January 1, 2006, VMware recorded to its income statement, a cumulative effect
adjustment, net of taxes, of $0.2 million to record an amount for the reversal of the previously recognized compensation expense related to
outstanding restricted stock awards that are not expected to vest, based on an estimate of forfeitures as of the date of adoption of FAS No. 123R.
Additionally, VMware recorded to stockholders’ equity, a cumulative effect adjustment, net of taxes, of $1.1 million to capitalize amounts
associated with software development costs that were previously capitalized in VMware’
s pro forma compensation disclosures prior to adoption.
For the years ended December 31, 2007, 2006 and 2005, VMware capitalized $9.1 million, $8.8 million and $3.5 million, respectively, of
stock-based compensation expense associated with capitalized software development. For the year ended December 31, 2007, VMware
capitalized an additional $0.8 million of stock-based compensation expense associated with software developed for internal use. The amount of
stock-based compensation expense capitalized for software developed for internal use was not material in prior periods.
As of December 31, 2007, the total unrecognized compensation cost for both VMware stock options and restricted stock and EMC stock
options and restricted stock was $388.5 million. This non-cash expense will be recognized through 2012 with a weighted average remaining
period of 1.6 years.
For the periods prior to 2006, VMware elected to apply APB No. 25 and related interpretations in accounting for VMware’s stock-based
compensation plans. For the acquisition of VMware by EMC, VMware exchanged the options held by VMware employees for EMC options as
of the acquisition date. In accordance
83
For the Year Ended
December 31,
2007
2006
Cost of license revenues
$
558
$
99
Cost of services revenues
6,070
2,384
Research and development
42,934
26,342
Sales and marketing
26,288
12,020
General and administrative
16,556
10,381
Stock
-
based compensation expense before income taxes
92,406
51,226
Income tax benefit
21,227
12,229
Total stock
-
based compensation expense, net of tax
$
71,179
$
38,997