VMware 2009 Annual Report Download - page 54

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Table of Contents
Stock
-Based Compensation Expense
Stock-
based compensation expense increased between 2009 and 2008 primarily due to restricted stock unit grants made in September 2008
to certain international employees who were not eligible to participate in the 2008 Exchange Offer and to various other employees for retention
purposes. These awards were subject to a full year of vesting and expense recognition in 2009. Additionally, stock-based compensation expense
increased due to refresh awards made to our existing employees in the second quarter of 2009 and equity awards issued in connection with the
acquisition of SpringSource in the third quarter of 2009.
Stock-based compensation expenses increased between 2008 and 2007 primarily due to broad-based stock option and restricted stock unit
grants made under the VMware 2007 Equity and Incentive Plan beginning in the second quarter of 2007. Beginning in June 2007, we granted
equity incentive awards under our 2007 Equity and Incentive Plan in anticipation of our IPO.
Stock-based compensation is recorded to each operating expense category based upon the function of the employee to whom the stock-
based compensation relates. Historically, stock-based compensation by operating expense category has fluctuated based upon the value and
number of awards granted to employees in each respective function. The R&D function has historically had the greatest amount of stock-based
compensation given the size of our R&D organization and the strategic role that its employees serve within the Company. In addition, our
acquisitions have primarily been technology focused, and many of the equity awards related to employees acquired were in our R&D
organization. Conversely, the compensation for the sales organization is more heavily weighted toward cash compensation, primarily in the form
of commissions, and therefore has disproportionally lower stock-based compensation expense.
As of December 31, 2009, the total unamortized fair value of our outstanding equity-based awards and EMC equity-based awards held by
our employees was approximately $525.6. This amount will be recognized over the awards’ requisite service periods, and is expected to result in
stock-based compensation expense of approximately $250.2, $170.1, $79.0, and $26.3 for 2010, 2011, 2012, and 2013, respectively.
In future quarters, our total stock-based compensation expense is expected to increase as a result of the grants described above and any
additional equity grants we make. Stock-based compensation expense is subject to 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. Judgment is
required in determining when technological feasibility of a product is established, and our amounts capitalized as software development costs
may not be comparable to our peer companies due to differences in judgment as to when technological feasibility has been reached or
differences in judgment regarding when the product is available for general release.
In 2009, 2008, and 2007, we capitalized $83.5 (including $14.9 of stock-based compensation), $113.6 (including $22.7 of stock-based
compensation), and $56.8 (including $9.1 of stock-based compensation), respectively, of costs incurred for the development of software
products. These amounts have been excluded
51
For the Year Ended December 31,
2009
2008
2007
Stock
-
based compensation, excluding amounts capitalized
$
231.5
$
166.5
$
92.4
Stock
-
based compensation capitalized
14.9
22.7
9.1
Stock
-
based compensation, including amounts capitalized
$
246.4
$
189.2
$
101.5