VMware 2012 Annual Report Download - page 47

Table of Contents
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Our operating margin on total operating expenses decreased to 18.9% in 2012 from 19.5% in 2011 . The decrease
in our operating margin in
2012 compared with 2011 primarily related to the year-over-year decrease in capitalized software development costs, partially offset by the year-
over-year increase in our revenues, which outpaced the increase in our core operating expenses. Our operating margin on total operating
expenses increased to 19.5% in 2011 from 15.0% in 2010 . The increase in our operating margin in 2011 compared with 2010 primarily related
to the increase in our revenues, which outpaced the increases in our expenses.
Core Operating Expenses
The following discussion of our core operating expenses and the components comprising our core operating expenses highlights the factors
that we focus on when evaluating our operating margin and operating expenses. The increases or decreases in operating expenses discussed in
this section do not include changes relating to stock-based compensation, the net effect of the amortization and capitalization of software
development costs and certain other expenses, which consist of amortization of acquired intangible assets, employer payroll taxes on employee
stock transactions and acquisition-related items.
Core operating expenses increased by $513.4 or 20% in 2012 compared with 2011 and increased by $556.4 or 27% in 2011 compared with
2010 . As quantified below, these increase s were primarily due to increases in employee-related expenses, which include salaries and benefits,
bonuses, commissions, and recruiting and training, and which increased largely as a result of increases in headcount. Our headcount as of
December 31, 2012 was approximately 13,800, compared with approximately 11,200 as of December 31, 2011 and compared with
approximately 9,000 as of December 31, 2010. These increases in headcount were driven by strategic hiring, business growth and business
acquisitions. A portion of our core operating expenses, primarily the cost of personnel to deliver technical support on our products and
professional services, marketing, and research
45
For the Year Ended December 31, 2011
Core
Operating
Items (1)
Stock-Based
Compensation
Capitalized
Software
Development
Costs, net
Other
Operating
Items
Total
Operating
Items
Cost of license revenue
$
74.9
$
1.6
$
84.7
$
46.2
$
207.4
Cost of services revenue
384.9
23.4
—
6.3
414.6
Research and development
661.9
174.3
(74.0
)
12.9
775.1
Sales and marketing
1,222.8
95.7
—
15.8
1,334.3
General and administrative
256.2
40.2
—
4.1
300.5
Total operating expenses
$
2,600.7
$
335.2
$
10.7
$
85.3
$
3,031.9
Operating income
$
735.2
Operating margin
19.5
%
For the Year Ended December 31, 2010
Core
Operating
Expenses (1)
Stock-Based
Compensation
Capitalized
Software
Development
Costs, net
Other
Operating
Expenses
Total
Operating
Expenses
Cost of license revenue
$
52.4
$
1.7
$
99.5
$
23.9
$
177.5
Cost of services revenue
292.3
18.5
—
5.5
316.3
Research and development
537.8
164.4
(60.7
)
11.5
653.0
Sales and marketing
931.7
73.1
—
8.5
1,013.3
General and administrative
230.1
34.0
—
5.2
269.3
Total operating expenses
$
2,044.3
$
291.7
$
38.8
$
54.6
$
2,429.4
Operating income
$
428.0
Operating margin
15.0
%
(1) Core operating expenses is a non-GAAP financial measure that excludes stock-based compensation, the net effect of the amortization and
capitalization of software development costs and certain other expenses from our total operating expenses calculated in accordance with
GAAP. The other operating expenses excluded are amortization of acquired intangible assets, employer payroll taxes on employee stock
transactions and acquisition-related items. Our core operating expenses reflect our business in a manner that allows meaningful period-to-
period comparisons. Our core operating expenses are reconciled to the most comparable GAAP measure, “total operating expenses,” in the
table above. See “Non-GAAP Financial Measures” for further information.