VMware 2012 Annual Report Download - page 50

Table of Contents
General and Administrative Expenses
Our core operating expenses for general and administrative expenses include personnel and related overhead costs to support the overall
business. These expenses include the costs associated with our finance, human resources, IT infrastructure and legal departments, as well as
expenses related to corporate costs and initiatives and facilities costs.
Core operating expenses for general and administrative increased by $57.9 or 23% in 2012 compared with 2011 , and by $26.1 or 11% in
2011 compared with 2010 . The increase in 2012 was primarily due to an increase of $24.3 related to employee-related expenses mostly due to
incremental growth in headcount. General and administrative expenses also increased in 2012 due to an increase of $14.3 in corporate expenses,
including contributions to our charitable foundation. Also contributing to the increase in expenses in 2012 were equipment and depreciation
expenses of $11.6 to support increased headcount and IT security initiatives and increased contractor costs of $11.2 related to IT security
initiatives. The increase in 2011 was primarily due to an increase of $27.5 related to employee-related expenses primarily due to incremental
growth in headcount.
Stock-Based Compensation
Stock-based compensation in the years ended 2012 , 2011 and 2010 was as follows:
Total stock-based compensation was $438.7 in 2012 , $347.6 in 2011 , and $302.6 in 2010 , representing year-over-year increases of $91.1
and $45.0 , respectively. In 2011 and 2010 , we capitalized $12.4 and $10.9 , respectively, of stock-based compensation to our software
development projects. No costs were capitalized in 2012 for software development projects. The increase in total stock-based compensation
expenses in 2012 compared with 2011
was primarily due to an increase of $112.4 for new awards issued to our existing employees, as well as an
increase of $38.8 for awards made to new employees joining VMware in 2012. Additionally, total stock-based compensation expense increased
by $45.7 in 2012 in connection with our acquisition of Nicira in August 2012. Partially offsetting these increase
s was a decrease of $96.0 related
to grants that became fully vested over the past year.
The increase in stock-based compensation expense in 2011 over 2010 was primarily due to an increase of $74.3 from new awards issued to
our existing employees both in the second half of 2010 and the second quarter of 2011, as well as an increase of $32.9 for awards made to new
employees joining VMware in 2011. These increases were partially offset by a decrease of $71.7 primarily related to fully vested grants.
Stock-based compensation is recorded to each operating expense category based upon the function of the employee to whom the stock-
based compensation relates and fluctuates based upon the value and number of awards granted. Compensation philosophy varies by function,
resulting in different weightings of cash incentives versus equity incentives. As a result, functions with larger cash-based components, such as
sales commissions, will have comparatively lower stock-based compensation than other functions.
As of December 31, 2012 , the total unamortized fair value of our outstanding equity-based awards held by our employees was $945.4 , and
is expected to be recognized over a weighted-average period of approximately 1.6 years.
Capitalized Software Development Costs, Net
Development costs of software to be sold, leased, or otherwise marketed are subject to capitalization beginning when the product’s
technological feasibility has been established and ending when the product is available for general release. Judgment is required in determining
when technological feasibility is established, and as our business, products and go-to-market strategy have evolved, we have continued to
evaluate when technological feasibility is established. Following the release of vSphere 5 and the comprehensive suite of cloud infrastructure
technologies in the third quarter of 2011, we determined that our go-to-market strategy had changed from single solutions to product suite
solutions. As a result of this change in strategy, and the related increased importance of interoperability between our products, the length of time
between achieving technological feasibility and general release to customers significantly decreased. We expect our products to be available for
general release soon after technological feasibility has been established. Given that we expect the majority of our product offerings to be suites
or to have key components that interoperate with our other product offerings, the costs incurred subsequent to achievement of technological
feasibility are expected to be immaterial in future periods. In 2012 and the fourth quarter of 2011 , all software development costs related to
product offerings were expensed as incurred and were included in R&D expenses on the accompanying consolidated statements of income. In
2011 and 2010 , we capitalized $86.4 (including $12.4 of stock-based
47
For the Year Ended December 31,
2012
2011 2010
Stock-based compensation, excluding amounts capitalized
$
438.7
$
335.2
$
291.7
Stock-based compensation capitalized —
12.4
10.9
Total stock-based compensation expense
$
438.7
$
347.6
$
302.6