VMware 2012 Annual Report Download - page 51

Table of Contents
compensation) and $71.6 (including $10.9 of stock-based compensation), respectively, of costs for the development of software products.
Capitalized software development costs increased by $14.7 in 2011 compared with 2010 primarily due to an increase in costs associated with
products that had reached technological feasibility, including vSphere 5. The change in our go-to-market strategy and resulting decrease in the
length of time between technological feasibility of our products and the date those products are available for general release to customers did not
materially impact the amount of software development costs we capitalized in 2011.
Future changes in our judgment as to when technological feasibility is established, or additional changes in our business, including our go-
to-market strategy, could materially impact the amount of costs capitalized. For example, if the length of time between technological feasibility
and general availability were to increase in the future, the amount of capitalized costs would likely increase. Additionally, a transition to offering
software as a service instead of via a license may also result in an increased level of software capitalization.
In 2012 , 2011 and 2010 , amortization expense from capitalized software development costs was $70.6 , $84.7 and $99.5
, respectively. The
decrease in amortization of software development costs in 2012 compared with 2011 and 2011 compared with 2010 was primarily due to both
the timing of new product releases and the completion of amortization for other product releases, including different versions of vSphere.
Amortization expense from capitalized software development costs is included in cost of license revenues on our accompanying consolidated
statements of income. In future periods, we expect our amortization expense from capitalized software development costs to decline as these
costs are expected to be recorded as R&D expense as incurred given our current go-to-market strategy.
Other Operating Expenses
Other operating expenses consist of intangible amortization and employer payroll tax on employee stock transactions, which are recorded to
each individual line of operating expense on our accompanying consolidated statements of income. Additionally, other operating expenses
include acquisition-related items, which are recorded in general and administrative expense on our income statement.
Other operating expenses in the years ended 2012 , 2011 and 2010 were as follows:
Other operating expenses increased $24.4 in 2012 from 2011 and $30.7 in 2011 from 2010. The increase in 2012 was primarily due to an
increase in intangible amortization of $27.4 resulting from new acquisitions, which was primarily recorded to cost of license revenues on our
accompanying consolidated statement of income. The increase was partially offset by a decrease of $4.5 in employer payroll taxes on employee
stock transactions, which was attributable to a decrease in the number of awards exercised, sold or vested. The increase in other operating
expenses in 2011 was primarily due to additional intangible amortization of $29.8 resulting from new acquisitions, of which $22.3 was recorded
to costs of license revenues on our income statement.
Investment Income
Investment income increased by $10.4 to $26.6 in 2012 from $16.2 in 2011 and increased by $9.5 to $16.2 in 2011 from $6.6 in 2010 .
Investment income consists of interest earned on cash, cash equivalents and short-term investment balances partially offset by the amortization
of premiums paid on fixed income securities. In both 2012 and 2011 as compared with their respective prior years, investment income increased
due to increased balances invested in our fixed income portfolio and higher yields.
Other Income (Expense), Net
Other expense , net of $0.7 in 2012 changed by $47.7 compared with other income , net of $47.0 in 2011 . Other income , net of $47.0 in
2011 changed by $61.2 from other expense , net of $14.2 in 2010 . The changes in 2012 compared with 2011 and in 2011 compared with 2010
were primarily due to a $56.0 gain recognized on the sale of our investment in Terremark Worldwide, Inc. in 2011.
48
For the Year Ended December 31,
2012
2011 2010
Intangible amortization
$
92.0
$
64.6
$
34.8
Employer payroll tax on employee stock transactions
13.9
18.4
16.3
Acquisition-related items
3.8
2.3
3.5
Total other operating expenses
$
109.7
$
85.3
$
54.6