Stock-Based Compensation

EMC Equity Plans

The EMC Corporation Amended and Restated 2003 Stock Plan (the “2003 Plan”) provides for the grant of stock options, stock appreciation rights, restricted stock and restricted stock units. The exercise price for a stock option shall not be less than 100% of the fair market value of our common stock on the date of grant. Options generally become exercisable in annual installments over a period of five years after the date of grant and expire ten years after the date of grant. Incentive stock options will expire no later than ten years after the date of grant. Restricted stock is common stock that is subject to a risk of forfeiture or other restrictions that will lapse upon satisfaction of specified conditions. Restricted stock units represent the right to receive shares of common stock in the future, with the right to future delivery of the shares subject to a risk of forfeiture or other restrictions that will lapse upon satisfaction of specified conditions. Grants of restricted stock awards or restricted stock units that vest only by the passage of time will not vest fully in less than two years after the date of grant, except for grants to non-employee Directors that are not subject to this minimum two-year vesting requirement. The 2003 Plan allows us to grant up to 420 million shares of common stock. We recognize restricted stock awards and restricted stock units against the 2003 Plan share reserve as two shares for every one share issued in connection with such awards.

In addition to the 2003 Plan, we have four other stock option plans (the “1985 Plan,” the “1993 Plan,” the “2001 Plan” and the “1992 Directors Plan”). In May 2007, these four plans were consolidated into the 2003 Plan such that all future grants will be granted under the 2003 Plan and shares that are not issued as a result of cancellations, expirations or forfeitures, will become available for grant under the 2003 Plan.

A total of 982 million shares of common stock have been reserved for issuance under the above five plans. At December 31, 2013, there were an aggregate of 78 million shares of common stock available for issuance pursuant to future grants under the 2003 Plan.

We have, in connection with the acquisition of various companies, assumed the stock option plans of these companies. We do not intend to make future grants under any of such plans.

EMC Employee Stock Purchase Plan

Under our Amended and Restated 1989 Employee Stock Purchase Plan (the “1989 Plan”), eligible employees may purchase shares of common stock through payroll deductions at 85% of the fair market value at the time of exercise. During the years ended December 31, 2012 and 2011, options to purchase shares were granted twice yearly, on January 1 and July 1, and were exercisable on the succeeding June 30 or December 31. During 2013, we amended the 1989 Plan to adjust the grant and exercise dates and extended the exercise date of December 31, 2013 to January 31, 2014. A total of 183 million shares of common stock have been reserved for issuance under the 1989 Plan. The following table summarizes the 1989 Plan activity in the years ended December 31, 2013, 2012 and 2011 (table in millions, except per share amounts):



	For the Year Ended
	December 31, 2013		December 31, 2012		December 31, 2011
Cash proceeds	$	82	$	154	$	141
Common shares purchased	4		7		7
Weighted-average price per share	$	20.08	$	21.65	$	20.44

As of December 31, 2013, $93 million of ESPP withholdings were recorded as a liability on the consolidated balance sheet for the next purchase that occurred in January 2014.

EMC Stock Options

The following table summarizes our option activity under all equity plans since January 1, 2011 (shares in millions):



	Number of Shares		Weighted Average Exercise Price (per share)
Outstanding, January 1, 2011	172		$	15.23
Options granted relating to business acquisitions	1		3.24
Granted	2		25.31
Forfeited	(4	)	13.00
Expired	(14	)	40.05
Exercised	(45	)	11.91
Outstanding, December 31, 2011	112		13.69
Options granted relating to business acquisitions	2		1.54
Granted	1		26.80
Forfeited	(2	)	13.75
Expired	(1	)	14.19
Exercised	(35	)	11.65
Outstanding, December 31, 2012	77		14.39
Options granted relating to business acquisitions	1		3.29
Granted	—		—
Forfeited	(1	)	13.36
Expired	—		—
Exercised	(20	)	13.10
Outstanding, December 31, 2013	57		14.56
Exercisable, December 31, 2013	50		14.58
Vested and expected to vest, December 31, 2013	57		$	14.59

At December 31, 2013, the weighted-average remaining contractual term was 3.5 years and the aggregate intrinsic value was $533 million for the 50 million exercisable shares. For the 57 million shares vested and expected to vest at December 31, 2013, the weighted-average remaining contractual term was 3.9 years and the aggregate intrinsic value was $604 million. The intrinsic value is based on our closing stock price of $25.15 as of December 31, 2013, which would have been received by the option holders had all in-the-money options been exercised as of that date. The total pre-tax intrinsic values of options exercised in 2013, 2012 and 2011 were $240 million, $518 million and $619 million, respectively. Cash proceeds from the exercise of stock options were $260 million, $407 million and $532 million in 2013, 2012 and 2011, respectively. Income tax benefits realized from the exercise of stock options in 2013, 2012 and 2011 were $45 million, $97 million and $127 million, respectively.

EMC Restricted Stock and Restricted Stock Units

Our restricted stock awards and units are valued based on our stock price on the grant date. Our restricted stock awards and units have various vesting terms from the date of grant, including pro rated vesting over three or four years, cliff vesting at the end of three or five years with acceleration for achieving specified performance criteria and vesting on various dates contingent on achieving specified performance criteria. For awards with performance conditions, management evaluates the criteria in each grant to determine the probability that the performance condition will be achieved.

The following table summarizes our restricted stock and restricted stock unit activity since January 1, 2011 (shares in millions):



	Number of Shares		Weighted Average Grant Date Fair Value
Restricted stock and restricted stock units at January 1, 2011	44		$	17.20
Granted	21		25.12
Vested	(15	)	16.44
Forfeited	(4	)	20.56
Outstanding, December 31, 2011	46		21.10
Granted	21		26.57
Vested	(16	)	18.92
Forfeited	(4	)	23.09
Outstanding, December 31, 2012	47		24.39
Granted	20		25.55
Vested	(15	)	22.61
Forfeited	(4	)	24.80
Restricted stock and restricted stock units at December 31, 2013	48		$	25.43

The total intrinsic values of restricted stock and restricted stock units that vested in 2013, 2012 and 2011 were $404 million, $421 million and $371 million, respectively. As of December 31, 2013, restricted stock and restricted stock units representing 48 million shares were outstanding and unvested, with an aggregate intrinsic value of $1,203 million. These shares and units are scheduled to vest through 2018. Of the total shares of restricted stock and restricted stock units outstanding, 43 million shares and units will vest upon fulfilling service conditions, of which vesting for 9 million shares and units will accelerate upon achieving performance conditions. The remaining 5 million shares and units will vest only if certain performance conditions are achieved.

VMware Equity Plans

In June 2007, VMware adopted its 2007 Equity and Incentive Plan (the “2007 Plan”). In May 2009, VMware amended its 2007 Plan to increase the number of shares available for issuance by 20 million shares for total shares available for issuance of 100 million. In May 2013, VMware further amended the 2007 Plan to increase the number of shares available for issuance by 13 million shares. The number of shares underlying outstanding equity awards that VMware assumes in the course of business acquisitions are also added to the 2007 Plan reserve on an as-converted basis. VMware has assumed 2 million shares, which accordingly have been added to the 2007 Plan reserve.

Awards under the 2007 Plan may be in the form of stock options or other stock-based awards, including awards of restricted stock units. The exercise price for a stock option awarded under the 2007 Plan shall not be less than 100% of the fair market value of VMware Class A common stock on the date of grant. Most options granted under the 2007 Plan vest 25% after the first year and then monthly thereafter over the following three years and expire between six and seven years from the date of grant. Most restricted stock grants made under the 2007 Plan have a three-year to four-year period over which they vest. VMware’s Compensation and Corporate Governance Committee determines the vesting schedule for all equity awards. VMware utilizes both authorized and unissued shares to satisfy all shares issued under the 2007 Plan. At December 31, 2013, there were an aggregate of 11 million shares of common stock available for issuance pursuant to future grants under the 2007 Plan.

VMware Stock Repurchase Programs

The following table summarizes stock repurchase authorizations in the years ended December 31, 2013, 2012 and 2011 (amounts in table in millions):



Month Authorized	Amount Authorized	Expiration Date
August 2013	700	End of 2015
November 2012	250	End of 2014
February 2012	600	End of 2013
February 2011	550	End of 2012
March 2010	400	End of 2011

Purchases under the November 2012 authorization were completed in the fourth quarter of 2013. Purchases under the February 2012 authorization were completed in the second quarter of 2013. Purchases under the February 2011 authorization were completed in the second quarter of 2012. From time to time, future stock repurchases may be made pursuant to the August 2013 authorization in open market transactions or privately negotiated transactions as permitted by securities laws and other legal requirements.

VMware is not obligated to purchase any shares under its stock repurchase programs. The timing of any repurchases and the actual number of shares repurchased will depend on a variety of factors, including VMware’s stock price, cash requirements for operations and business combinations, corporate and regulatory requirements and other market and economic conditions. Purchases can be discontinued at any time that VMware feels additional purchases are not warranted. All shares repurchased under VMware’s stock repurchase programs are retired.

The following table summarizes stock repurchase activity in the years ended December 31, 2013, 2012 and 2011 (table in millions, except per share amounts):



	For the Year Ended December 31,
	2013		2012		2011
Aggregate purchase price	$	508	$	468	$	526
Class A common shares repurchased	7		5		6
Weighted-average price per share	$	76.58	$	91.10	$	88.37

The amount of repurchased shares includes commissions and was classified as a reduction to additional paid-in capital. As of December 31, 2013, the cumulative authorized amount remaining for repurchase was $660 million.

VMware Employee Stock Purchase Plan

In June 2007, VMware adopted its 2007 Employee Stock Purchase Plan (the “ESPP”), which is intended to be qualified under Section 423 of the Internal Revenue Code. In May 2013, VMware amended its ESPP to increase the number of shares available for issuance by 8 million shares. Under the ESPP, eligible VMware employees are granted options to purchase shares at the lower of 85% of the fair market value of the stock at the time of grant or 85% of the fair market value at the time of exercise. Options to purchase shares are generally granted twice yearly on February 1 and August 1 and exercisable on the succeeding July 31 and January 31, respectively, of each year. As of December 31, 2013, 7 million shares of VMware Class A common stock were available for issuance pursuant to future grants under the ESPP.

The following table summarizes ESPP activity in the years ended December 31, 2013, 2012 and 2011 (table in millions, except per share amounts):



	For the Year Ended
	December 31, 2013		December 31, 2012		December 31, 2011
Cash proceeds	$	76	$	69	$	57
Class A common shares purchased	1		1		1
Weighted-average price per share	$	65.97	$	77.34	$	69.81

As of December 31, 2013, $36 million of ESPP withholdings were recorded as a liability on the consolidated balance sheet for the next purchase that occurred in January 2014.

VMware Stock Options

The following table summarizes activity since January 1, 2011 for VMware employees in VMware stock options (shares in millions):



	Number of Shares		Weighted Average Exercise Price (per share)
Outstanding, January 1, 2011	27		$	33.54
Forfeited	(1	)	40.98
Exercised	(10	)	28.64
Outstanding, December 31, 2011	16		35.27
Granted	1		4.67
Forfeited	(1	)	42.07
Exercised	(6	)	30.44
Outstanding, December 31, 2012	10		34.36
Granted	1		71.53
Exercised	(5	)	28.12
Outstanding, December 31, 2013	6		44.12
Exercisable, December 31, 2013	4		36.45
Vested and expected to vest	6		$	42.84

The above table includes stock options granted in conjunction with unvested stock options assumed in business combinations. As a result, the weighted-average exercise price per share may vary from the VMware stock price at time of grant.

As of December 31, 2013, for the VMware stock options, the weighted-average remaining contractual term was 1.8 years and the aggregate intrinsic value was $209 million for the 4 million exercisable shares. For the 6 million options vested and expected to vest at December 31, 2013, the weighted-average remaining contractual term was 3.2 years and the aggregate intrinsic value was $261 million. These aggregate intrinsic values represent the total pre-tax intrinsic values based on VMware’s closing stock price of $89.71 as of December 31, 2013, which would have been received by the option holders had all in-the-money options been exercised as of that date. The options exercised in 2013, 2012 and 2011 had a pre-tax intrinsic value of $256 million, $443 million and $648 million, respectively.

VMware Restricted Stock

The following table summarizes restricted stock activity since January 1, 2011 (units in millions):



	Number of Units		Weighted Average Grant Date Fair Value (per unit)
Restricted stock at January 1, 2011	10		$	54.17
Granted	5		91.51
Vested	(4	)	48.47
Forfeited	(1	)	64.70
Outstanding, December 31, 2011	10		72.74
Granted	8		101.73
Vested	(4	)	69.01
Forfeited	(2	)	81.53
Outstanding, December 31, 2012	12		91.93
Granted	7		76.20
Vested	(4	)	83.21
Forfeited	(2	)	90.55
Outstanding, December 31, 2013	13		$	85.85

As of December 31, 2013, restricted stock representing 13 million shares of VMware's Class A common stock were outstanding, with an aggregate intrinsic value of $1,153 million based on VMware’s closing price as of December 31, 2013.

Stock-Based Compensation Expense

The following tables summarize the components of total stock-based compensation expense included in our consolidated income statements in 2013, 2012 and 2011 (in millions):



	Year Ended December 31, 2013
	Stock Options		Restricted Stock		Total Stock-Based Compensation
Cost of product sales	$	19	$	29	$	48
Cost of services	15		61		76
Research and development	75		282		357
Selling, general and administrative	82		372		454
Stock-based compensation expense before income taxes	191		744		935
Income tax benefit	56		170		226
Total stock-based compensation, net of tax	$	135	$	574	$	709
	Year Ended December 31, 2012
	Stock Options		Restricted Stock		Total Stock-Based Compensation
Cost of product sales	$	22	$	30	$	52
Cost of services	21		53		74
Research and development	88		236		324
Selling, general and administrative	131		339		470
Stock-based compensation expense before income taxes	262		658		920
Income tax benefit	68		162		230
Total stock-based compensation, net of tax	$	194	$	496	$	690
	Year Ended December 31, 2011
	Stock Options		Restricted Stock		Total Stock-Based Compensation
Cost of product sales	$	30	$	31	$	61
Cost of services	25		38		63
Research and development	106		193		299
Selling, general and administrative	165		248		413
Stock-based compensation expense before income taxes	326		510		836
Income tax benefit	73		120		193
Total stock-based compensation, net of tax	$	253	$	390	$	643

Stock-based compensation expense includes $54 million, $52 million and $44 million of expense associated with our employee stock purchase plans for 2013, 2012 and 2011, respectively.

The table below presents the net change in amounts capitalized or accrued in 2013 and 2012 for the following items (in millions):



	Increased (decreased) during the year ended December 31, 2013			Increased (decreased) during the year ended December 31, 2012
Accrued expenses (accrued warranty expenses)	$	(1	)	$	(2	)
Other assets	2			8

As of December 31, 2013, the total unrecognized after-tax compensation cost for stock options, restricted stock and restricted stock units was $1,379 million. This non-cash expense will be recognized through 2018 with a weighted-average remaining period of 1.5 years.

Fair Value of EMC Stock Options

The fair value of each option granted during the years ended December 31, 2013, 2012 and 2011 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:



	For the Year Ended December 31,
EMC Stock Options	2013	2012			2011
Dividend yield	N/A	None			None
Expected volatility	N/A	34.3		%	33.3		%
Risk-free interest rate	N/A	0.8		%	1.6		%
Expected term (in years)	N/A	5.2			4.9
Weighted-average fair value at grant date	N/A	$	8.56		$	8.00

Apart from options issued through business acquisitions which are discussed in Note C, there were no stock options granted during the year ended December 31, 2013. For all stock options granted in 2012 and 2011, volatility was based on an analysis of historical stock prices and implied volatilities from traded options in our stock. We use EMC historical data to estimate the expected term of options granted within the valuation model. For 2012 and 2011, EMC’s expected dividend yield input was zero as it had not historically paid cash dividends on its common stock. The risk-free interest rate was based on a U.S. Treasury instrument whose term is consistent with the expected term of the stock options.

Fair Value of VMware Options

The fair value of each option to acquire VMware Class A common stock granted during the years ended December 31, 2013, 2012 and 2011 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:



	For the Year Ended December 31,
VMware Stock Options	2013			2012			2011
Dividend yield	None			None			None
Expected volatility	38.5		%	35.8		%	37.7		%
Risk-free interest rate	0.9		%	0.3		%	1.0		%
Expected term (in years)	3.6			2.7			3.0
Weighted-average fair value at grant date	$	29.47		$	80.45		$	88.40
	For the Year Ended December 31,
VMware Employee Stock Purchase Plan	2013			2012			2011
Dividend yield	None			None			None
Expected volatility	32.9		%	37.8		%	34.9		%
Risk-free interest rate	0.1		%	0.1		%	0.2		%
Expected term (in years)	0.5			0.5			0.5
Weighted-average fair value at grant date	$	20.45		$	23.36		$	23.69

The weighted-average grant date fair value of VMware stock options can fluctuate from period to period primarily due to higher valued options assumed through business combinations with exercise prices lower than the fair market value of VMware’s stock on the date of grant.

For all stock options granted in 2013, 2012 and 2011, volatility was based on an analysis of historical stock prices and implied volatilities of publicly-traded companies with similar characteristics, including industry, stage of life cycle, size, financial leverage, as well as the implied volatilities of VMware’s Class A common stock. The expected term was calculated based upon an analysis of the expected term of similar grants of comparable publicly-traded companies, the term of the purchase period for grants made under the ESPP, or the weighted-average remaining term for options assumed in acquisitions. For all periods presented, VMware’s expected dividend yield input was zero as it has not historically paid, nor expects in the future to pay, cash dividends on its common stock. The risk-free interest rate was based on a U.S. Treasury instrument whose term is consistent with the expected term of the stock options.