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VMWARE, INC.
FORM 10-K
(Annual Report)
Filed 02/25/14 for the Period Ending 12/31/13
Address 3401 HILLVIEW AVENUE
PALO ALTO, CA 94304
Telephone (650) 427-5000
CIK 0001124610
Symbol VMW
SIC Code 7372 - Prepackaged Software
Industry Software & Programming
Sector Technology
Fiscal Year 12/31
http://www.edgar-online.com
© Copyright 2014, EDGAR Online, Inc. All Rights Reserved.
Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.

Table of contents

  • Page 1
    VMWARE, INC. FORM 10-K (Annual Report) Filed 02/25/14 for the Period Ending 12/31/13 Address Telephone CIK Symbol SIC Code Industry Sector Fiscal Year 3401 HILLVIEW AVENUE PALO ALTO, CA 94304 (650) 427-5000 0001124610 VMW 7372 - Prepackaged Software Software & Programming Technology 12/31 http://...

  • Page 2
    ...the closing sale price of such shares on the New York Stock Exchange on June 28, 2013) was approximately $5,373,015,482 . Shares of the registrant's Class A common stock and Class B common stock held by each executive officer and director and by each entity or person, other than investment companies...

  • Page 3
    ... to portions of the registrant's Proxy Statement for the Annual Meeting of Stockholders to be held in 2014. The Proxy Statement will be filed by the registrant with the Securities and Exchange Commission no later than 120 days after the end of the registrant's fiscal year ended December 31, 2013 .

  • Page 4
    ... Accountants on Accounting and Financial Disclosures Controls and Procedures Other Information PART III Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management, and Related Stockholder Matters Certain Relationships...

  • Page 5
    ...; our relationship with EMC Corporation ("EMC"): EMC's percentage ownership of our shares, and its impact on taxes; increasing employee headcount and impact on operating expense; customer and partner demand for our products and services; synergies from our acquisitions and associated accounting for...

  • Page 6
    ... that our partners benefit greatly from the sale of our solutions through additional services, software and hardware sales opportunities. We have trained a large number of partners and end users to deploy and leverage our solutions. We incorporated in Delaware in 1998, were acquired by EMC in 2004...

  • Page 7
    Table of Contents professional services revenues, including training. Our corporate headquarters are located at 3401 Hillview Avenue, Palo Alto, California, and we have approximately 97 offices worldwide. Products and Technology Software-Defined-Data-Center VMware's SDDC architecture consists of ...

  • Page 8
    ... hybrid clouds. VMware's End-User Computing solutions include: Desktop Solutions Horizon View, a virtual desktop infrastructure solution that increases control of desktops, applications, and data by delivering and managing them as centralized services. Horizon Mirage, stores full desktop images and...

  • Page 9
    ..., HP, IBM, Lenovo and NEC for joint certification and co-development. We also work closely with AMD, Intel and other IHVs to provide input on product development to enable them to deliver hardware advancements that benefit virtualization users. We coordinate with the leading storage and...

  • Page 10
    ... media initiatives, free downloads and our website. We have invested in multiple online communities that enable customers and partners to share and discuss sales and development resources, best practices implementation, and industry trends among other topics. Our annual user conference, VMworld...

  • Page 11
    ... and virtualization markets include the level of reliability, interoperability and new functionality of product and service offerings; the ability to provide comprehensive solutions, including management capabilities; the ability to offer products that support multiple hardware platforms, operating...

  • Page 12
    ...operating histories, greater name recognition, a larger customer base and significantly greater financial, technical, sales and marketing and other resources than we do. Overall however, we believe our market position, large virtualization customer base, strong network of partners and indirect sales...

  • Page 13
    ... to time that investors might find useful or interesting; and opportunities to sign up for email alerts and RSS feeds to have information pushed in real time. The information found on our website is not part of, and is not incorporated by reference into, this or any other report we file with, or...

  • Page 14
    ... manage entitlements, policies and security. In 2012, we acquired Wanova, a leading provider of intelligent desktop solutions that centralize and simplify the management of physical desktop images while enabling users to take advantage of the native performance of a PC. In 2013, we acquired Desktone...

  • Page 15
    ... on converting free and trial users to paying customers of the premium tiers of these services, and therefore we must maintain a sufficient conversion ratio for such services to be profitable. Also, certain of our new product initiatives have a subscription model. We may not be able to accurately...

  • Page 16
    ... results of operations in a number of ways, including by lengthening sales cycles, affecting the size of enterprise license agreements ("ELAs") that customers will commit to, reducing the level of our non-ELA transactional sales, lowering prices for our products and services, reducing unit sales and...

  • Page 17
    ... to invest in desktop virtualization marketing by continuing its close collaboration with Microsoft and has acquired smaller players like Zenprise, Virtual Computer and Framehawk. Moreover, information technology companies are increasingly seeking to deliver top-to-bottom IT solutions to end users...

  • Page 18
    ... others general economic conditions in our domestic and international markets and the effect that these conditions have on our customers' capital budgets and the availability of funding for software purchases; fluctuations in demand, adoption rates, sales cycles and pricing levels for our products...

  • Page 19
    ... to maintain scalable internal systems for reporting, order processing, license fulfillment, product delivery, purchasing, billing and general accounting, among other functions; our ability to control costs, including our operating expenses; changes to our effective tax rate; the increasing scale...

  • Page 20
    ... relationships with our enterprise customers. Although our year-over-year growth rates for overall sales and ELA sales both increased in 2013 compared to 2012, the year-over-year growth rate for our transactional sales declined in 2013 compared to 2012. As we develop and add new product and service...

  • Page 21
    ...or position or price our products and services to meet market demand, customers may not buy new software licenses from us, update to new versions of our software or renew product support. In addition, information technology standards from both consortia and formal standards-setting forums as well as...

  • Page 22
    ... virtually all of our business operations, ranging from our internal operations and product development activities to our marketing and sales efforts and communications with our customers and business partners. Unauthorized parties have attempted to penetrate our network security and our website...

  • Page 23
    ...international sales operations and investments. Revenues from customers outside the United States comprised approximately 52.3% , 51.6% and 51.6% of our total revenues in the years ended 2013 , 2012 and 2011, respectively. We have sales, administrative, research and development and technical support...

  • Page 24
    ... of numerous manufacturers. Developing products that interoperate properly requires substantial partnering, capital investment and employee resources, as well as the cooperation of the vendors and developers of the operating systems and hardware. Operating system and hardware vendors may not provide...

  • Page 25
    ... commercial, product liability, intellectual property, employment, class action, whistleblower and other matters. In the ordinary course of business, VMware also receives inquiries from and has discussions with government entities regarding the compliance of its contracting and sales practices with...

  • Page 26
    ... expect that our customers may increasingly use our services to store and process personal information and other user data. We post, on our websites, our privacy policies and practices concerning our treatment of personal data. We also often include privacy commitments in our contracts. Any failure...

  • Page 27
    ...we may not be able to prevent our partners, employees or consultants from violating any agreements or licenses we may have in place or abusing their access granted to our source code. Improper disclosure or use of our source code could help competitors develop products similar to or better than ours...

  • Page 28
    ... parties in connection with the use of our products. If any of these claims succeed, we may be forced to pay damages on behalf of our customers or channel partners, which could negatively affect our results of operations. Our use of "open source" software in our products could negatively affect our...

  • Page 29
    ... property, product quality, security, privacy practices, accounting practices or legal contingencies; maintaining or establishing acceptable standards, controls, procedures or policies with respect to the acquired business; and risks relating to the challenges and costs of closing a transaction...

  • Page 30
    ...stock price. Problems with our information systems could interfere with our business and could adversely impact our operations. We rely on our information systems and those of third parties for processing customer orders, delivery of products, providing services and support to our customers, billing...

  • Page 31
    ... accounting for stock-based compensation, the impact of accounting for business combinations, changes in our international organization, and changes in overall levels of income before tax. For example, the U.S. federal research credit, which provided a significant reduction in our effective tax rate...

  • Page 32
    ... of the Internal Revenue Code of 1986, as amended (a "355 distribution"), those shares will automatically convert into Class A common stock. Additionally, if, prior to a 355 distribution, EMC's ownership falls below 20% of the outstanding shares of our common stock, all outstanding shares of Class...

  • Page 33
    ... market price. EMC is not prohibited from selling a controlling interest in us to a third party and may do so without the approval of the holders of our Class A common stock and without providing for a purchase of any shares of Class A common stock held by persons other than EMC. Accordingly, shares...

  • Page 34
    ... resources that we contributed to Pivotal. In order to preserve the ability for EMC to distribute its shares of our Class B common stock on a tax-free basis, we may be prevented from pursuing opportunities to raise capital, to effectuate acquisitions or to provide equity incentives to our employees...

  • Page 35
    ... of our directors are executive officers or directors of EMC, and EMC, as the sole holder of our Class B common stock, is entitled to elect 8 of our 9 directors. Ownership of EMC common stock, restricted shares of EMC common stock and equity awards to purchase EMC common stock by our directors and...

  • Page 36
    ... 1, 2013 and January 31, 2014, the closing trading price of our Class A common stock was volatile, ranging between $65.53 and $99.33 per share. Our trading price could fluctuate substantially in the future due to the factors discussed in this Risk Factors section and elsewhere in this Annual Report...

  • Page 37
    ... majority of the outstanding shares of the Class B common stock will be required to amend certain provisions of our bylaws or certificate of incorporation; make certain acquisitions or dispositions; declare dividends, or undertake a recapitalization or liquidation; adopt any stockholder rights plan...

  • Page 38
    ...covering the property and improvements located at VMware's Palo Alto, California campus. (3) Includes leased space for a Washington data center facility, for which VMware is considered to be the owner for accounting purposes. In 2011, VMware purchased all of the right, title and interest in a ground...

  • Page 39
    ... the Chief Executive Officer and a Director of VMware since September 1, 2012. Prior to joining VMware, he served as President and Chief Operating Officer, EMC Information Infrastructure Products at EMC from September 2009 to August 2012. Mr. Gelsinger joined EMC from Intel Corporation, a designer...

  • Page 40
    ... following table sets forth the range of high and low sales prices of our Class A common stock on the New York Stock Exchange for the past two years during the fiscal periods shown. Our Class B common stock is not publicly traded. Market Prices High Year ended December 31, 2013 First Quarter Second...

  • Page 41
    ... 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 under our stock repurchase program...

  • Page 42
    ... return on our Class A common stock with the cumulative total return on the S&P 500 Index and the S&P 500 Systems Software index for the period beginning on December 31, 2008 through December 31, 2013, assuming an initial investment of $100. Historically, we have not declared or paid cash dividends...

  • Page 43
    ...) For the Year Ended December 31, 2012 2011 2010 2013 Summary of Operations: Revenues: License Services Total revenues Operating income Net income Net income per weighted average share, basic, for Class A and Class B Net income per weighted average share, diluted, for Class A and Class B Weighted...

  • Page 44
    ...support of our partners further enhances the awareness, reputation and adoption of our virtualization solutions. We expect to grow our business by building long-term relationships with our customers, which includes continuing to sell our solutions through enterprise license agreements ("ELAs"). ELAs...

  • Page 45
    ...year presented, customers bought, on average, more than 24 months of support and maintenance with each new license purchased, which we believe illustrates our customers' commitment to VMware as a core element of their data center architecture and hybrid cloud strategy. In 2013 and 2012, professional...

  • Page 46
    ... and related overhead associated with the physical and electronic delivery of our software products. For the Year Ended December 31, 2013 2012 2011 2013 vs. 2012 $ Change % Change 2012 vs. 2011 $ Change % Change Cost of license revenues Stock-based compensation Total expenses % of Total revenues...

  • Page 47
    ... and related overhead to deliver technical support for our products and to provide our professional services. For the Year Ended December 31, 2013 2012 2011 2013 vs. 2012 $ Change % Change 2012 vs. 2011 $ Change % Change Cost of services revenues Stock-based compensation Total expenses % of Total...

  • Page 48
    ...human resources, IT infrastructure and legal, as well as expenses related to corporate costs and initiatives and facilities costs. For the Year Ended December 31, 2013 2012 2011 2013 vs. 2012 $ Change % Change 2012 vs. 2011 $ Change % Change General and administrative Stock-based compensation Total...

  • Page 49
    ... the sale of our investment in Terremark Worldwide, Inc. in 2011. Income Tax Provision Our effective income tax rate was 11.6% , 16.5% and 8.9% for 2013 , 2012 and 2011 , respectively. The effective rate in 2013 was lower than 2012 primarily due to the retroactively enacted extension of the federal...

  • Page 50
    ... and Receipts from EMC For the Year Ended December 31, 2012 2011 2013 141 $ 141 $ 72 82 32 9 7 7 Unearned Revenues from EMC As of December 31, 2013 2012 188 $ 149 12 3 20 28 n/a n/a Reseller revenues Professional services revenues Internal-use revenues Collaborative technology project receipts...

  • Page 51
    ...costs we incurred. Additionally, we purchased products and services for internal use from Pivotal for $7 in the year ended December 31, 2013 . As of December 31, 2013 , our ownership interest in Pivotal is 28% as a result of investments made by a third-party strategic investor. The book value of all...

  • Page 52
    ... tax benefits from stock-based compensation and deferred taxes, net. Cash provided by operating activities decreased by $128 in 2012 from 2011 . The decrease was primarily driven by the timing of tax payments we received from EMC under the tax sharing agreement. Under the tax sharing agreement, EMC...

  • Page 53
    ...of common stock. During 2012 , excess tax benefits from stock-based compensation were $138 compared to $224 during 2011 . Notes Payable to EMC As of December 31, 2013 , $450 remained outstanding on a note payable to EMC, with interest payable quarterly in arrears. On January 21, 2014 , in connection...

  • Page 54
    ... of our revenues from licensing our software under perpetual licenses, related software maintenance, and from training, technical support and consulting services. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable...

  • Page 55
    ... to, are assessed using consolidated tax return rules. The difference between the income taxes payable that is calculated on a separate tax return basis and the amount actually paid to EMC pursuant to our tax sharing agreement with EMC is presented as a component of additional paid-in capital. Our...

  • Page 56
    ...results reflected in income tax returns filed during the subsequent year. Adjustments based on filed returns are generally recorded in the period when the tax returns are filed. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Foreign Exchange Risk We operate in foreign countries...

  • Page 57
    ... this Annual Report on Form 10-K for further information. Note Payable to EMC As of December 31, 2013 , $450 million was outstanding on our consolidated balance sheet for the note payable to EMC. The interest rate on the note payable was 0.80% as of December 31, 2013 , 0.91% as of December 31, 2012...

  • Page 58
    ...' Equity for the years ended December 31, 2013, 2012 and 2011 Notes to Consolidated Financial Statements Schedule: Schedule II-Valuation and Qualifying Accounts Note: All other financial statement schedules are omitted because they are not applicable or the required information is included in the...

  • Page 59
    ...three years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set...

  • Page 60
    ..., except per share amounts, and shares in thousands) For the Year Ended December 31, 2013 2012 2011 Revenues: License Services Total revenues Operating expenses (1): Cost of license revenues Cost of services revenues Research and development Sales and marketing General and administrative Realignment...

  • Page 61
    Table of Contents VMware, Inc. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in millions) For the Year Ended December 31, 2012 2011 1,014 $ 746 $ 724 2013 Net income Other comprehensive income (loss): Changes in market value of available-for-sale securities: Unrealized gains, net of taxes of ...

  • Page 62
    ... issued and outstanding 130,349 and 128,688 shares Class B convertible common stock, par value $.01; authorized 1,000,000 shares; issued and outstanding 300,000 shares Additional paid-in capital Accumulated other comprehensive income Retained earnings Total stockholders' equity Total liabilities and...

  • Page 63
    ...net Other Changes in assets and liabilities, net of acquisitions: Accounts receivable Other assets Due to/from related parties, net Accounts payable Accrued expenses Income taxes receivable from EMC Income taxes payable Unearned revenues Net cash provided by operating activities Investing activities...

  • Page 64
    61

  • Page 65
    ... stock Stock-based compensation Excess tax benefits from stock-based compensation Credit from tax sharing arrangement Total other comprehensive loss Capital distribution to EMC, net Net income Balance, December 31, 2011 Proceeds from issuance of common stock Issuance of stock options in acquisition...

  • Page 66
    ... derives revenues primarily from licensing software under perpetual license, related software maintenance and from training, technical support and consulting services. VMware recognizes revenues when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or...

  • Page 67
    ...for a product or service fall within a reasonable pricing range. VMware established VSOE for its software maintenance and technical support services, consulting services and training. In the event VMware publicly announce specific features or functionalities, entitlements or the release number of an...

  • Page 68
    ... the price at which VMware would transact a sale if the product or service were sold on a stand-alone basis. VMware determines BESP by considering its overall pricing objectives and market conditions. At this time, VMware uses BESP to determine the relative selling price of its license elements...

  • Page 69
    ... 31, 2011 , VMware capitalized $86 million (including $12 million of stock-based compensation) of costs incurred for the development of software products. Amortization expense from capitalized amounts was $34 million , $71 million and $85 million for the years ended December 31, 2013 , 2012 and 2011...

  • Page 70
    ..., 2013 , 2012 and 2011 , respectively. Income Taxes Income taxes as presented herein are calculated on a separate tax return basis, although VMware is included in the consolidated tax return of EMC. However, certain transactions that VMware and EMC are parties to, are assessed using consolidated tax...

  • Page 71
    ... Accounting for Stock-Based Compensation The Black-Scholes option-pricing model is used to determine the fair value of VMware's stock option awards and ESPP shares. The Black-Scholes model includes assumptions regarding dividend yields, expected volatility, expected term and risk-free interest rates...

  • Page 72
    ...the intangible assets acquired by VMware in conjunction with the acquisitions of Desktone and Virsto (amounts in table in millions): Weighted-Average Useful Lives (in years) Fair Value Amount Purchased technology Vendor contracts In-process research and development ("IPR&D") Total intangible assets...

  • Page 73
    ...i) market price of $92.21 per share, which was the closing price of VMware's Class A common stock on the acquisition date; ii) expected term of 2.7 years ; iii) risk-free interest rate of 0.3% ; iv) annualized volatility of 35.7% ; and v) no dividend yield. The weighted-average acquisition-date fair...

  • Page 74
    ... share, diluted for Class A and Class B $ $ Pro forma adjustments primarily include intangible amortization, stock-based compensation and related tax effects. Other 2012 Business Combinations In the year ended December 31, 2012 , VMware completed five business combinations in addition to Nicira...

  • Page 75
    ... of the following (amounts in table in millions): WeightedAverage Useful Lives (in years) 2013 Purchased technology Leasehold interest Customer relationships and customer lists Trademarks and trade names IPR&D Total intangible assets, net, excluding goodwill Gross Carrying Amount 6.6 $ 580...

  • Page 76
    ... and purchase options under VMware's employee stock purchase plan. Securities are excluded from the computations of diluted net income per share if their effect would be anti-dilutive. VMware uses the two-class method to calculate earnings per share as both classes share the same rights in dividends...

  • Page 77
    ..., 2013 and 2011 , stock options to purchase 1 million shares, respectively, of VMware Class A common stock were excluded from the diluted earnings per share calculations because their effect would have been anti-dilutive. For the year ended December 31, 2012 , the number of stock options to purchase...

  • Page 78
    ... as of December 31, 2013. As of December 31, 2012, VMware did not have investments in a continuous unrealized loss position for twelve months or greater. Strategic Investments VMware evaluated the strategic investments in its portfolio that are accounted under the cost method, to assess whether any...

  • Page 79
    ...been no transfers between fair value measurement levels during the years ended December 31, 2013 and 2012 . The following tables set forth the fair value hierarchy of VMware's money market funds and available-for-sale securities, including those securities classified within cash and cash equivalents...

  • Page 80
    ...126 million in the years ended December 31, 2013 , 2012 and 2011 , respectively. In the year ended December 31, 2011 , VMware purchased all of the right, title and interest in a ground lease covering the property and improvements located adjacent to VMware's existing Palo Alto, California campus for...

  • Page 81
    ...and increase by 3% annually. VMware is also responsible for paying all taxes, insurance and other expenses necessary to operate the parcel. As of December 31, 2013 and 2012 , construction in progress primarily represented buildings and site improvements related to VMware's Palo Alto campus expansion...

  • Page 82
    ...statutory federal tax rate is as follows: For the Year Ended December 31, 2012 2011 35 % 35 % 35 % 1% 1% 2% (22)% (22)% (25)% (7)% -% (6)% 5% 3% 3% 12 % 17 % 9% 2013 Statutory federal tax rate State taxes, net of federal benefit Tax rate differential for international jurisdictions U.S. tax credits...

  • Page 83
    ...respect to such income. Although VMware files a consolidated federal tax return with EMC, the income tax provision is calculated primarily as though VMware were a separate taxpayer. However, certain transactions that VMware and EMC are parties to, are assessed using consolidated tax return rules. 80

  • Page 84
    ...in millions): For the Year Ended December 31, 2012 2011 8 $ - $ 12 32 19 314 2013 Payments from VMware to EMC Payments from EMC to VMware $ Payments between VMware and EMC under the tax sharing agreement relate to VMware's portion of federal income taxes on EMC's consolidated tax return as well as...

  • Page 85
    ... for the ground leases on VMware's Palo Alto, California headquarter facilities, which expire in 2046 . As several of VMware's operating leases are payable in foreign currencies, the operating lease payments may fluctuate in response to changes in the exchange rate between the U.S. dollar and the...

  • Page 86
    ... 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...

  • Page 87
    ... $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...

  • Page 88
    ... employee typically retains their VMware award which continues to be governed under the VMware stock plan. The following table summarizes option activity since January 1, 2011 for VMware and EMC stock options (shares in millions): VMware Stock Options WeightedAverage Exercise Price Number of Shares...

  • Page 89
    ... 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 . VMware Shares Repurchased for Tax Withholdings In the years ended December 31, 2013 , 2012 and 2011 VMware repurchased...

  • Page 90
    ... and marketing General and administrative Realignment Stock-based compensation Income tax benefit Total stock-based compensation, net of tax $ $ For the years ended December 31, 2013 and 2012 , no costs were capitalized for the development of software products. For the year ended 2011 , VMware...

  • Page 91
    ... reseller arrangement with EMC, EMC bundles VMware's products and services with EMC's products and sells them to endusers. EMC purchases products and services from VMware for internal use. VMware recognizes revenues for professional services based upon such contractual agreements with EMC. From...

  • Page 92
    ... Year Ended December 31, 2013 2012 2011 141 $ 141 $ 72 82 32 9 7 7 Unearned Revenues from EMC As of December 31, 2013 2012 188 $ 149 12 3 20 28 n/a n/a Reseller revenues Professional services revenues Internal-use revenues Collaborative technology project receipts $ 72 66 3 2 $ VMware and EMC...

  • Page 93
    ...EMC purchased certain assets from VMware in relation to transferred employees. The termination of service and related transfer of employees and sale of assets was substantially completed during the first quarter of 2013. Amounts reimbursed by EMC to VMware to operate Mozy were immaterial in the year...

  • Page 94
    ...-end. The timing of the tax payments due to and from EMC is governed by the tax sharing agreement with EMC. See Note L to the consolidated financial statements for further information. P. Segment Information VMware operates in one reportable operating segment, thus all required financial segment...

  • Page 95
    ... States accounted for 10% or more of these assets as of December 31, 2013 and 2012 , respectively. VMware's product and service solutions are organized into three main product groups SDDC End-User Computing Hybrid Cloud Computing VMware develops and markets product and service offerings within...

  • Page 96
    ... assurance that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures. Changes in Internal Controls Over Financial Reporting There were no...

  • Page 97
    ... of Employee Benefits Agreement between VMware, Inc. and EMC Corporation Form of Real Estate License Agreement between VMware, Inc. and EMC Corporation Form of Indemnification Agreement for directors and executive officers 2007 Equity and Incentive Plan, as amended and restated May 29, 2013 Amended...

  • Page 98
    ... First Amendment to Tax Sharing Agreement between VMware, Inc. and EMC Corporation effective as of January 1, 2011 Executive Bonus Program, as amended and restated August 14, 2013 Agreement of Purchase and Sale Agreement between Roche Palo Alto LLC and VMware, Inc. dated March 16, 2011 Amended and...

  • Page 99
    ... by Reference Exhibit Number Exhibit Description Filed Herewith Form/ File No. Date 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE XBRL Taxonomy Extension Schema XBRL Taxonomy Extension Calculation Linkbase XBRL Taxonomy Extension Definition Linkbase XBRL Taxonomy Extension Label Linkbase XBRL...

  • Page 100
    ...Annual Report on Form 10-K has been signed by the following persons on behalf of the Registrant in the capacities indicated and on the dates indicated. Date Signature Title February 25, 2014 /s/ Patrick P. Gelsinger Patrick P. Gelsinger Chief Executive Officer and Director (Principal Executive...

  • Page 101
    97

  • Page 102
    ...31, 2013 allowance for doubtful accounts Year ended December 31, 2012 allowance for doubtful accounts Year ended December 31, 2011 allowance for doubtful accounts $ 4 4 5 $ (2) 1 (1) $ - - - $ - (1) - Tax Valuation Allowance Credited to Income Tax Provision $ 2 4 4 Tax Valuation Allowance...

  • Page 103
    ... power of all classes of stock unless the Board of Directors of VMware (the "Board of Directors") determines that employees of a particular subsidiary shall not be eligible. The Plan is intended qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as...

  • Page 104
    ... option period. Each person who will be an eligible employee on the first day of any option period may elect to participate in the Plan by executing and delivering, at least one business day prior to such day, a payroll deduction authorization and/or other required enrollment agreement(s)/form...

  • Page 105
    ... contribution account on the last day of the option period by (b) the purchase price per share of the stock determined under Section 7, and eliminating any fractional share from the quotient. In the event that the number of shares then available under the Plan is otherwise insufficient, VMware shall...

  • Page 106
    ... last previous day on which a sale was reported; if the stock is not listed for trading on a national securities exchange, the fair market value of the stock shall be determined in good faith by the Board of Directors. Section 8. Exercise of Options If an employee is a participant in the Plan on the...

  • Page 107
    ... by statute or by contract, the employment relationship shall be deemed to have terminated on the ninety-first (91 st ) day of such leave. Section 12. Death of Participant In the event a participant holds any option hereunder at the time his or her employment with the Company is terminated by his or...

  • Page 108
    ... event of a stock dividend, stock split or combination of shares, recapitalization, merger in which VMware is the surviving corporation or other change in VMware's capital stock, the number and kind of shares of stock or securities of VMware to be subject to the Plan and to options then outstanding...

  • Page 109
    ... interest), all outstanding options shall thereupon terminate, provided that prior to the effective date of any such merger, consolidation or sale of assets, the Board of Directors shall either (a) return the balance in all contribution accounts and cancel all outstanding options, or (b) accelerate...

  • Page 110
    ... shares of stock under all employee stock purchase plans (as defined in Section 423 of the Code) of VMware or any subsidiary or parent corporation to accrue at a rate which exceeds $25,000 in fair market value of such stock (determined at the time the option is granted) for each calendar year...

  • Page 111
    ... component of the Plan. (e) No employee whose customary employment is for not more than five months in any calendar year shall be eligible to participate in the Plan. (f) No independent contractor shall be eligible to participate in the Plan. Section 21. Jurisdiction and Governing Law. The Company...

  • Page 112
    ...-Qualified Deferred Compensation Plan Effective as of January 1, 2014 IMPORTANT NOTE This document has not been approved by the Department of Labor, Internal Revenue Service or any other governmental entity. An adopting Employer must determine whether the Plan is subject to the Federal securities...

  • Page 113
    Exhibit 10.26 with legal advice in connection with the execution of this document. This document should be reviewed by the Employer's attorney prior to execution.

  • Page 114
    ... 2.5 Board or Board of Directors 2.6 Bonus 2.7 Change in Control 2.8 Code 2.9 Compensation 2.10 Director 2.11 Disability 2.12 Eligible Employee 2.13 Employer 2.14 ERISA 2.15 Identification Date 2.16 Key Employee 2.17 Participant 2.18 Plan 2.19 Plan Sponsor 2.20 Plan Year 2.21 Related Employer 2.22...

  • Page 115
    ... Stated Limit 9.6 Required Delay in Payment to Key Employees 9.7 Change in Control 9.8 Permissible Delays in Payment 9.9 Permitted Acceleration of Payment ARTICLE 10 - AMENDMENT AND TERMINATION 10.1 Amendment by Plan Sponsor 10.2 Plan Termination Following Change in Control or Corporate Dissolution...

  • Page 116
    ... Costs ARTICLE 13 - MISCELLANEOUS 13.1 Unsecured General Creditor of the Employer 13.2 Employer's Liability 13.3 Limitation of Rights 13.4 Anti-Assignment 13.5 Facility of Payment 13.6 Notices 13.7 Tax Withholding 13.8 Indemnification 13.9 Successors 13.10 Disclaimer 13.11 Governing Law iii

  • Page 117
    ..., as amended, or an "excess benefit plan" within the meaning of Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended, or a combination of both. The Plan is further intended to conform with the requirements of Internal Revenue Code Section 409A and the final regulations...

  • Page 118
    ...Agreement, the Plan shall apply to amounts deferred and benefit payments made on or after the Amendment Effective Date. (c) Special Effective Date. A Special Effective Date may apply to any given provision if so specified in Appendix A of the Adoption Agreement. A Special Effective Date will control...

  • Page 119
    ... the Board of Directors of the Plan Sponsor. "Bonus" means an amount of incentive remuneration payable by the Employer to a Participant. "Change in Control" means the occurrence of an event involving the Plan Sponsor that is described in Section 9.7. "Code" means the Internal Revenue Code of 1986...

  • Page 120
    ...successor by merger, consolidation or otherwise. "Plan Year" means the period identified in Section 1.02 of the Adoption Agreement. "Related Employer" means the Employer and (a) any corporation that is a member of a controlled group of corporations as defined in Code Section 414(b) that includes the...

  • Page 121
    ... common control as defined in Code Section 414(c) that includes the Employer. 2.22 2.23 "Retirement" has the meaning specified in 6.01(f) of the Adoption Agreement. "Separation from Service" means the date that the Participant dies, retires or otherwise has a termination of employment with respect...

  • Page 122
    ... services in both capacities. If a Participant provides services both as an employee and as a member of the board of directors of a corporate Related Employer (or an analogous position with respect to a noncorporate Related Employer), the services provided as a director are not taken into account...

  • Page 123
    2.26 "Years of Service" means each one year period for which the Participant receives service credit in accordance with the provisions of Section 7.01(d) of the Adoption Agreement. 215

  • Page 124
    ... be those Directors and employees of the Employer who satisfy the requirements of Section 2.01 of the Adoption Agreement. Termination of Participation. The Administrator may terminate a Participant's participation in the Plan in a manner consistent with Code Section 409A. If the Employer terminates...

  • Page 125
    ...for each Plan Year during which the Eligible Employee or Director desires to defer Compensation. An Eligible Employee or Director who does not timely execute a deferral agreement shall be deemed to have elected zero deferrals of Compensation for such Plan Year. A deferral agreement may be changed or...

  • Page 126
    ... a form of payment for any Employer contributions that may be credited to the Participant's Account during the Plan Year. If an Eligible Employee or Director fails to elect a distribution event, he shall be deemed to have elected Separation from Service as the distribution event. If he fails to 412

  • Page 127
    ...) and a form of payment for amounts credited to his Account from among the options the Plan Sponsor has made available for this purpose and which are specified in Section 6.01(b) of the Adoption Agreement. If an Eligible Employee or Director fails to elect a distribution event, he shall be deemed...

  • Page 128
    ...Section 5.01(a)(iii) of the Adoption Agreement. Other Contributions. If elected by the Plan Sponsor in Section 5.01(b) of the Adoption Agreement, the Employer will credit the Participant's Account with a contribution determined in accordance with the formula or method specified in Section 5.01(b) of...

  • Page 129
    ...duties under the Plan. Credits to Account. A Participant's Account will be credited for each Plan Year with the amount of his elective deferrals under Section 4.1 as soon as reasonably practicable following the time the amount subject to the deferral election would otherwise have been payable to the...

  • Page 130
    ... Administrator, select the investments from among the options provided in Section 7.1 to be used for the purpose of calculating future hypothetical investment adjustments to the Account or to future credits to the Account under Section 6.2 effective as of the Valuation Date coincident with or next...

  • Page 131
    ...'s right to the amounts credited to his Account attributable to Employer contributions made in accordance with Article 5 shall be determined in accordance with the relevant schedule and provisions in Section 7.01 of the Adoption Agreement. Upon a Separation from Service and after application of the...

  • Page 132
    ARTICLE 9 - DISTRIBUTION OF BENEFITS 9.1 Amount of Benefits. The vested amount credited to a Participant's Account as determined under Articles 6, 7 and 8 shall determine and constitute the basis for the value of benefits payable to the Participant under the Plan. Method and Timing of ...

  • Page 133
    ... was receiving installment payments at the time of the event. Cashouts Of Amounts Not Exceeding Stated Limit. If the vested amount credited to the Participant's Account does not exceed the limit established for this purpose by the Plan Sponsor in Section 6.01(e) of the Adoption Agreement at the time...

  • Page 134
    ... and paid in a single lump sum at the time specified in Section 6.01(a) of the Adoption Agreement after the six month period elapses. (a) A Participant is treated as a Key Employee if (i) he is employed by a Related Employer any of whose stock is publicly traded on an established securities market...

  • Page 135
    .... To constitute a Change in Control for purposes of the Plan, the event must relate to (i) the corporation for whom the Participant is performing services at the time of the Change in Control, (ii) the corporation that is liable for the payment of the Participant's benefits under the Plan (or all...

  • Page 136
    ...of the total fair market value or total voting power of the stock of a corporation, the acquisition of additional stock by the same person or persons is not considered to cause a change in the ownership of the corporation (or to cause a change in the effective control of the corporation as discussed...

  • Page 137
    ... month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the corporation possessing thirty percent (30%) or more of the total voting power of the stock of such corporation, or (ii) a majority of members of the corporation's board of directors...

  • Page 138
    ... determined in accordance with rules similar to those set forth in Section 9.7(d)), acquires (or has acquired during the twelve month period ending on the date of the most recent acquisition by such person or persons) assets from the corporation that have a total gross fair market value equal to or...

  • Page 139
    ... ending on the later of the last day of the Employer's taxable year in which the Participant separates from service or the 15th day of the third month following the Participant's Separation from Service. If a scheduled payment to a Participant is delayed in accordance with this Section 9.8(a), all...

  • Page 140
    ... the aggregate of the FICA Amount and the income tax withholding related to the FICA Amount. (e) Section 409A Additional Tax. A payment may be accelerated if the Plan fails to meet the requirements of Code Section 409A; provided that such payment may not exceed the amount required to be included...

  • Page 141
    ...in Control or Corporate Dissolution. If so elected by the Plan Sponsor in 11.01 of the Adoption Agreement, the Plan Sponsor reserves the right to terminate the Plan and distribute all amounts credited to all Participant Accounts within the 30 days preceding or the twelve months following a Change in...

  • Page 142
    ...health of the Plan sponsor. The Plan Sponsor also reserves the right to amend the Plan to provide that termination of the Plan will occur under such conditions and events as may be prescribed by the Secretary of the Treasury in generally applicable guidance published in the Internal Revenue Bulletin...

  • Page 143
    ...written agreement under which assets are held, administered and managed, subject to the claims of the Plan Sponsor's creditors in the event of the Plan Sponsor's insolvency. The trust is intended to be treated as a rabbi trust in accordance with existing guidance of the Internal Revenue Service, and...

  • Page 144
    ... of the Plan; To determine the person or persons to whom such benefits will be paid; To authorize the payment of benefits; To comply with the reporting and disclosure requirements of Part 1 of Subtitle B of Title I of ERISA; To appoint such agents, counsel, accountants, and consultants as may...

  • Page 145
    ... to pertinent Plan provisions, (iii) a description of any additional material or information necessary for such person to perfect such claim and an explanation of why such material or information is necessary, and (iv) a description of the Plan's review procedures and the time limits applicable to...

  • Page 146
    ..., if earlier, more than four (4) years after the facts or events giving rising to the claimant's allegation(s) or claim(s) first occurred. 12.3 Plan Administrative Costs. All reasonable costs and expenses (including legal, accounting, and employee communication fees) incurred by the Administrator...

  • Page 147
    ... of any fund or account, nor the payment of any benefits, will be construed as giving to the Participant or any other person any legal or equitable right against the Employer, the Plan or the Administrator, except as provided herein; and in no event will the terms of employment or service of the...

  • Page 148
    ... Agreement and if either actually delivered at said address or, in the case or a letter, 5 business days shall have elapsed after the same shall have been deposited in the United States mails, first-class postage prepaid and registered or certified. Tax Withholding . If the Employer concludes...

  • Page 149
    ... Indemnitee may be entitled pursuant to the by-laws of the Employer. (e) For the purposes of this Section, the following definitions shall apply: (1) "Indemnitee" shall mean each person serving as an Administrator (or any other person who is an employee, director, or officer of the Employer) who was...

  • Page 150
    1314

  • Page 151
    ...Name: Mailing Address: Physical Address: Phone # : EIN: Fiscal Yr: VMware, Inc. 3401 Hillview Avenue, Palo Alto, CA 94304 900 Arastradero Road, Building C, Palo Alto, CA 94304 650-427-4361 94-3292913 Year ending December 31 Is stock of the Plan Sponsor, any Employer or any Related Employer publicly...

  • Page 152
    .... Securities Market Yes 3 3 3 3 3 3 No  3 3 3 3 3 Nicira, Inc. 1.05 ADMINISTRATOR The Plan Sponsor has designated the following party or parties to be responsible for the administration of the Plan: Name: Address: Persons delegated authority by the Compensation & Corporate Governance Committee...

  • Page 153
    ... 22222 22222 22222 (iii) (b) (i) (ii) (iii)  3 3  3 Employees are not eligible to participate. Directors [complete (i), (ii) or (iii)] All Directors are eligible to participate. Only Directors selected by the Employer are eligible to participate. Directors are not eligible to participate. -3-

  • Page 154
    ... defined as: Base Salary, Semi-Annual Bonus and Commissions 22222 22222 22222 22222 22222 (b) 3 Compensation as defined in 2 2 2 2 2 [insert name of qualified plan] without regard to the limitation in Section 401(a)(17) of the Code for such Plan Year. Director Compensation is defined as: 22222 22222...

  • Page 155
    ...100% Incremen 1% Type of Bonus (a) Semi-Annual Bonus (b) (c) (iii) Compensation [do not complete if you completed (i) and (ii)] Dollar Amount Min Max % Amount Min Max Increment (iv) Director Compensation Dollar Amount Min Max % Amount Min Max Incremen Type of Compensation Annual Retainer Meeting...

  • Page 156
    ...or designated as an Eligible Employee during a Plan Year  May 3 May Not elect to defer Compensation earned during the remainder of the Plan Year by completing a deferral agreement within the 30 day period beginning on the date he is eligible to participate in the Plan. (c) Revocation of Deferral...

  • Page 157
    ... (c). (a) Matching Contributions (i) Amount For each Plan Year, the Employer shall make a Matching Contribution on behalf of each Participant who defers Compensation for the Plan Year and satisfies the requirements of Section 5.01(a)(ii) of the Adoption Agreement equal to [complete the ones that are...

  • Page 158
    ... day of the Plan Year At such times as the Employer shall determine in it sole discretion At the time the Compensation on account ... [insert number] % of the Participant's Compensation An amount determined by the Employer in its sole discretion Contributions for each Participant shall be limited to $ ...

  • Page 159
    ..., if made, shall be treated as allocated [select one]: (A) (B) 3  As of the last day of the Plan Year At such time or times as the Employer shall determine in its sole discretion Other: 22222 22222 22222 (C) 3 (c) No Employer Contributions 3 Employer contributions are not permitted under the...

  • Page 160
    ... and form of payment of distributions made from the Participant's vested Account shall be made in accordance with the elections made in this Section 6.01 of the Adoption Agreement except when Section 9.6 of the Plan requires a six month delay for certain distributions to Key Employees of publicly...

  • Page 161
    ... Death Change in Control 22222 22222 22222 2 2 2 2 2 years 2 2 2 2 2 years 2 2 2 2 2 years The minimum deferral period for Specified Date or Specified Age event shall be three (3) years. Installments may be paid [select each that applies] 3 3  Monthly Quarterly Annually (c) Specified Date and...

  • Page 162
    ... of the Adoption Agreement in the form indicated upon the earliest to occur of the following events [check each event that applies and for each event include only a single form of payment]: EVENTS Separation from Service Separation from Service before Retirement Death Disability Not Applicable FORM...

  • Page 163
    ... Not be permitted to modify a scheduled distribution date and/or payment option in accordance with Section 9.2 of the Plan. A Participant shall generally be permitted to elect such modification two (2) number of times. Administratively, allowable distribution events will be modified to reflect all...

  • Page 164
    ... Participant's vested interest in the amount credited to his Account attributable to Matching Contributions shall be based on the following schedule: 3 Years of Service 0 1 2 3 4 5 6 7 8 9  Other: As determined by the Administrator 22222 3 Class year vesting applies. Vesting % 22222 22222 22222...

  • Page 165
    3 Years of Service 0 1 2 3 4 5 6 7 8 9 Vesting % 22222 22222 22222 22222 22222 22222 22222 22222 22222 22222 (insert '100' if there is immediate vesting)  Other: As determined by the Administrator 22222 3 Class year vesting applies. 3 Not applicable. - 15 -

  • Page 166
    ...iii) (iv) (v) 3 3 3 3  Death Disability Change in Control Eligibility for Retirement Other: As determined by the Administrator 22222 (vi) 3 Not applicable. (d) Years of Service (i) A Participant's Years of Service shall include all service performed for the Employer and 3  Shall Shall Not...

  • Page 167
    (iv) 3 Not applicable. - 17 -

  • Page 168
    ... as defined in Section 2.24:  3 be allowed. (b) Upon a withdrawal due to an Unforeseeable Emergency, a Participant's deferral election for the remainder of the Plan Year:  3 Will Will Not Will Will Not [if Unforeseeable Emergency withdrawals are not permitted, proceed to Section 9.01] be...

  • Page 169
    9.01 INVESTMENT DECISIONS Investment decisions regarding the hypothetical amounts credited to a Participant's Account shall be made by [select one]: (a)  (b) 3 The Participant or his Beneficiary The Employer - 19 -

  • Page 170
    10.01 TRUST The Employer [select one]:  3 Does Does Not intend to establish a rabbi trust as provided in Article 11 of the Plan. - 20 -

  • Page 171
    11.01 TERMINATION UPON CHANGE IN CONTROL The Plan Sponsor  3 Reserves Does Not Reserve the right to terminate the Plan and distribute all vested amounts credited to Participant Accounts upon a Change in Control as described in Section 9.7. 11.02 AUTOMATIC DISTRIBUTION UPON CHANGE IN CONTROL ...

  • Page 172
    12.01 GOVERNING STATE LAW The laws of California shall apply in the administration of the Plan to the extent not preempted by ERISA. - 22 -

  • Page 173
    EXECUTION PAGE The Plan Sponsor has caused this Adoption Agreement to be executed this 23rd day of December, 2013. PLAN SPONSOR: VMware, Inc. By: Denise Devlin Title: VP Total Rewards - 23 -

  • Page 174
    APPENDIX A SPECIAL EFFECTIVE DATES Not Applicable - 24 -

  • Page 175
    ... will be made to the Compensation and Corporate Governance Committee of VMware's Board of Directors (the " Committee ") that you be granted equity awards with a total target value of $8,500,000 (the " Target Value ") for shares of VMware Class A common stock at a meeting of the Committee...

  • Page 176
    ...of the closing sale price per share of VMware Class A Common Stock for the 45 trading days ending on (and inclusive of) the last trading day of the month in which your employment commences. Subject to the terms of the VMware 2007 Equity and Incentive Plan, this stock option will vest over four years...

  • Page 177
    ... for Good Reason pursuant to this "Change-inControl" section, your right to receive the Change-in-Control Accelerations is subject to your signing and not revoking the Company's standard form of employee termination certificate and a general release of all claims you may have against the Company in...

  • Page 178
    ...this agreement In order for you to invoke a termination due to Good Reason in a manner that would entitle you to Change-in-Control Accelerations, (i) you must provide a Notice of Termination to the senior officer of the Company's Human Resources group of your intention to terminate due to such event...

  • Page 179
    ... facts and circumstances claimed to provide a basis for such termination of your employment under the provision so indicated. "Parent" means EMC Corporation, a Massachusetts corporation. "Person" has the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and as used in Sections 13...

  • Page 180
    ... Chief Executive Officer VMware, Inc. ACCEPTED AND AGREED TO this _____ day of _____, 2013. __/s/ Sanjay Poonen_____ Start Date: August 5, 2013 Sanjay Poonen Enclosures: VMware Employment Agreement 04-2012 Business Conduct Guidelines rev 05-2011 Harassment Policy rev 01-2008 Statement of Policy on...

  • Page 181
    ... Denmark ApS VMware Eastern Europe VMware France SAS VMware Global, Inc. VMware Hong Kong Limited VMware Information Technology (China) Co. Ltd VMware International Limited VMware International Marketing Limited VMware Israel Ltd. VMware Italy S.r.l. VMware Marketing Austria GmbH VMware Middle East...

  • Page 182
    ...179680 and 333-189491) of VMware, Inc. of our report dated February 25, 2014 relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP San Jose, CA February 25...

  • Page 183
    ... Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. February 25, 2014 By: /s/ Patrick P. Gelsinger Patrick P. Gelsinger Chief Executive Officer (Principal Executive Officer) Date:

  • Page 184
    ..., that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. February 25, 2014 By: /s/ Jonathan C. Chadwick Jonathan C. Chadwick Chief Financial Officer and Executive Vice President (Principal Financial Officer) Date:

  • Page 185
    ... Exchange Act of 1934 and the information contained in such Form 10-K fairly presents, in all material respects, the financial condition and results of operations of VMware, Inc. Date: February 25, 2014 By: /s/ Patrick P. Gelsinger Patrick P. Gelsinger Chief Executive Officer (Principal Executive...

  • Page 186
    ...Securities Exchange Act of 1934 and the information contained in such Form 10-K fairly presents, in all material respects, the financial condition and results of operations of VMware, Inc. Date: February 25, 2014 By: /s/ Jonathan C. Chadwick Jonathan C. Chadwick Chief Financial Officer and Executive...