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VMWARE, INC.
FORM 10-K
(Annual Report)
Filed 02/26/15 for the Period Ending 12/31/14
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 2015, 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
    ... 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://www.edgar-online.com © Copyright 2015, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document...

  • Page 2
    ... _____ VMWARE, INC. (Exact name of registrant as specified in its charter) _____ Delaware (State or other jurisdiction of incorporation or organization) 94-3292913 (I.R.S. Employer Identification Number) 3401 Hillview Avenue Palo Alto, CA (Address of principal executive offices) 94304 (Zip Code...

  • Page 3
    ... sale price of such shares on the New York Stock Exchange on June 30, 2014) was approximately $8,398,288,024. 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, that...

  • Page 4
    ... Data Changes in and Disagreements with 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...

  • Page 5
    ... with EMC Corporation on taxes; repurchasing at least one billion dollars of Class A common stock in 2015; customer and partner demand for our products and services; synergies from our acquisitions and associated accounting for goodwill; the sufficiency of our liquidity and capital reserves to fund...

  • Page 6
    ... 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 and conducted our initial public offering of our Class A common stock in...

  • Page 7
    ...and vSphere with Operations Management ("vSOM"). Sales of VMware licenses that include products beyond the VMware vSphere hypervisor have continued to grow. Storage and Availability We provide many storage and availability products to offer cost-effective holistic data storage and protection options...

  • Page 8
    ... Air (Desktop-as-a-Service)- delivers virtual desktops and applications from a public cloud environment and public cloud service providers. • Horizon FLEX- delivers local Windows desktops and applications to laptops, Macs, contractors and other mobile users while maintaining centralized management...

  • Page 9
    ...Application Management Mobile Content Management Mobile Email Management Productivity Apps Telecom Analytics Content Collaboration AirWatch by VMware's Secure Content Locker provides a leading enterprise file sync and share solution that extends Mobile Content Management to secure access of content...

  • Page 10
    ... agreements ("ELAs"). ELAs are comprehensive volume license offerings that provide for multi-year maintenance and support at discounted prices. ELAs enable us to build long-term relationships with our customers as they commit to our virtual infrastructure solutions in their data centers. Our sales...

  • Page 11
    ... events, public relations efforts, marketing materials, advertising, direct marketing, social 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...

  • Page 12
    ... experts as key employees. Our vSphere-based data center virtualization product offerings are central to our SDDC product suites and remain essential to our business strategy. Microsoft continues to be a primary competitor for data center virtualization solutions. We also compete with open source...

  • Page 13
    ...other governance-related policies; other news, blogs and announcements that we may post from time 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...

  • Page 14
    ... virtualization solution, VMware NSX, end-user computing products and hybrid cloud services and expand our offerings into related areas such as our vRealize SDDC management products and vCloud product suites, we expect that our server virtualization products and related enhancements and upgrades...

  • Page 15
    ... on a common vSphere infrastructure, competes with low-cost public cloud infrastructure offerings such as Amazon Web Services, Microsoft Azure, IBM SoftLayer and Google Compute Engine. Following our acquisition of Nicira and the resulting release of our NSX product, a number of competitors announced...

  • Page 16
    ... may create more compelling product and service offerings and be able to offer greater pricing flexibility than we can or may engage in business practices that make it more difficult for us to compete effectively, including on the basis of price, sales and marketing programs (such as providing...

  • Page 17
    ...significant investments in developing and introducing new technologies and product offerings related to our SDDC, vCloud Air and end-user and mobile computing initiatives. The expansion of our offerings to deliver the SDDC, address IT management and automation, add network and storage virtualization...

  • Page 18
    ... of the comparative technical merit, efficacy or cost of our products and services. Developing and launching new technologies in new areas, as we are continuing to do with our VMware NSX virtual networking, Virtual SAN virtual storage and vCloud Air initiatives, requires significant investments of...

  • Page 19
    ... 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 reducing the rate of...

  • Page 20
    ..., and our customers may not view our products and services as innovative and best-of-breed, which could result in a reduction in market share and our inability to command a pricing premium over competitor products and services. We may not be able to develop updated products and services that keep...

  • Page 21
    ... events that could affect market perception of the quality or cost-effectiveness of our products and solutions; and the recoverability of benefits from goodwill and acquired intangible assets, and the potential impairment of these assets. The failure by customers to renew large license agreement...

  • Page 22
    ... for product and service innovation and timely development and delivery of upgrades and enhancements to our existing products and services. The market for expert software developers upon whom we rely has become increasingly competitive. We generally do not have employment or non-compete agreements...

  • Page 23
    ...operations, and because revenues from subscriptions is recognized for our services over the term of the subscription, downturns or upturns in sales may not be immediately reflected in our results. As we offer more products that depend on converting users of free services to users of premium services...

  • Page 24
    ... companies that we acquire into existing and new VMware products or services. Actual or perceived security vulnerabilities in our products or services could harm our reputation and lead some customers to return products or services, to reduce or delay future purchases or to use competitive products...

  • Page 25
    ... be supported or receive updates and security patches. To the extent these products or services remain subject to a service contract with the customer, we offer to transition the customer to alternative products or services. Failure to effectively manage our product and service lifecycles could...

  • Page 26
    ... and services, service ongoing customer requirements, estimate end-user demand and respond to evolving customer needs. Recruiting and retaining qualified channel partners and training them in the use of our technology and product offerings requires significant time and resources. In order to develop...

  • Page 27
    ... our web-based services, mobile services and our vCloud Air offering, we expect that our customers may increasingly use our services to store and process personal information and other regulated data. We post, on our websites, and, where appropriate, within our products, our privacy policies and...

  • Page 28
    ..., the failure to comply with data protection laws and regulations by our customers and business partners who provide cloud computing services could have a material adverse effect on our business. Since some of our products and services are web-based, our customers store their data on our servers and...

  • Page 29
    ... code to several dozen of our partners for co-development, as well as for open APIs, formats and protocols. Though we generally control access to our source code and other intellectual property, and enter into confidentiality or license agreements with such partners, as well as with our employees...

  • Page 30
    ... liberally copied, modified or distributed, may have the effect of preventing us from distributing or developing all or a portion of our products or services. In addition, licensors of open source software employed in our offerings may, from time to time, modify the terms of their license agreements...

  • Page 31
    ...'s intellectual 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...

  • Page 32
    ... internal controls overall remain effective. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. If we or our independent registered public accounting firm...

  • Page 33
    .... To the extent that such disruptions result in delays or cancellations of customer orders, or the deployment or availability of our products and services, our revenues would be adversely affected. Additionally, any such catastrophic event could cause us to incur significant costs to repair damages...

  • Page 34
    Table of Contents Risks Related to Our Relationship with EMC As long as EMC controls us, or Class B common stock remains outstanding, other holders of our Class A common stock will have limited ability to influence matters requiring stockholder approval. As of December 31, 2014 , EMC owned 43,025,...

  • Page 35
    ... limitations that are described above. Our business and that of EMC overlap, and EMC may compete with us, which could reduce our market share. We and EMC are both IT infrastructure companies providing products and services related to storage management, back-up, disaster recovery, security, system...

  • Page 36
    ...in our ownership interest, and we may be unable to realize any value from the technology and 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...

  • Page 37
    ... 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 38
    ... the sale of goods and services to one another and to Pivotal, and an agreement for EMC to resell our products and services to third party customers. If EMC were to distribute its shares of our common stock to its stockholders or otherwise divest itself of all or a significant portion of its VMware...

  • Page 39
    ... operating performance. The stock market in general and technology companies in particular have often experienced extreme price and volume fluctuations. In addition, in the past, following periods of volatility in the overall market and the market price of a company's securities, securities class...

  • Page 40
    ... the price that investors might be willing to pay for shares of our common stock. ITEM 1B. None. ITEM 2. PROPERTIES UNRESOLVED STAFF COMMENTS As of December 31, 2014, we owned or leased the facilities described below: Location Palo Alto, CA North and Latin American region (excluding Palo Alto, CA...

  • Page 41
    ... various sales management positions with 3Com Corporation, Lucent Technologies Inc. and EMC. Mr. Eschenbach currently serves on the board of Palo Alto Networks. Jonathan C. Chadwick has served as VMware's Chief Financial Officer, Chief Operating Officer and Executive Vice President since August 2014...

  • Page 42
    ...RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our Class A common stock, par value $0.01 per share, trades on the New York Stock Exchange under the symbol VMW. The following table sets forth the range of high and low sales prices of our Class A common stock...

  • Page 43
    40

  • Page 44
    Table of Contents 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 can be discontinued at any time ...

  • Page 45
    ... $ $ $ $ $ 2014 Balance Sheet Data: Cash, cash equivalents and short-term investments (1) Working capital (1) Total assets Total unearned revenues Long-term obligations (2) Total stockholders' equity Cash Flow Data: Net cash provided by operating activities _____ 2013 2011 2010 $ 7,075 5,134...

  • Page 46
    ... we offer as software-as-a-service. AirWatch products and services contributed to the growth we experienced in sales of our end-user computing products during 2014. Our investments in AirWatch resulted in increased operating expenses during 2014, primarily driven by employee-related costs, including...

  • Page 47
    ... in 2013. Our license revenue growth rate was favorably impacted during 2014 compared to 2013 as a result of increased sales of our integrated product suites, including VMware vCloud Suite and vSphere with Operations Management. Our customers continue transitioning to purchasing our suite solutions...

  • Page 48
    ... development efforts, personnel costs and related overhead associated with the physical and electronic delivery of our software products. For the Year Ended December 31, 2014 2013 2012 2014 vs. 2013 $ Change % Change 2013 vs. 2012 $ Change % Change Cost of license revenues Stock-based compensation...

  • Page 49
    ...the investment and growth in our SaaS and professional services offerings, which led to higher costs. The increase includes growth in cash-based employee-related expenses of $124 due to incremental growth in headcount, both organic and through acquisitions, and an increase in technical support costs...

  • Page 50
    ... personnel costs, sales commissions and related overhead associated with the sale and marketing of our license and services offerings, as well as the cost of product launches. Sales commissions are generally earned and expensed when a firm order is received from the customer. Sales and marketing...

  • Page 51
    ... AirWatch acquisition and the change of interest rate from 90-day LIBOR plus 55 basis points to a fixed rate of 1.75%. Refer to "Our Relationship with EMC" discussion below for further information. Other Income (Expense), Net For the Year Ended December 31, 2014 2013 2012 2014 vs. 2013 $ Change 2013...

  • Page 52
    ...to an ongoing reseller arrangement with EMC, EMC bundles our products and services with EMC's products and sells them to end users. EMC purchases products and services from us for internal use. We recognize revenues for professional services based upon such contractual agreements with EMC. From time...

  • Page 53
    ... technology, we will pay EMC for support and for development collaboration. These amounts are included in collaborative technology project costs in the table above. Certain Stock-Based Compensation Effective September 1, 2012, Pat Gelsinger succeeded Paul Maritz as Chief Executive Officer of VMware...

  • Page 54
    ... tax payments due to and from EMC is governed by the tax sharing agreement with EMC. Refer to Note K to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further information. Notes Payable to EMC In connection with our acquisition of AirWatch, we and EMC...

  • Page 55
    ... by us. In 2014, we paid $150 to EMC under the tax sharing agreement, but in 2013 we benefited from the net receipt of $24. While we expect sales and related cash collections to increase in 2015, we expect installment payments of approximately $185 to certain key employees of AirWatch as well as...

  • Page 56
    ...the decrease in excess tax benefits from stock-based compensation and a decrease in proceeds from issuance of common stock. These decreases were primarily due to changes in the market value of our stock and the number of equity awards exercised, sold or vested. Notes Payable to EMC As of December 31...

  • Page 57
    ... in which a customer may purchase a combination of software, maintenance and support, training, consulting services, and hosted services. If a product or service included in a software-related multiple-element arrangement has not been delivered, and is not considered essential to the functionality...

  • Page 58
    ... sales to third parties. In limited instances, for an offering that is not yet sold, VSOE is the price established by management if it is probable that the price will not change when introduced to the marketplace. In determining VSOE of fair value, we require that the selling prices for a product...

  • Page 59
    ... estimates used in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to future expected cash flows from sales, maintenance agreements and acquired developed technologies; the acquired company's trade name and customer relationships...

  • Page 60
    ... are affected by changes in the value of the U.S. dollar against these currencies. Additionally, a portion of our operating expenses, primarily the cost of personnel to deliver technical support on our products and professional services, sales and sales support and research and development, are...

  • Page 61
    ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA VMware, Inc. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE Report of Independent Registered Public Accounting Firm Consolidated Statements of Income for the years ended December 31, 2014, 2013 and 2012 Consolidated Statements of ...

  • Page 62
    ...presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014...

  • Page 63
    ..., except per share amounts, and shares in thousands) For the Year Ended December 31, 2014 2013 2012 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 64
    ... and $0 Net change in market value of available-for-sale securities Changes in market value of effective foreign currency forward exchange contracts: Unrealized (losses), net of $0 taxes for all periods Net change in market value of effective foreign currency forward exchange contracts Total other...

  • Page 65
    ... per share amounts, and shares in thousands) December 31, 2014 ASSETS Current assets: Cash and cash equivalents Short-term investments Accounts receivable, net of allowance for doubtful accounts of $2 and $2 Due from related parties, net Deferred tax assets Other current assets Total current assets...

  • Page 66
    ... 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: Additions to property and equipment Purchases of available-for-sale securities Sales of available-for-sale...

  • Page 67
    ... in capital additions, accrued but not paid Changes in tax withholdings on vesting of restricted stock, accrued but not paid Fair value of stock-based awards assumed in acquisition $ 215 35 56 19 7 24 $ (16) - - $ 37 2 17 The accompanying notes are an integral part of the consolidated...

  • Page 68
    ... stock, net of cancellations Shares withheld for tax withholdings on vesting of restricted stock Stock-based compensation Excess tax benefits from stockbased compensation Amount due from tax sharing arrangement Total other comprehensive loss Reduction in capital from EMC Contribution to Pivotal...

  • Page 69
    Total other comprehensive loss Activities with non-controlling interests Reclassification of liabilityclassified awards to equity stockbased compensation Net income Balance, December 31, 2014 - - - - - - - - - - - - (5) - - 5 (5) 5 - - 129 $ - - 1 - - 300 $ - - 3 $ 21 - 3,380 $ - 886 ...

  • Page 70
    ...Securities and Exchange Commission (the "SEC") for annual financial reporting. VMware was incorporated as a Delaware corporation in 1998, was acquired by EMC Corporation ("EMC") in 2004 and conducted its initial public offering of VMware's Class A common stock in August 2007. As of December 31, 2014...

  • Page 71
    ... of royalty reports. Services Revenues VMware's services revenues generally consist of software maintenance, training, technical support, consulting services, and hosted services. Software maintenance and technical support offerings entitle customers to receive major and minor product upgrades on...

  • Page 72
    ... days from date of purchase as short-term investments. Short-term investments are classified as available-for-sale. VMware may sell these securities at any time for use in current operations or for other purposes, such as consideration for acquisitions and strategic investments. Consequently, VMware...

  • Page 73
    ... , $75 million of the restricted cash related to the acquisition of AirWatch LLC and amounts held in escrow to be paid in future periods. Refer to Note B for further information. As of December 31, 2014 , VMware's total cash, cash equivalents and short-term investments were $7,075 million , of which...

  • Page 74
    ... period presented. VMware recognizes the net assets under common control at EMC's carrying values as of the date of the transfer and records the difference between the carrying value and the cash consideration as an equity transaction. Costs to effect an acquisition are recorded in general and...

  • Page 75
    ... the fair value of VMware's stock option awards and 2007 Employee Stock Purchase Plan (the "ESPP") shares. The Black-Scholes model includes assumptions regarding dividend yields, expected volatility, expected term and risk-free interest rates. These assumptions reflect the Company's best estimates...

  • Page 76
    ... basis. The estimated fair value of the stock options assumed by the Company was determined using the Black-Scholes option pricing model. Pursuant to the purchase agreement, AirWatch's outstanding stock awards were converted into shares of VMware's common stock at the conversion ratio of 0.4 . The...

  • Page 77
    ... estimated useful lives by VMware in conjunction with the acquisitions of AirWatch (amounts in table in millions): Useful Lives (in years) Weighted-Average Useful Lives (in years) Fair Value Amount Purchased technology Customer relationships and customer lists Trademarks and tradenames Other Total...

  • Page 78
    ...the fair value of 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...

  • Page 79
    ... 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 value per share of the assumed stock options...

  • Page 80
    ..., net of other acquired assets Total net liabilities assumed Fair value of intangible assets acquired and net liabilities assumed Of the goodwill acquired, $15 million is deductible for income tax purposes. Joint Venture During the year ended December 31, 2014 , VMware established a joint venture...

  • Page 81
    ... following (amounts in table in millions): December 31, 2013 WeightedAverage Useful Lives (in years) 6.6 34.9 8.7 9.1 Purchased technology Leasehold interest Customer relationships and customer lists Trademarks and tradenames IPR&D Total definite-lived intangible assets Gross Carrying Amount $ 580...

  • Page 82
    ... tax adjustments to purchase price allocations on acquisitions Other adjustments to purchase price allocations on acquisitions Balance, end of the year $ 3,027 $ 941 - - (4) - 3,964 $ 2013 2,848 233 (28) (4) (20) (2) 3,027 $ The deferred tax adjustments relate to the finalization of the fair value...

  • Page 83
    ... stock units, stock options 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 net income per share as both classes share...

  • Page 84
    ...005 7,076 Aggregate Fair Value $ 885 1,130 54 2 1,186 542 3,234 23 932 53 220 5,004 7,075 $ $ Cash Cash equivalents: Money-market funds U.S. and foreign corporate debt securities Municipal obligations Total cash equivalents Short-term investments: U.S. Government and agency obligations U.S. and...

  • Page 85
    ... upon quoted prices, quoted pricing intervals from public data sources, observable market data and discounted cash flow techniques. The fair value of the foreign currency forward contracts was not material for any period presented. As of December 31, 2014 , the fair value of the notes payable to EMC...

  • Page 86
    ... tables set forth the fair value hierarchy of VMware's money-market funds and available-for-sale securities, including those securities classified within cash equivalents on the consolidated balance sheets, that were required to be measured at fair value as of December 31, 2014 and 2013 (tables...

  • Page 87
    ... 31, 2014 and 2013 , VMware had outstanding forward contracts with a total notional value of $697 million and $498 million , respectively. The notional value represents the gross amount of foreign currency that will be bought or sold upon maturity of the forward contract. The fair value of these...

  • Page 88
    ... in millions): December 31, 2014 Salaries, commissions, bonuses, and benefits Accrued partner liabilities Other Total $ 374 148 289 811 $ 2013 303 135 170 608 $ $ Accrued partner liabilities relate to rebates and marketing development fund accruals for channel partners, system vendors and systems...

  • Page 89
    ...the Year Ended December 31, 2014 2013 2012 35 % 35 % 35 % 1% 1% 1% (21)% (22)% (22)% (3)% (7)% -% 4% 5% 3% 16 % 12 % 17 % Statutory federal tax rate State taxes, net of federal benefit Tax rate differential for international jurisdictions U.S. tax credits (1) Permanent items and other Effective tax...

  • Page 90
    ... future, new evidence supports the realization of the deferred tax assets related to the state research and development tax credits or capital losses, the valuation allowance will be reversed and a tax benefit will be recorded accordingly. VMware has non-U.S. operating losses of $3 million resulting...

  • Page 91
    ... 2012 2014 150 $ 8 $ - 32 Payments from VMware to EMC Payments from EMC to VMware $ - 19 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 the state payments for combined states. Payments...

  • Page 92
    ... 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 93
    ...a material effect on the Company's consolidated results of operations, financial position, or cash flows. M. Stockholders' Equity VMware Class B Common Stock Conversion Rights Each share of Class B common stock is convertible while held by EMC or its successor-in-interest at the option of EMC or its...

  • Page 94
    ... of factors, including VMware's stock price, cash requirements for operations and business combinations, corporate and regulatory requirements and other market and economic conditions. VMware is not obligated to purchase any shares under its stock repurchase programs. Purchases can be discontinued...

  • Page 95
    ...423 of the Internal Revenue Code. In May 2013, VMware amended its ESPP to increase the number of shares available for issuance by 7.9 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...

  • Page 96
    ... values represent the total pre-tax intrinsic values based on EMC's adjusted closing stock price of $29.74 as of December 31, 2014 , which would have been received by the option holders had all in-the-money options been exercised as of that date. (2) The total fair value of VMware stock options...

  • Page 97
    ...: Number of Units (in thousands) Expected to vest, December 31, 2014 (1) Weighted Average Remaining Term (in years) 1.33 $ Aggregate Intrinsic Value (1) (in millions) 907 10,989 The aggregate intrinsic values represent the total pre-tax intrinsic values based on VMware's closing stock price of...

  • Page 98
    ...license revenues Cost of services revenues Research and development Sales and marketing General and administrative Realignment Stock-based compensation Income tax benefit Total stock-based compensation, net of tax $ $ 2 28 210 150 48 - 438 (132) 306 From time to time, VMware issues equity awards...

  • Page 99
    ... 0.5 0.5 20.71 $ 20.45 $ 23.36 VMware Employee Stock Purchase Plan Dividend yield Expected volatility Risk-free interest rate Expected term (in years) Weighted-average fair value at grant date $ The weighted-average grant date fair value of VMware stock options can fluctuate from period to period...

  • Page 100
    ...an ongoing reseller arrangement with EMC, EMC bundles VMware's products and services with EMC's products and sells them to end users. EMC purchases products and services from VMware for internal use. VMware recognizes revenues for professional services based upon such contractual agreements with EMC...

  • Page 101
    ...the tax payments due to and from EMC is governed by the tax sharing agreement with EMC. Refer to Note K to the consolidated financial statements for further information. Notes Payable to EMC In connection with VMware's acquisition of AirWatch, VMware and EMC entered into a note exchange agreement on...

  • Page 102
    ...of December 31, 2014 and 2013 , VMware's ownership interest in Pivotal was 28% as a result of investments made by a third-party strategic investor during the year ended December 31, 2013 . O. Segment Information VMware operates in one reportable operating segment, thus all required financial segment...

  • Page 103
    ... States accounted for 10% or more of these assets as of December 31, 2014 and 2013 , 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 104
    ... would be required to execute a release in favor of VMware in exchange for Plan benefits. Performance-based equity awards will generally convert into shares at target amounts if a change in control occurs during a performance period, unless otherwise specified in the performance award agreement. The...

  • Page 105
    ... PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE We will furnish to the Securities and Exchange Commission a definitive Proxy Statement no later than 120 days after the close of the fiscal year ended December 31, 2014. The information required by this item is incorporated...

  • Page 106
    ...2012 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 February 12, 2014 Agreement of Purchase and Sale Agreement between Roche Palo Alto LLC and VMware, Inc. dated March 16, 2011 Amended...

  • Page 107
    ...Contents Incorporated by Reference Exhibit Number Exhibit Description Filed Herewith Form/ File No. Date 21.1 23.1 31.1 31.2 32.1 32.2 101.INS 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE List of subsidiaries Consent of PricewaterhouseCoopers LLP Certification of Principal Executive Officer required...

  • Page 108
    ... of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. VMWARE, INC. Dated: February 26, 2015 By: /s/ Patrick P. Gelsinger Patrick P. Gelsinger Chief Executive Officer Dated: February 26, 2015 By...

  • Page 109
    February 26, 2015 /s/ David N. Strohm David N. Strohm Director 103

  • Page 110
    ... December 31, 2014 allowance for doubtful accounts Year ended December 31, 2013 allowance for doubtful accounts Year ended December 31, 2012 allowance for doubtful accounts $ 2 4 4 $ - (2) 1 $ - - (1) Tax Valuation Allowance Credited to Income Tax Provision $ 2 2 4 Tax Valuation Allowance...

  • Page 111
    ... each Participant waive any and all severance benefits conditioned on a Change in Control to which he or she might otherwise have been entitled under any prior agreement, arrangement or policy should the Participant Separate from Service to VMware (as each term is defined below), and this CIC Plan...

  • Page 112
    ... of the combined voting power of the Company's then outstanding securities; (iii) The stockholders of the Company approve a plan of complete liquidation or dissolution of the Company, or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the...

  • Page 113
    ...'s then outstanding securities, or (II) EMC's distribution or transfer of the Company's shares in a transaction intended to qualify as a tax-free distribution or transfer under Code Section 355 ( "355 Distribution") . (e) "Change in Control Period" means the period beginning on the effective date of...

  • Page 114
    ... to a location more than 50 miles from his or her principal place of employment, except for required travel on the Company's business to an extent substantially consistent with the business travel obligations that the Participant undertook on behalf of the Company prior to the Change in Control; (iv...

  • Page 115
    ... Company's then outstanding securities. (t) " Plan" means any compensation plan such as an incentive plan, or any employee benefit plan such as a thrift, pension, profit sharing, medical, disability, accident, life insurance plan or a relocation or vacation plan or policy or any other plan, program...

  • Page 116
    ... extent subject to an exercise feature, exercisable) as of the Termination Date. The Participant will be entitled to exercise any Option Rights until the expiration of 90 days following the Payment Date (or until such later date as may be applicable under the terms of the award agreement governing...

  • Page 117
    ... definitions of Cause, Change in Control, Disability, Good Reason, Involuntary Termination, Separation from Service and Termination Date set forth in this CIC Plan will supersede the definition of such term or similar terms set forth in any such grant agreements to the extent permitted in accordance...

  • Page 118
    ... be made under the original terms of the award agreement(s) governing the Equity Awards. To the extent required to avoid accelerated recognition of taxable income or imposition of additional tax under Section 409A, the amount of any in-kind benefits provided during a taxable year may not affect the...

  • Page 119
    ... the event or condition; (ii) (iii) The Company must fail to effect such remedy within the 30-day cure period; and The effective date of the resignation must occur within 90 days after the end of the 30-day cure period. In order for a Participant's resignation to be deemed to be for Good Reason...

  • Page 120
    ...to the Company or the Board: VMware, Inc. 3401 Hillview Ave. Palo Alto, CA 94304 Attn: General Counsel, email: [email protected] If notice is given to the Participant: To the Participant's home address on file with the Company, with a copy to Participant's home email address on file with the...

  • Page 121
    ... to change any benefits to which a Participant is entitled under any written agreement with the Company in the event the Participant's employment is terminated under circumstances other than a Separation from Service in connection with a Change in Control. 15. Participant's Successors . Benefits and...

  • Page 122
    ... relating to the termination of the Participant's employment, in seeking in good faith to obtain or enforce any benefit or right provided by this CIC Plan or in connection with any tax audit or proceeding to the extent attributable to the application of Section 162(m) of the Code to any payment...

  • Page 123
    ... Private Ltd. AirWatch UK, Limited Nicira, Inc. VMware Australia Pty Ltd VMware Bermuda Limited VMware Bulgaria EOOD VMware Canada Inc. VMware Costa Rica Ltda. VMware Denmark ApS VMware Eastern Europe VMware France SAS VMware Global, Inc. VMware Hong Kong Limited VMware Information Technology (China...

  • Page 124
    ... REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statement on Form S18 (No. 333-145402, 333-152582, 333-159747, 333-162079, 333-169537, 333-179680 ,333-189491 and 333-194148) of VMware, Inc. of our report dated February 26, 2015 relating to...

  • Page 125
    ... 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 26, 2015 By: /s/ Patrick P. Gelsinger Patrick P. Gelsinger Chief Executive Officer (Principal Executive Officer) Date:

  • Page 126
    ... management or other employees who have a significant role in the registrant's internal control over financial reporting. February 26, 2015 By: /s/ Jonathan C. Chadwick Jonathan C. Chadwick Chief Financial Officer, Chief Operating Officer and Executive Vice President (Principal Financial Officer...

  • Page 127
    ... 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 26, 2015 By: /s/ Patrick P. Gelsinger Patrick P. Gelsinger Chief Executive Officer (Principal...

  • Page 128
    ... 31, 2014 fully complies with the requirements of Section 13(a) or 15(d) of the 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 26, 2015 By...