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VMWARE, INC.
FORM 10-K
(Annual Report)
Filed 03/01/10 for the Period Ending 12/31/09
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 2011, 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 03/01/10 for the Period Ending 12/31/09 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
    ... sale price of such shares on the New York Stock Exchange on June 30, 2009) was approximately $1,525,838,910. 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 3
    ... 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 4
    ... include distributors, resellers, x86 system vendors, and systems integrators. We believe 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...

  • Page 5
    ..., VMware's virtualization platform converts IT infrastructure into a "computing cloud." Applications running in virtual machines can move across servers, storage, and networks without disruption or downtime to dynamically match computing supply and demand while built-in services ensure high levels...

  • Page 6
    ... the trial, usage, and adoption of VMware virtualization in data centers of all sizes. VMware Server is a virtualization platform that runs on top of an OS (a "hosted" product) available for trial and download by customers so they can test virtualization before they move to the bare-metal products...

  • Page 7
    ... high availability and disaster recovery. Client-hosted desktop virtualization enables users to run one or more virtual machines on a single desktop or laptop computer. Technical professionals have been using our technology for testing and development because it allows them to run multiple operating...

  • Page 8
    ...market our support and service agreements through the same network of channel partners who also sell our products. We also have a renewal sales team and utilize a third party vendor to sell renewals directly to end user customers. In addition, the renewal sales team and the third party vendor assist...

  • Page 9
    ..., and other VMware community members have distributed more than 1,300 software applications as virtual appliances. In addition to developing open APIs, formats, and protocols at multiple levels in our products, we provide source code access to select partners in our "Community Source" program to...

  • Page 10
    ... them from offering products or services that compete with ours. We primarily sell our software under perpetual licenses, and our sales contracts generally require end user customers to purchase maintenance for the first year. Software maintenance is sold both directly to end user customers and via...

  • Page 11
    ... of enterprise license 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 VMware's virtual infrastructure solutions in...

  • Page 12
    ... vSphere suite competes with products that provide high availability clustering, workload management, and resource management. We also expect to compete with new entrants to the virtualization market, which may include parties currently selling our products and/or our current technology partners...

  • Page 13
    ... 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 leadership, large customer base, strong partner network, broad and innovative solutions...

  • Page 14
    ... solutions occur more slowly or less comprehensively than we expect, our revenue growth rates may slow materially or our revenue may decline substantially. We expect to face increasing competition that could result in a loss of customers, reduced revenues or decreased operating margins. The market...

  • Page 15
    .... During 2009, Oracle completed its acquisition of Virtual Iron and in early 2010 completed its acquisition of Sun Microsystems which has its own hypervisor-based virtualization technology, Microsoft recently released the second version of its hypervisor-based server virtualization product and IBM...

  • Page 16
    ... lengthening sales cycles (for example, ELAs), lowering prices for our products and services, reducing unit sales, decreasing or reversing quarterly growth in our revenues, reducing the rate of adoption of our products by new customers and the willingness of current customers to purchase upgrades to...

  • Page 17
    ... of upgrades or new products by us or by our competitors; our ability 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...

  • Page 18
    ... of hardware, software and cloud hosting vendors to ensure interoperability with our products and offer compatible products and services to end users. The cloud computing, PaaS and virtual desktop markets are in early stages of development. Other companies seeking to enter and develop competing...

  • Page 19
    ...on distributors, resellers, x86 system vendors and systems integrators to sell our products, and our failure to effectively develop, manage or prevent disruptions to our distribution channels and the processes and procedures that support them could cause a reduction in the number of end users of our...

  • Page 20
    .... In fiscal year 2009, over 90% of our license revenues were from our data center solutions with the balance from our other solutions. Although we are continuing to develop applications for our virtualization technology such as our desktop virtualization products and our data center management and...

  • Page 21
    ... skilled employees we need to support our planned growth and our compensation expenses may increase. To execute on our strategy, we must attract and retain highly qualified personnel. Competition for these personnel is intense, especially for senior sales executives and engineers with high levels of...

  • Page 22
    ... of our market share. We provide access to our hypervisor and other selected source code to partners, which creates additional risk that our competitors could develop products that are similar or better than ours. Our success and ability to compete depend substantially upon our internally developed...

  • Page 23
    ... open source software subject us to a number of risks and challenges: • • If open source software programmers, most of whom we do not employ, do not continue to develop and enhance open source technologies, our development expenses could be increased and our product release and upgrade schedules...

  • Page 24
    ... to realize revenues from such products will be negatively affected and our development costs may increase. Our sales cycles can be long and unpredictable, our sales efforts require considerable time and expense and timing of sales is subject to changing purchasing behaviors of our customers. As...

  • Page 25
    ... in a timely manner or to position and/or price our products and services to meet market demand, customers may not buy new software licenses from us or renew software license updates and product support. In addition, information technology standards from both consortia and formal standards-setting...

  • Page 26
    ... our customers' hardware and software systems, our customers may depend on our support organization to resolve any issues relating to our products. A high level of support is critical for the successful marketing and sale of our products. If we or our channel partners do not effectively assist our...

  • Page 27
    ... with multiple international locations; increased exposure to foreign currency exchange rate risk; difficulties in enforcing contracts and collecting accounts receivable, and longer payment cycles, especially in emerging markets; difficulties in delivering support, training and documentation in...

  • Page 28
    ... reduce our stock price. Problems with our information systems could interfere with our business and 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 and tracking...

  • Page 29
    ... infrastructure or terrorism, which could result in delays or cancellations of customer orders or the deployment of our products. Our corporate headquarters are located in the San Francisco Bay Area, a region known for seismic activity. A significant natural disaster, such as an earthquake, fire or...

  • Page 30
    .... If our customer contracts are terminated, if we are suspended from government work, or if our ability to compete for new contracts is adversely affected, we could suffer an adverse affect on our business, operating results or financial condition. Changes in accounting principles and guidance, or...

  • Page 31
    ... rights; the payment of dividends on our common stock; and the number of shares available for issuance under our stock plans for our prospective and existing employees. Our certificate of incorporation and the master transaction agreement between us and EMC also contain provisions that require...

  • Page 32
    ... market share. EMC and we are both IT infrastructure companies providing products related to storage management, back-up, disaster recovery, security, system management and automation, provisioning and resource management. There can be no assurance that EMC will not engage in increased competition...

  • Page 33
    ...tax, accounting, treasury, legal and human resources services. Although we have transitioned most of these corporate functions to VMware personnel, in certain geographic regions where we do not have an established legal entity, we contract with EMC subsidiaries for support services and EMC employees...

  • Page 34
    ...nature, quality and pricing of services EMC has agreed to provide us; arrangements with third parties that are exclusionary to EMC; business opportunities that may be attractive to both EMC and us; and product or technology development or marketing activities or customer agreements which may require...

  • Page 35
    ... of our directors are executive officers and/or directors of EMC. Ownership of EMC common stock, restricted shares of EMC common stock and equity awards to purchase EMC common stock by our directors and the presence of executive officers or directors of EMC on our board of directors could create, or...

  • Page 36
    ... Factors section and elsewhere in this Annual Report on Form 10-K. Substantial amounts of Class A common stock are held by our employees, EMC and Cisco Systems ("Cisco"), and all of the shares of our Class B common stock, which may be converted to Class A common stock upon request of the holder, are...

  • Page 37
    ... right to designate a director acceptable to our board of directors for an initial term of service. Pursuant to that right, we appointed an Intel executive to our board of directors. Cisco, pursuant to its purchase of our Class A common stock from EMC, also has an ownership relationship with us, and...

  • Page 38
    ... public offering of our Class A common stock to purchase our new corporate headquarters facilities in Palo Alto, California from EMC Corporation ("EMC") for $132.6 million, which is equal to the cost expended by EMC in the construction of those facilities through the date of purchase. As of December...

  • Page 39
    ... to joining VMware, he served as President and Chief Executive Officer of Borland Software Corporation since November 2005. From June 2005 to November 2005, Mr. Nielsen served as Senior Vice President, Marketing and Global Sales Support for Oracle Corporation, an enterprise software company. From...

  • Page 40
    ... 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 common stock on the New York Stock Exchange for the past two years during...

  • Page 41
    ... quarter ended December 31, 2009: Total Number of Shares Purchased Total Number Period of Shares Purchased Average Price Paid Per Share as Part of Publicly Announced Plans or Programs Purchased Under the Publicly Announced Plans or Programs Approximate Dollar Value of Shares That May Yet Be October...

  • Page 42
    ... S&P 500 Systems Software index for the period beginning on August 14, 2007 (the date our Class A common stock commenced trading on the New York Stock Exchange) through December 31, 2009, assuming an initial investment of $100. While the IPO price of our common stock was $29.00 per share, the graph...

  • Page 43
    ...$ 238,247 $ 196,037 In evaluating our results, we also focus on operating margin excluding stock-based compensation, employer payroll taxes on employee stock transactions, amortization of intangible assets, the write-off of in-process research and development, acquisition-related items, and the net...

  • Page 44
    ...we purchased our new headquarters facilities from EMC for $132.6 million, which is equal to the cost expended by EMC through the date of purchase. We also repaid $350.0 million of principal on the note payable to EMC. Also in August 2007, we sold 9,500,000 shares of our Class A common stock to Intel...

  • Page 45
    ... software solutions technology and product portfolio, increasing product awareness, promoting the adoption of virtualization, and building long-term relationships with our customers through the adoption of enterprise license agreements ("ELAs"). In the second quarter of 2009, VMware vSphere...

  • Page 46
    ... vSphere foundation through 2010 and beyond. Additionally, in the third quarter of 2009, we purchased SpringSource Global, Inc. ("SpringSource"), which strengthens our product offering by extending our strategy to deliver solutions that can be hosted at customer data centers or at service providers...

  • Page 47
    ... total outstanding shares of common stock and 98% of the combined voting power of our outstanding common stock. Pursuant to a reseller arrangement with EMC, which commenced in 2009, EMC bundles our products and services with EMC's hardware and sells them to end users. In 2009, we recognized revenues...

  • Page 48
    ... level. Sources of Revenues License revenues Our license revenues consist of revenues earned from the licensing of our software products. These products are generally licensed on a perpetual basis and are generally priced based upon the number of physical desktop computers or server processors...

  • Page 49
    ... support based on the level of support purchased. Customers who are party to software maintenance agreements with us are entitled to receive product updates and upgrades on a when-and-if-available basis. Professional services revenues Professional services include design, implementation and training...

  • Page 50
    ... benefited from strong maintenance renewals, multi-year software maintenance contracts sold in previous periods, and additional maintenance contracts sold in conjunction with software licenses. In addition, the growth in services revenues year-over-year in 2009 increased as a result of customers...

  • Page 51
    ... and new sales opportunities. Our channel partners also introduce our sales force to their customers. Historically, most of our revenue contracts with international customers were denominated in U.S. Dollars. In conjunction with the general release of VMware vSphere in the second quarter of 2009, we...

  • Page 52
    ... the increase in our license revenues, as software maintenance services are generally purchased with licenses, the benefit from multi-year software maintenance contracts sold in previous periods, and renewals of existing customer software maintenance contracts. Professional services revenues were...

  • Page 53
    ...Operating Expenses Information about our operating expenses is as follows: 2009 For the Year Ended December 31, 2008 2007 Operating expenses: Cost of license revenues Cost of services revenues Research and development Sales and marketing General and administrative Total operating expenses Operating...

  • Page 54
    ... our amounts capitalized as software development costs may not be comparable to our peer companies due to differences in judgment as to when technological feasibility has been reached or differences in judgment regarding when the product is available for general release. In 2009, 2008, and 2007, we...

  • Page 55
    ... sales volumes, as well as increased marketing expenses relating to our ongoing international market expansion and our branding initiative in 2008. A portion of our operating expenses, primarily the cost of personnel to deliver technical support on our products and professional services, marketing...

  • Page 56
    ... operating expense categories on our consolidated statement of income. The increase between 2008 and 2007 was primarily due to increased direct support, professional services personnel and third-party professional services costs to support the increased services revenues. Research and Development...

  • Page 57
    ...and cash equivalent balances, primarily as a result of cash provided by operating activities, as well as a full year of interest earned on proceeds we received in the middle of the third quarter of 2007 from our IPO and the sale of shares of our Class A common stock to Intel Capital. The increase in...

  • Page 58
    ... additional information. Our non-GAAP operating cash flows and free cash flows for 2009, 2008, and 2007 were as follows: 2009 For the Year Ended December 31, 2008 2007 Net cash provided by operating activities Capitalized software development costs Excess tax benefits from stock-based compensation...

  • Page 59
    ... offset by an increase in our accounts receivable. As a result of the general release of VMware vSphere in the second quarter of 2009, capitalized software development costs decreased compared with 2008, thereby shifting the related cash flows from investing cash flows to operating cash flows as...

  • Page 60
    ... half of 2008. As a result, after the general release of VMware vSphere in the second quarter of 2009, the related cash flows shifted from investing cash flows to operating cash flows as compared with 2008. The increase in capitalized software development costs in 2008 as compared with 2007 was the...

  • Page 61
    ...functional group operating results. When viewing operating results for evaluating our past performance and for planning purposes, management excludes certain items, including the effect of capitalizing and amortizing software development costs and items related to stock-based compensation, which are...

  • Page 62
    ... by reason of such individual being or having been a director or executive officer. We also indemnify certain employees who provide service with respect to employee benefits plans, including the members of the VMware 401(k) Savings Plan Committee. In connection with certain acquisitions, we have...

  • Page 63
    ... accepted accounting principles require recognizing compensation costs for all share-based payment awards made to employees based upon the awards' estimated grant date fair value. We elected to estimate the fair value of employee stock option awards and options under our Employee Stock Purchase Plan...

  • Page 64
    ... products, our return policy does not allow end users to return products for a refund. Certain distributors and resellers may rotate stock when new versions of a product are released. We estimate future product returns at the time of sale. Our estimate is based on historical return rates, levels...

  • Page 65
    ...based on the level of support purchased. In the event specific features or functionalities, entitlements or the release number of an upgrade or new product have been announced but not delivered, and customers will receive that upgrade or new product as part of a current software maintenance contract...

  • Page 66
    ... as anticipated future revenue, estimated economic life, and changes in software and hardware technologies. Material differences in amortization amounts could occur as a result of changes in the periods over which we actually generate revenues or the amounts of revenues generated. Asset Valuation...

  • Page 67
    .... The majority of our purchase contracts are denominated in U.S. Dollars. However, 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 denominated in...

  • Page 68
    ...-day LIBOR rate, we expect our interest expense on the note payable to decrease in the first quarter of 2010. If the interest rate on the note payable were to change 100 basis points from the December 31, 2009 rate and assuming no additional repayments on the principal were made, our annual interest...

  • Page 69
    ... AND SUPPLEMENTARY DATA VMware, Inc. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets at December 31, 2009 and 2008 Consolidated Statements of Income for the years ended December 31, 2009, 2008 and 2007...

  • Page 70
    ... of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly...

  • Page 71
    Table of Contents VMware, Inc. CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) December 31, 2009 2008 ASSETS Current assets: Cash and cash equivalents Accounts receivable, less allowance for doubtful accounts Due from EMC, net Deferred tax asset, current portion Income taxes ...

  • Page 72
    ... share amounts) 2009 For the Year Ended December 31, 2008 2007 Revenues: License Services Operating expenses (1) : Cost of license revenues Cost of services revenues Research and development Sales and marketing General and administrative Operating income Investment income Interest expense with EMC...

  • Page 73
    ... from EMC Income taxes payable Deferred income taxes, net Deferred revenue Net cash provided by operating activities Cash flows from investing activities: Additions to property and equipment Purchase of headquarters facilities from EMC Capitalized software development costs Purchase of investments...

  • Page 74
    ... of Class A common stock in IPO, net of underwriter fees of $60,530 and other issuance costs of $4,787 Issuance of Class A common stock to Intel Capital, net of issuance costs of $200 Issuance of restricted stock, net of cancellations Stock-based compensation Amounts due from tax sharing arrangement...

  • Page 75
    ...at a price to the public of $29.00 per share. The net proceeds of the IPO to the Company were $1,035.2 million after deducting the offering expenses and underwriter's discounts (see Note J). As of December 31, 2009, EMC Corporation ("EMC") holds approximately 26% of VMware's Class A common stock and...

  • Page 76
    ...VMware's return policy does not allow end users to return products for a refund. Certain distributors and resellers may rotate stock when new versions of a product are released. VMware estimates future product returns at the time of sale. VMware's estimate is based on historical return rates, levels...

  • Page 77
    ...fair value of these upgrades or new products is established based upon the price set by management. VMware has a history of selling such upgrades or new products on a standalone basis. Deferred revenues include unearned software maintenance fees, professional services fees, and license fees. Foreign...

  • Page 78
    ... development costs may not be comparable to VMware's peer companies due to differences in judgment as to when technological feasibility has been reached or differences in judgment regarding when the product is available for general release. Generally accepted accounting principles require annual...

  • Page 79
    ...the unrealized loss as well as the Company's ability and intent to hold the investment until a forecasted recovery occurs. Factors considered include quoted market prices, recent financial results and operating trends, other publicly available information, implied values from any recent transactions...

  • Page 80
    ... are measured at fair value. In order to manage VMware's exposure to foreign currency fluctuations, VMware enters into foreign currency contracts to hedge a portion of VMware's net outstanding monetary asset and liability positions. The Company does not enter into speculative foreign exchange...

  • Page 81
    ... equivalents primarily in money market funds and limits the amount of investment with any one issuer. As of December 31, 2009, VMware had $2,388.3 million in money market funds. The Temporary Guarantee Program for Money Market Funds expired on September 18, 2009, and as such, VMware's investments...

  • Page 82
    ... the Company's control. VMware restricted stock unit awards are valued based on the Company's stock price on the date of grant. VMware recognizes compensation cost on a straight-line basis over the awards' vesting periods for those awards which contain only a service vesting feature. New Accounting...

  • Page 83
    ...359,189 $ 0.62 $ 0.61 For the years ended December 31, 2009, 2008 and 2007, 20.6 million, 11.4 million and 2.2 million stock options, respectively, to acquire VMware Class A common stock were excluded from the diluted earnings per share calculations because their effect would have been antidilutive...

  • Page 84
    ... outstanding capital stock of SpringSource Global, Inc. ("SpringSource"), under the terms of an Agreement and Plan of Merger entered into in August 2009. SpringSource was a private company based in San Mateo, California, and a leader in enterprise and web application development and management...

  • Page 85
    ... weighted-average assumptions: i) market price of $40.00 per share, which was the closing price of VMware's Class A common stock on the acquisition date; ii) expected term of 1.6 years; iii) risk-free interest rate of 0.7%; iv) annualized volatility of 38.1%; and v) no dividend yield. The weighted...

  • Page 86
    .... Fiscal Year 2008 On July 1, 2008, VMware acquired all of the outstanding capital stock of a privately-held application performance management software company. The results of this company's operations have been included in VMware's consolidated financial statements since that date. The aggregate...

  • Page 87
    ... of all acquired companies have been included in VMware's consolidated financial statements since their respective acquisition dates. Acquired intangibles totaled $23.9 million, consisted primarily of purchased technology, and have a weightedaverage estimated useful life of 7.1 years. The excess of...

  • Page 88
    ... of the following (table in thousands): WeightedAverage Useful Lives (in years) Gross Carrying Amount Accumulated Amortization Net Book Value 2009 Purchased technology Customer relationships and customer lists Trademarks and tradenames Other Total intangible assets, net, excluding goodwill...

  • Page 89
    ... to rebates and marketing development fund accruals for channel partners, x86 system vendors, and system integrators, as well as accrued royalties. G. Note Payable to EMC In April 2007, VMware declared an $800.0 million dividend to EMC paid in the form of a note payable. This dividend was given...

  • Page 90
    ...) 1,567 9,135 - 9,135 $ 22,341 For the Year Ended December 31, 2008 2007 Statutory federal tax rate State taxes, net of federal benefit Tax rate differential for international jurisdictions U.S. tax credits Permanent items and other Effective tax rate 87 35.0% 1.1% (21.5%) (8.5%) 5.7% 11.8% 35...

  • Page 91
    ...the Company's stand-alone taxable loss for the year ended December 31, 2008, which was primarily attributable to tax deductions arising from both non-qualified stock option exercises and from the vesting of restricted stock. Under the tax sharing agreement with EMC, EMC is obligated to pay VMware an...

  • Page 92
    ... tax payments due to and from EMC is governed by the tax sharing agreement with EMC. The difference between the income taxes payable that is calculated on a separate return basis and the amount actually paid to EMC pursuant to VMware's tax sharing agreement is presented as a component of additional...

  • Page 93
    ... 2009. Due to the increased complexity in international operations, including judgments in determining the appropriate tax jurisdictions for revenue and expense items, the Company's unrecognized tax benefits will likely increase in 2010. The Company cannot reasonably estimate the increase. VMware...

  • Page 94
    ... being or having been a director or executive officer. VMware also indemnifies certain employees who provide service with respect to employee benefits plans, including the members of the VMware 401(k) Savings Plan Committee. In connection with certain acquisitions, VMware has agreed to indemnify the...

  • Page 95
    ... purchased its new headquarters facilities from EMC for $132.6 million, which was equal to the cost expended by EMC in the construction of those facilities. Intel and Cisco Ownership in VMware Class A Common Stock In July 2007, VMware entered into a stock purchase agreement with Intel Corporation...

  • Page 96
    ...13, 2007, the date on which VMware's S1 Registration Statement was declared effective by the SEC, and became exercisable on December 31, 2007. Options to purchase shares are generally granted twice yearly. EMC Stock Purchase Plan Historically, under EMC's 1989 Employee Stock Purchase Plan (the "1989...

  • Page 97
    ... restricted stock awards of VMware Class A common stock, respectively, continue to have their existing grants governed under EMC's stock plans. There were approximately 6.7 million options to purchase VMware Class A common stock issued in the exchange with a weightedaverage exercise price per share...

  • Page 98
    ...1, 2007 for VMware and EMC stock options (shares in thousands): VMware Stock Options Weighted Average Number of Exercise Price Shares (per share) EMC Stock Options WeightedAverage Number of Exercise Price Shares (per share) Outstanding, January 1, 2007 Options relating to employees transferred from...

  • Page 99
    ...'s President and Chief Executive Officer a stock option for the purchase of approximately 1.4 million shares of the Company's Class A common stock in exchange for a stock option he held for the purchase of shares of common stock of EMC Corporation. The exercise price of his new VMware grant was...

  • Page 100
    ... valued based on the VMware stock price on the date of grant. The majority of VMware's restricted stock awards have pro rata vesting over three or four years. The total fair value of EMC restricted stock granted to VMware employees that vested in the years ended December 31, 2009, 2008 and 2007 was...

  • Page 101
    ...2007 (table in thousands): For the Year Ended December 31, 2009 2008 2007 Cost of license revenues Cost of services revenues Research and development Sales and marketing General and administrative Stock-based compensation expense Income tax benefit Total stock-based compensation expense, net of tax...

  • Page 102
    ...stage of life cycle, size and financial leverage. The expected term was calculated based on the historical experience that VMware employees have had with EMC stock option grants as well as the expected term of similar grants of comparable companies. VMware's expected dividend yield input was zero as...

  • Page 103
    ... with EMC Pursuant to a reseller arrangement with EMC, which commenced in 2009, EMC bundles VMware's products and services with EMC's hardware and sells them to end users. In 2009, VMware recognized revenues of $14.1 million from products sold pursuant to VMware's reseller arrangement with EMC. As...

  • Page 104
    ... and for the year ended December 31, 2009. In connection with Intel Capital's purchase in 2007 of 9.5 million shares of VMware's Class A common stock, the Company agreed to the appointment of an Intel executive acceptable to VMware's Board of Directors. In connection with Cisco's purchase in 2007 of...

  • Page 105
    ... consolidated financial statements. In 2007, VMware entered into an agreement to license software from Softrax Corporation ("Softrax"). A member of the Company's Board of Directors is a managing partner and general partner in a limited partnership, which until November 2009 had an equity interest in...

  • Page 106
    ..., View Composer, VMware ThinApp, Workstation, and Fusion. Other Products . The other product category includes solutions, such as tc Server and Hyperic HQ, that help organizations build, run, and manage enterprise applications, particularly those written in the Java programming language. Revenues by...

  • Page 107
    .... The Company performed an evaluation and concluded that this amount is not material to either period, and that there is no impact to the year ended December 31, 2009. O. Subsequent Events Acquisition of Zimbra On January 12, 2010, VMware announced it had entered into a definitive agreement to...

  • Page 108
    ... misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. ITEM 9B. OTHER INFORMATION On March 1, 2010, our sole Class B common stockholder, EMC, authorized the aggregate size of our annual equity grants for...

  • Page 109
    ... year ended December 31, 2009. The information required by this item is incorporated herein by reference to the Proxy Statement. Also see "Executive Officers of the Registrant" in Part I of this Annual Report on Form 10-K. We have a code of ethics that applies to all of our employees, including...

  • Page 110
    ... 3, 2008 Promissory Note between VMware, Inc. and EMC Corporation dated April 16, 2007 Form of Insurance Matters Agreement between VMware, Inc. and EMC Corporation Form of Option Agreement Form of Restricted Stock Unit Agreement 2007 Employee Stock Purchase Plan, as amended and restated December...

  • Page 111
    ... and Sale Agreement between VMware, Inc. and EMC Corporation Class A Common Stock Purchase Agreement between VMware, Inc. and Intel Capital Corporation dated July 9, 2007 Investor Rights Agreement between VMware, Inc. and Intel Capital Corporation dated July 9, 2007 Form of Early Exercise Option...

  • Page 112
    ... and Chief Executive Officer VMWARE, INC. Dated: March 1, 2010 By: /s/ R OBYNNE D. S ISCO Robynne D. Sisco Chief Accounting Officer and Corporate Controller (Principal Accounting Officer and Duly Authorized Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report...

  • Page 113
    ...for Bad Debts Charged to Selling, General, and Administrative Expenses Charged to Other Accounts Balance at Beginning Allowance for Bad Debts of Period Bad Debts WriteOffs Balance at End of Period Year ended December 31, 2009 allowance for doubtful accounts Year ended December 31, 2008 allowance...

  • Page 114
    ... from your date of hire through the end of the bonus period. As a key employee of VMware, a recommendation will be made to the Compensation and Corporate Governance Committee of the VMware Board (the "Committee") that you be granted an option to purchase shares of VMware Class A common stock and...

  • Page 115
    ... to have occurred for purposes of this offer letter agreement by virtue of (i) any transaction which results in you, or a group of Persons in which you have a substantial interest, acquiring, directly or indirectly, 35% or more of either the then outstanding shares of common stock of the Company or...

  • Page 116
    ...securities and (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. 4. For purposes of this offer letter agreement, "Good Reason" for termination by you of your employment shall mean the...

  • Page 117
    ... (B) VMware must fail to remedy such condition within the 30 day cure period. The intent of the parties is that payments and benefits under this letter agreement comply with or be exempt from Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations and guidance...

  • Page 118
    ... (45) days following your date of hire. Should your employment with VMware terminate voluntarily without Good Reason or with Cause within one year, the bonus must be repaid. No repayment would be required for termination after one year of employment. The Company agrees to provide assistance to you...

  • Page 119
    ...except by a written agreement, signed by an officer of the Company and by you. This offer expires seven (7) days from the date of this letter. We are looking forward to having you join VMware. Sincerely, /s/ Betsy Sutter Betsy Sutter Senior Vice President, Human Resources ACCEPTED AND AGREED TO this...

  • Page 120
    ...GmbH VMware Global, Inc. VMware Hong Kong Limited VMware International Limited VMware International Marketing Limited VMware Information Technology (China) Co. Ltd VMware Israel Ltd. VMware Italy S.r.l. VMware Marketing Austria GmbH VMware Netherlands B.V. VMware New Zealand Company VMware Singapore...

  • Page 121
    ... CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-145402, 333-152582, 333159747, and 333-162079) of VMware, Inc. of our report dated February 26, 2010 relating to the financial statements...

  • Page 122
    ... 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. By: /s/ PAUL A. MARITZ Paul A. Maritz President and Chief Executive Officer (Principal Executive Officer) Date: March 1, 2010

  • Page 123
    ... information; and 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. By: /s/ MARK S. PEEK Mark S. Peek Chief Financial Officer (Principal Financial Officer) Date: March 1, 2010

  • Page 124
    ...financial condition and results of operations of VMware, Inc. Date: March 1, 2010 By: /s/ PAUL A. MARITZ Paul A. Maritz President and Chief Executive Officer (Principal Executive Officer) This certification "accompanies" the Form 10-K to which it relates, is not deemed filed with the Securities and...

  • Page 125
    ..., the financial condition and results of operations of VMware, Inc. Date: March 1, 2010 By: /s/ MARK S. PEEK Mark S. Peek Chief Financial Officer (Principal Financial Officer) This certification "accompanies" the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange...