VMware 2012 Annual Report Download

Download and view the complete annual report

Please find the complete 2012 VMware annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 170

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168
  • 169
  • 170

VMWARE, INC.
FORM 10-K
(Annual Report)
Filed 02/27/13 for the Period Ending 12/31/12
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 2013, 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 02/27/13 for the Period Ending 12/31/12 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
    ... Avenue Palo Alto, CA (Address of principal executive offices) 94304 (Zip Code) (650) 427-5000 (Registrant's telephone number, including area code) _____ Securities registered pursuant to Section 12(b) of the Act: Title of each class Class A Common Stock, par value $0.01 Name of each exchange on...

  • Page 3
    ... closing sale price of such shares on the New York Stock Exchange on June 30, 2012 ) was approximately $7,458,292,680 . 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 4
    ... 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 and Related Transactions, and...

  • Page 5
    ... of unearned revenue; our relationship with EMC Corporation ("EMC"); increasing employee headcount; our revenue outlook and mix; the number of large enterprise license agreements ("ELAs") expected in the first half of 2013; customer and partner demand for our products and services; the delivery...

  • Page 6
    ...as a service, and the control of this data center is entirely automated by software. Traditional data centers are loose collections of technology silos where each application type has its own vertical stack consisting of CPU and operating system, storage pool, networking and security, and management...

  • Page 7
    ... filing. Our corporate headquarters are located at 3401 Hillview Avenue, Palo Alto, California, and we have approximately 101 offices worldwide. Background Virtualization was first introduced in the 1970s to enable multiple business applications to share and fully harness the centralized computing...

  • Page 8
    ... center by pooling industry-standard hardware and running compute, networking, and management functions in the data center as software-defined services. Our vCloud Suite offerings include combinations of the following components vSphere Enterprise Plus - VMware's virtualization platform enabling...

  • Page 9
    ... strategy, we have engaged a broad group of hardware, software and cloud computing service vendors to cooperatively advance virtualization technology through joint marketing, product interoperability, collaboration and co-development. We create opportunity for partners by enabling them to build...

  • Page 10
    ... 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 their data centers. Our sales cycle with end-user customers...

  • Page 11
    ...to thousands of virtual machines for our largest enterprise customers. During 2012, two distributors, who purchased software licenses and software support from us for resale to end-user customers directly or via resellers, each accounted for over 10% of our worldwide revenues. Arrow Electronics, Inc...

  • Page 12
    ... current employee relations to be good. We contract with EMC to utilize personnel who are dedicated to work for VMware on a full-time basis. These individuals are located in countries in which we do not currently have an operating subsidiary and are predominantly dedicated to our sales and marketing...

  • Page 13
    ... resources and end-user computing. We are also investing in the development of products and services for the emerging platform as a service, or "PaaS," and software as a service, or "SaaS," markets. Our success depends on organizations and customers perceiving technological and operational benefits...

  • Page 14
    ... simplify the management of physical desktop images while enabling users to take advantage of the native performance of a PC. Our acquisitions of Zimbra and Socialcast in 2010 and 2011 were a part of VMware's strategy to enter the emerging SaaS market. In 2011, we also acquired Digital Fuel, which...

  • Page 15
    ...impact our revenues, impede end-user adoption of new products and product upgrades and adversely impact our competitive position. Our business depends on the overall demand for information technology and on the economic health of our current and prospective customers. The purchase of our products is...

  • Page 16
    ... markets. As a result, current or potential customers may be unable to fund software purchases, which could cause them to delay, decrease or cancel purchases of our products and services. Even if customers are willing to purchase our products and services, if they do not meet our credit requirements...

  • Page 17
    ...virtualization software packaged with its Windows Server product and offers built-in virtualization in the client version of Windows. As a result, existing VMware customers may elect to use products that are perceived to be "free" or "very low cost" instead of purchasing VMware products and services...

  • Page 18
    ... and the availability of funding for software purchases; fluctuations in demand, adoption rates, sales cycles and pricing levels for our products and services; fluctuations in foreign currency exchange rates; changes in customers' budgets for information technology purchases and in the timing of...

  • Page 19
    ... in driving long-term sales and revenue growth. We sell our products and services through two primary means, which we refer to as our ELA and our non-ELA, or transactional, sales. ELAs are comprehensive long-term license agreements that provide for multi-year maintenance and support and constitute...

  • Page 20
    ..., which are especially active in many of the technical areas and geographic regions in which we conduct product development. In addition, in making employment decisions, particularly in the high-technology industry, job candidates often consider the value of the stock-based compensation they are to...

  • Page 21
    ...improve our products and support services in a timely manner, 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...

  • Page 22
    ... 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 23
    ... our products, 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 24
    ...ongoing credit evaluations, prior payment history, and demonstrated financial stability. We often allow distributors and customers to purchase and receive shipments of products in excess of their established credit limit. We are unable to recognize revenue from such shipments until the collection of...

  • Page 25
    ... We collect contact and other personal or identifying information from our customers. Additionally, in connection with some of our new product initiatives, our customers may use our services to store and process personal information and other user data. We post, on our websites, our privacy policies...

  • Page 26
    ... depend substantially upon our internally developed technology, which is incorporated in the source code for our products. We seek to protect the source code, design code, documentation and other information relating to our software, under trade secret and copyright laws. However, we have chosen...

  • Page 27
    ...significant portion of the products, technologies or services acquired, licensed, developed or offered by us may incorporate so-called "open source" software, and we may incorporate open source software into other products in the future. Such open source software is generally licensed by its authors...

  • Page 28
    ... of operations. We have acquired in the past and plan to acquire in the future other businesses, products or technologies. For example, in 2012 we completed a number of acquisitions, including acquisitions of Wanova, Dynamic Ops and Nicira. In 2011 we completed acquisitions of Digital Fuel, NeoAccel...

  • Page 29
    ...to make a market in our Class A common stock, which could reduce our stock price. Problems with our information systems could interfere with our business that could adversely impact our operations. We rely on our information systems and those of third parties for processing customer orders, delivery...

  • Page 30
    ... reported results. Risks Related to Our Relationship with EMC As long as EMC controls us, other holders of our Class A common stock will have limited ability to influence matters requiring stockholder approval. As of December 31, 2012 , EMC owned 41,050,000 shares of our Class A common stock...

  • Page 31
    ... 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 32
    ...both companies plan to commit technology, people and programs to focus on Big Data and Cloud Application Platforms. The Pivotal Initiative is led by Paul Maritz, Chief Strategy Officer of EMC and VMware's former Chief Executive Officer, and is expected to include most employees and resources working...

  • Page 33
    ... to fund alternative strategies. 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, which...

  • Page 34
    ... technology development, marketing and sales activities involving our technology, employees and other resources; 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 the consent of EMC...

  • Page 35
    Table of Contents holders of our Class A common stock will not have the same protection afforded to stockholders of companies that are subject to all of the New York Stock Exchange corporate governance requirements. Our historical financial information as a majority-owned subsidiary of EMC may not ...

  • Page 36
    ... 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, 2012 , we owned or leased the facilities described below: Location Palo Alto, CA North and Latin American region (excluding Palo Alto, CA...

  • Page 37
    ... as of December 31, 2012 . (2) Represents all of the right, title and interest purchased in a ground lease 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...

  • Page 38
    .... 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 and manufacturer of advanced integrated digital technology platforms, where he...

  • Page 39
    ... 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 on the New York Stock Exchange for the past two years...

  • Page 40
    .... The timing of any repurchases and the actual number of shares repurchased will depend on a variety of factors, including VMware's stock price, cash requirements for operations and business combinations, corporate and regulatory requirements and other market and economic conditions. Purchases under...

  • Page 41
    ...stockholder 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, 2007 through December 31, 2012, assuming an initial investment of $100. Historically, we have not declared or paid cash...

  • Page 42
    ... $ $ 2012 Balance Sheet Data: Cash, cash equivalents and short-term investments (1) Working capital (1) Total assets Total unearned revenues Long-term obligations Stockholders' equity Cash Flow Data: Net cash provided by operating activities Free cash flows (2) _____ 2011 December 31, 2010 2009...

  • Page 43
    ... by building long-term relationships with our customers through the adoption of enterprise license agreements ("ELAs"). ELAs are comprehensive volume license offerings offered both directly by us and through certain channel partners that provide for multi-year maintenance and support at discounted...

  • Page 44
    ... our core opportunities as a provider of virtualization technologies that simplify IT infrastructure: the software-defined data center, the hybrid cloud and end-user computing. For the SDDC, we plan to continue to invest in the development and delivery of innovations in networking, security, storage...

  • Page 45
    ... 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 2012 and 2011, professional services revenues...

  • Page 46
    ...31, 2012 Capitalized Software Other Stock-Based Development Operating Compensation Costs, net Expenses $ 2.1 $ 70.6 $ 71.6 28.2 - 5.5 210.4 - 10.0 149.9 - 17.0 48.1 - 5.6 $ 438.7 $ 70.6 $ 109.7 Cost of license revenue Cost of services revenue Research and development Sales and marketing General and...

  • Page 47
    ... of license revenue Cost of services revenue Research and development Sales and marketing General and administrative Total operating expenses Core Operating Expenses (1) $ 52.4 292.3 537.8 931.7 230.1 $ 2,044.3 For the Year Ended December 31, 2010 Capitalized Software Other Stock-Based Development...

  • Page 48

  • Page 49
    ... 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 and may be expensed in a period other than the period in which the related revenue is...

  • Page 50
    ... employees joining VMware in 2012. Additionally, total stock-based compensation expense increased by $45.7 in 2012 in connection with our acquisition of Nicira in August 2012. Partially offsetting these increase s was a decrease of $96.0 related to grants that became fully vested over the past year...

  • Page 51
    ... The change in our go-to-market strategy and resulting decrease in the length of time between technological feasibility of our products and the date those products are available for general release to customers did not materially impact the amount of software development costs we capitalized in 2011...

  • Page 52
    ... combined voting power of our outstanding common stock. Pursuant to an ongoing reseller arrangement with EMC, EMC bundles our products and services with EMC's products and sells them to end-users. In the years ended December 31, 2012 , 2011 and 2010 , we recognized revenues of $160.2 , $72.0 and $48...

  • Page 53
    ... and EMC will purchase certain assets from us in relation to transferred employees. The termination of service and related transfer of employees and sale of assets is anticipated to be substantially completed during the first quarter of 2013. In 2010, we acquired certain software product technology...

  • Page 54
    ...-end. The timing of the tax payments due to and from EMC is governed by the tax sharing agreement with EMC. In December 2012, we launched the Pivotal Initiative with EMC, pursuant to which both companies plan to commit technology, people and programs. By nature of EMC's majority ownership of us...

  • Page 55
    ... an increase in cash collections from customers driven by strong sales volumes. In addition, we benefited from the net receipt of $302.3 from EMC related to income taxes. During 2010, there were no significant amounts collected from or paid to EMC under the tax sharing agreement. The net receipt of...

  • Page 56
    ...increased sales and related cash collections that outpaced our growth in operating expenses. Additionally, we benefited from the net receipt of $302.3 from EMC under the tax sharing agreement in 2011. Investing Activities Cash used in investing activities is generally attributable to the purchase of...

  • Page 57
    ...the market value of our stock, the number of awards exercised, sold or vested, the tax benefit realized and the tax-affected compensation recognized. To date, inflation has not had a material impact on our financial results. Note Payable to EMC As of December 31, 2012, $450.0 remained outstanding on...

  • Page 58
    ...amount of employer payroll taxes on stock-based compensation is dependent on our stock price and other factors that are beyond our control and do not correlate to the operation of the business. Additionally, the amount of an acquisition's purchase price allocated to intangible assets and the term of...

  • Page 59
    ... with the acquired company's by-laws and charter in effect immediately prior to the acquisition or in accordance with indemnification or similar agreements entered into by the acquired company and such persons. We typically purchase a "tail" directors' and officers' insurance policy, which should...

  • Page 60
    ... of software maintenance contracts. Our software products may also be sold with professional services. VSOE of fair value for professional services is based upon the standard rates we charge for such services when sold separately. The revenues allocated to the software license included in multiple...

  • Page 61
    ... and customers will receive that upgrade as part of a current software maintenance contract, a specified upgrade is deemed created. As a result of the specified upgrade, product revenues are deferred on purchases made after the announcement date until delivery of the upgrade for those purchases that...

  • Page 62
    ... a license may also result in an increased level of software capitalization. Generally accepted accounting principles require annual amortization expense of capitalized software development costs to be the greater of the amounts computed using the ratio of current gross revenue to a product's total...

  • Page 63
    ... liabilities against movements in certain foreign exchange rates. Our foreign currency forward contracts are traded on a monthly basis with a typical contractual term of one month. As of December 31, 2012 and 2011 , we had outstanding forward contracts with a total notional value of $439.8 million...

  • Page 64
    ... payable were to change 100 basis points from the December 31, 2012 rate, and assuming no additional repayments on the principal were made, our annual interest expense would change by $4.5 million. Equity Price Risk During 2011, we sold our investment in Terremark Worldwide, Inc., which was acquired...

  • Page 65
    ... 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, 2012, 2011 and 2010 Consolidated Statements of Comprehensive...

  • Page 66
    ... 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 67
    ... December 31, 2012 2011 2010 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 Operating income Investment income Interest expense with EMC Other income (expense...

  • Page 68
    ... 2012 2011 2010 745,702 $ 723,936 $ 357,439 Net income $ Other comprehensive income: Changes in market value of available-for-sale ...) Net change in market value of available-for-sale securities Changes in market value of effective foreign currency forward exchange contracts: Unrealized gains (losses...

  • Page 69
    ... per share amounts) December 31, 2012 December 31, 2011 ASSETS Current assets: Cash and cash equivalents Short-term investments Accounts receivable, net of allowance for doubtful accounts of $4,267 and $3,794 Due from EMC, net Deferred tax asset Other current assets Total current assets Property...

  • Page 70
    ...from EMC Income taxes payable Deferred income taxes, net Unearned revenues Net cash provided by operating activities Investing activities: Additions to property and equipment Purchase of leasehold interest (see Note G) Capitalized software development costs Purchases of available-for-sale securities...

  • Page 71
    67

  • Page 72
    ... tax benefits from stock-based compensation Credit from tax sharing arrangement (see Note K) Total other comprehensive loss Capital distribution to EMC, net (see Note B) Net income Balance, December 31, 2011 Proceeds from issuance of common stock Issuance of stock options in acquisition Repurchase...

  • Page 73
    68

  • Page 74
    ... build, deliver and consume information technology ("IT") resources. VMware's virtualization infrastructure solutions, which include a suite of products designed to deliver a software-defined data center, run on industry-standard desktop computers and servers and support a wide range of operating...

  • Page 75
    ... hours incurred. Revenues on all other professional services engagements are recognized upon completion. Software as a service revenues are recognized ratably over the subscription period. Multiple-element arrangements VMware software products are typically sold with software maintenance services...

  • Page 76
    ...the price set by management. VMware has a history of selling such upgrades on a stand-alone basis. For multiple-element arrangements that contain software and non-software elements such as VMware's software as a service subscription offerings, VMware allocates revenue to software or software-related...

  • Page 77
    ...to-market strategy had changed from single solutions to product suite solutions. As a result of this change in strategy, and the related increased importance of interoperability between VMware's products, the length of time between achieving technological feasibility and general release to customers...

  • Page 78
    ... would likely increase. Generally accepted accounting principles require annual amortization expense of capitalized software development costs to be the greater of the amounts computed using the ratio of current gross revenue to a product's total current and anticipated revenues, or the straight...

  • Page 79
    ...VMware's current plans do not demonstrate a need to repatriate them to fund its U.S. operations. The difference between the income taxes payable or receivable that is calculated on a separate return basis and the amount actually paid to or received from EMC pursuant to VMware's tax sharing agreement...

  • Page 80
    ...of VMware's stock option awards. 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, but these items involve uncertainties based on market and other conditions...

  • Page 81
    ...-Scholes option pricing model with the following weighted-average assumptions: 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...

  • Page 82
    ... assets acquired by VMware in conjunction with the Nicira acquisition (amounts in table in thousands): Weighted-Average Useful Lives (in years) Fair Value Amount Purchased technology Trademarks and tradenames In-process research and development ("IPR&D") Total intangible assets acquired, net...

  • Page 83
    ...The acquired software product technology and expertise complemented VMware's existing development efforts and expanded its vCenter product family. EMC retained the Ionix brand and continues to offer customers the products acquired by VMware, pursuant to the ongoing reseller agreement between EMC and...

  • Page 84
    ...,731 WeightedAverage Useful Lives Gross Carrying (in years) Amount 5.1 $ 374,252 34.9 146,757 7.3 125,964 6.3 24,950 3,055 3.0 $ 674,978 79 2012 Purchased technology Leasehold interest Customer relationships and customer lists Trademarks and tradenames Other Total intangible assets, net, excluding...

  • Page 85
    ...average number of common shares outstanding and potentially dilutive securities outstanding during the period, as calculated using the treasury stock method. Potentially dilutive securities primarily include stock options, unvested restricted stock units, and purchase options under VMware's employee...

  • Page 86
    ...realized gains and realized losses on investments were not material for 2012 and 2010 . During the year ended December 31, 2011 , a realized gain of $56.0 million was recorded in other income (expense), net for the sale of VMware's investment in Terremark Worldwide, Inc. All other realized gains and...

  • Page 87
    ...little or no market data, which requires VMware to develop its own assumptions. VMware's Level 1 classification of the fair value hierarchy includes money market funds and certain available-for-sale fixed income securities because these securities are valued using quoted prices in active markets for...

  • Page 88
    ... Sheet Hedging Activities In order to manage exposure to foreign currency fluctuations, VMware enters into foreign currency forward contracts to hedge a portion of its net outstanding monetary assets and liabilities against movements in certain foreign exchange rates. These forward contracts are not...

  • Page 89
    ... began amortizing from the date they were placed into service through 2046 . VMware also entered into an amendment to the ground lease for its existing campus so that the terms of both leases will be 34 years and 11 months from the closing of the purchase agreement. Annual rent payments for the new...

  • Page 90
    ... half of the total unearned license revenue balance. Unearned software maintenance revenues are attributable to VMware's maintenance contracts and are recognized ratably, typically over terms of one to five years with a weighted-average remaining term at December 31, 2012 of approximately 1.9 years...

  • Page 91
    ... and liabilities consist of the following (table in thousands): December 31, 2011 2012 Deferred tax assets: Unearned revenue Accruals and other Stock-based compensation Tax credit and net operating loss carryforwards Net deferred tax assets Valuation allowance Total deferred tax assets Deferred tax...

  • Page 92

  • Page 93
    ...of December 31, 2012 , VMware's total cash, cash equivalents, and short-term investments were $4,630.8 million , of which $2,996.7 million was held outside the U.S. VMware's intent is to indefinitely reinvest its non-U.S. funds in its foreign operations, and VMware's current plans do not demonstrate...

  • Page 94
    ... Litigation From time to time, VMware is subject to legal, administrative and regulatory proceedings, claims, demands and investigations in the ordinary course of business, including claims with respect to commercial, product liability, intellectual property, employment, class action, whistleblower...

  • Page 95
    ... with the acquired company's by-laws and charter in effect immediately prior to the acquisition or in accordance with indemnification or similar agreements entered into by the acquired company and such persons. VMware typically purchases a "tail" directors' and officers' insurance policy, which...

  • Page 96
    .... Following any such distribution, VMware may submit to its stockholders a proposal to convert all outstanding shares of Class B common stock into shares of Class A common stock, provided that VMware has received a favorable private letter ruling from the Internal Revenue Service satisfactory to EMC...

  • Page 97
    ... actual number of shares repurchased will depend on a variety of factors, including VMware's stock price, cash requirements for operations and business combinations, corporate and regulatory requirements and other market and economic conditions. Purchases can be discontinued at any time that VMware...

  • Page 98
    ..., Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The following table summarizes option activity since January 1, 2010 for VMware and EMC stock options (shares in thousands): VMware Stock Options WeightedAverage Number of Exercise Price Shares (per share) 41,507 $ 28.34 - - 3,362 57.60...

  • Page 99
    ...Class A common stock were outstanding, with an aggregate intrinsic value of $1,145.7 million based on VMware's closing price as of December 31, 2012 . These awards are scheduled to vest through 2016 . VMware Shares Repurchased for Tax Withholdings In the years ended December 31, 2012 , 2011 and 2010...

  • Page 100
    ... Sales and marketing General and administrative Stock-based compensation Income tax benefit Total stock-based compensation, net of tax $ $ For the year ended December 31, 2012 , no costs were capitalized for the development of software products. For the years ended 2011 and 2010 , VMware...

  • Page 101
    ...the expected term of the stock options. N. Related Party Transactions Pursuant to an ongoing reseller arrangement with EMC, EMC bundles VMware's products and services with EMC's products and sells them to end-users. In the years ended December 31, 2012 , 2011 and 2010 , VMware recognized revenues of...

  • Page 102
    ... will purchase certain assets from VMware in relation to transferred employees. The termination of service and related transfer of employees and sale of assets is anticipated to be substantially completed during the first quarter of 2013. In 2010, VMware acquired certain software product technology...

  • Page 103
    ...-end. The timing of the tax payments due to and from EMC is governed by the tax sharing agreement with EMC. In December 2012, VMware and EMC launched the Pivotal Initiative, pursuant to which both companies plan to commit technology, people and programs. Transactions with Other Related Parties Cisco...

  • Page 104
    ... devices and locations, while also addressing the needs of corporate IT departments, and include products such as VMware View, VMware ThinApp, VMware Zimbra, and VMware Workstation. Revenues by class of products or services for the years ended December 31, 2012 , 2011 and 2010 were as follows (table...

  • Page 105
    ... to allow timely decisions regarding required disclosures. Management's Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act. Management has...

  • Page 106
    ... 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, 2012. The information required by this item is incorporated...

  • Page 107
    ... between VMware, Inc. and EMC Corporation dated June 11, 2011 Form of Insurance Matters Agreement between VMware, Inc. and EMC Corporation Form of Option Agreement, as amended October 15, 2010 Form of Restricted Stock Unit Agreement, as amended December 17, 2012 2007 Employee Stock Purchase Plan, as...

  • Page 108
    ..., 2009 First Amendment to Tax Sharing Agreement between VMware, Inc. and EMC Corporation effective as of January 1, 2011 Executive Bonus Program, amended and restated February 14, 2012 Agreement of Purchase and Sale Agreement between Roche Palo Alto LLC and VMware, Inc. dated March 16, 2011 Amended...

  • Page 109
    ... Officer and Executive Vice President (Principal Financial Officer and Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates...

  • Page 110
    Date Signature Title February 27, 2013 /s/ Patrick P. Gelsinger Patrick P. Gelsinger Chief Executive Officer and Director (Principal Executive Officer) Chief Financial Officer and Executive Vice President (Principal Financial Officer and Principal Accounting Officer) Chairman February 27, 2013...

  • Page 111
    ...,873 (1) For the year ended December 31, 2010, VMware reduced the valuation allowance in connection with state tax credits assigned to other corporations within the combined reporting group. VMware did not credit the income tax provision because the credits assigned were subject to a full valuation...

  • Page 112
    ... under the Plan of Options, Restricted Stock, Restricted Stock Units or Other Stock-Based Awards or Other Cash-Based Awards. (d) "Award Terms" means any written agreement, contract, notice or other instrument or document evidencing an Award. (e) "Board" means the Board of Directors of the Company...

  • Page 113
    ... to be filed by the Company and Parent. (m) "Fair Market Value" means the closing sales price per share of Stock on the principal securities exchange on which the Stock is traded (i) on the date of grant or (ii) on such other date on which the fair market value of Stock is required to be calculated...

  • Page 114
    ... share (basic or diluted); (iv) operating profit; (v) revenue, revenue growth or rate of revenue growth; (vi) return on assets (gross or net), return on investment, return on capital, or return on equity; (vii) returns on sales or revenues; (viii) operating expenses; (ix) stock price appreciation...

  • Page 115
    ...of the Exchange Act, including any successor to such Rule. (z) "Stock" means shares of Class A common stock, par value $0.01 per share, of the Company. (aa) "Stock Appreciation Right" means an Award that entitles a Grantee upon exercise to the excess of the Fair Market Value of the Stock underlying...

  • Page 116
    ...officers and directors who are also employees) of the Company or any of its "related corporations" (as defined in the applicable regulations promulgated under the Code) and (ii) Awards may be granted only to eligible persons who are not employed by the Company or a Subsidiary if such persons perform...

  • Page 117
    ... to the requirements of Section 409A. 5. STOCK SUBJECT TO THE PLAN . (a) The maximum number of shares of Stock reserved for the grant or settlement of Awards under the Plan (the "Share Limit") is 100,000,000 (including the number of shares of Stock expected to be issued under the Exchange Offer...

  • Page 118
    ..., but in no event may the exercise price of an Option per share of Stock be less than the Fair Market Value of a share of Stock as of the date of grant of such Option. The purchase price of Stock as to which an Option is exercised must be paid in full at the time of exercise; payment may be made in...

  • Page 119
    ... by the applicable Award Terms (provided that any such Award is subject to the vesting requirements described herein). The vesting of a Restricted Stock Award granted under the Plan may be conditioned upon the completion of a specified period of employment or service with the Company, any Subsidiary...

  • Page 120
    ... of a purchase right granted under Section 6(iv) may be purchased for such consideration, paid for at such times, by such methods, and in such forms, including, without limitation, Stock, other Awards, notes or other property, as the Committee will determine, subject to any required corporate action...

  • Page 121
    ... in the Plan or in any Award granted or any Award Terms, promissory note or other agreement entered into pursuant hereto confers upon any Grantee the right to continue in the employ or service of the Company, any Subsidiary or any Affiliate or to be entitled to any remuneration or benefits not set...

  • Page 122
    ... of the Plan or Award Terms; (ii) the failure to comply with any term set forth in the Company's Key Employee Agreement (irrespective of whether the Senior Grantee is a party to the Key Employee Agreement); (iii) any activity that results in termination of the Senior Grantee's employment for Cause...

  • Page 123
    ... of shares of Stock reserved for the purpose of the Plan. In addition, stockholder approval will be required with respect to any amendment with respect to which shareholder approval is required under the Code, the rules of any stock exchange on which Stock is then listed or any other applicable law...

  • Page 124
    ... granted or payment made or Stock issued, in whole or in part, unless listing, registration, qualification, consent or approval has been effected or obtained free of any conditions not acceptable to the Committee. (iii) In the event that the disposition of Stock acquired pursuant to the Plan is not...

  • Page 125
    ... which a holder of the number of shares of stock of the Company then subject to the Award is entitled to receive, but a dissolution or liquidation of the Company or a merger or consolidation in which the Company is not the surviving corporation or in which a majority of its outstanding shares are so...

  • Page 126
    ... the terms and conditions of this Notice of Grant, the Plan and this Agreement, as follows: Grant Number: Date of Grant: Vesting Commencement Date: Number of RSUs: Vesting Schedule : [VESTING SCHEDULE TO BE REVISED FOR EACH EMPLOYEE] [[ ___]% of the total Number of RSUs will vest on the [____] month...

  • Page 127
    ... under this Agreement. Notwithstanding any provision in the Plan to the contrary, the RSUs will be settled only in shares of Stock. [[#]. Certain Terminations. (a) Death or Disability . In the event that the Participant's employment is terminated by reason of death or termination by the Company due...

  • Page 128
    ... the " Payment Date ." The Company will provide the Release to the Participant within five business days of the Participant's termination of employment. The Participant will not be entitled to any payment or benefit under subsection (b) ["Involuntary Terminations Following a Change of Control"] [and...

  • Page 129
    ... reverse stock split, reorganization, merger, consolidation, spin-off, combination, repurchase, or exchange of Stock or other securities of the Company, or other similar corporate transaction or event affecting the Stock occurs such that an adjustment or change is determined by the Administrator (in...

  • Page 130
    ... is no longer actively employed for purposes of the RSUs; (f) the Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding Participant's participation in the Plan, or Participant's acquisition or sale of the underlying Stock; and (g) the...

  • Page 131
    ... Company and the Employer may hold certain personal information about the Participant, including, but not limited to, the Participant's name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of Stock...

  • Page 132
    ... of Certificates for Stock . The Company will not be required to issue any certificate or certificates for Stock hereunder prior to fulfillment of all the following conditions: (a) the admission of such Stock to listing on all stock exchanges on which such class of stock is then listed; (b) the...

  • Page 133
    ... in Control . "Change in Control" of the Company means and includes any of the following occurrences: (1) Any Person is or becomes the " Beneficial Owner " (as defined in Rule 13d-3 promulgated under the Securities and Exchange Act of 1934, as amended (the " Exchange Act ")) directly or indirectly...

  • Page 134
    ...deemed to have occurred by virtue of: (i) any transaction which results in such Participant, or a group of Persons in which such Participant has a substantial interest, acquiring, directly or indirectly, 35% or more of either the then outstanding shares of common stock of the Company or the combined...

  • Page 135
    ...'s principal place of employment to a location more than 50 miles from his or her principal place of employment at any time following a Change in Control (which may be his or her home); or (4) a material breach of the Company's obligations under this Agreement. In order for a Participant to...

  • Page 136
    ... as shown on the Company's, or the Employer's payroll records, or to such other address as the Participant, by notice to the Company, may designate in writing from time to time. To the Company: VMware, Inc. 3401 Hillview Avenue Palo Alto, CA 94304 Attention: Stock Administrator 11 v. 12.17.2012

  • Page 137
    ... notifies the Company within ten (10) days following receipt of this Agreement that he or she declines this Award, the Participant will be deemed to have accepted and agreed to the terms and conditions of this Agreement and the Plan. The Participant acknowledges receipt of a copy of the Plan and...

  • Page 138
    ...Company " or " VMware ") by the Company's Board of Directors (the " Board "). SALARY: Your annual salary of $850,000 will be paid semi-monthly in accordance with the Company's normal payroll procedures. As a full-time exempt employee you will be eligible to participate in the Company's benefit plans...

  • Page 139
    ... period to which your performance goals relate will begin with the commencement of your service as the Company's Chief Executive Officer. The grant of this PSU award is conditioned upon your agreement with Parent (as defined below) to cancel a long-term incentive performance award granted to you by...

  • Page 140
    ... in Control " . "Change in Control" of the Company means and includes any of the following occurrences: 1. Any Person is or becomes the "Beneficial Owner" (as defined in Rule 13d-3 promulgated under the Securities and Exchange Act of 1934, as amended (the " Exchange Act ")), directly or indirectly...

  • Page 141
    ...annual incentive bonus; 3. relocation of your principal place of employment to a location more than 50 miles from your principal place of employment at any time following a Change in Control (which may be your home); or 4. a material breach of the Company's obligations under this agreement. In order...

  • Page 142
    ... activity directly related to the business in which the Company is now involved or becomes involved during the term of your employment, nor will you engage in any other activities that conflict with your obligations to the Company. By accepting this offer below and becoming an employee of VMware...

  • Page 143
    ... to comply with the VMware Employment Agreement, Business Conduct Guidelines, and Harassment Policy provided to you as a condition of your employment. This offer is contingent upon the successful completion of the Company's background check and your verification of your legal right to work in the...

  • Page 144
    ... will report to Pat Gelsinger, the Company's Chief Executive Officer. SALARY: Your annual salary of $625,000 will be paid semi-monthly in accordance with the Company's normal payroll procedures. The Company, in its sole discretion, may modify job titles, job duties, and managers from time to time as...

  • Page 145
    ... period. Vesting will not occur, and no shares will be issued, for performance below minimum thresholds specified in the grant agreements. The service period to which your performance goals relate will begin with the commencement of your employment with the Company. Your PSU grant will have...

  • Page 146
    ... in Control " . "Change in Control" of the Company means and includes any of the following occurrences: 1. Any Person is or becomes the "Beneficial Owner" (as defined in Rule 13d-3 promulgated under the Securities and Exchange Act of 1934, as amended (the " Exchange Act ")), directly or indirectly...

  • Page 147
    ... term Change in Control will not be deemed to have occurred 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 148
    ... benefits shall be cutback in the following order: any cash severance you are entitled to (starting with the last payment due), then other cash amounts that are parachute payments (starting with the last payment due), then any stock options that have exercise prices higher than the then fair market...

  • Page 149
    ... activity directly related to the business in which the Company is now involved or becomes involved during the term of your employment, nor will you engage in any other activities that conflict with your obligations to the Company. By accepting this offer below and becoming an employee of VMware...

  • Page 150
    VMware Employment Agreement Final 04-05-12 Business Conduct Guidelines rev 01-2011 Harassment Policy rev 01-2008 Immigration Policy rev 04.08

  • Page 151
    ... (" Notice of Grant ") and Performance Stock Unit Agreement (" Agreement "). Name: Address: ("Participant") The Participant has been granted an award (the " Award ") of Performance Stock Units (the " PSUs "), subject to the terms and conditions of the Plan and this Agreement. Except as set forth in...

  • Page 152
    ...to this Agreement upon termination of employment by reason of death or by the Company due to disability, provided, however, that if termination due to death or by the Company due to disability occurs after a Change in Control, the Participant will vest in the number of shares of Stock determined per...

  • Page 153
    ... a number of shares equal to the total number of PSUs subject to this Award multiplied by the Conversion Ratio. (c) Acceleration of Vesting Following Change in Control . Notwithstanding anything in this Agreement to the contrary, if, following a Change in Control: 1) the Participant's employment is...

  • Page 154
    ... of the Agreement, will not result in an increase in the amount of the Award or otherwise accelerate its payment. The Committee will also determine all other matters relating to whether the employment or service of Participant is continuous for purposes of this Award. 7. Taxes . (a) Generally . The...

  • Page 155
    ... reverse stock split, reorganization, merger, consolidation, spin-off, combination, repurchase, or exchange of Stock or other securities of the Company, or other similar corporate transaction or event affecting the Stock occurs such that an adjustment or change is determined by the Administrator (in...

  • Page 156
    Form of PSU Agreement advice, nor is the Company making any recommendations regarding Participant's participation in the Plan, or Participant's acquisition or sale of the underlying Stock; and (g) the Participant is hereby advised to consult with his or her own personal tax, legal and financial ...

  • Page 157
    ... Company and the Employer may hold certain personal information about the Participant, including, but not limited to, the Participant's name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of Stock...

  • Page 158
    ...all terms and provisions of the Plan. In the event of a conflict between one or more provisions of this Agreement and one or more provisions of the Plan, the provisions of the Plan will govern. 19. Administrator Authority . Participant acknowledges that determination of the number of shares of Stock...

  • Page 159
    ...deemed to have occurred by virtue of: (i) any transaction which results in such Participant, or a group of Persons in which such Participant has a substantial interest, acquiring, directly or indirectly, 35% or more of either the then outstanding shares of common stock of the Company or the combined...

  • Page 160
    ...'s principal place of employment to a location more than 50 miles from his or her principal place of employment at any time following a Change in Control (which may be his or her home); or (4) a material breach of the Company's obligations under this Agreement. In order for a Participant to...

  • Page 161
    ... Section 7(d) of the Plan in the event that Participant engages in "Detrimental Activity" as such term is defined therein. In addition, the Administrator has the discretion to require Participant to reimburse the Company for all or any portion of the Stock issued pursuant to this Award, or the value...

  • Page 162
    ... writing from time to time. To the Company: VMware, Inc. 3401 Hillview Avenue Palo Alto, CA 94304 Attention: Legal Department Participant's signature below indicates Participant's agreement and understanding that this Award is subject to and governed by the terms and conditions of the Plan and this...

  • Page 163
    Form of PSU Agreement PARTICIPANT Signature Print Name Date: , 201__ 13 v. 12-17-12

  • Page 164
    Form of PSU Agreement Exhibit A Performance Schedule 14 v. 12-17-12

  • Page 165
    ... 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 FZ-LLC VMware Netherlands B.V. VMware Singapore Pte Ltd. VMware Software...

  • Page 166
    ...-162079 and 333-169537) of VMware, Inc of our report dated February 27, 2013 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 101K. We also...

  • Page 167
    ... evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. b. All significant deficiencies and material weaknesses in the design or operation of internal...

  • Page 168
    ... evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. b. All significant deficiencies and material weaknesses in the design or operation of internal...

  • Page 169
    ...ended December 31, 2012 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 27...

  • Page 170
    ...ended December 31, 2012 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 27...