|
Delaware
|
|
001-33622
|
|
94-3292913
|
|
(State or Other Jurisdiction
of Incorporation)
|
|
(Commission
File Number)
|
|
(IRS Employer
Identification Number)
|
|
3401 Hillview Avenue
|
Palo Alto
|
CA
|
|
94304
|
|
(Address of Principal Executive Offices)
|
|
(Zip code)
|
||
|
☐
|
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
|
|
☐
|
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
|
|
☐
|
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
|
|
☐
|
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
|
|
Title of each class
|
|
Trading Symbol(s)
|
|
Name of each exchange on which registered
|
|
Class A common stock
|
|
VMW
|
|
New York Stock Exchange
|
|
Emerging growth company
|
☐
|
|
|
|
|
VMware, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
Date: November 26, 2019
|
By:
|
|
/s/ Zane Rowe
|
|
|
|
|
Zane Rowe, Chief Financial Officer and Executive Vice President
|
|
|
|
|
|
|
•
|
Revenue for the third quarter was $2.46 billion, an increase of 12% from the third quarter of fiscal 2019.
|
|
•
|
License revenue for the third quarter was $974 million, an increase of 10% from the third quarter of fiscal 2019.
|
|
•
|
VMware closed the acquisition of Carbon Black, a leader in cloud-native endpoint protection, on October 8.
|
|
•
|
GAAP net income for the third quarter was $621 million, including an unrealized gain of $249 million on an investment in Pivotal Software, or $1.50 per diluted share, compared to $334 million, or $0.81 per diluted share, for the third quarter of fiscal 2019. Non-GAAP net income for the third quarter was $617 million, or $1.49 per diluted share, down 4% per diluted share compared to $645 million, or $1.56 per diluted share, for the third quarter of fiscal 2019.
|
|
•
|
GAAP operating income for the third quarter was $431 million, a decrease of 13% from the third quarter of fiscal 2019. Non-GAAP operating income for the third quarter was $759 million, an increase of 2% from the third quarter of fiscal 2019.
|
|
•
|
Operating cash flow for the third quarter was $810 million. Free cash flow for the third quarter was $760 million.
|
|
•
|
Total revenue plus sequential change in total unearned revenue grew 18% year-over-year. Total revenue plus sequential change in total unearned revenue excluding unearned revenue assumed in the acquisition of Carbon Black grew 12% year-over-year.
|
|
•
|
License revenue plus sequential change in unearned license revenue grew 21% year-over-year. License revenue plus sequential change in unearned license revenue excluding unearned revenue assumed in the acquisition of Carbon Black grew 13% year-over-year.
|
|
•
|
At the VMworld 2019 and vForum events, VMware hosted over 65,000 customers, partners and influencers, and introduced a wave of new products, solutions and services showcasing its vision of a software architecture that enables any app, on any cloud and any device. The news across both VMworld events includes:
|
|
◦
|
VMware unveiled VMware Tanzu, a new portfolio of products and services to transform the way enterprises build, run and manage software on Kubernetes, including:
|
|
▪
|
Project Pacific—a technology preview focused on transforming VMware vSphere into a Kubernetes-native platform in a future release; and
|
|
▪
|
VMware Tanzu Mission Control—a single point of control from which customers will manage all their Kubernetes clusters regardless of where they run.
|
|
◦
|
VMware detailed new and expanded security solutions that advance the company's vision of intrinsic security, making it more automated, proactive and pervasive across the entire distributed enterprise. This includes Dell's announcement that Carbon Black Cloud, along with Dell Trusted Devices and Secureworks, is now the preferred endpoint security solution for Dell commercial customers.
|
|
◦
|
VMware Cloud on AWS is now available in the AWS EU (Stockholm) region, bringing the total number of available global regions in Europe to five, and globally to 17 in just over two years.
|
|
◦
|
VMware unveiled new Workspace ONE Intelligent Hub innovations aimed at further improving the employee experience.
|
|
◦
|
VMware announced the continuation of its partnership with Microsoft with many new technology initiatives to help customers accelerate their digital transformation journeys, including the introduction of VMware Workspace ONE for Microsoft Endpoint Manager to enable modern management for Windows 10 and Azure VMware Solutions momentum with new industries and geographies, the addition of new cloud migration capabilities with VMware HCX and the ability to extend Azure to the branch and edge with VMware SD-WAN by VeloCloud.
|
|
•
|
VMware continues to advance technology as a force for good, including by:
|
|
◦
|
supporting TechSoup, a one-stop shop for global nonprofits and their initiatives, to significantly expand its offerings and nearly double the number of nonprofit organizations it serves; and
|
|
◦
|
signing the United Nations Global Compact—a commitment to adopting sustainable and socially responsible business practices, as well as catalyzing action to advance the United Nation's 17 Sustainable Development Goals by 2030.
|
|
•
|
At Oracle OpenWorld in September, VMware and Oracle announced an expanded partnership to help customers support their hybrid cloud strategies by running VMware Cloud Foundation on Oracle Cloud Infrastructure. Oracle will also provide technical support for Oracle software running in VMware environments both in customer on-premises data centers and Oracle-certified cloud environments.
|
|
•
|
VMware completed its acquisition of Carbon Black, a leader in cloud-native endpoint protection, in October. Carbon Black will form the nucleus of VMware's security offerings, focusing on helping VMware customers with advanced cybersecurity protection and in-depth behavioral insight to help stop sophisticated attacks and accelerate response.
|
|
•
|
In August the company was positioned as a Leader in “The Forrester WaveTM: Infrastructure Automation Platforms, Q3 2019.” According to Forrester's report, VMware achieved the highest possible score in the criteria of deployment, integrations, community support, vision, market approach, planned enhancements, and innovation in pricing.1
|
|
•
|
In November, the company was positioned as a Leader in “The Forrester WaveTM: Unified Endpoint Management, Q4 2019.” According to Forrester's report, VMware achieved the highest possible score in the product roadmap, roadmap execution, and partner ecosystem criteria, as well as all of the market presence criteria (i.e., customer count, Windows 10 customer count, devices under management, and revenue).2
|
|
•
|
In the Gartner Magic Quadrant for Hyperconverged Infrastructure (published Nov. 25, 2019), VMware was recognized as a Leader. The report, evaluating 15 vendors, listed VMware in the Leaders quadrant based on Gartner's evaluation of our ability to execute and completeness of vision.3
|
|
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
|
||||||||||||||||
|
(amounts in millions, except per share amounts, and shares in thousands)
|
||||||||||||||||
|
(unaudited)
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
|
|
November 1,
|
|
November 2,
|
|
November 1,
|
|
November 2,
|
||||||||
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
||||||||
|
Revenue:
|
|
|
|
|
|
|
|
|
||||||||
|
License
|
|
$
|
974
|
|
|
$
|
884
|
|
|
$
|
2,853
|
|
|
$
|
2,558
|
|
|
Services
|
|
1,482
|
|
|
1,316
|
|
|
4,308
|
|
|
3,825
|
|
||||
|
Total revenue
|
|
2,456
|
|
|
2,200
|
|
|
7,161
|
|
|
6,383
|
|
||||
|
Operating expenses(1):
|
|
|
|
|
|
|
|
|
||||||||
|
Cost of license revenue
|
|
59
|
|
|
49
|
|
|
160
|
|
|
139
|
|
||||
|
Cost of services revenue
|
|
319
|
|
|
266
|
|
|
936
|
|
|
777
|
|
||||
|
Research and development
|
|
582
|
|
|
499
|
|
|
1,669
|
|
|
1,433
|
|
||||
|
Sales and marketing
|
|
827
|
|
|
707
|
|
|
2,402
|
|
|
2,110
|
|
||||
|
General and administrative
|
|
238
|
|
|
178
|
|
|
625
|
|
|
529
|
|
||||
|
Realignment and loss on disposition
|
|
—
|
|
|
6
|
|
|
—
|
|
|
9
|
|
||||
|
Operating income
|
|
431
|
|
|
495
|
|
|
1,369
|
|
|
1,386
|
|
||||
|
Investment income
|
|
12
|
|
|
63
|
|
|
40
|
|
|
168
|
|
||||
|
Interest expense
|
|
(40
|
)
|
|
(33
|
)
|
|
(107
|
)
|
|
(101
|
)
|
||||
|
Other income (expense), net
|
|
263
|
|
|
(180
|
)
|
|
(97
|
)
|
|
839
|
|
||||
|
Income before income tax
|
|
666
|
|
|
345
|
|
|
1,205
|
|
|
2,292
|
|
||||
|
Income tax provision (benefit)
|
|
45
|
|
|
11
|
|
|
(4,846
|
)
|
|
372
|
|
||||
|
Net income
|
|
$
|
621
|
|
|
$
|
334
|
|
|
$
|
6,051
|
|
|
$
|
1,920
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Net income per weighted-average share, basic for Classes A and B
|
|
$
|
1.52
|
|
|
$
|
0.82
|
|
|
$
|
14.77
|
|
|
$
|
4.72
|
|
|
Net income per weighted-average share, diluted for Classes A and B
|
|
$
|
1.50
|
|
|
$
|
0.81
|
|
|
$
|
14.52
|
|
|
$
|
4.64
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Weighted-average shares, basic for Classes A and B
|
|
409,165
|
|
|
408,708
|
|
|
409,780
|
|
|
406,929
|
|
||||
|
Weighted-average shares, diluted for Classes A and B
|
|
414,054
|
|
|
414,477
|
|
|
416,668
|
|
|
413,378
|
|
||||
|
__________
|
|
|
|
|
|
|
|
|
||||||||
|
(1) Includes stock-based compensation as follows:
|
|
|
|
|
|
|
|
|
||||||||
|
Cost of license revenue
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
Cost of services revenue
|
|
18
|
|
|
13
|
|
|
50
|
|
|
37
|
|
||||
|
Research and development
|
|
110
|
|
|
98
|
|
|
306
|
|
|
272
|
|
||||
|
Sales and marketing
|
|
67
|
|
|
53
|
|
|
183
|
|
|
147
|
|
||||
|
General and administrative
|
|
35
|
|
|
28
|
|
|
92
|
|
|
74
|
|
||||
|
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|||||||
|
(amounts in millions, except per share amounts, and shares in thousands)
|
|||||||
|
(unaudited)
|
|||||||
|
|
|
|
|
||||
|
|
November 1,
|
|
February 1,
|
||||
|
|
2019
|
|
2019
|
||||
|
ASSETS
|
|
|
|
||||
|
Current assets:
|
|
|
|
||||
|
Cash and cash equivalents
|
$
|
2,025
|
|
|
$
|
2,830
|
|
|
Short-term investments
|
—
|
|
|
19
|
|
||
|
Accounts receivable, net of allowance for doubtful accounts of $4 and $2
|
1,488
|
|
|
1,576
|
|
||
|
Due from related parties, net
|
753
|
|
|
937
|
|
||
|
Other current assets
|
375
|
|
|
289
|
|
||
|
Total current assets
|
4,641
|
|
|
5,651
|
|
||
|
Property and equipment, net
|
1,238
|
|
|
1,133
|
|
||
|
Other assets
|
2,663
|
|
|
1,853
|
|
||
|
Deferred tax assets
|
5,260
|
|
|
103
|
|
||
|
Intangible assets, net
|
910
|
|
|
541
|
|
||
|
Goodwill
|
7,290
|
|
|
5,381
|
|
||
|
Total assets
|
$
|
22,002
|
|
|
$
|
14,662
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
||||
|
Current liabilities:
|
|
|
|
||||
|
Accounts payable
|
$
|
156
|
|
|
$
|
135
|
|
|
Accrued expenses and other
|
1,563
|
|
|
1,593
|
|
||
|
Current portion of long-term debt and other borrowings
|
1,847
|
|
|
—
|
|
||
|
Unearned revenue
|
4,382
|
|
|
3,968
|
|
||
|
Total current liabilities
|
7,948
|
|
|
5,696
|
|
||
|
Note payable to Dell
|
270
|
|
|
270
|
|
||
|
Long-term debt
|
2,730
|
|
|
3,972
|
|
||
|
Unearned revenue
|
3,503
|
|
|
3,010
|
|
||
|
Income tax payable
|
803
|
|
|
889
|
|
||
|
Operating lease liabilities
|
644
|
|
|
—
|
|
||
|
Other liabilities
|
290
|
|
|
274
|
|
||
|
Total liabilities
|
16,188
|
|
|
14,111
|
|
||
|
Contingencies
|
|
|
|
||||
|
Stockholders’ equity:
|
|
|
|
||||
|
Class A common stock, par value $0.01; authorized 2,500,000 shares; issued and outstanding 109,725 and 110,715 shares
|
1
|
|
|
1
|
|
||
|
Class B convertible common stock, par value $0.01; authorized 1,000,000 shares; issued and outstanding 300,000 shares
|
3
|
|
|
3
|
|
||
|
Additional paid-in capital
|
46
|
|
|
531
|
|
||
|
Accumulated other comprehensive income
|
3
|
|
|
2
|
|
||
|
Retained earnings
|
5,761
|
|
|
14
|
|
||
|
Total stockholders’ equity
|
5,814
|
|
|
551
|
|
||
|
Total liabilities and stockholders’ equity
|
$
|
22,002
|
|
|
$
|
14,662
|
|
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|||||||||||||||
|
(in millions)
|
|||||||||||||||
|
(unaudited)
|
|||||||||||||||
|
|
|
|
|
|
|
|
|
||||||||
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
|
November 1,
|
|
November 2,
|
|
November 1,
|
|
November 2,
|
||||||||
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
||||||||
|
Operating activities:
|
|
|
|
|
|
|
|
||||||||
|
Net income
|
$
|
621
|
|
|
$
|
334
|
|
|
$
|
6,051
|
|
|
$
|
1,920
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
||||||||
|
Depreciation and amortization
|
190
|
|
|
157
|
|
|
542
|
|
|
465
|
|
||||
|
Stock-based compensation
|
230
|
|
|
192
|
|
|
632
|
|
|
531
|
|
||||
|
Deferred income taxes, net
|
(108
|
)
|
|
(62
|
)
|
|
(5,140
|
)
|
|
163
|
|
||||
|
Unrealized (gain) loss on equity securities, net
|
(259
|
)
|
|
169
|
|
|
127
|
|
|
(837
|
)
|
||||
|
(Gain) loss on disposition of assets, revaluation and impairment, net
|
1
|
|
|
8
|
|
|
(3
|
)
|
|
1
|
|
||||
|
Other
|
—
|
|
|
9
|
|
|
3
|
|
|
10
|
|
||||
|
Changes in assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
||||||||
|
Accounts receivable
|
84
|
|
|
125
|
|
|
148
|
|
|
297
|
|
||||
|
Other current assets and other assets
|
(98
|
)
|
|
(92
|
)
|
|
(476
|
)
|
|
(264
|
)
|
||||
|
Due to/from related parties, net
|
3
|
|
|
(54
|
)
|
|
179
|
|
|
(10
|
)
|
||||
|
Accounts payable
|
3
|
|
|
30
|
|
|
17
|
|
|
125
|
|
||||
|
Accrued expenses and other liabilities
|
(82
|
)
|
|
(153
|
)
|
|
(58
|
)
|
|
(117
|
)
|
||||
|
Income taxes payable
|
27
|
|
|
(60
|
)
|
|
15
|
|
|
10
|
|
||||
|
Unearned revenue
|
198
|
|
|
166
|
|
|
745
|
|
|
357
|
|
||||
|
Net cash provided by operating activities
|
810
|
|
|
769
|
|
|
2,782
|
|
|
2,651
|
|
||||
|
Investing activities:
|
|
|
|
|
|
|
|
||||||||
|
Additions to property and equipment
|
(50
|
)
|
|
(57
|
)
|
|
(208
|
)
|
|
(178
|
)
|
||||
|
Purchases of available-for-sale securities
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(781
|
)
|
||||
|
Sales of available-for-sale securities
|
—
|
|
|
25
|
|
|
—
|
|
|
186
|
|
||||
|
Maturities of available-for-sale securities
|
—
|
|
|
803
|
|
|
—
|
|
|
1,905
|
|
||||
|
Purchases of strategic investments
|
(9
|
)
|
|
—
|
|
|
(18
|
)
|
|
(3
|
)
|
||||
|
Proceeds from disposition of assets
|
—
|
|
|
2
|
|
|
20
|
|
|
35
|
|
||||
|
Business combinations, net of cash acquired, and purchases of intangible assets
|
(2,052
|
)
|
|
(493
|
)
|
|
(2,437
|
)
|
|
(519
|
)
|
||||
|
Net cash paid on disposition of a business
|
—
|
|
|
(6
|
)
|
|
(3
|
)
|
|
(11
|
)
|
||||
|
Net cash provided by (used in) investing activities
|
(2,111
|
)
|
|
272
|
|
|
(2,646
|
)
|
|
634
|
|
||||
|
Financing activities:
|
|
|
|
|
|
|
|
||||||||
|
Proceeds from issuance of common stock
|
93
|
|
|
82
|
|
|
200
|
|
|
181
|
|
||||
|
Borrowings under Term Loan, net of issuance costs
|
1,993
|
|
|
—
|
|
|
1,993
|
|
|
—
|
|
||||
|
Repayment of Term Loan
|
(1,400
|
)
|
|
—
|
|
|
(1,400
|
)
|
|
—
|
|
||||
|
Repurchase of common stock
|
(242
|
)
|
|
—
|
|
|
(1,279
|
)
|
|
—
|
|
||||
|
Shares repurchased for tax withholdings on vesting of restricted stock
|
(41
|
)
|
|
(36
|
)
|
|
(393
|
)
|
|
(228
|
)
|
||||
|
Payment for common control transaction with Dell
|
—
|
|
|
(8
|
)
|
|
—
|
|
|
(8
|
)
|
||||
|
Principal payments on finance lease obligations
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
||||
|
Net cash provided by (used in) financing activities
|
403
|
|
|
38
|
|
|
(880
|
)
|
|
(55
|
)
|
||||
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
(898
|
)
|
|
1,079
|
|
|
(744
|
)
|
|
3,230
|
|
||||
|
Cash, cash equivalents and restricted cash at beginning of the period
|
3,048
|
|
|
8,154
|
|
|
2,894
|
|
|
6,003
|
|
||||
|
Cash, cash equivalents and restricted cash at end of the period
|
$
|
2,150
|
|
|
$
|
9,233
|
|
|
$
|
2,150
|
|
|
$
|
9,233
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
||||||||
|
Cash paid for interest
|
$
|
67
|
|
|
$
|
61
|
|
|
$
|
131
|
|
|
$
|
126
|
|
|
Cash paid for taxes, net
|
95
|
|
|
133
|
|
|
283
|
|
|
206
|
|
||||
|
Non-cash items:
|
|
|
|
|
|
|
|
||||||||
|
Changes in capital additions, accrued but not paid
|
$
|
10
|
|
|
$
|
7
|
|
|
$
|
5
|
|
|
$
|
16
|
|
|
SUPPLEMENTAL UNEARNED REVENUE SCHEDULE
|
|||||||||||||||||||||||
|
(in millions)
|
|||||||||||||||||||||||
|
(unaudited)
|
|||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
November 1,
|
|
August 2,
|
|
May 3,
|
|
February 1,
|
|
November 2,
|
|
August 3,
|
||||||||||||
|
|
2019
|
|
2019
|
|
2019
|
|
2019
|
|
2018
|
|
2018
|
||||||||||||
|
Unearned revenue as reported:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
License
|
$
|
458
|
|
|
$
|
338
|
|
|
$
|
303
|
|
|
$
|
255
|
|
|
$
|
212
|
|
|
$
|
190
|
|
|
Software maintenance
|
6,545
|
|
|
6,357
|
|
|
6,029
|
|
|
5,972
|
|
|
5,345
|
|
|
5,223
|
|
||||||
|
Professional services
|
882
|
|
|
838
|
|
|
787
|
|
|
751
|
|
|
644
|
|
|
617
|
|
||||||
|
Total unearned revenue
|
$
|
7,885
|
|
|
$
|
7,533
|
|
|
$
|
7,119
|
|
|
$
|
6,978
|
|
|
$
|
6,201
|
|
|
$
|
6,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
RECONCILIATION OF GAAP TO NON-GAAP DATA
|
|||||||||||||||||||||||||||
|
For the Three Months Ended November 1, 2019
|
|||||||||||||||||||||||||||
|
(amounts in millions, except per share amounts, and shares in thousands)
|
|||||||||||||||||||||||||||
|
(unaudited)
|
|||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
GAAP
|
|
Stock-Based
Compensation |
|
Employer
Payroll Taxes on Employee Stock Transactions |
|
Intangible
Amortization |
|
Acquisition, Disposition
and Other Items |
|
Tax
Adjustment(1) |
|
Non-GAAP,
as adjusted(2) |
||||||||||||||
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
Cost of license revenue
|
$
|
59
|
|
|
—
|
|
|
—
|
|
|
(34
|
)
|
|
—
|
|
|
—
|
|
|
$
|
24
|
|
|||||
|
Cost of services revenue
|
$
|
319
|
|
|
(18
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
$
|
301
|
|
|||||
|
Research and development
|
$
|
582
|
|
|
(110
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
471
|
|
|||||
|
Sales and marketing
|
$
|
827
|
|
|
(67
|
)
|
|
(1
|
)
|
|
(14
|
)
|
|
—
|
|
|
—
|
|
|
$
|
747
|
|
|||||
|
General and administrative
|
$
|
238
|
|
|
(35
|
)
|
|
—
|
|
|
—
|
|
|
(49
|
)
|
|
—
|
|
|
$
|
154
|
|
|||||
|
Operating income
|
$
|
431
|
|
|
230
|
|
|
1
|
|
|
49
|
|
|
49
|
|
|
—
|
|
|
$
|
759
|
|
|||||
|
Operating margin(2)
|
17.5
|
%
|
|
9.3
|
%
|
|
—
|
%
|
|
2.0
|
%
|
|
2.0
|
%
|
|
—
|
|
|
30.9
|
%
|
|||||||
|
Other income (expense), net(3)
|
$
|
263
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(259
|
)
|
|
—
|
|
|
$
|
4
|
|
|||||
|
Income before income tax
|
$
|
666
|
|
|
230
|
|
|
1
|
|
|
49
|
|
|
(210
|
)
|
|
—
|
|
|
$
|
735
|
|
|||||
|
Income tax provision
|
$
|
45
|
|
|
|
|
|
|
|
|
|
|
73
|
|
|
$
|
118
|
|
|||||||||
|
Tax rate(2)
|
6.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
16.0
|
%
|
||||||||||||
|
Net income
|
$
|
621
|
|
|
230
|
|
|
1
|
|
|
49
|
|
|
(210
|
)
|
|
(73
|
)
|
|
$
|
617
|
|
|||||
|
Net income per weighted-average share,
diluted for Classes A and B(2) (4) |
$
|
1.50
|
|
|
$
|
0.55
|
|
|
$
|
—
|
|
|
$
|
0.12
|
|
|
$
|
(0.51
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
1.49
|
|
|
(1)
|
Non-GAAP financial information for the quarter is adjusted for a tax rate equal to our annual estimated tax rate on non-GAAP income. This rate is based on our estimated annual GAAP income tax rate forecast, adjusted to account for items excluded from GAAP income in calculating the non-GAAP financial measures presented above as well as significant tax adjustments. Our estimated tax rate on non-GAAP income is determined annually and may be adjusted during the year to take into account events or trends that we believe materially impact the estimated annual rate including, but not limited to, significant changes resulting from tax legislation, material changes in the geographic mix of revenue and expenses, changes to our corporate structure and other significant events. Due to the differences in the tax treatment of items excluded from non-GAAP earnings, as well as the methodology applied to our estimated annual tax rates as described above, our estimated tax rate on non-GAAP income may differ from our GAAP tax rate and from our actual tax liabilities.
|
|
(2)
|
Totals may not sum, due to rounding. Operating margin, tax rate and net income per weighted average share information are calculated based upon the respective underlying, non-rounded data.
|
|
(3)
|
Non-GAAP adjustment to other income (expense), net includes gains or losses on equity investments, whether realized or unrealized. During the three months ended November 1, 2019, this adjustment primarily included an unrealized gain of $249 million, which related to VMware's investment in Pivotal to adjust it to its fair value.
|
|
(4)
|
Calculated based upon 414,054 diluted weighted-average shares for Classes A and B.
|
|
RECONCILIATION OF GAAP TO NON-GAAP DATA
|
|||||||||||||||||||||||||||
|
For the Three Months Ended November 2, 2018
|
|||||||||||||||||||||||||||
|
(amounts in millions, except per share amounts, and shares in thousands)
|
|||||||||||||||||||||||||||
|
(unaudited)
|
|||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
GAAP
|
|
Stock-Based
Compensation |
|
Employer
Payroll Taxes on Employee Stock Transactions |
|
Intangible
Amortization |
|
Acquisition, Disposition
and Other Items |
|
Tax
Adjustment(1) |
|
Non-GAAP,
as adjusted(2) |
||||||||||||||
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
Cost of license revenue
|
$
|
49
|
|
|
—
|
|
|
—
|
|
|
(29
|
)
|
|
—
|
|
|
—
|
|
|
$
|
19
|
|
|||||
|
Cost of services revenue
|
$
|
266
|
|
|
(13
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
$
|
252
|
|
|||||
|
Research and development
|
$
|
499
|
|
|
(98
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
400
|
|
|||||
|
Sales and marketing
|
$
|
707
|
|
|
(53
|
)
|
|
(2
|
)
|
|
(8
|
)
|
|
—
|
|
|
—
|
|
|
$
|
647
|
|
|||||
|
General and administrative
|
$
|
178
|
|
|
(28
|
)
|
|
—
|
|
|
—
|
|
|
(8
|
)
|
|
—
|
|
|
$
|
141
|
|
|||||
|
Realignment and loss on disposition
|
$
|
6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
|
—
|
|
|
$
|
—
|
|
|||||
|
Operating income
|
$
|
495
|
|
|
192
|
|
|
2
|
|
|
38
|
|
|
14
|
|
|
—
|
|
|
$
|
741
|
|
|||||
|
Operating margin(2)
|
22.5
|
%
|
|
8.7
|
%
|
|
0.1
|
%
|
|
1.7
|
%
|
|
0.7
|
%
|
|
—
|
|
|
33.7
|
%
|
|||||||
|
Other income (expense), net(3)
|
$
|
(180
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
177
|
|
|
—
|
|
|
$
|
(3
|
)
|
|||||
|
Income before income tax
|
$
|
345
|
|
|
192
|
|
|
2
|
|
|
38
|
|
|
191
|
|
|
—
|
|
|
$
|
768
|
|
|||||
|
Income tax provision
|
$
|
11
|
|
|
|
|
|
|
|
|
|
|
112
|
|
|
$
|
123
|
|
|||||||||
|
Tax rate(2)
|
3.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
16.0
|
%
|
||||||||||||
|
Net income
|
$
|
334
|
|
|
192
|
|
|
2
|
|
|
38
|
|
|
191
|
|
|
(112
|
)
|
|
$
|
645
|
|
|||||
|
Net income per weighted-average share,
diluted for Classes A and B(2) (4) |
$
|
0.81
|
|
|
$
|
0.46
|
|
|
$
|
—
|
|
|
$
|
0.09
|
|
|
$
|
0.46
|
|
|
$
|
(0.27
|
)
|
|
$
|
1.56
|
|
|
(1)
|
Non-GAAP financial information for the quarter is adjusted for a tax rate equal to our annual estimated tax rate on non-GAAP income. This rate is based on our estimated annual GAAP income tax rate forecast, adjusted to account for items excluded from GAAP income in calculating the non-GAAP financial measures presented above as well as significant tax adjustments, such as adjustments resulting from the U.S. Tax Cuts and Jobs Act enacted on December 22, 2017 (the "2017 Tax Act"). Our estimated tax rate on non-GAAP income is determined annually and may be adjusted during the year to take into account events or trends that we believe materially impact the estimated annual rate including, but not limited to, significant changes resulting from tax legislation, material changes in the geographic mix of revenue and expenses and other significant events. Due to the differences in the tax treatment of items excluded from non-GAAP earnings, as well as the methodology applied to our estimated annual tax rates as described above, our estimated tax rate on non-GAAP income may differ from our GAAP tax rate and from our actual tax liabilities.
|
|
(2)
|
Totals may not sum, due to rounding. Operating margin, tax rate and net income per weighted average share information are calculated based upon the respective underlying, non-rounded data.
|
|
(3)
|
Non-GAAP adjustment to other income (expense), net includes gains or losses on equity investments, whether realized or unrealized. During the three months ended November 2, 2018, this adjustment primarily included an unrealized loss of $161 million, which related to VMware's investment in Pivotal to adjust it to its fair value.
|
|
(4)
|
Calculated based upon 414,477 diluted weighted-average shares for Classes A and B.
|
|
RECONCILIATION OF GAAP TO NON-GAAP DATA
|
|||||||||||||||||||||||||||
|
For the Nine Months Ended November 1, 2019
|
|||||||||||||||||||||||||||
|
(amounts in millions, except per share amounts, and shares in thousands)
|
|||||||||||||||||||||||||||
|
(unaudited)
|
|||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
GAAP
|
|
Stock-Based
Compensation |
|
Employer
Payroll Taxes on Employee Stock Transactions |
|
Intangible
Amortization |
|
Acquisition, Disposition
and Other Items |
|
Tax
Adjustment(1) |
|
Non-GAAP,
as adjusted(2) |
||||||||||||||
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
Cost of license revenue
|
$
|
160
|
|
|
(1
|
)
|
|
—
|
|
|
(101
|
)
|
|
—
|
|
|
—
|
|
|
$
|
58
|
|
|||||
|
Cost of services revenue
|
$
|
936
|
|
|
(50
|
)
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
$
|
884
|
|
|||||
|
Research and development
|
$
|
1,669
|
|
|
(306
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
$
|
1,360
|
|
|||||
|
Sales and marketing
|
$
|
2,402
|
|
|
(183
|
)
|
|
(6
|
)
|
|
(34
|
)
|
|
—
|
|
|
—
|
|
|
$
|
2,183
|
|
|||||
|
General and administrative
|
$
|
625
|
|
|
(92
|
)
|
|
—
|
|
|
—
|
|
|
(83
|
)
|
|
—
|
|
|
$
|
448
|
|
|||||
|
Operating income
|
$
|
1,369
|
|
|
632
|
|
|
7
|
|
|
138
|
|
|
83
|
|
|
—
|
|
|
$
|
2,228
|
|
|||||
|
Operating margin(2)
|
19.1
|
%
|
|
8.8
|
%
|
|
0.1
|
%
|
|
1.9
|
%
|
|
1.2
|
%
|
|
—
|
|
|
31.1
|
%
|
|||||||
|
Other income (expense), net(3)
|
$
|
(97
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
123
|
|
|
—
|
|
|
$
|
27
|
|
|||||
|
Income before income tax
|
$
|
1,205
|
|
|
632
|
|
|
7
|
|
|
138
|
|
|
206
|
|
|
—
|
|
|
$
|
2,188
|
|
|||||
|
Income tax provision (benefit)
|
$
|
(4,846
|
)
|
(4)
|
|
|
|
|
|
|
|
|
5,196
|
|
|
$
|
350
|
|
|||||||||
|
Tax rate(2)
|
N/M
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
16.0
|
%
|
||||||||||||
|
Net income
|
$
|
6,051
|
|
|
632
|
|
|
7
|
|
|
138
|
|
|
206
|
|
|
(5,196
|
)
|
|
$
|
1,838
|
|
|||||
|
Net income per weighted-average share,
diluted for Classes A and B(2) (5) |
$
|
14.52
|
|
|
$
|
1.52
|
|
|
$
|
0.02
|
|
|
$
|
0.33
|
|
|
$
|
0.49
|
|
|
$
|
(12.47
|
)
|
|
$
|
4.41
|
|
|
(1)
|
Non-GAAP financial information for the quarter is adjusted for a tax rate equal to our annual estimated tax rate on non-GAAP income. This rate is based on our estimated annual GAAP income tax rate forecast, adjusted to account for items excluded from GAAP income in calculating the non-GAAP financial measures presented above as well as significant tax adjustments. Our estimated tax rate on non-GAAP income is determined annually and may be adjusted during the year to take into account events or trends that we believe materially impact the estimated annual rate including, but not limited to, significant changes resulting from tax legislation, material changes in the geographic mix of revenue and expenses, changes to our corporate structure and other significant events. Due to the differences in the tax treatment of items excluded from non-GAAP earnings, as well as the methodology applied to our estimated annual tax rates as described above, our estimated tax rate on non-GAAP income may differ from our GAAP tax rate and from our actual tax liabilities.
|
|
(2)
|
Totals may not sum, due to rounding. Operating margin, tax rate and net income per weighted average share information are calculated based upon the respective underlying, non-rounded data.
|
|
(3)
|
Non-GAAP adjustment to other income (expense), net includes gains or losses on equity investments, whether realized or unrealized. During the nine months ended November 1, 2019, this adjustment primarily included an unrealized loss of $157 million, which related to VMware's investment in Pivotal to adjust it to its fair value.
|
|
(4)
|
During the second quarter of fiscal 2020, we completed an intra-group transfer of certain of our intellectual property rights to our Irish subsidiary, where our international business is headquartered. A discrete tax benefit of $4.9 billion was recorded as a deferred tax asset. Due to the impact of the discrete tax benefit of $4.9 billion, the tax rate calculated on a GAAP basis is not considered meaningful.
|
|
(5)
|
Calculated based upon 416,668 diluted weighted-average shares for Classes A and B.
|
|
RECONCILIATION OF GAAP TO NON-GAAP DATA
|
|||||||||||||||||||||||||||
|
For the Nine Months Ended November 2, 2018
|
|||||||||||||||||||||||||||
|
(amounts in millions, except per share amounts, and shares in thousands)
|
|||||||||||||||||||||||||||
|
(unaudited)
|
|||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
GAAP
|
|
Stock-Based
Compensation |
|
Employer
Payroll Taxes on Employee Stock Transactions |
|
Intangible
Amortization |
|
Acquisition, Disposition
and Other Items |
|
Tax
Adjustment(1) |
|
Non-GAAP,
as adjusted(2) |
||||||||||||||
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
Cost of license revenue
|
$
|
139
|
|
|
(1
|
)
|
|
—
|
|
|
(89
|
)
|
|
—
|
|
|
—
|
|
|
$
|
50
|
|
|||||
|
Cost of services revenue
|
$
|
777
|
|
|
(37
|
)
|
|
(1
|
)
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
$
|
737
|
|
|||||
|
Research and development
|
$
|
1,433
|
|
|
(272
|
)
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
$
|
1,159
|
|
|||||
|
Sales and marketing
|
$
|
2,110
|
|
|
(147
|
)
|
|
(3
|
)
|
|
(23
|
)
|
|
(2
|
)
|
|
—
|
|
|
$
|
1,935
|
|
|||||
|
General and administrative
|
$
|
529
|
|
|
(74
|
)
|
|
(1
|
)
|
|
—
|
|
|
(26
|
)
|
|
—
|
|
|
$
|
428
|
|
|||||
|
Realignment and loss on disposition
|
$
|
9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9
|
)
|
|
—
|
|
|
$
|
—
|
|
|||||
|
Operating income
|
$
|
1,386
|
|
|
531
|
|
|
5
|
|
|
114
|
|
|
39
|
|
|
—
|
|
|
$
|
2,074
|
|
|||||
|
Operating margin(2)
|
21.7
|
%
|
|
8.3
|
%
|
|
0.1
|
%
|
|
1.8
|
%
|
|
0.6
|
%
|
|
—
|
|
|
32.5
|
%
|
|||||||
|
Other income (expense), net(3)
|
$
|
839
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(839
|
)
|
|
—
|
|
|
$
|
—
|
|
|||||
|
Income before income tax
|
$
|
2,292
|
|
|
531
|
|
|
5
|
|
|
114
|
|
|
(800
|
)
|
|
—
|
|
|
$
|
2,141
|
|
|||||
|
Income tax provision
|
$
|
372
|
|
|
|
|
|
|
|
|
|
|
(29
|
)
|
|
$
|
342
|
|
|||||||||
|
Tax rate(2)
|
16.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
16.0
|
%
|
||||||||||||
|
Net income
|
$
|
1,920
|
|
|
531
|
|
|
5
|
|
|
114
|
|
|
(800
|
)
|
|
29
|
|
|
$
|
1,799
|
|
|||||
|
Net income per weighted-average share,
diluted for Classes A and B(2) (4) |
$
|
4.64
|
|
|
$
|
1.28
|
|
|
$
|
0.01
|
|
|
$
|
0.28
|
|
|
$
|
(1.93
|
)
|
|
$
|
0.07
|
|
|
$
|
4.35
|
|
|
(1)
|
Non-GAAP financial information for the quarter is adjusted for a tax rate equal to our annual estimated tax rate on non-GAAP income. This rate is based on our estimated annual GAAP income tax rate forecast, adjusted to account for items excluded from GAAP income in calculating the non-GAAP financial measures presented above as well as significant tax adjustments, such as adjustments resulting from the 2017 Tax Act. Our estimated tax rate on non-GAAP income is determined annually and may be adjusted during the year to take into account events or trends that we believe materially impact the estimated annual rate including, but not limited to, significant changes resulting from tax legislation, material changes in the geographic mix of revenue and expenses and other significant events. Due to the differences in the tax treatment of items excluded from non-GAAP earnings, as well as the methodology applied to our estimated annual tax rates as described above, our estimated tax rate on non-GAAP income may differ from our GAAP tax rate and from our actual tax liabilities.
|
|
(2)
|
Totals may not sum, due to rounding. Operating margin, tax rate and net income per weighted average share information are calculated based upon the respective underlying, non-rounded data.
|
|
(3)
|
Non-GAAP adjustment to other income (expense), net includes gains or losses on equity investments, whether realized or unrealized. During the nine months ended November 2, 2018, this adjustment primarily included an unrealized gain of $851 million, which related to VMware's investment in Pivotal to adjust it to its fair value.
|
|
(4)
|
Calculated based upon 413,378 diluted weighted-average shares for Classes A and B.
|
|
REVENUE BY TYPE
|
||||||||||||||||
|
(in millions)
|
||||||||||||||||
|
(unaudited)
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
|
|
November 1,
|
|
November 2,
|
|
November 1,
|
|
November 2,
|
||||||||
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
||||||||
|
Revenue:
|
|
|
|
|
|
|
|
|
||||||||
|
License
|
|
$
|
974
|
|
|
$
|
884
|
|
|
$
|
2,853
|
|
|
$
|
2,558
|
|
|
Services:
|
|
|
|
|
|
|
|
|
||||||||
|
Software maintenance
|
|
1,280
|
|
|
1,138
|
|
|
3,720
|
|
|
3,324
|
|
||||
|
Professional services
|
|
202
|
|
|
178
|
|
|
588
|
|
|
501
|
|
||||
|
Total services
|
|
1,482
|
|
|
1,316
|
|
|
4,308
|
|
|
3,825
|
|
||||
|
Total revenue
|
|
$
|
2,456
|
|
|
$
|
2,200
|
|
|
$
|
7,161
|
|
|
$
|
6,383
|
|
|
Percentage of revenue:
|
|
|
|
|
|
|
|
|
||||||||
|
License
|
|
39.7
|
%
|
|
40.2
|
%
|
|
39.8
|
%
|
|
40.1
|
%
|
||||
|
Services:
|
|
|
|
|
|
|
|
|
||||||||
|
Software maintenance
|
|
52.1
|
%
|
|
51.7
|
%
|
|
52.0
|
%
|
|
52.0
|
%
|
||||
|
Professional services
|
|
8.2
|
%
|
|
8.1
|
%
|
|
8.2
|
%
|
|
7.9
|
%
|
||||
|
Total services
|
|
60.3
|
%
|
|
59.8
|
%
|
|
60.2
|
%
|
|
59.9
|
%
|
||||
|
Total revenue
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
||||
|
REVENUE BY GEOGRAPHY
|
|||||||||||||||
|
(in millions)
|
|||||||||||||||
|
(unaudited)
|
|||||||||||||||
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
||||||||
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
|
November 1,
|
|
November 2,
|
|
November 1,
|
|
November 2,
|
||||||||
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
||||||||
|
Revenue:
|
|
|
|
|
|
|
|
||||||||
|
United States
|
$
|
1,172
|
|
|
$
|
1,052
|
|
|
$
|
3,395
|
|
|
$
|
3,053
|
|
|
International
|
1,284
|
|
|
1,148
|
|
|
3,766
|
|
|
3,330
|
|
||||
|
Total revenue
|
$
|
2,456
|
|
|
$
|
2,200
|
|
|
$
|
7,161
|
|
|
$
|
6,383
|
|
|
Percentage of revenue:
|
|
|
|
|
|
|
|
||||||||
|
United States
|
47.7
|
%
|
|
47.8
|
%
|
|
47.4
|
%
|
|
47.8
|
%
|
||||
|
International
|
52.3
|
%
|
|
52.2
|
%
|
|
52.6
|
%
|
|
52.2
|
%
|
||||
|
Total revenue
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
||||
|
RECONCILIATION OF GAAP CASH FLOWS FROM OPERATING ACTIVITIES
|
|||||||||||||||
|
TO FREE CASH FLOWS
|
|||||||||||||||
|
(A NON-GAAP FINANCIAL MEASURE)
|
|||||||||||||||
|
(in millions)
|
|||||||||||||||
|
(unaudited)
|
|||||||||||||||
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
||||||||
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
|
November 1,
|
|
November 2,
|
|
November 1,
|
|
November 2,
|
||||||||
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
||||||||
|
GAAP cash flows from operating activities
|
$
|
810
|
|
|
$
|
769
|
|
|
$
|
2,782
|
|
|
$
|
2,651
|
|
|
Capital expenditures
|
(50
|
)
|
|
(57
|
)
|
|
(208
|
)
|
|
(178
|
)
|
||||
|
Free cash flows
|
$
|
760
|
|
|
$
|
712
|
|
|
$
|
2,574
|
|
|
$
|
2,473
|
|
|
•
|
Stock-based compensation. Stock-based compensation is generally fixed at the time the stock-based instrument is granted and amortized over a period of several years. Although stock-based compensation is an important aspect of the compensation of VMware’s employees and executives, the expense for the fair value of the stock-based instruments VMware utilizes may bear little resemblance to the actual value realized upon the vesting or future exercise of the related stock-based awards. Management believes it is useful to exclude stock-based compensation in order to better understand the long-term performance of VMware’s core business.
|
|
•
|
Employer payroll taxes on employee stock transactions. The amount of employer payroll taxes on stock-based compensation is dependent on VMware’s stock price and other factors that are beyond VMware’s control and do not correlate to the operation of the business.
|
|
•
|
Amortization of acquired intangible assets. A portion of the purchase price of VMware’s acquisitions is generally allocated to intangible assets, such as intellectual property, and is subject to amortization. However, VMware does not acquire businesses on a predictable cycle. Additionally, the amount of an acquisition’s purchase price allocated to intangible assets and the term of its related amortization can vary significantly and are unique to each acquisition. Therefore, VMware believes that the presentation of non-GAAP financial measures that adjust for the amortization of intangible assets provides investors and others with a consistent basis for comparison across accounting periods.
|
|
•
|
Realignment charges. Realignment charges include workforce reductions, asset impairments, losses on asset disposals and costs to exit facilities. VMware’s management believes it is useful to exclude these items, when significant, as they are not reflective of VMware’s core business and operating results.
|
|
•
|
Acquisition, disposition and other items. As VMware does not acquire or dispose of businesses on a predictable cycle and the terms of each transaction can vary significantly and are unique to each transaction, VMware believes it is useful to exclude acquisition, disposition and other items when looking for a consistent basis for comparison across accounting periods. These items include:
|
|
•
|
Direct costs of acquisitions and dispositions, such as transaction and advisory fees.
|
|
•
|
Costs associated with integrating acquired businesses.
|
|
•
|
Accruals for the portion of merger consideration payable in installments that may be paid in cash or VMware stock, at the option of VMware.
|
|
•
|
Gains or losses on equity investments, whether realized or unrealized, including unrealized gains or losses related to VMware’s investment in Pivotal to adjust it to its fair value.
|
|
•
|
Charges recognized for non-recoverable strategic investments or gains recognized on the disposition of strategic investments.
|
|
•
|
Gains or losses on sale or disposal of distinct lines of business or product offerings, or transactions with features similar to discontinued operations, including recoveries or charges recognized to adjust the fair value of assets that qualify as “held for sale.”
|
|
•
|
Certain litigation and other contingencies. VMware, from time to time, may incur charges or benefits that are outside of the ordinary course of VMware’s business related to litigation and other contingencies. VMware believes it is useful to exclude such charges or benefits because it does not consider such amounts to be part of the ongoing operation of VMware’s business and because of the singular nature of the claims underlying such matters.
|
|
•
|
Tax adjustment. Non-GAAP financial information for the quarter is adjusted for a tax rate equal to VMware’s annual estimated tax rate on non-GAAP income. This rate is based on VMware’s estimated annual GAAP income tax rate forecast, adjusted to account for items excluded from GAAP income in calculating VMware’s non-GAAP income as well as significant tax adjustments. VMware’s estimated tax rate on non-GAAP income is determined annually and may be adjusted during the year to take into account events or trends that VMware management believes materially impact the estimated annual rate including, but not limited to, significant changes resulting from tax legislation, material changes in the geographic mix of revenue and expenses, changes to our corporate structure and other significant events. Due to the differences in the tax treatment of items excluded from non-GAAP earnings, as well as the methodology applied to VMware’s estimated annual tax rates as described above, the estimated tax rate on non-GAAP income may differ from the GAAP tax rate and from VMware’s actual tax liabilities.
|