UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): July 1, 2018
VMWARE, INC.
(Exact name of registrant as specified in its charter)
| 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) |
Registrant’s telephone number, including area code: (650) 427-5000
N/A
(Former Name or Former Address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ☐ | 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)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933(§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 1.01 Entry into a Material Definitive Agreement.
On July 1, 2018, VMware, Inc. (“VMware”) entered into a letter agreement (the “Governance Agreement”) with Dell Technologies Inc. (“Dell Technologies”) that provides for a continuation of strong independent governance for VMware and its stockholders. The Governance Agreement was entered into in connection with the announcement of a conditional, special cash dividend (the “Special Dividend”) on each share of VMware’s common stock and the entry into a definitive merger agreement (the “Dell Merger Agreement”) pursuant to which Teton Merger Sub Inc. (“Merger Sub”), a wholly owned subsidiary of Dell Technologies, will merge with and into Dell Technologies, with Dell Technologies surviving the merger (the “Dell Merger”). The Governance Agreement includes the following:
| • | A provision requiring Dell Technologies, in the amendment to its Schedule 13D being filed in connection with the announcement of the Dell Merger Agreement, to include a summary of the Governance Agreement, and a statement that Dell Technologies has concluded its review of potential business opportunities and has determined not to pursue a business combination with VMware; |
| • | A provision requiring that any future request from Dell Technologies or any of its affiliates (in each case in its capacity as a stockholder) that VMware issue a special dividend to holders of common stock of VMware shall be subject to review by, and a recommendation in favor thereof from, a special committee of the board of directors of VMware comprised solely of independent directors; |
| • | A provision providing that Dell Technologies and its affiliates shall not directly or indirectly purchase or otherwise acquire any shares of common stock of VMware if such transaction would result in the common stock of VMware no longer being publicly traded on a U.S. securities exchange or VMware no longer being required to file reports under Sections 13 and 15(d) of the Securities Exchange Act of 1934, as amended, unless (i) such transaction has been approved in advance by a special committee of the board of directors of VMware comprised solely of independent and disinterested directors or (ii) such acquisition of VMware common stock is by Dell Technologies or its subsidiaries and is required in order for VMware to be a member of the affiliated group of corporations filing a consolidated tax return with Dell Technologies; |
| • | A provision requiring Dell Technologies to use its reasonable best efforts to complete the Dell Merger in accordance with the terms of the Dell Merger Agreement, including using reasonable best efforts to complete the Dell Merger on the same day Dell Technologies or its subsidiary receives the Special Dividend. Dell Technologies further agrees that it will not agree with Merger Sub to terminate the Dell Merger Agreement without the prior written consent of VMware; and |
| • | A provision providing that the VMware board of directors will not terminate, modify or rescind the resolutions relating to the declaration of the Special Dividend; however, the Governance Agreement does not (i) limit the VMware board of directors from taking any other action it determines necessary in the exercise of its fiduciary duties under applicable law or (ii) require any waiver or modification of any condition to the payment of the Special Dividend. |
The Governance Agreement will terminate on the earlier of (i) the 10 year anniversary of the date of the Governance Agreement and (ii) the date that no shares of VMware Class A Common Stock, or any other class or series of securities into which such shares may convert or otherwise become, remain outstanding (other than shares beneficially owned, directly or indirectly, by Dell Technologies and its affiliates).
The foregoing description of the Governance Agreement is not complete and is qualified in its entirety by reference to the Governance Agreement, which is filed as Exhibit 10.1 and is incorporated herein by reference.
Item 5.07 Submission of Matters to a Vote of Security Holders.
On July 1, 2018, Dell Technologies, the controlling stockholder of VMware, provided the consent of its wholly owned subsidiary EMC Corporation, the sole Class B common stockholder of VMware, to the declaration of the Special Dividend in accordance with VMware’s Amended and Restated Certificate of Incorporation, in an action by written consent pursuant to Section 228 of the Delaware General Corporation Law.
Item 7.01 Regulation FD Disclosure.
On July 2, 2018, VMware issued a press release (i) announcing that its Board of Directors has declared a conditional, special cash dividend on each share of VMware’s common stock, (ii) reaffirming its Q2 and Annual FY-19 Guidance and (iii) announcing that the VMware board of directors had extended authorization of the existing stock repurchase program, with approximately $876 million remaining through August 31, 2019. A copy of the press release is furnished as exhibit 99.1 to this Current Report on Form 8-K. The information in this Item 7.01 (including Exhibit 99.1) shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act.
Item 8.01 Other Events.
| (a) | Declaration of Special Dividend |
On July 1, 2018, the Board of Directors of VMware declared a conditional $11 billion one-time special cash dividend pro-rata to holders of VMware common stock. The one-time special dividend is payable in connection with the closing of the Dell Merger, and is subject to certain conditions, as described below.
Record Date . Subject to the conditions to payment described below, the special dividend will be payable to stockholders of record as of the later of (i) the 10th calendar day (or if such day is not a business day, the next succeeding business day) following the later of (x) the date on which the Dell Technologies stockholders have voted to approve the Dell Merger and (y) the date that shares of Dell Technologies Class C Common Stock have been approved for listing on the New York Stock Exchange, subject to official notice of issuance, and (ii) September 12, 2018. Subject to the conditions set forth below, payment of the special dividend will be made one business day after the record date (provided that if payment to Dell Technologies’ subsidiaries holding of record VMware common stock cannot occur prior to 3:30 p.m. Eastern time, the special dividend will be paid on the next business day).
Conditions to Payment. Payment of the special dividend is subject to the following conditions:
(1) the stockholders of Dell Technologies approving the Dell Merger on or prior to January 18, 2019, including separate approval of a majority of the holders of Dell Technologies tracking stock unaffiliated with Dell Technologies;
(2) Dell Technologies providing a certification to VMware that each of the conditions precedent (other than the payment of Dell Technologies’ portion of the proceeds of the special dividend) to the obligations of Dell Technologies to complete the Dell Merger as provided in the Dell Merger Agreement have been satisfied or (to the extent permitted in the Dell Merger Agreement) irrevocably waived, including the conditions that:
(a) the stockholders of Dell Technologies have approved the Dell Merger;
(b) no injunction or other legal restraint prohibiting the Dell Merger shall be in effect, and no law shall have been adopted, enacted, enforced, entered or promulgated that prohibits the Dell Merger;
(c) as of the payment date for the special dividend, the governing body of each Dell Technologies subsidiary through which proceeds of the special dividend will pass to Dell Technologies shall have determined that such subsidiary of Dell Technologies meets all solvency and legal requirements to distribute the proceeds that it receives in accordance with the plan established by Dell Technologies.
(d) the registration statement with respect to the Dell Technologies Class C common stock to be issued in the Dell Merger shall be effective;
(e) the Dell Technologies Class C common stock to be issued in the Dell Merger shall have been approved for listing on the NYSE, subject to official notice of issuance;
(f) the representations and warranties of Dell Technologies and Merger Sub contained in the Dell Merger Agreement shall be true and correct in all material respects;
(g) Dell Technologies shall have performed in all material respects all obligations of it contained in the Dell Merger Agreement;
(h) since February 2, 2018, Dell Technologies shall not have suffered, and would not reasonably be expected to suffer, a material adverse effect since February 2, 2018; and
(i) since February 2, 2018, VMware shall not have suffered, and would not reasonably be expected to suffer, a material adverse effect since February 2, 2018,
each of which conditions (a)-(i) above is set forth in greater detail in the Dell Merger Agreement, which is anticipated to be filed with the Securities and Exchange Commission by Dell Technologies on or around July 2, 2018, and which we refer to and urge VMware stockholders to read;
(3) Dell Technologies providing a certification to VMware that if Dell Technologies’ pro rata share of the special dividend is received by Dell Technologies’ subsidiaries who are holders of record of VMware common stock by 3:30 p.m. Eastern time on such date, the closing of the Dell Merger will occur on such date (provided that if payment cannot occur prior to 3:30 p.m. Eastern time, the special dividend will be paid on the next business day);
(4) the Special Committee and the Board of VMware receiving an updated opinion from a nationally recognized expert that as of the date of payment, (x) VMware (on a consolidated basis) has sufficient surplus under Delaware law for the payment of the special dividend and (y) following the payment of the special dividend, VMware (on a consolidated basis) will be solvent under Delaware law; and
(5) a determination by the Special Committee and the Board of VMware that, as of the payment date of the special dividend, (x) VMware (on a consolidated basis) has sufficient surplus under Delaware law for the payment of the special dividend, (y) following the payment of the special dividend, VMware (on a consolidated basis) will be solvent under Delaware law and (z) that as of the payment date all of VMWare’s subsidiaries that must distribute cash or otherwise pass proceeds to VMware in order for it to pay the special dividend meet all solvency and legal adequacy requirements to distribute such cash amounts.
The special dividend will not be paid unless each of the above conditions is satisfied. If any of the above conditions is not met on or before January 31, 2019 or if the Dell Merger Agreement is terminated for any reason, the special dividend shall automatically be cancelled.
| (b) | Extension of Stock Repurchase Program |
Also on July 1, 2018, the Board of Directors of VMware extended authorization of VMware’s existing stock repurchase program, with approximately $876 million remaining, through August 31, 2019. Stock will be purchased from time to time, in the open market or through private transactions, subject to market conditions. The timing of any repurchases and the actual number of shares repurchased will depend on a variety of factors, including VMware’s stock price, corporate and regulatory requirements and other market and economic conditions.
Item 9.01 Financial Statements and Exhibits.
| (d) | Exhibits. |
| 10.1 | Letter Agreement dated as of July 1, 2018, by and between VMware, Inc. and Dell Technologies Inc. | |
| 99.1 | Press Release of VMware, Inc. dated July 2, 2018 | |
Forward-Looking Statements
This Current Report on Form 8-K contains forward-looking statements that are based on VMware’s current expectations, including, among other things, statements regarding VMware’s special dividend, including its record date and payment date, its status as an independent, publicly traded company, its strong business performance, growth opportunities and cash flow generation, Q2 guidance and FY-19 full year revenue, operating margin, EPS, operating and cash flow, the expected completion of the Dell Merger, the elimination of Dell Technologies Class V common stock and creation of a new public equity class for Dell Technologies, alignment between Dell Technologies and VMware, VMware’s go-forward strategy, VMware’s capital allocation strategies, including plans for share repurchases, VMware’s growth expectations, future value creation and capital structure. These forward-looking statements are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors, including but not limited to: (i) VMware’s ability to pay the one-time special dividend, (ii) the satisfaction of conditions to the special dividend payment, including the timely satisfaction of conditions to the consummation of the Dell Merger, (iii) adverse changes in general economic or market conditions; (iv) delays or reductions in consumer, government and information technology spending; (v) competitive factors, including but not limited to pricing pressures, industry consolidation, entry of new competitors into the virtualization software and cloud, end user and mobile computing industries, and new product and marketing initiatives by VMware’s competitors; (vi) VMware’s customers’ ability to transition to new products and computing strategies such as cloud computing, end user virtualization and the software defined data center; (vii) VMware’s ability to enter into and maintain strategically effective partnerships and alliances; (viii) the uncertainty of customer acceptance of emerging technology; (ix) rapid technological changes in the virtualization software and cloud, end user and mobile computing industries; (x) changes to product and service development timelines; (xi) VMware’s relationship with Dell Technologies and Dell Technologies’ ability to control matters requiring stockholder approval, including the election of VMware’s board members and matters relating to Dell Technologies’ investment in VMware; (xii) VMware’s ability to protect its proprietary technology; (xiii) VMware’s ability to attract and retain highly qualified employees; (xiv) the ability to successfully integrate into VMware acquired companies and assets and smoothly transition services related to divested assets from VMware; (xv) the ability of VMware to realize synergies from Dell Technologies; (xvi) disruptions resulting from key management changes; (xvii) fluctuating currency exchange rates; (xviii) changes in VMware’s financial condition; and (xiv) risks associated with cyber-attacks, information security and privacy. These forward-looking statements are made as of the date of this Current Report on Form 8-K, are based on current expectations and are subject to uncertainties and changes in condition, significance, value and effect as well as other risks detailed in documents filed with the Securities and Exchange Commission, including VMware’s most recent reports on Form 10-K and Form 10-Q and Current Reports on Form 8-K that we may file from time to time, which could cause actual results to vary from expectations. VMware assumes no obligation to, and does not currently intend to, update any such forward-looking statements after the date of this Current Report on Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: July 2, 2018
| VMware, Inc. | ||
| By: |
/s/ Amy Fliegelman Olli |
|
| Amy Fliegelman Olli | ||
| Senior Vice President and General Counsel | ||
.
Exhibit 10.1
DELL TECHNOLOGIES INC.
One Dell Way, RR1–33
Round Rock, Texas 78682
July 1, 2018
VMware, Inc.
3401 Hillview Avenue
Palo Alto, CA 94304
Board of Directors:
Reference is hereby made to that certain Agreement and Plan of Merger (“Merger Agreement”), dated as of July 1, 2018, by and between Dell Technologies Inc., a Delaware corporation (“Diamond”), and Teton Merger Sub Inc., a Delaware corporation and a direct wholly-owned subsidiary of Diamond, pursuant to which Diamond may be required to pay cash consideration in an aggregate amount of up to $9.0 billion.
Diamond has requested that the board of directors (the “Board of Directors”) of VMware, Inc., a Delaware corporation (the “Company”), authorize a special dividend in the amount of approximately $11.0 billion in the aggregate pro rata to all holders of the Company’s common stock (the “Special Dividend”), of which approximately $8.95 billion would be distributable to Diamond, in order to permit Diamond to consummate the transactions contemplated by the Merger Agreement.
The Board of Directors, upon the recommendation of a special committee of the Board of Directors comprised of independent and disinterested directors, has resolved that the Special Dividend is in the best interests of the Company’s stockholders and has resolved to declare the Special Dividend subject to the conditions set forth in such resolution, and in consideration of the terms and conditions of this letter agreement. In furtherance thereof, Diamond hereby agrees as follows:
1. Public Statements . In connection with the announcement of the Merger Agreement, Diamond will file with the SEC an amendment to its Schedule 13D including a summary of this letter agreement and stating, among other things, that Diamond has concluded its review of potential business opportunities and has determined not to pursue a business combination with Vail, in each case, in form consistent with that previously provided to the Company.
2. Future Dividends . Any future request from Diamond or any of its affiliates (in each case in its capacity as a stockholder) that the Company issue a special dividend to holders of common stock shall be subject to review by, and a recommendation in favor thereof from, a special committee of the Board of Directors comprised solely of independent directors. For the avoidance of doubt, nothing in this paragraph 2 restricts the actions of any directors of the Company acting in their capacity as such even if such directors are affiliates of Diamond. For all purposes of this agreement, affiliates of Diamond include and are limited to (i) each controlled affiliate of Diamond, (ii) Michael Dell and his Permitted Transferees (as defined in the Amended and Restated Sponsor Stockholders Agreement, dated as of September 7, 2016, of the Company
as currently in effect) and (iii) Silver Lake Partners III, L.P. and Silver Lake Partners IV, L.P. and their respective Permitted Transferees, in the case of clauses (ii) and (iii), respectively, for as long as all of such persons and entities in such clause collectively beneficially own more than 5% of the outstanding common stock of Diamond.
3. Business Combinations . Diamond and its affiliates shall not directly or indirectly purchase or otherwise acquire any shares of common stock of the Company (including by means of any transaction pursuant to Section 251, 253 or 267 of the Delaware General Corporation Law) if such transaction would cause the common stock of the Company to no longer be publicly traded on a U.S. securities exchange or the Company to no longer be required to file reports under Sections 13 and 15(d) of the Securities Exchange Act of 1934, as amended, unless (i) such transaction has been approved in advance by a special committee of the Board of Directors comprised solely of independent and disinterested directors or (ii) such acquisition of Company common stock is by Diamond or its subsidiaries and is required in order for the Company to be a member of the affiliated group of corporations filing a consolidated tax return with Diamond for purposes of Section 1502 of the U.S. Internal Revenue Code and the regulations thereunder.
4. Reasonable Best Efforts . Diamond shall use its reasonable best efforts to complete the Merger (as defined in the Merger Agreement) in accordance with the terms of the Merger Agreement (for the avoidance of doubt this does not include any obligation to waive any closing condition or amend any term of the Merger Agreement), including using reasonable best efforts to complete the Merger on the same day Diamond or its subsidiaries receive the Special Dividend. Diamond further agrees that it will not terminate the Merger Agreement pursuant to section 6.01(a) of the Merger Agreement without the prior written consent of the Company. The Company agrees that the Board of Directors shall not terminate, modify or rescind the resolutions relating to the declaration of the Special Dividend adopted on the date hereof; provided that nothing herein shall (x) limit the Board of Directors from taking any other action it determines necessary in the exercise of its fiduciary duties under applicable law or (y) require any waiver or modification of any condition to the payment of the Special Dividend set forth in such resolutions.
This letter agreement shall terminate on the earlier of (i) the 10 year anniversary of the date hereof and (ii) the date that no shares of Class A Common Stock, or any other class or series of securities into which such shares may convert or otherwise become, remain outstanding (other than shares beneficially owned, directly or indirectly, by Diamond and its affiliates). No provision of this Agreement may be amended, modified or waived except by a written instrument signed by Diamond and the Company; provided that any amendment, modification or waiver of this Agreement shall require the prior written approval of a special committee of the Board of Directors comprised solely of independent and disinterested directors.
This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed entirely in such state. Each of the parties hereto hereby irrevocably and unconditionally consents to submit to the exclusive jurisdiction of the Court of Chancery of the State of Delaware for any action arising out of or relating to this letter agreement and the transactions contemplated hereby.
[ Signature Page Follows ]
| Sincerely, | ||
| DELL TECHNOLOGIES INC. | ||
| By: |
/s/ Thomas W. Sweet |
|
| Name: | Thomas W. Sweet | |
| Title: | Executive Vice President and | |
| Chief Financial Officer | ||
Accepted and agreed to as of the first
date written above:
VMWARE, INC.
| By: |
/s/ Amy Fliegelman Olli |
|
| Name: | Amy Fliegelman Olli | |
| Title: | Senior Vice President and General Counsel |
[Signature Page to Letter Agreement]
Exhibit 99.1
VMware Announces One-Time Special Dividend to Stockholders
| • | $11bn dividend recommended by independent special committee, declared by VMware Board |
| • | Dividend supported by strong business performance and balance sheet |
| • | Reaffirms Q2 guidance and FY-19 full year revenue and operating margin guidance |
PALO ALTO, CA – July 2, 2018 – The Board of Directors of VMware Inc. (NYSE:VMW) (the “Company”), a leading innovator in enterprise software, is pleased to announce an $11 billion one-time special dividend pro-rata to all VMware stockholders. The one-time special dividend is payable in connection with the closing of the transaction announced today by Dell Technologies (“Dell”) and subject to certain conditions, as described in the schedule attached below “Special Dividend Record Date and Conditions to Payment.”
Dell announced today that it has concluded its evaluation of strategic alternatives and reached an agreement with its independent directors to offer a new class of publicly listed common stock following the completion of a proposed exchange of Dell Class V tracking stock for Dell Technologies Class C common stock or cash election option. The dividend proceeds that Dell receives from VMware are expected to be used to facilitate its proposed transaction, which is expected to be completed in the fourth quarter of calendar year 2018. At the conclusion of these transactions VMware will remain an independent publicly-listed software company, with improved alignment between Dell’s economic and ownership interests in VMware.
Earlier this year, the VMware Board formed a Special Committee of independent directors that retained legal and financial advisors to review and evaluate any potential proposal from Dell concerning business opportunities outlined in Dell’s Schedule 13D amendment filed on February 2, 2018. The Special Committee also assessed VMware’s capital allocation strategy, in the course of evaluating and recommending approval of the one-time special dividend by VMware’s Board of Directors.
Pat Gelsinger, chief executive officer, VMware commented, “We are pleased to be in a position to return capital to stockholders through this one-time special dividend, which is the result of the exceptional performance of our business and our broad-based portfolio’s strong cash flow generation. We remain laser focused on our strategy to deliver innovative software that drives customer success as a strategic and growing independent entity.”
Paul Sagan, lead director, VMware commented, “The VMware Board of Directors has strong governance practices in place and we are confident that the actions announced today create value for, and protect the interests of, all stockholders. As part of this transaction, VMware has entered into a governance agreement with Dell Technologies that provides for continued strong governance for our stockholders. We believe Dell’s proposal will simplify VMware’s equity capital structure to the benefit of all of our stockholders through the elimination of the tracking stock.”
Zane Rowe, chief financial officer, VMware added, “VMware’s strong balance sheet and excess liquidity, together with better access to offshore cash, has created a unique opportunity to return capital efficiently to our stockholders in conjunction with Dell’s transaction. Following this one-time special dividend, we retain full financial flexibility to continue to pursue organic and inorganic investments, and to return capital to stockholders via share repurchases. We remain committed to maintaining a well-balanced capital allocation strategy.”
“VMware has thrived as part of the Dell Technologies family and has seen tremendous traction and strategic relevance with all customers, resulting in significant revenue growth and financial performance,” said Michael Dell, chairman of the VMware Board and the Dell Board. “After the transaction concludes, I am looking forward to VMware’s continued independent status, strategy and capital allocation policy for organic investment, M&A and shareholder returns.”
As part of this process, VMware was advised by J.P. Morgan Securities LLC (lead), Perella Weinberg Partners L.P. and Morrison & Foerster LLP. The Special Committee of the VMware Board of Directors was advised by Lazard and Gibson, Dunn & Crutcher LLP.
Q2 and Annual FY-19 Guidance
VMware is reaffirming its Q2 fiscal 2019 guidance issued on the May 31, 2018 earnings conference call.
Full fiscal year 2019 guidance issued on the May 31, 2018 earnings conference call is reaffirmed for total revenue, license revenue and non-GAAP operating margin.
Distribution of the one-time special dividend will reduce interest income, and as a result guidance issued on the May 31, 2018 earning conference call will be adjusted for GAAP and non-GAAP earnings per share and annual operating cash flow. GAAP earnings per share range for fiscal 2019 is now expected to be $5.43 per share to $5.73 per share and non-GAAP earnings per share for fiscal 2019 is now expected to be $5.99 per share on a diluted share count of 414 million shares. Cash flow from operations is expected to be $3.55 billion, and free cash flow is expected to be $3.27 billion.
VMware’s board of directors also extended authorization of the Company’s existing stock repurchase program, with approximately $876 million remaining, through August 31, 2019.
About VMware
VMware software powers the world’s complex digital infrastructure. The company’s compute, cloud, mobility, networking and security offerings provide a dynamic and efficient digital foundation to over 500,000 customers globally, aided by an ecosystem of 75,000 partners. Headquartered in Palo Alto, California, this year VMware celebrates twenty years of breakthrough innovation benefiting business and society. For more information please visit https://www.vmware.com/company.html.
Forward-Looking Statements
This press release contains forward-looking statements that are based on VMware’s current expectations, including, among other things, statements regarding VMware’s special dividend, including its record date and payment date, its status as an independent, publicly traded company, its strong business performance, growth opportunities and cash flow generation, Q2 guidance and FY-19 full year revenue, operating margin, EPS, operating and cash flow, the expected completion of the Dell transaction, the elimination of Dell Class V common stock and creation of a new public equity class for Dell, alignment between Dell and VMware, VMware’s go-forward strategy, VMware’s capital allocation strategies, including plans for share repurchases, VMware’s growth expectations, future value creation and capital structure. These forward-looking statements are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors, including but
not limited to: (i) VMware’s ability to pay the one-time special dividend, (ii) the satisfaction of conditions to the special dividend payment, including the timely satisfaction of conditions to the consummation of the Dell transaction, (iii) adverse changes in general economic or market conditions; (iv) delays or reductions in consumer, government and information technology spending; (v) competitive factors, including but not limited to pricing pressures, industry consolidation, entry of new competitors into the virtualization software and cloud, end user and mobile computing industries, and new product and marketing initiatives by VMware’s competitors; (vi) VMware’s customers’ ability to transition to new products and computing strategies such as cloud computing, end user virtualization and the software defined data center; (vii) VMware’s ability to enter into and maintain strategically effective partnerships and alliances; (viii) the uncertainty of customer acceptance of emerging technology; (ix) rapid technological changes in the virtualization software and cloud, end user and mobile computing industries; (x) changes to product and service development timelines; (xi) VMware’s relationship with Dell Technologies and Dell’s ability to control matters requiring stockholder approval, including the election of VMware’s board members and matters relating to Dell’s investment in VMware; (xii) VMware’s ability to protect its proprietary technology; (xiii) VMware’s ability to attract and retain highly qualified employees; (xiv) the ability to successfully integrate into VMware acquired companies and assets and smoothly transition services related to divested assets from VMware; (xv) the ability of VMware to realize synergies from Dell; (xvi) disruptions resulting from key management changes; (xvii) fluctuating currency exchange rates; (xviii) changes in VMware’s financial condition; and (xiv) risks associated with cyber-attacks, information security and privacy. These forward-looking statements are made as of the date of this press release, are based on current expectations and are subject to uncertainties and changes in condition, significance, value and effect as well as other risks detailed in documents filed with the Securities and Exchange Commission, including VMware’s most recent reports on Form 10-K and Form 10-Q and current reports on Form 8-K that we may file from time to time, which could cause actual results to vary from expectations. VMware assumes no obligation to, and does not currently intend to, update any such forward-looking statements after the date of this release.
Contact
Paul Ziots
VMware Investor Relations
pziots@vmware.com
650-427-3267
Michael Thacker
VMware Global PR
mthacker@vmware.com
650-427-4454
SUPPLEMENTAL SCHEDULE
Special Dividend Record Date and Conditions to Payment
Record Date. Subject to the conditions below, the special dividend will be payable to stockholders of record as of the later of (i) the 10th calendar day (or if such day is not a business day, the next succeeding business day) following the later of (x) the date on which the Dell stockholders have voted to approve the Dell transaction and (y) the date that shares of Dell Class C Common Stock have been approved for listing on the New York Stock Exchange, subject to official notice of issuance, and (ii) September 12, 2018. Subject to the conditions set forth below, payment of the special dividend will be made one business day after the record date (provided that if payment to Dell’s subsidiaries holding of record VMware common stock cannot occur prior to 3:30 p.m. Eastern time, the special dividend will be paid on the next business day).
Conditions to Payment. The special dividend will be payable in connection with the completion of the Dell transaction, and payment of the special dividend is subject to the following conditions:
(1) the stockholders of Dell approving the Dell transaction on or prior to January 18, 2019, including separate approval of a majority of the holders of Dell tracking stock unaffiliated with Dell;
(2) Dell providing a certification to VMware that each of the conditions precedent (other than the payment of Dell’s portion of the proceeds of the special dividend) to the obligations of Dell to complete the Dell transaction as provided in the Agreement and Plan of Merger, dated as of July 1, 2018, by and between Dell and Teton Merger Sub, Inc. (the “Dell Transaction Agreement”) have been satisfied or (to the extent permitted in the Dell Transaction Agreement) irrevocably waived, including the conditions that:
(a) the stockholders of Dell have approved the Dell transaction;
(b) no injunction or other legal restraint prohibiting the Dell transaction shall be in effect, and no law shall have been adopted, enacted, enforced, entered or promulgated that prohibits the Dell transaction;
(c) as of the payment date for the special dividend, the governing body of each Dell subsidiary through which proceeds of the special dividend will pass to Dell shall have determined that such subsidiary of Dell meets all solvency and legal requirements to distribute the proceeds that it receives in accordance with the plan established by Dell.
(d) the registration statement with respect to the Dell Class C common stock to be issued in the Dell transaction shall be effective;
(e) the Dell Class C common stock to be issued in the Dell Transaction shall have been approved for listing on the NYSE, subject to official notice of issuance;
(f) the representations and warranties of Dell and its merger subsidiary contained in the Dell Transaction Agreement shall be true and correct in all material respects;
(g) Dell shall have performed in all material respects all obligations of it contained in the Dell Transaction Agreement;
(h) since February 2, 2018, Dell shall not have suffered, and would not reasonably be expected to suffer, a material adverse effect since February 2, 2018; and
(i) since February 2, 2018, VMware shall not have suffered, and would not reasonably be expected to suffer, a material adverse effect since February 2, 2018,
each of which conditions (a)-(i) above is set forth in greater detail in the Dell Transaction Agreement, which we anticipate will be filed with the SEC by Dell on or around July 2, 2018, and which we refer to and urge VMware stockholders to read;
(3) Dell providing a certification to VMware that if Dell’s pro rata share of the special dividend is received by Dell’s subsidiaries who are holders of record of VMware common stock by 3:30 p.m. Eastern time on such date, the closing of the Dell transaction will occur on such date (provided that if payment cannot occur prior to 3:30 p.m. Eastern time, the special dividend will be paid on the next business day);
(4) the Special Committee and the Board of VMware receiving an updated opinion from a nationally recognized expert that as of the date of payment, (x) VMware (on a consolidated basis) has sufficient surplus under Delaware law for the payment of the special dividend and (y) following the payment of the special dividend, VMware (on a consolidated basis) will be solvent under Delaware law; and
(5) a determination by the Special Committee and the Board of VMware that, as of the payment date of the special dividend, (x) VMware (on a consolidated basis) has sufficient surplus under Delaware law for the payment of the special dividend, (y) following the payment of the special dividend, VMware (on a consolidated basis) will be solvent under Delaware law and (z) that as of the payment date all of VMWare’s subsidiaries that must distribute cash or otherwise pass proceeds to VMware in order for it to pay the special dividend meet all solvency and legal adequacy requirements to distribute such cash amounts.
The special dividend will not be paid unless each of the above conditions is satisfied. If any of the above conditions is not met on or before January 31, 2019 or if the agreement governing the Dell transaction is terminated for any reason, the special dividend shall automatically be cancelled.
Revisions to Full Year Fiscal 2019 Guidance (1)
(amounts in millions; except per share amounts)
| Full Year Fiscal 2019 Guidance | ||||||||||||
|
May 31, 2018
Guidance |
Adjustments | Revised Guidance | ||||||||||
|
Diluted Share Count (2) |
410 | 4 | 414 | |||||||||
|
Non-GAAP Net Income per Diluted Share (3) |
$ | 6.14 | $ | (0.15 | ) | $ | 5.99 | |||||
|
Operating Cash Flow |
$ | 3,600 | $ | (50 | ) | $ | 3,550 | |||||
|
Capital Expenditures |
$ | 280 | $ | — | $ | 280 | ||||||
|
Free Cash Flow (4) |
$ | 3,320 | $ | (50 | ) | $ | 3,270 | |||||
| (1) | Revisions based on guidance communicated on May 31, 2018 |
| (2) | Full fiscal year diluted share count assumes no additional stock repurchase for the remainder of fiscal 2019 |
| (3) | See below table for reconciliation of GAAP to Non-GAAP |
| (4) | Free Cash Flow is a non-GAAP financial measure calculated by subtracting Capital Expenditures from Operating Cash Flow |
Reconciliation of GAAP to Non-GAAP Net Income per Diluted Share
| Full Year Fiscal 2019 Guidance | ||||||||||||
|
May 31, 2018
Guidance (Projected) |
Adjustments |
Revised Guidance
(Projected) |
||||||||||
|
GAAP Net Income per Diluted Share (1) |
$ | 5.58 - 5.88 | $ | (0.15 | ) | $ | 5.43 - 5.73 | |||||
|
Stock-based Compensation (estimated) |
$ | 1.68 | $ | (0.01 | ) | $ | 1.67 | |||||
|
Employer Payroll Tax on Employee Stock Transactions (estimated) |
$ | 0.02 | — | $ | 0.02 | |||||||
|
Intangible Amortization (estimated) |
$ | 0.36 | — | $ | 0.36 | |||||||
|
Acquisition, Disposition and Other Related Items (estimated) (2) |
$ | (1.81 | ) | $ | 0.01 | $ | (1.80 | ) | ||||
|
Tax Adjustment (estimated) (3) |
$ | 0.14 | — | $ | 0.14 | |||||||
|
Non-GAAP Net Income per Diluted Share |
$ | 6.14 | $ | (0.15 | ) | $ | 5.99 | |||||
| (1) | Values of items excluded from GAAP net income per diluted share are estimates. While the aggregate of estimates may not foot, in total we expect GAAP net income per share to be $0.26 to $0.56 less than non-GAAP net income per share |
| (2) | Includes estimated gains/loss on strategic investments |
| (3) | Reflects estimated impact of the 2017 U.S. Tax Cuts and Jobs Act. Final calculations may differ materially from estimates, due to, among other things, additional analysis on the application of the tax laws and further clarification and guidance issued by the U.S. Treasury Department, the IRS and other standard-setting bodies and authorities |