0001124610-20-000004 8-K 15 20200226 7.01 9.01 20200226 20200226 VMWARE, INC. 0001124610 7372 943292913 DE 0131 8-K 34 001-33622 20656197 3401 HILLVIEW AVENUE PALO ALTO CA 94304 (650) 427-5000 3401 HILLVIEW AVENUE PALO ALTO CA 94304 VMWARE INC 20000923 8-K 1 fy20q4feb26pre-earning.htm 8-K Document false0001124610 0001124610 2020-02-26 2020-02-26 -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRERT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported): February 26, 2020 VMWARE, INC. (Exact name of registrant as specified in its charter) Delaware 001-33622 94-3292913 (State or Other Jurisdiction (Commission (IRS Employer of Incorporation) File Number) 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)) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class Trading Symbol(s) which registered Class A common stock VMW New York Stock Exchange 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 7.01 Regulation FD Disclosure. VMware, Inc. today made available recast financial statements from prior periods consisting of selected financial information from the first quarter of fiscal 2019 through the third quarter of fiscal 2020 on its investor relations webpage at ir.vmware.com. Pursuant to generally accepted accounting principles (“GAAP”), the recast financial statements combine VMware’s historical financial results with those of Pivotal Software, Inc. (“Pivotal”), which VMware acquired on December 30, 2019. As Pivotal is treated by GAAP as an acquisition of an entity under common control, VMware’s financial statements for prior periods are required to be recast as if the entities were combined for all periods presented. Additionally, effective with the fourth quarter of fiscal year 2020, VMware will present a new revenue line item in its earnings reports entitled “subscription and SaaS revenue” that is also included in the recast financial statements. With the addition of this new revenue line item, reported revenue consists of the following three components: license, subscription and SaaS, and services. Previously, subscription and SaaS revenue was referred to as “hybrid cloud subscription and SaaS” revenue and was allocated between license and services revenue. The new subscription and SaaS revenue line item includes VMware’s revenue from Pivotal and other offerings that are billed on a subscription basis, as well as revenue from SaaS offerings such as Workspace ONE, Carbon Black, and VMware Cloud on AWS, and revenue from VCPP cloud offerings that are billed to customers on a consumption basis. Reconciliations of non-GAAP financial measures to VMware’s financial results as determined in accordance with GAAP are included in Exhibit 99.1. For a description of these non-GAAP financial measures, including the reasons management uses each measure, please see the section of the tables in Exhibit 99.1 titled “About Non-GAAP Financial Measures.” VMware, Pivotal, Workspace ONE, Carbon Black, and VMware Cloud are registered trademarks or trademarks of VMware, Inc. or its subsidiaries in the United States and other jurisdictions. The information in this Item 7.01 and Exhibit 99.1 attached hereto shall not be deemed “filed” for purposes of Section 18 of 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, regardless of any general incorporation language in such filing. Item 9.01 Financial Statements and Exhibits. (d) Exhibits 99.1 VMware, Inc. Recast Financial Statements From Prior Periods -------------------------------------------------------------------------------- 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. VMware, Inc. Date: February 26, 2020 By: /s/ Zane Rowe Zane Rowe, Chief Financial Officer and Executive Vice President EX-99.1 2 recasttables.htm EXHIBIT 99.1 Exhibit VMware, Inc. SUPPLEMENTAL SCHEDULE OF FINANCIAL INFORMATION ADJUSTED FOR PIVOTAL ACQUISITION (amounts in millions, except per share amounts, and shares in thousands) (unaudited) During the fourth quarter of fiscal 2020, VMware acquired Pivotal, which was accounted for as a transaction between entities under common control. This transaction required prior period information to be recast for all periods presented, as if the combination had been in effect since the inception of the common control, which could include eliminations and other adjustments (referred to in the schedules below as "Pivotal Adjustments"). Condensed Consolidated Statements of Income Adjusted for Pivotal Acquisition The following table presents the condensed consolidated statements of income for the first three quarters of fiscal 2020, the four quarters of fiscal 2019, and the annual periods of fiscal 2019 and fiscal 2018 as adjusted for the Pivotal acquisition (tables in millions, except per share amounts, and shares in thousands): Three Months Ended Twelve Months Ended November 1, August 2, May 3, February 1, November 2, August 3, May 4, February 1, February 2, 2019 2019 2019 2019 2018 2018 2018 2019 2018 Revenue: License $ 728 $ 773 $ 646 $ 1,027 $ 692 $ 723 $ 601 $ 3,042 $ 2,628 Subscription and SaaS 470 439 411 367 334 308 294 1,303 927 Services 1,458 1,420 1,393 1,365 1,337 1,301 1,264 5,268 4,781 Total revenue 2,656 2,632 2,450 2,759 2,363 2,332 2,159 9,613 8,336 Operating expenses: Cost of license revenue 42 38 36 40 37 37 36 150 135 Cost of subscription and SaaS revenue 103 97 94 86 72 65 62 280 200 Cost of services revenue 311 306 299 292 279 279 271 1,122 1,072 Research and development 642 614 590 596 551 528 498 2,173 1,917 Sales and marketing 918 888 868 889 786 772 782 3,230 2,723 General and administrative 269 223 209 258 199 203 185 846 722 Realignment and loss on disposition — — — — 6 1 2 9 104 Operating income 371 466 354 598 433 447 323 1,803 1,463 Investment income (loss) 12 14 14 (7 ) 63 57 48 161 120 Interest expense (40 ) (34 ) (34 ) (34 ) (33 ) (34 ) (34 ) (134 ) (74 ) Other income (expense), net 17 41 17 9 (17 ) 10 (1 ) (1 ) 68 Income before income tax 360 487 351 566 446 480 336 1,829 1,577 Income tax provision (benefit) (30 ) (4,798 ) (14 ) 87 41 64 46 239 1,152 Net income 390 5,285 365 479 405 416 290 1,590 425 Less: Net loss attributable to non-controlling interests (17 ) (18 ) (15 ) (17 ) (17 ) (17 ) (9 ) (60 ) (12 ) Net income attributable to VMware, Inc. $ 407 $ 5,303 $ 380 $ 496 $ 422 $ 433 $ 299 $ 1,650 $ 437 Net income per weighted-average share attributable to VMware, Inc. common stockholders, basic for Classes A and B $ 0.98 $ 12.72 $ 0.91 $ 1.19 $ 1.01 $ 1.04 $ 0.73 $ 3.99 $ 1.07 Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B $ 0.96 $ 12.47 $ 0.89 $ 1.17 $ 1.00 $ 1.03 $ 0.71 $ 3.92 $ 1.04 Weighted-average shares, basic for Classes A and B 416,387 416,983 417,636 417,499 415,930 414,334 409,266 413,769 410,315 Weighted-average shares, diluted for Classes A and B 423,035 425,091 426,697 424,630 422,629 421,421 418,836 421,131 420,887 -------------------------------------------------------------------------------- VMware, Inc. Reconciliations of GAAP to Non-GAAP Data Adjusted for Pivotal Acquisition The following tables present the reconciliations of GAAP to non-GAAP data for the first three quarters of fiscal 2020, the four quarters of fiscal 2019, and the annual periods of fiscal 2019 and fiscal 2018 as adjusted for the Pivotal acquisition (tables in millions, except per share amounts): Three Months Ended November 1, 2019 GAAP Combined As Originally Pivotal GAAP Non-GAAP Non-GAAP Reported Adjustments As Adjusted(6) Adjustments As Adjusted(6) Operating income $ 431 (60 ) $ 371 386 (1) $ 758 Income tax provision (benefit) 45 (75 ) (30 ) 147 (2) 118 Net income attributable to VMware, Inc. $ 621 (214 ) $ 407 195 (3) $ 602 Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B(5)(6) $ 1.50 $ 0.96 0.45 (4) $ 1.42 __________ (1) Non-GAAP adjustments to operating income include stock-based compensation ($256 million), employer payroll taxes on employee stock transactions ($1 million), intangible amortization ($74 million) and acquisition, disposition and other items ($55 million). (2) Non-GAAP adjustments to income tax provision (benefit) were $147 million during the three months ended November 1, 2019. (3) Non-GAAP adjustments to net income attributable to VMware, Inc. include stock-based compensation ($230 million), employer payroll taxes on employee stock transactions ($1 million), intangible amortization ($65 million), acquisition, disposition and other items ($43 million) and tax adjustment (-$144 million). (4) Non-GAAP adjustments to net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, include stock-based compensation ($0.54), intangible amortization ($0.15), acquisition, disposition and other items ($0.10) and tax adjustment (-$0.34). (5) Combined GAAP as adjusted and non-GAAP as adjusted net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, were calculated based upon 423,035 diluted weighted-average shares for Classes A and B. (6) Totals may not sum, due to rounding. Net income per weighted-average share attributable to VMware, Inc. common stockholders was calculated based upon the respective underlying, non-rounded data. Three Months Ended August 2, 2019 GAAP Combined As Originally Pivotal GAAP Non-GAAP Non-GAAP Reported Adjustments As Adjusted(6) Adjustments As Adjusted(6) Operating income $ 523 (57 ) $ 466 330 (1) $ 795 Income tax provision (benefit) (4,925 ) 127 (4,798 ) 4,925 (2) 127 Net income attributable to VMware, Inc. $ 4,926 377 $ 5,303 (4,652 ) (3) $ 650 Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B(5)(6) $ 11.83 $ 12.47 (10.94 ) (4) $ 1.53 __________ (1) Non-GAAP adjustments to operating income include stock-based compensation ($234 million), employer payroll taxes on employee stock transactions ($4 million), intangible amortization ($70 million) and acquisition, disposition and other items ($22 million). (2) Non-GAAP adjustments to income tax provision (benefit) were $4,925 million during the three months ended August 2, 2019. (3) Non-GAAP adjustments to net income attributable to VMware, Inc. include stock-based compensation ($208 million), employer payroll taxes on employee stock transactions ($4 million), intangible amortization ($61 million), acquisition, disposition and other items (-$1 million) and tax adjustment (-$4,924 million). (4) Non-GAAP adjustments to net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, include stock-based compensation ($0.49), employer payroll taxes on employee stock transactions ($0.01), intangible amortization ($0.14), and tax adjustment (-$11.58). (5) Combined GAAP as adjusted and non-GAAP as adjusted net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, were calculated based upon 425,091 diluted weighted-average shares for Classes A and B. (6) Totals may not sum, due to rounding. Net income per weighted-average share attributable to VMware, Inc. common stockholders was calculated based upon the respective underlying, non-rounded data. -------------------------------------------------------------------------------- VMware, Inc. Reconciliations of GAAP to Non-GAAP Data Adjusted for Pivotal Acquisition (cont.) Three Months Ended May 3, 2019 GAAP Combined As Originally Pivotal GAAP Non-GAAP Non-GAAP Reported Adjustments As Adjusted(6) Adjustments As Adjusted(6) Operating income $ 415 (61 ) $ 354 300 (1) $ 654 Income tax provision (benefit) 35 (49 ) (14 ) 118 (2) 104 Net income attributable to VMware, Inc. $ 505 (125 ) $ 380 155 (3) $ 535 Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B(5)(6) $ 1.21 $ 0.89 0.35 (4) $ 1.25 __________ (1) Non-GAAP adjustments to operating income include stock-based compensation ($216 million), employer payroll taxes on employee stock transactions ($2 million), intangible amortization ($69 million) and acquisition, disposition and other items ($13 million). (2) Non-GAAP adjustments to income tax provision (benefit) were $118 million during the three months ended May 3, 2019. (3) Non-GAAP adjustments to net income attributable to VMware, Inc. include stock-based compensation ($194 million), employer payroll taxes on employee stock transactions ($2 million), intangible amortization ($60 million), acquisition, disposition and other items ($12 million) and tax adjustment (-$113 million). (4) Non-GAAP adjustments to net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, include stock-based compensation ($0.45), intangible amortization ($0.14), acquisition, disposition and other items ($0.03) and tax adjustment (-$0.27). (5) Combined GAAP as adjusted and non-GAAP as adjusted net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, were calculated based upon 426,697 diluted weighted-average shares for Classes A and B. (6) Totals may not sum, due to rounding. Net income per weighted-average share attributable to VMware, Inc. common stockholders was calculated based upon the respective underlying, non-rounded data. Three Months Ended February 1, 2019 GAAP Combined As Originally Pivotal GAAP Non-GAAP Non-GAAP Reported Adjustments As Adjusted(6) Adjustments As Adjusted(6) Operating income $ 664 (66 ) $ 598 342 (1) $ 940 Income tax provision 89 (2 ) 87 67 (2) 153 Net income attributable to VMware, Inc. $ 502 (6 ) $ 496 299 (3) $ 795 Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B(5)(6) $ 1.21 $ 1.17 0.70 (4) $ 1.87 __________ (1) Non-GAAP adjustments to operating income include stock-based compensation ($220 million), employer payroll taxes on employee stock transactions ($1 million), intangible amortization ($63 million) and acquisition, disposition and other items ($58 million). (2) Non-GAAP adjustments to income tax provision were $67 million during the three months ended February 1, 2019. (3) Non-GAAP adjustments to net income attributable to VMware, Inc. include stock-based compensation ($200 million), employer payroll taxes on employee stock transactions ($1 million), intangible amortization ($56 million), acquisition, disposition and other items ($106 million) and tax adjustment (-$64 million). (4) Non-GAAP adjustments to net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, include stock-based compensation ($0.47), intangible amortization ($0.13), acquisition, disposition and other items ($0.25) and tax adjustment (-$0.15). (5) Combined GAAP as adjusted and non-GAAP as adjusted net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, were calculated based upon 424,630 diluted weighted-average shares for Classes A and B. (6) Totals may not sum, due to rounding. Net income per weighted-average share attributable to VMware, Inc. common stockholders was calculated based upon the respective underlying, non-rounded data. -------------------------------------------------------------------------------- VMware, Inc. Reconciliations of GAAP to Non-GAAP Data Adjusted for Pivotal Acquisition (cont.) Three Months Ended November 2, 2018 GAAP Combined As Originally Pivotal GAAP Non-GAAP Non-GAAP Reported Adjustments As Adjusted(6) Adjustments As Adjusted(6) Operating income $ 495 (62 ) $ 433 287 (1) $ 720 Income tax provision 11 30 41 79 (2) 120 Net income attributable to VMware, Inc. $ 334 88 $ 422 200 (3) $ 622 Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B(5)(6) $ 0.81 $ 1.00 0.47 (4) $ 1.47 __________ (1) Non-GAAP adjustments to operating income include stock-based compensation ($211 million), employer payroll taxes on employee stock transactions ($2 million), intangible amortization ($60 million) and acquisition, disposition and other items ($14 million). (2) Non-GAAP adjustments to income tax provision were $79 million during the three months ended November 2, 2018. (3) Non-GAAP adjustments to net income attributable to VMware, Inc. include stock-based compensation ($192 million), employer payroll taxes on employee stock transactions ($2 million), intangible amortization ($53 million), acquisition, disposition and other items ($30 million) and tax adjustment (-$77 million). (4) Non-GAAP adjustments to net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, include stock-based compensation ($0.45), intangible amortization ($0.13), acquisition, disposition and other items ($0.07) and tax adjustment (-$0.18). (5) Combined GAAP as adjusted and non-GAAP as adjusted net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, were calculated based upon 422,629 diluted weighted-average shares for Classes A and B. (6) Totals may not sum, due to rounding. Net income per weighted-average share attributable to VMware, Inc. common stockholders was calculated based upon the respective underlying, non-rounded data. Three Months Ended August 3, 2018 GAAP Combined As Originally Pivotal GAAP Non-GAAP Non-GAAP Reported Adjustments As Adjusted(6) Adjustments As Adjusted(6) Operating income $ 509 (62 ) $ 447 267 (1) $ 714 Income tax provision 128 (64 ) 64 54 (2) 118 Net income attributable to VMware, Inc. $ 644 (211 ) $ 433 180 (3) $ 613 Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B(5)(6) $ 1.56 $ 1.03 0.42 (4) $ 1.45 __________ (1) Non-GAAP adjustments to operating income include stock-based compensation ($196 million), employer payroll taxes on employee stock transactions ($2 million), intangible amortization ($60 million) and acquisition, disposition and other items ($9 million). (2) Non-GAAP adjustments to income tax provision were $54 million during the three months ended August 3, 2018. (3) Non-GAAP adjustments to net income attributable to VMware, Inc. include stock-based compensation ($177 million), employer payroll taxes on employee stock transactions ($2 million), intangible amortization ($53 million), acquisition, disposition and other items ($1 million) and tax adjustment (-$53 million). (4) Non-GAAP adjustments to net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, include stock-based compensation ($0.42), intangible amortization ($0.13) and tax adjustment (-$0.13). (5) Combined GAAP as adjusted and non-GAAP as adjusted net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, were calculated based upon 421,421 diluted weighted-average shares for Classes A and B. (6) Totals may not sum, due to rounding. Net income per weighted-average share attributable to VMware, Inc. common stockholders was calculated based upon the respective underlying, non-rounded data. -------------------------------------------------------------------------------- VMware, Inc. Reconciliations of GAAP to Non-GAAP Data Adjusted for Pivotal Acquisition (cont.) Three Months Ended May 4, 2018 GAAP Combined As Originally Pivotal GAAP Non-GAAP Non-GAAP Reported Adjustments As Adjusted(6) Adjustments As Adjusted(6) Operating income $ 382 (59 ) $ 323 248 (1) $ 572 Income tax provision 233 (187 ) 46 48 (2) 94 Net income attributable to VMware, Inc. $ 942 (643 ) $ 299 189 (3) $ 488 Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B(5)(6) $ 2.29 $ 0.71 0.45 (4) $ 1.16 __________ (1) Non-GAAP adjustments to operating income include stock-based compensation ($172 million), employer payroll taxes on employee stock transactions ($2 million), intangible amortization ($59 million) and acquisition, disposition and other items ($15 million). (2) Non-GAAP adjustments to income tax provision were $48 million during the three months ended May 4, 2018. (3) Non-GAAP adjustments to net income attributable to VMware, Inc. include stock-based compensation ($161 million), employer payroll taxes on employee stock transactions ($2 million), intangible amortization ($55 million), acquisition, disposition and other items ($18 million) and tax adjustment (-$47 million). (4) Non-GAAP adjustments to net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, include stock-based compensation ($0.39), intangible amortization ($0.13), acquisition, disposition and other items ($0.04) and tax adjustment (-$0.11). (5) Combined GAAP as adjusted and non-GAAP as adjusted net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, were calculated based upon 418,836 diluted weighted-average shares for Classes A and B. (6) Totals may not sum, due to rounding. Net income per weighted-average share attributable to VMware, Inc. common stockholders was calculated based upon the respective underlying, non-rounded data. Twelve Months Ended February 1, 2019 GAAP Combined As Originally Pivotal GAAP Non-GAAP Non-GAAP Reported Adjustments As Adjusted(6) Adjustments As Adjusted(6) Operating income $ 2,050 (247 ) $ 1,803 1,145 (1) $ 2,948 Income tax provision 461 (222 ) 239 247 (2) 486 Net income attributable to VMware, Inc. $ 2,422 (772 ) $ 1,650 868 (3) $ 2,518 Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B(5)(6) $ 5.85 $ 3.92 2.07 (4) $ 5.98 __________ (1) Non-GAAP adjustments to operating income include stock-based compensation ($800 million), employer payroll taxes on employee stock transactions ($7 million), intangible amortization ($241 million) and acquisition, disposition and other items ($97 million). (2) Non-GAAP adjustments to income tax provision were $247 million during the twelve months ended February 1, 2019. (3) Non-GAAP adjustments to net income attributable to VMware, Inc. include stock-based compensation ($731 million), employer payroll taxes on employee stock transactions ($7 million), intangible amortization ($217 million), acquisition, disposition and other items ($154 million) and tax adjustment (-$241 million). (4) Non-GAAP adjustments to net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, include stock-based compensation ($1.74), employer payroll taxes on employee stock transactions ($0.02), intangible amortization ($0.51), acquisition, disposition and other items ($0.37) and tax adjustment (-$0.57). (5) Combined GAAP as adjusted and non-GAAP as adjusted net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, were calculated based upon 421,131 diluted weighted-average shares for Classes A and B. (6) Totals may not sum, due to rounding. Net income per weighted-average share attributable to VMware, Inc. common stockholders was calculated based upon the respective underlying, non-rounded data. -------------------------------------------------------------------------------- VMware, Inc. Reconciliations of GAAP to Non-GAAP Data Adjusted for Pivotal Acquisition (cont.) Twelve Months Ended February 2, 2018 GAAP Combined As Originally Pivotal GAAP Non-GAAP Non-GAAP Reported Adjustments As Adjusted(6) Adjustments As Adjusted(6) Operating income $ 1,702 (239 ) $ 1,463 1,026 (1) $ 2,489 Income tax provision 1,155 (3 ) 1,152 (627 ) (2) 525 Net income attributable to VMware, Inc. $ 659 (222 ) $ 437 1,578 (3) $ 2,016 Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B(5)(6) $ 1.59 $ 1.04 3.74 (4) $ 4.79 __________ (1) Non-GAAP adjustments to operating income include stock-based compensation ($712 million), employer payroll taxes on employee stock transactions ($6 million), intangible amortization ($174 million) and acquisition, disposition and other items ($134 million). (2) Non-GAAP adjustments to income tax provision were -$627 million during the twelve months ended February 2, 2018. (3) Non-GAAP adjustments to net income attributable to VMware Inc. include stock-based compensation ($683 million), employer payroll taxes on employee stock transactions ($6 million), intangible amortization ($172 million), acquisition, disposition and other items ($88 million), loss on share repurchase ($2 million) and tax adjustment ($627 million). (4) Non-GAAP adjustments to net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, include stock-based compensation ($1.62), employer payroll taxes on employee stock transactions ($0.01), intangible amortization ($0.41), acquisition, disposition and other items ($0.21) and tax adjustment ($1.49). (5) Combined GAAP as adjusted and non-GAAP as adjusted net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, were calculated based upon 420,887 diluted weighted-average shares for Classes A and B. (6) Totals may not sum, due to rounding. Net income per weighted-average share attributable to VMware, Inc. common stockholders was calculated based upon the respective underlying, non-rounded data. -------------------------------------------------------------------------------- VMware, Inc. Condensed Consolidated Balance Sheet Adjusted for Pivotal Acquisition The following table presents the condensed consolidated balance sheet for fiscal 2019 as originally reported and as adjusted for the Pivotal acquisition (tables in millions): February 1, 2019 GAAP Combined As Originally Pivotal GAAP Reported Adjustments As Adjusted ASSETS Current assets: Cash and cash equivalents $ 2,830 702 $ 3,532 Short-term investments 19 — 19 Accounts receivable, net of allowance for doubtful accounts 1,576 147 1,723 Due from related parties, net 937 153 1,090 Other current assets 289 16 305 Total current assets 5,651 1,018 6,669 Property and equipment, net 1,133 29 1,162 Other assets 1,853 (765 ) 1,088 Deferred tax assets 103 187 290 Intangible assets, net 541 425 966 Goodwill 5,381 2,037 7,418 Total assets $ 14,662 2,931 $ 17,593 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 135 18 $ 153 Accrued expenses and other 1,593 71 1,664 Unearned revenue 3,968 371 4,339 Total current liabilities 5,696 460 6,156 Note payable to Dell 270 — 270 Long-term debt 3,972 — 3,972 Unearned revenue 3,010 90 3,100 Income tax payable 889 — 889 Other liabilities 274 41 315 Total liabilities 14,111 591 14,702 Contingencies Stockholders’ equity: Class A common stock 1 — 1 Class B convertible common stock 3 — 3 Additional paid-in capital 531 2,428 2,959 Accumulated other comprehensive income (loss) 2 (4 ) (2 ) Retained earnings (Accumulated deficit) 14 (1,110 ) (1,096 ) Total VMware, Inc. stockholders’ equity 551 1,314 1,865 Non-controlling interests — 1,026 1,026 Total stockholders’ equity 551 2,340 2,891 Total liabilities and stockholders’ equity $ 14,662 2,931 $ 17,593 -------------------------------------------------------------------------------- VMware, Inc. Reconciliation of GAAP Cash Flows from Operating Activities to Free Cash Flows Adjusted for Pivotal Acquisition The following table presents the reconciliation of GAAP cash flows from operating activities to free cash flows as adjusted for the Pivotal acquisition for the first three quarters of fiscal 2020, the four quarters of fiscal 2019, and the annual periods of fiscal 2019 and fiscal 2018 (table in millions): Three Months Ended Twelve Months Ended November 1, August 2, May 3, February 1, November 2, August 3, May 4, February 1, February 2, 2019 2019 2019 2019 2018 2018 2018 2019 2018 GAAP cash flows from operating activities $ 751 $ 641 $ 1,395 $ 1,020 $ 733 $ 805 $ 1,101 $ 3,657 $ 3,101 Capital expenditures (52 ) (91 ) (73 ) (68 ) (60 ) (63 ) (63 ) (254 ) (276 ) Free cash flows $ 699 $ 550 $ 1,322 $ 952 $ 673 $ 742 $ 1,038 $ 3,403 $ 2,825 The following tables present the reconciliation of GAAP cash flows from operating activities to free cash flows as originally reported and as adjusted for the Pivotal acquisition for the first three quarters of fiscal 2020, the four quarters of fiscal 2019, and the annual periods of fiscal 2019 and fiscal 2018 (tables in millions): Three Months Ended November 1, 2019 As Originally Pivotal Combined Reported Adjustments As Adjusted GAAP cash flows from operating activities $ 810 (59 ) $ 751 Capital expenditures (50 ) (2 ) (52 ) Free cash flows $ 760 (61 ) $ 699 Three Months Ended August 2, 2019 As Originally Pivotal Combined Reported Adjustments As Adjusted GAAP cash flows from operating activities $ 699 (58 ) $ 641 Capital expenditures (88 ) (3 ) (91 ) Free cash flows $ 611 (61 ) $ 550 Three Months Ended May 3, 2019 As Originally Pivotal Combined Reported Adjustments As Adjusted GAAP cash flows from operating activities $ 1,273 122 $ 1,395 Capital expenditures (71 ) (2 ) (73 ) Free cash flows $ 1,202 120 $ 1,322 -------------------------------------------------------------------------------- VMware, Inc. Reconciliation of GAAP Cash Flows from Operating Activities to Free Cash Flows Adjusted for Pivotal Acquisition (cont.) Three Months Ended February 1, 2019 As Originally Pivotal Combined Reported Adjustments As Adjusted GAAP cash flows from operating activities $ 1,012 8 $ 1,020 Capital expenditures (66 ) (2 ) (68 ) Free cash flows $ 946 6 $ 952 Three Months Ended November 2, 2018 As Originally Pivotal Combined Reported Adjustments As Adjusted GAAP cash flows from operating activities $ 769 (36 ) $ 733 Capital expenditures (57 ) (3 ) (60 ) Free cash flows $ 712 (39 ) $ 673 Three Months Ended August 3, 2018 As Originally Pivotal Combined Reported Adjustments As Adjusted GAAP cash flows from operating activities $ 787 18 $ 805 Capital expenditures (61 ) (2 ) (63 ) Free cash flows $ 726 16 $ 742 Three Months Ended May 4, 2018 As Originally Pivotal Combined Reported Adjustments As Adjusted GAAP cash flows from operating activities $ 1,095 6 $ 1,101 Capital expenditures (61 ) (2 ) (63 ) Free cash flows $ 1,034 4 $ 1,038 Twelve Months Ended February 1, 2019 As Originally Pivotal Combined Reported Adjustments As Adjusted GAAP cash flows from operating activities $ 3,663 (6 ) $ 3,657 Capital expenditures (245 ) (9 ) (254 ) Free cash flows $ 3,418 (15 ) $ 3,403 -------------------------------------------------------------------------------- VMware, Inc. Reconciliation of GAAP Cash Flows from Operating Activities to Free Cash Flows Adjusted for Pivotal Acquisition (cont.) Twelve Months Ended February 2, 2018 As Originally Pivotal Combined Reported Adjustments As Adjusted GAAP cash flows from operating activities $ 3,218 (117 ) $ 3,101 Capital expenditures (263 ) (13 ) (276 ) Free cash flows $ 2,955 (130 ) $ 2,825 -------------------------------------------------------------------------------- VMware, Inc. About Non-GAAP Financial Measures These financial tables have been recast to combine VMware’s historical results with those of Pivotal Software (“Pivotal”) in accordance with GAAP requirements as a result of VMware’s acquisition of Pivotal which is required to be treated as a transaction between entities under common control. To provide investors and others with additional information regarding VMware’s results, VMware is including tables that show the impact of combining Pivotal’s historical results on non-GAAP financial measures that VMware had provided investors in prior periods. VMware has disclosed in these tables the following non-GAAP financial measures: non-GAAP operating income, non-GAAP net income, non-GAAP net income per diluted share and free cash flow. VMware has provided a reconciliation of each non-GAAP financial measure used in these tables to the most directly comparable GAAP financial measure. These non-GAAP financial measures, other than free cash flow, differ from GAAP in that they exclude stock-based compensation, employer payroll taxes on employee stock transactions, amortization of acquired intangible assets, acquisition, disposition and other items, loss on share repurchase and discrete items that impacted our GAAP tax rate, each as discussed below. Our non-GAAP financial measures also reflect the application of our non-GAAP tax rate. Free cash flow differs from GAAP cash flow from operating activities with respect to the treatment of capital expenditures. VMware’s management uses these non-GAAP financial measures to understand and compare operating results across accounting periods, for internal budgeting and forecasting purposes, for short- and long-term operating plans, to calculate bonus payments and to evaluate VMware’s financial performance, the performance of its individual functional groups and the ability of operations to generate cash. Management believes these non-GAAP financial measures reflect VMware’s ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in VMware’s business, as they exclude charges and gains that are not reflective of ongoing operating results. Management also believes that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating VMware’s operating results and future prospects in the same manner as management and in comparing financial results across accounting periods and to those of peer companies. Additionally, management believes information regarding free cash flow provides investors and others with an important perspective on the cash available to make strategic acquisitions and investments, to repurchase shares, to fund ongoing operations and to fund other capital expenditures. Management believes these non-GAAP financial measures are useful to investors and others in assessing VMware’s operating performance during the prior periods due to the following factors: • 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. • 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. • Charges recognized for non-recoverable strategic investments or gains recognized on the disposition of strategic investments. -------------------------------------------------------------------------------- VMware, Inc. • 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.” • Gain or loss on share repurchase. In December 2016, VMware entered into a stock purchase agreement with Dell and Dell’s wholly owned subsidiary, EMC Equity Assets LLC, pursuant to which VMware agreed to purchase $500 million of VMware Class A common stock. The derivative asset was measured at fair value on a recurring basis and resulted in the recognition of gains and losses, which were recorded to other income (expense), net on the condensed consolidated statements of income. On February 15, 2017, the stock purchase agreement with Dell was completed. VMware’s management believes it is useful to exclude the mark-to-market adjustment on the derivative asset, as it is not reflective of VMware’s core business and operating results. • Tax adjustment. Non-GAAP financial information for each fiscal period was adjusted for a tax rate equal to VMware’s then-estimated annual tax rate on non-GAAP income. This rate was 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. Additionally, VMware’s management believes that the non-GAAP financial measure of free cash flow is meaningful to investors because management reviews cash flow generated from operations after taking into consideration capital expenditures due to the fact that these expenditures are considered to be a necessary component of ongoing operations. The use of non-GAAP financial measures has certain limitations because they do not reflect all items of income and expense that affect VMware’s operations. Specifically, in the case of stock-based compensation, if VMware did not pay out a portion of its compensation in the form of stock-based compensation and related employer payroll taxes, the cash salary expense included in operating expenses would be higher, which would affect VMware’s cash position. VMware compensates for these limitations by reconciling the non-GAAP financial measures to the most comparable GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from, measures prepared in accordance with GAAP and should not be considered measures of VMware’s liquidity. Further, these non-GAAP measures may differ from the non-GAAP information used by other companies, including peer companies, and therefore comparability may be limited. Management encourages investors and others to review VMware’s financial information in its entirety and not rely on a single financial measure.