VMware Reports Record Fourth Quarter and Full Year 2012 Results

VMware Reports Record Fourth Quarter and Full Year 2012 Results 
Annual Revenue Growth of 22% to a Record $4.61 Billion With Fourth
Quarter Year-Over-Year Growth of 22% to a Record $1.29 Billion;
Annual Operating Margin 18.9%; Non-Gaap Operating Margin a Record
32.4%; Fourth Quarter Operating Margin 19.5%; Non-Gaap Operating
Margin a Record 32.8% 
PALO ALTO, CA -- (Marketwire) -- 01/28/13 --  VMware, Inc. (NYSE:
VMW), the global leader in virtualization and cloud infrastructure,
today announced financial results for the fourth quarter and full
year of 2012:  


 
--  Revenues for the fourth quarter were $1.29 billion, an increase of 22%
    from the fourth quarter of 2011.
    
    
--  Operating income for the fourth quarter was $253 million, an increase
    of 18% from the fourth quarter of 2011. Non-GAAP operating income for
    the fourth quarter was $424 million, an increase of 25% from the
    fourth quarter of 2011.
    
    
--  Net income for the fourth quarter was $206 million, or $0.47 per
    diluted share, compared to $200 million, or $0.46 per diluted share,
    for the fourth quarter of 2011. Non-GAAP net income for the quarter
    was $349 million, or $0.81 per diluted share, compared to $266
    million, or $0.62 per diluted share, for the fourth quarter of 2011.
    
    
--  Fourth quarter Non-GAAP diluted EPS was $0.81, an increase of 30.6%
    from the fourth quarter of 2011.
    
    
--  Operating cash flows for the fourth quarter were $493 million, a
    decrease of 12% from the fourth quarter of 2011. Free cash flows for
    the quarter were $412 million, a decrease of 19% from the fourth
    quarter of 2011.
    
    
--  Revenues for 2012 were $4.61 billion, an increase of 22% from 2011.
    
    
--  Operating income for 2012 was $872 million, an increase of 19% from
    2011. Non-GAAP operating income for 2012 was $1.49 billion, an
    increase of 28% from 2011.
    
    
--  Net income for 2012 was $746 million, or $1.72 per diluted share,
    compared to $724 million, or $1.68 per diluted share, for 2011.
    Non-GAAP net income for 2012 was $1.24 billion, or $2.85 per diluted
    share, compared to $936 million, or $2.17 per diluted share, for
    2011.
    
    
--  Annual Non-GAAP diluted EPS
 was $2.85, an increase of 31.4% from
    2011.
    
    
--  Operating cash flows for 2012 were $1.90 billion, a decrease of 6% and
    free cash flows for the year were $1.66 billion, a decrease of 7% from
    2011.
    
    
--  Cash, cash equivalents and short-term investments were $4.63 billion
    and unearned revenue was $3.46 billion as of December 31, 2012.

  
U.S. revenues for 2012 grew 22% to $2.23 billion from 2011.
International revenues grew 22% to $2.38 billion from 2011.  
License revenues for 2012 were $2.09 billion, an increase of 13% from
2011. Service revenues, which include software maintenance and
professional services, were $2.52 billion for 2012, an increase of
31% from 2011.  
Annual 2013 total revenues are expected to be in the range of $5.230
billion to $5.350 billion, an increase of approximately 14 to 16
percent from 2012, and annual license revenues are expected to grow
between 8 and 11 percent. 
First quarter 2013 total revenues are expected to be in the range of
$1.170 billion to $1.190 billion, an increase of approximately 11 to
13 percent from the first quarter 2012. 
"2012 was a strong year for VMware, with solid Q4 results despite a
tough economic environment," said Pat Gelsinger, chief executive
officer, VMware. "We see a tremendous market opportunity in 2013 and
beyond, as we focus on what our customers value most: VMware's role
as a pioneer of virtualization technologies that radically simplify
IT infrastructure from the data center to the virtual workspace." 
Recent Highlights & Strategic Announcements  


 
--  On October 9, VMware unveiled an updated cloud management portfolio,
    including significant enhancements to the management products in the
    VMware vCloud(R) Suite. VMware also introduced a new product to the
    suite, VMware vCloud Automation Center(TM) 5.1, to further simplify
    and automate governance services across multiple, heterogeneous
    clouds. The announcement strengthened the VMware vCloud(R) Suite
    5.1- the first solution to deliver the software-defined datacenter.
    
    
--  On December 4, VMware announced the newly formed Pivotal Initiative,
    in which VMware and EMC are committing key existing technology, people
    and programs from both companies focused on Big Data and Cloud
    Application Platforms under one virtual organization. The Pivotal
    Initiative will enable a new generation of workloads that can exploit
    the advancements VMware is driving with the software-defined
    datacenter, the de facto infrastructure at the heart of cloud
    computing, and with end-user computing.
    
    
--  In December, VMware established the Network and Security
    Virtualization group internally to align operations, engineering and
    go to market efforts to drive demand for next generation networking
    solutions associated with the software-defined datacenter. The Company
    appointed Stephen Mullaney, formerly CEO of Nicira, as vice president
    and general manager of the new organization.

  
VMware plans to host a conference call today to review its fourth
quarter and full year 2012 results and to discuss its financial
outlook. The call is scheduled to begin at 2:00 p.m. PT/ 5:00 p.m. ET
and can be accessed via the Web at http://ir.vmware.com. The webcast
will be available live, and a replay will be available following
completion of the live broadcast for approximately 60 days.  
About VMware  
VMware is the leader in virtualization and cloud infrastructure
solutions that enable businesses to thrive in the Cloud Era.
Customers rely on VMware to help them transform the way they build,
deliver and consume Information Technology resources in a manner that
is evolutionary and based on their specific needs. With 2012 revenues
of $4.61 billion, VMware has more than 480,000 customers and 55,000
partners. The company is headquartered in Silicon Valley with offices
throughout the world and can be found online at www.vmware.com. 
VMware, vCloud Automation Center and VMware vCloud are registered
trademarks or trademarks of VMware, Inc. in the United States and
other jurisdictions. Other marks mentioned herein are trademarks,
which are proprietary to VMware, Inc. or another company. 
Use of Non-GAAP Financial Measures 
 Reconciliations of non-GAAP
financial measures to VMware's financial results as determined in
accordance with GAAP are included at the end of this press release
following the accompanying financial data. For a description of these
non-GAAP financial measures, including the reasons management uses
each measure, please see the section of the tables titled "About
Non-GAAP Financial Measures."  
Forward-Looking Statements 
 This press release contains
forward-looking statements including, among other things, statements
regarding VMware's expected first quarter and annual 2013 revenues
and annual 2013 license revenues; VMware's market opportunity; and
the benefits of the Pivotal Initiative. 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 ri
sk factors, including but not
limited to: (i) adverse changes in general economic or market
conditions; (ii) delays or reductions in consumer or information
technology spending; (iii) competitive factors, including but not
limited to pricing pressures, industry consolidation, entry of new
competitors into the virtualization market, and new product and
marketing initiatives by our competitors; (iv) factors that affect
timing of license revenue recognition such as product announcements
and promotions and beta programs; (v) our customers' ability to
develop, and to transition to, new products and computing strategies
such as cloud computing, desktop virtualization and the software
defined data center; (vi) the uncertainty of customer acceptance of
emerging technology; (vii) changes in the willingness of customers to
enter into longer term licensing and support arrangements; (viii)
rapid technological and market changes in virtualization software and
platforms for cloud and desktop computing; (ix) changes to product
development timelines; (x) VMware's relationship with EMC Corporation
and EMC's ability to control matters requiring stockholder approval,
including the election of VMware's board members; (xi) our ability to
protect our proprietary technology; (xii) our ability to attract and
retain highly qualified employees; (xiii) the successful integration
of acquired companies and assets into VMware; and (xiv) fluctuating
currency exchange rates. These forward-looking statements 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 our 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. 


 
                                VMware, Inc.                                
                                                                            
                         CONSOLIDATED BALANCE SHEETS                        
                  (in thousands, except per share amounts)                  
                                 (unaudited)                                
                                                                            
                                                  December 31,  December 31,
                                                      2012          2011    
                                                 ------------- -------------
                                                                            
                     ASSETS                                                 
Current assets:                                                             
  Cash and cash equivalents                      $   1,609,322 $   1,955,756
  Short-term investments                             3,021,512     2,556,450
  Accounts receivable, net of allowance for                                 
   doubtful accounts of $4,267 and $3,794            1,150,906       882,857
  Due from EMC, net                                     67,934        73,799
  Deferred tax asset                                   179,430       128,471
  Other current assets                                  90,935        80,439
                                                 ------------- -------------
Total current assets                                 6,120,039     5,677,772
Property and equipment, net                            664,669       525,490
Other assets, net                                      128,701       154,236
Deferred tax asset                                     103,001       156,855
Intangible assets, net                                 731,852       407,375
Goodwill                                             2,848,130     1,759,080
                                                 ------------- -------------
    Total assets                                 $  10,596,392 $   8,680,808
                                                 ============= =============
                                                                            
      LIABILITIES AND STOCKHOLDERS' EQUITY                                  
Current liabilities:                                                        
  Accounts payable                               $      89,562 $      49,747
  Accrued expenses and other                           674,746       587,650
  Unearned revenues                                  2,195,926     1,764,109
                                                 ------------- -------------
Total current liabilities                            2,960,234     2,401,506
Note payable to EMC                                    450,000       450,000
Unearned revenues                                    1,264,639       944,309
Other liabilities                                      181,538       114,711
                                                 ------------- -------------
    Total liabilities                                4,856,411     3,910,526
Commitments and contingencies                                               
Stockholders' equity:                                                       
  Class A common stock, par value $.01;                                     
   authorized 2,500,000 shares; issued and                                  
   outstanding 128,688 and 123,610 shares                1,287         1,236
  Class B convertible common stock, par value                               
   $.01; authorized 1,000,000 shares; issued and                            
   outstanding 300,000 shares                            3,000         3,000
  Additional paid-in capital                         3,431,710     3,212,264
  Accumulated other comprehensive income                 5,676         1,176
  Retained earnings                                  2,298,308     1,552,606
                                                 ------------- -------------
    Total stockholders' equity                       5,739,981     4,770,282
                                                 ------------- -------------
      Total liabilities and stockholders' equity $  10,596,392 $   8,680,808
                                                 ============= =============
                                                                            
                                                                            
                                                                            
                                VMware, Inc.                                
                                                                            
                     CONSOLIDATED STATEMENTS OF INCOME                      
                  (in thousands, except per share amounts)                  
                                (unaudited)                                 
                                                                            
                              For the Three Months                          
                                      Ended            For the Year Ended   
                                  December 31,
            December 31,      
                             ----------------------  ---------------------- 
                                2012        2011        2012        2011    
                             ----------  ----------  ----------  ---------- 
                                                                            
Revenues:                                                                   
  License                    $  596,720  $  513,767  $2,086,990  $1,841,169 
  Services                      696,435     546,535   2,518,057   1,925,927 
                             ----------  ----------  ----------  ---------- 
Total revenues                1,293,155   1,060,302   4,605,047   3,767,096 
Operating expenses (1):                                                     
  Cost of license revenues       63,393      56,389     237,027     207,398 
  Cost of services revenues     128,431     110,485     484,296     414,589 
  Research and development      268,323     216,992     999,214     775,051 
  Sales and marketing           478,401     385,236   1,644,849   1,334,346 
  General and administrative    102,082      77,144     367,718     300,541 
                             ----------  ----------  ----------  ---------- 
Operating income                252,525     214,056     871,943     735,171 
Investment income                 6,364       4,685      26,557      16,157 
Interest expense with EMC        (1,047)     (1,060)     (4,654)     (3,906)
Other income (expense), net       2,082      (8,815)       (732)     46,991 
                             ----------  ----------  ----------  ---------- 
Income before income taxes      259,924     208,866     893,114     794,413 
Income tax provision             54,155       8,438     147,412      70,477 
                             ----------  ----------  ----------  ---------- 
Net income                   $  205,769  $  200,428  $  745,702  $  723,936 
                             ==========  ==========  ==========  ========== 
                                                                            
Net income per weighted-                                                    
 average share, basic for                                                   
 Class A and Class B         $     0.48  $     0.47  $     1.75  $     1.72 
                                                                            
Net income per weighted-                                                    
 average share, diluted for                                                 
 Class A and Class B         $     0.47  $     0.46  $     1.72  $     1.68 
                                                                            
Weighted-average shares,                                                    
 basic for Class A and Class                                                
 B                              427,266     422,873     426,658     421,188 
Weighted-average shares,                                                    
 diluted for Class A and                                                    
 Class B                        433,205     431,375     433,974     431,750 
______                                                                      
(1) Includes stock-based                                                    
 compensation as follows:                                                   
  Cost of license revenues   $      547  $      335  $    2,072  $    1,606 
  Cost of services revenues       7,482       5,993      28,220      23,389 
  Research and development       62,779      39,643     210,377     174,264 
  Sales and marketing            39,100      25,138     149,879      95,688 
  General and administrative     13,894       9,650      48,107      40,206 
                                                                            
                                                                            
                                VMware, Inc.                                
                                                                            
                   CONSOLIDATED STATEMENTS OF CASH FLOWS                    
                               (in thousands)                               
                                (unaudited)                                 
                                                                            
                            For the Three Months                            
                                    Ended             For the Year Ended    
                                December 31,             December 31,       
                           ----------------------  ------------------------ 
                              2012        2011         2012         2011    
                           ----------  ----------  -----------  ----------- 
                                                                            
Operating activities:                                                       
Net income                 $  205,769  $  200,428  $   745,702  $   723,936 
Adjustments to reconcile                                                    
 net income to net cash                                                     
 provided by operating                                                      
 activities:                                                                
  Depreciation and                                                          
   amortization                93,276      86,228      354,868      315,871 
  Stock-based                                                               
   compensation, excluding                                                  
   amounts capitalized        123,802      80,759      425,995      335,153 
  Excess tax benefits from                                                  
   stock-based                                                              
   compensation               (27,225)    (26,811)    (138,139)    (224,503)
  Gain on sale of           
                                                
   Terremark investment            --          --           --      (56,000)
  Other                         3,645      10,626        2,355       21,420 
  Changes in assets and                                                     
   liabilities, net of                                                      
   acquisitions:                                                            
    Accounts receivable      (469,947)   (336,123)    (267,639)    (263,366)
    Other assets                9,597      15,576     (112,266)     (75,879)
    Due to/from EMC, net      (21,759)    (61,310)       5,865      (18,370)
    Accounts payable           (2,426)     (3,960)      23,692      (16,513)
    Accrued expenses           84,978     100,353       21,997      115,025 
    Income taxes                                                            
     receivable from EMC       19,488      23,018       19,488      269,258 
    Income taxes payable       10,842      27,261      138,508       79,183 
    Deferred income taxes,                                                  
     net                       (3,962)    (28,936)     (74,060)     (19,663)
    Unearned revenue          467,299     474,300      751,158      840,081 
                           ----------  ----------  -----------  ----------- 
Net cash provided by                                                        
 operating activities         493,377     561,409    1,897,524    2,025,633 
                           ----------  ----------  -----------  ----------- 
                                                                            
Investing activities:                                                       
Additions to property and                                                   
 equipment                    (81,639)    (52,911)    (234,458)    (230,091)
Purchase of leasehold                                                       
 interest                           -           
-            -     (151,083)
Capitalized software                                                        
 development costs                  -           -            -      (73,998)
Purchases of available-                                                     
 for-sale securities         (469,042)   (584,397)  (3,188,684)  (2,667,888)
Sales of available-for-                                                     
 sale securities              227,443     208,058    1,880,545      816,351 
Maturities of available-                                                    
 for-sale securities          133,639     249,706      901,743      974,413 
Sale of strategic                                                           
 investments                        -           -            -       78,513 
Business acquisitions, net                                                  
 of cash acquired                   -           -   (1,344,214)    (303,610)
Transfer of net assets                                                      
 under common control               -           -            -      (22,393)
Other investing               (37,195)       (815)     (49,552)     (31,187)
                           ----------  ----------  -----------  ----------- 
Net cash used in investing                                                  
 activities                  (226,794)   (180,359)  (2,034,620)  (1,610,973)
                           ----------  ----------  -----------  ----------- 
                                                                            
Financing activities:                                                       
Proceeds from issuance of                                                   
 common stock                  38,936      52,332      253,159      337,618 
Repurchase of common stock   (160,522)    (35,287)    (467,534)    (526,203)
Excess tax benefits from                                                    
 stock-based compensation      27,225      26,811      138,139      224,503 
Shares repurchased for tax                                                  
 withholdings on vesting                                                    
 of restricted stock          (43,100)    (18,979)    (133,102)    (123,787)
                           ----------  ----------  -----------  ----------- 
Net cash provided by (used                                                  
 in) financing activities    (137,461)     24,877     (209,338)     (87,869)
                           ----------  ----------  -----------  ----------- 
Net increase (decrease) in                                                  
 cash and cash equivalents    129,122     405,927     (346,434)     326,791 
Cash and cash equivalents                                                   
 at beginning of the                                                        
 period                     1,480,200   1,549,829    1,955,756    1,628,965 
                           ----------  ----------  -----------  ----------- 
Cash and cash equivalents                                                   
 at end of the period      $1,609,322  $1,955,756  $ 1,609,322  $ 1,955,756 
                           ==========  ==========  ===========  =========== 
                                                                            
                                                                            
                                VMware, Inc.                                
                                                                            
                   RECONCILIATION OF GAAP TO NON-GAAP DATA                  
                For the Three Months Ended December 31, 2012                
                  (in thousands, except per share amounts)                  
                                 (unaudited)                                
                                                                            
                                                                            
                                                  Employer                  
                                                   Payroll                  
                                                    Taxes                   
                                                 on Employee                
                                   Stock-Based      Stock      Intangible   
                          GAAP    Compensation  Transactions  Amortization  
                        --------  ------------  ------------  ------------  
                                                                            
Operating expenses:                                                         
Cost of license                                                             
 revenues               $ 63,393          (547)          (17)      (25,271) 
Cost of services                                                            
 revenues               $128,431        (7,482)         (194)       (1,098) 
Research and                                                                
 development            $268,323       (62,779)       (1,277)       (1,254) 
Sales and marketing     $478,401       (39,100)       (1,076)       (3,096) 
General and                                                                 
 administrative         $102,082       (13,894)         (631)            -  
                                                                            
Operating income        $252,525       123,802         3,195        30,719  
Operating margin            19.5%          9.6%          0.3%          2.4% 
                                                                            
Income before income                                                        
 taxes                  $259,924       123,802         3,195        30,719  
                                                                            
Income tax provision    $ 54,155                                            
Tax rate                    20.8%                                           
                                                                            
Net income              $205,769       123,802         3,195        30,719  
                                                                            
Net income per                                                              
 weighted-average                                                           
 share, basic for Class                                                     
 A and Class B (3)      $   0.48  $       0.29  $       0.01  $       0.07  
                                                                            
Net income per                                                              
 weighted-average                                                           
 share, diluted for                                                         
 Class A and Class B                                                        
 (4)                    $   0.47  $       0.29  $       0.01  $       0.07  
                                                                            
                                 table continued below
                                                                         
                                     Capitalized                  Non-   
                       Acquisition    Software        Tax         GAAP,  
                         Related     Development   Adjustment      as    
                          Items       Costs (1)        (2)      adjusted 
                       -----------  ------------  ------------  -------- 
                                                                         
Operating expenses:                                                      
Cost of license                                                          
 revenues                        -       (13,151)            -  $ 24,407 
Cost of services                                                         
 revenues                  
      -             -             -  $119,657 
Research and                                                             
 development                     -             -             -  $203,013 
Sales and marketing              -             -             -  $435,129 
General and                                                              
 administrative               (494)            -             -  $ 87,063 
                                                                         
Operating income               494        13,151             -  $423,886 
Operating margin                 -           1.0%            -      32.8%
                                                                         
Income before income                                                     
 taxes                         494        13,151             -  $431,285 
                                                                         
Income tax provision                                    27,832  $ 81,987 
Tax rate                                                            19.0%
                                                                         
Net income                     494        13,151       (27,832) $349,298 
                                                                         
Net income per                                                           
 weighted-average                                                        
 share, basic for Class                                                  
 A and Class B (3)     $         -  $       0.03  $      (0.06) $   0.82 
                                                                         
Net income per                                                           
 weighted-average                                                        
 share, diluted for                                                      
 Class A and Class B                                                     
 (4)                   $         -  $       0.03  $      (0.06) $   0.81 
                                                                         
                                                                            
(1) For the fourth quarter of 2012, no costs were capitalized for the       
development of software products. Amortization expense from previously      
capitalized amounts was $13.2 million.                                      
                                                                            
(2) 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. 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   
revenues 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.                               
                                                                            
(3) Calculated based upon 427,266 basic weighted-average shares for Class A 
and Class B.                                                                
                                                                            
(4) Calculated based upon 433,205 diluted weighted-average shares for Class 
A and Class B.                                                              
                                                                            
                                                                            
                                                                            
                                VMware, Inc.                                
                                                                            
                   RECONCILIATION OF GAAP TO NON-GAAP DATA                  
                For the Three Months Ended December 31, 2011                
                  (in thousands, except per share amounts)                  
                                 (unaudited)                                
                                                                            
                                                                            
                                                  Employer                  
                                                   Payroll                  
                                                    Taxes                   
                                                 on Employee                
                                   Stock-Based      Stock      Intangible   
                          GAAP    Compensation  Transactions  Amortization  
                        --------  ------------  ------------  ------------  
                                                                            
Operating expenses:                                                         
Cost of license                                                             
 revenues               $ 56,389          (335)          (27)      (13,187) 
Cost of services                                                            
 revenues               $110,485        (5,993)         (160)       (1,241) 
Research and                                                                
 development            $216,992       (39,643)       (1,486)         (796) 
Sales and marketing     $385,236       (25,138)         (867)       (2,866) 
General and                                                                 
 administrative         $ 77,144        (9,650)         (383)          (37) 
                                                                            
Operating income        $214,056        80,759         2,923        18,127  
Operating margin            20.2%          7.6%          0.3%          1.7% 
                                                                            
Income before income                                                        
 taxes                  $208,866        80,759         2,923        18,127  
                                                                            
Income tax provision    $  8,438                                            
Tax rate                     4.0%                                           
                                                                            
Net income              $200,428        80,759         2,923        18,127  
                                                                            
Net income per                                                              
 weighted-average                                                           
 share, basic for Class                                                     
 A and Class B (3)      $   0.47  $       0.19  $       0.01  $       0.04  
                                                                            
Net income per                                                              
 weighted-average                                                           
 share, diluted for                                                         
 Class A and Class B                                                        
 (4)                    $   0.46  $       0.19  $       0.01  $       0.04  
                                                                            
                                 table
 continued below
                                                                      
                                    Capitalized                Non-   
                       Acquisition    Software      Tax        GAAP,  
                         Related    Development  Adjustment     as    
                          Items      Costs (1)       (2)     adjusted 
                       -----------  -----------  ----------  -------- 
                                                                      
Operating expenses:                                                   
Cost of license                                                       
 revenues                        -      (22,042)          -  $ 20,798 
Cost of services                                                      
 revenues                        -            -           -  $103,091 
Research and                                                          
 development                     -            -           -  $175,067 
Sales and marketing              -            -           -  $356,365 
General and                                                           
 administrative               (197)           -           -  $ 66,877 
                                                                      
Operating income               197       22,042           -  $338,104 
Operating margin                 -          2.1%          -      31.9%
                                                                      
Income before income                                                  
 taxes                         197       22,042           -  $332,914 
                                                                      
Income tax provision                                 58,145  $ 66,583 
Tax rate                                                         20.0%
                                                                      
Net income                     197       22,042     (58,145) $266,331 
                                                                      
Net income per                                                        
 weighted-average                                                     
 share, basic for Class                                               
 A and Class B (3)     $         -  $      0.06  $    (0.14) $   0.63 
                                                                      
Net income per                                                        
 weighted-average                                                     
 share, diluted for                                                   
 Class A and Class B                                                  
 (4)                   $         -  $      0.05  $    (0.13) $   0.62 
                                                                      
                                                                            
(1) For the fourth quarter of 2011, no costs were capitalized for the       
development of software products. Amortization expense from previously      
capitalized amounts was $22.0 million.                                      
                                                                            
(2) 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. Our estimated tax rate on non-GAAP      
income is determined annually and may be re-calculated 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, tax audit closures, material changes in the 
geographic mix of revenues 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.          
                                                                            
(3) Calculated based upon 422,873 basic weighted-average shares for Class A 
and Class B.                                                                
                                                                            
(4) Calculated based upon 431,375 diluted weighted-average shares for Class 
A and Class B.                                                              
                                                                            
                                                                            
                                VMware, Inc.                                
                                                                            
                   RECONCILIATION OF GAAP TO NON-GAAP DATA                  
                    For the Year Ended December 31, 2012                    
                  (in thousands, except per share amounts)                  
                                 (unaudited)                                
                                                                            
                                                                            
                                                  Employer                  
                                                   Payroll                  
                                                    Taxes                   
                                                 on Employee                
                                   Stock-Based      Stock      Intangible   
                         GAAP     Compensation  Transactions  Amortization  
                      ----------  ------------  ------------  ------------  
                                                                            
Operating expenses:                                                         
Cost of license                                                             
 revenues             $  237,027        (2,072)          (60)      (71,605) 
Cost of services                                                            
 revenues             $  484,296       (28,220)       (1,040)       (4,392) 
Research and                                                                
 development          $  999,214      (210,377)       (6,327)       (3,718) 
Sales and marketing   $1,644,849      (149,879)       (4,847)      (12,243) 
General and                                                                 
 administrative       $  367,718       (48,107)       (1,622)            -  
                                                                            
Operating income      $  871,943       438,655        13,896        91,958  
Operating margin            18.9%          9.5%          0.3%          2.0% 
                                                                            
Income before income                                                        
 taxes                $  893,114       438,655        13,896        91,958  
                                                                            
Income tax provision  $  147,412                                            
Tax rate                    16.5%                                           
                                                                            
Net income            $  745,702       438,655        13,896        91,958  
                                                                            
Net income per                                                              
 weighted-average                                                           
 share, basic for                                                   
        
 Class A and Class B                                                        
 (3)                  $     1.75  $       1.03  $       0.03  $       0.22  
                                                                            
Net income per                                                              
 weighted-average                                                           
 share, diluted for                                                         
 Class A and Class B                                                        
 (4)                  $     1.72  $       1.01  $       0.03  $       0.21  
                                                                            
                                 table continued below
                                                                       
                                  Capitalized                          
                     Acquisition    Software       Tax       Non-GAAP, 
                        Related   Development   Adjustment      as     
                        Items      Costs (1)       (2)       adjusted  
                     -----------  -----------  -----------  ---------- 
                                                                       
Operating expenses:                                                    
Cost of license                                                        
 revenues                      -      (70,608)           -  $   92,682 
Cost of services                                                       
 revenues                      -            -            -  $  450,644 
Research and                                                           
 development                   -            -            -  $  778,792 
Sales and marketing            -            -            -  $1,477,880 
General and                                                            
 administrative           (3,896)           -            -  $  314,093 
                                                                       
Operating income           3,896       70,608            -  $1,490,956 
Operating margin             0.2%         1.5%           -        32.4%
                                                                       
Income before income                                                   
 taxes                     3,896       70,608            -  $1,512,127 
                                                                       
Income tax provision                               129,126  $  276,538 
Tax rate                                                          18.3%
                                                                       
Net income                 3,896       70,608     (129,126) $1,235,589 
                                                                       
Net income per                                                         
 weighted-average                                                      
 share, basic for                                                      
 Class A and Class B                                                   
 (3)                 $      0.01  $      0.17  $     (0.31) $     2.90 
                                                                       
Net income per                                                         
 weighted-average                                                      
 share, diluted for                                                    
 Class A and Class B                                                   
 (4)                 $      0.01  $      0.16  $     (0.29) $     2.85 
                                                                       
                                                                            
(1) For the year ended December 31, 2012, no costs were capitalized for the 
development of software products. Amortization expense from previously      
capitalized amounts was $70.6 million.                                      
                                                                            
(2) 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. 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   
revenues 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.                               
                                                                            
(3) Calculated based upon 426,658 basic weighted-average shares for Class A 
and Class B.                                                                
                                                                            
(4) Calculated based upon 433,974 diluted weighted-average shares for Class 
A and Class B.                                                              
                                                                            
                                                                            
                                                                            
                                VMware, Inc.                                
                                                                            
                   RECONCILIATION OF GAAP TO NON-GAAP DATA                  
                    For the Year Ended December 31, 2011                    
                  (in thousands, except per share amounts)                  
                                 (unaudited)                                
                                                                            
                                                                            
                                          Employer                          
                                           Payroll                          
                                            Taxes                   
                                         on Employee             Acquisition    
                            Stock-Based     Stock     Intangible   Related  
                   GAAP    Compensation Transactions Amortization   Items   
                ---------- ------------ ------------ ------------ --------  
                                                                            
Operating                                                                   
 expenses:                                                                  
Cost of license                                                             
 revenues       $  207,398       (1,606)        (120)     (46,074)       -  
Cost of                                                                     
 services                                                                   
 revenues       $  414,589      (23,389)      (1,368)      (4,967)       -  
Research and                                                                
 development    $  775,051     (174,264)      (9,724)      (3,187)       -  
Sales and                                                                   
 marketing      $1,334,346      (95,688)      (5,577)     (10,213)       -  
General and                                                                 
 administrative $  300,541      (40,206)      (1,580)        (145) 
 (2,423) 
                                                                            
Operating                                                                   
 income         $  735,171      335,153       18,369       64,586    2,423  
Operating                                                                   
 margin               19.5%         8.9%         0.5%         1.7%     0.1% 
                                                                            
Other income                                                                
 (expense), net $   46,991                                                  
                                                                            
Income before                                                               
 income taxes   $  794,413      335,153       18,369       64,586    2,423  
                                                                            
Income tax                                                                  
 provision      $   70,477                                                  
Tax rate               8.9%                                                 
                                                                            
Net income      $  723,936      335,153       18,369       64,586    2,423  
                                                                            
Net income per                                                              
 weighted-                                                                  
 average share,                                                             
 basic for                                                                  
 Class A and                                                                
 Class B (4)    $     1.72 $       0.80 $       0.04 $       0.15 $   0.01  
                                                                            
Net income per                                                              
 weighted-                                                                  
 average share,                                                             
 diluted for                                                                
 Class A and                                                                
 Class B (5)    $     1.68 $       0.78 $       0.04 $       0.15 $   0.01
 
                          table continued below  
 
                                                                           
                             Stock-Based                                   
                            Compensation                                   
               Capitalized   Included in  Gain on                          
                 Software    Capitalized  sale of      Tax       Non-GAAP, 
               Development    Software   Terremark  Adjustment      as     
                Costs (1)    Development    (2)         (3)      adjusted  
               -----------  ------------ ---------  ----------  ---------- 
                                                                           
Operating                                                                  
 expenses:                                                                 
Cost of license                                                            
 revenues          (84,741)            -         -           -  $   74,857 
Cost of                                                                    
 services                                                                  
 revenues                -             -         -           -  $  384,865 
Research and                                                               
 development        86,426       (12,428)        -           -  $  661,874 
Sales and                                                                  
 marketing               -             -         -           -  $1,222,868 
General and                                                                
 administrative          -             -         -           -  $  256,187 
                                                                           
Operating                                                                  
 income             (1,685)       12,428         -           -  $1,166,445 
Operating                                                                  
 margin                  -           0.3%        -           -        31.0%
                                                                           
Other income                                                               
 (expense), net                            (56,000)             $   (9,009)
                                                                           
Income before                                                              
 income taxes       (1,685)       12,428   (56,000)          -  $1,169,687 
                                                                           
Income tax                                                                 
 provision                                             163,459  $  233,936 
Tax rate                                                              20.0%
                                                                           
Net income          (1,685)       12,428   (56,000)   (163,459) $  935,751 
                                                                           
Net income per                                                             
 weighted-                                                                 
 average share,                                                            
 basic for                                                                 
 Class A and                                                               
 Class B (4)   $     (0.01) $       0.03 $   (0.13) $    (0.39) $     2.22 
                                                                           
Net income per                                                             
 weighted-                                                                 
 average share,                                                            
 diluted for                                                               
 Class A and                                                               
 Class B (5)   $     (0.01) $       0.03 $   (0.13) $    (0.38) $     2.17 
                                                                            
                                                                            
(1) For the year ended December 31, 2011, we capitalized $86.4 million      
(including $12.4 million of stock-based compensation) of costs incurred for 
the development of software products. Amortization expense from capitalized 
amounts was $84.7 million.                                                  
                                                                            
(2) VMware realized a gain of $56.0 million on the sale of 
its investment in
Terremark Worldwide, Inc.                                                   
                                                                            
(3) 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. Our estimated tax rate on non-GAAP      
income is determined annually and may be re-calculated 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, tax audit closures, material changes in the 
geographic mix of revenues 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.          
                                                                            
(4) Calculated based upon 421,188 basic weighted-average shares for Class A 
and Class B.                                                                
                                                                            
(5) Calculated based upon 431,750 diluted weighted-average shares for Class 
A and Class B.                                                              
                                                                            
                                                                            
                                                                            
                                VMware, Inc.                                
                                                                            
                              REVENUE BY TYPE                               
                               (in thousands)                               
                                (unaudited)                                 
                                                                            
                              For the Three Months                          
                                      Ended            For the Year Ended   
                                  December 31,            December 31,      
                             ----------------------  ---------------------- 
                                2012        2011        2012        2011    
                             ----------  ----------  ----------  ---------- 
                                                                            
Revenues:                                                                   
  License                    $  596,720  $  513,767  $2,086,990  $1,841,169 
  Services:                                                                 
    Software maintenance        590,971     463,489   2,152,986   1,640,397 
    Professional services       105,464      83,046     365,071     285,530 
                             ----------  ----------  ----------  ---------- 
  Total services                696,435     546,535   2,518,057   1,925,927 
                             ----------  ----------  ----------  ---------- 
Total revenues               $1,293,155  $1,060,302  $4,605,047  $3,767,096 
                             ==========  ==========  ==========  ========== 
                                                                            
                                                                            
Percentage of revenues:                                                     
  License                          46.1%       48.5%       45.3%       48.9%
  Services:                                                                 
    Software maintenance           45.7%       43.7%       46.8%       43.5%
    Professional services           8.2%        7.8%        7.9%        7.6%
                             ----------  ----------  ----------  ---------- 
  Total services                   53.9%       51.5%       54.7%       51.1%
                             ----------  ----------  ----------  ---------- 
Total revenues                    100.0%      100.0%      100.0%      100.0%
                             ==========  ==========  ==========  ========== 
                                                                            
                                                                            
                                                                            
                                VMware, Inc.                                
                                                                            
        RECONCILIATION OF GAAP CASH FLOWS FROM OPERATING ACTIVITIES         
                             TO FREE CASH FLOWS                             
                       (A NON-GAAP FINANCIAL MEASURE)                       
                               (in thousands)                               
                                (unaudited)                                 
                                                                            
                                                For the Three Months Ended  
                                                       December 31,         
                                               ---------------------------- 
                                                    2012           2011     
                                               -------------  ------------- 
                                                                            
GAAP cash flows from operating activities      $     493,377  $     561,409 
Capital expenditures                                 (81,639)       (52,911)
                                               -------------  ------------- 
Free cash flows                                $     411,738  $     508,498 
                                               =============  ============= 
                                                                            
                                                                            
                                VMware, Inc.                                
                                                                            
        RECONCILIATION OF GAAP CASH FLOWS FROM OPERATING ACTIVITIES         
                             TO FREE CASH FLOWS                             
                       (A NON-GAAP FINANCIAL MEASURE)                       
                               (in thousands)                               
                                (unaudited)                                 
                                                                            
                                                      For the Year Ended    
                                                         December 31,       
                                                   ------------------------ 
                                                       2012         2011    
                                                   -----------  ----------- 
                                                                            
GAAP cash flows from operating activities          $ 1,897,524  $ 2,025,633 
Capital expenditures                                  (234,458)    (230,091)
                                                   -----------  ----------- 
Free cash flows                                    $ 1,663,066  $ 1,795,542 
                                                   ===========  =========== 

 
About Non-GAAP Financial Measures 
 To provide investors and others
with additional information regarding VMware's results, we have
disclosed in this press release the following non-GAAP financial
measures: non-GAAP operating income, non-GAAP net income, non-GAAP
income per diluted share, non-GAAP operating margin and free cash
flows. VMware has provided a reconciliation of each non-GAAP
financial measure used in this earnings release to the most directly
comparable GAAP financial measure. These non-GAAP financial measures,
other than free cash flows, differ from GAAP in that they exclude
stock-based compensation, employer payroll tax on employee stock
transactions, amortization of intangible assets, acquisition related
items, the net effect of the amortization and capitalization of
software development costs, and the gain that VMware realized upon
its sale of its investment in Terremark Worldwide, Inc. during the
second quarter of fiscal 2011, each as discussed below. Free cash
flows differ from GAAP cash flows from operating activities in its
t
reatment 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 expenses 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 flows 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 due
to the following factors:  


 
--  Stock-based compensation. Although stock-based compensation is an
    important aspect of the compensation of VMware's employees and
    executives, determining the fair value of certain of the stock-based
    instruments we utilize involves a high degree of judgment and
    estimation and the expense recorded may bear little resemblance to the
    actual value realized upon the vesting or future exercise of the
    related stock-based awards. Furthermore, unlike cash compensation, the
    value of stock options, which is an element of our ongoing stock-based
    compensation expense, is determined using a complex formula that
    incorporates factors, such as market volatility, that are beyond our
    control. Management believes it is useful to exclude stock-based
    compensation in order to better understand the long-term performance
    of our core business and to facilitate comparison of our results to
    those of peer companies.
--  Employer payroll tax 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 our control and
    do not correlate to the operation of the business.
--  Amortization of 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-related items. Acquisition-related items include direct
    costs of acquisitions, such as transaction fees, which vary
    significantly and are unique to each acquisition. Additionally, VMware
    does not acquire businesses on a predictable cycle.
--  Capitalized software development costs. Capitalized software
    development costs encompasses capitalization of development costs and
    the subsequent amortization of the capitalized costs over the useful
    life of the product. Amortization and capitalization of software
    development costs can vary significantly depending upon the timing of
    products reaching technological feasibility and being made generally
    available. We did not capitalize software development costs related to
    product offerings during 2012. In future periods, we expect our
    amortization expense from capitalized software development costs to
    decline as software development costs are expected to be recorded as
    R&D expense as incurred given our go-to-market strategy, which has
    changed from single product solutions to product suite solutions. We
    also expect amortization of previously capitalized software
    development costs to steadily decline as previously capitalized
    software development costs become fully amortized.
--  Gain on sale of Terremark investment. In the second quarter of 2011,
    we sold our investment in Terremark Worldwide, Inc., which was
    acquired by Verizon in a cash transaction, and realized a gain of
    $56.0 million. Our investment in Terremark was made in connection with
    a business and technical collaboration and was not made to seek an
    investment gain or to fund our business operations. To the extent that
    sizeable gains or losses are realized on investments like this, they
    do not occur on a predictable cycle. Additionally, the timing of the
    event that triggered our divestment and whether or not we realized a
    gain or loss, was not under our control.
--  Tax adjustment. 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 our non-GAAP income. 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 revenues 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.

  
Additionally, we believe that the non-GAAP financial measure free cash
flows is meaningful to investors because we review cash flows
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.  
Contacts: 
Paul Ziots 
VMware Investor Relations
pziots@vmware.com
650-427-3267 
Joan Stone
VMware Global Communications
joanstone@vmware.com 
650-427-4436