VMware Reports Second Quarter 2014 Results

                  VMware Reports Second Quarter 2014 Results

- Year-over-Year Revenue Growth of 17% to $1.46 Billion

- Year-over-Year Revenue Growth of 18% excluding Pivotal and divestitures in
2013(1)

- Growing customer adoption of Software-Defined Data Center portfolio and
growth product lines drive Q2 results

PR Newswire

PALO ALTO, Calif., July 22, 2014

PALO ALTO, Calif., July 22, 2014 /PRNewswire/ -- VMware, Inc. (NYSE: VMW), the
global leader in virtualization and cloud infrastructure, today announced
financial results for the second quarter of 2014:

  oRevenues for the second quarter were $1.46 billion, an increase of 17%
    from the second quarter of 2013. Excluding revenues attributable to
    Pivotal and all divestitures that occurred in 2013, revenues for the
    second quarter increased 18% from the second quarter of 2013.^1

  oOperating income for the second quarter was $200 million, a decrease of
    26% from the second quarter of 2013, reflecting the impact of the AirWatch
    acquisition. Non-GAAP operating income for the second quarter was $428
    million, an increase of 3% from the second quarter of 2013, also
    reflecting the impact of the AirWatch acquisition.

  oNet income for the second quarter was $167 million, or $0.38 per diluted
    share, down 32% per diluted share compared to $245 million, or $0.57 per
    diluted share, for the second quarter of 2013. Non-GAAP net income for the
    quarter was $351 million, or $0.81 per diluted share, up 2% per diluted
    share compared to $343 million, or $0.79 per diluted share, for the second
    quarter of 2013. Both GAAP and Non-GAAP results on a year-over-year basis
    primarily reflect the acquisition of AirWatch, completed in the first
    quarter of 2014.

  oCash, cash equivalents and short-term investments were $6.64 billion, and
    unearned revenues were $4.39 billion as of June 30, 2014.

"We continue to see strong performance across our business, further evidence
that VMware is uniquely positioned as IT transitions from client server
computing to the mobile cloud era," said Pat Gelsinger, chief executive
officer, VMware. "Across the board, customers are turning to VMware solutions
to help chart an efficient path to the future without sacrificing the vital
needs for security, availability and compliance required by all businesses."

"Our comparable second-quarter revenue grew 18%, reflecting strong customer
adoption of our products and services," said Jonathan Chadwick, chief
financial officer, VMware. "We are extremely pleased by the performance of our
growth businesses, which made significant progress in accelerating our growth
and delivering against our long-term strategy."

Recent Highlights & Strategic Announcements

  oLast week, VMware announced the expansion of its hybrid cloud service into
    Asia-Pacific with two new partnerships in Japan and China. In Japan,
    VMware announced a joint venture with SoftBank which launches our first
    vCloud Hybrid Service in Asia. This service is available now as a private
    beta and will become generally available in Q4 of this year. In China, the
    company announced plans with China Telecom for China Telecom to build a
    world-class hybrid cloud service in Beijing leveraging VMware's
    technology. By the end of the year, VMware operated clouds are expected to
    be available in over 75% of the world's cloud market. With approximately
    4000 service provider partners, a VMware solution will be available in
    essentially every market on the planet.
  oIn April, VMware announced VMware vCloud® Hybrid Service™ - Disaster
    Recovery, a new cloud-based disaster recovery (DR) service that provides a
    continuously available recovery site for VMware virtualized data centers.
    This service is simple to set up, can be self-managed and is a fraction of
    the cost and complexity of traditional DR solutions.
  oVMware and SAP AG announced availability of the SAP HANA® platform on
    VMware vSphere® 5.5. By combining the power of SAP HANA with VMware
    vSphere 5.5, a foundational component of VMware vCloud® Suite, customers
    can innovate and simplify their data centers by achieving faster
    time-to-value, higher service levels and lower total cost of ownership
    (TCO). SAP HANA support of VMware vSphere 5.5's virtualized environment
    will help further simplify and streamline data center operation for
    customers implementing a data center virtualization strategy.
  oVMware announced VMware Horizon™ 6, an integrated solution that delivers
    published applications and desktops on a single platform. Horizon 6 is the
    industry's most comprehensive desktop solution, with centralized
    management of any type of enterprise application and desktop, including
    physical desktops and laptops, virtual desktops and applications and
    employee-owned PCs.
  oIn the second quarter, VMware received further industry recognition from
    Gartner, Inc.

       oFor the fifth consecutive year Gartner named VMware a leader in the
         2014 x86 Server Virtualization Infrastructure Magic Quadrant (MQ).^2
       oIn June, AirWatch by VMware was positioned as a leader in the
         Enterprise Mobility Management MQ, and for the second year in a row
         has been placed highest on the ability to execute axis. ^ 3 
       oIn April, VMware appeared in their Data Center Networking MQ for the
         first time as a Visionary, with Gartner positioning us furthest on
         the completeness of vision axis in this space.^4

The company will host a conference call today at 2:00 p.m. PT/ 5:00 p.m. ET to
review financial results and business outlook. A live web broadcast of the
event will be available on the VMware investor relations website at
http://ir.vmware.com. Slides will accompany the web broadcast. The replay of
the webcast and slides will be available on the website for two months. In
addition, six quarters of historical data for revenues and unearned revenues,
excluding revenues generated each period by the products and services
contributed to Pivotal on April 1, 2013 and the products and services
associated with the divestitures that occurred in 2013 will also be made
available at http://ir.vmware.comin conjunction with the conference call.

^1 Comparative growth percentages exclude revenues in each period attributable
to the products and services contributed to Pivotal Software, Inc. and the
products and services associated with divestitures consummated by VMware in
2013.
^2 Gartner, Thomas J. Bittman, Mark A. Margevicius, Philip Dawson, Magic
Quadrant for x86 Server Virtualization Infrastructure, July 2, 2014
^3 Gartner, Terrence Cosgrove, et. al., Magic Quadrant for Enterprise Mobility
Management Suites, June 3, 2014
^4 Gartner, Mark Fabbi, Tim Zimmerman, Andrew Lerner, Magic Quadrant for Data
Center Networking, April 24, 2014

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 2013 revenues of $5.21 billion, VMware has more than 500,000 customers
and 75,000 partners. The company is headquartered in Silicon Valley with
offices throughout the world and can be found online at www.vmware.com.

Additional Information

VMware's website is located at www.vmware.com, and its investor relations
website is located at http://ir.vmware.com. VMware's goal is to maintain the
investor relations website as a portal through which investors can easily find
or navigate to pertinent information about VMware, all of which is made
available free of charge. The additional information includes materials that
VMware files with the SEC; announcements of investor conferences and events at
which its executives talk about its products, services and competitive
strategies; webcasts of its quarterly earnings calls, investor conferences and
events (archives of which are also available for a limited time); additional
information on its financial metrics, including reconciliations of non-GAAP
financial measures to the most directly comparable GAAP measures; press
releases on quarterly earnings, product and service announcements, legal
developments and international news; corporate governance information; and
other news, blogs and announcements that VMware may post from time to time
that investors may find useful or interesting.

VMware, AirWatch, Horizon, VMware Virtual SAN, vCloud, vCloud Hybrid Service
and vSphere are registered trademarks or trademarks of VMware in the United
States and other jurisdictions. All other marks and names mentioned herein may
be trademarks of their respective organizations.

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 future business performance, continued customer
adoption, general availability of VMware's vCloud Hybrid Service in Japan and
the China Telecom service, and the expected benefits to customers of newly
available VMware products and services, such as Horizon 6, vCloud Hybrid
Service – Disaster Recovery and SAP HANA on VMware vSphere. These
forward-looking statements are subject to the safe harbor provisions created
by the Private Securities Litigation Reform Act of 1995. Actual results could
differ materially from those projected in the forward-looking statements as a
result of certain risk factors, including but not limited to: (i) adverse
changes in general economic or market conditions; (ii) delays or reductions in
consumer, government and information technology spending; (iii) competitive
factors, including but not limited to pricing pressures, industry
consolidation, entry of new competitors into the virtualization software and
cloud, end user and mobile computing industries, and new product and marketing
initiatives by VMware's competitors; (iv) factors that affect timing of
license revenue recognition such as product announcements and promotions and
beta programs; (v) VMware's customers' ability 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 changes in the virtualization software and cloud, end user and
mobile computing industries; (ix) changes to product and service 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) VMware's ability to protect its proprietary
technology; (xii) VMware's 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 VMware's most recent reports on Form 10-K and
Form 10-Q and current reports on Form 8-K that we may file from time to time,
which could cause actual results to vary from expectations. VMware assumes no
obligation to, and does not currently intend to, update any such
forward-looking statements after the date of this release.

Gartner Statement

Gartner does not endorse any vendor, product or service depicted in its
research publications, and does not advise technology users to select only
those vendors with the highest ratings. Gartner research publications consist
of the opinions of Gartner's research organization and should not be construed
as statements of fact. Gartner disclaims all warranties, expressed or implied,
with respect to this research, including any warranties of merchantability or
fitness for a particular purpose.

Contacts:

Paul Ziots
VMwareInvestor Relations
pziots@vmware.com
650-427-3267

Joan Stone
VMware Global Communications
joanstone@vmware.com
650-427-4436



VMware, Inc.
CONSOLIDATED STATEMENTS OF INCOME
(amounts in millions, except per share amounts, and shares in thousands)
(unaudited)
                          For the Three Months Ended      For the Six Months
                                                          Ended
                          June 30,                        June 30,
                          2014       2013                 2014       2013
Revenues:
License                   $      $        531  $      $    
                            614                         1,175    1,019
Services                  843        712                  1,642      1,416
Total revenues            1,457      1,243                2,817      2,435
Operating expenses (1):
Cost of license revenues  46         55                   96         112
Cost of services          172        118                  323        243
revenues
Research and development  317        261                  610        532
Sales and marketing       544        442                  1,018      859
General and               179        96                   330        194
administrative
Realignment charges       (1)        1                    (1)        63
Operating income          200        270                  441        432
Investment income         9          7                    18         15
Interest expense with     (7)        (1)                  (12)       (2)
EMC
Other income              ―        18                   ―        13
Income before income      202        294                  447        458
taxes
Income tax provision      35         49                   81         40
Net income                $      $        245  $      $    
                             167                          366     418
Net income per
weighted-average share,   $      $       0.57  $      $    
basic for Class A and       0.39                         0.85    0.98
Class B
Net income per
weighted-average share,   $      $       0.57  $      $    
diluted for Class A and     0.38                         0.84    0.97
Class B
Weighted-average shares,
basic for Class A and     430,216    428,336              430,050    428,172
Class B
Weighted-average shares,
diluted for Class A and   434,199    431,987              434,218    432,406
Class B
______
(1) Includes
stock-based compensation
as follows:
                          $      $   $      $    
Cost of license revenues        ―                            
                          1                               2          1
Cost of services          11         7                    20         14
revenues
Research and development  66         51                   126        113
Sales and marketing       43         33                   84         69
General and               18         12                   35         26
administrative
Realignment charges       ―        ―                  ―        6





VMware, Inc.
CONSOLIDATED BALANCE SHEETS
(amounts in millions, except per share amounts, and shares in thousands)
(unaudited)
                                        June 30,           December 31,
                                        2014               2013
ASSETS
Current assets:
Cash and cash equivalents               $            $       2,305
                                        2,054
Short-term investments                  4,583              3,870
Accounts receivable, net of allowance   1,119              1,220
for doubtful accounts of $2
Due from related parties, net           40                 ―
Deferred tax asset                      215                190
Other current assets                    150                96
Total current assets                    8,161              7,681
Property and equipment, net             936                845
Other assets, net                       230                107
Deferred tax asset                      135                60
Intangible assets, net                  799                607
Goodwill                                3,898              3,027
Total assets                            $             $      12,327
                                        14,159
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable                        $          $        109
                                        102
Accrued expenses and other              826                608
Due to related parties, net             ―                18
Unearned revenues                       2,713              2,558
Total current liabilities               3,641              3,293
Note payable to EMC                     1,500              450
Unearned revenues                       1,676              1,534
Other liabilities                       253                234
Total liabilities                       7,070              5,511
Commitments and contingencies
Stockholders' equity:
Class A common stock, par value $.01;
authorized 2,500,000 shares; issued
and                                     1                  1
 outstanding 129,983 and 130,349
shares
Class B convertible common stock, par
value $.01; authorized 1,000,000
shares;                                 3                  3
 issued and outstanding 300,000
shares
Additional paid-in capital              3,399              3,496
Accumulated other comprehensive income  8                  4
Retained earnings                       3,678              3,312
Total stockholders' equity              7,089              6,816
Total liabilities and stockholders'     $             $      12,327
equity                                  14,159





VMware, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
                                For the Three Months  For the Six Months Ended
                                Ended
                                June 30,              June 30,
                                2014        2013      2014          2013
Operating activities:
Net income                      $  167    $  245  $  366      $  418
Adjustments to reconcile net
income to net cash provided by
 operating activities:
Depreciation and amortization  81          88        164           179
Stock-based compensation        139         103       267           219
Excess tax benefits from        (11)        (26)      (26)          (48)
stock-based compensation
Deferred income taxes, net      (50)        37        (79)          9
Non-cash realignment charges    ―         ―       ―           14
Gain on disposition of certain
lines of business and other,    ―         (19)      ―           (19)
net
Other                         ―         1         2             (1)
Changes in assets and
liabilities, net of
acquisitions:
Accounts receivable             (288)       (172)     130           208
Other assets                    (13)        (34)      (43)          (75)
Due to/from related parties,    (66)        (25)      (33)          34
net
Accounts payable                3           26        (8)           18
Accrued expenses                160         92        56            (23)
Income taxes receivable from    ―         16        ―           16
EMC
Income taxes payable            71          (4)       112           (2)
Unearned revenues               216         206       251           263
Net cash provided by operating  409         534       1,159         1,210
activities
Investing activities:
Additions to property and       (76)        (75)      (153)         (153)
equipment
Purchases of                    (1,445)     (918)     (1,976)       (1,655)
available-for-sale securities
Sales of available-for-sale     530         333       941           819
securities
Maturities of                   169         188       322           370
available-for-sale securities
Proceeds from disposition of    ―         31        ―           31
certain lines of business
Purchase of strategic           (37)        (2)       (40)          (2)
investments
Business acquisitions, net of   ―         ―       (1,068)       (184)
cash acquired
Increase in restricted cash     ―         (1)       (76)          (2)
Other investing                 (3)         ―         (10)          1
Net cash used in investing      (862)       (444)     (2,060)       (775)
activities
Financing activities:
Proceeds from issuance of       11          47        99            115
common stock
Proceeds from issuance of note  ―         ―       1,500         ―
payable to EMC
Repayment of note payable to    ―         ―       (450)         ―
EMC
Reduction in capital from EMC   ―         ―       (24)          ―
Repurchase of common stock      (238)       (120)     (407)         (302)
Excess tax benefits from        11          26        26            48
stock-based compensation
Shares repurchased for tax
withholdings on vesting of      (65)        (43)      (94)          (65)
restricted stock
Net cash provided by (used in)  (281)       (90)      650           (204)
financing activities
Net increase (decrease) in      (734)       ―       (251)         231
cash and cash equivalents
Cash and cash equivalents at    2,788       1,840     2,305         1,609
beginning of the period
Cash and cash equivalents at    $ 2,054    $ 1,840  $ 2,054      $ 1,840
end of the period





VMware, Inc.
SUPPLEMENTAL REVENUES SCHEDULE
(INCLUDES RECONCILIATION OF GAAP TO NON-GAAP DATA)
(in millions)
(unaudited)
                  For the Three Months   For the Three Months Ended
                  Ended
                  June 30,    March      December     September  June   March
                              31,        31,          30,        30,    31,
                  2014        2014       2013         2013       2013   2013
Revenues as
reported (1):
                              $                               $    $  
                  $              $        $            
License                                             
                   614      561        687        564           
                                                                 531   488
Software          737         701        699          644        614    605
maintenance
Professional      106         98         97           81         98     98
services
                              $                               $    $  
                  $              $        $            
Total revenues                                        
                  1,457       1,360      1,483        1,289            
                                                                 1,243  1,191
Change (%) over
prior year
License          15.8%       14.8%      15.1%        14.8%      2.6%   1.3%
Software          20.0%       15.8%      18.3%        16.9%      18.3%  23.0%
maintenance
Professional      7.5%        0.4%       -8.4%        -11.4%     13.4%  20.8%
services
Total revenues    17.2%       14.2%      14.7%        13.7%      10.7%  12.9%
Revenues as
reported,
excluding Pivotal
(2)
                              $                               $    $  
                  $              $        $            
License                                             
                   614      561        687        564           
                                                                 531    485
Software          737         701        699          644        614    601
maintenance
Professional      106         98         97           81         98     84
services
                                                                 $    $  
                  $       $       $        $            
Total revenues                                        
                  1,457       1,360   1,483       1,289            
                                                                 1,243  1,170
Change (%) over
prior year
License          15.8%       15.7%      16.6%        16.0%      4.4%   1.5%
Software          20.0%       16.6%      19.2%        17.8%      19.3%  23.0%
maintenance
Professional      7.5%        17.4%      24.5%        14.0%      45.1%  19.8%
services
Total revenues    17.2%       16.3%      18.3%        16.8%      14.0%  12.8%
Revenues as
reported,
excluding
Pivotal
and all
dispositions (3)
                              $                               $    $  
                  $              $        $            
License                                             
                   614      561        687        562           
                                                                 526   476
Software          737         701        699          642        611    590
maintenance
Professional      106         98         97           81         98     83
services
                              $                               $    $  
                  $              $        $            
Total revenues                                         
                  1,457      1,360      1,483        1,285            
                                                                 1,235  1,149
Change (%) over
prior year
License          16.7%       17.8%      18.2%        17.3%      5.3%   1.1%
Software          20.7%       18.9%      21.8%        20.0%      21.3%  23.4%
maintenance
Professional      8.0%        18.2%      24.8%        15.4%      45.6%  19.9%
services
Total revenues    18.0%       18.4%      20.3%        18.5%      15.4%  12.9%
Reconciliation of
"revenues as
reported" to
"revenues as
reported,
excluding
Pivotal
and all
dispositions":
Revenues as
reported,
excluding Pivotal
                              $                               $    $  
and all           $              $        $            
dispositions (3)                                      
                  1,457       1,360      1,483        1,285            
                                                                 1,235  1,149
Pivotal           —           —          —            —          —      22
All dispositions  —           —          —            4          8      20
                              $                               $    $  
Revenues as       $              $        $            
reported (1)                                          
                  1,457       1,360      1,483        1,289            
                                                                 1,243  1,191
(1) Represents
revenues reported
each quarter.
(2) Represents revenues reported each quarter less the revenues attributable
to products and services contributed by VMware to Pivotal Software, Inc.
("Pivotal") on April 1, 2013. All quarters have been adjusted to exclude the
related revenues.
(3) Represents revenues reported each quarter less a) the revenues
attributable to products and services contributed by VMware to Pivotal on
April 1, 2013 and b) the revenues attributable to all lines of businesses
which were disposed of in 2013, including Zimbra which was disposed of in July
2013. All quarters have been adjusted to exclude the related revenues.





VMware, Inc.
SUPPLEMENTAL UNEARNED REVENUES SCHEDULE
(INCLUDES RECONCILIATION OF GAAP TO NON-GAAP DATA)
(in millions)
(unaudited)
                 June 30,   March      December   September   June     March
                            31,        31,        30,         30,      31,
                 2014       2014       2013       2013        2013     2013
Unearned
revenues as
reported (1)
                 $       $       $      $       $     $   
License                                              
                  476       459      465        415          427     446
Software         3,541      3,378      3,304      2,937       2,903    2,797
maintenance
Professional     372        335        323        284         266      247
services
Total unearned   $       $       $      $       $     $   
revenues                                    3,636          
                 4,389     4,172     4,092                 3,596   3,490
Change (%) over
prior year
License         11.5%      2.8%       0.5%       13.3%       13.7%    19.6%
Software         22.0%      20.8%      19.9%      21.6%       23.2%    24.5%
maintenance
Professional     39.7%      35.6%      33.1%      34.3%       26.8%    30.6%
services
Total unearned   22.0%      19.6%      18.3%      21.5%       22.2%    24.3%
revenues
Unearned
revenues as
reported,
excluding
Pivotal
and all
dispositions (2)
                 $       $       $      $       $     $   
License                                              
                  476       459      465        414          427     407
Software         3,541      3,378      3,304      2,933       2,903    2,736
maintenance
Professional     372        335        323        285         266      246
services
Total unearned   $       $       $      $       $     $   
revenues                                    3,632          
                 4,389     4,172     4,092                 3,596   3,389
Change (%) over
prior year
License         11.5%      12.8%      12.3%      26.4%       27.1%    15.7%
Software         22.0%      23.5%      23.7%      25.0%       26.8%    25.0%
maintenance
Professional     39.7%      36.5%      34.4%      35.7%       28.7%    31.7%
services
Total unearned   22.0%      23.1%      23.0%      26.0%       27.0%    24.3%
revenues
Reconciliation
of "unearned
revenues as
reported" to

"unearned
revenues as
reported,
excluding
Pivotal

and all
dispositions":
Unearned
revenues as
reported,
excluding
Pivotal
and all          $       $       $      $       $     $   
dispositions (2)                            3,632          
                 4,389     4,172     4,092                 3,596   3,389
Pivotal and all  —          —          —          4           —        101
dispositions
Unearned         $       $       $      $       $     $   
revenues as                                 3,636          
reported (1)     4,389     4,172     4,092                 3,596   3,490
(1) Represents
unearned
revenues
reported each
quarter.
(2) Represents unearned revenues reported each quarter less a) the unearned
revenues attributable to products and services contributed by VMware to
Pivotal on April 1, 2013 and b) the unearned revenues attributable to all
lines of businesses which were disposed of in 2013, including Zimbra which was
disposed of in July 2013. All quarters have been adjusted to exclude the
related unearned revenues.





VMware, Inc.
RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Three Months Ended June 30, 2014
(amounts in millions, except per share amounts, and shares in thousands)
(unaudited)
                                                         Employer
                                                         Payroll                                             Acquisition Certain       Tax
                  GAAP                      Stock-Based  Taxes        Intangible   Realignment               and Other   Litigation    Adjustment Non-GAAP,
                                            Compensation on Employee  Amortization Charges                   Related     and Other     (1)        as adjusted
                                                         Stock                                               Items       Contingencies
                                                         Transactions
Operating
expenses:
Cost of license   $                                                                                                                   $      
revenues          46                        (1)          ―          (27)         ―                       ―         ―           ―             
                                                                                                                                                  18
Cost of services  $              (11)         ―          ―          ―                       ―         ―           ―        $      
revenues          172                                                                                                                                  161
Research and      $              (66)         (1)          (2)          ―                       ―         ―           ―        $      
development      317                                                                                                                                  248
Sales and         $              (43)         (1)          (5)          ―                       ―         ―           ―        $      
marketing        544                                                                                                                                  495
General and       $              (18)         ―          (1)          ―                       (42)        (11)          ―        $      
administrative   179                                                                                                                                  107
Realignment       $                                                                                                                   $
charges           (1)                       ―          ―          ―          1                         ―         ―           ―        
                                                                                                                                                  ―
Operating         $              139          2            35           (1)                       42          11            ―        $      
income           200                                                                                                                                  428
Operating margin  13.7%                     9.6%         0.2%         2.4%         -0.1%                     2.9%        0.7%          ―        29.4%
(2)
                  $                                                                                                       $      
Other income      ―                        ―          ―          ―          ―                       1           ―           ―              
                                                                                                                                                  1
Income before     $              139          2            35           (1)                       43          11            ―        $      
income taxes     202                                                                                                                                  431
Income tax        $                                                                                                                   $      
provision        35                                                                                                                   45              
                                                                                                                                                  80
Tax rate (2)      17.5%                                                                                                                           18.5%
Net income       $              139          2            35           (1)                       43          11            (45)       $      
                  167                                                                                                                                  351
Net income per
weighted-average
share,
basic for Class   $               $       $       $       $ $      $       $      $      
A and Class B     0.39                                             ―                                   0.02           0.82
(2) (3)                                     0.32        0.01        0.08                                  0.10                     (0.10)
Net income per
weighted-average
share,
diluted for       $               $       $       $       $ $      $       $      $      
ClassA and       0.38                                             ―                                   0.02           0.81
ClassB (2) (4)                             0.32        0.01        0.08                                  0.10                     (0.10)
(1) Non-GAAP financial information for the quarter is adjusted for a tax rate equal to our annual estimated tax rate on non-GAAP income. This rate is based on
our estimated annual GAAP income tax rate forecast, adjusted to account for items excluded from GAAP income in calculating the non-GAAP financial measures
presented above. 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.
(2) Operating margin, tax rate and net income per weighted average share information are calculated based upon the respective underlying, non-rounded data.
(3) Calculated based upon 430,216 basic weighted-average shares for Class A and Class B.
(4) Calculated based upon 434,199 diluted weighted-average shares for Class A and Class B.





VMware, Inc.
RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Three Months Ended June 30, 2013
(amounts in millions, except per share amounts, and shares in thousands)
(unaudited)
                                                                                                                                            Gain on
                                     Employer                                                         Acquisition               Capitalized Disposition
                        Stock-Based  Payroll Taxes             Intangible   Realignment               and Other                 Software    of          Tax        Non-GAAP,
                  GAAP  Compensation on Employee               Amortization Charges                   Related                   Development Certain     Adjustment as adjusted
                                     Stock Transactions                                               Items                     Costs (1)   Lines of    (2)
                                                                                                                                            Business &
                                                                                                                                            Other, Net
Operating
expenses:
                  $  
Cost of license                                                                                                                                                 $     
revenues             ―          (1)                       (22)         ―                       ―                       (13)        ―         ―             
                                                                                                                                                                 19
                   55
                  $  
Cost of services                                                                                                                                                $     
revenues             (7)          ―                       (1)          ―                       ―                       ―         ―         ―             
                                                                                                                                                                110
                  118
                  $  
Research and                                                                                                                                                    $     
development         (51)         (2)                       (1)          ―                       ―                       ―         ―         ―             
                                                                                                                                                                207
                  261
                  $  
Sales and                                                                                                                                                       $     
marketing           (33)         (1)                       (1)          ―                       ―                       ―         ―         ―             
                                                                                                                                                                407
                  442
                  $  
General and                                                                                                                                                     $     
administrative      (12)         ―                       ―          ―                       (1)                       ―         ―         ―             
                                                                                                                                                                 83
                   96
                  $  
Realignment                                                                                                                                                     $
charges              ―          ―                       ―          (1)                       ―                       ―         ―         ―        
                                                                                                                                                                 ―
                    1
                  $  
Operating                                                                                                                                                       $     
income              103          4                         25           1                         1                         13          ―         ―             
                                                                                                                                                                417
                  270
Operating margin  21.7% 8.3%         0.3%                      2.0%         0.1%                      ―                       1.1%        ―         ―        33.5%
(3)
                  $  
Other income                                                                                                                                                    $     
(expense), net       ―          ―                       ―          ―                       ―                       ―         (19)        ―             
                                                                                                                                                                 (1)
                   18
                  $  
Income before                                                                                                                                                   $     
income taxes        103          4                         25           1                         1                         13          (19)        ―             
                                                                                                                                                                422
                  294
                  $  
Income tax                                                                                                                                                      $     
provision                                                                                                                                            30              
                                                                                                                                                                 79
                   49
Tax rate (3)      16.8%                                                                                                                                            18.5%
                  $  
                                                                                                                                                                $     
Net income          103          4                         25           1                         1                         13          (19)        (30)            
                                                                                                                                                                343
                  245
Net income per
weighted-average
share,
                  $  
basic for Class      $       $               $       $ $ $      $      $      $     
A and Class B                0.01                             ―                        ―                                                 
(3) (4)               0.24                                  0.06                                                            0.03       (0.04)     (0.07)    0.80
                  0.57
Net income per
weighted-average
share,
                  $  
diluted for          $       $ $       $ $ $      $      $      $     
ClassA and                  ―                                ―                        ―                                                 
ClassB (3) (5)       0.24                                  0.06                                                            0.03       (0.04)     (0.07)    0.79
                  0.57
(1) For the second quarter of 2013, no costs were capitalized for the development of software products. Amortization expense from previously capitalized amounts
was $13 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) Operating margin, tax rate and net income per weighted average share information are calculated based upon the respective underlying, non-rounded data.
(4) Calculated based upon 428,336 basic weighted-average shares for Class A and Class B.
(5) Calculated based upon 431,987 diluted weighted-average shares for Class A and Class B.





VMware, Inc.
RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Six Months Ended June 30, 2014
(amounts in millions, except per share amounts, and shares in thousands)
(unaudited)
                                                         Employer
                                                         Payroll                                             Acquisition Certain        Tax
                  GAAP                      Stock-Based  Taxes        Intangible   Realignment               and Other   Litigation and Adjustment Non-GAAP,
                                            Compensation on Employee  Amortization Charges                   Related     Other          (1)        as adjusted
                                                         Stock                                               Items       Contingencies
                                                         Transactions
Operating
expenses:
Cost of license   $             (2)          ―          (52)         ―                       ―         ―            ―        $       
revenues          96                                                                                                                                    42
Cost of services  $              (20)         ―          ―          ―                       ―         ―            ―        $       
revenues          323                                                                                                                                  303
Research and      $              (126)        (3)          (3)          ―                       ―         ―            ―        $       
development      610                                                                                                                                  478
Sales and         $                (84)         (2)          (9)          ―                       ―         ―            ―        $       
marketing        1,018                                                                                                                               923
General and       $              (35)         ―          (1)          ―                       (65)        (11)           ―        $       
administrative   330                                                                                                                                  218
Realignment       $             ―          ―          ―          1                         ―         ―            ―        $
charges           (1)                                                                                                                               ―
Operating         $              267          5            65           (1)                       65          11             ―        $       
income           441                                                                                                                                  853
Operating margin  15.7%                     9.4%         0.2%         2.3%         0.0%                      2.3%        0.4%           ―        30.3%
(2)
Other income      $ ―          ―          ―          ―                       2           ―            ―        $       
                  ―                                                                                                                                     2
Income before     $              267          5            65           (1)                       67          11             ―        $       
income taxes     447                                                                                                                                  861
Income tax        $                                                                                                         78         $       
provision        81                                                                                                                                   159
Tax rate (2)      18.1%                                                                                                                            18.5%
Net income       $              267          5            65           (1)                       67          11             (78)       $       
                  366                                                                                                                                  702
Net income per
weighted-average
share,
basic for Class   $               $       $       $       $ $      $        $      $       
A and Class B     0.85                                             ―                                   0.02           1.63
(2) (3)                                     0.62        0.01        0.15                                  0.16                      (0.18)
Net income per
weighted-average
share,
diluted for       $               $       $       $       $ $      $        $      $       
ClassA and       0.84                                             ―                                   0.02           1.60
ClassB (2) (4)                             0.61        0.01        0.15                                  0.15                      (0.18)
(1) Non-GAAP financial information for the quarter is adjusted for a tax rate equal to our annual estimated tax rate on non-GAAP income. This rate is based on our
estimated annual GAAP income tax rate forecast, adjusted to account for items excluded from GAAP income in calculating the non-GAAP financial measures presented
above. 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.
(2) Operating margin, tax rate and net income per weighted average share information are calculated based upon the respective underlying, non-rounded data.
(3) Calculated based upon 430,050 basic weighted-average shares for Class A and Class B.
(4) Calculated based upon 434,218 diluted weighted-average shares for Class A and Class B.





VMware, Inc.
RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Six Months Ended June 30, 2013
(amounts in millions, except per share amounts, and shares in thousands)
(unaudited)
                                     Employer                                                                      Gain on
                                     Payroll                               Acquisition                 Capitalized Disposition
                        Stock-Based  Taxes        Intangible   Realignment and Other                   Software    of          Tax        Non-GAAP,
                  GAAP  Compensation on Employee  Amortization Charges     Related                     Development Certain     Adjustment as adjusted
                                     Stock                                 Items                       Costs (1)   Lines of    (2)
                                     Transactions                                                                  Business &
                                                                                                                   Other, Net
Operating
expenses:
                  $  
Cost of license                                                                                                                        $         
revenues             (1)          ―          (45)         ―         ―                         (26)        ―         ―          40
                   
                  112
                  $  
Cost of services                                                                                                                       $         
revenues             (14)         ―          (2)          ―         ―                         ―         ―         ―         227
                   
                  243
                  $  
Research and                                                                                                                           $         
development         (113)        (3)          (2)          ―         ―                         ―         ―         ―         414
                   
                  532
                  $  
Sales and                                                                                                                              $         
marketing           (69)         (2)          (4)          ―         ―                         ―         ―         ―         784
                   
                  859
                  $  
General and                                                                                                                            $         
administrative      (26)         ―          ―          ―         (2)                         ―         ―         ―         166
                   
                  194
                  $  
Realignment                                                                                                                            $
charges              (6)          ―          ―          (57)        ―                         ―         ―         ―        
                                                                                                                                       ―
                  63
                  $  
Operating                                                                                                                              $         
income              229          5            53           57          2                           26          ―         ―         804
                   
                  432
Operating margin  17.7% 9.2%         0.2%         2.2%         2.6%        ―                         1.1%        ―         ―        33.0%
(3)
                  $  
Other income                                                                                                                           $         
(expense), net                                                                                                  (19)                     (6)
                    
                  13
                  $  
Income before                                                                                                                          $         
income taxes        229          5            53           57          2                           26          (19)        ―         811
                   
                  458
                  $  
Income tax                                                                                                                             $         
provision                                                                                                                   110         150
                    
                  40
Tax rate (3)      8.7%                                                                                                                    18.5%
                  $  
                                                                                                                                       $         
Net income          229          5            53           57          2                           26          (19)        (110)       661
                   
                  418
Net income per
weighted-average
share,
                  $  
basic for Class      $       $       $       $                                  $      $      $      $         
A and Class B                    0.02                  $―                          1.55
(3) (4)               0.52                     0.12        0.15                                    0.06        (0.04)     (0.26)
                  0.98
Net income per
weighted-average
share,
                  $  
diluted for          $       $       $       $                                  $      $      $      $         
ClassA and                      0.01                  $―                          1.53
ClassB (3) (5)       0.52                     0.12        0.15                                    0.06       (0.04)     (0.26)
                  0.97
(1) For the first six months of 2013, no costs were capitalized for the development of software products. Amortization expense from previously capitalized
amounts was $26 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) Operating margin, tax rate and net income per weighted average share information are calculated based upon the respective underlying, non-rounded data.
(4) Calculated based upon 428,172 basic weighted-average shares for Class A and Class B.
(5) Calculated based upon 432,406 diluted
weighted-average shares for Class A and Class B.





VMware, Inc.
REVENUES BY TYPE
(in millions)
(unaudited)
                       For the Three Months Ended   For the Six Months Ended
                       June 30,                     June 30,
                       2014           2013          2014          2013
Revenues:
License                $        $        $        $     
                       614             531         1,175         1,019
Services:
Software maintenance   737            614           1,438         1,220
Professional services  106            98            204           196
Total services         843            712           1,642         1,416
Total revenues         $         $        $        $     
                       1,457          1,243         2,817         2,435
Percentage of
revenues:
License                42.0%          42.7%         41.7%         41.8%
Services:
Software maintenance   50.7%          49.4%         51.1%         50.1%
Professional services  7.3%           7.9%          7.2%          8.1%
Total services         58.0%          57.3%         58.3%         58.2%
Total revenues         100.0%         100.0%        100.0%        100.0%





VMware, Inc.
REVENUES BY GEOGRAPHY
(in millions)
(unaudited)
                       For the Three Months Ended   For the Six Months Ended
                       June 30,                     June 30,
                       2014           2013          2014          2013
Revenues:
United States          $        $        $        $     
                       683             590         1,332         1,159
International          774            653           1,485         1,276
Total revenues         $         $        $        $     
                       1,457          1,243         2,817         2,435
Percentage of
revenues:
United States          46.9%          47.5%         47.3%         47.6%
International          53.1%          52.5%         52.7%         52.4%
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 millions)
(unaudited)
                            For the Three Months      For the Six Months Ended
                            Ended
                            June 30,                  June 30,
                            2014         2013         2014         2013
GAAP cash flows from        $       $       $       $     
operating activities          409        534       1,159       1,210
Capital expenditures        (76)         (75)         (153)        (153)
Free cash flows             $       $       $       $     
                              333        459       1,006       1,057





About Non-GAAP Financial Measures

To provide investors and others with additional information regarding VMware's
results, VMware has disclosed in this press release the following non-GAAP
financial measures: non-GAAP operating income, non-GAAP operating margin,
non-GAAP other income (expense), net, non-GAAP net income, non-GAAP income per
diluted share, 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 acquired intangible assets, realignment charges, acquisition
and other-related items, certain litigation and other contingencies, the net
effect of the amortization and capitalization of software development costs
and gain on disposition of certain lines of business and other net, each as
discussed below. Free cash flows differ from GAAP cash flows from operating
activities in its treatment of capital expenditures.

VMware has also presented in this press release quarterly and annual
historical data for revenue and unearned revenue, excluding revenue generated
each period by the products and services contributed to Pivotal Software, Inc.
on April1, 2013 and the products and services associated with the divestures
consummated by VMware in 2013. VMware management believes that these measures
are useful to investors because they allow investors to make meaningful
comparisons of VMware revenues and unearned revenues across periods.

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:

  oStock-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 our 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. Furthermore, unlike cash
    compensation, the value of stock options is determined using a complex
    formula that incorporates factors, such as market volatility, that are
    beyond VMware's control. Additionally, in order to establish the amount of
    expense to recognize for performance-based stock awards, which are also an
    element of ongoing stock-based compensation, VMware is required to apply
    judgment to estimate the probability of the extent to which performance
    objectives will be achieved. Management believes it is useful to exclude
    stock-based compensation in order to better understand the long-term
    performance of VMware's core business and to facilitate comparison of its
    results to those of peer companies.

  oEmployer 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.

  oAmortization 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.

  oRealignment charges: Realignment charges include workforce reductions,
    asset impairments and losses on asset disposals, and costs to exit
    facilities. VMware management believes it is useful to exclude these
    items, when significant, as they are not reflective of VMware's ongoing
    business and operating results.

  oAcquisition and other-related items. Acquisition and other-related items
    include direct costs of acquisitions and dispositions, such as transaction
    and advisory fees. Also included are accruals for the portion of merger
    consideration payable in installments that VMware has committed to make to
    designated founders and key executives of AirWatch, subject to employment
    conditions and indemnification claims, if any. Such installment payments
    may be paid in cash or VMware stock, at the option of VMware.
    Additionally, charges recognized for non-recoverable strategic investments
    or gains recognized on the disposition of strategic investments during
    2014 are included as other-related 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 these items when looking for a
    consistent basis for comparison across accounting periods.

  oCertain Litigation and Other Contingencies. VMware from time to time may
    incur charges or benefits that are outside of the ordinary course of our
    business related to litigation and other contingencies. VMware believes
    it is useful to exclude such charges or benefits because we do not
    considersuch amounts to be part of the ongoing operation of our business
    and because of the singular nature of the claims underlying the matter.

  oCapitalized software development costs. Capitalized software development
    costs encompass 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. VMware did not capitalize
    software development costs related to product offerings in either fiscal
    year 2014 or fiscal year 2013 given its current go-to-market strategy. In
    future periods, VMware does not expect amortization expense as previously
    capitalized software development costs have become fully amortized.

  oGain on disposition of certain lines of business and other, net. In 2013,
    VMware recognized a gain as a result of exiting certain lines of business
    under its business realignment plan, which was partially offset by a
    charge recognized for a non–recoverable strategic investment. These
    transactions resulted in a net gain of $31 million. To the extent that
    significant gains or losses are realized on such dispositions and
    strategic investments, they do not occur on a predictable cycle, and such
    gains and losses are not reflective of VMware's ongoing business and
    operating results.

  oTax 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 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. 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 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 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 management believes that the non-GAAP financial measure
free cash flows is meaningful to investors because management reviews 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.

VMware, Inc. Logo

Logo - http://photos.prnewswire.com/prnh/20140722/129401



SOURCE VMware, Inc.

Website: http://www.vmware.com
 
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