VMware Reports Record Fourth Quarter and Full Year 2012 Results

Mon Jan 28, 2013 4:01pm EST

* Reuters is not responsible for the content in this press release.

  PALO ALTO, CA, Jan 28 (Marketwire) -- 
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 risk 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
treatment of capital expenditures. 

    VMware's management uses these non-GAAP financial measures to understand
and compare operating results across accounting periods, for internal
budgeting and forecasting purposes, for short- and long-term operating
plans, to calculate bonus payments and to evaluate VMware's financial
performance, the performance of its individual functional groups and the
ability of operations to generate cash. Management believes these
non-GAAP financial measures reflect VMware's ongoing business in a manner
that allows for meaningful period-to-period comparisons and analysis of
trends in VMware's business, as they exclude 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 

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