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VMware Reports Record Fourth Quarter and Full Year 2013 Results

Annual Revenue Growth of 13% to a Record $5.21 Billion; Fourth Quarter Year-Over-Year Growth of 15% to a Record $1.48 Billion; Annual Revenue Growth of 17% and Fourth Quarter Year-Over-Year Growth of 20%, Excluding Pivotal and Divestitures in 2013(1); Ann

PALO ALTO, CA -- (Marketwired) -- 01/28/14 -- VMware, Inc. (NYSE: VMW), the global leader in virtualization and cloud infrastructure, today announced financial results for the fourth quarter and full year of 2013:

Quarterly Review

  • Revenues for the fourth quarter were $1.48 billion, an increase of 15% from the fourth quarter of 2012. Excluding revenues attributable to Pivotal and all divestitures that occurred in 2013, revenues for the fourth quarter increased 20% from the fourth quarter of 2012.(1)

  • Operating income for the fourth quarter was $374 million, an increase of 48% from the fourth quarter of 2012. Non-GAAP operating income for the fourth quarter was $528 million, an increase of 25% from the fourth quarter of 2012.

  • Net income for the fourth quarter was $335 million, or $0.77 per diluted share, an increase of 62% per diluted share compared to $206 million, or $0.47 per diluted share, for the fourth quarter of 2012. Non-GAAP net income for the quarter was $436 million, or $1.01 per diluted share, an increase of 25% per diluted share compared to $349 million, or $0.81 per diluted share, for the fourth quarter of 2012.

  • Operating cash flows for the fourth quarter were $688 million, an increase of 40% from the fourth quarter of 2012. Free cash flows for the quarter were $590 million, an increase of 44% from the fourth quarter of 2012.

Annual Review

  • Revenues for 2013 were $5.21 billion, an increase of 13% from 2012 or an increase of 17% excluding revenues attributable to Pivotal and all divestitures that occurred in 2013.(1)

  • Operating income for 2013 was $1.09 billion, an increase of 25% from 2012. Non-GAAP operating income for 2013 was $1.77 billion, an increase of 19% from 2012.

  • Net income for 2013 was $1.01 billion, or $2.34 per diluted share, an increase of 36% compared to $746 million, or $1.72 per diluted share, for 2012. Non-GAAP net income for 2013 was $1.46 billion, or $3.37 per diluted share, an increase of 18% per diluted share compared to $1.24 billion, or $2.85 per diluted share, for 2012.

  • Operating cash flows for 2013 were $2.54 billion, an increase of 34% from 2012, and free cash flows for the year were $2.19 billion, an increase of 32% from 2012.

  • Cash, cash equivalents and short-term investments were $6.18 billion and unearned revenues were $4.09 billion as of December 31, 2013.

"Our strong performance throughout 2013 is evidence that our customers are embracing our vision and realizing value from our solutions," said Pat Gelsinger, chief executive officer, VMware. "In every region of the world, customers are making a long-term bet on VMware to help them transform their businesses for the mobile-cloud world."

"We delivered record 2013 results as customer demand across all our business offerings continues to thrive," said Jonathan Chadwick, chief financial officer, VMware. "We have increased our guidance for 2014 and are confident about our opportunities for long-term growth as we help our customers innovate for the future."

Recent Highlights & Strategic Announcements

  • Following VMworld® 2013 and VMworld 2013 Europe, where VMware hosted a combined total of over 31,000 registered attendees, VMware took VMworld on the road to the Asia Pacific Region and held VMware vForum customer and partner user conferences in six countries hosting 27,000 attendees.

  • Last week VMware announced its intent to acquire AirWatch, the leader in Enterprise Mobile Management and Security. This acquisition will provide customers the most complete end-user computing solution to manage users, devices and applications across desktops and mobile environments. VMware also recently acquired Desktone, Inc., which pioneered Desktop as a Service® (DaaS) to deliver Windows desktops and applications as a cloud service to any user, anywhere, on any device.

  • VMware announced general availability of new and updated Management solutions purpose-built for the cloud, including VMware vCloud® Automation Center™ 6.0, VMware vCenter™ Operations Management Suite™ 5.8 and VMware IT Business Management Suite™. These solutions simplify and automate how IT is managed, helping customers on their journey to deliver IT as a Service.

  • VMware vCloud Hybrid Service™ continues to see good customer traction and momentum having launched its U.K private beta service in December and opened another new data center in the U.S. VMware also recently announced HIPAA compliance providing healthcare customers the agility and flexibility of vCloud Hybrid Service and the ability to collaborate, share, store and centralize Protected Healthcare Information to operate more efficiently while protecting patient privacy.

  • VMware announced general availability of VMware NSX™, the network virtualization platform, which VMware expects to do for networking what server virtualization did for compute. In addition, VMware announced a partnership with security leader Palo Alto Networks to co-develop a solution that will enable customers to use the VMware NSX platform to automate provisioning and distribution of Palo Alto Networks technologies in their software-defined data centers.

VMware plans to host a conference call today to review its fourth quarter and full year 2013 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.

(1) Comparative growth percentages exclude revenues in each period attributable to the products and services contributed to Pivotal Software, Inc. and all divestitures consummated by VMware in 2013

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 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, VMworld, Desktop as a Service, vCenter, VCenter Operations Management Suite, IT Business Management Suite, vCloud Hybrid Service, NSX, 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 long-term customer commitments to VMware, VMware's guidance for 2014 and opportunities for long-term growth, the acquisition of Airwatch, the expected benefits to customers from the AirWatch acquisition, the future availability of announced products and services and their benefits to customers, including VMware's recently announced HIPAA compliance, and the benefits to customers of VMware's partnership with Palo Alto Networks. 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 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; (xiv) fluctuating currency exchange rates and (xv) the satisfaction of closing conditions for the AirWatch acquisition, including clearance under the Hart-Scott-Rodino Antitrust Improvements Act. 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.



                                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 Year Ended
                               December 31,              December 31,
                         ------------------------  ------------------------
                             2013         2012         2013         2012
                         -----------  -----------  -----------  -----------

Revenues:
 License                 $       687  $       597  $     2,270  $     2,087
 Services                        796          696        2,937        2,518
                         -----------  -----------  -----------  -----------
Total revenues                 1,483        1,293        5,207        4,605
Operating expenses (1):
 Cost of license revenues         47           63          210          237
 Cost of services
  revenues                       145          128          520          484
 Research and development        284          268        1,082          999
 Sales and marketing             507          478        1,815        1,645
 General and
  administrative                 122          103          419          368
 Realignment charges               4            -           68            -
                         -----------  -----------  -----------  -----------
Operating income                 374          253        1,093          872
Investment income                  8            6           30           27
Interest expense with EMC         (1)          (1)          (4)          (5)
Other income (expense),
 net                               -            2           28           (1)
                         -----------  -----------  -----------  -----------
Income before income
 taxes                           381          260        1,147          893
Income tax provision              46           54          133          147
                         -----------  -----------  -----------  -----------
Net income               $       335  $       206  $     1,014  $       746
                         ===========  ===========  ===========  ===========

Net income per weighted-
 average share, basic for
 Class A and Class B     $      0.78  $      0.48  $      2.36  $      1.75

Net income per weighted-
 average share, diluted
 for Class A and Class B $      0.77  $      0.47  $      2.34  $      1.72

Weighted-average shares,
 basic for Class A and
 Class B                     430,174      427,266      429,093      426,658
Weighted-average shares,
 diluted for Class A and
 Class B                     433,621      433,205      433,415      433,974
______
 (1) Includes stock-based
  compensation as
  follows:
 Cost of license revenues$         -  $         1  $         2  $         2
 Cost of services
  revenues                         8            7           29           28
 Research and development         62           63          227          210
 Sales and marketing              38           39          144          150
 General and
  administrative                  14           14           56           48
 Realignment charges               -            -            6            -




                                VMware, Inc.

                         CONSOLIDATED BALANCE SHEETS
  (amounts in millions, except per share amounts, and shares in thousands)
                                 (unaudited)


                                                       December 31,
                                             -------------------------------
                                                   2013            2012
                                             --------------- ---------------

                    ASSETS
Current assets:
  Cash and cash equivalents                  $         2,305 $         1,609
  Short-term investments                               3,870           3,022
  Accounts receivable, net of allowance for
   doubtful accounts of $2 and $4                      1,220           1,151
  Due from related parties, net                            -              68
  Deferred tax asset                                     190             179
  Other current assets                                    96              91
                                             --------------- ---------------
Total current assets                                   7,681           6,120
Property and equipment, net                              845             665
Other assets, net                                        107             128
Deferred tax asset                                        60             103
Intangible assets, net                                   607             732
Goodwill                                               3,027           2,848
                                             --------------- ---------------
    Total assets                             $        12,327 $        10,596
                                             =============== ===============

     LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                           $           109 $            90
  Accrued expenses and other                             608             644
  Due to related parties, net                             18               -
  Unearned revenues                                    2,558           2,196
                                             --------------- ---------------
Total current liabilities                              3,293           2,930
Note payable to EMC                                      450             450
Unearned revenues                                      1,534           1,265
Other liabilities                                        234             211
                                             --------------- ---------------
    Total liabilities                                  5,511           4,856
Commitments and contingencies
Stockholders' equity:
  Class A common stock, par value $.01;
   authorized 2,500,000 shares; issued and
   outstanding 130,349 and 128,688 shares                  1               1
  Class B convertible common stock, par value
   $.01; authorized 1,000,000 shares; issued
   and outstanding 300,000 shares                          3               3
  Additional paid-in capital                           3,496           3,432
  Accumulated other comprehensive income                   4               6
  Retained earnings                                    3,312           2,298
                                             --------------- ---------------
    Total stockholders' equity                         6,816           5,740
                                             --------------- ---------------
      Total liabilities and stockholders'
       equity                                $        12,327 $        10,596
                                             =============== ===============




                                VMware, Inc.

                   CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (in millions)
                                (unaudited)


                                 For the Three Months
                                         Ended          For the Year Ended
                                     December 31,          December 31,
                                 --------------------  --------------------
                                    2013       2012       2013       2012
                                 ---------  ---------  ---------  ---------

Operating activities:
Net income                       $     335  $     206  $   1,014  $     746
Adjustments to reconcile net
 income to net cash provided by
 operating activities:
 Depreciation and amortization          76         93        337        355
 Stock-based compensation              122        124        454        426
 Excess tax benefits from stock-
  based compensation                   (10)       (27)       (70)      (138)
 Deferred income taxes, net             15         (4)        56        (74)
 Non-cash realignment charges            -          -         15          -
 Gain on disposition of certain
  lines of business and other,
  net                                    -          -        (31)         -
 Other                                   4          4          7          2
 Changes in assets and
  liabilities, net of
  acquisitions:
  Accounts receivable                 (431)      (470)       (71)      (268)
  Other assets                          13          9        (59)      (112)
  Due to/from related parties,
   net                                 (23)       (22)        60          6
  Accounts payable                      14         (2)        30         24
  Accrued expenses                      93         85          1         22
  Income taxes receivable from
   EMC                                   1         19         17         19
  Income taxes payable                  23         11         19        138
  Unearned revenues                    456        467        756        751
                                 ---------  ---------  ---------  ---------
Net cash provided by operating
 activities                            688        493      2,535      1,897
                                 ---------  ---------  ---------  ---------

Investing activities:
Additions to property and
 equipment                             (98)       (82)      (345)      (234)
Purchases of available-for-sale
 securities                           (953)      (469)    (3,181)    (3,189)
Sales of available-for-sale
 securities                            527        227      1,599      1,880
Maturities of available-for-sale
 securities                            120        134        717        902
Proceeds from disposition of
 certain lines of business               -          -         37          -
Business acquisitions, net of
 cash acquired                        (105)         -       (289)    (1,344)
Other investing                          1        (37)       (10)       (50)
                                 ---------  ---------  ---------  ---------
Net cash used in investing
 activities                           (508)      (227)    (1,472)    (2,035)
                                 ---------  ---------  ---------  ---------

Financing activities:
Proceeds from issuance of common
 stock                                  12         39        197        253
Repurchase of common stock            (116)      (160)      (508)      (467)
Excess tax benefits from stock-
 based compensation                     10         27         70        138
Shares repurchased for tax
 withholdings on vesting of
 restricted stock                      (44)       (43)      (126)      (133)
                                 ---------  ---------  ---------  ---------
Net cash used in financing
 activities                           (138)      (137)      (367)      (209)
                                 ---------  ---------  ---------  ---------
Net increase (decrease) in cash
 and cash equivalents                   42        129        696       (347)
Cash and cash equivalents at
 beginning of the period             2,263      1,480      1,609      1,956
                                 ---------  ---------  ---------  ---------
Cash and cash equivalents at end
 of the period                   $   2,305  $   1,609  $   2,305  $   1,609
                                 =========  =========  =========  =========




                                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
                --------------------------------------  --------------------
                December  September            March    December  September
                   31,       30,    June 30,     31,       31,       30,
                  2013      2013      2013      2013      2012      2012


Revenues as
 reported (1):
 License        $    687  $    564  $    531  $    488  $    597  $    491
 Software
  maintenance        699       644       614       605       591       551
 Professional
  services            97        81        98        98       105        92
                --------  --------  --------  --------  --------  --------
Total revenues  $  1,483  $  1,289  $  1,243  $  1,191  $  1,293  $  1,134
                ========  ========  ========  ========  ========  ========

Change (%) over
 prior year
 License            15.1%     14.8%      2.6%      1.3%     16.1%     10.7%
 Software
  maintenance       18.3%     16.9%     18.3%     23.0%     27.5%     29.0%
 Professional
  services          -8.4%    -11.4%     13.4%     20.8%     27.0%     28.6%
                --------  --------  --------  --------  --------  --------
Total revenues      14.7%     13.7%     10.7%     12.9%     22.0%     20.4%
                ========  ========  ========  ========  ========  ========

Revenues as
 reported,
 excluding
 Pivotal (2)
 License        $    687  $    564  $    531  $    485  $    589  $    486
 Software
  maintenance        699       644       614       601       587       546
 Professional
  services            97        81        98        84        77        72
                --------  --------  --------  --------  --------  --------
Total revenues  $  1,483  $  1,289  $  1,243  $  1,170  $  1,253  $  1,104
                ========  ========  ========  ========  ========  ========

Change (%) over
 prior year
 License            16.6%     16.0%      4.4%      1.5%     15.7%     11.2%
 Software
  maintenance       19.2%     17.8%     19.3%     23.0%     27.5%     28.9%
 Professional
  services          24.5%     14.0%     45.1%     19.8%      6.4%     12.3%
                --------  --------  --------  --------  --------  --------
Total revenues      18.3%     16.8%     14.0%     12.8%     20.3%     19.4%
                ========  ========  ========  ========  ========  ========

Revenues as
 reported,
 excluding
 Pivotal and all
 dispositions
 (3)

 License        $    687  $    562  $    526  $    476  $    581  $    479
 Software
  maintenance        699       642       611       590       574       535
 Professional
  services            97        81        98        83        77        70
                --------  --------  --------  --------  --------  --------
Total revenues  $  1,483  $  1,285  $  1,235  $  1,149  $  1,232  $  1,084
                ========  ========  ========  ========  ========  ========

Change (%) over
 prior year
 License            18.2%     17.3%      5.3%      1.1%     16.0%     11.8%
 Software
  maintenance       21.8%     20.0%     21.3%     23.4%     27.2%     28.5%
 Professional
  services          24.8%     15.4%     45.6%     19.9%      6.3%     11.3%
                --------  --------  --------  --------  --------  --------
Total revenues      20.3%     18.5%     15.4%     12.9%     20.3%     19.4%
                ========  ========  ========  ========  ========  ========

Reconciliation of "revenues as reported" to"revenues as reported, excluding
 Pivotaland all dispositions":
Revenues as
 reported,
 excluding
 Pivotal and all
 dispositions
 (3)
                $  1,483  $  1,285  $  1,235  $  1,149  $  1,232  $  1,084
 Pivotal               -         -         -        22        40        30
 All
  dispositions         -         4         8        20        21        20
                --------  --------  --------  --------  --------  --------
Revenues as
 reported (1)   $  1,483  $  1,289  $  1,243  $  1,191  $  1,293  $  1,134
                ========  ========  ========  ========  ========  ========

                               For the Three
                   Months Ended     For the Year Ended
                ------------------  ------------------
                            March   December  December
                June 30,     31,       31,       31,
                  2012      2012      2013      2012


Revenues as
 reported (1):
 License        $    517  $    482  $  2,270  $  2,087
 Software
  maintenance        519       492     2,563     2,153
 Professional
  services            87        81       374       365
                --------  --------  --------  --------
Total revenues  $  1,123  $  1,055  $  5,207  $  4,605
                ========  ========  ========  ========

Change (%) over
 prior year
 License            11.3%     15.0%      8.7%
 Software
  maintenance       34.4%     35.3%     19.0%
 Professional
  services          23.7%     33.0%      2.5%
                --------  --------  --------
Total revenues      21.9%     25.1%     13.1%
                ========  ========  ========

Revenues as
 reported,
 excluding
 Pivotal (2)
 License        $    508  $    478  $  2,266  $  2,061
 Software
  maintenance        515       489     2,559     2,137
 Professional
  services            68        69       360       287
                --------  --------  --------  --------
Total revenues  $  1,091  $  1,036  $  5,185  $  4,485
                ========  ========  ========  ========

Change (%) over
 prior year
 License             9.8%     15.1%     10.0%
 Software
  maintenance       34.3%     35.0%     19.7%
 Professional
  services           8.3%     24.3%     25.6%
                --------  --------  --------
Total revenues      20.0%     24.4%     15.6%
                ========  ========  ========

Revenues as
 reported,
 excluding
 Pivotal and all
 dispositions
 (3)

 License        $    500  $    471  $  2,251  $  2,031
 Software
  maintenance        504       478     2,542     2,090
 Professional
  services            67        69       359       284
                --------  --------  --------  --------
Total revenues  $  1,071  $  1,018  $  5,152  $  4,405
                ========  ========  ========  ========

Change (%) over
 prior year
 License             9.2%     14.5%     10.9%
 Software
  maintenance       33.1%     33.7%     21.6%
 Professional
  services           8.1%     24.3%     26.2%
                --------  --------  --------
Total revenues      19.2%     23.5%     16.9%
                ========  ========  ========

Reconciliation of "revenues as
 reported" to"revenues as reported,
 excluding Pivotaland all
 dispositions":
Revenues as
 reported,
 excluding
 Pivotal and all
 dispositions
 (3)
                $  1,071  $  1,018  $  5,152  $  4,405
 Pivotal              32        19        22       120
 All
  dispositions        20        18        33        80
                --------  --------  --------  --------
Revenues as
 reported (1)   $  1,123  $  1,055  $  5,207  $  4,605
                ========  ========  ========  ========


(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)


                                    September
                    December 31,       30,        June 30,      March 31,
                        2013          2013          2013          2013


Unearned revenues as
 reported (1)
 License            $        465  $        415  $        427  $        446
 Software
  maintenance              3,304         2,937         2,903         2,797
 Professional
  services                   323           284           266           247
                    ------------  ------------  ------------  ------------
Total unearned
 revenues           $      4,092  $      3,636  $      3,596  $      3,490
                    ============  ============  ============  ============

Change (%) over
 prior year
 License                     0.5%         13.3%         13.7%         19.6%
 Software
  maintenance               19.9%         21.6%         23.2%         24.5%
 Professional
  services                  33.1%         34.3%         26.8%         30.6%
                    ------------  ------------  ------------  ------------
Total unearned
 revenues                   18.3%         21.5%         22.2%         24.3%
                    ============  ============  ============  ============

Unearned revenues as
 reported, excluding
 Pivotal and all
 dispositions (2)
 License            $        465  $        414  $        427  $        407
 Software
  maintenance              3,304         2,933         2,903         2,736
 Professional
  services                   323           285           266           246
                    ------------  ------------  ------------  ------------
Total unearned
 revenues           $      4,092  $      3,632  $      3,596  $      3,389
                    ============  ============  ============  ============

Change (%) over
 prior year
 License                    12.3%         26.4%         27.1%         15.7%
 Software
  maintenance               23.7%         25.0%         26.8%         25.0%
 Professional
  services                  34.4%         35.7%         28.7%         31.7%
                    ------------  ------------  ------------  ------------
Total unearned
 revenues                   23.0%         26.0%         27.0%         24.3%
                    ============  ============  ============  ============

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)   $      4,092  $      3,632  $      3,596  $      3,389
 Pivotal and all
  dispositions                 -             4             -           101
                    ------------  ------------  ------------  ------------
Unearned revenues as
 reported (1)       $      4,092  $      3,636  $      3,596  $      3,490
                    ============  ============  ============  ============



                                     September
                     December 31,       30,        June 30,      March 31,
                         2012          2012          2012          2012


Unearned revenues as
 reported (1)
 License             $        463  $        366  $        376  $        373
 Software
  maintenance               2,755         2,415         2,357         2,246
 Professional
  services                    243           212           209           189
                     ------------  ------------  ------------  ------------
Total unearned
 revenues            $      3,461  $      2,993  $      2,942  $      2,808
                     ============  ============  ============  ============

Change (%) over
 prior year
 License                     18.9%         35.8%         56.5%         48.4%
 Software
  maintenance                29.1%         33.8%         39.8%         41.3%
 Professional
  services                   30.8%         32.5%         37.9%         37.3%
                     ------------  ------------  ------------  ------------
Total unearned
 revenues                    27.8%         34.0%         41.6%         41.9%
                     ============  ============  ============  ============

Unearned revenues as
 reported, excluding
 Pivotal and all
 dispositions (2)
 License             $        414  $        327  $        336  $        352
 Software
  maintenance               2,671         2,346         2,289         2,189
 Professional
  services                    241           210           207           186
                     ------------  ------------  ------------  ------------
Total unearned
 revenues            $      3,326  $      2,883  $      2,832  $      2,727
                     ============  ============  ============  ============

Change (%) over
 prior year
 License                     11.6%         25.9%         49.4%         45.4%
 Software
  maintenance                28.5%         33.3%         38.7%         40.4%
 Professional
  services                   30.8%         31.9%         36.2%         36.0%
                     ------------  ------------  ------------  ------------
Total unearned
 revenues                    26.3%         32.3%         39.7%         40.7%
                     ============  ============  ============  ============

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)    $      3,326  $      2,883  $      2,832  $      2,727
 Pivotal and all
  dispositions                135           110           110            81
                     ------------  ------------  ------------  ------------
Unearned revenues as
 reported (1)        $      3,461  $      2,993  $      2,942  $      2,808
                     ============  ============  ============  ============



(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 December 31, 2013
  (amounts in millions, except per share amounts, and shares in thousands)
                                 (unaudited)




                                                     Employer
                                                    Payroll Taxes
                                                    on Employee  Intangible
                                        Stock-Based   Stock       Amortiz-
                                GAAP   Compensation Transactions   ation
                             ----------  ----------  ----------  ----------

Operating expenses:
 Cost of license revenues    $       47           -           -         (23)
 Cost of services revenues   $      145          (8)          -           -
 Research and development    $      284         (62)         (1)         (1)
 Sales and marketing         $      507         (38)          -          (1)
 General and administrative  $      122         (14)          -           -
 Realignment charges         $        4           -           -           -

Operating income             $      374         122           1          25
Operating margin (2)               25.2%        8.2%        0.1%        1.7%

Income before income taxes   $      381         122           1          25

Income tax provision         $       46
Tax rate (2)                       12.1%

Net income                   $      335         122           1          25

Net income per weighted-
 average share, basic for
 Class A and Class B (2) (3)
                             $     0.78  $     0.28  $        -  $     0.06

Net income per weighted-
 average share, diluted for
 Class A and Class B (2) (4)
                             $     0.77  $     0.28  $        -  $     0.06


                                        Acquisition
                                         and Other     Tax       Non-GAAP,
                           Realignment    Related   Adjustment      as
                              Charges      Items        (1)      adjusted
                            ----------  ----------  ----------  ----------

Operating expenses:
 Cost of license revenues            -           -           -  $       24
 Cost of services revenues           -           -           -  $      137
 Research and development            -           -           -  $      220
 Sales and marketing                 -           -           -  $      468
 General and administrative          -          (2)          -  $      106
 Realignment charges                (4)          -           -  $        -

Operating income                     4           2           -  $      528
Operating margin (2)               0.3%        0.1%          -        35.6%

Income before income taxes           4           2           -  $      535

Income tax provision                                        53  $       99
Tax rate (2)                                                          18.5%

Net income                           4           2         (53) $      436

Net income per weighted-
 average share, basic for
 Class A and Class B (2) (3)
                            $     0.01  $        -  $    (0.12) $     1.01

Net income per weighted-
 average share, diluted for
 Class A and Class B (2) (4)
                            $     0.01  $        -  $    (0.11) $     1.01


(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 430,174 basic weighted-average shares for Class A
    and Class B.

(4) Calculated based upon 433,621 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, 2012
  (amounts in millions, except per share amounts, and shares in thousands)
                                 (unaudited)

                                                   Employer
                                                    Payroll
                                                     Taxes
                                                  on Employee
                                    Stock-Based      Stock      Intangible
                         GAAP      Compensation  Transactions  Amortization
                     ------------  ------------  ------------  ------------

Operating expenses:
 Cost of license
  revenues           $         63            (1)            -           (25)
 Cost of services
  revenues           $        128            (7)            -            (1)
 Research and
  development        $        268           (63)           (1)           (1)
 Sales and marketing $        478           (39)           (1)           (3)
 General and
  administrative     $        103           (14)           (1)            -

Operating income     $        253           124             3            30
Operating margin (3)         19.5%          9.6%          0.3%          2.4%

Income before income
 taxes               $        260           124             3            30

Income tax provision $         54
Tax rate (3)                 20.8%

Net income           $        206           124             3            30

Net income per
 weighted-average
 share, basic for
 Class A and Class B
 (3) (4)
                     $       0.48  $       0.29  $       0.01  $       0.07

Net income per
 weighted-average
 share, diluted for
 Class A and Class B
 (3) (5)
                     $       0.47  $       0.29  $       0.01  $       0.07




                                   Capitalized
                     Acquisition    Software        Tax
                       Related     Development   Adjustment     Non-GAAP,
                        Items       Costs (1)        (2)       as adjusted
                    ------------  ------------  ------------  ------------

Operating expenses:
 Cost of license
  revenues                     -           (13)            -  $         24
 Cost of services
  revenues                     -             -             -  $        120
 Research and
  development                  -             -             -  $        203
 Sales and marketing           -             -             -  $        435
 General and
  administrative              (1)            -             -  $         87

Operating income               1            13             -  $        424
Operating margin (3)           -           1.0%            -          32.8%

Income before income
 taxes                         1            13             -  $        431

Income tax provision                                      28  $         82
Tax rate (3)                                                          19.0%

Net income                     1            13           (28) $        349

Net income per
 weighted-average
 share, basic for
 Class A and Class B
 (3) (4)
                    $          -  $       0.03  $      (0.06) $       0.82

Net income per
 weighted-average
 share, diluted for
 Class A and Class B
 (3) (5)
                    $          -  $       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) 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 427,266 basic weighted-average shares for Class A
    and Class B.

(5) 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 Year Ended December 31, 2013
  (amounts in millions, except per share amounts, and shares in thousands)
                                 (unaudited)




                                           Employer
                                         Payroll Taxes
                                         on Employee   Intangible
                              Stock-Based    Stock    Amortiz-   Realignment
                        GAAP  Compensation Transactions  ation    Charges
                     ---------  ---------  ---------  ---------  ---------

Operating expenses:
 Cost of license
  revenues           $     210         (2)         -        (90)         -
 Cost of services
  revenues           $     520        (29)        (1)        (2)         -
 Research and
  development        $   1,082       (227)        (4)        (4)         -
 Sales and marketing $   1,815       (144)        (3)        (7)         -
 General and
  administrative     $     419        (56)        (2)         -          -
 Realignment charges $      68          -          -          -        (68)

Operating income     $   1,093        458         10        103         68
Operating margin (3)      21.0%       8.8%       0.2%       2.0%       1.3%

Other income
 (expense), net      $      28          -          -          -          -

Income before income
 taxes               $   1,147        458         10        103         68

Income tax provision $     133
 Tax rate (3)             11.6%

Net income           $   1,014        458         10        103         68

Net income per
 weighted-average
 share, basic for
 Class A and Class B
 (3) (4)
                     $    2.36  $    1.07  $    0.02  $    0.24  $    0.16

Net income per
 weighted-average
 share, diluted for
 Class A and Class B
 (3) (5)
                     $    2.34  $    1.06  $    0.02  $    0.24  $    0.16


                                          Gain on
                                         Disposition
                                             of
                   Acquisition Capitalized Certain
                    and Other  Software   Lines of     Tax      Non-GAAP,
                     Related Development  Business &  Adjust-      as
                      Items    Costs (1)  Other, Net  ment (2)  adjusted
                    ---------  ---------  ---------  ---------  ---------

Operating expenses:
 Cost of license
  revenues                  -        (34)         -          -  $      84
 Cost of services
  revenues                  -          -          -          -  $     488
 Research and
  development               -          -          -          -  $     847
 Sales and marketing        -          -          -          -  $   1,661
 General and
  administrative           (5)         -          -          -  $     356
 Realignment charges        -          -          -          -  $       -

Operating income            5         34          -          -  $   1,771
Operating margin (3)        -        0.7%         -          -       34.0%

Other income
 (expense), net             -          -        (31)         -  $      (3)

Income before income
 taxes                      5         34        (31)         -  $   1,794

Income tax provision                                       199  $     332
 Tax rate (3)                                                        18.5%

Net income                  5         34        (31)      (199) $   1,462

Net income per
 weighted-average
 share, basic for
 Class A and Class B
 (3) (4)
                    $    0.01  $    0.08  $   (0.07) $   (0.46) $    3.41

Net income per
 weighted-average
 share, diluted for
 Class A and Class B
 (3) (5)
                    $       -  $    0.08  $   (0.07) $   (0.46) $    3.37


(1) For the year ended December 31, 2013, no costs were capitalized for the
    development of software products. Amortization expense from previously
    capitalized amounts was $34.

(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 429,093 basic weighted-average shares for Class A
    and Class B.

(5) Calculated based upon 433,415 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
  (amounts in millions, except per share amounts, and shares in thousands)
                                 (unaudited)

                                                   Employer
                                                    Payroll
                                                     Taxes
                                                  on Employee
                                    Stock-Based      Stock      Intangible
                         GAAP      Compensation  Transactions  Amortization
                     ------------  ------------  ------------  ------------

Operating expenses:
 Cost of license
  revenues           $        237            (2)            -           (72)
 Cost of services
  revenues           $        484           (28)           (1)           (4)
 Research and
  development        $        999          (210)           (6)           (4)
 Sales and marketing $      1,645          (150)           (5)          (12)
 General and
  administrative     $        368           (48)           (2)            -

Operating income     $        872           438            14            92
Operating margin (3)         18.9%          9.5%          0.3%          2.0%

Income before income
 taxes               $        893           438            14            92

Income tax provision $        147
 Tax rate (3)                16.5%

Net income           $        746           438            14            92

Net income per
 weighted-average
 share, basic for
 Class A and Class B
 (3) (4)
                     $       1.75  $       1.03  $       0.03  $       0.22

Net income per
 weighted-average
 share, diluted for
 Class A and Class B
 (3) (5)
                     $       1.72  $       1.01  $       0.03  $       0.21



                                    Capitalized
                      Acquisition    Software        Tax
                        Related     Development   Adjustment     Non-GAAP,
                         Items       Costs (1)        (2)       as adjusted
                     ------------  ------------  ------------  ------------

Operating expenses:
 Cost of license
  revenues                      -           (71)            -  $         92
 Cost of services
  revenues                      -             -             -  $        451
 Research and
  development                   -             -             -  $        779
 Sales and marketing            -             -             -  $      1,478
 General and
  administrative               (4)            -             -  $        314

Operating income                4            71             -  $      1,491
Operating margin (3)          0.2%          1.5%            -          32.4%

Income before income
 taxes                          4            71             -  $      1,512

Income tax provision                                      129  $        276
 Tax rate (3)                                                          18.3%

Net income                      4            71          (129) $      1,236

Net income per
 weighted-average
 share, basic for
 Class A and Class B
 (3) (4)
                     $       0.01  $       0.17  $      (0.31) $       2.90

Net income per
 weighted-average
 share, diluted for
 Class A and Class B
 (3) (5)
                     $       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 $71.

(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 426,658 basic weighted-average shares for Class A
    and Class B.

(5) Calculated based upon 433,974 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 Year Ended
                         December 31,                  December 31,
                 ----------------------------  ----------------------------
                      2013           2012           2013           2012
                 -------------  -------------  -------------  -------------

Revenues:
 License         $         687  $         597  $       2,270  $       2,087
 Services:
 Software
  maintenance              699            591          2,563          2,153
 Professional
  services                  97            105            374            365
                 -------------  -------------  -------------  -------------
  Total services           796            696          2,937          2,518
                 -------------  -------------  -------------  -------------
Total revenues   $       1,483  $       1,293  $       5,207  $       4,605
                 =============  =============  =============  =============


Percentage of
 revenues:
 License                  46.3%          46.1%          43.6%          45.3%
 Services:
  Software
   maintenance            47.2%          45.7%          49.2%          46.8%
  Professional
   services                6.5%           8.2%           7.2%           7.9%
                 -------------  -------------  -------------  -------------
 Total services           53.7%          53.9%          56.4%          54.7%
                 -------------  -------------  -------------  -------------
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 Year Ended
                         December 31,                  December 31,
                 ----------------------------  ----------------------------
                      2013           2012           2013           2012
                 -------------  -------------  -------------  -------------

Revenues:
 United States   $         712  $         639  $       2,485  $       2,229
 International             771            654          2,722          2,376
                 -------------  -------------  -------------  -------------
Total revenues   $       1,483  $       1,293  $       5,207  $       4,605
                 =============  =============  =============  =============


Percentage of
 revenues:
 United States            48.0%          49.4%          47.7%          48.4%
 International            52.0%          50.6%          52.3%          51.6%
                 -------------  -------------  -------------  -------------
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 Ended        For the Year Ended
                         December 31,                  December 31,
                 ----------------------------  ----------------------------
                      2013           2012           2013           2012
                 -------------  -------------  -------------  -------------

GAAP cash flows
 from operating
 activities      $         688  $         493  $       2,535  $       1,897
Capital
 expenditures              (98)           (82)          (345)          (234)
                 -------------  -------------  -------------  -------------
Free cash flows  $         590  $         411  $       2,190  $       1,663
                 =============  =============  =============  =============


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 operating margin, 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 and 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.

We have 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 April 1, 2013 and the products and services associated with the divestures consummated by us in 2013. We believe these measures are useful to investors because they allow investors to make meaningful comparisons of our 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:

  • Stock-based compensation. Stock-based compensation is generally fixed at the time the stock-based instrument is granted and amortized over a period of several years. Although stock-based compensation is an important aspect of the compensation of our employees and executives, the expense for the fair value of the stock-based instruments we utilize 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 our control. Additionally, in order to establish the amount of expense to recognize for performance-based stock awards, which are also an element of our ongoing stock-based compensation, we are 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 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 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.

  • Realignment charges: Realignment charges include workforce reductions, asset impairments and losses on asset disposals, and costs to exit facilities. We believe it is useful to exclude these items, when significant, as they are not reflective of our ongoing business and operating results.

  • Acquisition and other-related items. Acquisition and other -related items include direct costs of acquisitions and dispositions, such as transaction and advisory fees, which vary significantly and are unique to each transaction. Additionally, VMware does not acquire or dispose of businesses on a predictable cycle.

  • Capitalized 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. We did not capitalize software development costs related to product offerings in either fiscal year 2013 or fiscal year 2012 given our current go-to-market strategy. In future periods, we do not expect amortization expense as previously capitalized software development costs have become fully amortized.

  • Gain on disposition of certain lines of business and other, net. In 2013, we recognized a gain as a result of exiting certain lines of business under our 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 our ongoing business and operating results.

  • 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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