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VMware Reports First Quarter 2014 Results

Year-Over-Year Revenue Growth of 14% to $1.36 Billion; Year-Over-Year Revenue Growth of 18% Excluding Pivotal and Divestitures in 2013(1); GAAP Operating Margin of 17.7%; Non-GAAP Operating Margin of 31.1%; GAAP EPS of $0.46; Non-GAAP EPS of $0.80, an Inc

PALO ALTO, CA -- (Marketwired) -- 04/22/14 -- VMware, Inc. (NYSE: VMW), the global leader in virtualization and cloud infrastructure, today announced financial results for the first quarter of 2014:

  • Revenues for the first quarter were $1.36 billion, an increase of 14% from the first quarter of 2013. Excluding revenues attributable to Pivotal and all divestitures that occurred in 2013, revenues for the first quarter increased 18% from the first quarter of 2013.(1)

  • Operating income for the first quarter was $241 million, an increase of 51% from the first quarter of 2013. Non-GAAP operating income for the first quarter was $423 million, an increase of 9% from the first quarter of 2013.

  • Net income for the first quarter was $199 million, or $0.46 per diluted share, up 14% per diluted share compared to $173 million, or $0.40 per diluted share, for the first quarter of 2013. Non-GAAP net income for the quarter was $348 million, or $0.80 per diluted share, up 9% per diluted share compared to $319 million, or $0.74 per diluted share, for the first quarter of 2013.

  • Operating cash flows for the first quarter were $750 million, an increase of 11% from the first quarter of 2013. Free cash flows for the quarter were $673 million, an increase of 12% from the first quarter of 2013.

  • Cash, cash equivalents and short-term investments were $6.62 billion and unearned revenues were $4.17 billion as of March 31, 2014.

"Our strong financial results reflect VMware's unique position in helping customers transform their IT infrastructure," said Pat Gelsinger, chief executive officer, VMware. "As the industry shifts from client server computing to the mobile-cloud era, customers are choosing our solutions because we have the most complete vision and offering for navigating this evolving world."

"We are pleased with our first quarter comparable revenue growth of 18% as customer adoption across our solutions and services continues to grow," said Jonathan Chadwick, chief financial officer, VMware. "Our integration of AirWatch and our new product line-up provides customers with the strongest portfolio of products and services in the industry."

Recent Highlights & Strategic Announcements

  • In February, VMware welcomed over 4,000 attendees and more than 90 sponsors and exhibitors to participate in its annual Partner Exchange where partners heard Pat Gelsinger, Carl Eschenbach and Ben Fathi articulate VMware's business strategy and technology value proposition and also learned about new program enhancements, competencies and a refreshed reward structure.

  • Also at Partner Exchange, VMware announced that it joined forces with Google to modernize corporate desktops for the Mobile Cloud Era by providing businesses with secure, cloud access to Windows applications, data and Desktops on Google Chromebooks. Later in the quarter, VMware launched VMware Horizon DaaS to enable simple and flexible delivery of desktops in the cloud. More recently, VMware launched VMware Horizon 6, its end-user computing desktop offering, delivering published applications and virtual desktops on a single integrated platform.

  • On February 24, VMware announced the completion of its acquisition of AirWatch, bringing the leading provider of enterprise mobile management and security solutions into VMware's End-User Computing Business.

  • VMware announced general availability of VMware vCloud Hybrid Service in Europe from a data center in Slough, UK. Complementing VMware's existing US data centers, the Slough data center provides customers with a European location that addresses UK and EU compliance and data sovereignty demands. Additionally, VMware launched vCloud Hybrid Service - Disaster Recovery, a unique hybrid-cloud-based service that provides a simple and affordable way for customers to protect their data centers.

  • In March, VMware announced general availability of VMware Virtual SAN, VMware's first software-defined storage product. Built directly into the VMware vSphere kernel, VMware Virtual SAN provides a new tier of hypervisor-converged storage and represents an important milestone as we build out our SDDC offerings.

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

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

About VMware

VMware is the leader in virtualization and cloud infrastructure solutions that enable businesses to thrive in the Cloud Era. Customers rely on VMware to help them transform the way they build, deliver and consume Information Technology resources in a manner that is evolutionary and based on their specific needs. With 2013 revenues of $5.21 billion, VMware has more than 500,000 customers and 75,000 partners. The company is headquartered in Silicon Valley with offices throughout the world and can be found online at www.vmware.com.

Additional Information

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

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

Use of Non-GAAP Financial Measures

Reconciliations of non-GAAP financial measures to VMware's financial results as determined in accordance with GAAP are included at the end of this press release following the accompanying financial data. For a description of these non-GAAP financial measures, including the reasons management uses each measure, please see the section of the tables titled "About Non-GAAP Financial Measures."

Forward-Looking Statements

This press release contains forward-looking statements including, among other things, statements regarding expectations of continued customer adoption and growth; the strength of VMware's product and services portfolio; benefits to customers of VMware's partnership with Google; and expected benefits to customers of newly available VMware products and services, such as Horizon Daas, Horizon 6, vCloud Hybrid Service, vCloud Hybrid Service - Disaster Recovery and Virtual SAN. These forward-looking statements are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors, including but not limited to: (i) adverse changes in general economic or market conditions; (ii) delays or reductions in consumer, government and information technology spending; (iii) competitive factors, including but not limited to pricing pressures, industry consolidation, entry of new competitors into the virtualization software and cloud, end user and mobile computing industries, and new product and marketing initiatives by VMware's competitors; (iv) factors that affect timing of license revenue recognition such as product announcements and promotions and beta programs; (v) VMware's customers' ability to transition to, new products and computing strategies such as cloud computing, desktop virtualization and the software defined data center; (vi) the uncertainty of customer acceptance of emerging technology; (vii) changes in the willingness of customers to enter into longer term licensing and support arrangements; (viii) rapid technological changes in the virtualization software and cloud, end user and mobile computing industries; (ix) changes to product and service development timelines; (x) VMware's relationship with EMC Corporation and EMC's ability to control matters requiring stockholder approval, including the election of VMware's board members; (xi) VMware's ability to protect its proprietary technology; (xii) VMware's ability to attract and retain highly qualified employees; (xiii) the successful integration of acquired companies and assets into VMware; and (xiv) fluctuating currency exchange rates. These forward-looking statements are based on current expectations and are subject to uncertainties and changes in condition, significance, value and effect as well as other risks detailed in documents filed with the Securities and Exchange Commission, including VMware's most recent reports on Form 10-K and Form 10-Q and current reports on Form 8-K that we may file from time to time, which could cause actual results to vary from expectations. VMware assumes no obligation to, and does not currently intend to, update any such forward-looking statements after the date of this release.



                                VMware, Inc.

                     CONSOLIDATED STATEMENTS OF INCOME
  (amounts in millions, except per share amounts, and shares in thousands)
                                (unaudited)

                                                 For the Three Months Ended
                                                          March 31,
                                                 --------------------------
                                                     2014          2013
                                                 ------------  ------------

Revenues:
  License                                        $        561  $        488
  Services                                                799           703
                                                 ------------  ------------
Total revenues                                          1,360         1,191
Operating expenses (1):
  Cost of license revenues                                 50            57
  Cost of services revenues                               151           125
  Research and development                                293           271
  Sales and marketing                                     474           417
  General and administrative                              151            98
  Realignment charges                                      --            63
                                                 ------------  ------------
Operating income                                          241           160
Investment income                                           9             8
Interest expense with EMC                                  (5)           (1)
Other income (expense), net                                --            (3)
                                                 ------------  ------------
Income before income taxes                                245           164
Income tax provision (benefit)                             46            (9)
                                                 ------------  ------------
Net income                                       $        199  $        173
                                                 ============  ============

Net income per weighted-average share, basic for
 Class A and Class B                             $       0.46  $       0.41

Net income per weighted-average share, diluted
 for Class A and Class B                         $       0.46  $       0.40

Weighted-average shares, basic for Class A and
 Class B                                              430,546       428,005
Weighted-average shares, diluted for Class A and
 Class B                                              434,729       432,631

(1) Includes stock-based compensation as
 follows:
  Cost of license revenues                       $          1  $          1
  Cost of services revenues                                 9             7
  Research and development                                 60            62
  Sales and marketing                                      41            36
  General and administrative                               17            14
  Realignment charges                                      --             5



                                VMware, Inc.

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


                                                   March 31,    December 31,
                                                      2014          2013
                                                 ------------- -------------

                     ASSETS
Current assets:
  Cash and cash equivalents                      $       2,788 $       2,305
  Short-term investments                                 3,828         3,870
  Accounts receivable, net of allowance for
   doubtful accounts of $2 and $2                          830         1,220
  Deferred tax asset                                       201           190
  Other current assets                                     150            96
                                                 ------------- -------------
Total current assets                                     7,797         7,681
Property and equipment, net                                886           845
Other assets, net                                          190           107
Deferred tax asset                                          89            60
Intangible assets, net                                     831           607
Goodwill                                                 3,906         3,027
                                                 ------------- -------------
    Total assets                                 $      13,699 $      12,327
                                                 ============= =============

      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                               $          93 $         109
  Accrued expenses and other                               596           608
  Due to related parties, net                               26            18
  Unearned revenues                                      2,572         2,558
                                                 ------------- -------------
Total current liabilities                                3,287         3,293
Note payable to EMC                                      1,500           450
Unearned revenues                                        1,600         1,534
Other liabilities                                          242           234
                                                 ------------- -------------
    Total liabilities                                    6,629         5,511
Commitments and contingencies
Stockholders' equity:
  Class A common stock, par value $.01;
   authorized 2,500,000 shares; issued and
   outstanding 130,884 and 130,349 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                             3,550         3,496
  Accumulated other comprehensive income                     5             4
  Retained earnings                                      3,511         3,312
                                                 ------------- -------------
    Total stockholders' equity                           7,070         6,816
                                                 ------------- -------------
      Total liabilities and stockholders' equity $      13,699 $      12,327
                                                 ============= =============



                                VMware, Inc.

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

                                                 For the Three Months Ended
                                                          March 31,
                                                 --------------------------
                                                     2014          2013
                                                 ------------  ------------

Operating activities:
Net income                                       $        199  $        173
Adjustments to reconcile net income to net cash
 provided by operating activities:
  Depreciation and amortization                            83            91
  Stock-based compensation                                128           116
  Excess tax benefits from stock-based
   compensation                                           (15)          (22)
  Deferred income taxes, net                              (29)          (28)
  Non-cash realignment charges                             --            14
  Other                                                     1            (2)
  Changes in assets and liabilities, net of
   acquisitions:
    Accounts receivable                                   418           380
    Other assets                                          (29)          (41)
    Due to/from related parties, net                       33            59
    Accounts payable                                      (11)           (8)
    Accrued expenses                                     (104)         (115)
    Income taxes payable                                   41             2
    Unearned revenues                                      35            57
                                                 ------------  ------------
Net cash provided by operating activities                 750           676
                                                 ------------  ------------

Investing activities:
Additions to property and equipment                       (77)          (78)
Purchases of available-for-sale securities               (531)         (737)
Sales of available-for-sale securities                    411           486
Maturities of available-for-sale securities               153           182
Business acquisitions, net of cash acquired            (1,068)         (184)
Increase in restricted cash                               (76)           (1)
Other investing                                           (10)            1
                                                 ------------  ------------
Net cash used in investing activities                  (1,198)         (331)
                                                 ------------  ------------

Financing activities:
Proceeds from issuance of common stock                     88            68
Proceeds from issuance of note payable to EMC           1,500            --
Repayment of note payable to EMC                         (450)           --
Reduction in capital from EMC                             (24)           --
Repurchase of common stock                               (169)         (182)
Excess tax benefits from stock-based
 compensation                                              15            22
Shares repurchased for tax withholdings on
 vesting of restricted stock                              (29)          (22)
                                                 ------------  ------------
Net cash provided by (used in) financing
 activities                                               931          (114)
                                                 ------------  ------------
Net increase in cash and cash equivalents                 483           231
Cash and cash equivalents at beginning of the
 period                                                 2,305         1,609
                                                 ------------  ------------
Cash and cash equivalents at end of the period   $      2,788  $      1,840
                                                 ============  ============



                                VMware, Inc.

                       SUPPLEMENTAL REVENUES SCHEDULE
             (INCLUDES RECONCILIATION OF GAAP TO NON-GAAP DATA)
                               (in millions)
                                (unaudited)


                 For the                                            For the
                  Three                                              Three
                 Months                                             Months
                  Ended          For the Three Months Ended          Ended
                --------  ---------------------------------------  --------
                  March   December  September  June 30,    March   December
                31, 2014  31, 2013   30, 2013    2013    31, 2013  31, 2012
                --------  --------  ---------  --------  --------  --------
Revenues as
 reported (1):
  License       $    561  $    687  $     564  $    531  $    488  $    597
  Software
   maintenance       701       699        644       614       605       591
  Professional
   services           98        97         81        98        98       105
                --------  --------  ---------  --------  --------  --------
Total revenues  $  1,360  $  1,483  $   1,289  $  1,243  $  1,191  $  1,293
                ========  ========  =========  ========  ========  ========

Change (%) over
 prior year
License             14.8%     15.1%      14.8%      2.6%      1.3%     16.1%
Software
 maintenance        15.8%     18.3%      16.9%     18.3%     23.0%     27.5%
Professional
 services            0.4%     -8.4%     -11.4%     13.4%     20.8%     27.0%
                --------  --------  ---------  --------  --------  --------
Total revenues      14.2%     14.7%      13.7%     10.7%     12.9%     22.0%
                ========  ========  =========  ========  ========  ========

Revenues as
 reported,
 excluding
 Pivotal (2)
  License       $    561  $    687  $     564  $    531  $    485  $    589
  Software
   maintenance       701       699        644       614       601       587
  Professional
   services           98        97         81        98        84        77
                --------  --------  ---------  --------  --------  --------
Total revenues  $  1,360  $  1,483  $   1,289  $  1,243  $  1,170  $  1,253
                ========  ========  =========  ========  ========  ========

Change (%) over
 prior year
  License           15.7%     16.6%      16.0%      4.4%      1.5%     15.7%
  Software
   maintenance      16.6%     19.2%      17.8%     19.3%     23.0%     27.5%
  Professional
   services         17.4%     24.5%      14.0%     45.1%     19.8%      6.4%
                --------  --------  ---------  --------  --------  --------
Total revenues      16.3%     18.3%      16.8%     14.0%     12.8%     20.3%
                ========  ========  =========  ========  ========  ========

Revenues as
 reported,
 excluding
 Pivotal and all
 dispositions
 (3)
  License       $    561  $    687  $     562  $    526  $    476  $    581
  Software
   maintenance       701       699        642       611       590       574
  Professional
   services           98        97         81        98        83        77
                --------  --------  ---------  --------  --------  --------
Total revenues  $  1,360  $  1,483  $   1,285  $  1,235  $  1,149  $  1,232
                ========  ========  =========  ========  ========  ========

Change (%) over
 prior year
  License           17.8%     18.2%      17.3%      5.3%      1.1%     16.0%
  Software
   maintenance      18.9%     21.8%      20.0%     21.3%     23.4%     27.2%
  Professional
   services         18.2%     24.8%      15.4%     45.6%     19.9%      6.3%
                --------  --------  ---------  --------  --------  --------
Total revenues      18.4%     20.3%      18.5%     15.4%     12.9%     20.3%
                ========  ========  =========  ========  ========  ========

Reconciliation
 of "revenues as
 reported" to
 "revenues as
 reported,
 excluding
 Pivotal and all
 dispositions":

Revenues as
 reported,
 excluding
 Pivotal
and all
 dispositions
 (3)            $  1,360  $  1,483  $   1,285  $  1,235  $  1,149  $  1,232
  Pivotal              -         -          -         -        22        40
  All
   dispositions        -         -          4         8        20        21
                --------  --------  ---------  --------  --------  --------
Revenues as
 reported (1)   $  1,360  $  1,483  $   1,289  $  1,243  $  1,191  $  1,293
                ========  ========  =========  ========  ========  ========

(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)

                  March   December  September  June 30,   March    December
                31, 2014  31, 2013   30, 2013    2013    31, 2013  31, 2012
                --------  --------  ---------  --------  --------  --------
Unearned
 revenues as
 reported (1)
  License       $    459  $    465  $     415  $    427  $    446  $    463
  Software
   maintenance     3,378     3,304      2,937     2,903     2,797     2,755
  Professional
   services          335       323        284       266       247       243
                --------  --------  ---------  --------  --------  --------
Total unearned
 revenues       $  4,172  $  4,092  $   3,636  $  3,596  $  3,490  $  3,461
                ========  ========  =========  ========  ========  ========

Change (%) over
 prior year
  License            2.8%      0.5%      13.3%     13.7%     19.6%     18.9%
  Software
   maintenance      20.8%     19.9%      21.6%     23.2%     24.5%     29.1%
  Professional
   services         35.6%     33.1%      34.3%     26.8%     30.6%     30.8%
                --------  --------  ---------  --------  --------  --------
Total unearned
 revenues           19.6%     18.3%      21.5%     22.2%     24.3%     27.8%
                ========  ========  =========  ========  ========  ========

Unearned
 revenues as
 reported,
 excluding
 Pivotal and all
 dispositions
 (2)
  License       $    459  $    465  $     414  $    427  $    407  $    414
  Software
   maintenance     3,378     3,304      2,933     2,903     2,736     2,671
  Professional
   services          335       323        285       266       246       241
                --------  --------  ---------  --------  --------  --------
Total unearned
 revenues       $  4,172  $  4,092  $   3,632  $  3,596  $  3,389  $  3,326
                ========  ========  =========  ========  ========  ========

Change (%) over
 prior year
  License           12.8%     12.3%      26.4%     27.1%     15.7%     11.6%
  Software
   maintenance      23.5%     23.7%      25.0%     26.8%     25.0%     28.5%
  Professional
   services         36.5%     34.4%      35.7%     28.7%     31.7%     30.8%
                --------  --------  ---------  --------  --------  --------
Total unearned
 revenues           23.1%     23.0%      26.0%     27.0%     24.3%     26.3%
                ========  ========  =========  ========  ========  ========

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)            $  4,172  $  4,092  $   3,632  $  3,596  $  3,389  $  3,326
  Pivotal and
   all
   dispositions        -         -          4         -       101       135
                --------  --------  ---------  --------  --------  --------
Unearned
 revenues as
 reported (1)   $  4,172  $  4,092  $   3,636  $  3,596  $  3,490  $  3,461
                ========  ========  =========  ========  ========  ========

(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 March 31, 2014
  (amounts in millions, except per share amounts, and shares in thousands)
                                (unaudited)

                                Employer
                                Payroll
                                Taxes on       Acquisition
                        Stock-  Employee           and               Non-
                        Based   Stock  Intangible Other     Tax      GAAP,
                        Compen- Transac- Amorti- Related Adjustment   as
                   GAAP sation   tions   zation   Items     (1)    adjusted
                  ----- ------ -------- ------- -------- --------  --------
Operating
 expenses:
  Cost of license
   revenues       $  50     (1)       -     (24)       -        -  $     25
  Cost of
   services
   revenues       $ 151     (9)       -       -        -        -  $    142
  Research and
   development    $ 293    (60)      (1)     (1)       -        -  $    231
  Sales and
   marketing      $ 474    (41)      (1)     (3)       -        -  $    429
  General and
   administrative $ 151    (17)       -       -      (24)       -  $    110

Operating income  $ 241    128        2      28       24        -  $    423
Operating margin
 (2)               17.7%   9.4%     0.2%    2.1%     1.7%       -      31.1%

Income before
 income taxes     $ 245    128        2      28       24        -  $    427

Income tax
 provision        $  46                                        33  $     79
Tax rate (2)       18.6%                                               18.5%

Net income        $ 199    128        2      28       24      (33) $    348

Net income per
 weighted-average
 share, basic for
 Class A and
 Class B (2) (3)  $0.46 $ 0.30 $      - $  0.07 $   0.06 $  (0.08) $   0.81

Net income per
 weighted-average
 share, diluted
 for Class A and
 Class B (2) (4)  $0.46 $ 0.29 $      - $  0.07 $   0.06 $  (0.08) $   0.80

(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 430,546 basic weighted-average shares for Class A
    and Class B.

(4) Calculated based upon 434,729 diluted weighted-average shares for Class
    A and Class B.



                                VMware, Inc.

                   RECONCILIATION OF GAAP TO NON-GAAP DATA
                  For the Three Months Ended March 31, 2013
  (amounts in millions, except per share amounts, and shares in thousands)
                                 (unaudited)

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

Operating
 expenses:
  Cost of license
   revenues       $  57           (1)           -          (23)          -
  Cost of
   services
   revenues       $ 125           (7)           -           (1)          -
  Research and
   development    $ 271          (62)          (1)          (1)          -
  Sales and
   marketing      $ 417          (36)          (1)          (3)          -
  General and
   administrative $  98          (14)           -            -           -
  Realignment
   charges        $  63            -            -            -         (63)

Operating income  $ 160          120            2           28          63
Operating margin
 (3)               13.4%        10.1%         0.2%         2.3%        5.3%

Income before
 income taxes     $ 164          120            2           28          63

Income tax
 provision
 (benefit)        $  (9)
Tax rate (3)       -5.8%

Net income        $ 173          120            2           28          63


Net income per
 weighted-average
 share, basic for
 Class A and
 Class B (3) (4)  $0.41 $       0.28 $          - $       0.07 $      0.15

Net income per
 weighted-average
 share, diluted
 for Class A and
 Class B (4) (5)  $0.40 $       0.28 $          - $       0.06 $      0.15


table continued below

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

Operating
 expenses:
  Cost of license
   revenues                -          (13)           -  $      20
  Cost of
   services
   revenues                -            -            -  $     117
  Research and
   development             -            -            -  $     207
  Sales and
   marketing               -            -            -  $     377
  General and
   administrative         (1)           -            -  $      83
  Realignment
   charges                 -            -            -  $       -

Operating income           1           13            -  $     387
Operating margin
 (3)                     0.1%         1.1%           -       32.5%

Income before
 income taxes              1           13            -  $     391

Income tax
 provision
 (benefit)                                          81  $      72
Tax rate (3)                                                 18.5%

Net income                 1           13          (81) $     319


Net income per
 weighted-average
 share, basic for
 Class A and
 Class B (3) (4) $         -  $      0.03  $     (0.19) $    0.75

Net income per
 weighted-average
 share, diluted
 for Class A and
 Class B (4) (5) $         -  $      0.03  $     (0.18) $    0.74
(1) For the first quarter of 2013, no costs were capitalized for the
    development of software products. Amortization expense from previously
    capitalized amounts was $13 million.

(2) Non-GAAP financial information for the quarter is adjusted for a tax
    rate equal to our annual estimated tax rate on non-GAAP income. This
    rate is based on our estimated annual GAAP income tax rate forecast,
    adjusted to account for items excluded from GAAP income in calculating
    the non-GAAP financial measures presented above. Our estimated tax rate
    on non-GAAP income is determined annually and may be adjusted during the
    year to take into account events or trends that we believe materially
    impact the estimated annual rate including, but not limited to,
    significant changes resulting from tax legislation, material changes in
    the geographic mix of revenues and expenses and other significant
    events. Due to the differences in the tax treatment of items excluded
    from non-GAAP earnings, as well as the methodology applied to our
    estimated annual tax rates as described above, our estimated tax rate on
    non-GAAP income may differ from our GAAP tax rate and from our actual
    tax liabilities. In the first quarter of 2013, our GAAP tax rate of
    -5.8% was increased by 2.2% for the impact of the federal R&D tax credit
    reinstated retroactively for 2012 and by 22.1% for the impact of the
    items excluded from our non-GAAP earnings, as shown in the table above,
    resulting in a non-GAAP tax rate of 18.5%.

(3) Operating margin, tax rate and net income per weighted average share
    information are calculated based upon the respective underlying, non-
    rounded data.

(4) Calculated based upon 428,005 basic weighted-average shares for Class A
    and Class B.

(5) Calculated based upon 432,631 diluted weighted-average shares for Class
    A and Class B.



                                VMware, Inc.

                              REVENUES BY TYPE
                               (in millions)
                                (unaudited)

                                                 For the Three Months Ended
                                                          March 31,
                                                 --------------------------
                                                     2014          2013
                                                 ------------  ------------

Revenues:
  License                                        $        561  $        488
  Services:
    Software maintenance                                  701           605
    Professional services                                  98            98
                                                 ------------  ------------
  Total services                                          799           703
                                                 ------------  ------------
Total revenues                                   $      1,360  $      1,191
                                                 ============  ============


Percentage of revenues:
  License                                                41.2%         41.0%
  Services:
    Software maintenance                                 51.6%         50.8%
    Professional services                                 7.2%          8.2%
                                                 ------------  ------------
  Total services                                         58.8%         59.0%
                                                 ------------  ------------
Total revenues                                          100.0%        100.0%
                                                 ============  ============



                                VMware, Inc.

                           REVENUES BY GEOGRAPHY
                               (in millions)
                                (unaudited)

                                                 For the Three Months Ended
                                                          March 31,
                                                 --------------------------
                                                     2014          2013
                                                 ------------  ------------

Revenues:
  United States                                  $        649  $        568
  International                                           711           623
                                                 ------------  ------------
Total revenues                                   $      1,360  $      1,191
                                                 ============  ============


Percentage of revenues:
  United States                                          47.7%         47.7%
  International                                          52.3%         52.3%
                                                 ------------  ------------
Total revenues                                          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
                                                          March 31,
                                                 --------------------------
                                                     2014          2013
                                                 ------------  ------------

GAAP cash flows from operating activities        $        750  $        676
Capital expenditures                                      (77)          (78)
                                                 ------------  ------------
Free cash flows                                  $        673  $        598
                                                 ============  ============

About Non-GAAP Financial Measures

To provide investors and others with additional information regarding VMware's results, VMware has disclosed in this press release the following non-GAAP financial measures: non-GAAP operating income, non-GAAP operating margin, non-GAAP 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.

VMware has also presented in this press release quarterly and annual historical data for revenue and unearned revenue, excluding revenue generated each period by the products and services contributed to Pivotal Software, Inc. on April 1, 2013 and the products and services associated with the divestures consummated by VMware in 2013. VMware management believes that these measures are useful to investors because they allow investors to make meaningful comparisons of VMware revenues and unearned revenues across periods.

VMware's management uses these non-GAAP financial measures to understand and compare operating results across accounting periods, for internal budgeting and forecasting purposes, for short- and long-term operating plans, to calculate bonus payments and to evaluate VMware's financial performance, the performance of its individual functional groups and the ability of operations to generate cash. Management believes these non-GAAP financial measures reflect VMware's ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in VMware's business, as they exclude expenses and gains that are not reflective of ongoing operating results. Management also believes that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating VMware's operating results and future prospects in the same manner as management and in comparing financial results across accounting periods and to those of peer companies. Additionally, management believes information regarding free cash flows provides investors and others with an important perspective on the cash available to make strategic acquisitions and investments, to repurchase shares, to fund ongoing operations and to fund other capital expenditures.
Management believes these non-GAAP financial measures are useful to investors and others in assessing VMware's operating performance due to the following factors:

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

  • 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. VMware management believes it is useful to exclude these items, when significant, as they are not reflective of VMware's ongoing business and operating results.

  • Acquisition and other-related items. Acquisition and other-related items include direct costs of acquisitions and dispositions, such as transaction and advisory fees. Also included are accruals for the portion of merger consideration payable in installments that VMware has committed to make to designated founders and key executives of AirWatch, subject to employment conditions and indemnification claims, if any. Such installment payments may be paid in cash or VMware stock, at the option of VMware. As VMware does not acquire or dispose of businesses on a predictable cycle and the terms of each transaction can vary significantly and are unique to each transaction, VMware believes it is useful to exclude these items when looking for a consistent basis for comparison across accounting periods.

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

  • Gain on disposition of certain lines of business and other, net. In 2013, VMware recognized a gain as a result of exiting certain lines of business under its business realignment plan, which was partially offset by a charge recognized for a non-recoverable strategic investment. These transactions resulted in a net gain of $31 million. To the extent that significant gains or losses are realized on such dispositions and strategic investments, they do not occur on a predictable cycle, and such gains and losses are not reflective of VMware's ongoing business and operating results. No such gains were realized during the first quarters of 2014 and 2013, respectively.

  • 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 VMware's estimated annual GAAP income tax rate forecast, adjusted to account for items excluded from GAAP income in calculating VMware's non-GAAP income. VMware's estimated tax rate on non-GAAP income is determined annually and may be adjusted during the year to take into account events or trends that VMware management believes materially impact the estimated annual rate including, but not limited to, significant changes resulting from tax legislation, material changes in the geographic mix of revenues and expenses and other significant events. Due to the differences in the tax treatment of items excluded from non-GAAP earnings, as well as the methodology applied to VMware's estimated annual tax rates as described above, the estimated tax rate on non-GAAP income may differ from the GAAP tax rate and from VMware's actual tax liabilities.

Additionally, VMware management believes that the non-GAAP financial measure free cash flows is meaningful to investors because management reviews cash flows generated from operations after taking into consideration capital expenditures due to the fact that these expenditures are considered to be a necessary component of ongoing operations.

The use of non-GAAP financial measures has certain limitations because they do not reflect all items of income and expense that affect VMware's operations. Specifically, in the case of stock-based compensation, if VMware did not pay out a portion of its compensation in the form of stock-based compensation and related employer payroll taxes, the cash salary expense included in operating expenses would be higher, which would affect VMware's cash position. VMware compensates for these limitations by reconciling the non-GAAP financial measures to the most comparable GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from, measures prepared in accordance with GAAP and should not be considered measures of VMware's liquidity. Further, these non-GAAP measures may differ from the non-GAAP information used by other companies, including peer companies, and therefore comparability may be limited. Management encourages investors and others to review VMware's financial information in its entirety and not rely on a single financial measure.

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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