Vmware (VMW) 8-K VMware Reports Fourth Quarter and Full Year 2011 Results

Exhibit 99.1

VMware Reports Fourth Quarter and Full Year 2011 Results

• Annual Revenue Growth of 32% to $3.77 Billion with Fourth Quarter Year-over-Year Growth of 27% to $1.06 Billion

• Annual Operating Margin of 19.5%; Non-GAAP Operating Margin of 31.0%. Fourth Quarter Operating Margin of 20.2%; Non-GAAP Operating Margin of 31.9%

• Trailing Twelve Months Operating Cash Flows Growth of 72% to $2.03 Billion; Free Cash Flows Growth of 62% to $1.95 Billion

PALO ALTO,Calif., January 23, 2012 — VMware, Inc. (NYSE:VMW), the global leader in virtualization and cloud infrastructure, today announced financial results for the fourth quarter and full year of 2011:

• Revenues for the fourth quarter were $1.06 billion, an increase of 27% from the fourth quarter of 2010, and an increase of 26% measured in constant currency.

• Operating income for the fourth quarter was $214 million, an increase of 64% from the fourth quarter of 2010. Non-GAAP operating income for the fourth quarter was $338 million, an increase of 37% from the fourth quarter of 2010.

• Net income for the fourth quarter was $200 million, or $0.46 per diluted share, compared to $120 million, or $0.28 per diluted share, for the fourth quarter of 2010. Non-GAAP net income for the quarter was $266 million, or $0.62 per diluted share, compared to $198 million, or $0.46 per diluted share, for the fourth quarter of 2010.

• Operating cash flows for the fourth quarter were $561 million, an increase of 38% from the fourth quarter of 2010. Free cash flows for the quarter were $535 million, an increase of 32% from the fourth quarter of 2010.

• Revenues for 2011 were $3.77 billion, an increase of 32% from 2010.

• Operating income for 2011 was $735 million, an increase of 72% from 2010. Non-GAAP operating income for 2011 was $1.17 billion, an increase of 43% from 2010.

• Net income for 2011 was $724 million, or $1.68 per diluted share, compared to $357 million, or $0.84 per diluted share, for 2010. Non-GAAP net income for 2011 was $936 million, or $2.17 per diluted share, compared to $639 million, or $1.51 per diluted share, for 2010.

• Operating cash flows for 2011 were $2.03 billion, an increase of 72% and free cash flows for the year were $1.95 billion, an increase of 62% from 2010.

• Cash, cash equivalents and short-term investments were $4.51 billion and unearned revenue was $2.71 billion as of December 31, 2011.

U.S. revenues for 2011 grew 26% to $1.82 billion from 2010. International revenues grew 38% to $1.94 billion from 2010.

License revenues for 2011 were $1.84 billion, an increase of 31% from 2010. Service revenues, which include software maintenance and professional services, were $1.93 billion for 2011, an increase of 32% from 2010.

“The quarter’s strong performance further signals that virtualization is the foundation for simplifying and automating IT,” said Paul Maritz, chief executive officer, VMware. “As customers continue to drive significant IT transformation, our task remains in providing solutions that go beyond cost reduction, yielding business and competitive value.”

“We are pleased with our record fourth quarter results,” said Mark Peek, chief financial officer, VMware. “Our investments over the years have clearly paid off and we will continue to take advantage of long-term opportunities ahead. First quarter 2012 revenues are expected to be in the range of $1.015 and $1.040 billion, an increase of 20% to 23% from the first quarter 2011. Annual 2012 revenues are expected to be in the range of $4.475 and $4.6 billion, an increase of 19% to 22% from 2011, and annual license revenues are expected to grow between 11% and 16%.”

Recent Highlights & Strategic Announcements

• In October 2011, VMware unveiled three product suites designed to simplify and automate IT management. With significant enhancements to VMware^® vCenter Operations™ and the introduction of new VMware^® vFabric Application Management™ and VMware^® IT Business Management suites, VMware will help customers amplify the value of their virtual environments and achieve the agility and economics of cloud computing.

• VMware announced VMware vCenter™ Protect Essentials Plus™, a complete on-premise management system designed to meet the needs of the small and midsize businesses (SMBs) and enhancements to its VMware Go Pro™ service, simplifying IT management for SMBs.

• VMware announced VMware^® Horizon Mobile, a simple way for IT departments to securely provision, manage and de-provision a corporate mobile workspace to an employee’s Android device over-the-air, while enabling the employee to retain the privacy and control of their personal mobile environments. VMware Horizon Mobile is expected to be available in early 2012.

• In December 2011, VMware announced new VMware View™ Clients for Kindle Fire, Mac and Linux, along with updates to its popular VMware View Clients for Android and iPad. The new VMware View Clients for Mac and Linux enable IT organizations to empower more agile, productive and connected workforce or school communities by providing an easy-to-access, high-fidelity desktop virtualization experience optimized for the device of their choice. The new VMware View™ Clients for Mac and Linux are expected to be available in early 2012.

VMware plans to host a conference call today to review its fourth quarter and 2011 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 athttp://ir.vmware.com. The webcast will be available live, and a replay will be available following completion of the live broadcast for approximately 60 days.

About VMware

VMware is the leader in virtualization and cloud infrastructure solutions that enable businesses to thrive in the Cloud Era. Customers rely on VMware to help them transform the way they build, deliver and consume Information Technology resources in a manner that is evolutionary and based on their specific needs. With 2011 revenues of $3.77 billion, VMware has more than 300,000 customers and 25,000 partners. The company is headquartered in Silicon Valley with offices throughout the world and can be found online atwww.vmware.com.

# # #

VMware, VMware vCenter Operations, VMware vFabric Application Management, VMware vCenter Protect Essentials Plus, VMware View and VMware Go Pro are registered trademarks or trademarks of VMware, Inc. in the United States and/or other jurisdictions. Other marks mentioned herein are trademarks, which are proprietary to VMware, Inc. or another company.

Use of Non-GAAP Financial Measures

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

Forward-Looking Statements

This press release contains forward-looking statements including, among other things, statements regarding VMware’s expected first quarter and annual 2012 revenues and annual 2012 license revenue growth, the expected transformation of IT and the role and value proposition of virtualization and VMware solutions in the IT transformation, our ability to take advantage of long-term opportunities, the value to customers and the prospect of customer adoption of our new product suites, and the expected features and benefits and availability ofVMware Horizon Mobile and VMware View Clients for Mac and Linux.These forward-looking statements are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors, including but not limited to: (i) adverse changes in general economic or market conditions; (ii) delays or reductions in consumer or information technology spending; (iii) competitive factors, including but not limited to pricing pressures, industry consolidation, entry of new competitors into the virtualization and cloud computing markets, and new product and marketing initiatives by our competitors; (iv) factors that affect timing of license revenue recognition such as product announcements, beta programs and product promotions that can cause revenue recognition of certain orders to be deferred; (v) our customers’ ability to develop, and to transition to, new products and computing strategies such as cloud computing and desktop virtualization; (vi) the uncertainty of customer acceptance of emerging technology; (vii) changes in the willingness of customers to enter into longer term licensing and support arrangements; (viii) rapid technological and market changes in virtualization software and platforms for cloud and desktop computing; (ix) changes to product development timelines; (x) VMware’s relationship with EMC Corporation and EMC’s ability to control matters requiring stockholder approval, including the election of VMware’s board members; (xi) our ability to protect our proprietary technology; (xii) our ability to attract and retain highly qualified employees; (xiii) the successful integration of acquired companies and assets into VMware; and (xiv) fluctuating currency exchange rates. These forward looking statements are based on current expectations and are subject to uncertainties and changes in condition, significance, value and effect as well as other risks detailed in documents filed with the Securities and Exchange Commission, including our most recent reports on Form 10-K and Form 10-Q and current reports on Form 8-K that we may file from time to time, which could cause actual results to vary from expectations. VMware assumes no obligation to, and does not currently intend to, update any such forward-looking statements after the date of this release.

Contacts:

Michael Haase

VMware Investor Relations

mhaase@vmware.com

650-427-2875

Gloria Lee

VMware Investor Relations

glee@vmware.com

650-427-3267

Joan Stone

VMware Global Communications

joanstone@vmware.com

650-427-4436

VMware, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	For the Three Months Ended						For the Year Ended
	December 31,						December 31,
	2011			2010			2011			2010
Operating activities:
Net income	$	200,428		$	119,880		$	723,936		$	357,439
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		86,228			77,090			315,871			260,551
Stock-based compensation, excluding amounts capitalized		80,759			86,501			335,153			291,691
Excess tax benefits from stock-based compensation		(26,811	)		(56,253	)		(224,503	)		(223,457	)
Gain on sale of Terremark investment		—			—			(56,000	)		—
Other		10,626			6,963			21,420			13,083
Changes in assets and liabilities, net of acquisitions:
Accounts receivable		(336,123	)		(236,362	)		(263,366	)		(77,121	)
Other assets		15,576			3,999			(75,879	)		(79,431	)
Due to/from EMC, net		(61,310	)		(44,439	)		(18,370	)		(28,508	)
Accounts payable		(3,960	)		4,292			(16,513	)		8,881
Accrued expenses		100,353			92,353			115,025			120,880
Income taxes receivable from EMC		23,018			—			269,258			2,508
Income taxes payable		27,261			46,618			79,183			89,439
Deferred income taxes, net		(28,936	)		(48,513	)		(19,663	)		(56,948	)
Unearned revenue		474,300			354,486			840,081			495,382
Net cash provided by operating activities		561,409			406,615			2,025,633			1,174,389
Investing activities:
Additions to property and equipment		(52,911	)		(40,450	)		(230,091	)		(131,695	)
Purchase of leasehold interest		—			—			(151,083	)		—
Capitalized software development costs		—			(15,955	)		(73,998	)		(64,149	)
Purchases of available-for-sale securities		(584,397	)		(477,201	)		(2,667,888	)		(2,101,907	)
Sales of available-for-sale securities		208,058			265,033			816,351			389,251
Maturities of available-for-sale securities		249,706			96,160			974,413			127,054
Sale of strategic investments		—			—			78,513			2,648
Business acquisitions, net of cash acquired		—			—			(303,610	)		(292,970	)
Transfer of net assets under common control		—			(10,580	)		(22,393	)		(185,580	)
Other investing		(815	)		(4,800	)		(31,187	)		(4,594	)
Net cash used in investing activities		(180,359	)		(187,793	)		(1,610,973	)		(2,261,942	)
Financing activities:
Proceeds from issuance of common stock		52,332			75,460			337,618			431,306
Repurchase of common stock		(35,287	)		(52,587	)		(526,203	)		(338,527	)
Excess tax benefits from stock-based compensation		26,811			56,253			224,503			223,457
Shares repurchased for tax withholdings on vesting of restricted stock		(18,979	)		(16,063	)		(123,787	)		(86,179	)
Net cash provided by (used in) financing activities		24,877			63,063			(87,869	)		230,057
Net increase (decrease) in cash and cash equivalents		405,927			281,885			326,791			(857,496	)
Cash and cash equivalents at beginning of the period		1,549,829			1,347,080			1,628,965			2,486,461
Cash and cash equivalents at end of the period	$	1,955,756		$	1,628,965		$	1,955,756		$	1,628,965

VMware, Inc.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(unaudited)

	For the Three Months Ended						For the Year Ended
	December 31,						December 31,
	2011			2010			2011			2010
Revenues:
License	$	513,767		$	422,343		$	1,841,169		$	1,401,424
Services		546,535			413,318			1,925,927			1,455,919
		1,060,302			835,661			3,767,096			2,857,343
Operating expenses (1):
Cost of license revenues		56,389			50,735			207,398			177,458
Cost of services revenues		110,485			89,616			414,589			316,257
Research and development		216,992			177,671			775,051			652,968
Sales and marketing		385,236			313,045			1,334,346			1,013,281
General and administrative		77,144			73,980			300,541			269,386
Operating income		214,056			130,614			735,171			427,993
Investment income		4,685			2,604			16,157			6,633
Interest expense with EMC		(1,060	)		(966	)		(3,906	)		(4,069	)
Other income (expense), net		(8,815	)		(7,205	)		46,991			(14,182	)
Income before income taxes		208,866			125,047			794,413			416,375
Income tax provision		8,438			5,167			70,477			58,936
Net income	$	200,428		$	119,880		$	723,936		$	357,439
Net income per weighted-average share, basic for Class A and Class B	$	0.47		$	0.29		$	1.72		$	0.87
Net income per weighted-average share, diluted for Class A and Class B	$	0.46		$	0.28		$	1.68		$	0.84
Weighted-average shares, basic for Class A and Class B		422,873			414,919			421,188			409,805
Weighted-average shares, diluted for Class A and Class B		431,375			427,883			431,750			423,446

(1) Includes stock-based compensation as follows:
Cost of license revenues	$	335	$	483	$	1,606	$	1,653
Cost of services revenues		5,993		5,877		23,389		18,478
Research and development		39,643		47,143		174,264		164,435
Sales and marketing		25,138		23,545		95,688		73,146
General and administrative		9,650		9,453		40,206		33,979

VMware, Inc.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

(unaudited)

	December 31,		December 31,
	2011		2010
ASSETS
Current assets:
Cash and cash equivalents	$	1,955,756	$	1,628,965
Short-term investments		2,556,450		1,694,675
Accounts receivable, net of allowance for doubtful accounts of $3,794 and $4,519		882,857		614,726
Due from EMC, net		73,799		55,481
Deferred tax asset		128,471		100,689
Other current assets		80,439		203,119
Total current assets		5,677,772		4,297,655
Property and equipment, net		525,490		419,065
Capitalized software development costs, net and other		154,236		151,945
Deferred tax asset		156,855		149,126
Intangible assets, net		407,375		210,928
Goodwill		1,759,080		1,568,600
Total assets	$	8,680,808	$	6,797,319
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	49,747	$	58,913
Accrued expenses and other		587,650		459,813
Unearned revenues		1,764,109		1,270,426
Total current liabilities		2,401,506		1,789,152
Note payable to EMC		450,000		450,000
Unearned revenues		944,309		589,668
Other liabilities		114,711		160,056
Total liabilities		3,910,526		2,988,876
Commitments and contingencies
Stockholders’ equity:
Class A common stock, par value $.01; authorized 2,500,000 shares; issued and outstanding 123,610 and 116,701 shares		1,236		1,167
Class B convertible common stock, par value $.01; authorized 1,000,000 shares; issued and outstanding 300,000 shares		3,000		3,000
Additional paid-in capital		3,212,264		2,955,971
Accumulated other comprehensive income		1,176		19,635
Retained earnings		1,552,606		828,670
Total stockholders’ equity		4,770,282		3,808,443
Total liabilities and stockholders’ equity	$	8,680,808	$	6,797,319

VMware, Inc.

RECONCILIATION OF GAAP TO NON-GAAP DATA

For the Three Months Ended December 31, 2011

(in thousands, except per share amounts)

(unaudited)

	GAAP			Stock-Based Compensation			Employer Payroll  Taxes on Employee Stock Transactions			Intangible Amortization			Acquisition Related Items and Other			Capitalized Software Development Costs (1)			Tax Adjustment (2)			Non-GAAP, as adjusted
Operating expenses:
Cost of license revenues	$	56,389			(335	)		(27	)		(13,187	)		—			(22,042	)		—		$	20,798
Cost of services revenues	$	110,485			(5,993	)		(160	)		(1,241	)		—			—			—		$	103,091
Research and development	$	216,992			(39,643	)		(1,486	)		(796	)		—			—			—		$	175,067
Sales and marketing	$	385,236			(25,138	)		(867	)		(2,866	)		—			—			—		$	356,365
General and administrative	$	77,144			(9,650	)		(383	)		(37	)		(197	)		—			—		$	66,877
Operating income	$	214,056			80,759			2,923			18,127			197			22,042			—		$	338,104
Operating margin		20.2	%		7.6	%		0.3	%		1.7	%		—			2.1	%		—			31.9	%
Income before income taxes	$	208,866			80,759			2,923			18,127			197			22,042			—		$	332,914
Income tax provision	$	8,438																		58,145		$	66,583
Tax rate		4.0	%																				20.0	%
Net income	$	200,428			80,759			2,923			18,127			197			22,042			(58,145	)	$	266,331
Net income per weighted-average share, basic for Class A and Class B (3)	$	0.47		$	0.19		$	0.01		$	0.04		$	—		$	0.06		$	(0.14	)	$	0.63
Net income per weighted-average share, diluted for Class A and Class B (4)	$	0.46		$	0.19		$	0.01		$	0.04		$	—		$	0.05		$	(0.13	)	$	0.62

(1) For the fourth quarter of 2011, no costs were capitalized for the development of software products. Amortization expense from previously capitalized amounts was $22.0 million for the fourth quarter of 2011.

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

(3) Calculated based upon 422,873 basic weighted-average shares for Class A and Class B.

(4) Calculated based upon 431,375 diluted weighted-average shares for Class A and Class B.

VMware, Inc.

RECONCILIATION OF GAAP TO NON-GAAP DATA

For the Three Months Ended December 31, 2010

(in thousands, except per share amounts)

(unaudited)

	GAAP			Stock-Based Compensation			Employer Payroll Taxes on Employee Stock Transactions			Intangible Amortization			Acquisition Related Items and Other			Capitalized Software Development Costs (1)			Stock-Based Compensation Included in Capitalized Software Development			Tax Adjustment (2)			Non-GAAP, as adjusted
Operating expenses:
Cost of license revenues	$	50,735			(483	)		(21	)		(8,375	)		—			(28,465	)		—			—		$	13,391
Cost of services revenues	$	89,616			(5,877	)		(228	)		(1,471	)		—			—			—			—		$	82,040
Research and development	$	177,671			(47,143	)		(3,299	)		(627	)		—			18,776			(2,821	)		—		$	142,557
Sales and marketing	$	313,045			(23,545	)		(1,496	)		(1,664	)		—			—			—			—		$	286,340
General and administrative	$	73,980			(9,453	)		(342	)		(38	)		(325	)		—			—			—		$	63,822
Operating income	$	130,614			86,501			5,386			12,175			325			9,689			2,821			—		$	247,511
Operating margin		15.6	%		10.4	%		0.6	%		1.5	%		—			1.2	%		0.3	%		—			29.6	%
Income before income taxes	$	125,047			86,501			5,386			12,175			325			9,689			2,821			—		$	241,944
Income tax provision	$	5,167																					38,383		$	43,550
Tax rate		4.1	%																							18.0	%
Net income	$	119,880			86,501			5,386			12,175			325			9,689			2,821			(38,383	)	$	198,394
Net income per weighted-average share, basic for Class A and Class B (3)	$	0.29		$	0.21		$	0.01		$	0.03		$	—		$	0.02		$	0.01		$	(0.09	)	$	0.48
Net income per weighted-average share, diluted for Class A and Class B (4)	$	0.28		$	0.20		$	0.01		$	0.03		$	—		$	0.02		$	0.01		$	(0.09	)	$	0.46

(1) For the fourth quarter of 2010, we capitalized $18.8 million (including $2.8 million of stock-based compensation) of costs incurred for the development of software products. Amortization expense from capitalized amounts was $28.5 million for the fourth quarter of 2010.

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

(3) Calculated based upon 414,919 basic weighted-average shares for Class A and Class B.

(4) Calculated based upon 427,883 diluted weighted-average shares for Class A and Class B.

VMware, Inc.

RECONCILIATION OF GAAP TO NON-GAAP DATA

For the Year Ended December 31, 2011

(in thousands, except per share amounts)

(unaudited)

	GAAP			Stock-Based Compensation			Employer Payroll Taxes on Employee Stock Transactions			Intangible Amortization			Acquisition Related Items and Other			Capitalized Software Development Costs (1)			Stock-Based Compensation Included in Capitalized Software Development			Gain on Sale of Terremark (2)			Tax Adjustment (3)			Non-GAAP, as adjusted
Operating expenses:
Cost of license revenues	$	207,398			(1,606	)		(120	)		(46,074	)		—			(84,741	)		—			—			—		$	74,857
Cost of services revenues	$	414,589			(23,389	)		(1,368	)		(4,967	)		—			—			—			—			—		$	384,865
Research and development	$	775,051			(174,264	)		(9,724	)		(3,187	)		—			86,426			(12,428	)		—			—		$	661,874
Sales and marketing	$	1,334,346			(95,688	)		(5,577	)		(10,213	)		—			—			—			—			—		$	1,222,868
General and administrative	$	300,541			(40,206	)		(1,580	)		(145	)		(2,423	)		—			—			—			—		$	256,187
Operating income	$	735,171			335,153			18,369			64,586			2,423			(1,685	)		12,428			—			—		$	1,166,445
Operating margin		19.5	%		8.9	%		0.5	%		1.7	%		0.1	%		—			0.3	%		—			—			31.0	%
Other income (expense), net	$	46,991																					(56,000	)					(9,009	)
Income before income taxes	$	794,413			335,153			18,369			64,586			2,423			(1,685	)		12,428			(56,000	)		—		$	1,169,687
Income tax provision	$	70,477																								163,459		$	233,936
Tax rate		8.9	%																										20.0	%
Net income	$	723,936			335,153			18,369			64,586			2,423			(1,685	)		12,428			(56,000	)		(163,459	)	$	935,751
Net income per weighted-average share, basic for Class A and Class B (4)	$	1.72		$	0.80		$	0.04		$	0.15		$	0.01		$	(0.01	)	$	0.03		$	(0.13	)	$	(0.39	)	$	2.22
Net income per weighted-average share, diluted for Class A and Class B (5)	$	1.68		$	0.78		$	0.04		$	0.15		$	0.01		$	(0.01	)	$	0.03		$	(0.13	)	$	(0.38	)	$	2.17

(1) For the year ended December 31, 2011, we capitalized $86.4 million (including $12.4 million of stock-based compensation) of costs incurred for the development of software products. Amortization expense from capitalized amounts was $84.7 million for the year ended December 31, 2011.

(2) VMware realized a gain of $56.0 million on the sale of its investment in Terremark Worldwide, Inc.

(3) Non-GAAP financial information for the quarter is adjusted for a tax rate equal to our annual estimated tax rate on non-GAAP income. This rate is based on our estimated annual GAAP income tax rate forecast, adjusted to account for items excluded from GAAP income in calculating the non-GAAP financial measures presented above. Our estimated tax rate on non-GAAP income is determined annually and may be 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.

(4) Calculated based upon 421,188 basic weighted-average shares for Class A and Class B.

(5) Calculated based upon 431,750 diluted weighted-average shares for Class A and Class B.

VMware, Inc.

RECONCILIATION OF GAAP TO NON-GAAP DATA

For the Year Ended December 31, 2010

(in thousands, except per share amounts)

(unaudited)

	GAAP			Stock-Based Compensation			Employer Payroll Taxes  on Employee Stock Transactions			Intangible Amortization			Acquisition Related Items and Other			Capitalized Software Development Costs (1)			Stock-Based Compensation Included in Capitalized Software Development			Tax Adjustment (2)			Non-GAAP, as adjusted
Operating expenses:
Cost of license revenues	$	177,458			(1,653	)		(84	)		(23,785	)		—			(99,522	)		—			—		$	52,414
Cost of services revenues	$	316,257			(18,478	)		(791	)		(4,670	)		—			—			—			—		$	292,318
Research and development	$	652,968			(164,435	)		(9,101	)		(2,354	)		—			71,666			(10,924	)		—		$	537,820
Sales and marketing	$	1,013,281			(73,146	)		(4,633	)		(3,797	)		—			—			—			—		$	931,705
General and administrative	$	269,386			(33,979	)		(1,689	)		(152	)		(3,499	)		—			—			—		$	230,067
Operating income	$	427,993			291,691			16,298			34,758			3,499			27,856			10,924			—		$	813,019
Operating margin		15.0	%		10.2	%		0.6	%		1.2	%		0.1	%		1.0	%		0.4	%		—			28.5	%
Income before income taxes	$	416,375			291,691			16,298			34,758			3,499			27,856			10,924			—		$	801,401
Income tax provision	$	58,936																					103,558		$	162,494
Tax rate		14.2	%																							20.3	%
Net income	$	357,439			291,691			16,298			34,758			3,499			27,856			10,924			(103,558	)	$	638,907
Net income per weighted-average share, basic for Class A and Class B (3)	$	0.87		$	0.71		$	0.04		$	0.08		$	0.01		$	0.07		$	0.03		$	(0.25	)	$	1.56
Net income per weighted-average share, diluted for Class A and Class B (4)	$	0.84		$	0.69		$	0.04		$	0.08		$	—		$	0.07		$	0.03		$	(0.24	)	$	1.51

(1) For the year ended December 31 2010, we capitalized $71.7 million (including $10.9 million of stock-based compensation) of costs incurred for the development of software products. Amortization expense from capitalized amounts was $99.5 million for the year ended December 31, 2010.

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

(3) Calculated based upon 409,805 basic weighted-average shares for Class A and Class B.

(4) Calculated based upon 423,446 diluted weighted-average shares for Class A and Class B.

VMware, Inc.

REVENUE BY TYPE

(in thousands)

(unaudited)

	For the Three Months Ended						For the Year Ended
	December 31,						December 31,
	2011			2010			2011			2010
Revenues:
License	$	513,767		$	422,343		$	1,841,169		$	1,401,424
Services:
Software maintenance		463,489			345,260			1,640,397			1,217,064
Professional services		83,046			68,058			285,530			238,855
Total services		546,535			413,318			1,925,927			1,455,919
	$	1,060,302		$	835,661		$	3,767,096		$	2,857,343
Percentage of revenues:
License		48.5	%		50.5	%		48.9	%		49.0	%
Services:
Software maintenance		43.7	%		41.3	%		43.5	%		42.6	%
Professional services		7.8	%		8.2	%		7.6	%		8.4	%
Total services		51.5	%		49.5	%		51.1	%		51.0	%
		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)

For the Three Months Ended December 31, 2011 and 2010

(in thousands)

(unaudited)

	For the Three Months Ended
	December 31,
	2011			2010
GAAP cash flows from operating activities	$	561,409		$	406,615
Capitalized software development costs		—			(15,955	)
Excess tax benefits from stock-based compensation		26,811			56,253
Capital expenditures		(52,911	)		(40,450	)
Free cash flows	$	535,309		$	406,463

VMware, Inc.

RECONCILIATION OF GAAP CASH FLOWS FROM OPERATING ACTIVITIES

TO FREE CASH FLOWS

(A NON-GAAP FINANCIAL MEASURE)

For the Year Ended December 31, 2011 and 2010

(in thousands)

(unaudited)

	For the Year Ended
	December 31,
	2011			2010
GAAP cash flows from operating activities	$	2,025,633		$	1,174,389
Capitalized software development costs		(73,998	)		(64,149	)
Excess tax benefits from stock-based compensation		224,503			223,457
Capital expenditures		(230,091	)		(131,695	)
Free cash flows	$	1,946,047		$	1,202,002

About Non-GAAP Financial Measures

To provide investors and others with additional information regarding VMware’s results, we have disclosed in this press release the following non-GAAP financial measures: non-GAAP operating income, non-GAAP net income, non-GAAP operating margin, free cash flows and trailing twelve-month 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 differ from GAAP in that they exclude stock-based compensation, employer payroll tax on employee stock transactions, amortization of intangible assets, acquisition related items, the net effect of the amortization and capitalization of software development costs and the gain that VMware realized upon its sale of its investment in Terremark Worldwide, Inc. during the second quarter of fiscal 2011, each as discussed below.

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

Management believes these non-GAAP financial measures are useful to investors and others in assessing VMware’s operating performance due to the following factors:

• Stock-based compensation. Although stock-based compensation is an important aspect of the compensation of VMware’s employees and executives, determining the fair value of certain of the stock-based instruments we utilize involves a high degree of judgment and estimation and the expense recorded may bear little resemblance to the actual value realized upon the vesting, future exercise or termination of the related stock-based awards. Furthermore, unlike cash compensation, the value of stock options, which is an element of our ongoing stock-based compensation expense, is determined using a complex formula that incorporates factors, such as market volatility, that are beyond our control. Management believes it is useful to exclude stock-based compensation in order to better understand the long-term performance of our core business and to facilitate comparison of our results to those of peer companies. In addition, we account for stock-based compensation under GAAP, which requires that we report the excess income tax benefit from stock-based compensation as a financing cash flow rather than as an operating cash flow. We have added this benefit back to our calculation of free cash flows in order to generally classify cash flows arising from income taxes as operating cash flows.

• Employer payroll tax on employee stock transactions. The amount of employer payroll taxes on stock-based compensation is dependent on VMware’s stock price and other factors that are beyond our control and do not correlate to the operation of the business.

• Amortization of intangible assets. A portion of the purchase price of VMware’s acquisitions is generally allocated to intangible assets, such as intellectual property, and is subject to amortization. However, VMware does not acquire businesses on a predictable cycle. Additionally, the amount of an acquisition’s purchase price allocated to intangible assets and the term of its related amortization can vary significantly and are unique to each acquisition. Therefore, VMware believes that the presentation of non-GAAP financial measures that adjust for the amortization of intangible assets, provides investors and others with a consistent basis for comparison across accounting periods.

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

• Capitalized software development costs.Capitalized software development costs encompasses capitalization of development costs and the subsequent amortization of the capitalized costs over the useful life of the product. Amortization and capitalization of software development costs can vary significantly depending upon the timing of products reaching technological feasibility and being made generally available. In addition, we exclude the capitalization of software from our free cash flows to better convey management’s view of operating cash flows. To the extent that we capitalize costs under generally accepted accounting guidance, we increase our GAAP operating cash flows due to the reduced expense recognized within net income and paid out in cash during the period.

• Gain on sale of Terremark investment.In the second quarter of 2011, we sold our investment in Terremark Worldwide, Inc., which was acquired by Verizon in a cash transaction, and realized a gain of $56.0 million. Our investment in Terremark was made in connection with a business and technical collaboration and was not made to seek an investment gain or to fund our business operations. To the extent that sizeable gains or losses are realized on such investments, they do not occur on a predictable cycle. Additionally, the timing of the event that triggered our divestment and whether or not we realized a gain or loss, was not under our control.

• Tax Adjustment.Non-GAAP financial information for the quarter is adjusted for a tax rate equal to our annual estimated tax rate on non-GAAP income. This rate is based on our estimated annual GAAP income tax rate forecast, adjusted to account for items excluded from GAAP income in calculating our non-GAAP income. Our estimated tax rate on non-GAAP income is determined annually and may be adjusted during the year to take into account events or trends that we believe materially impact the estimated annual rate including, but not limited to, significant changes resulting from tax legislation, material changes in the geographic mix of revenues and expenses and other significant events. Due to the differences in the tax treatment of items excluded from non-GAAP earnings, as well as the methodology applied to our estimated annual tax rates as described above, our estimated tax rate on non-GAAP income may differ from our GAAP tax rate and from our actual tax liabilities.

Additionally, we believe that the non-GAAP financial measure, free cash flows, is meaningful to investors because we review cash flows generated from operations after taking into consideration capital expenditures due to the fact that these expenditures are considered to be a necessary component of ongoing operations. As discussed above, we also exclude capitalization of software development costs and the excess income tax benefit from stock-based compensation from our measure of free cash flows.

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 costs of revenues and 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.

Revenue Growth in Constant Currency

We have invoiced and collected in the Euro, the British Pound, the Japanese Yen, and the Australian Dollar in their respective regions since May 2009. As a result, our total revenues are affected by changes in the U.S. Dollar against these currencies. In order to provide a comparable framework for assessing how our business performed excluding the effect of foreign currency fluctuations, management analyzes year-over-year revenue growth on a constant currency basis. Since all of our entities operate with the U.S. Dollar as their functional currency, unearned revenues for orders booked in currencies other than U.S. Dollars are converted into U.S. Dollars at the exchange rate in effect for the month in which each order is booked We calculate constant currency on license revenues recognized during the current period that were originally booked in currencies other than U.S. Dollars by comparing the exchange rates at which the revenue was recognized against the exchange rate that was used in the comparable period. We do not calculate constant currency on services revenues, which include software maintenance revenues and professional services revenues.