VMware Reports Second-Quarter 2008 Results

-- Revenues for the second quarter were $456 million, an increase of 54% from the second quarter of 2007.

-- GAAP operating income for the second quarter was $61 million, compared to $47 million for the same period last year.

-- Non-GAAP operating income was $112 million, an increase of 52% from the second quarter of 2007.

-- GAAP net income for the quarter was $52 million, or $0.13 per diluted share, compared to $34 million, or $0.10 per diluted share, for the second quarter of 2007.

-- Non-GAAP net income for the quarter was $92 million, or $0.23 per diluted share, compared to $52 million, or $0.16 per diluted share, for the second quarter of 2007.

-- Cash exceeded $1.5 billion and deferred revenue was $721 million as of June 30, 2008.

Second quarter U.S. revenues grew 43% to $240 million from the second quarter of 2007. International revenues grew 68% to $216 million from the second quarter of 2007 driven by strength in Europe and Australia.

Software license revenue grew 39% to $284 million from second quarter of 2007. Service revenues, which include support, subscription and professional services, were $172 million, an increase of 85% from the second quarter of 2007.

"VMware had another solid quarter, proving that the quality of our products and the immediate return on investment that they yield is delivering high value to customers," said Paul Maritz, president and chief executive officer of VMware. "I am personally excited to become part of a company that has the potential to become one of the truly important and enduring companies in the software industry."

"Our mission is to help customers run datacenters that use powerful, cost-effective, modern hardware to deliver dramatically higher levels of flexibility, manageability and efficiency. Today, much of our growth comes from customers expanding from basic server consolidation, yet increasingly more customers are seeking to virtualize their entire datacenter and desktop environments with VMware Infrastructure. We are also on the threshold of a major new opportunity - as customers begin to leverage VMware as both the on-ramp to the Cloud and for key elements of the Cloud itself. We are well-positioned to become a truly strategic platform for businesses of all sizes."

Second Quarter Highlights

During the second quarter, VMware made several strategic announcements:

-- Announced general availability of bundled application and infrastructure management products for the datacenter. VMware Lifecycle Manager, VMware Lab Manager and VMware Stage Manager provide a more cost-effective and powerful way to manage the entire software lifecycle. In particular, they enable end user self-provisioning of virtual machines, give IT departments complete control of virtual machine environments and provide application owners with application release management capabilities.

-- Announced general availability of VMware Site Recovery Manager, a pioneering new product for disaster recovery management and automation that simplifies business continuity planning and testing, and reduces the risk and complexity associated with executing disaster recovery.

-- Announced the acquisition of B-hive Networks, a privately-held application performance management software company. With this acquisition, which closed on July 1, VMware enhances the VMware portfolio of application and infrastructure management products by offering proactive performance management and service level reporting for applications running within virtual machines. B-hive's R&D facility and team also forms the core of VMware's new development center in Israel.

-- Announced general availability of VMware ThinApp 4, an application virtualization solution that lets customers run multiple versions of virtually any application on any Windows operating system without conflict. This product is the result of our first quarter acquisition of Thinstall.

-- Announced the VMware Alliance Affiliate Initiative (Channel Affiliate Program) - CA, Dell (Equal Logic), EMC, McAfee, NetApp, Riverbed, and Vizioncore (a subsidiary of Quest Software) have created VMware-oriented virtualization training and tools for channel partners as well as financial incentives on the sale of their products combined with VMware solutions.

-- Announced new Original Equipment Manufacturer agreements with key Chinese vendors Lenovo and Inspur to distribute and support VMware Infrastructure 3 on their systems. These agreements will help to further accelerate the adoption of VMware virtualization technologies in China.

-- Dell delivered a broad line of server systems embedded with VMware ESXi hypervisor including Dell PowerEdge 2950, R900, 1950, 2900, M600 blade and M605 blade systems. Other major vendors embedding VMware ESXi in their systems include HP, IBM, Fujitsu Siemens, Hitachi, HP and NEC.

Financial Outlook

The following forward-looking statements are based on current expectations and are subject to uncertainties and risks discussed below and in documents filed by VMware with the United States Securities and Exchange Commission. Actual results may differ materially.

-- 2008 revenues are targeted to grow approximately 42% to 45% compared to 2007.

-- Third quarter 2008 revenues are targeted to be within a range of approximately $462 to $468 million.

-- Third quarter GAAP operating margin is targeted to be between 11% and 13%. This guidance includes stock-based compensation, employer payroll tax on employee stock transactions, amortization of intangible assets and capitalized software development costs which are targeted at 9% of projected revenue.

VMware plans to host a conference call today to review its second-quarter results and discuss its financial outlook. The call is scheduled to begin at 2:00 p.m. PT/ 5:00 p.m. ET and can be accessed via the Web at http://ir.vmware.com. The Internet will be available live, and a replay will be available following completion of the live broadcast for approximately 30 days.

About VMware

VMware (NYSE: VMW | Quote | Chart | News | PowerRating) is the global leader in virtualization solutions from the desktop to the datacenter. Customers of all sizes rely on VMware to reduce capital and operating expenses, ensure business continuity, strengthen security and go green. With 2007 revenues of $1.3 billion, more than 120,000 customers and nearly 18,000 partners, VMware is one of the fastest growing public software companies. Headquartered in Palo Alto, California, VMware is majority-owned by EMC Corporation (NYSE: EMC) and on the web at www.vmware.com.

VMware is a registered trademark of VMware, Inc. in the United States and/or other jurisdictions. All other marks and names mentioned herein may be trademarks of their respective companies.

Use of Non-GAAP Financial Measures

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, which are used as measures of VMware's performance, should be considered in addition to, not as a substitute for or in isolation from, measures of VMware's financial performance prepared in accordance with GAAP. These measures differ from GAAP in that they exclude stock-based compensation, amortization of intangible assets, the write-off of in-process research and development, employer payroll tax on employee stock transactions, and the net effect of the amortization and capitalization of software under Statement of Financial Accounting Standards No. 86 ("FAS86"), VMware's bases for these adjustments are described below.

VMware's management uses the non-GAAP financial measures referenced in this release and shown in the accompanying schedules to gain an understanding of VMware's comparative operating results (when comparing such results with previous periods or forecasts) and its future prospects and excludes the above-listed items (stock-based compensation, amortization of intangible assets, write-off of in-process research and development, employer payroll tax on employee stock transactions, and the net effect of the amortization and capitalization of software under FAS86) from its internal operating plans and measurement of financial performance, including budgeting, calculating bonus payments, and forecasting future periods. These non-GAAP financial measures are used by VMware's management in their financial and operating decision-making because management believes they reflect VMware's ongoing business in a manner that allows meaningful period-to-period comparisons. As the non-GAAP financial measures exclude expenses that VMware believes are not reflective of ongoing operating results, management believes the non-GAAP financial measures enable management to better analyze trends in its business. VMware's management also believes that these non-GAAP financial measures provide useful information to investors and others (a) in understanding and evaluating VMware's current operating results and future prospects in the same manner as management does, if they so choose, and (b) in comparing in a consistent manner VMware's current financial results with VMware's past financial results.

In addition to the foregoing, management believes that these non-GAAP measures are useful to investors and others in assessing VMware's operating performance due to the following factors:

-- Although stock-based compensation is an important aspect of the compensation of VMware's employees and executives, determining the fair value of the stock-based instruments involves a high degree of judgment and estimation and the expense recorded may bear little resemblance to the actual value realized upon the future exercise or termination of the related stock-based awards. VMware does not believe these non-cash expenses are reflective of ongoing operating results.

-- The amount of employer payroll taxes on stock-based compensation is dependent on VMware's stock price and the timing and size of exercise by employees of their stock options and of vesting in restricted stock, over which management has limited to no control, and as such does not correlate to VMware's operation of the business.

-- VMware's amortization of intangible assets includes the effects of EMC's acquisition of VMware in January 2004. Also, VMware does not acquire businesses on a predictable cycle. VMware therefore believes that the presentation of non-GAAP measures that adjust for the amortization of intangible assets and the write-off of in-process research and development, provide investors and others with a consistent basis for comparison across accounting periods and, therefore, are useful to investors and others in helping them to better understand VMware's operating results and underlying operational trends.

-- The amortization and capitalization of software under FAS86 can vary significantly depending upon the timing of products reaching technological feasibility. VMware does not believe that the variance in operating results caused by the net effect of applying FAS86 properly reflect underlying operational trends.

VMware's non-GAAP financial measures may be defined differently than similar terms used by other companies and, accordingly, may not be comparable to similarly-titled non-GAAP financial measures used by other companies. There are significant limitations associated with the use of non-GAAP financial measures. Specifically, the non-GAAP financial measures that exclude stock-based compensation, intangible amortization, in-process research and development, and the net effect of the amortization and capitalization of software under FAS86, do not include all items of income and expense that affect VMware's operations. More 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. Payment of employer payroll taxes on stock-based compensation is also a cash expense for VMware and impacts the Company's cash position. In the case of intangible amortization, while not directly affecting VMware's cash position, it represents the loss of value of intangible assets over time. As a result, non-GAAP net income and non-GAAP net income per share, which exclude this expense, do not reflect the full economic loss in value of those intangible assets. Management compensates for these limitations by reconciling the non-GAAP financial measures to VMware's financial results as determined in accordance with GAAP, which reconciliations are set forth in the accompanying schedules to this release, in the current report on Form 8-K furnished to the SEC on the date hereof and on http://ir.vmware.com.

Forward-Looking Statements

Statements made in this press release which are not statements of historical fact are forward-looking statements and are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate, but are not limited, to our financial outlook for revenue growth and operating margin during the third quarter of 2008 and revenue growth throughout 2008, continuing customer adoption and deployment of our products and architecture, levels of demand for our products including market size and leadership, ongoing development and delivery of innovative new products and applications of our product. Actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors, including but not limited to: (i) adverse changes in general economic or market conditions; (ii) delays or reductions in consumer or information technology spending; (iii) competitive factors, including but not limited to pricing pressures, industry consolidation, entry of new competitors into the virtualization market, and new product and marketing initiatives by our competitors; (iv) factors that affect timing of license revenue recognition such as product announcements and beta programs; (v) our customers' ability to develop, and to transition to, new products, (vi) the uncertainty of customer acceptance of emerging technology; (viii) rapid technological and market changes in virtualization software; (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; and (xiii) 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 the report on Form 10-Q for the quarter ended June 30, 2008, which could cause actual results to vary from expectations. VMware disclaims any obligation to update any such forward-looking statements after the date of this release.

VMware, Inc. CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) (unaudited) June 30, December 2008 31, 2007 ---------- ----------- ASSETS Current assets: Cash and cash equivalents $1,540,260 $1,231,168 Accounts receivable, less allowance for doubtful accounts of $1,160 and $1,603 309,719 283,824 Deferred tax asset, current portion 31,470 54,386 Income taxes receivable from EMC, net 99,649 -- Other current assets 46,741 33,956 ---------- ----------- Total current assets 2,027,839 1,603,334 Property and equipment, net 349,851 276,983 Other assets, net 62,909 71,695 Deferred tax asset, net of current portion 48,261 72,249 Intangible assets, net 33,783 32,073 Goodwill 684,338 639,366 ---------- ----------- Total assets $3,206,981 $2,695,700 ========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 66,986 $ 61,503 Accrued expenses 171,283 173,610 Due to EMC, net 33,345 2,759 Income taxes payable to EMC, current portion -- 68,823 Deferred revenue, current portion 450,326 363,317 ---------- ----------- Total current liabilities 721,940 670,012 Note payable to EMC 450,000 450,000 Deferred revenue, net of current portion 270,962 189,479 Deferred tax liability 25,613 27,327 Income taxes payable to EMC, net of current portion 25,471 18,265 Commitments and contingencies Stockholders' equity: Class A common stock, par value $.01; authorized 2,500,000 shares; issued and outstanding 87,959 and 82,924 shares 880 829 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 1,668,847 1,352,788 Retained earnings (accumulated deficit) 40,268 (16,000) ---------- ----------- Total stockholders' equity 1,712,995 1,340,617 ---------- ----------- Total liabilities and stockholders' equity $3,206,981 $2,695,700 ========== ===========

VMware, Inc. CONSOLIDATED INCOME STATEMENTS (in thousands, except per share amounts) (unaudited) For the Three For the Six Months Months Ended Ended June 30, June 30, ------------------- ------------------- 2008 2007 2008 2007 --------- --------- --------- --------- Revenues: License $284,233 $204,048 $578,213 $373,605 Services 171,895 92,777 316,090 181,915 --------- --------- --------- --------- 456,128 296,825 894,303 555,520 Operating expenses: Cost of license revenues 21,639 20,832 44,498 41,388 Cost of services revenues 58,892 27,985 113,203 51,453 Research and development 114,128 71,581 233,383 126,539 Sales and marketing 158,307 98,989 307,564 185,696 General and administrative 42,162 30,703 86,264 57,327 --------- --------- --------- --------- Operating income 61,000 46,735 109,391 93,117 Investment income 6,310 2,714 14,314 4,419 Interest expense with EMC, net (3,579) (7,791) (9,398) (6,519) Other income (expense), net 370 (146) 824 (87) --------- --------- --------- --------- Income before taxes 64,101 41,512 115,131 90,930 Income tax provision 11,765 7,288 19,740 15,626 --------- --------- --------- --------- Net income $ 52,336 $ 34,224 $ 95,391 $ 75,304 ========= ========= ========= ========= Net income per weighted average share, basic for Class A and Class B $ 0.14 $ 0.10 $ 0.25 $ 0.23 Net income per weighted average share, diluted for Class A and Class B $ 0.13 $ 0.10 $ 0.24 $ 0.23 Weighted average shares, basic for Class A and Class B 382,931 332,500 381,976 332,500 Weighted average shares, diluted for Class A and Class B 398,979 332,501 398,258 332,501

VMware, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) For the Three Months For the Six Months Ended Ended June 30, June 30, --------------------- --------------------- 2008 2007 2008 2007 ----------- --------- ----------- --------- Cash flows from operating activities: Net income $ 52,336 $ 34,224 $ 95,391 $ 75,304 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 39,459 23,622 76,893 44,819 Stock-based compensation, excluding amounts capitalized 42,072 15,973 84,233 27,617 Excess tax benefits from stock-based compensation (56,735) -- (79,427) -- Other adjustments (278) (429) 1,058 134 Changes in assets and liabilities, net of acquisitions: Accounts receivable (25,132) (52,451) (24,286) (6,090) Other assets (4,687) (8,054) (13,281) (8,660) Due to/from EMC, net 23,040 (33,902) 40,286 (90,080) Accounts payable (18,602) 14,349 (11,130) 12,381 Accrued expenses 11,349 10,508 (3,956) 11,468 Income taxes payable to/receivable from EMC (75,412) 22,813 (97,008) 37,509 Deferred income taxes, net 83,063 (16,037) 46,719 (22,628) Deferred revenue 80,161 75,015 168,322 108,755 ----------- --------- ----------- --------- Net cash provided by operating activities 150,634 85,631 283,814 190,529 ----------- --------- ----------- --------- Cash flows from investing activities: Additions to property and equipment (51,899) (32,335) (100,921) (48,919) Capitalized software development costs (11,770) (3,872) (15,934) (10,544) Purchase of long-term investment (1,750) -- (1,750) -- Business acquisitions, net of cash acquired -- (21,414) (33,289) (21,410) Decrease (increase) in restricted cash -- (6,382) 896 (5,694) ----------- --------- ----------- --------- Net cash used in investing activities (65,419) (64,003) (150,998) (86,567) ----------- --------- ----------- --------- Cash flows from financing activities: Proceeds from issuance of common stock 109,658 -- 133,327 -- Excess tax benefits from stock-based compensation 56,735 -- 79,427 -- Shares repurchased for tax withholdings on vesting of restricted stock (17,359) -- (36,478) -- ----------- --------- ----------- --------- Net cash provided by financing activities 149,034 -- 176,276 -- ----------- --------- ----------- --------- Net increase in cash and cash equivalents 234,249 21,628 309,092 103,962 Cash and cash equivalents at beginning of the period 1,306,011 258,468 1,231,168 176,134 ----------- --------- ----------- --------- Cash and cash equivalents at end of the period $1,540,260 $280,096 $1,540,260 $280,096 =========== ========= =========== =========

VMware, Inc. RECONCILIATION OF GAAP TO NON-GAAP DATA For the Three Months Ended June 30, 2008 (in thousands, except per share amounts) (unaudited) Employer Payroll Tax on Employee Stock-Based Stock Intangible GAAP Compensation Transactions Amortization ------------------------------------------------ Operating expenses: Cost of license revenues $ 21,639 (276) (23) (2,294) Cost of services revenues $ 58,892 (3,795) (154) -- Research and development $114,128 (19,479) (1,642) -- Sales and marketing $158,307 (11,699) (856) (897) General and administrative $ 42,162 (6,823) (320) (647) Operating income $ 61,000 42,072 2,995 3,838 Income before taxes $ 64,101 42,072 2,995 3,838 Income tax provision $ 11,765 9,913 811 1,292 Quarterly tax rate 18.35% Net income $ 52,336 32,159 2,184 2,546 Net income per weighted average share, basic for Class A and Class B $ 0.14 $ 0.08 $ 0.01 $ 0.01 Net income per weighted average share, diluted for Class A and Class B $ 0.13 $ 0.08 $ 0.01 $ 0.01 Weighted average shares, basic for Class A and Class B 382,931 382,931 382,931 382,931 Weighted average shares, diluted for Class A and Class B 398,979 398,979 398,979 398,979 Stock-based Compensation Included in Capitalized Capitalized Software Software Non-GAAP, Development Development as Costs (1) Costs adjusted ------------------------------------ Operating expenses: Cost of license revenues (14,269) -- $ 4,777 Cost of services revenues -- -- $ 54,943 Research and development 14,817 (3,046) $104,778 Sales and marketing -- -- $144,855 General and administrative -- -- $ 34,372 Operating income (548) 3,046 $112,403 Income before taxes (548) 3,046 $115,504 Income tax provision (1,291) 682 $ 23,172 Quarterly tax rate 20.06% Net income 743 2,364 $ 92,332 Net income per weighted average share, basic for Class A and Class B $ 0.00 $ 0.01 $ 0.24 Net income per weighted average share, diluted for Class A and Class B $ 0.00 $ 0.01 $ 0.23 Weighted average shares, basic for Class A and Class B 382,931 382,931 382,931 Weighted average shares, diluted for Class A and Class B 398,979 398,979 398,979 (1) For the second quarter of 2008, VMware capitalized $14.8 million (including $3.0 million of stock-based compensation) of costs incurred for the development of software products. Amortization expense from previously capitalized amounts was $14.3 million for the second quarter of 2008.

VMware, Inc. RECONCILIATION OF GAAP TO NON-GAAP DATA For the Three Months Ended June 30, 2007 (in thousands, except per share amounts) (unaudited) Capitalized Software Stock-Based Intangible Development GAAP Compensation Amortization Costs (1) ----------------------------------------------- Operating expenses: Cost of license revenues $ 20,832 (74) (5,215) (8,730) Cost of services revenues $ 27,985 (919) -- -- Research and development $ 71,581 (8,252) -- 4,402 Sales and marketing $ 98,989 (4,240) (581) -- General and administrative $ 30,703 (2,488) (492) -- Operating income $ 46,735 15,973 6,288 4,328 Income before taxes $ 41,512 15,973 6,288 4,328 Income tax provision $ 7,288 5,059 2,327 1,601 Quarterly tax rate 17.6% Net income $ 34,224 10,914 3,961 2,727 Net income per weighted average share, basic for Class A and Class B $ 0.10 $ 0.03 $ 0.01 $ 0.01 Net income per weighted average share, diluted for Class A and Class B $ 0.10 $ 0.03 $ 0.01 $ 0.01 Weighted average shares, basic for Class A and Class B 332,500 332,500 332,500 332,500 Weighted average shares, diluted for Class A and Class B 332,501 332,501 332,501 332,501 Stock-based Compensation Included in Capitalized Software Non-GAAP, Development as Costs adjusted ---------------------- Operating expenses: Cost of license revenues -- $ 6,813 Cost of services revenues -- $ 27,066 Research and development (530)$ 67,201 Sales and marketing -- $ 94,168 General and administrative -- $ 27,723 Operating income 530 $ 73,854 Income before taxes 530 $ 68,631 Income tax provision 196 $ 16,471 Quarterly tax rate 24.0% Net income 334 $ 52,160 Net income per weighted average share, basic for Class A and Class B $ 0.00 $ 0.16 Net income per weighted average share, diluted for Class A and Class B $ 0.00 $ 0.16 Weighted average shares, basic for Class A and Class B 332,500 332,500 Weighted average shares, diluted for Class A and Class B 332,501 332,501 (1) For the second quarter of 2007, VMware capitalized $4.4 million (including $0.5 million of stock-based compensation), of costs incurred for the development of software products. Amortization expense from previously capitalized amounts was $8.7 million for the second quarter of 2007.

VMware, Inc. RECONCILIATION OF GAAP TO NON-GAAP DATA For the Six Months Ended June 30, 2008 (in thousands, except per share amounts) (unaudited) Employer Payroll Tax on Employee Stock-Based Stock Intangible GAAP Compensation Transactions Amortization ------------------------------------------------ Operating expenses: Cost of license revenues $ 44,498 (539) (25) (4,604) Cost of services revenues $113,203 (7,056) (191) -- Research and development $233,383 (40,576) (2,439) -- Sales and marketing $307,564 (23,000) (1,144) (1,791) General and administrative $ 86,264 (13,062) (477) (1,294) Operating income $109,391 84,233 4,276 7,689 Income before taxes $115,131 84,233 4,276 7,689 Income tax provision $ 19,740 18,413 1,139 2,703 Quarterly tax rate 17.1% Net income $ 95,391 65,820 3,137 4,986 Net income per weighted average share, basic for Class A and Class B $ 0.25 $ 0.17 $ 0.01 $ 0.01 Net income per weighted average share, diluted for Class A and Class B $ 0.24 $ 0.17 $ 0.01 $ 0.01 Weighted average shares, basic for Class A and Class B 381,976 381,976 381,976 381,976 Weighted average shares, diluted for Class A and Class B 398,258 398,258 398,258 398,258 Stock-based Compensation Included in Capitalized Capitalized Software Software Non-GAAP, Development Development as Costs (1) Costs adjusted ---------------------------------- Operating expenses: Cost of license revenues (29,139) -- $ 10,191 Cost of services revenues -- -- $105,956 Research and development 19,853 (3,919)$206,302 Sales and marketing -- -- $281,629 General and administrative -- -- $ 71,431 Operating income 9,286 3,919 $218,794 Income before taxes 9,286 3,919 $224,534 Income tax provision 891 857 $ 43,743 Quarterly tax rate 19.5% Net income 8,395 3,062 $180,791 Net income per weighted average share, basic for Class A and Class B $ 0.02 $ 0.01 $ 0.47 Net income per weighted average share, diluted for Class A and Class B $ 0.02 $ 0.01 $ 0.45 Weighted average shares, basic for Class A and Class B 381,976 381,976 381,976 Weighted average shares, diluted for Class A and Class B 398,258 398,258 398,258 (1) For the first six months of 2008, VMware capitalized $19.9 million (including $3.9 million of stock-based compensation) of costs incurred for the development of software products. Amortization expense from previously capitalized amounts was $29.1 million for the first six months of 2008.

VMware, Inc. RECONCILIATION OF GAAP TO NON-GAAP DATA For the Six Months Ended June 30, 2007 (in thousands, except per share amounts) (unaudited) Stock-Based Intangible GAAP Compensation Amortization ----------------------------------- Operating expenses: Cost of license revenues $ 41,388 (110) (10,430) Cost of services revenues $ 51,453 (1,413) -- Research and development $126,539 (14,644) -- Sales and marketing $185,696 (7,184) (1,158) General and administrative $ 57,327 (4,266) (985) Operating income $ 93,117 27,617 12,573 Income before taxes $ 90,930 27,617 12,573 Income tax provision $ 15,626 7,734 4,652 Quarterly tax rate 17.2% Net income $ 75,304 19,883 7,921 Net income per weighted average share, basic for Class A and Class B $ 0.23 $ 0.06 $ 0.02 Net income per weighted average share, diluted for Class A and Class B $ 0.23 $ 0.06 $ 0.02 Weighted average shares, basic for Class A and Class B 332,500 332,500 332,500 Weighted average shares, diluted for Class A and Class B 332,501 332,501 332,501 Stock-based Compensation Included in Capitalized Capitalized Software Software Non-GAAP, Development Development as Costs (1) Costs adjusted ---------------------------------- Operating expenses: Cost of license revenues (16,717) -- $ 14,131 Cost of services revenues -- -- $ 50,040 Research and development 12,001 (1,457)$122,439 Sales and marketing -- -- $177,354 General and administrative -- -- $ 52,076 Operating income 4,716 1,457 $139,480 Income before taxes 4,716 1,457 $137,293 Income tax provision 1,745 539 $ 30,296 Quarterly tax rate 22.1% Net income 2,971 918 $106,997 Net income per weighted average share, basic for Class A and Class B $ 0.01 $ 0.00 $ 0.32 Net income per weighted average share, diluted for Class A and Class B $ 0.01 $ 0.00 $ 0.32 Weighted average shares, basic for Class A and Class B 332,500 332,500 332,500 Weighted average shares, diluted for Class A and Class B 332,501 332,501 332,501 (1) For the first six months of 2007, VMware capitalized $12.0 million (including $1.5 million of stock-based compensation) of costs incurred for the development of software products. Amortization expense from previously capitalized amounts was $16.7 million for the first six months of 2007.

SOURCE: VMware, Inc.

VMware Investor Relations Michael Haase, 650-427-2875 mhaase@vmware.com Gloria Lee, 650-427-3267 glee@vmware.com or VMware Public Relations Mary Ann Gallo, 650-427-3271 magallo@vmware.com