8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported): October 21, 2008

VMWARE, INC.

(Exact name of registrant as specified in its charter)

Delaware	001-33622	94-3292913
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification Number)

3401 Hillview Avenue, Palo Alto, CA	94304
(Address of Principal Executive Offices)	(Zip code)

Registrant’s telephone number, including area code: (650) 427-5000

N/A

(Former Name or Former Address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition.

On October 21, 2008, VMware, Inc. (“VMware”) issued a press release (“Earnings Release”) announcing its financial results for the quarter ended September 30, 2008. The press release, which includes information regarding VMware’s use of non-GAAP financial measures, is attached hereto as Exhibit 99.1 and incorporated by reference herein.

The information in this Item 2.02 and the Exhibit attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, regardless of any general incorporation language in such filing.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

99.1 Press release of VMware, Inc. dated October 21, 2008

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: October 21, 2008

VMWARE, INC.
By:	/s/ Mark Peek
	Mark Peek
	Chief Financial Officer

EX-99.1

Exhibit 99.1

VMware Reports Third Quarter 2008 Results

Quarterly Revenue Grew 32% to $472 Million; GAAP Operating Margin of 21%; Non-GAAP Operating Margin

of 24%; Annual Revenue to Date of $1.4 Billion Exceeds Total for 2007

PALO ALTO, Calif., October 21, 2008 — VMware, Inc. (NYSE: VMW), the global leader in virtualization solutions from the desktop to the datacenter, today reported financial results for the third quarter of 2008:

• Revenues for the third quarter were $472 million, an increase of 32% from the third quarter of 2007.

• GAAP operating income for the third quarter was $101 million, an increase of 54% from the third quarter of 2007.

• Non-GAAP operating income for the third quarter was $115 million, an increase of 26% from the third quarter of 2007.

• GAAP net income for the third quarter was $83 million, or $0.21 per diluted share, compared to $65 million, or $0.18 per diluted share, for the third quarter of 2007.

• Non-GAAP net income for the quarter was $93 million, or $0.24 per diluted share, compared to $85 million, or $0.23 per diluted share, for the third quarter of 2007.

• Cash was nearly $1.7 billion and deferred revenue was $780 million as of September 30, 2008.

Third quarter U.S. revenues grew 24% to $249 million from the third quarter of 2007. International revenues grew 42% to $224 million from the third quarter of 2007 driven by strength in Europe.

“VMware had another solid quarter, despite the challenging economic environment,” said Paul Maritz, president and chief executive officer of VMware. “This is a testament to the value our virtualization solutions provide to our customers. As commercial and government organizations are increasingly forced to do more with less, they’re moving VMware to the top of their short list of strategic priorities. Reducing hardware and operational costs, becoming more efficient, flexible and effective – these are the proven benefits we bring to our customer base of over 120,000.”

“At VMworld 2008 in September,” continued Maritz, “we laid out three key initiatives to build on our basic proposition of enabling our customers to do more with less. We plan to expand our current VMware Infrastructure offerings into a comprehensive virtual datacenter operating system for an enterprise cloud that is highly elastic, self-managing and self-healing. This will enable customers to treat their IT infrastructure as a single giant computer with which they can more efficiently and flexibly provision and manage heterogeneous application loads. This approach, coupled with the work being done under our vCloud initiative, will also open the way to allowing application loads to be seamlessly off-loaded as needed to external Clouds. Complementary to these approaches, our vClient initiative lays out a roadmap to bring the management of thin and thick clients into a single framework, and give users the best of both. Execution against these

initiatives starts with a major release this quarter of our client virtualization management, VMware View™ 3.0, and significant deliveries are expected through 2009.”

Third Quarter Highlights & Strategic Announcements

• VMworld 2008 had a record of 13,800 attendees from 156 countries, a 30% increase over last year’s attendance. 215 sponsors and exhibitors supported the conference, including Platinum Sponsors Cisco, Dell, EMC, HP, IBM, Intel, NEC, NetApp and Symantec who delivered keynotes.

• Virtual Datacenter Operating System (VDC-OS) — groundbreaking new products and technologies are planned to expand VMware Infrastructure offerings into a comprehensive virtual datacenter operating system that can pool IT resources - servers, storage and network – into a single enterprise cloud. By pooling IT infrastructure, customers can more efficiently and flexibly provision and manage heterogeneous application loads. The new VDC- OS capabilities announced by VMware are expected to be delivered in 2009.

• vCloud Initiative — with support from 100+ partners, including BT, Rackspace, SAVVIS, SunGard, T-Systems, and Verizon Business, our vCloud Initiative is aimed at helping companies – both large and small safely tap compute capacity inside and outside their firewalls – how they want, when they want, and as much as they want – to ensure quality of service for any application they want to run, internally or as a service.

• vClient Initiative — will enable the delivery of universal clients – desktops that follow users to any end point while providing a rich personalized experience that is secure, cost effective and easy for IT to manage. The first step of the initiative is the roll out of VMware View™ – a set of products that extend VMware’s Virtual Desktop Infrastructure (VDI) solutions to include both server hosted virtual desktops and client virtual desktops that can run on any laptop or desktop computer. The vClient Initiative includes several new desktop virtualization technologies which VMware plans to introduce in 2009. These new technologies are planned to include client virtualization, image management (available as VMware View Composer) and offline desktop.

• General availability of the new VMware Studio, an authoring and configuration tool to construct Virtual Appliances and vApps; also announced general availability of VMware Lab Manager 3, VMware Fusion™ 2.0 and VMware Workstation 6.5.

• VMware and Cisco plan to deliver joint datacenter solutions designed to improve the scalability and operational control of virtual environments. The Cisco Nexus^® 1000V distributed virtual software switch is expected to be an integrated option in VMware Infrastructure. Cisco and VMware also intend to combine their expertise in networking and virtualization to introduce a new set of multidisciplinary professional services and reseller certification training in support of customers’ data center virtualization strategies. In parallel, Cisco and VMware are collaborating on integrating VMware Virtual Desktop Infrastructure (VDI) solutions with Cisco^® Application Delivery Networking solutions to improve the performance of virtual desktops delivered across wide-area networks (WANs).

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.

Current uncertainty in global economic conditions makes it particularly difficult to predict product demand and other related matters and makes it more likely that VMware’s actual results could differ materially from expectations

• VMware is maintaining its 2008 revenue guidance for annual growth of 42% to 45% over 2007. VMware cautions of an increased likelihood that 2008 revenue will be at the lower end of the guidance range.

• GAAP operating margin for the fourth quarter of 2008 is targeted to be between 16% and 18%. This guidance includes stock-based compensation, employer payroll tax on employee stock transactions, and amortization of intangible assets and capitalized software development costs which are targeted at 6% of projected revenue.

• The 2008 GAAP tax rate is expected to be between 13 and 15 percent and reflects the reinstatement of the U.S. Federal research tax credit. This guidance includes stock-based compensation, amortization of intangibles, and FAS86 capitalization, representing approximately 3 - 4 percentage points.

About VMware

VMware (NYSE: VMW) 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 more than 20,000 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). For more information visit 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 during the 2008, continuing customer adoption and deployment of our products and architecture,

levels of demand for our products including priorities in customer spending and the prospects for our new strategic initiatives, ongoing development, and projections for the release and delivery of our software products. 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.

Current uncertainty in global economic conditions pose a risk to the overall economy as consumers and businesses may defer purchases in response to tighter credit and negative financial news, which could negatively affect product demand and other related matters. Consequently, customer spending on VMware products could be different from VMware’s expectations due to factors including changes in business and economic conditions, including conditions in the credit market that could affect consumer confidence; customer acceptance of VMware’s and competitors’ products; changes in customer order and payment patterns; and changes in the willingness of customers to enter into longer term licensing and support arrangements.

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.

Contacts:

Michael Haase

VMware Investor Relations

mhaase@vmware.com

650-427-2875

Gloria Lee

VMware Investor Relations

glee@vmware.com

650-427-3267

Mary Ann Gallo

VMware Public Relations

magallo@vmware.com

650-427-3271

VMware, Inc.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

(unaudited)

	September 30, 2008		December 31, 2007
ASSETS
Current assets:
Cash and cash equivalents	$	1,691,372	$	1,231,168
Accounts receivable, less allowance for doubtful accounts of $2,351 and $1,603		287,943		283,824
Deferred tax asset, current portion		44,004		54,386
Income taxes receivable, net		82,228		—
Other current assets		49,120		33,956
Total current assets		2,154,667		1,603,334
Property and equipment, net		370,613		276,983
Other assets, net		97,665		71,695
Deferred tax asset, net of current portion		56,980		72,249
Intangible assets, net		48,513		32,073
Goodwill		730,276		639,366
Total assets	$	3,458,714	$	2,695,700
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	80,263	$	61,503
Accrued expenses		160,129		173,610
Due to EMC, net		36,249		2,759
Income taxes payable, current portion		—		68,823
Deferred revenue, current portion		482,366		363,317
Total current liabilities		759,007		670,012
Note payable to EMC		450,000		450,000
Deferred revenue, net of current portion		297,997		189,479
Deferred tax liability		42,026		27,327
Income taxes payable, net of current portion		28,419		18,265
Total liabilities		1,577,449		1,355,083
Commitments and contingencies
Stockholders’ equity:
Class A common stock, par value $.01; authorized 2,500,000 shares; issued and outstanding 89,452 and 82,924 shares		895		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		1,756,638		1,352,788
Retained earnings (accumulated deficit)		120,732		(16,000	)
Total stockholders’ equity		1,881,265		1,340,617
Total liabilities and stockholders’ equity	$	3,458,714	$	2,695,700

VMware, Inc.

CONSOLIDATED INCOME STATEMENTS

(in thousands, except per share amounts)

(unaudited)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2008			2007			2008			2007
Revenues:
License	$	285,086		$	247,481		$	863,299		$	621,086
Services		187,035			110,335			503,125			292,250
		472,121			357,816			1,366,424			913,336
Operating expenses:
Cost of license revenues		21,535			19,158			66,033			60,546
Cost of services revenues		52,919			39,493			166,122			90,946
Research and development		85,315			67,840			318,698			194,379
Sales and marketing		167,914			125,736			475,478			311,432
General and administrative		43,418			39,839			129,682			97,166
Operating income		101,020			65,750			210,411			158,867
Investment income		7,654			7,300			21,968			11,718
Interest expense with EMC, net		(3,823	)		(6,743	)		(13,221	)		(13,261	)
Other expense, net		(1,321	)		(19	)		(497	)		(106	)
Income before income taxes		103,530			66,288			218,661			157,218
Income tax provision		20,242			1,610			39,982			17,236
Net income	$	83,288		$	64,678		$	178,679		$	139,982
Net income per weighted-average share, basic for Class A and Class B		0.21			0.18			0.47			0.41
Net income per weighted-average share, diluted for Class A and Class B		0.21			0.18			0.45			0.41
Weighted-average shares, basic for Class A and Class B		387,621			356,431			383,876			340,565
Weighted-average shares, diluted for Class A and Class B		394,232			368,567			397,093			344,736

VMware, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2008			2007			2008			2007
Cash flows from operating activities:
Net income	$	83,288		$	64,678		$	178,679		$	139,982
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		40,644			27,643			117,537			72,462
Stock-based compensation, excluding amounts capitalized		35,317			31,737			119,550			59,354
Excess tax benefits from stock-based compensation		(5,844	)		—			(85,271	)		—
Other adjustments		1,242			(528	)		2,300			(394	)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable		20,803			37,062			(3,483	)		30,972
Other assets		(2,369	)		5,994			(15,650	)		(2,666	)
Due to/from EMC, net		2,904			15,644			43,190			(74,436	)
Accounts payable		10,880			8,578			(250	)		20,959
Accrued expenses		(21,309	)		(667	)		(25,265	)		10,801
Income taxes payable/receivable		28,013			22,888			(68,995	)		60,397
Deferred income taxes, net		(8,876	)		(22,446	)		37,843			(45,074	)
Deferred revenue		58,812			7,750			227,134			116,505
Net cash provided by operating activities		243,505			198,333			527,319			388,862
Cash flows from investing activities:
Additions to property and equipment		(32,664	)		(42,375	)		(133,585	)		(91,294	)
Purchase of headquarters facilities from EMC		—			(132,564	)		—			(132,564	)
Capitalized software development costs		(37,961	)		(22,314	)		(53,895	)		(32,858	)
Purchase of long-term investment		—			—			(1,750	)		—
Business acquisitions, net of cash acquired		(57,363	)		(54,108	)		(90,652	)		(75,518	)
Decrease (increase) in restricted cash		—			555			896			(5,139	)
Net cash used in investing activities		(127,988	)		(250,806	)		(278,986	)		(337,373	)
Cash flows from financing activities:
Proceeds from issuance of common stock		34,090			1,256,293			167,417			1,256,293
Excess tax benefits from stock-based compensation		5,844			—			85,271			—
Shares repurchased for tax withholdings on vesting of restricted stock		(4,339	)		—			(40,817	)		—
Repayment of note payable to EMC		—			(350,000	)		—			(350,000	)
Net cash provided by financing activities		35,595			906,293			211,871			906,293
Net increase in cash and cash equivalents		151,112			853,820			460,204			957,782
Cash and cash equivalents at beginning of the period		1,540,260			280,096			1,231,168			176,134
Cash and cash equivalents at end of the period	$	1,691,372		$	1,133,916		$	1,691,372		$	1,133,916

VMware, Inc.

RECONCILIATION OF GAAP TO NON-GAAP DATA

For the Three Months Ended September 30, 2008

(in thousands, except per share amounts)

(unaudited)

	GAAP			Stock-Based Compensation			Employer Payroll Tax on Employee Stock Transactions			Intangible Amortization			Capitalized Software Development Costs (1)			Stock-based Compensation Included in Capitalized Software Development Costs			Non-GAAP, as adjusted
Operating expenses:
Cost of license revenues	$	21,535			(264	)		(3	)		(3,529	)		(11,046	)		—		$	6,693
Cost of services revenues	$	52,919			(3,660	)		(29	)		—			—			—		$	49,230
Research and development	$	85,315			(15,331	)		(296	)		—			45,788			(7,827	)	$	107,649
Sales and marketing	$	167,914			(13,138	)		(90	)		(898	)		—			—		$	153,788
General and administrative	$	43,418			(2,924	)		(35	)		(648	)		—			—		$	39,811
Operating income	$	101,020			35,317			453			5,075			(34,742	)		7,827		$	114,950
Income before income taxes	$	103,530			35,317			453			5,075			(34,742	)		7,827		$	117,460
Income tax provision	$	20,242			8,689			106			1,902			(8,388	)		1,821		$	24,372
Quarterly tax rate		19.55	%																	20.75	%
Net income	$	83,288			26,628			347			3,173			(26,354	)		6,006		$	93,088
Net income per weighted average share, basic for Class A and Class B	$	0.21		$	0.07		$	0.00		$	0.01		$	(0.07	)	$	0.02		$	0.24
Net income per weighted average share, diluted for Class A and Class B	$	0.21		$	0.07		$	0.00		$	0.01		$	(0.07	)	$	0.02		$	0.24
Weighted average shares, basic for Class A and Class B		387,621			387,621			387,621			387,621			387,621			387,621			387,621
Weighted average shares, diluted for Class A and Class B		394,232			394,232			394,232			394,232			394,232			394,232			394,232

(1) For the third quarter of 2008, VMware capitalized $45.8 million (including $7.8 million of stock-based compensation) of costs incurred for the development of software products. Amortization expense from previously capitalized amounts was $11.0 million for the third quarter of 2008.

VMware, Inc.

RECONCILIATION OF GAAP TO NON-GAAP DATA

For the Three Months Ended September 30, 2007

(in thousands, except per share amounts)

(unaudited)

	GAAP			Stock-Based Compensation			Intangible Amortization			Capitalized Software Development Costs (1)			Stock-based Compensation Included in Capitalized Software Development Costs			Non-GAAP, as adjusted
Operating expenses:
Cost of license revenues	$	19,158			(212	)		(5,353	)		(9,212	)		—		$	4,381
Cost of services revenues	$	39,493			(2,195	)		—			—			—		$	37,298
Research and development	$	67,840			(13,033	)		—			27,593			(5,279	)	$	77,121
Sales and marketing	$	125,736			(9,594	)		(766	)		—			—		$	115,376
General and administrative	$	39,839			(6,703	)		(491	)		—			—		$	32,645
Operating income	$	65,750			31,737			6,610			(18,381	)		5,279		$	90,995
Income before income taxes	$	66,288			31,737			6,610			(18,381	)		5,279		$	91,533
Income tax provision	$	1,610			7,009			2,446			(5,734	)		1,073		$	6,404
Quarterly tax rate		2.4	%														7.0	%
Net income	$	64,678			24,728			4,164			(12,647	)		4,206		$	85,129
Net income per weighted average share, basic for Class A and Class B	$	0.18		$	0.07		$	0.01		$	(0.04	)	$	0.01		$	0.24
Net income per weighted average share, diluted for Class A and Class B	$	0.18		$	0.07		$	0.01		$	(0.03	)	$	0.01		$	0.23
Weighted average shares, basic for Class A and Class B		356,431			356,431			356,431			356,431			356,431			356,431
Weighted average shares, diluted for Class A and Class B		368,567			368,567			368,567			368,567			368,567			368,567

(1) For the third quarter of 2007, VMware capitalized $27.6 million (including $5.3 million of stock-based compensation), of costs incurred for the development of software products. Amortization expense from previously capitalized amounts was $9.2 million for the third quarter of 2007.

VMware, Inc.

RECONCILIATION OF GAAP TO NON-GAAP DATA

For the Nine Months Ended September 30, 2008

(in thousands, except per share amounts)

(unaudited)

	GAAP			Stock-Based Compensation			Employer Payroll Tax on Employee Stock Transactions			Intangible Amortization			Capitalized Software Development Costs (1)			Stock-based Compensation Included in Capitalized Software Development Costs			Non-GAAP, as adjusted
Operating expenses:
Cost of license revenues	$	66,033			(803	)		(28	)		(8,133	)		(40,185	)		—		$	16,884
Cost of services revenues	$	166,122			(10,716	)		(220	)		—			—			—		$	155,186
Research and development	$	318,698			(55,907	)		(2,735	)		—			65,641			(11,746	)	$	313,951
Sales and marketing	$	475,478			(36,138	)		(1,234	)		(2,689	)		—			—		$	435,417
General and administrative	$	129,682			(15,986	)		(512	)		(1,942	)		—			—		$	111,242
Operating income	$	210,411			119,550			4,729			12,764			(25,456	)		11,746		$	333,744
Income before income taxes	$	218,661			119,550			4,729			12,764			(25,456	)		11,746		$	341,994
Income tax provision	$	39,982			27,102			1,245			4,605			(7,497	)		2,678		$	68,115
Quarterly tax rate		18.28	%																	19.92	%
Net income	$	178,679			92,448			3,484			8,159			(17,959	)		9,068		$	273,879
Net income per weighted average share, basic for Class A and Class B	$	0.47		$	0.24		$	0.01		$	0.02		$	(0.05	)	$	0.02		$	0.71
Net income per weighted average share, diluted for Class A and Class B	$	0.45		$	0.23		$	0.01		$	0.02		$	(0.05	)	$	0.02		$	0.69
Weighted average shares, basic for Class A and Class B		383,876			383,876			383,876			383,876			383,876			383,876			383,876
Weighted average shares, diluted for Class A and Class B		397,093			397,093			397,093			397,093			397,093			397,093			397,093

(1) For the first nine months of 2008, VMware capitalized $65.6 million (including $11.7 million of stock-based compensation) of costs incurred for the development of software products. Amortization expense from previously capitalized amounts was $40.2 million for the first nine months of 2008.

VMware, Inc.

RECONCILIATION OF GAAP TO NON-GAAP DATA

For the Nine Months Ended September 30, 2007

(in thousands, except per share amounts)

(unaudited)

	GAAP			Stock-Based Compensation			Intangible Amortization			Capitalized Software Development Costs (1)			Stock-based Compensation Included in Capitalized Software Development Costs			Non-GAAP, as adjusted
Operating expenses:
Cost of license revenues	$	60,546			(322	)		(15,783	)		(25,929	)		—		$	18,512
Cost of services revenues	$	90,946			(3,608	)		—			—			—		$	87,338
Research and development	$	194,379			(27,677	)		—			39,594			(6,736	)	$	199,560
Sales and marketing	$	311,432			(16,778	)		(1,924	)		—			—		$	292,730
General and administrative	$	97,166			(10,969	)		(1,476	)		—			—		$	84,721
Operating income	$	158,867			59,354			19,183			(13,665	)		6,736		$	230,475
Income before income taxes	$	157,218			59,354			19,183			(13,665	)		6,736		$	228,826
Income tax provision	$	17,236			14,743			7,098			(3,989	)		1,612		$	36,700
Quarterly tax rate		11.0	%														16.0	%
Net income	$	139,982			44,611			12,085			(9,676	)		5,124		$	192,126
Net income per weighted average share, basic for Class A and Class B	$	0.41		$	0.13		$	0.04		$	(0.03	)	$	0.02		$	0.56
Net income per weighted average share, diluted for Class A and Class B	$	0.41		$	0.13		$	0.04		$	(0.03	)	$	0.01		$	0.56
Weighted average shares, basic for Class A and Class B		340,565			340,565			340,565			340,565			340,565			340,565
Weighted average shares, diluted for Class A and Class B		344,736			344,736			344,736			344,736			344,736			344,736

(1) For the first nine months of 2007, VMware capitalized $39.6 million (including $6.7 million of stock-based compensation) of costs incurred for the development of software products. Amortization expense from previously capitalized amounts was $25.9 million for the first nine months of 2007.

VMware, Inc.

REVENUE BY TYPE

(in thousands)

(unaudited)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2008			2007			2008			2007
Revenues:
License	$	285,086		$	247,481		$	863,299		$	621,086
Services:
Software maintenance		147,310			86,835			395,415			227,916
Professional services		39,725			23,500			107,710			64,334
Total services		187,035			110,335			503,125			292,250
	$	472,121		$	357,816		$	1,366,424		$	913,336
Percentage of revenues:
License		60.4	%		69.2	%		63.2	%		68.0	%
Services:
Software maintenance		31.2	%		24.3	%		28.9	%		25.0	%
Professional services		8.4	%		6.5	%		7.9	%		7.0	%
Total services		39.6	%		30.8	%		36.8	%		32.0	%
		100.0	%		100.0	%		100.0	%		100.0	%