Annual Statements Open main menu

VMWARE, INC. - Quarter Report: 2022 October (Form 10-Q)

Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 28, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to
Commission File Number 001-33622
_______________________________________________________

VMWARE, INC.
(Exact name of registrant as specified in its charter)
_______________________________________________________
Delaware94-3292913
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
3401 Hillview Avenue
Palo Alto,
CA
94304
(Address of principal executive offices)(Zip Code)
(650) 427-5000
(Registrant’s telephone number, including area code)
_____________________________________________________

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A common stockVMWNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of November 25, 2022, the number of shares of Class A common stock, par value $0.01 per share, of the registrant outstanding was 425,426,524.


Table of Contents
TABLE OF CONTENTS
Page
VMware, Pivotal, Tanzu, Workspace ONE, Carbon Black, CloudHealth, VeloCloud, vRealize, vSphere, NSX and Nyansa are registered trademarks or trademarks of VMware, Inc. or its subsidiaries in the United States and other jurisdictions. All other marks and names mentioned herein may be trademarks of their respective organizations.
2

Table of Contents

PART I
FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS
VMware, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(amounts in millions, except per share amounts, and shares in thousands)
(unaudited)
Three Months EndedNine Months Ended
 October 28,October 29,October 28,October 29,
 2022202120222021
Revenue(1):
License$621 $710 $1,990 $2,093 
Subscription and SaaS988 820 2,830 2,336 
Services1,602 1,658 4,815 4,891 
Total revenue3,211 3,188 9,635 9,320 
Operating expenses(2):
Cost of license revenue39 37 113 111 
Cost of subscription and SaaS revenue196 175 583 502 
Cost of services revenue384 362 1,128 1,051 
Research and development832 768 2,409 2,251 
Sales and marketing1,081 1,011 3,216 2,993 
General and administrative289 316 815 808 
Realignment— — 
Operating income390 519 1,364 1,603 
Investment income20 — 28 
Interest expense(77)(74)(222)(173)
Other income (expense), net(14)12 (44)(7)
Income before income tax319 457 1,126 1,424 
Income tax provision88 59 306 190 
Net income$231 $398 $820 $1,234 
Net income per weighted-average share, basic$0.55 $0.95 $1.94 $2.94 
Net income per weighted-average share, diluted$0.54 $0.94 $1.93 $2.92 
Weighted-average shares, basic423,993 419,456 422,194 419,309 
Weighted-average shares, diluted426,328 421,763 424,490 422,201 
__________
(1)   Includes related party revenue as follows (refer to Note C):
License$287 $335 $977 $996 
Subscription and SaaS283 221 797 589 
Services627 644 1,901 1,838 
(2)   Includes stock-based compensation as follows:
Cost of license revenue$— $— $$
Cost of subscription and SaaS revenue18 16 
Cost of services revenue31 21 79 70 
Research and development163 125 441 402 
Sales and marketing104 74 278 227 
General and administrative43 33 124 97 
The accompanying notes are an integral part of the condensed consolidated financial statements.
3

Table of Contents

VMware, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(unaudited)
Three Months EndedNine Months Ended
October 28,October 29,October 28,October 29,
 2022202120222021
Net income$231 $398 $820 $1,234 
Other comprehensive income (loss):
Changes in fair value of effective foreign currency forward contracts:
Unrealized gains (losses), net of tax provision (benefit) of $(1), $—, $(1) and $—
(4)(9)
Reclassification of (gains) losses realized during the period, net of tax (provision) benefit of $1, $—, $— and $—
(1)
Total other comprehensive income (loss)— — (8)
Comprehensive income, net of taxes$231 $398 $812 $1,236 
The accompanying notes are an integral part of the condensed consolidated financial statements.
4

Table of Contents

VMware, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in millions, except per share amounts, and shares in thousands)
(unaudited)
October 28,January 28,
20222022
ASSETS
Current assets:
Cash and cash equivalents$3,972 $3,614 
Short-term investments— 19 
Accounts receivable, net of allowance of $10 and $10
1,909 2,297 
Due from related parties821 1,438 
Other current assets616 598 
Total current assets7,318 7,966 
Property and equipment, net1,597 1,461 
Deferred tax assets6,090 5,906 
Intangible assets, net526 714 
Goodwill9,598 9,598 
Due from related parties189 199 
Other assets2,808 2,832 
Total assets$28,126 $28,676 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable$297 $234 
Accrued expenses and other2,566 2,806 
Current portion of long-term debt1,000 — 
Unearned revenue6,339 6,479 
Due to related parties201 132 
Total current liabilities10,403 9,651 
Long-term debt9,686 12,671 
Unearned revenue4,878 4,743 
Income tax payable260 242 
Operating lease liabilities849 927 
Due to related parties804 909 
Other liabilities440 409 
Total liabilities27,320 29,552 
Contingencies (refer to Note D)
Stockholders’ equity (deficit):
Class A common stock, par value $0.01; authorized 2,500,000 shares; issued and outstanding 424,613 and 418,808 shares
Additional paid-in capital870 — 
Accumulated other comprehensive loss(13)(5)
Accumulated deficit(55)(875)
Total stockholders’ equity (deficit)806 (876)
Total liabilities and stockholders’ equity (deficit)$28,126 $28,676 
The accompanying notes are an integral part of the condensed consolidated financial statements.
5

Table of Contents

VMware, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
Nine Months Ended
 October 28,October 29,
 20222021
Operating activities:
Net income$820 $1,234 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization906 825 
Stock-based compensation941 813 
Deferred income taxes, net(181)(92)
(Gain) loss on equity securities and disposition of assets, net(11)29 
Other
Changes in assets and liabilities, net of acquisitions:
Accounts receivable384 247 
Other current assets and other assets(512)(467)
Due from related parties627 777 
Accounts payable48 87 
Accrued expenses and other liabilities(527)(181)
Income taxes payable208 24 
Unearned revenue(6)(82)
Due to related parties(36)— 
Net cash provided by operating activities2,667 3,220 
Investing activities:
Additions to property and equipment(327)(263)
Sales of investments in equity securities20 68 
Purchases of strategic investments(11)(7)
Proceeds from disposition of assets91 
Business combinations, net of cash acquired, and purchases of intangible assets(4)(15)
Net cash used in investing activities(231)(212)
Financing activities:
Proceeds from issuance of common stock248 267 
Proceeds from issuance of senior notes, net of issuance costs— 5,944 
Repayment of term loan(2,000)— 
Repayment of note payable to Dell— (270)
Repurchase of common stock(89)(872)
Shares repurchased for tax withholdings on vesting of restricted stock(253)(291)
Principal payments on finance lease obligations(4)(3)
Net cash provided by (used in) financing activities(2,098)4,775 
Net increase in cash, cash equivalents and restricted cash338 7,783 
Cash, cash equivalents and restricted cash at beginning of the period3,663 4,770 
Cash, cash equivalents and restricted cash at end of the period$4,001 $12,553 
Supplemental disclosures of cash flow information:
Cash paid for interest$226 $146 
Cash paid for taxes, net278 276 
Non-cash items:
Changes in capital additions, accrued but not paid$23 $
The accompanying notes are an integral part of the condensed consolidated financial statements.
6

Table of Contents

VMware, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(in millions)
(unaudited)
Three Months Ended October 28, 2022
Class A
Common Stock
Additional
Paid-in
Capital
Accumulated DeficitAccumulated
Other
Comprehensive
Loss
Stockholders’ Equity
SharesPar Value
Balance, July 29, 2022423 $$435 $(286)$(13)$140 
Proceeds from issuance of common stock— 124 — — 124 
Issuance of restricted stock— — — — — 
Shares withheld for tax withholdings on vesting of restricted stock— — (44)— — (44)
Stock-based compensation— — 355 — — 355 
Net income— — — 231 — 231 
Balance, October 28, 2022425 $$870 $(55)$(13)$806 
Nine Months Ended October 28, 2022
Class A
Common Stock
Additional
Paid-in
Capital
Accumulated DeficitAccumulated
Other
Comprehensive
Loss
Stockholders’ Equity
(Deficit)
SharesPar Value
Balance, January 28, 2022419 $$— $(875)$(5)$(876)
Proceeds from issuance of common stock— 248 — — 248 
Repurchase and retirement of common stock(1)— (89)— — (89)
Issuance of restricted stock— — — — — 
Shares withheld for tax withholdings on vesting of restricted stock(2)— (252)— — (252)
Stock-based compensation— — 963 — — 963 
Total other comprehensive loss— — — — (8)(8)
Net income— — — 820 — 820 
Balance, October 28, 2022425 $$870 $(55)$(13)$806 
Three Months Ended October 29, 2021
Class A
Common Stock
Class B
Convertible
Common Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Stockholders’
Equity
SharesPar ValueSharesPar Value
Balance, July 30, 2021112 $307 $$1,716 $7,903 $(3)$9,620 
Proceeds from issuance of common stock— — — 128 — — 128 
Repurchase and retirement of common stock(1)— — — (143)— — (143)
Issuance of restricted stock— — — — — — — 
Shares withheld for tax withholdings on vesting of restricted stock(1)— — — (42)— — (42)
Stock-based compensation— — — — 264 — — 264 
Net income— — — — — 398 — 398 
Balance, October 29, 2021112 $307 $$1,923 $8,301 $(3)$10,225 
Nine Months Ended October 29, 2021
Class A
Common Stock
Class B
Convertible
Common Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive Loss
Stockholders’
Equity
SharesPar ValueSharesPar Value
Balance, January 29, 2021112 $307 $$1,985 $7,067 $(5)$9,051 
Proceeds from issuance of common stock— — — 267 — — 267 
Repurchase and retirement of common stock(6)— — — (872)— — (872)
Issuance of restricted stock— — — — — — — 
Shares withheld for tax withholdings on vesting of restricted stock(2)— — — (284)— — (284)
Stock-based compensation— — — — 827 — — 827 
Total other comprehensive income— — — — — — 
Net income— — — — — 1,234 — 1,234 
Balance, October 29, 2021112 $307 $$1,923 $8,301 $(3)$10,225 
The accompanying notes are an integral part of the condensed consolidated financial statements.
7

Table of Contents

VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A. Overview and Basis of Presentation
Company and Background
VMware, Inc. (“VMware” or the “Company”) originally pioneered the development and application of virtualization technologies with x86 server-based computing, separating application software from the underlying hardware, and then evolved to become the private cloud and mobility management leader. Building upon that leadership, VMware is focused on becoming the multi-cloud leader. Information technology (“IT”) driven innovation continues to disrupt markets and industries. Technologies emerge faster than organizations can absorb, creating increasingly complex environments. Organizations’ IT departments and corporate divisions are working at an accelerated pace to harness new technologies, platforms and cloud models, ultimately guiding businesses and their product teams through a digital transformation. To take on these challenges, the Company is helping customers drive their multi-cloud strategy by providing the multi-cloud platform for all applications, enabling digital innovation and enterprise control.
Basis of Presentation
The financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
The fiscal year for VMware is the 52 or 53 weeks ending on the Friday nearest to January 31 of each year. Fiscal 2023 is a 53-week fiscal year, in which the first three quarters each has 13 weeks while the fourth quarter has 14 weeks. Fiscal 2022 was a 52-week fiscal year.
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. In the opinion of management, these unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments and accruals, for a fair statement of VMware’s condensed consolidated results of operations, financial position and cash flows for the periods presented. Results of operations are not necessarily indicative of the results that may be expected for the full fiscal year 2023. Certain information and footnote disclosures typically included in annual consolidated financial statements have been condensed or omitted. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in VMware’s Annual Report on Form 10-K filed on March 24, 2022.
On November 1, 2021, VMware’s spin-off from Dell Technologies Inc. (“Dell”) was completed (the “Spin-Off”). As a result of the Spin-Off, VMware became a standalone company and entities affiliated with Michael Dell (the “MSD Stockholders”), who serves as VMware’s Chairman of the Board and chairman and chief executive officer of Dell, and entities affiliated with Silver Lake Partners (the “SLP Stockholders”), of which Egon Durban, a VMware director, is a managing partner, became owners of direct interests in VMware representing 39.9% and 9.9%, respectively, of VMware’s outstanding stock, based on the shares outstanding as of October 28, 2022. Due to the MSD Stockholders’ and SLP Stockholders’ direct ownership in both VMware and Dell, as well as Mr. Dell’s executive position with Dell, transactions with Dell continue to be considered related party transactions following the Spin-Off.
Management believes the assumptions underlying the condensed consolidated financial statements are reasonable. However, the amounts recorded for VMware’s related party transactions with Dell and its consolidated subsidiaries may not be considered arm’s length with an unrelated third party. Therefore, the condensed consolidated financial statements included herein may not necessarily reflect the results of operations, financial position and cash flows had VMware engaged in such transactions with an unrelated third party during all periods presented. Accordingly, VMware’s historical financial information is not necessarily indicative of what the Company’s results of operations, financial position and cash flows will be in the future, if and when VMware contracts at arm’s length with unrelated third parties for products and services the Company receives from and provides to Dell.
Broadcom Merger Agreement
On May 26, 2022, VMware entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Broadcom Inc. (“Broadcom”). Under the terms of the Merger Agreement, each share of Class A common stock, par value $0.01 per share, of the Company (“Common Stock”) issued and outstanding immediately prior to the effective time of the transaction will be indirectly converted into the right to receive, at the election of the holder of such share of Common Stock, and subject to proration in accordance with the Merger Agreement as described below: (i) $142.50 per share in cash, without interest (the
8

Table of Contents
VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
“Cash Consideration”), or (ii) 0.25200 (the “Exchange Ratio”) shares of common stock, par value $0.001 per share, of Broadcom (“Broadcom Common Stock”, and such consideration, the “Stock Consideration”). The stockholder election will be subject to a proration mechanism, such that the total number of shares of Common Stock entitled to receive the Cash Consideration and the total number of shares of Common Stock entitled to receive the Stock Consideration will, in each case, be equal to 50% of the aggregate number of shares of Common Stock issued and outstanding immediately prior to the consummation of the transaction. Holders of Common Stock that do not make an election will be treated as having elected to receive the Cash Consideration or the Stock Consideration in accordance with the proration methodology in the Merger Agreement.
The Merger Agreement contains customary representations, warranties and covenants. The Merger Agreement also contains termination rights for either or each of Broadcom and the Company. If the consummation of the transaction does not occur on or before February 26, 2023 by either party, subject to three extensions of three months each (at either Broadcom’s or the Company’s election) if on such date all of the closing conditions except those relating to regulatory approvals have been satisfied or waived, Broadcom would be required to pay the Company a termination fee of $1.5 billion. Upon termination of the Merger Agreement under certain specified circumstances, including by the Company to enter into a definitive agreement with respect to a superior proposal in accordance with the terms of the Merger Agreement, the Company would be required to pay Broadcom a termination fee in the amount of $1.5 billion.
The transaction, which is expected to be consummated in Broadcom’s fiscal year 2023, was approved by VMware shareholders at a special meeting held on November 4, 2022 but remains subject to the receipt of regulatory approvals and other customary closing conditions. If the transaction is consummated, the Common Stock will be delisted from the New York Stock Exchange and deregistered under the Securities Exchange Act of 1934, as amended.
Principles of Consolidation
The unaudited condensed consolidated financial statements include the accounts of VMware and subsidiaries in which VMware has a controlling financial interest. All intercompany transactions and account balances between VMware and its subsidiaries have been eliminated in consolidation. Transactions with Dell and its consolidated subsidiaries are generally settled in cash and are classified on the condensed consolidated statements of cash flows based upon the nature of the underlying transaction. Amounts included in the current portion of due from related parties on the condensed consolidated balance sheets that are unrelated to Dell Financial Services and tax obligations are generally settled in cash within 60 days of each quarter-end.
Use of Accounting Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenue and expenses during the reporting periods, and the disclosure of contingent liabilities at the date of the financial statements. Estimates are used for, but not limited to, trade receivable valuation, marketing development funds, expected period of benefit for deferred commissions, useful lives assigned to fixed assets and intangible assets, valuation of goodwill and definite-lived intangibles, income taxes, stock-based compensation and contingencies. Actual results could differ from those estimates. To the extent the Company’s actual results differ materially from those estimates and assumptions, VMware’s future financial statements could be affected. 
New Accounting Pronouncement
In November 2021, the Financial Accounting Standards Board issued an accounting standards update (“ASU”) 2021-10, Government Assistance (Topic 832), requiring annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. The new standard is effective for annual periods beginning after December 15, 2021 but may be early adopted. The Company does not expect the adoption of the ASU to have a material impact on the Company’s condensed consolidated financial statements and plans to adopt the standard during fiscal 2023 on a prospective basis.
B. Revenue, Unearned Revenue and Remaining Performance Obligations
Revenue
Contract Assets
A contract asset is recognized when a conditional right to consideration exists and transfer of control has occurred. Contract assets include fixed-fee professional services where transfer of services has occurred in advance of the Company’s right to invoice. Contract assets are classified as accounts receivables upon invoicing. Contract assets are included in other current assets on the condensed consolidated balance sheets. Contract assets were $40 million and $36 million as of October 28,
9

Table of Contents
VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
2022 and January 28, 2022, respectively. Contract asset balances will fluctuate based upon the timing of the transfer of services, billings and customers’ acceptance of contractual milestones.
Contract Liabilities
Contract liabilities consist of unearned revenue, which is generally recorded when VMware has the right to invoice or payments have been received for undelivered products or services.
Customer Deposits
Purchased credits eligible for redemption of VMware’s hosted services (“cloud credits”) are included in customer deposits until the cloud credit is consumed or is contractually committed to a specific hosted service. Cloud credits are redeemable by the customer for the gross value of the hosted offering. Upon contractual commitment for a hosted service, the net value of the cloud credits that are expected to be recognized as revenue when the obligation is fulfilled will be classified as unearned revenue. Customer deposits also include prepayments from customers related to amounts received for contracts that include certain cancellation rights, such as termination for convenience clauses.
As of October 28, 2022, customer deposits related to customer prepayments and cloud credits of $558 million were included in accrued expenses and other, and $208 million were included in other liabilities on the condensed consolidated balance sheets. As of January 28, 2022, customer deposits related to customer prepayments and cloud credits of $470 million were included in accrued expenses and other, and $166 million were included in other liabilities on the condensed consolidated balance sheets.
Deferred Commissions
Deferred commissions are classified as current or non-current based on the duration of the expected period of benefit. Deferred commissions, including the employer portion of payroll taxes, included in other current assets as of October 28, 2022 and January 28, 2022 were $20 million and $17 million, respectively. Deferred commissions included in other assets were $1.3 billion and $1.2 billion as of October 28, 2022 and January 28, 2022, respectively.
Amortization expense for deferred commissions was included in sales and marketing on the condensed consolidated statements of income and was $168 million and $469 million during the three and nine months ended October 28, 2022, respectively, and $130 million and $383 million during the three and nine months ended October 29, 2021, respectively.
Unearned Revenue
Unearned revenue as of the periods presented consisted of the following (table in millions):
October 28,January 28,
20222022
Unearned license revenue$28 $19 
Unearned subscription and software-as-a-service (“SaaS”) revenue3,197 2,669 
Unearned software maintenance revenue6,636 7,208 
Unearned professional services revenue1,356 1,326 
Total unearned revenue$11,217 $11,222 
Unearned subscription and SaaS revenue is generally recognized over time as customers consume the services or ratably over the term of the subscription, commencing upon provisioning of the service.
Unearned software maintenance revenue is attributable to VMware’s maintenance contracts and is generally recognized ratably over the contract duration. The weighted-average remaining contractual term as of October 28, 2022 was approximately two years. Unearned professional services revenue results primarily from prepaid professional services and is generally recognized as the services are performed.
Total billings and revenue recognized during the three months ended October 28, 2022 were each $2.2 billion and did not include amounts for performance obligations that were fully satisfied upon delivery, such as on-premises licenses. Total billings and revenue recognized during the nine months ended October 28, 2022 were $6.5 billion and $6.6 billion, respectively, and did not include amounts for performance obligations that were fully satisfied upon delivery, such as on-premises licenses.
Revenue recognized during the three and nine months ended October 29, 2021 was $2.1 billion and $6.1 billion, respectively, and did not include amounts for performance obligations that were fully satisfied upon delivery, such as on-premises licenses.
10

Table of Contents
VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Remaining Performance Obligations
Remaining performance obligations represent the aggregate amount of the transaction price in contracts allocated to performance obligations not delivered, or partially undelivered, as of the end of the reporting period. Remaining performance obligations include unearned revenue, multi-year contracts with future installment payments and certain unfulfilled orders against accepted non-cancellable customer contracts at the end of any given period.
As of October 28, 2022, the aggregate transaction price allocated to remaining performance obligations was $11.9 billion, of which approximately 56% is expected to be recognized as revenue over the next twelve months and the remainder thereafter. As of January 28, 2022, the aggregate transaction price allocated to remaining performance obligations was $12.0 billion, of which approximately 57% was expected to be recognized as revenue during fiscal 2023 and the remainder thereafter.
C. Related Parties
Transactions with Dell continue to be considered related party transactions following the Spin-Off due to the MSD Stockholders’ and SLP Stockholders’ direct ownership in both VMware and Dell, as well as Mr. Dell’s executive position with Dell.
On November 1, 2021, in connection with the Spin-Off, VMware and Dell entered into the Commercial Framework Agreement to provide a framework under which the Company and Dell will continue their strategic commercial relationship, particularly with respect to projects mutually agreed by the parties as having the potential to accelerate the growth of an industry, product, service or platform that may provide the parties with a strategic opportunity. The Commercial Framework Agreement has an initial term of five years, with automatic one-year renewals occurring annually thereafter, subject to certain terms and conditions.
The information provided below includes a summary of transactions with Dell.
Transactions with Dell
VMware and Dell engaged in the following ongoing related party transactions, which resulted in revenue and receipts, and unearned revenue for VMware:
Pursuant to original equipment manufacturer (“OEM”) and reseller arrangements, Dell integrates or bundles VMware’s products and services with Dell’s products and sells them to end users. Dell also acts as a distributor, purchasing VMware’s standalone products and services for resale to end-user customers through VMware-authorized resellers. Revenue under these arrangements is presented net of related marketing development funds and rebates paid to Dell. In addition, VMware provides professional services to end users based upon contractual agreements with Dell.
Dell purchases products and services from VMware for its internal use.
From time to time, VMware and Dell enter into agreements to collaborate on technology projects, in connection with which Dell pays VMware for services or reimburses VMware for costs incurred by VMware.
During the three and nine months ended October 28, 2022, revenue from Dell accounted for 37% and 38% of VMware’s consolidated revenue, respectively. During the three and nine months ended October 28, 2022, revenue recognized on transactions where Dell acted as an OEM accounted for 15% and 14% of total revenue from Dell, and 6% and 5% of VMware’s consolidated revenue.
During the three and nine months ended October 29, 2021, revenue from Dell accounted for 38% and 37% of VMware’s consolidated revenue, respectively. During each of the three and nine months ended October 29, 2021, revenue recognized on transactions where Dell acted as an OEM accounted for 13% of total revenue from Dell, and 5% of VMware’s consolidated revenue.
11

Table of Contents
VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Dell purchases VMware products and services directly from VMware, as well as through VMware’s channel partners. Information about VMware’s revenue and receipts, and unearned revenue from such arrangements, for the periods presented consisted of the following (table in millions):
Revenue and ReceiptsUnearned Revenue
Three Months EndedNine Months EndedAs of
October 28,October 29,October 28,October 29,October 28,January 28,
202220212022202120222022
Reseller revenue$1,184 $1,183 $3,634 $3,380 $5,448 $5,550 
Internal-use revenue13 17 41 43 24 39 
Customer deposits resulting from transactions with Dell were $303 million and $298 million as of October 28, 2022 and January 28, 2022, respectively.
VMware and Dell engaged in the following ongoing related party transactions, which resulted in costs to VMware:
VMware purchases and leases products and purchases services from Dell.
From time to time, VMware and Dell enter into agreements to collaborate on technology projects, in connection with which VMware pays Dell for services provided to VMware by Dell.
In certain geographic regions where VMware does not have an established legal entity, VMware contracts with Dell subsidiaries for support services and support from Dell personnel who are managed by VMware. The costs incurred by Dell on VMware’s behalf related to these employees are charged to VMware with a mark-up intended to approximate costs that would have been incurred had VMware contracted for such services with an unrelated third party. These costs are included as expenses on VMware’s condensed consolidated statements of income and primarily include salaries, benefits, travel and occupancy expenses.
Prior to the Spin-Off, in certain geographic regions, Dell filed a consolidated indirect tax return, which included value added taxes and other indirect taxes collected by VMware from its customers. VMware remitted the indirect taxes to Dell, and Dell remitted the tax payment to the foreign governments on VMware’s behalf.
From time to time, VMware enters into agency arrangements with Dell that enable VMware to sell its subscriptions and services, leveraging the Dell enterprise relationships and end customer contracts.
Information about VMware’s payments for such arrangements during the periods presented consisted of the following (table in millions):
Three Months EndedNine Months Ended
October 28,October 29,October 28,October 29,
2022202120222021
Purchases and leases of products and purchases of services(1)
$52 $57 $147 $164 
Dell subsidiary support and administrative costs32 
(1) Amount includes indirect taxes that were remitted to Dell prior to the Spin-Off.
VMware also purchases Dell products through Dell’s channel partners, however such amounts were not material during the periods presented.
From time to time, VMware and Dell also enter into joint marketing, sales, branding and product development arrangements, for which both parties may incur costs.
Dell Financial Services (“DFS”)
DFS provides financing to certain of VMware’s end users at the end users’ discretion. Upon acceptance of the financing arrangement by both VMware’s end users and DFS, amounts classified as trade accounts receivable are reclassified to the current portion of due from related parties on the condensed consolidated balance sheets. Revenue recognized on transactions financed through DFS was recorded net of financing fees. Financing fees on arrangements accepted by both parties were $25 million and $20 million during the nine months ended October 28, 2022 and October 29, 2021, respectively, and were not material during each of the three months ended October 28, 2022 and October 29, 2021.
12

Table of Contents
VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Tax Agreements with Dell
Pursuant to the Tax Matters Agreement, effective April 14, 2021 (the “Tax Matters Agreement”), VMware and Dell agreed to terminate the former tax sharing agreement as amended on December 30, 2019 (the “Tax Sharing Agreement”, together with the Tax Matters Agreement and the Letter Agreement (as defined below), the “Tax Agreements”). The Tax Matters Agreement governs the Company’s and Dell’s respective rights and obligations, both for pre- and post-Spin-Off periods, regarding income and other taxes, and related matters, including tax liabilities and benefits, attributes and returns.
As a result of the Spin-Off, VMware is no longer a member of the Dell consolidated tax group, and the Company’s U.S. federal income tax will be reported separately from that of the Dell consolidated tax group. VMware and Dell have agreed to indemnify one another, pursuant to the Tax Matters Agreement, for certain tax liabilities or tax benefits relating to periods prior to the Spin-Off. Certain adjustments to these amounts that will be recognized in future periods will be recorded with an offset to other income (expense), net on the condensed consolidated statements of income. The actual amount that VMware may receive from or pay to Dell could vary depending on the outcome of tax matters arising from Dell’s future tax audits, which may not be resolved for several years.
As of the periods presented, amounts due to and due from Dell pursuant to the Tax Matters Agreement consisted of the following (table in millions):
October 28,January 28,
20222022
Due from related parties:
Current$— $
Non-current189 199
Due to related parties:
Current$115 $61 
Non-current804 909 
Amounts due to Dell pursuant to the Tax Matters Agreement primarily related to VMware’s estimated tax obligation resulting from the mandatory, one-time transition tax on accumulated earnings of foreign subsidiaries (“Transition Tax”) of $445 million and $504 million as of October 28, 2022 and January 28, 2022, respectively. The U.S. Tax Cuts and Jobs Act enacted on December 22, 2017 (the “2017 Tax Act”) included a deferral election for an eight-year installment payment method on the Transition Tax. The Company expects to pay the remainder of its Transition Tax as of October 28, 2022 over a period of three years. In addition, amounts due to Dell included uncertain tax positions of $282 million and $276 million as of October 28, 2022 and January 28, 2022, respectively.
During the three months ended October 28, 2022, no payments were received from nor made to Dell pursuant to the Tax Agreements. During the nine months ended October 28, 2022 payments received from Dell pursuant to the Tax Agreements were not material, and payments made to Dell were $59 million. Payments made to Dell pursuant to the Tax Agreements were $10 million and $96 million during the three and nine months ended October 29, 2021, respectively. Payments received from Dell pursuant to the Tax Agreements were $45 million during the nine months ended October 29, 2021.
Payments from VMware to Dell under the Tax Agreements relate to VMware’s portion of federal income taxes on Dell’s consolidated tax return, state tax payments for combined states and the estimated tax obligation resulting from the Transition Tax. The timing of the tax payments due to and from Dell is governed by the Tax Agreements. VMware’s portion of the Transition Tax is governed by a letter agreement between Dell, EMC and VMware executed on April 1, 2019 (the “Letter Agreement”).
D. Commitments and Contingencies
Litigation
On March 5, 2020, two purported Pivotal stockholders filed a petition for appraisal in the Delaware Court of Chancery (the “Court”) seeking a judicial determination of the fair value of an aggregate total of 10,000,100 Pivotal shares (the “Appraisal Action”). Separately, on June 4, 2020, purported Pivotal stockholder Kenia Lopez filed a lawsuit in the Court against Dell, VMware, Michael Dell, Robert Mee and Cynthia Gaylor (the “Lopez Action”), which alleges breach of fiduciary duty and aiding and abetting, all tied to VMware’s acquisition of Pivotal. On July 16, 2020, purported Pivotal stockholder Stephanie Howarth filed a similar lawsuit against the same defendants asserting similar claims (the “Howarth Action”). On August 14, 2020, the Court entered an order consolidating the Appraisal Action, the Lopez Action and the Howarth Action into a single
13

Table of Contents
VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
action (the “Consolidated Action”) for all purposes including pretrial discovery and trial. On June 23, 2020, the Company made a payment of $91 million to the petitioners in the Appraisal Action, which reduces the Company’s exposure to accumulating interest. On May 2, 2022, parties in the Lopez Action agreed to a settlement term sheet, which includes a $43 million settlement payment that will be fully funded by insurance. Accordingly, as of April 29, 2022, an estimated loss accrual of $43 million was recorded to accrued expenses and other on the condensed consolidated balance sheet, with a corresponding asset recorded to other current assets for the amount to be paid by insurance. During the three months ended October 28, 2022, a portion of the settlement for the Lopez Action was paid directly by the insurance provider, and the remaining balances included in other current assets and accrued expenses and other were each $31 million as of October 28, 2022. A trial for the Appraisal Action took place July 6 through July 12, 2022. A post-trial hearing is currently set for December 13, 2022. The Company is unable at this time to assess whether or to what extent it may be found liable in the Appraisal Action and, if found liable, what the damages may be and believes a loss is not probable and not reasonably estimable. The Company intends to vigorously defend itself in connection with this matter.
On April 25, 2019, Cirba Inc. and Cirba IP, Inc. (collectively, “Cirba”) sued VMware in the United States District Court for the District of Delaware (the “Delaware Court”) for allegedly infringing two patents and three trademarks. On October 22, 2019, VMware filed a separate lawsuit against Cirba Inc. in the United States District Court for the Eastern District of Virginia for infringing four additional VMware patents, and Cirba filed a counterclaim alleging infringement of an additional Cirba patent. On January 24, 2020, a jury returned a verdict that VMware had willfully infringed Cirba’s two patents and awarded approximately $237 million in damages. VMware accrued a total of $237 million as of January 31, 2020, which reflected the estimated losses that were considered both probable and reasonably estimable at that time. The amount accrued for this matter was included in accrued expenses and other on the consolidated balance sheet as of January 31, 2020 and the charge was included in general and administrative expense on the consolidated statements of income during the year ended January 31, 2020. On December 21, 2020, the Delaware Court granted VMware’s request for a new trial and set aside the verdict and damages award (“Post-Trial Order”). Thereafter, all claims and counterclaims were consolidated into a single action for all purposes. The parties are entering the summary judgment and pre-trial preparation phase of the litigation, with trial currently set for April 2023. Separately, VMware filed challenges with the U.S. Patent and Trademark Office against each of the four patents that are the subject of Cirba’s allegations. All of the challenges were granted and the status of the reviews are as follows: (i) one patent survived the ex parte reexam with all challenged claims remaining valid; (ii) one patent remains under ex parte reexam review following an initial office action wherein the examiner found all claims invalid; (iii) one patent was found invalid via an inter partes review via a Final Written Decision (which remains subject to appeal) issued by the Patent Trial and Appeal Board; and (iv) one patent is undergoing a post-grant review. As of January 29, 2021, the Company reassessed its estimated loss accrual based on the Post-Trial Order and determined that a loss was not probable and not reasonably estimable with respect to the consolidated action. Accordingly, the estimated loss accrual of $237 million recorded on the consolidated balance sheets was derecognized, with the credit included in general and administrative expense on the consolidated statements of income during the year ended January 29, 2021. The Company is unable at this time to assess whether, or to what extent, it may be found liable and, if found liable, what the damages may be. The Company intends to vigorously defend against this matter.
In December 2019, the staff of the Enforcement Division of the SEC requested documents and information related to VMware’s backlog and associated accounting and disclosures. On September 12, 2022, the Company announced that it reached a settlement with the SEC to resolve a previously disclosed investigation related to the Company’s backlog disclosures in public filings for its 2019 and 2020 fiscal years, which ran from February 3, 2018 through January 31, 2020. Under the terms of the settlement, the Company agreed to pay an immaterial civil monetary penalty without admitting or denying the SEC’s findings, which relate to the Company's disclosures. The SEC Staff has confirmed that it does not intend to recommend enforcement action against any current or former VMware officers or other member of management in connection with the investigation, and this settlement concludes the matter. As a result of the settlement, until September 2025 the Company (i) no longer qualifies as a well-known seasoned issuer, (ii) is ineligible for certain private offering exemptions under the Securities Act and (iii) is unable to rely on the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.
On June 2, 2020, WSOU Investments LLC (doing business as Brazos Licensing & Development) (“WSOU”) filed four patent infringement lawsuits against VMware (also naming Dell and EMC) in the United States District Court for the Western District of Texas (the “Texas Court”), asserting one patent in each lawsuit. The Texas Court consolidated the four lawsuits for all purposes. During the course of the lawsuit, WSOU dropped one of the asserted patents, leaving three asserted patents. The parties are entering the summary judgment and pre-trial preparation stage of the case, with a jury trial currently scheduled to begin in February 2023. The Company is unable at this time to assess whether, or to what extent, it may be found liable and, if found liable, what the damages may be, and believes a loss is not probable and not reasonably estimable. The Company intends to vigorously defend against this matter.
14

Table of Contents
VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
While VMware believes that it has valid defenses against each of the above legal matters, given the unpredictable nature of legal proceedings, an unfavorable resolution of one or more legal proceedings, claims, or investigations could have a material adverse effect on VMware’s consolidated financial statements.
VMware accrues for a liability when a determination has been made that a loss is both probable and the amount of the loss can be reasonably estimated. If only a range can be estimated and no amount within the range is a better estimate than any other amount, an accrual is recorded for the minimum amount in the range. Significant judgment is required in both the determination that the occurrence of a loss is probable and is reasonably estimable. In making such judgments, VMware considers the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular matter. Legal costs are generally recognized as expense when incurred.
VMware is also subject to other legal, administrative and regulatory proceedings, claims, demands and investigations in the ordinary course of business or in connection with business mergers and acquisitions, including claims with respect to commercial, contracting and sales practices, product liability, intellectual property, employment, corporate and securities law, class action, whistleblower and other matters. From time to time, VMware also receives inquiries from and has discussions with government entities and stockholders on various matters. As of October 28, 2022, amounts accrued relating to these other matters arising as part of the ordinary course of business were considered not material. VMware does not believe that any liability from any reasonably possible disposition of such claims and litigation, individually or in the aggregate, would have a material adverse effect on its consolidated financial statements.
E. Definite-Lived Intangible Assets, Net
As of the periods presented, definite-lived intangible assets consisted of the following (amounts in tables in millions):
October 28, 2022
Weighted-Average Useful Lives
(in years)
Gross Carrying AmountAccumulated AmortizationNet Book Value
Purchased technology5.3$806 $(586)$220 
Customer relationships and customer lists11.9641 (359)282 
Trademarks and tradenames6.869 (45)24 
Total definite-lived intangible assets$1,516 $(990)$526 
January 28, 2022
Weighted-Average Useful Lives
(in years)
Gross Carrying AmountAccumulated AmortizationNet Book Value
Purchased technology5.3$836 $(501)$335 
Customer relationships and customer lists11.5721 (376)345 
Trademarks and tradenames7.7131 (97)34 
Total definite-lived intangible assets$1,688 $(974)$714 
Amortization expense on definite-lived intangible assets was $62 million and $192 million during the three and nine months ended October 28, 2022, respectively, and $75 million and $228 million during the three and nine months ended October 29, 2021, respectively.
15

Table of Contents
VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Based on intangible assets recorded as of October 28, 2022, and assuming no subsequent additions, dispositions or impairment of underlying assets, the remaining estimated annual amortization expense over the next five fiscal years and thereafter is expected to be as follows (table in millions):
Remainder of 2023$62 
2024202 
2025109 
202669 
202739 
Thereafter45 
Total$526 
F. Net Income Per Share
Basic net income per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period. Diluted net income per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding and potentially dilutive securities outstanding during the period, as calculated using the treasury stock method. Potentially dilutive securities primarily include unvested restricted stock, which includes restricted stock unit (“RSU”) and performance stock unit (“PSU”) awards, and stock options, including purchase options under VMware’s employee stock purchase plan. Securities are excluded from the computation of diluted net income per share if their effect would be anti-dilutive.
The following table sets forth the computations of basic and diluted net income per share during the periods presented (table in millions, except per share amounts and shares in thousands):
Three Months EndedNine Months Ended
 October 28,October 29,October 28,October 29,
 2022202120222021
Net income$231 $398 $820 $1,234 
Weighted-average shares, basic423,993 419,456 422,194 419,309 
Effect of other dilutive securities2,335 2,307 2,296 2,892 
Weighted-average shares, diluted426,328 421,763 424,490 422,201 
Net income per weighted-average share, basic$0.55 $0.95 $1.94 $2.94 
Net income per weighted-average share, diluted$0.54 $0.94 $1.93 $2.92 
The following table sets forth the weighted-average common share equivalents of Common Stock that were excluded from the diluted net income per share calculations during the periods presented because their effect would have been anti-dilutive (shares in thousands):
Three Months EndedNine Months Ended
October 28,October 29,October 28,October 29,
2022202120222021
Anti-dilutive securities:
Employee stock options86 17 
RSUs601 181 653 311 
Total607 190 739 328 
G. Realignment
During the second quarter of fiscal 2023, in response to Russian military actions in Ukraine, VMware approved a plan to cease business operations in Russia. As a result of this action, approximately 80 positions were eliminated during the second quarter of fiscal 2023. Related realignment expenses recognized on the condensed consolidated statements of income during the
16

Table of Contents
VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
three and nine months ended October 28, 2022 were not significant and primarily included severance-related costs. Actions associated with this plan are expected to be substantially complete by the end of fiscal 2023.
H. Cash, Cash Equivalents, Restricted Cash and Short-Term Investments
Cash and Cash Equivalents
Cash and cash equivalents totaled $4.0 billion and $3.6 billion as of October 28, 2022 and January 28, 2022, respectively. Cash equivalents were $3.3 billion as of October 28, 2022 and primarily consisted of money-market funds. Cash equivalents were $3.0 billion as of January 28, 2022 and consisted of money-market funds of $3.0 billion and time deposits of $34 million.
Restricted Cash
The following table provides a reconciliation of the Company’s cash and cash equivalents, and current and non-current portion of restricted cash reported on the condensed consolidated balance sheets that sum to the total cash, cash equivalents and restricted cash as of the periods presented (table in millions):
October 28,January 28,
20222022
Cash and cash equivalents$3,972 $3,614 
Restricted cash within other current assets26 43 
Restricted cash within other assets
Total cash, cash equivalents and restricted cash$4,001 $3,663 
Amounts included in restricted cash primarily relate to certain employee-related benefits, as well as amounts related to installment payments to certain employees as part of acquisitions, subject to the achievement of specified future employment conditions.
Short-Term Investments
As of January 28, 2022, short-term investments totaled $19 million and consisted of marketable equity securities. These short-term investments were sold during the three months ended April 29, 2022. Refer to Note J for more information regarding the Company’s marketable equity securities.
I. Debt
Unsecured Senior Notes
On August 2, 2021, VMware issued five series of unsecured senior notes pursuant to a public debt offering (the “2021 Senior Notes”). The proceeds from the 2021 Senior Notes were $5.9 billion, net of the debt discount of $11 million and debt issuance costs of $47 million.
VMware also issued unsecured senior notes on April 7, 2020 (the “2020 Senior Notes”) and on August 21, 2017 (the “2017 Senior Notes”, collectively with the 2020 Senior Notes and 2021 Senior Notes, the “Senior Notes”).
17

Table of Contents
VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The carrying value of the Senior Notes as of the periods presented was as follows (amounts in millions):
October 28,January 28,Effective Interest Rate
20222022
2017 Senior Notes:
3.90% Senior Note Due August 21, 2027
$1,250 $1,250 4.05%
2020 Senior Notes:
4.50% Senior Note Due May 15, 2025
750 750 4.70%
4.65% Senior Note Due May 15, 2027
500 500 4.80%
4.70% Senior Note Due May 15, 2030
750 750 4.86%
2021 Senior Notes:
0.60% Senior Note Due August 15, 2023
1,000 1,000 0.95%
1.00% Senior Note Due August 15, 2024
1,250 1,250 1.23%
1.40% Senior Note Due August 15, 2026
1,500 1,500 1.61%
1.80% Senior Note Due August 15, 2028
750 750 2.01%
2.20% Senior Note Due August 15, 2031
1,500 1,500 2.32%
Total principal amount9,250 9,250 
Less: unamortized discount(13)(15)
Less: unamortized debt issuance costs(50)(61)
Net carrying amount$9,187 $9,174 
Current portion of long-term debt$1,000 $— 
Long-term debt8,187 9,174 
Beginning on February 15, 2022, interest on the 2021 Senior Notes became payable semiannually in arrears, on February 15 and August 15 of each year. Beginning on November 15, 2020, interest on the 2020 Senior Notes became payable semiannually in arrears, on May 15 and November 15 of each year. The interest rate on the 2020 Senior Notes is subject to adjustment based on certain rating events. Beginning on February 21, 2018, interest on the 2017 Senior Notes became payable semiannually in arrears, on February 21 and August 21 of each year. Interest expense was $60 million and $183 million during the three and nine months ended October 28, 2022, respectively, and $72 million and $169 million during the three and nine months ended October 29, 2021, respectively. Interest expense, which included amortization of discount and issuance costs, was recognized on the condensed consolidated statements of income. The discount and issuance costs are amortized over the term of the Senior Notes on a straight-line basis, which approximates the effective interest method.
The Senior Notes are redeemable in whole at any time or in part from time to time at VMware’s option and may be subject to a make-whole premium. In addition, upon the occurrence of certain change-of-control triggering events and certain downgrades of the ratings on the Senior Notes, VMware may be required to repurchase the notes at a repurchase price equal to 101% of the aggregate principal plus any accrued and unpaid interest on the date of repurchase. The Senior Notes rank equally in right of payment with VMware’s other unsecured and unsubordinated indebtedness and contain restrictive covenants that, in certain circumstances, limit VMware’s ability to create certain liens, to enter into certain sale and leaseback transactions and to consolidate, merge, sell or otherwise dispose of all or substantially all of VMware’s assets.
The future principal payments for the Senior Notes as of October 28, 2022 were as follows (amounts in millions):
Remainder of 2023$— 
20241,000 
20251,250 
2026750 
20271,500 
Thereafter4,750 
Total$9,250 
18

Table of Contents
VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Senior Unsecured Term Loan Facility
On September 2, 2021, VMware received commitments from financial institutions for a three-year senior unsecured term loan facility and a five-year senior unsecured term loan facility that provided the Company with a one-time aggregate borrowing capacity of up to $4.0 billion (the “2021 Term Loan”). The Company drew down an aggregate of $4.0 billion on November 1, 2021 and has since repaid $500 million on October 11, 2022, $750 million on July 6, 2022, $750 million on April 4, 2022 and $500 million on January 25, 2022. As of October 28, 2022 and January 28, 2022, the outstanding balance on the 2021 Term Loan of $1.5 billion and $3.5 billion, net of unamortized debt issuance costs, respectively, was included in long-term debt on the condensed consolidated balance sheets. As of October 28, 2022, the weighted-average interest rate on the outstanding 2021 Term Loan was 4.19%.
The 2021 Term Loan contains certain representations, warranties and covenants. Interest expense for the 2021 Term Loan, including amortization of issuance costs, was $17 million and $39 million during the three and nine months ended October 28, 2022, respectively.
Revolving Credit Facility
On September 2, 2021, VMware entered into an unsecured credit agreement establishing a revolving credit facility with a syndicate of lenders that provides the Company with a borrowing capacity of up to $1.5 billion for general corporate purposes (the “2021 Revolving Credit Facility”). Commitments under the 2021 Revolving Credit Facility are available for a period of five years, which may be extended, subject to the satisfaction of certain conditions, by up to two one-year periods. As of October 28, 2022 and January 28, 2022, there was no outstanding borrowing under the 2021 Revolving Credit Facility. The 2021 Revolving Credit Facility contains certain representations, warranties and covenants. Commitment fees, interest rates and other terms of borrowing under the 2021 Revolving Credit Facility may vary based on VMware’s external credit ratings. The amount incurred in connection with the ongoing commitment fee, which is payable quarterly in arrears, was not significant during each of the three and nine months ended October 28, 2022 and October 29, 2021, respectively.
J. Fair Value Measurements
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis
Certain financial assets and liabilities are measured at fair value on a recurring basis. VMware determines fair value using the following hierarchy:
Level 1 - Quoted prices in active markets for identical assets or liabilities;
Level 2 - Inputs other than Level 1 inputs that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
VMware did not have any significant assets or liabilities that were classified as Level 3 of the fair value hierarchy for the periods presented, and there have been no transfers between fair value measurement levels during the periods presented.
The following tables set forth the fair value hierarchy of VMware’s cash equivalents and short-term investments that were required to be measured at fair value as of the periods presented (tables in millions):
 October 28, 2022
 Level 1Level 2Total
Cash equivalents:
Money-market funds$3,283 $— $3,283 
Time deposits(1)
— 13 13 
Total cash equivalents$3,283 $13 $3,296 
19

Table of Contents
VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
 January 28, 2022
 Level 1Level 2Total
Cash equivalents:
Money-market funds$2,998 $— $2,998 
Time deposits(1)
— 34 34 
Total cash equivalents$2,998 $34 $3,032 
Short-term investments:
Marketable equity securities$19 $— $19 
Total short-term investments$19 $— $19 
(1) Time deposits were valued at amortized cost, which approximated fair value.
The Senior Notes and the 2021 Term Loan were not recorded at fair value. The fair value of the Senior Notes was approximately $8.1 billion and $9.3 billion as of October 28, 2022 and January 28, 2022, respectively. The fair value of the 2021 Term Loan approximated its carrying value as of October 28, 2022 and January 28, 2022. Fair value for each of the Senior Notes and the 2021 Term Loan was estimated primarily based on observable market interest rates (Level 2 inputs).
VMware offers a non-qualified deferred compensation plan (the “NQDC Program”) for eligible employees, which allows participants to defer payment of part or all of their compensation. There is no net impact to the condensed consolidated statements of income under the NQDC Program since changes in the fair value of the assets offset changes in the fair value of the liabilities. As such, assets and liabilities associated with the NQDC Program have not been included in the above tables. Assets associated with the NQDC Program were the same as the liabilities at $156 million and $162 million as of October 28, 2022 and January 28, 2022, respectively, and were included in other assets on the condensed consolidated balance sheets. Liabilities associated with the NQDC Program included in accrued expenses and other on the condensed consolidated balance sheets were not material and $16 million as of October 28, 2022 and January 28, 2022, respectively. Liabilities associated with the NQDC Program included in other liabilities on the condensed consolidated balance sheets were $142 million and $146 million as of October 28, 2022 and January 28, 2022, respectively.
Equity Securities With a Readily Determinable Fair Value
VMware’s equity securities included an investment in a company that completed its initial public offering during the third quarter of fiscal 2021. The fair value of the investment was based on quoted prices for identical assets in an active market (Level 1). As of January 28, 2022, the fair value of the investment was $19 million and was included in short-term investments on the condensed consolidated balance sheets. During the three months ended April 29, 2022, VMware sold the entire investment which had a carrying value of $19 million at the time of sale.
The carrying value at the time of sale for the investment sold during the three and nine months ended October 29, 2021 was $38 million and $75 million, respectively. The gain or loss recognized on the investments sold during the three months ended October 29, 2021, as well as the nine months ended October 28, 2022 and October 29, 2021, was not significant. During the three and nine months ended October 29, 2021, VMware recognized unrealized losses of $11 million and $30 million, respectively, on the investment still held as of October 29, 2021. All gains and losses on the investment, whether realized or unrealized, are recognized in other income (expense), net on the condensed consolidated statements of income.
Equity Securities Without a Readily Determinable Fair Value
VMware’s equity securities also include investments in privately held companies, which do not have a readily determinable fair value. The carrying value of investments in privately held companies is measured at cost, less impairment, if any, adjusted upward or downward for observable price changes in orderly transactions for the identical or a similar security of the same issuer. As of October 28, 2022 and January 28, 2022, investments in privately held companies, which consisted primarily of equity securities, had a carrying value of $92 million and $163 million, respectively, and were included in other assets on the condensed consolidated balance sheets.
During the nine months ended October 28, 2022, VMware sold certain investments in privately held companies which had an aggregate carrying value at the time of sale of $88 million and the loss recognized on these investments was not significant. During the three and nine months ended October 28, 2022, for securities still held as of October 28, 2022, gross upward and downward adjustments were not significant. During the three and nine months ended October 29, 2021, for securities still held as of October 29, 2021, gross upward adjustments were $21 million and $32 million, respectively, and gross downward adjustments were not significant.
20

Table of Contents
VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
All gains and losses on these securities, whether realized or unrealized, were recognized in other income (expense), net on the condensed consolidated statements of income.
K. Derivatives and Hedging Activities
VMware conducts business on a global basis in multiple foreign currencies, subjecting the Company to foreign currency risk. To mitigate a portion of this risk, VMware utilizes hedging contracts as described below, which potentially expose the Company to credit risk to the extent that the counterparties may be unable to meet the terms of the agreements. VMware manages counterparty risk by seeking counterparties of high credit quality and by monitoring credit ratings, credit spreads and other relevant public information about its counterparties. VMware does not, and does not intend to, use derivative instruments for trading or speculative purposes.
Cash Flow Hedges
To mitigate its exposure to foreign currency fluctuations resulting from certain operating expenses denominated in certain foreign currencies, VMware enters into forward contracts that are designated as cash flow hedging instruments as the accounting criteria for such designation are met. Therefore, the effective portion of gains or losses resulting from changes in the fair value of these instruments is initially reported in accumulated other comprehensive loss on the condensed consolidated balance sheets and is subsequently reclassified to the related operating expense line item on the condensed consolidated statements of income in the same period that the underlying expenses are incurred. During the three and nine months ended October 28, 2022 and October 29, 2021, the effective portion of gains or losses reclassified to the condensed consolidated statements of income was not significant to each of the individual functional line items, as well as in aggregate. Interest charges or forward points on VMware’s forward contracts were excluded from the assessment of hedge effectiveness and were recorded to the related operating expense line item on the condensed consolidated statements of income in the same period that the interest charges are incurred.
These forward contracts have maturities of fourteen months or less, and as of October 28, 2022 and January 28, 2022, outstanding forward contracts had a total notional value of $176 million and $642 million, respectively. The notional value represents the gross amount of foreign currency that will be bought or sold upon maturity of the forward contract. The fair value of these forward contracts was not significant as of October 28, 2022 and January 28, 2022.
During the three and nine months ended October 28, 2022 and October 29, 2021, all cash flow hedges were considered effective.
Forward Contracts Not Designated as Hedges
VMware has established a program that utilizes forward contracts to offset the foreign currency risk associated with net outstanding monetary asset and liability positions. These forward contracts are not designated as hedging instruments under applicable accounting guidance, and therefore, all changes in the fair value of the forward contracts are reported in other income (expense), net on the condensed consolidated statements of income.
These forward contracts generally have a maturity of one month, and as of October 28, 2022 and January 28, 2022, outstanding forward contracts had a total notional value of $862 million and $1.5 billion, respectively. The notional value represents the gross amount of foreign currency that will be bought or sold upon maturity of the forward contract. The fair value of these forward contracts was not significant as of October 28, 2022 and January 28, 2022.
Gains related to the settlement of forward contracts were $37 million and $93 million during the three and nine months ended October 28, 2022, respectively. Gains related to the settlement of forward contracts were $11 million and $27 million during the three and nine months ended October 29, 2021, respectively. Gains and losses are recorded in other income (expense), net on the condensed consolidated statements of income.
The combined gains and losses related to the settlement of forward contracts and the underlying foreign currency denominated assets and liabilities resulted in net losses that were not significant and $29 million during the three and nine months ended October 28, 2022, respectively, and were not significant during the three and nine months ended October 29, 2021. Net gains and losses are recorded in other income (expense), net on the condensed consolidated statements of income.
21

Table of Contents
VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
L. Leases
VMware has operating and finance leases primarily related to office facilities and equipment, which have remaining lease terms of one month to 24 years.
The components of lease expense during the periods presented were as follows (table in millions):
Three Months EndedNine Months Ended
October 28,October 29,October 28,October 29,
2022202120222021
Operating lease expense$48 $48 $147 $144 
Finance lease expense:
Amortization of right-of-use (“ROU”) assets
Interest on lease liabilities— — 
 Total finance lease expense
Short-term lease expense— — — 
Variable lease expense24 23 
 Total lease expense$58 $58 $177 $174 
Lease expense incurred for arrangements with Dell was not significant during the periods presented.
The Company subleases certain of its leased office space to third parties when it determines there is excess leased capacity. Sublease income was not significant during each of the three months ended October 28, 2022 and October 29, 2021, and was not significant and $16 million during the nine months ended October 28, 2022 and October 29, 2021, respectively.
Supplemental cash flow information related to operating and finance leases during the periods presented was as follows (table in millions):
Nine Months Ended
October 28,October 29,
20222021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$130 $129 
Operating cash flows from finance leases
Financing cash flows from finance leases
ROU assets obtained in exchange for lease liabilities:
Operating leases$58 $124 
Finance leases— 
Supplemental balance sheet information related to operating and finance leases as of the periods presented was as follows (table in millions):
October 28, 2022
Operating LeasesFinance Leases
ROU assets, non-current(1)
$998 $43 
Lease liabilities, current(2)
$140 $
Lease liabilities, non-current(3)
849 36 
Total lease liabilities$989 $42 
22

Table of Contents
VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
January 28, 2022
Operating LeasesFinance Leases
ROU assets, non-current(1)
$1,062 $46 
Lease liabilities, current(2)
$145 $
Lease liabilities, non-current(3)
927 43 
Total lease liabilities$1,072 $48 
(1) ROU assets for operating leases are included in other assets, and ROU assets for finance leases are included in property and equipment, net, on the condensed consolidated balance sheets.
(2) Current lease liabilities are included primarily in accrued expenses and other on the condensed consolidated balance sheets.
(3) Non-current operating lease liabilities are presented as operating lease liabilities on the condensed consolidated balance sheets. Non-current finance lease liabilities are included in other liabilities on the condensed consolidated balance sheets.
Lease term and discount rate related to operating and finance leases as of the periods presented were as follows:
October 28,January 28,
20222022
Weighted-average remaining lease term (in years)
Operating leases11.911.9
Finance leases6.47.3
Weighted-average discount rate
Operating leases3.4 %3.2 %
Finance leases2.9 %2.9 %
The following represents VMware’s future minimum lease payments under non-cancellable operating and finance leases as of October 28, 2022 (table in millions):
Operating LeasesFinance Leases
Remainder of 2023$46 $
2024166 
2025125 
2026123 
2027105 
Thereafter685 17 
Total future minimum lease payments1,250 46 
Less: Imputed interest(261)(4)
Total lease liabilities(1)
$989 $42 
(1) Total lease liabilities as of October 28, 2022 excluded legally binding lease payments for leases signed but not yet commenced of $53 million.
The amount of the future operating lease commitments after fiscal 2027 primarily consists of the ground leases on VMware’s Palo Alto, California headquarter facilities, which expire in fiscal 2047. As several of VMware’s operating leases are payable in foreign currencies, the operating lease payments may fluctuate in response to changes in the exchange rate between the U.S. dollar and the foreign currencies in which the commitments are payable.
23

Table of Contents
VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
M. Stockholders’ Equity
VMware Stock Repurchases
VMware purchases stock from time to time in open market transactions, subject to market conditions. The timing of any repurchases and the actual number of shares repurchased will depend on a variety of factors, including VMware’s stock price, cash requirements for operations and business combinations, corporate, legal and regulatory requirements and other market and economic conditions. VMware is not obligated to purchase any shares under its stock repurchase programs. Purchases may be discontinued at any time VMware believes additional purchases are not warranted. All shares repurchased under VMware’s stock repurchase programs are retired.
On October 7, 2021, VMware authorized a new repurchase program of up to $2.0 billion of Common Stock through the end of fiscal 2024, effective on November 1, 2021. As of October 28, 2022, the cumulative authorized amount remaining for stock repurchases was $1.6 billion. In connection with its entry into the Merger Agreement, VMware suspended its stock repurchase program during the second quarter of fiscal 2023.
The following table summarizes stock repurchase activity during the periods presented (aggregate purchase price in millions, shares in thousands):
Three Months Ended
Nine Months Ended
October 28,October 29,October 28,October 29,
2022202120222021
Aggregate purchase price$— $143 $89 $872 
Common Stock repurchased— 956 803 5,699 
Weighted-average price per share$— $149.61 $111.33 $153.07 
VMware Restricted Stock
VMware’s restricted stock primarily consists of RSU awards granted to employees. The value of an RSU grant is based on VMware’s stock price on the date of the grant. The shares underlying the RSU awards are not issued until the RSUs vest. Upon vesting, each RSU converts into one share of VMware’s Common Stock.
VMware’s restricted stock also includes PSU awards granted to certain VMware executives and employees. PSU awards have performance conditions and, in certain cases, a time- or market-based vesting component. Upon vesting, PSU awards convert into VMware’s Common Stock at various ratios ranging from 0.1 to 2.0 shares per PSU, depending upon the degree of achievement of the performance- or market-based target designated by each award. If minimum performance thresholds are not achieved, then no shares are issued.
The following table summarizes restricted stock activity since January 28, 2022 (units in thousands):
Number of UnitsWeighted-Average Grant Date Fair Value
(per unit)
Outstanding, January 28, 2022
23,002 $123.06 
Granted11,011 114.68 
Vested(6,108)123.86 
Forfeited(3,184)123.18 
Outstanding, October 28, 2022
24,721 119.12 
The aggregate vesting date fair value of VMware’s restricted stock that vested during the nine months ended October 28, 2022 was $724 million. As of October 28, 2022, restricted stock representing 24.7 million shares of VMware’s Common Stock were outstanding, with an aggregate intrinsic value of $2.8 billion based on VMware’s closing stock price as of October 28, 2022.
VMware Employee Stock Purchase Plan
In connection with its entry into the Merger Agreement, VMware suspended its 2007 Employee Stock Purchase Plan effective September 1, 2022.
24

Table of Contents
VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Net Excess Tax Benefits and Tax Deficiencies
Net excess tax benefits and tax deficiencies recognized in connection with stock-based awards are included in income tax provision on the condensed consolidated statements of income. Net tax deficiencies recognized during the three and nine months ended October 28, 2022 were not significant. During the three and nine months ended October 29, 2021, net excess tax benefits were not material and $19 million, respectively.
N. Segment Information
VMware operates in one reportable operating segment; thus, all required financial segment information is included in the condensed consolidated financial statements. An operating segment is defined as the components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker in order to allocate resources and assess performance. VMware’s chief operating decision maker allocates resources and assesses performance based upon discrete financial information at the consolidated level.
Revenue by type during the periods presented was as follows (table in millions):
Three Months EndedNine Months Ended
October 28,October 29,October 28,October 29,
 2022202120222021
Revenue:
License$621 $710 $1,990 $2,093 
Subscription and SaaS988 820 2,830 2,336 
Total license and subscription and SaaS1,609 1,530 4,820 4,429 
Services:
Software maintenance1,298 1,354 3,907 4,011 
Professional services304 304 908 880 
Total services1,602 1,658 4,815 4,891 
Total revenue$3,211 $3,188 $9,635 $9,320 
Revenue by geographic area during the periods presented was as follows (table in millions):
Three Months EndedNine Months Ended
October 28,October 29,October 28,October 29,
 2022202120222021
United States$1,614 $1,582 $4,780 $4,587 
International1,597 1,606 4,855 4,733 
Total$3,211 $3,188 $9,635 $9,320 
Revenue by geographic area is based on the ship-to addresses of VMware’s customers. No individual country other than the U.S. accounted for 10% or more of revenue during the three and nine months ended October 28, 2022 and October 29, 2021.
Long-lived assets by geographic area, which primarily include property and equipment, net, as of the periods presented were as follows (table in millions):
October 28,January 28,
20222022
United States$859 $882 
International260 241 
Total$1,119 $1,123 
25

Table of Contents
VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
As of October 28, 2022, the U.S. and India each accounted for more than 10% of these assets, with India accounting for 13% of these assets. No individual country other than the U.S. accounted for 10% or more of these assets as of January 28, 2022.
26

Table of Contents
ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management’s discussion and analysis is provided in addition to the accompanying condensed consolidated financial statements and notes to assist in understanding our results of operations and financial condition. Financial information as of October 28, 2022 should be read in conjunction with our consolidated financial statements for the year ended January 28, 2022 contained in our Annual Report on Form 10-K filed on March 24, 2022.
Our fiscal year is the 52 or 53 weeks ending on the Friday nearest to January 31 of each year. We refer to our fiscal years ending February 2, 2024 and February 3, 2023, and fiscal year ended January 28, 2022 as “fiscal 2024,” “fiscal 2023” and “fiscal 2022,” respectively. Fiscal 2023 is a 53-week fiscal year, in which the first three quarters each has 13 weeks while the fourth quarter has 14 weeks. Fiscal 2024 and fiscal 2022 are each 52-week fiscal years.
Period-over-period changes are calculated based upon the respective underlying non-rounded data. Unless the context requires otherwise, we are referring to VMware, Inc. and its consolidated subsidiaries when we use the terms “VMware,” the “Company,” “we,” “our” or “us.”
Overview
We originally pioneered the development and application of virtualization technologies with x86 server-based computing, separating application software from the underlying hardware, and then evolved to become the private cloud and mobility management leader. Building upon that leadership, we are focused on becoming the multi-cloud leader. Information technology (“IT”) driven innovation continues to disrupt markets and industries. Technologies emerge faster than organizations can absorb, creating increasingly complex environments. Organizations’ IT departments and corporate divisions are working at an accelerated pace to harness new technologies, platforms and cloud models, ultimately guiding businesses and their product teams through a digital transformation. To take on these challenges, we are helping customers drive their multi-cloud strategy by providing the multi-cloud platform for all applications, enabling digital innovation and enterprise control.
Our portfolio supports and addresses our customers’ key priorities, including modernizing their applications, managing multi-cloud environments, accelerating their cloud journey, modernizing the network using commodity hardware, embracing zero-trust security and empowering anywhere workspaces. We enable digital transformations of customers’ applications, infrastructure and operations for their constantly evolving business and employee needs.
End users can purchase the full breadth of our subscription, software-as-a-service (“SaaS”), license and services portfolio through discrete purchases or through enterprise agreements (“EAs”). EAs are sold to our direct customers and through channel partners and can include our license, multi-year maintenance and support, subscription and SaaS offerings.
During the nine months ended October 28, 2022, we continued to see an increase in the portion of our sales occurring through our subscription and SaaS offerings compared to the portion of our on-premises solutions sold as perpetual licenses. We expect this trend to continue, and as a result, a greater portion of our revenue will be recognized over time as subscription and SaaS revenue rather than license revenue, which is typically recognized in the fiscal period in which sales occur. As this trend continues, the rate of growth in our license revenue, which has historically been viewed as a leading indicator of our business performance, has and will likely continue to be less relevant on a standalone basis, and we believe that the overall growth rate of our combined license and subscription and SaaS revenue and annual recurring revenue for subscription and SaaS, as well as the growth in the current portion of our remaining performance obligations, will become better indicators of our future growth prospects. In addition, we expect our operating margin to be negatively impacted in fiscal 2023 as a result of our incremental investment in our subscription and SaaS portfolio.
Broadcom Merger Agreement
On May 26, 2022, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Broadcom Inc. (“Broadcom”). Under the terms of the Merger Agreement, each share of our Class A common stock (“Common Stock”), par value $0.01 per share, issued and outstanding immediately prior to the effective time of the transaction will be indirectly converted into the right to receive, at the election of the holder of such share of Common Stock, and subject to proration in accordance with the Merger Agreement as described below: (i) $142.50 per share in cash, without interest (the “Cash Consideration”), or (ii) 0.25200 (the “Exchange Ratio”) shares of common stock, par value $0.001 per share, of Broadcom (“Broadcom Common Stock”, and such consideration, the “Stock Consideration”). The stockholder election will be subject to a proration mechanism, such that the total number of shares of Common Stock entitled to receive the Cash Consideration, and the total number of shares of Common Stock entitled to receive the Stock Consideration, will, in each case, be equal to 50% of the aggregate number of shares of Common Stock issued and outstanding immediately prior to the consummation of the transaction. Holders of Common Stock that do not make an election will be treated as having elected to receive the Cash Consideration or the Stock Consideration in accordance with the proration methodology in the Merger Agreement.
27

Table of Contents
The transaction, which is expected to be consummated in Broadcom’s fiscal year 2023, was approved by VMware shareholders at a special meeting held on November 4, 2022 but remains subject to the receipt of regulatory approvals and other customary closing conditions. If the transaction is consummated, the Common Stock will be delisted from the New York Stock Exchange and deregistered under the Securities Exchange Act of 1934, as amended.
Business Operations in Russia
In response to Russian military actions in Ukraine, we suspended sales and services in Russia and Belarus, including support on existing contracts and professional services in the first quarter of fiscal 2023. Furthermore, the United States (“U.S.”) and other countries have imposed sanctions on Russia that have impacted our future revenue streams from affected customers. During the second quarter of fiscal 2023, we ceased our business operations in Russia entirely.
The impact of these events on our condensed consolidated financial statements during the nine months ended October 28, 2022 was not material as a percentage of total consolidated revenue, and we do not expect the impact to be material in future periods. We do not expect the cessation of business operations will have an impact on our existing contracts with customers in Russia and Belarus if U.S. and international restrictions and sanctions are lifted. We continue to closely monitor the ongoing situation in Russia and Belarus.
Results of Operations
Approximately 70% of our sales are denominated in the U.S. dollar. In certain countries, however, we also invoice and collect in various foreign currencies, principally euro, British pound, Japanese yen, Australian dollar and Chinese renminbi. In addition, we incur and pay operating expenses in currencies other than the U.S. dollar. As a result, our financial statements, including our revenue, operating expenses, unearned revenue and the resulting cash flows derived from the U.S. dollar equivalent of foreign currency transactions, are affected by foreign exchange fluctuations.
Revenue
Our revenue during the periods presented was as follows (dollars in millions): 
Three Months EndedNine Months Ended
October 28,October 29,October 28,October 29,
 20222021$ Change% Change20222021$ Change% Change
Revenue:
License$621 $710 $(89)(13)%$1,990 $2,093 $(104)(5)%
Subscription and SaaS988 820 168 20 2,830 2,336 493 21 
Total license and subscription and SaaS1,609 1,530 79 4,820 4,429 390 
Services:
Software maintenance1,298 1,354 (56)(4)3,907 4,011 (104)(3)
Professional services304 304 — — 908 880 30 
Total services1,602 1,658 (56)(3)4,815 4,891 (74)(2)
Total revenue$3,211 $3,188 $23 $9,635 $9,320 $316 
Revenue:
United States$1,614 $1,582 $33 %$4,780 $4,587 $194 %
International1,597 1,606 (9)(1)4,855 4,733 122 
Total revenue$3,211 $3,188 $23 $9,635 $9,320 $316 
Revenue from our subscription offerings consisted primarily of our VMware Cloud Provider Program cloud-based offerings that are billed to customers on a consumption basis and revenue from VMware Tanzu and other offerings that are billed on a subscription basis. Revenue from our SaaS offerings consisted primarily of our Workspace ONE Unified Endpoint Management, VMware Carbon Black Cloud, VMware Cloud on AWS, VMware SD-WAN by VeloCloud and CloudHealth by VMware.
License revenue relating to the sale of on-premises licenses that are part of a multi-year contract is generally recognized upon delivery of the underlying license, whereas revenue derived from our subscription and SaaS offerings is generally
28

Table of Contents
recognized over time as customers consume the services or ratably over the term of the subscription, commencing upon provisioning of the service.
As customers adopt our subscription and SaaS offerings, license and software maintenance revenue has been, and may continue to be, lower and subject to greater fluctuation in the future, driven by a higher proportion of our sales occurring through our subscription and SaaS offerings as well as the variability of large deals between fiscal quarters, which deals historically have had a large license revenue impact.
Furthermore, during the three months ended October 28, 2022, we introduced termination for convenience (“TFC”) clauses with respect to term license offerings in certain EAs. Revenue on such term license offerings subject to TFC clauses is recognized ratably as subscription and SaaS revenue, rather than as license revenue, due to the requirement to refund any unused, pre-paid fees upon termination. Although the impact of sales of term license offerings subject to TFC clauses was not significant to license revenue recognized on our condensed consolidated financial statements during the three months ended October 28, 2022, any concentration of such sales in any given future period could have a material negative impact on our license revenue in such future periods.
License Revenue
License revenue decreased during the three and nine months ended October 28, 2022 compared to the three and nine months ended October 29, 2021, largely due to increased sales occurring through our subscription and SaaS offerings compared to the portion of our on-premises solutions sold as perpetual licenses, as we continue to transition our portfolio from a perpetual license model to subscription and SaaS offerings.
Subscription and SaaS Revenue
Subscription and SaaS revenue increased during the three and nine months ended October 28, 2022 compared to the three and nine months ended October 29, 2021, primarily due to increased sales of our Workspace ONE, vRealize Cloud Management, VMware Cloud on AWS and other major hyperscalers, and VMware Tanzu offerings.
Annual recurring revenue (“ARR”) represents the annualized value of our committed customer subscription and SaaS contracts as of the end of the reporting period, assuming any contract that expires during the next 12 months is renewed on its existing terms and any applicable TFC clauses are not exercised, except that, for consumption-based subscription and SaaS offerings, ARR represents the annualized quarterly revenue based on revenue recognized for the current reporting period. ARR is an operating measure we use to assess the strength of our subscription and SaaS offerings. ARR is a performance metric and should be viewed independently of, and not as a substitute for or combined with, revenue and unearned revenue. ARR was $4.1 billion as of October 28, 2022 and $3.3 billion as of October 29, 2021.
Services Revenue
Software maintenance revenue decreased during the three and nine months ended October 28, 2022 compared to the three and nine months ended October 29, 2021, largely due to the continued shift in demand from our on-premises licenses sold with the associated software maintenance to cloud-based solutions. In each period presented, customers purchased, on a weighted-average basis, greater than three years of support and maintenance with each new license purchased.
Professional services remained flat during the three months ended October 28, 2022 compared to the three months ended October 29, 2021. Professional services revenue increased during the nine months ended October 28, 2022 compared to the nine months ended October 29, 2021. Services we provide through our consultants and technical account managers, and our continued focus on solution deployments, including our networking, security, cloud management and digital workspace offerings, contributed to the increase in professional services revenue. Our professional services revenue may vary, as we continue to enable our partners to deliver professional services for our solutions. Further, the timing of services rendered will also impact the amount of professional services revenue we recognize during a period.
Unearned Revenue
Unearned revenue as of the periods presented consisted of the following (table in millions): 
October 28,January 28,
20222022
Unearned license revenue$28 $19 
Unearned subscription and SaaS revenue3,197 2,669 
Unearned software maintenance revenue6,636 7,208 
Unearned professional services revenue1,356 1,326 
Total unearned revenue$11,217 $11,222 
29

Table of Contents
Unearned subscription and SaaS revenue is generally recognized over time as customers consume the services or ratably over the term of the subscription, commencing upon provisioning of the service.
Unearned software maintenance revenue is attributable to our maintenance contracts and is generally recognized ratably over the contract duration. The weighted-average remaining contractual term as of October 28, 2022 was approximately two years. Unearned professional services revenue results primarily from prepaid professional services and is generally recognized as the services are performed.
Remaining Performance Obligations and Backlog
Remaining Performance Obligations
Remaining performance obligations represent the aggregate amount of the transaction price in contracts allocated to performance obligations not delivered, or partially undelivered, as of the end of the reporting period. Remaining performance obligations include unearned revenue, multi-year contracts with future installment payments and certain unfulfilled orders against accepted, non-cancellable customer contracts at the end of any given period.
As of October 28, 2022, the aggregate transaction price allocated to remaining performance obligations was $11.9 billion, of which approximately 56% is expected to be recognized as revenue over the next twelve months and the remainder thereafter. As of January 28, 2022, the aggregate transaction price allocated to remaining performance obligations was $12.0 billion, of which approximately 57% was expected to be recognized as revenue during fiscal 2023 and the remainder thereafter.
Backlog
Backlog is comprised of unfulfilled purchase orders or unfulfilled executed agreements at the end of a given period and is net of related estimated rebates and marketing development funds. Backlog consists of licenses, subscription and SaaS and services. As of October 28, 2022, our total backlog was $85 million, substantially all of which consisted of orders received on the last day of the quarter that were not shipped or provisioned to customers, and orders held due to our export control process. Backlog related to license was not material as of October 28, 2022. For our backlog related to licenses, we generally expect to deliver and recognize revenue during the following quarter. Backlog totaling $35 million as of October 28, 2022 was excluded from the remaining performance obligations because such contracts are subject to cancellation until the performance obligation is fulfilled.
As of January 28, 2022, our total backlog was $88 million and our backlog related to licenses was $14 million. Backlog totaling $36 million as of January 28, 2022 was excluded from the remaining performance obligations because such contracts are subject to cancellation until the performance obligation is fulfilled.
The amount and composition of backlog will fluctuate period to period. We do not believe the amount of backlog is indicative of future sales or revenue or that the mix of backlog at the end of any given period correlates with actual sales performance of a particular geography or particular products and services.
Cost of License Revenue, Cost of Subscription and SaaS Revenue, Cost of Services Revenue and Operating Expenses
Collectively, our cost of license revenue, cost of subscription and SaaS revenue, cost of services revenue and operating expenses primarily reflected increasing cash-based employee-related expenses, driven by an increase in headcount and salaries across most of our income statement expense categories during the three and nine months ended October 28, 2022.
Cost of License Revenue
Cost of license revenue primarily consists of the cost of fulfillment of our SD-WAN offerings, royalty costs in connection with technology licensed from third-party providers and amortization of intangible assets. The cost of fulfillment of our software and hardware SD-WAN offerings includes personnel costs and related overhead associated with delivery of our products.
Cost of license revenue during the periods presented was as follows (dollars in millions):
Three Months EndedNine Months Ended
October 28,October 29,October 28,October 29,
 20222021$ Change% Change20222021$ Change% Change
Cost of license revenue$39 $37 $%$112 $110 $%
Stock-based compensation— — — 41 — — 
Total expenses$39 $37 $$113 $111 $
% of License revenue%%%%
30

Table of Contents
Cost of license revenue remained relatively flat during the three and nine months ended October 28, 2022 compared to the three and nine months ended October 29, 2021.
Cost of Subscription and SaaS Revenue
Cost of subscription and SaaS revenue primarily includes personnel costs and related overhead associated with hosted services supporting our SaaS offerings. Additionally, cost of subscription and SaaS revenue also includes depreciation of equipment supporting our subscription and SaaS offerings.
Cost of subscription and SaaS revenue during the periods presented was as follows (dollars in millions):
Three Months EndedNine Months Ended
October 28,October 29,October 28,October 29,
20222021$ Change% Change20222021$ Change% Change
Cost of subscription and SaaS revenue$189 $170 $19 11 %$565 $486 $79 16 %
Stock-based compensation45 18 16 14 
Total expenses$196 $175 $21 12 $583 $502 $81 16 
% of Subscription and SaaS revenue20 %21 %21 %21 %
Cost of subscription and SaaS revenue increased during the three months ended October 28, 2022 compared to the three months ended October 29, 2021, primarily driven by an increase in costs associated with hosted services that support our SaaS offerings.
Cost of subscription and SaaS revenue increased during the nine months ended October 28, 2022 compared to the nine months ended October 29, 2021. The increase was primarily driven by growth in costs associated with hosted services to support our SaaS offerings of $53 million and growth in cash-based employee-related cost of $23 million, which was primarily driven by incremental growth in headcount. In addition, the increase was driven by increased equipment and depreciation of $16 million.
Cost of Services Revenue
Cost of services revenue primarily includes the costs of personnel and related overhead to deliver technical support for our products and costs to deliver professional services. Additionally, cost of services revenue includes depreciation of equipment supporting our service offerings.
Cost of services revenue during the periods presented was as follows (dollars in millions):
Three Months EndedNine Months Ended
October 28,October 29,October 28,October 29,
20222021$ Change% Change20222021$ Change% Change
Cost of services revenue$353 $341 $12 %$1,049 $981 $68 %
Stock-based compensation31 21 43 79 70 12 
Total expenses$384 $362 $22 $1,128 $1,051 $77 
% of Services revenue24 %22 %23 %21 %
Cost of services revenue increased during the three months ended October 28, 2022 compared to the three months ended October 29, 2021. The increase was primarily due to growth in cash-based employee-related expenses, primarily driven by incremental growth in headcount and salaries.
Cost of services revenue increased during the nine months ended October 28, 2022 compared to the nine months ended October 29, 2021. The increase was primarily due to growth in cash-based employee-related expenses of $44 million, primarily driven by incremental growth in headcount and salaries, as well as increased travel-related expenses, primarily resulting from lifted travel restrictions previously imposed in response to the COVID-19 pandemic.
31

Table of Contents
Research and Development Expenses
Research and development expenses include personnel and related overhead costs associated with the development of our products and services offerings. We continue to invest in and focus on expanding our subscription and SaaS offerings.
Research and development expenses during the periods presented were as follows (dollars in millions):
Three Months EndedNine Months Ended
October 28,October 29,October 28,October 29,
20222021$ Change% Change20222021$ Change% Change
Research and development$669 $643 $25 %$1,968 $1,849 $119 %
Stock-based compensation163 125 38 31 441 402 39 10 
Total expenses$832 $768 $63 $2,409 $2,251 $158 
% of Total revenue26 %24 %25 %24 %
Research and development expenses increased during the three months ended October 28, 2022 compared to the three months ended October 29, 2021. The increase was primarily due to increased stock-based compensation expense of $38 million, primarily driven by increased restricted stock unit (“RSU”) awards granted to our employees, and increased cash-based employee-related expenses of $32 million, primarily driven by an increase in headcount and salaries. The increases was partially offset by increased capitalized internal-use software development costs.
Research and development expenses increased during the nine months ended October 28, 2022 compared to the nine months ended October 29, 2021. The increase was primarily due to growth in cash-based employee-related expenses of $113 million, primarily driven by incremental growth in headcount and salaries. The increase was also driven by increased stock-based compensation expense of $39 million, primarily driven by increased RSU awards granted to our employees, and increased equipment, depreciation and facilities-related costs of $32 million. These increases were partially offset by increased capitalized internal-use software development costs of $50 million.
Sales and Marketing Expenses
Sales and marketing expenses include personnel costs, sales commissions and related overhead associated with the sale and marketing of our license, subscription and SaaS and services offerings, as well as the cost of product launches and marketing initiatives. A significant portion of our sales commissions are deferred and recognized over the expected period of benefit.
Sales and marketing expenses during the periods presented were as follows (dollars in millions):
Three Months EndedNine Months Ended
October 28,October 29,October 28,October 29,
20222021$ Change% Change20222021$ Change% Change
Sales and marketing$977 $937 $42 %$2,938 $2,766 $175 %
Stock-based compensation104 74 30 40 278 227 51 22 
Total expenses$1,081 $1,011 $72 $3,216 $2,993 $225 
% of Total revenue34 %32 %33 %32 %
Sales and marketing expenses increased during the three months ended October 28, 2022 compared to the three months ended October 29, 2021. The increase was primarily driven by increased stock-based compensation of $30 million, primarily driven by increased RSU awards granted to our employees, and higher commission costs of $23 million resulting from increased sales volume. The increase was also driven by increased travel-related expenses of $15 million, primarily resulting from lifted travel restrictions previously imposed in response to the COVID-19 pandemic.
Sales and marketing expenses increased during the nine months ended October 28, 2022 compared to the nine months ended October 29, 2021. The increase was primarily due to higher commission costs of $60 million, resulting from increased sales volume, and increased stock-based compensation of $51 million, primarily driven by increased RSU awards granted to our employees. The increase was also driven by increased travel-related expenses of $50 million, primarily resulting from lifted travel restrictions previously imposed in response to the COVID-19 pandemic, as well as an increase in cash-based employee-related expenses of $38 million, primarily driven by incremental growth in headcount and salaries, and increased equipment, depreciation and facilities-related costs of $22 million.
32

Table of Contents
General and Administrative Expenses
General and administrative expenses include personnel and related overhead costs to support the business. These expenses include the costs associated with finance, human resources, IT infrastructure and legal, as well as expenses related to corporate costs and initiatives.
General and administrative expenses during the periods presented were as follows (dollars in millions):
Three Months EndedNine Months Ended
October 28,October 29,October 28,October 29,
20222021$ Change% Change20222021$ Change% Change
General and administrative$246 $283 $(38)(13)%$691 $711 $(20)(3)%
Stock-based compensation43 33 10 31 124 97 27 28 
Total expenses$289 $316 $(28)(9)$815 $808 $
% of Total revenue%10 %%%
General and administrative expenses decreased during the three months ended October 28, 2022 compared to the three months ended October 29, 2021. The decrease was primarily driven by the absence of certain costs incurred related to the Spin-Off, such as legal and advisory fees of $66 million recognized during the three months ended October 29, 2021. The decrease was offset in part by certain merger-related costs, such as legal and advisory fees, recognized during the three months ended October 29, 2022 related to our pending acquisition by Broadcom.
General and administrative expenses increased slightly during the nine months ended October 28, 2022 compared to the nine months ended October 29, 2021. The increase was primarily driven by increased stock-based compensation of $27 million, primarily driven by increased RSU awards granted to our employees as well as increased cash-based employee-related expenses of $20 million, largely driven by an increase in headcount and salaries. The increase was also driven by third-party professional services costs of $15 million and certain merger-related costs, such as legal and advisory fees, recognized during the nine months ended October 28, 2022 related to our pending acquisition by Broadcom. These increases were partially offset by the absence of certain costs incurred related to the Spin-Off, such as legal and advisory fees, of $72 million recognized during the nine months ended October 29, 2021.
Interest Expense
Interest expense during the periods presented was as follows (dollars in millions):
Three Months EndedNine Months Ended
October 28,October 29,October 28,October 29,
20222021$ Change% Change20222021$ Change% Change
Interest expense$77 $74 $%$222 $173 $49 28 %
% of Total revenue%%%%
Interest expense remained relatively flat during the three months ended October 28, 2022 compared to the three months ended October 29, 2021. Interest expense increased during the nine months ended October 28, 2022 compared to the nine months ended October 29, 2021, primarily driven by the five series of unsecured senior notes issued during the third quarter of fiscal 2022 (the “2021 Senior Notes”) in the aggregate principal amount of $6.0 billion. We expect the annual interest expense associated with the 2021 Senior Notes to be approximately $100 million.
The increase in interest expense during the nine months ended October 28, 2022 compared to the nine months ended October 29, 2021 was also driven by the senior unsecured term loan facility on which we drew down on November 1, 2021. Interest expense on the term loan facility was $39 million during the nine months ended October 28, 2022.
Refer to Note I to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information regarding the Company’s outstanding indebtedness.
33

Table of Contents
Other Income (Expense), net
Other income (expense), net during the periods presented was as follows (dollars in millions):
Three Months EndedNine Months Ended
October 28,October 29,October 28,October 29,
20222021$ Change% Change20222021$ Change% Change
Other income (expense), net$(14)$12 $(24)(221)%$(44)$(7)$(35)(406)%
% of Total revenue— %— %— %— %
The change in other income (expense), net during the three and nine months ended October 28, 2022 compared to the three and nine months ended October 29, 2021 was primarily driven by net losses, whether realized or unrealized, on our investments in equity securities, as well as net gains on foreign currency exchange.
Pursuant to a tax matters agreement entered into with Dell effective April 14, 2021 (the “Tax Matters Agreement”), we have agreed to indemnify one another for certain tax liabilities or tax benefits relating to periods prior to VMware’s spin-off from Dell on November 1, 2021 (the “Spin-Off”) and certain adjustments to these amounts that will be recognized in future periods will be recorded in other income (expense), net on the consolidated statements of income. We cannot reasonably predict the amount that we may receive or pay in future periods, which could introduce significant risk of variability to our consolidated statements of income.
Income Tax Provision
The following table summarizes our income tax provision during the periods presented (dollars in millions):
Three Months EndedNine Months Ended
October 28,October 29,October 28,October 29,
2022202120222021
Income tax provision$88 $59 $306 $190 
Effective income tax rate27.6 %12.9 %27.2 %13.3 %
Our quarterly effective income tax rate is based on our estimated annual income tax rate forecast and discrete tax items recognized in the period. The change in our effective income tax rate for the three and nine months ended October 28, 2022 compared to the three and nine months ended October 29, 2021 was primarily driven by a higher estimated annual income tax rate for fiscal 2023 due to the increase in global intangible low-taxed income (“GILTI”) from the impacts of Internal Revenue Code Section 174 research and development expense capitalization, which was part of the U.S. Tax Cuts and Jobs Act enacted on December 22, 2017 (the “2017 Tax Act”) and became effective beginning in fiscal 2023. As we record impacts of GILTI as a period cost, the capitalization of foreign research and experimental costs in GILTI increases our provision for income taxes. In addition, the increase in our effective income tax rate during the nine months ended October 28, 2022 was also driven by the discrete tax impact related to our book and tax basis difference on our investment in equity securities, which provided a discrete tax expense that was not significant during the nine months ended October 28, 2022, as compared to a discrete tax benefit of $28 million recognized during the nine months ended October 29, 2021. The increase in our effective income tax rate was also driven by net tax deficiencies recognized in connection with stock-based awards, which were not significant during the nine months ended October 28, 2022, compared to net excess tax benefits of $19 million recognized during the nine months ended October 29, 2021.
Prior to the Spin-Off, our financial results were included in the Dell consolidated tax return for U.S. federal income tax purposes, but our income tax provision or benefit was calculated primarily as though we were a separate taxpayer, with certain transactions between us and Dell being assessed using consolidated tax return rules. As a result of the Spin-Off, we are no longer a member of the Dell consolidated tax group, and our U.S. federal income tax will be reported separately from that of the Dell consolidated tax group.
Our effective tax rate in the future will depend upon the proportion of our income before provision for income taxes earned in the U.S. and in jurisdictions with a tax rate lower than the U.S. statutory rate. Our non-U.S. earnings are primarily earned by our subsidiary organized in Ireland, where the rate of taxation is lower than our U.S. tax rate and, as such, our annual effective tax rate can be significantly affected by the composition of our earnings in U.S. and non-U.S. jurisdictions. Our future effective tax rate may be affected by such factors as: changes in our business; changes in tax laws or statutory rates; changing interpretation of existing laws or regulations; the impact of accounting for stock-based compensation; the recognition of excess tax benefits or tax deficiencies within the income tax provision or benefit in the period in which they occur; the impact of accounting for business combinations; shifts in the amount of earnings in the U.S. compared with other regions in the world;
34

Table of Contents
overall levels of income before tax; changes in our international organization; the expiration of statute of limitations; and settlements of audits.
The Inflation Reduction Act (the “IRA”) was enacted in August 2022, and it will be effective for us commencing with our fiscal 2024. The key tax provisions of the IRA relate to a new 15% corporate alternative minimum tax on adjusted financial statement income for companies with profits greater than $1.0 billion and a 1% excise tax on stock repurchases by publicly traded companies. We will continue to evaluate the impact to us as further guidance becomes available.
Our Relationship with Dell
Transactions with Dell continue to be considered related party transactions following the Spin-Off due to the MSD Stockholders’ and SLP Stockholders’ direct ownership in both VMware and Dell, as well as Mr. Dell’s executive position with Dell.
On November 1, 2021, in connection with the Spin-Off, we entered into the Commercial Framework Agreement with Dell to provide a framework under which our strategic commercial relationship will continue, particularly with respect to projects mutually agreed as having the potential to accelerate the growth of an industry, product, service or platform that may provide the parties with a strategic opportunity. The Commercial Framework Agreement has an initial term of five years, with automatic one-year renewals occurring annually thereafter, subject to certain terms and conditions.
The information provided below includes a summary of transactions with Dell.
Transactions with Dell
We engaged with Dell in the following ongoing related party transactions, which resulted in revenue and receipts, and unearned revenue for us:
Pursuant to original equipment manufacturer (“OEM”) and reseller arrangements, Dell integrates or bundles our products and services with Dell’s products and sells them to end users. Dell also acts as a distributor, purchasing our standalone products and services for resale to end-user customers through VMware-authorized resellers. Revenue under these arrangements is presented net of related marketing development funds and rebates paid to Dell. In addition, we provide professional services to end users based upon contractual agreements with Dell.
Dell purchases products and services from us for its internal use.
From time to time, we and Dell enter into agreements to collaborate on technology projects, in connection with which Dell pays us for services or reimburses us for costs.
During the three and nine months ended October 28, 2022, revenue from Dell accounted for 37% and 38% of our consolidated revenue, respectively. During the three and nine months ended October 28, 2022, revenue recognized on transactions where Dell acted as an OEM accounted for 15% and 14% of total revenue from Dell, and 6% and 5%of our consolidated revenue.
During the three and nine months ended October 29, 2021, revenue from Dell accounted for 38% and 37% of our consolidated revenue, respectively. During each of the three and nine months ended October 29, 2021, revenue recognized on transactions where Dell acted as an OEM accounted for 13% of total revenue from Dell, respectively, and 5% of our consolidated revenue.
Dell purchases our products and services directly from us, as well as through our channel partners. Information about our revenue and receipts, and unearned revenue from such arrangements, for the periods presented consisted of the following (table in millions):
Revenue and ReceiptsUnearned Revenue
Three Months EndedNine Months EndedAs of
October 28,October 29,October 28,October 29,October 28,January 28,
202220212022202120222022
Reseller revenue$1,184 $1,183 $3,634 $3,380 $5,448 $5,550 
Internal-use revenue13 17 41 43 24 39 
Sales through Dell as a distributor, which is included in reseller revenue, comprise the largest route-to-market for our sales.
35

Table of Contents
Customer deposits resulting from transactions with Dell were $303 million and $298 million as of October 28, 2022 and January 28, 2022, respectively.
We engaged with Dell in the following ongoing related party transactions, which resulted in costs to us:
We purchase and lease products and purchase services from Dell.
From time to time, we and Dell enter into agreements to collaborate on technology projects, in connection with which we pay Dell for services it provides to us.
In certain geographic regions where we do not have an established legal entity, we contract with Dell subsidiaries for support services and support from Dell personnel who are managed by us. The costs incurred by Dell on our behalf related to these employees are charged to us with a mark-up intended to approximate costs that would have been incurred had we contracted for such services with an unrelated third party. These costs are included as expenses on our condensed consolidated statements of income and primarily include salaries, benefits, travel and occupancy expenses.
Prior to the Spin-Off, in certain geographic regions, Dell filed a consolidated indirect tax return, which included value added taxes and other indirect taxes collected by us from our customers. We remitted the indirect taxes to Dell, and Dell remitted the tax payment to the foreign governments on our behalf.
From time to time, we enter into agency arrangements with Dell that enable us to sell our subscriptions and services, leveraging the Dell enterprise relationships and end customer contracts.
Information about our payments for such arrangements during the periods presented consisted of the following (table in millions):
Three Months EndedNine Months Ended
October 28,October 29,October 28,October 29,
2022202120222021
Purchases and leases of products and purchases of services(1)
$52 $57 $147 $164 
Dell subsidiary support and administrative costs32 
(1) Amount includes indirect taxes that were remitted to Dell during the periods presented.
We also purchase Dell products through Dell’s channel partners, however such amounts were not material during the periods presented.
From time to time, we and Dell also enter into joint marketing, sales, branding and product development arrangements, for which both parties may incur costs.
Dell Financial Services (“DFS”)
DFS provides financing to certain of our end users at our end users’ discretion. Upon acceptance of the financing arrangement by both our end users and DFS, amounts classified as trade accounts receivable are reclassified to the current portion of due from related parties on the condensed consolidated balance sheets. Revenue recognized on transactions financed through DFS was recorded net of financing fees. Financing fees on arrangements accepted by both parties were $25 million and $20 million during the nine months ended October 28, 2022 and October 29, 2021, respectively, and were not material during each of the three months ended October 28, 2022 and October 29, 2021.
Liquidity and Capital Resources
As of the periods presented, we held cash, cash equivalents and short-term investments as follows (table in millions):
 October 28,January 28,
20222022
Cash and cash equivalents$3,972 $3,614 
Short-term investments— 19 
Total cash, cash equivalents and short-term investments$3,972 $3,633 
Cash equivalents primarily consisted of amounts invested in money market funds.
We continue to expect that cash generated by operations will be our primary source of liquidity. We also continue to believe that existing cash, cash equivalents and our borrowing capacity, together with any cash generated from operations, will be sufficient to fund our operations for at least the next twelve months. While we believe these cash sources will be sufficient to
36

Table of Contents
fund our operations, our overall level of cash needs may be affected by capital allocation decisions that may include the number and size of acquisitions and stock repurchases, among other things. We expect to use free cash flow primarily to repay our outstanding indebtedness through the end of fiscal 2023. In addition, we plan to continue with our balanced capital allocation policy through investing in our product and solution offerings, and acquisitions. Additionally, given the unpredictable nature of our outstanding legal proceedings, an unfavorable resolution of one or more legal proceedings, claims, or investigations could have a negative impact on our overall liquidity.
On May 26, 2022, we entered into the Merger Agreement with Broadcom. The Merger Agreement contains customary representations, warranties and covenants. The Merger Agreement also contains termination rights for either or each of Broadcom and us. If the consummation of the transaction does not occur on or before February 26, 2023 by either party, subject to three extensions of three months each (at either Broadcom’s or our election) if on such date all of the closing conditions except those relating to regulatory approvals have been satisfied or waived, Broadcom would be required to pay us a termination fee of $1.5 billion. Upon termination of the Merger Agreement under certain specified circumstances, including by us to enter into a definitive agreement with respect to a superior proposal in accordance with the terms of the Merger Agreement, we would be required to pay Broadcom a termination fee in the amount of $1.5 billion.
The 2017 Tax Act imposed a one-time transition tax on accumulated earnings of foreign subsidiaries (“Transition Tax”) and eliminated U.S. Federal taxes on foreign subsidiary distributions. The Transition Tax was calculated on a separate tax return basis. Our liability related to the Transition Tax as of October 28, 2022 was $445 million, which we expect to pay over the next three years pursuant to a letter agreement between Dell, EMC and us executed during the first quarter of fiscal 2020. Actual tax payments made to Dell pursuant to the Tax Agreements, as defined in Note C to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, may differ materially from our total estimated tax liability calculated on a separate tax return basis. Pursuant to the Tax Matters Agreement with Dell, we have agreed to indemnify one another for certain tax liabilities or tax benefits relating to periods prior to the Spin-Off and certain adjustments to these amounts that will be recognized in future periods will be recorded in other income (expense), net on the consolidated statements of income.
Our cash flows summarized for the periods presented were as follows (table in millions):
Nine Months Ended
 October 28,October 29,
 20222021
Net cash provided by (used in):
Operating activities$2,667 $3,220 
Investing activities(231)(212)
Financing activities(2,098)4,775 
Net increase in cash, cash equivalents and restricted cash$338 $7,783 
Operating Activities
Cash provided by operating activities decreased by $553 million during the nine months ended October 28, 2022 compared to the nine months ended October 29, 2021, primarily due to increased cash payments for employee-related expenses, including salaries, bonuses and commissions, resulting primarily from growth in headcount and salaries, as well as higher cash outflows related to operating expenses, and interest on our unsecured senior notes and term loan facility. These increases were offset in part by increased cash collections during the nine months ended October 28, 2022.
Investing Activities
Cash used in investing activities increased by $19 million during the nine months ended October 28, 2022 compared to the nine months ended October 29, 2021, primarily driven by an increase in additions to property and equipment and a decrease in sales of investments in equity securities. This was offset in part by an increase in proceeds from the disposition of assets.
Financing Activities
Cash used in financing activities increased by $6,873 million during the nine months ended October 28, 2022 compared to the nine months ended October 29, 2021, primarily driven by the absence of net cash proceeds received from the issuance of senior notes of $6.0 billion during the nine months ended October 29, 2021 and the repayment of $2.0 billion towards our senior unsecured term loan facility during the nine months ended October 28, 2022. This increase was offset in part by a decrease of $783 million in cash used for repurchases of shares of our common stock during the nine months ended October 28, 2022, which resulted from the suspension of our stock repurchase program in connection with our entry into the Merger