00011246101/282022Q3FALSEIncludes related party revenue as follows (refer to Note C):
License $ 335  $ 289  $ 996  $ 976 
Subscription and SaaS 221  136  589  373 
Services 644  518  1,838  1,439 
Includes stock-based compensation as follows:
Cost of license revenue —  — 
Cost of subscription and SaaS revenue 16  13 
Cost of services revenue 21  25  70  74 
Research and development 125  140  402  397 
Sales and marketing 74  85  227  243 
General and administrative 33  50  97  141 
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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 29, 2021
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)
_______________________________________________________
Delaware 94-3292913
(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 class Trading Symbol(s) Name of each exchange on which registered
Class A common stock VMW New 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 filer Accelerated filer
Non-accelerated filer Smaller 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 26, 2021, the number of shares of Class A common stock, par value $0.01 per share, of the registrant outstanding was 420,365,558.


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VMware, Pivotal, vSphere, vRealize, Workspace ONE, Tanzu, Carbon Black, CloudHealth, VeloCloud, VMware vSAN, NSX, Horizon, Heptio, 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 Ended Nine Months Ended
  October 29, October 30, October 29, October 30,
  2021 2020 2021 2020
Revenue(1):
License $ 710  $ 639  $ 2,093  $ 2,019 
Subscription and SaaS 820  676  2,336  1,880 
Services 1,658  1,549  4,891  4,574 
Total revenue 3,188  2,864  9,320  8,473 
Operating expenses(2):
Cost of license revenue 37  44  111  119 
Cost of subscription and SaaS revenue 175  142  502  400 
Cost of services revenue 362  330  1,051  969 
Research and development 768  714  2,251  2,058 
Sales and marketing 1,011  912  2,993  2,727 
General and administrative 316  250  808  773 
Realignment —  44  47 
Operating income 519  428  1,603  1,380 
Investment income — 
Interest expense (74) (52) (173) (156)
Other income (expense), net 12  177  (7) 186 
Income before income tax 457  554  1,424  1,417 
Income tax provision 59  120  190  150 
Net income $ 398  $ 434  $ 1,234  $ 1,267 
Net income per weighted-average share, basic for Classes A and B $ 0.95  $ 1.03  $ 2.94  $ 3.02 
Net income per weighted-average share, diluted for Classes A and B $ 0.94  $ 1.02  $ 2.92  $ 3.00 
Weighted-average shares, basic for Classes A and B 419,456  420,857  419,309  419,758 
Weighted-average shares, diluted for Classes A and B 421,763  423,400  422,201  423,093 
__________
(1)   Includes related party revenue as follows (refer to Note C):
License $ 335  $ 289  $ 996  $ 976 
Subscription and SaaS 221  136  589  373 
Services 644  518  1,838  1,439 
(2)   Includes stock-based compensation as follows:
Cost of license revenue $ —  $ —  $ $
Cost of subscription and SaaS revenue 16  13 
Cost of services revenue 21  25  70  74 
Research and development 125  140  402  397 
Sales and marketing 74  85  227  243 
General and administrative 33  50  97  141 
The accompanying notes are an integral part of the condensed consolidated financial statements.
3

VMware, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(unaudited)
Three Months Ended Nine Months Ended
October 29, October 30, October 29, October 30,
  2021 2020 2021 2020
Net income $ 398  $ 434  $ 1,234  $ 1,267 
Other comprehensive income (loss):
Changes in fair value of effective foreign currency forward contracts:
Unrealized gains (losses), net of tax provision (benefit) of $—, $—, $— and $—
(1)
Reclassification of (gains) losses realized during the period, net of tax (provision) benefit of $—, $—, $— and $—
(1) — 
Net change in fair value of effective foreign currency forward contracts —  (1)
Total other comprehensive income (loss) —  (1)
Comprehensive income, net of taxes $ 398  $ 438  $ 1,236  $ 1,266 
The accompanying notes are an integral part of the condensed consolidated financial statements.
4

VMware, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in millions, except per share amounts, and shares in thousands)
(unaudited)
October 29, January 29,
2021 2021
ASSETS
Current assets:
Cash and cash equivalents $ 12,500  $ 4,692 
Short-term investments 33  23 
Accounts receivable, net of allowance of $8 and $5
1,675  1,929 
Due from related parties, net 660  1,438 
Other current assets 577  530 
Total current assets 15,445  8,612 
Property and equipment, net 1,411  1,334 
Other assets 2,645  2,697 
Deferred tax assets 5,830  5,781 
Intangible assets, net 781  993 
Goodwill 9,598  9,599 
Total assets $ 35,710  $ 29,016 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 229  $ 131 
Accrued expenses and other 2,273  2,382 
Current portion of long-term debt 1,498  — 
Unearned revenue 5,808  5,873 
Total current liabilities 9,808  8,386 
Note payable to Dell —  270 
Long-term debt 9,170  4,717 
Unearned revenue 4,425  4,441 
Income tax payable 781  805 
Operating lease liabilities 885  891 
Other liabilities 416  455 
Total liabilities 25,485  19,965 
Contingencies (refer to Note D)
Stockholders’ equity:
Class A common stock, par value $0.01; authorized 2,500,000 shares; issued and outstanding 112,441 and 112,082 shares
Class B convertible common stock, par value $0.01; authorized 1,000,000 shares; issued and outstanding 307,222 shares
Additional paid-in capital 1,923  1,985 
Accumulated other comprehensive loss (3) (5)
Retained earnings 8,301  7,067 
Total stockholders’ equity 10,225  9,051 
Total liabilities and stockholders’ equity $ 35,710  $ 29,016 
The accompanying notes are an integral part of the condensed consolidated financial statements.
5

VMware, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
Nine Months Ended
  October 29, October 30,
  2021 2020
Operating activities:
Net income $ 1,234  $ 1,267 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 825  757 
Stock-based compensation 813  869 
Deferred income taxes, net (92) (177)
Unrealized (gain) loss on equity securities, net 25  (197)
(Gain) loss on disposition of assets, revaluation and impairment, net 22 
Loss on extinguishment of debt — 
Other — 
Changes in assets and liabilities, net of acquisitions:
Accounts receivable 247  102 
Other current assets and other assets (467) (622)
Due to/from related parties, net 777  785 
Accounts payable 87  (4)
Accrued expenses and other liabilities (181) 393 
Income taxes payable 24  (53)
Unearned revenue (82) (65)
Net cash provided by operating activities 3,220  3,085 
Investing activities:
Additions to property and equipment (263) (247)
Sales of investments in equity securities 68  — 
Purchases of strategic investments (7) (16)
Proceeds from disposition of assets 21 
Business combinations, net of cash acquired, and purchases of intangible assets (15) (390)
Net cash used in investing activities (212) (632)
Financing activities:
Proceeds from issuance of common stock 267  264 
Net proceeds from issuance of long-term debt 5,944  1,979 
Repayment of term loan —  (1,500)
Repayment of current portion of long-term debt —  (1,257)
Repayment of note payable to Dell (270) — 
Repurchase of common stock (872) (566)
Shares repurchased for tax withholdings on vesting of restricted stock (291) (319)
Payment to acquire non-controlling interests —  (91)
Principal payments on finance lease obligations (3) (3)
Net cash provided by (used in) financing activities 4,775  (1,493)
Net increase in cash, cash equivalents and restricted cash 7,783  960 
Cash, cash equivalents and restricted cash at beginning of the period 4,770  3,031 
Cash, cash equivalents and restricted cash at end of the period $ 12,553  $ 3,991 
Supplemental disclosures of cash flow information:
Cash paid for interest $ 146  $ 142 
Cash paid for taxes, net 276  393 
Non-cash items:
Changes in capital additions, accrued but not paid $ $ (18)
The accompanying notes are an integral part of the condensed consolidated financial statements.
6

VMware, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions)
(unaudited)
Three Months Ended October 29, 2021
Class A
Common Stock
Class B
Convertible
Common Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Stockholders’
Equity
Shares Par Value Shares Par Value
Balance, July 30, 2021
112  $ 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, 2021
112  $ 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
Income (Loss)
Stockholders’
Equity
Shares Par Value Shares Par Value
Balance, January 29, 2021
112  $ 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 (loss) —  —  —  —  —  — 
Net income —  —  —  —  —  1,234  —  1,234 
Balance, October 29, 2021
112  $ 307  $ $ 1,923  $ 8,301  $ (3) $ 10,225 
Three Months Ended October 30, 2020
Class A
Common Stock
Class B
Convertible
Common Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Stockholders’
Equity
Shares Par Value Shares Par Value
Balance, July 31, 2020
113  $ 307  $ $ 2,070  $ 5,842  $ (9) $ 7,907 
Proceeds from issuance of common stock —  —  —  122  —  —  122 
Repurchase and retirement of common stock (2) —  —  —  (255) —  —  (255)
Issuance of restricted stock —  —  —  —  —  —  — 
Shares withheld for tax withholdings on vesting of restricted stock —  —  —  —  (39) —  —  (39)
Stock-based compensation —  —  —  —  303  —  —  303 
Total other comprehensive income (loss) —  —  —  —  —  — 
Net income —  —  —  —  —  434  —  434 
Balance, October 30, 2020
113  $ 307  $ $ 2,201  $ 6,276  $ (5) $ 8,476 
Nine Months Ended October 30, 2020
Class A
Common Stock
Class B
Convertible
Common Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Stockholders’
Equity
Shares Par Value Shares Par Value
Balance, January 31, 2020
110  $ 307  $ $ 2,000  $ 5,009  $ (4) $ 7,009 
Proceeds from issuance of common stock —  —  —  264  —  —  264 
Repurchase and retirement of common stock (4) —  —  —  (566) —  —  (566)
Issuance of restricted stock —  —  —  —  —  —  — 
Shares withheld for tax withholdings on vesting of restricted stock (2) —  —  —  (315) —  —  (315)
Stock-based compensation —  —  —  —  863  —  —  863 
Amount due from tax sharing arrangement —  —  —  —  (45) —  —  (45)
Total other comprehensive income (loss) —  —  —  —  —  —  (1) (1)
Net income —  —  —  —  —  1,267  —  1,267 
Balance, October 30, 2020
113  $ 307  $ $ 2,201  $ 6,276  $ (5) $ 8,476 
The accompanying notes are an integral part of the condensed consolidated financial statements.
7

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. Information technology (“IT”) driven innovation continues to disrupt markets and industries. Technologies emerge faster than organizations can absorb, creating increasingly complex environments. IT is working at an accelerated pace to harness new technologies, platforms and cloud models, ultimately guiding businesses through a digital transformation. To take on these challenges, VMware is working with customers in the areas of hybrid and multi-cloud, virtual cloud networking, digital workspaces, modern applications and intrinsic security. VMware’s software provides a flexible digital foundation to enable customers in their digital transformation.
Accounting Principles
The financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Unaudited Interim Financial Information
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 2022. 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 26, 2021.
Effective September 7, 2016, Dell Technologies Inc. (“Dell”) (formerly Denali Holding Inc.) acquired EMC Corporation (“EMC”), VMware’s then-parent company, including EMC’s majority control of VMware. As of October 29, 2021 (the “Record Date”), Dell controlled 80.5% of VMware’s outstanding common stock and 97.4% of the combined voting power of VMware’s outstanding common stock, including 31 million shares of VMware’s Class A common stock (“Class A Stock”) and all of VMware’s Class B convertible common stock (“Class B Stock”). On November 1, 2021, VMware’s spin-off from Dell (the “Spin-Off”) was completed, and VMware paid an $11.5 billion special dividend, pro rata, to each of the holders of Class A and Class B Stock (including Dell) as of the Record Date.
As VMware was a majority-owned and controlled subsidiary of Dell through October 29, 2021, its results of operations and financial position were consolidated with Dell’s financial statements.
Refer to Note O for more information regarding 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.
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.
8

VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

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. 
Recently Adopted Accounting Standards
Effective January 30, 2021, VMware adopted, on a modified retrospective basis, Accounting Standards Update (“ASU”) No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This update simplifies the accounting for convertible instruments and contracts in an entity’s own equity and amends the diluted earnings per share guidance for greater consistency within the standard. The standard did not have an impact on the Company’s condensed consolidated financial statements except for the calculation of the year-to-date weighted-average diluted share count, which did not have a material impact on the Company’s diluted net income per share for the nine months ended October 29, 2021.
Effective January 30, 2021, VMware adopted ASU No. 2019-12, Income Taxes (Topic 740), simplifying the accounting for income taxes. The standard did not have a material impact on the Company’s condensed consolidated financial statements.
New Accounting Pronouncement
In October 2021, the Financial Accounting Standard Board issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This update requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by an acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers. The new standard is effective for interim and annual periods beginning after December 15, 2022, but may be early adopted. The adoption of the ASU will be applied prospectively to business combinations occurring on or after the effective date of the ASU. If the new standard is early adopted in an interim period, it should be applied retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and prospectively to all business combinations that occur on or after the date of initial application. VMware plans to early adopt this standard during the fourth quarter of fiscal 2022. The standard did not have an impact on business combinations occurring during the nine months ended October 29, 2021.
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 $50 million and $43 million as of October 29, 2021 and January 29, 2021, 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
Customer deposits include prepayments from customers related to amounts received for contracts that include certain cancellation rights. 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.
As of October 29, 2021, customer deposits related to customer prepayments and cloud credits of $322 million were included in accrued expenses and other, and $151 million were included in other liabilities on the condensed consolidated
9

VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

balance sheets. As of January 29, 2021, customer deposits related to customer prepayments and cloud credits of $294 million were included in accrued expenses and other, and $163 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 29, 2021 and January 29, 2021 were $12 million and $31 million, respectively. Deferred commissions included in other assets were $1.2 billion and $1.1 billion as of October 29, 2021 and January 29, 2021, respectively.
Amortization expense for deferred commissions was included in sales and marketing on the condensed consolidated statements of income and was $130 million and $383 million during the three and nine months ended October 29, 2021, respectively, and $113 million and $319 million during the three and nine months ended October 30, 2020, respectively.
Unearned Revenue
Unearned revenue as of the periods presented consisted of the following (table in millions):
October 29, January 29,
2021 2021
Unearned license revenue $ 17  $ 15 
Unearned subscription and SaaS revenue 2,238  1,998 
Unearned software maintenance revenue 6,773  7,092 
Unearned professional services revenue 1,205  1,209 
Total unearned revenue $ 10,233  $ 10,314 
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 29, 2021 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 29, 2021 were $2.0 billion and $2.1 billion, respectively, 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 29, 2021 were $6.0 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.
Revenue recognized during the three and nine months ended October 30, 2020 was $1.9 billion and $5.5 billion, respectively, and did not include amounts for performance obligations that were fully satisfied upon delivery, such as on-premises licenses.
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 29, 2021, the aggregate transaction price allocated to remaining performance obligations was $11.1 billion, of which approximately 56% is expected to be recognized as revenue over the next twelve months and the remainder thereafter. As of January 29, 2021, the aggregate transaction price allocated to remaining performance obligations was $11.3 billion, of which approximately 55% was expected to be recognized as revenue during fiscal 2022, and the remainder thereafter.
C. Related Parties
The information provided below includes a summary of transactions with Dell and Dell’s consolidated subsidiaries (collectively, “Dell”).
10

VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

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, and Dell pays VMware for services or reimburses VMware for costs incurred by VMware, in connection with such projects.
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, or 5% of VMware’s consolidated revenue.
During each of the three and nine months ended October 30, 2020, revenue from Dell accounted for 33% of VMware’s consolidated revenue. During the three and nine months ended October 30, 2020, revenue recognized on transactions where Dell acted as an OEM accounted for 13% and 12%, respectively, of total revenue from Dell, or 4% of VMware’s consolidated revenue.
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 Receipts Unearned Revenue
Three Months Ended Nine Months Ended As of
October 29, October 30, October 29, October 30, October 29, January 29,
2021 2020 2021 2020 2021 2021
Reseller revenue $ 1,183  $ 927  $ 3,380  $ 2,738  $ 5,008  $ 4,952 
Internal-use revenue 17  16  43  50  25  45 
Receipts from Dell for collaborative technology projects were not material during the three and nine months ended October 29, 2021 and October 30, 2020.
Customer deposits resulting from transactions with Dell were $225 million and $214 million as of October 29, 2021 and January 29, 2021, 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, and VMware pays Dell for services provided to VMware by Dell related to such projects.
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. Dell also incurs certain administrative costs on VMware’s behalf in the U.S. that are recorded as expenses on VMware’s condensed consolidated statements of income.
In certain geographic regions, Dell files a consolidated indirect tax return, which includes value added taxes and other indirect taxes collected by VMware from its customers. VMware remits the indirect taxes to Dell, and Dell remits the tax payment to the foreign governments on VMware’s behalf.
11

VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

From time to time, VMware invoices end users on behalf of Dell for certain services rendered by Dell. Cash related to these services is collected from the end user by VMware and remitted to Dell.
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 Ended Nine Months Ended
October 29, October 30, October 29, October 30,
2021 2020 2021 2020
Purchases and leases of products and purchases of services(1)
$ 57  $ 49  $ 164  $ 138 
Dell subsidiary support and administrative costs 12  32  54 
(1) Amount includes indirect taxes that were remitted to Dell during the periods presented.
VMware also purchases Dell products through Dell’s channel partners. Purchases of Dell products through Dell’s channel partners were not significant 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.
On November 1, 2021, in connection with the Spin-Off from Dell, VMware and Dell entered into a commercial framework agreement that is intended to preserve and enhance the Company’s strategic partnership with Dell to deliver joint customer value and a transition services agreement to facilitate the transactions and the operation of the Company and Dell following the Spin-Off. 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. Refer to Note O for more information regarding the Spin-Off.
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 due from related parties, net 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 not significant during the three months ended October 29, 2021 and were $20 million during the nine months ended October 29, 2021. Financing fees on arrangements accepted by both parties were $12 million and $43 million during the three and nine months ended October 30, 2020, respectively.
12

VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

Tax Agreements with Dell
Concurrently with the execution of the Separation and Distribution Agreement (the “Separation Agreement”), effective as of April 14, 2021, VMware and Dell entered into a Tax Matters Agreement (the “Tax Matters Agreement”) and agreed to terminate the tax sharing agreement as amended on December 30, 2019 (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-Spin-Off periods and post-Spin-Off periods, regarding income and other taxes, and related matters, including tax liabilities and benefits, attributes and returns.
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, and were $54 million and $221 million during the three and nine months ended October 30, 2020, respectively. Refunds 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 as well as state tax payments for combined states. The timing of the tax payments due to and from Dell is governed by the Tax Agreements. VMware’s portion of the mandatory one-time transition tax on accumulated earnings of foreign subsidiaries (the “Transition Tax”) is governed by a letter agreement between Dell, EMC and VMware executed on April 1, 2019 (the “Letter Agreement”). VMware’s portion of federal income taxes on Dell’s consolidated tax return differ from the amounts VMware would owe on a separate tax return basis and VMware’s payments to Dell generally are capped at the amount that VMware would have paid on a separate tax return basis. The difference between the amount of tax calculated on a separate tax return basis and the amount of tax calculated pursuant to the Tax Agreements that was recorded in additional paid-in capital was $45 million during the nine months ended October 30, 2020 and was not significant during the three and nine months ended October 29, 2021 and three months ended October 30, 2020.
As a result of the activity under the Tax Agreements with Dell, amounts due to Dell were $443 million and $451 million as of October 29, 2021 and January 29, 2021, respectively, primarily related to VMware’s estimated tax obligation resulting from the Transition Tax. 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 over a period of four years.
Pivotal Tax Sharing Agreement with Dell
During the fourth quarter of fiscal 2020, VMware completed the acquisition of Pivotal. Prior to the Spin-Off, Pivotal filed a separate tax return for U.S. federal income tax purposes as it left the Dell consolidated tax group at the time of Pivotal’s IPO in April 2018. Pivotal continued to be included on Dell’s unitary state tax returns until the Spin-Off. Pursuant to a tax sharing agreement, Pivotal historically received payments from Dell for tax benefits that Dell realized due to Pivotal’s inclusion on such returns. There were no payments received from Dell during the three and nine months ended October 29, 2021 and October 30, 2020.
Due To/From Related Parties, Net
Amounts due to and from related parties, net as of the periods presented consisted of the following (table in millions):
October 29, January 29,
2021 2021
Due from related parties, current $ 748  $ 1,558 
Due to related parties, current(1)
88  120 
Due from related parties, net, current $ 660  $ 1,438 
(1) Includes an immaterial amount related to the Company’s current operating lease liabilities due to related parties.
The Company also recognized an immaterial amount related to non-current operating lease liabilities due to related parties. This amount has been included in operating lease liabilities on the condensed consolidated balance sheets as of October 29, 2021 and January 29, 2021.
Amounts included in due from related parties, net, current, with the exception of DFS and tax obligations, are generally settled in cash within 60 days of each quarter-end.
13

VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

Notes Payable to Dell
As of January 29, 2021, VMware had an outstanding promissory note payable to Dell in the principal amount of $270 million due December 1, 2022. VMware repaid the outstanding balance of $270 million during the three months ended October 29, 2021. During the three and nine months ended October 29, 2021 and October 30, 2020, interest expense on the notes payable to Dell was not significant.
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 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. The parties are now in the discovery stage of the lawsuit. The trial is currently scheduled to begin on July 6, 2022. 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 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 (“First Action”). After an August 6, 2019 hearing, the Delaware Court denied Cirba’s preliminary injunction motion. On August 20, 2019, VMware filed counterclaims against Cirba for infringing four VMware patents. The Delaware Court severed VMware’s patent infringement counterclaims from Cirba’s claims. 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. As to Cirba’s trademark-related claims, the jury found that VMware was not liable. A total of $237 million was accrued for the First Action 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 statement of income for the year ended January 31, 2020. On March 9, 2020, the parties filed post-trial motions in the First Action. On December 21, 2020, the Delaware Court granted VMware’s request for a new trial based, in part, on Cirba Inc.’s lack of standing, set aside the verdict and damages award, and denied Cirba’s post-trial motions (the “Post-Trial Order”). 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 (“Second Action”). The Second Action was transferred to the Delaware Court on February 25, 2020. On March 23, 2020, Cirba filed a counterclaim against VMware in the Second Action alleging infringement of an additional Cirba patent. The Delaware Court consolidated the First and Second Actions and ordered a consolidated trial on all of the parties’ patent infringement claims and counterclaims. On January 20, 2021, Cirba moved to certify the Post-Trial Order to enable an interlocutory appeal to the United States Court of Appeals for the Federal Circuit, and on May 3, 2021 the Court denied Cirba’s motion. Also, on May 3, 2021, the Court granted Cirba’s motion for leave to assert an additional patent against VMware. Separately, VMware has filed challenges with the U.S. Patent and Trademark Office against each of the four patents that are the subject of Cirba’s allegations. To date, of the four challenges, two ex parte reexams have been granted and one Inter Partes Review has been instituted. As of January 29, 2021, the Company reassessed its estimated loss accrual for the First Action based on the Post-Trial Order and determined that a loss was no longer probable and reasonably estimable with respect to the consolidated First and Second Actions. Accordingly, the estimated loss accrual of $237 million recorded on the consolidated balance sheet was derecognized, with the credit included in general and administrative expense on the consolidated income statement for 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. VMware is fully cooperating with the SEC’s investigation and is unable to predict the outcome of this matter at this time.
14

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 29, 2021, 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 29, 2021
Weighted-Average Useful Lives
(in years)
Gross Carrying Amount Accumulated Amortization Net Book Value
Purchased technology 5.3 $ 940  $ (568) $ 372 
Customer relationships and customer lists 11.5 721  (351) 370 
Trademarks and tradenames 7.7 131  (92) 39 
Total definite-lived intangible assets $ 1,792  $ (1,011) $ 781 
January 29, 2021
Weighted-Average Useful Lives
(in years)
Gross Carrying Amount Accumulated Amortization Net Book Value
Purchased technology 5.3 $ 948  $ (462) $ 486 
Customer relationships and customer lists 11.4 727  (281) 446 
Trademarks and tradenames 7.6 132  (78) 54 
Other 2.0 21  (14)
Total definite-lived intangible assets $ 1,828  $ (835) $ 993 
Amortization expense on definite-lived intangible assets was $75 million and $228 million during the three and nine months ended October 29, 2021, respectively, and $83 million and $244 million during the three and nine months ended October 30, 2020, respectively.
15

VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

Based on intangible assets recorded as of October 29, 2021 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 2022 $ 74 
2023 252 
2024 200 
2025 107 
2026 67 
Thereafter 81 
Total $ 781 
F. Realignment
During the third quarter of fiscal 2021, VMware approved a plan to streamline its operations and align resources with its business priorities. As a result of this action, approximately 330 positions were eliminated during the third quarter of fiscal 2021. VMware recognized $44 million and $47 million of severance-related realignment expenses during the three and nine months ended October 30, 2020, respectively, on the condensed consolidated statements of income. Severance payments made under this plan during the three and nine months ended October 30, 2020 were $24 million. Actions associated with this plan were substantially complete by the end of fiscal 2021.
G. Net Income Per Share
Basic net income per share is computed by dividing net income by the weighted-average number of common stock outstanding during the period. Diluted net income per share is computed by dividing net income by the weighted-average number 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 units (“RSUs”), including 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. VMware uses the two-class method to calculate net income per share. Since both classes share the same rights in dividends, basic and diluted earnings per share are the same for both classes.
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 Ended Nine Months Ended
  October 29, October 30, October 29, October 30,
  2021 2020 2021 2020
Net income $ 398  $ 434  $ 1,234  $ 1,267 
Weighted-average shares, basic for Classes A and B 419,456  420,857  419,309  419,758 
Effect of other dilutive securities 2,307  2,543  2,892  3,335 
Weighted-average shares, diluted for Classes A and B 421,763  423,400  422,201  423,093 
Net income per weighted-average share, basic for Classes A and B $ 0.95  $ 1.03  $ 2.94  $ 3.02 
Net income per weighted-average share, diluted for Classes A and B $ 0.94  $ 1.02  $ 2.92  $ 3.00 
16

VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

The following table sets forth the weighted-average common share equivalents of Class A 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 Ended Nine Months Ended
October 29, October 30, October 29, October 30,
2021 2020 2021 2020
Anti-dilutive securities:
Employee stock options 140  17  202 
Restricted stock units 181  2,968  311  4,696 
Total 190  3,108  328  4,898 
H. Cash, Cash Equivalents, Restricted Cash and Short-Term Investments
Cash and Cash Equivalents
Cash and cash equivalents totaled $12.5 billion and $4.7 billion as of October 29, 2021 and January 29, 2021, respectively. Cash equivalents were $11.8 billion as of October 29, 2021 and consisted of money-market funds of $11.7 billion and time deposits of $63 million. Cash equivalents were $3.8 billion as of January 29, 2021 and consisted of money-market funds of $3.7 billion and time deposits of $102 million. Subsequent to the third quarter of fiscal 2022, VMware’s cash and cash equivalents balance as of October 29, 2021 was used to fund a portion of the special dividend in connection with the Spin-Off from Dell. Refer to Note O for more information regarding the Spin-Off.
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 29, January 29,
2021 2021
Cash and cash equivalents $ 12,500  $ 4,692 
Restricted cash within other current assets 47  56 
Restricted cash within other assets 22 
Total cash, cash equivalents and restricted cash $ 12,553  $ 4,770 
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
Short-term investments totaled $33 million and $23 million as of October 29, 2021 and January 29, 2021, respectively, and consisted of marketable equity securities. Short-term investments as of October 29, 2021 consisted of marketable equity securities that were previously subject to a certain sale restriction and therefore were classified as other assets on the condensed consolidated balance sheet as of January 29, 2021. 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 debt discount of $11 million and debt issuance costs of $47 million. The proceeds from the 2021 Senior Notes were used to fund a portion of the special dividend in connection with the Spin-Off. Refer to Note O for more information regarding the Spin-Off.
VMware also has unsecured senior notes issued 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

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 29, January 29, Effective Interest Rate
2021 2021
2017 Senior Notes:
2.95% Senior Note Due August 21, 2022
$ 1,500  $ 1,500  3.17%
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  —  0.95%
1.00% Senior Note Due August 15, 2024
1,250  —  1.23%
1.40% Senior Note Due August 15, 2026
1,500  —  1.61%
1.80% Senior Note Due August 15, 2028
750  —  2.01%
2.20% Senior Note Due August 15, 2031
1,500  —  2.32%
Total principal amount 10,750  4,750 
Less: unamortized discount (16) (7)
Less: unamortized debt issuance costs (66) (26)
Net carrying amount included in long-term debt 10,668  4,717 
Current portion of long-term debt 1,498  — 
Long-term debt $ 9,170  $ 4,717 
Interest on the 2021 Senior Notes is payable semiannually in arrears, on February 15 and August 15 of each year, commencing on February 15, 2022. Interest on the 2020 Senior Notes is payable semiannually in arrears, on May 15 and November 15 of each year, beginning November 15, 2020. The interest rate on the 2020 Senior Notes is subject to adjustment based on certain rating events. Interest on the 2017 Senior Notes is payable semiannually in arrears, on February 21 and August 21 of each year. Interest expense was $72 million and $169 million during the three and nine months ended October 29, 2021, respectively, and $48 million and $135 million during the three and nine months ended October 30, 2020, 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.
18

VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

The future principal payments for the Senior Notes as of October 29, 2021 were as follows (amounts in millions):
Remainder of 2022 $ — 
2023 1,500 
2024 1,000 
2025 1,250 
2026 750 
Thereafter 6,250 
Total $ 10,750 
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”). The 2021 Revolving Credit Facility replaced the Company’s existing $1.0 billion revolving credit facility that was undrawn. 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 29, 2021, there was no outstanding borrowing under the 2021 Revolving Credit Facility. The credit agreement 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 the three months ended October 29, 2021.
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 would provide the Company with an aggregate borrowing capacity of up to $4.0 billion. The Company may borrow once up to the aggregate borrowing capacity of $4.0 billion. The term loan facilities contain certain representations, warranties and covenants.
On November 1, 2021, the Company drew down an aggregate of $4.0 billion with a weighted average interest rate of 0.90%. The drawdown was used to fund a portion of the special dividend in connection with the Spin-Off from Dell. Refer to Note O for more information regarding the Spin-Off.
Refer to Note C for disclosure regarding the note payable to Dell.
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.
19

VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

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 29, 2021
  Level 1 Level 2 Total
Cash equivalents:
Money-market funds $ 11,748  $ —  $ 11,748 
Time deposits(1)
—  63  63 
Total cash equivalents $ 11,748  $ 63  $ 11,811 
Short-term investments:
Marketable equity securities $ 33  $ —  $ 33 
Total short-term investments $ 33  $ —  $ 33 
  January 29, 2021
  Level 1 Level 2 Total
Cash equivalents:
Money-market funds $ 3,738  $ —  $ 3,738 
Time deposits(1)
—  102  102 
Total cash equivalents $ 3,738  $ 102  $ 3,840 
Short-term investments:
Marketable equity securities $ 23  $ —  $ 23 
Total short-term investments $ 23  $ —  $ 23 
(1) Time deposits were valued at amortized cost, which approximated fair value.
The note payable to Dell and the Senior Notes were not recorded at fair value. The fair value of the note payable to Dell was $276 million as of January 29, 2021. VMware repaid the outstanding balance of $270 million on the note payable to Dell during the three months ended October 29, 2021. The fair value of the Senior Notes was approximately $11.1 billion and $5.3 billion as of October 29, 2021 and January 29, 2021, respectively. Refer to Note I for more information regarding the Company’s recent offering of the 2021 Senior Notes. Fair value for the note payable to Dell and the Senior Notes was estimated primarily based on observable market interest rates (Level 2 inputs).
VMware offers a deferred compensation plan for eligible employees, which allows participants to defer payment for part or all of their compensation. There is no net impact to the condensed consolidated statements of income 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 this plan have not been included in the above tables. Assets associated with this plan were the same as the liabilities at $176 million and $140 million as of October 29, 2021 and January 29, 2021, respectively, and were included in other assets on the condensed consolidated balance sheets. Liabilities associated with this plan were included in accrued expenses and other of $17 million and in other liabilities of $159 million on the condensed consolidated balance sheet as of October 29, 2021. Liabilities associated with this plan of $140 million were included in other liabilities on the condensed consolidated balance sheet as of January 29, 2021.
Equity Securities With a Readily Determinable Fair Value
VMware’s equity securities include an investment in a company that completed its initial public offering during the third quarter of fiscal 2021. The fair value of the investment is based on quoted prices for identical assets in an active market (Level 1). As of January 29, 2021, this investment had a fair value of $162 million, of which $139 million was included in other assets on the condensed consolidated balance sheet due to a certain sale restriction and $23 million was included in short-term investments as they were unrestricted and available for sale. The sale restriction lapsed for the remaining shares during the three months ended April 30, 2021. As of October 29, 2021, the fair value of the investment was $33 million and was included in short-term investments on the condensed consolidated balance sheet.
The carrying value at the time of sale for the investments sold during the three and nine months ended October 29, 2021 was $38 million and $75 million, respectively. Unrealized losses recognized on the investment still held as of October 29, 2021 were $11 million and $30 million during the three and nine months ended October 29, 2021, respectively. An unrealized gain of
20

VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

$189 million was recognized during each of the three and nine months ended October 30, 2020 to adjust the investment to its fair value. A discrete tax expense of $62 million related to the book and tax basis difference on the investment was also recognized during each of the three and nine months ended October 30, 2020. All gains and losses, 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. As of October 29, 2021 and January 29, 2021, investments in privately held companies, which consisted primarily of equity securities, had a carrying value of $165 million and $129 million, respectively, and were included in other assets on the condensed consolidated balance sheets. Unrealized gains recognized on securities still held as of October 29, 2021 were $21 million and $32 million during the three and nine months ended October 29, 2021, respectively. Unrealized losses recognized during each of the three and nine months ended October 30, 2020 were $15 million. All gains and losses on these securities, whether realized or unrealized, are 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 29, 2021 and October 30, 2020, the effective portion of gains or losses reclassified to the condensed consolidated statements of income was not significant. 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 contractual maturities of twelve months or less, and as of October 29, 2021 and January 29, 2021, outstanding forward contracts had a total notional value of $132 million and $486 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 29, 2021 and January 29, 2021.
During the three and nine months ended October 29, 2021 and October 30, 2020, 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 contractual maturity of one month, and as of October 29, 2021 and January 29, 2021, outstanding forward contracts had a total notional value of $687 million and $1.2 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 29, 2021 and January 29, 2021.
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. Losses related to the settlement of forward contracts were not significant and $34 million during the three and nine months ended October 30, 2020, respectively. Gains and losses are recorded in other income (expense), net on the condensed consolidated statements of income.
21

VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

The combined gains and losses related to the settlement of forward contracts and the underlying foreign currency denominated assets and liabilities were not significant during the three and nine months ended October 29, 2021. The combined gains and losses related to the settlement of forward contracts and the underlying foreign currency denominated assets and liabilities were not significant during the three months ended October 30, 2020 and resulted in net gains of $14 million during the nine months ended October 30, 2020. Net gains and losses are recorded in other income (expense), net on the condensed consolidated statements of income.
L. Leases
VMware has operating and finance leases primarily related to office facilities and equipment, which have remaining lease terms of one month to 25 years.
The components of lease expense during the periods presented were as follows (table in millions):
Three Months Ended Nine Months Ended
October 29, October 30, October 29, October 30,
2021 2020 2021 2020
Operating lease expense $ 48  $ 47  $ 144  $ 137 
Finance lease expense:
Amortization of right-of-use (“ROU”) assets
Interest on lease liabilities —  — 
 Total finance lease expense
Short-term lease expense — 
Variable lease expense 23  22 
 Total lease expense $ 58  $ 57  $ 174  $ 167 
From time to time, VMware enters into lease arrangements with Dell. Lease expense incurred for arrangements with Dell was not significant during the periods presented.
The Company subleases certain 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 29, 2021 and October 30, 2020 and was $16 million and $15 million, respectively, during the nine months ended October 29, 2021 and October 30, 2020.
Supplemental cash flow information related to operating and finance leases during the periods presented was as follows (table in millions):
Nine Months Ended
October 29, October 30,
2021 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 129  $ 124 
Operating cash flows from finance leases
Financing cash flows from finance leases
ROU assets obtained in exchange for lease liabilities:
Operating leases $ 124  $ 256 
Finance leases — 
22

VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

Supplemental balance sheet information related to operating and finance leases as of the periods presented was as follows (table in millions):
October 29, 2021
Operating Leases Finance Leases
ROU assets, non-current(1)
$ 1,000  $ 48 
Lease liabilities, current(2)
$ 127  $
Lease liabilities, non-current(3)
885  45 
Total lease liabilities $ 1,012  $ 50 
January 29, 2021
Operating Leases Finance Leases
ROU assets, non-current(1)
$ 997  $ 53 
Lease liabilities, current(2)
$ 109  $
Lease liabilities, non-current(3)
891  50 
Total lease liabilities $ 1,000  $ 55 
(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. An insignificant amount is presented in due from related parties, net 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 29, January 29,
2021 2021
Weighted-average remaining lease term (in years)
Operating leases 12.1 12.6
Finance leases 7.5 8.3
Weighted-average discount rate
Operating leases 3.3  % 3.5  %
Finance leases 2.9  % 2.9  %
23

VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

The following represents VMware’s future minimum lease payments under non-cancellable operating and finance leases as of October 29, 2021 (table in millions):
Operating Leases Finance Leases
Remainder of 2022 $ 32  $
2023 177 
2024 153 
2025 121 
2026 107 
Thereafter 690  27 
Total future minimum lease payments 1,280  56 
Less: Imputed interest (268) (6)
Total lease liabilities(1)
$ 1,012  $ 50 
(1) Total lease liabilities as of October 29, 2021 excluded legally binding lease payments for leases signed but not yet commenced of $62 million.
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. From time to time, VMware also purchases stock in private transactions, such as those with Dell. All shares repurchased under VMware’s stock repurchase programs are retired.
During May 2019, VMware’s board of directors authorized the repurchase of up to $1.5 billion of Class A Stock through January 29, 2021. During July 2020, VMware’s board of directors extended authorization of the existing stock repurchase program through January 28, 2022 and authorized the repurchase of up to an additional $1.0 billion of Class A Stock through January 28, 2022. On October 7, 2021, VMware authorized the termination of the existing stock repurchase program, under which $183 million remained authorized and unpurchased as of October 29, 2021 and authorized a new repurchase program of up to $2.0 billion of Class A Stock through the end of fiscal 2024, in each case, effective upon the consummation of the Spin-Off from Dell on November 1, 2021. Refer to Note O for more information regarding the Spin-Off.
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 29, October 30, October 29, October 30,
2021 2020 2021 2020
Aggregate purchase price $ 143  $ 255  $ 872  $ 566 
Class A Stock repurchased 956  1,770  5,699  4,229 
Weighted-average price per share $ 149.61  $ 144.28  $ 153.07  $ 133.83 
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 Class A 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-based or market-based vesting component. Upon vesting, PSU awards convert into VMware’s Class A Stock at various ratios ranging from 0.4 to 2.0 shares per PSU, depending upon the degree of
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

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 29, 2021 (units in thousands):
Number of Units Weighted-Average Grant Date Fair Value
(per unit)