0001124610-22-000030 10-Q 90 20220429 20220603 20220603 VMWARE, INC. 0001124610 7372 943292913 DE 0128 10-Q 34 001-33622 22994687 3401 HILLVIEW AVENUE PALO ALTO CA 94304 (650) 427-5000 3401 HILLVIEW AVENUE PALO ALTO CA 94304 VMWARE INC 20000923 10-Q 1 vmw-20220429.htm 10-Q vmw-20220429
00011246102/32023Q1FALSE Includes related party revenue as follows (refer to Note D):
License$254 $287 
Subscription and SaaS255 173 
Services641 588 
Includes stock-based compensation as follows:
Cost of subscription and SaaS revenue$$
Cost of services revenue23 25 
Research and development132 127 
Sales and marketing83 75 
General and administrative40 31 
12
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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 April 29, 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 May 27, 2022, the number of shares of Class A common stock, par value $0.01 per share, of the registrant outstanding was 421,445,382.


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

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
 April 29,April 30,
 20222021
Revenue(1):
License$572 $646 
Subscription and SaaS899 741 
Services1,617 1,607 
Total revenue3,088 2,994 
Operating expenses(2):
Cost of license revenue35 37 
Cost of subscription and SaaS revenue192 157 
Cost of services revenue375 337 
Research and development774 708 
Sales and marketing1,053 959 
General and administrative251 236 
Realignment 1 
Operating income408 559 
Investment income1  
Interest expense(71)(50)
Other income (expense), net(10)(23)
Income before income tax328 486 
Income tax provision86 61 
Net income$242 $425 
Net income per weighted-average share, basic$0.58 $1.01 
Net income per weighted-average share, diluted$0.57 $1.01 
Weighted-average shares, basic420,586 419,116 
Weighted-average shares, diluted422,987 422,038 
__________
(1)   Includes related party revenue as follows (refer to Note C):
License$254 $287 
Subscription and SaaS255 173 
Services641 588 
(2)   Includes stock-based compensation as follows:
Cost of subscription and SaaS revenue$5 $5 
Cost of services revenue23 25 
Research and development132 127 
Sales and marketing83 75 
General and administrative40 31 
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
April 29,April 30,
 20222021
Net income$242 $425 
Other comprehensive income (loss):
Changes in fair value of effective foreign currency forward contracts:
Unrealized gains (losses), net of tax provision (benefit) of $ and $
(4)2 
Total other comprehensive income (loss)(4)2 
Comprehensive income, net of taxes$238 $427 
The accompanying notes are an integral part of the condensed consolidated financial statements.
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VMware, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in millions, except per share amounts, and shares in thousands)
(unaudited)
April 29,January 28,
20222022
ASSETS
Current assets:
Cash and cash equivalents$3,719 $3,614 
Short-term investments 19 
Accounts receivable, net of allowance of $11 and $10
1,620 2,297 
Due from related parties638 1,438 
Other current assets666 598 
Total current assets6,643 7,966 
Property and equipment, net1,492 1,461 
Deferred tax assets5,948 5,906 
Intangible assets, net651 714 
Goodwill9,598 9,598 
Due from related parties197 199 
Other assets2,905 2,832 
Total assets$27,434 $28,676 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable$204 $234 
Accrued expenses and other2,276 2,806 
Unearned revenue6,296 6,479 
Due to related parties116 132 
Total current liabilities8,892 9,651 
Long-term debt11,926 12,671 
Unearned revenue4,570 4,743 
Income tax payable241 242 
Operating lease liabilities927 927 
Due to related parties911 909 
Other liabilities378 409 
Total liabilities27,845 29,552 
Contingencies (refer to Note D)
Stockholders’ deficit:
Class A common stock, par value $0.01; authorized 2,500,000 shares; issued and outstanding 420,517 and 418,808 shares
4 4 
Additional paid-in capital227  
Accumulated other comprehensive loss(9)(5)
Accumulated deficit(633)(875)
Total stockholders’ deficit(411)(876)
Total liabilities and stockholders’ deficit$27,434 $28,676 
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)
Three Months Ended
 April 29,April 30,
 20222021
Operating activities:
Net income$242 $425 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization288 269 
Stock-based compensation283 263 
Deferred income taxes, net(43)(48)
(Gain) loss on equity securities and disposition of assets, net(9)36 
Other3 1 
Changes in assets and liabilities, net of acquisitions:
Accounts receivable675 395 
Other current assets and other assets(244)(161)
Due from related parties801 685 
Accounts payable(28)65 
Accrued expenses and other liabilities(665)(630)
Income taxes payable74 80 
Unearned revenue(357)(114)
Due to related parties(15) 
Net cash provided by operating activities1,005 1,266 
Investing activities:
Additions to property and equipment(106)(70)
Sales of investments in equity securities20 8 
Purchases of strategic investments(8) 
Proceeds from disposition of assets6  
Business combinations, net of cash acquired, and purchases of intangible assets(3)(10)
Net cash used in investing activities(91)(72)
Financing activities:
Proceeds from issuance of common stock119 131 
Repayment of term loan(750) 
Repurchase of common stock(89)(371)
Shares repurchased for tax withholdings on vesting of restricted stock(94)(56)
Principal payments on finance lease obligations(1)(1)
Net cash used in financing activities(815)(297)
Net increase in cash, cash equivalents and restricted cash99 897 
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$3,762 $5,667 
Supplemental disclosures of cash flow information:
Cash paid for interest$80 $46 
Cash paid for taxes, net69 38 
Non-cash items:
Changes in capital additions, accrued but not paid$(7)$3 
The accompanying notes are an integral part of the condensed consolidated financial statements.
6

VMware, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(in millions)
(unaudited)
Three Months Ended April 29, 2022
Class A
Common Stock
Additional
Paid-in
Capital
Accumulated DeficitAccumulated
Other
Comprehensive
Loss
Stockholders’
Deficit
SharesPar Value
Balance, January 28, 2022419 $4 $ $(875)$(5)$(876)
Proceeds from issuance of common stock1 — 119 — — 119 
Repurchase and retirement of common stock(1)— (89)— — (89)
Issuance of restricted stock2 — — — — — 
Shares withheld for tax withholdings on vesting of restricted stock— — (93)— — (93)
Stock-based compensation— — 290 — — 290 
Total other comprehensive loss— — — — (4)(4)
Net income— — — 242 — 242 
Balance, April 29, 2022
421 $4 $227 $(633)$(9)$(411)
Three Months Ended April 30, 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, 2021
112 $1 307 $3 $1,985 $7,067 $(5)$9,051 
Proceeds from issuance of common stock1 — — — 131 — — 131 
Repurchase and retirement of common stock(3)— — — (371)— — (371)
Issuance of restricted stock1 — — — — — — — 
Shares withheld for tax withholdings on vesting of restricted stock— — — — (52)— — (52)
Stock-based compensation— — — — 267 — — 267 
Total other comprehensive income— — — — — — 2 2 
Net income— — — — — 425 — 425 
Balance, April 30, 2021
111 $1 307 $3 $1,960 $7,492 $(3)$9,453 
The accompanying notes are an integral part of the condensed consolidated financial statements.
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VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A. Overview and Basis of Presentation
Company and Background
VMware, Inc. (“VMware”) 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 fourth quarter has 14 weeks and the remaining quarters have 13 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 40.3% and 10.0%, respectively, of VMware’s outstanding stock, based on the shares outstanding as of April 29, 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.
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
8

VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
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 $41 million and $36 million as of April 29, 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
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 April 29, 2022, customer deposits related to customer prepayments and cloud credits of $503 million were included in accrued expenses and other, and $136 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 April 29, 2022 and January 28, 2022 were $15 million and $17 million, respectively. Deferred commissions included in other assets were $1.2 billion as of April 29, 2022 and January 28, 2022.
Amortization expense for deferred commissions was included in sales and marketing on the condensed consolidated statements of income and was $143 million and $125 million during the three months ended April 29, 2022 and April 30, 2021, respectively.
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VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Unearned Revenue
Unearned revenue as of the periods presented consisted of the following (table in millions):
April 29,January 28,
20222022
Unearned license revenue$20 $19 
Unearned subscription and Software as a Service (“SaaS”) revenue2,671 2,669 
Unearned software maintenance revenue6,877 7,208 
Unearned professional services revenue1,298 1,326 
Total unearned revenue$10,866 $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 April 29, 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 April 29, 2022 were $1.8 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.
Revenue recognized during the three months ended April 30, 2021 was $2.0 billion 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 April 29, 2022, the aggregate transaction price allocated to remaining performance obligations was $11.6 billion, of which approximately 57% 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 market 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.
10

VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
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 months ended April 29, 2022 and April 30, 2021, revenue from Dell accounted for 37% and 35% of VMware’s consolidated revenue, respectively. During the three months ended April 29, 2022 and April 30, 2021, revenue recognized on transactions where Dell acted as an OEM accounted for 14% and 13% of total revenue from Dell, respectively, or 5% and 5% of VMware’s consolidated revenue, respectively.
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 EndedAs of
April 29,April 30,April 29,January 28,
2022202120222022
Reseller revenue$1,137 $1,036 $5,309 $5,550 
Internal-use revenue13 12 27 39 
Receipts from Dell for collaborative technology projects were not material during the three months ended April 29, 2022 and April 30, 2021.
Customer deposits resulting from transactions with Dell were $282 million and $298 million as of April 29, 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, 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.
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 Ended
April 29,April 30,
20222021
Purchases and leases of products and purchases of services(1)
$42 $47 
Dell subsidiary support and administrative costs3 13 
(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.
11

VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
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 not significant during the three months ended April 29, 2022 and April 30, 2021.
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-Spin-Off periods 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):
April 29,January 28,
20222022
Due from related parties:
Current$ $6 
Non-current197 199
Due to related parties:
Current$63 $61 
Non-current911 909 
Amounts due to Dell pursuant to the Tax Matters Agreement primarily related to the Transition Tax of $504 million as of April 29, 2022 and January 28, 2022. 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 April 29, 2022 over a period of four years. In addition, amounts due to Dell included uncertain tax positions of $277 million and $276 million as of April 29, 2022 and January 28, 2022, respectively.
During the three months ended April 29, 2022, payments received from Dell pursuant to the Tax Agreements were not material, and no payments were made to Dell. Payments received from and made to Dell pursuant to the Tax Agreements were $45 million and $12 million, respectively, during the three months ended April 30, 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 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,
12

VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
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. On May 2, 2022, parties in the Lopez Action agreed to a settlement term sheet, which—if ultimately approved by the court—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. The Appraisal Action parties are now in the pretrial preparation stages of the lawsuit, with the trial 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 in the Appraisal Action 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. 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, including four patents and three trademark claims asserted by Cirba and eight patents asserted by VMware. The parties are currently in the discovery 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; (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 no longer probable and 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. VMware is fully cooperating with the SEC and is engaged in discussions with the SEC about a potential resolution. VMware is unable to predict the outcome of this matter at this time.
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 April 29, 2022, amounts accrued relating to these other matters
13

VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
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):
April 29, 2022
Weighted-Average Useful Lives
(in years)
Gross Carrying AmountAccumulated AmortizationNet Book Value
Purchased technology5.3$839 $(541)$298 
Customer relationships and customer lists11.9645 (322)323 
Trademarks and tradenames7.591 (61)30 
Total definite-lived intangible assets$1,575 $(924)$651 
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 $66 million and $77 million during the three months ended April 29, 2022 and April 30, 2021, respectively.
Based on intangible assets recorded as of April 29, 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$188 
2024202 
2025109 
202669 
202739 
Thereafter44 
Total$651 
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.
14

VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
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
 April 29,April 30,
 20222021
Net income$242 $425 
Weighted-average shares, basic420,586 419,116 
Effect of other dilutive securities2,401 2,922 
Weighted-average shares, diluted422,987 422,038 
Net income per weighted-average share, basic$0.58 $1.01 
Net income per weighted-average share, diluted$0.57 $1.01 
The following table sets forth the weighted-average common share equivalents of Class A 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 Ended
April 29,April 30,
20222021
Anti-dilutive securities:
Employee stock options94 40 
RSUs481 513 
Total575 553 
G. Cash, Cash Equivalents, Restricted Cash and Short-Term Investments
Cash and Cash Equivalents
Cash and cash equivalents totaled $3.7 billion and $3.6 billion as of April 29, 2022 and January 28, 2022, respectively. Cash equivalents were $3.0 billion as of April 29, 2022 and consisted of money-market funds of $3.0 billion and time deposits of $22 million. 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):
April 29,January 28,
20222022
Cash and cash equivalents$3,719 $3,614 
Restricted cash within other current assets37 43 
Restricted cash within other assets6 6 
Total cash, cash equivalents and restricted cash$3,762 $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.
15

VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
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 I for more information regarding the Company’s marketable equity securities.
H. 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.
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”).
The carrying value of the Senior Notes as of the periods presented was as follows (amounts in millions):
April 29,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(14)(15)
Less: unamortized debt issuance costs(57)(61)
Long-term debt$9,179 $9,174 
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, commencing on 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, commencing on February 21, 2018. Interest expense was $62 million and $48 million during the three months ended April 29, 2022 and April 30, 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.
16

VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The future principal payments for the Senior Notes as of April 29, 2022 were as follows (amounts in millions):
Remainder of 2023$ 
20241,000 
20251,250 
2026750 
20271,500 
Thereafter4,750 
Total$9,250 
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”). On November 1, 2021, the Company drew down an aggregate of $4 billion and repaid $750 million and $500 million on April 4, 2022 and January 25, 2022, respectively. As of April 29, 2022 and January 28, 2022, the outstanding balance on the 2021 Term Loan of $2.7 billion and $3.5 billion, net of unamortized debt issuance costs, was included in long-term debt on the condensed consolidated balance sheets. As of April 29, 2022, the weighted-average interest rate on the outstanding 2021 Term Loan was 1.30%.
The 2021 Term Loan contains certain representations, warranties and covenants. Interest expense for the 2021 Term Loan, including amortization of issuance costs, was not significant during the three months ended April 29, 2022.
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 April 29, 2022, 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 April 29, 2022.
I. 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.
17

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):
 April 29, 2022
 Level 1Level 2Total
Cash equivalents:
Money-market funds$2,998 $ $2,998 
Time deposits(1)
 22 22 
Total cash equivalents$2,998 $22 $3,020 
 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 $8.6 billion and $9.3 billion as of April 29, 2022 and January 28, 2022, respectively. The fair value of the 2021 Term Loan approximated its carrying value as of April 29, 2022 and January 28, 2022. Fair value for the Senior Notes and the 2021 Term Loan 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 $166 million and $162 million as of April 29, 2022 and January 28, 2022, 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 $15 million and in other liabilities of $151 million on the condensed consolidated balance sheets as of April 29, 2022. Liabilities associated with this plan were included in accrued expenses and other of $16 million and in other liabilities of $146 million on the condensed consolidated balance sheets as of January 28, 2022.
18

VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
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 gain or loss recognized on the sale of the investment during the three months ended April 29, 2022 and April 30, 2021 was not significant. An unrealized loss of $33 million was recognized during the three months ended April 30, 2021 on investment still held as of April 30, 2021. 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.
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 val