UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)



þ☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~November 3, 2017~~August 4, 2023



o☐			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)

~~Delaware~~		~~94-3292913~~
~~(State or other jurisdiction of~~ ~~incorporation or organization)~~	~~(I.R.S. Employer~~ ~~Identification Number)~~

3401 Hillview Avenue ~~Palo Alto, CA~~	~~94304~~
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 þ☑ No o☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yes þ☑ No o☐

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

o☐

Non-accelerated filer

☐

~~(Do not check if a smaller reporting company)~~

Smaller reporting company

o☐

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. o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No þ☑

As of ~~December~~September 1, ~~2017,~~2023, the number of shares of Class A common stock, par value $0.01per share, of the registrant outstanding was ~~403,138,064,~~431,789,488.

Table of ~~which 103,138,064 shares were Class A common stock and 300,000,000 were ClassB common stock.~~Contents

TABLE OF CONTENTS


					Page

PART I – FINANCIAL INFORMATION
Item 1.			Financial Statements (unaudited)		3

				~~Page~~
~~PART I – FINANCIAL INFORMATION~~

~~Item 1.~~	~~Financial Statements (unaudited)~~			3

	Condensed Consolidated Statements of Income ~~(Loss)~~	3

			Condensed Consolidated Statements of Comprehensive Income ~~(Loss)~~		4

			Condensed Consolidated Balance Sheets		5

			Condensed Consolidated Statements of Cash Flows		6

			Condensed Consolidated Statements of Stockholders’ Equity (Deficit)		7

			Notes to Condensed Consolidated Financial Statements		78

Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations		2825

Item 3.			Quantitative and Qualitative Disclosures About Market Risk		4137

Item 4.			Controls and Procedures		4137

PART II – OTHER INFORMATION

Item 1.			Legal Proceedings		4338

Item 1A.			Risk Factors		4338

Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds		6260

Item 6.			~~Exhibits~~5.	62Other Information		60

			~~SIGNATURE~~Item 6.	63Exhibits		61

			~~EXHIBIT INDEX~~SIGNATURE		6462

VMware, ~~vCloud, vCloud Air, NSX, VMware vSAN, VMware Cloud,~~Pivotal, Tanzu, Workspace ONE, ~~AirWatch, Horizon, Horizon Suite,~~Aria, Carbon Black, vSphere, NSX, vRealize, ~~Photon, Photon OS~~CloudHealth, VeloCloud, Nyansa and ~~vSphere Integrated Containers~~ESXi 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 ~~companies.~~organizations.

Table of Contents

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VMware, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME ~~(LOSS)~~

(amounts in millions, except per share amounts, and shares in thousands)

(unaudited)


													Transition Period				Three Months Ended				Six Months Ended
	Three Months Ended						Nine Months Ended						January 1 to				August 4,		July 29,		August 4,		July 29,
	November 3,			September 30,			November 3,			September 30,			February 3,				2023		2022		2023		2022
	2017			2016			2017			2016			2017
Revenue:
Revenue(1):																Revenue(1):
License	$	785		$	691		$	2,127		$	1,907		$	125		License	$	619	$	796	$	1,136	$	1,369
Subscription and SaaS																Subscription and SaaS	1,259		943		2,476		1,842
Services	1,191			1,087			3,485			3,153			371			Services	1,530		1,597		3,073		3,213
Total revenue	1,976			1,778			5,612			5,060			496			Total revenue	3,408		3,336		6,685		6,424
Operating expenses⁽¹⁾:
Operating expenses(2):																Operating expenses(2):
Cost of license revenue	38			40			116			121			13			Cost of license revenue	37		39		76		74
Cost of subscription and SaaS revenue																Cost of subscription and SaaS revenue	203		196		411		387
Cost of services revenue	240			226			721			658			80			Cost of services revenue	399		369		796		744
Research and development	449			389			1,298			1,109			150			Research and development	835		803		1,682		1,577
Sales and marketing	607			564			1,862			1,708			231			Sales and marketing	1,100		1,080		2,205		2,134
General and administrative	175			178			486			516			63			General and administrative	287		276		660		527
Realignment and loss on disposition	2			—			88			52			—
Operating income (loss)	465			381			1,041			896			(41		)
Realignment																Realignment	—		7		—		7
Operating income																Operating income	547		566		855		974
Investment income	33			21			82			56			8			Investment income	74		7		138		8
Interest expense	(28		)	(7		)	(41		)	(20		)	(2		)	Interest expense	(79)		(74)		(159)		(145)
Other income (expense), net	(2		)	(8		)	51			(8		)	1			Other income (expense), net	19		(20)		26		(30)
Income (loss) before income tax	468			387			1,133			924			(34		)
Income tax provision (benefit)	25			68			124			179			(26		)
Net income (loss)	$	443		$	319		$	1,009		$	745		$	(8	)
Net income (loss) per weighted-average share, basic for Classes A and B	$	1.09		$	0.76		$	2.47		$	1.76		$	(0.02	)
Net income (loss) per weighted-average share, diluted for Classes A and B	$	1.07		$	0.75		$	2.44		$	1.75		$	(0.02	)
Weighted-average shares, basic for Classes A and B	406,733			421,704			407,856			423,341			408,625
Weighted-average shares, diluted for Classes A and B	413,013			425,008			413,957			425,851			408,625
Income before income tax																Income before income tax	561		479		860		807
Income tax provision																Income tax provision	84		132		159		218
Net income																Net income	$	477	$	347	$	701	$	589

Net income per weighted-average share, basic																Net income per weighted-average share, basic	$	1.11	$	0.82	$	1.63	$	1.40
Net income per weighted-average share, diluted																Net income per weighted-average share, diluted	$	1.10	$	0.82	$	1.62	$	1.39
Weighted-average shares, basic																Weighted-average shares, basic	430,395		422,002		429,290		421,294
Weighted-average shares, diluted																Weighted-average shares, diluted	434,090		424,125		432,839		423,561
__________																__________
⁽¹⁾ Includes stock-based compensation as follows:

(1) Includes related party revenue as follows (refer to Note C):																(1) Includes related party revenue as follows (refer to Note C):
License																License	$	291	$	436	$	478	$	690
Subscription and SaaS																Subscription and SaaS	389		259		767		514
Services																Services	589		633		1,193		1,274

(2) Includes stock-based compensation as follows:																(2) Includes stock-based compensation as follows:
Cost of license revenue	$	—		$	—		$	1		$	2		$	—		Cost of license revenue	$	—	$	—	$	1	$	1
Cost of subscription and SaaS revenue																Cost of subscription and SaaS revenue	6		6		13		11
Cost of services revenue	13			13			38			38			5			Cost of services revenue	23		25		45		48
Research and development	96			80			266			224			31			Research and development	146		146		293		278
Sales and marketing	52			51			150			146			19			Sales and marketing	88		93		166		174
General and administrative	21			26			58			62			7			General and administrative	47		41		81		81

The accompanying notes are an integral part of the condensed consolidated financial statements.

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VMware, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ~~(LOSS)~~

(in millions)

(unaudited)

Transition Period
Three Months Ended Nine Months Ended January 1 to
November 3, September 30, November 3, September 30, February 3,
2017 2016 2017 2016 2017
Net income (loss) $ 443
$ 319
$ 1,009
$ 745
$ (8 )
Other comprehensive income (loss):
Changes in market value of available-for-sale securities:
Unrealized gains (losses), net of tax provision (benefit) of ($3), ($2), $5, $12 and $1 (6 ) (4 ) 9
19
2
Reclassification of losses realized during the period, net of tax benefit of $—, $—, $2, $3 and $— —
—
3
4
—
Net change in market value of available-for-sale securities (6 ) (4 ) 12
23
2
Changes in market value of effective foreign currency forward contracts:
Unrealized gains (losses), net of tax provision of $— for all periods (1 ) —
3
—
3
Reclassification of (gains) losses realized during the period, net of tax benefit of $3, $—, $—, $— and $— (1 ) —
(2 ) 1
—
Net change in market value of effective foreign currency forward contracts (2 ) —
1
1
3
Total other comprehensive income (loss) (8 ) (4 ) 13
24
5
Total comprehensive income (loss), net of taxes $ 435
$ 315
$ 1,022
$ 769
$ (3 )



	Three Months Ended				Six Months Ended
	August 4,		July 29,		August 4,		July 29,
	2023		2022		2023		2022
Net income	$	477	$	347	$	701	$	589
Other comprehensive income (loss):




Changes in fair value of effective foreign currency forward contracts:
Unrealized gains (losses), net of tax provision (benefit) of $—, $(1), $— and $(1)	(2)		(6)		(2)		(9)
Reclassification of (gains) losses realized during the period, net of tax (provision) benefit of $— for all periods	—		2		—		1


Total other comprehensive income (loss)	(2)		(4)		(2)		(8)
Comprehensive income, net of taxes	$	475	$	343	$	699	$	581

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)

Transition Period
November 3, December 31, February 3,
2017 2016 2017
ASSETS
Current assets:
Cash and cash equivalents $ 6,012
$ 2,790
$ 3,220
Short-term investments 5,600
5,195
5,173
Accounts receivable, net of allowance for doubtful accounts of $2, $2 and $2 900
1,856
1,192
Due from related parties, net 254
132
93
Other current assets 160
362
173
Total current assets 12,926
10,335
9,851
Property and equipment, net 1,031
1,049
1,042
Other assets 282
248
249
Deferred tax assets 641
462
716
Intangible assets, net 443
517
507
Goodwill 4,271
4,032
4,032
Total assets $ 19,594
$ 16,643
$ 16,397
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 99
$ 125
$ 53
Accrued expenses and other 926
898
887
Unearned revenue 3,500
3,531
3,349
Total current liabilities 4,525
4,554
4,289
Notes payable to Dell 270
1,500
1,500
Long-term debt 3,962
—
—
Unearned revenue 2,147
2,093
1,991
Other liabilities 416
399
401
Total liabilities 11,320
8,546
8,181
Contingencies (refer to Note J)

Stockholders’ equity:
Class A common stock, par value $.01; authorized 2,500,000 shares; issued and outstanding 103,819, 108,351 and 110,060 shares 1
1
1
Class B convertible common stock, par value $.01; authorized 1,000,000 shares; issued and outstanding 300,000 shares 3
3
3
Additional paid-in capital 879
1,721
1,843
Accumulated other comprehensive income (loss) 9
(9 ) (4 )
Retained earnings 7,382
6,381
6,373
Total stockholders’ equity 8,274
8,097
8,216
Total liabilities and stockholders’ equity $ 19,594
$ 16,643
$ 16,397



	August 4,		February 3,
	2023		2023
ASSETS
Current assets:
Cash and cash equivalents	$	6,801	$	5,100

Accounts receivable, net of allowance of $10 and $9	2,432		2,510
Due from related parties	1,267		2,078

Other current assets	519		543
Total current assets	11,019		10,231
Property and equipment, net	1,644		1,623
Deferred tax assets	6,402		6,157
Intangible assets, net	368		478
Goodwill	9,598		9,598
Due from related parties	267		208
Other assets	2,901		2,942
Total assets	$	32,199	$	31,237
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	217	$	267
Accrued expenses and other	2,358		2,568
Customer deposits	2,017		1,087
Current portion of long-term debt	1,000		1,000

Unearned revenue	6,739		7,079
Due to related parties	404		390
Total current liabilities	12,735		12,391

Long-term debt	9,449		9,440
Unearned revenue	5,351		5,664
Income tax payable	381		287
Operating lease liabilities	785		845
Due to related parties	504		648
Other liabilities	447		428
Total liabilities	29,652		29,703
Contingencies (refer to Note D)
Stockholders’ equity:
Class A common stock, par value $0.01; authorized 2,500,000 shares; issued and outstanding 431,379 and 426,741 shares	4		4

Additional paid-in capital	1,409		1,095
Accumulated other comprehensive loss	(6)		(4)
Retained earnings	1,140		439
Total stockholders’ equity	2,547		1,534


Total liabilities and stockholders’ equity	$	32,199	$	31,237

The accompanying notes are an integral part of the condensed consolidated financial statements.

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VMware, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)

Transition Period
Nine Months Ended January 1 to
November 3, September 30, February 3,
2017 2016 2017
Operating activities:
Net income (loss) $ 1,009
$ 745
$ (8 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 246
261
29
Stock-based compensation 513
472
62
Excess tax benefits from stock-based compensation —
(7 ) (5 )
Deferred income taxes, net 100
(24 ) (254 )
Amortization of debt discount and debt issuance costs 1
—
—
Loss on disposition 80
—
—
Gain on disposition of strategic investments (38 ) (1 ) —
Impairment of strategic investments 5
12
—
Gain on extinguishment of debt (6 ) —
—
(Gain) loss on Dell stock purchase 2
—
(1 )
Loss on disposal of assets 1
12
—
Other 2
(1 ) —
Changes in assets and liabilities, net of acquisitions:
Accounts receivable 293
513
664
Other assets (27 ) (22 ) 190
Due to/from related parties, net (162 ) 55
39
Accounts payable 39
(26 ) (68 )
Accrued expenses and other liabilities 27
(64 ) (41 )
Income taxes payable (63 ) (26 ) 38
Unearned revenue 342
18
(284 )
Net cash provided by operating activities 2,364
1,917
361
Investing activities:
Additions to property and equipment (164 ) (109 ) (18 )
Purchases of available-for-sale securities (3,339 ) (3,337 ) (38 )
Sales of available-for-sale securities 1,745
1,769
43
Maturities of available-for-sale securities 1,207
1,015
20
Proceeds from disposition of assets —
3
—
Purchases of strategic investments (33 ) (33 ) —
Proceeds from sales of strategic investments 6
1
—
Business combinations, net of cash acquired (236 ) (59 ) —
Net cash paid on disposition of a business (47 ) —
—
Increase in restricted cash —
(2 ) —
Net cash provided by (used in) investing activities (861 ) (752 ) 7
Financing activities:
Proceeds from issuance of common stock 104
106
61
Net proceeds from issuance of long-term debt 3,961
—
—
Repayment of notes payable to Dell (1,225 ) —
—
Payment to acquire non-controlling interests —
(4 ) —
Repurchase of common stock (1,280 ) (1,016 ) —
Excess tax benefits from stock-based compensation —
7
5
Shares repurchased for tax withholdings on vesting of restricted stock (271 ) (97 ) (4 )
Net cash provided by (used in) financing activities 1,289
(1,004 ) 62
Net increase in cash and cash equivalents 2,792
161
430
Cash and cash equivalents at beginning of the period 3,220
2,493
2,790
Cash and cash equivalents at end of the period $ 6,012
$ 2,654
$ 3,220
Supplemental disclosures of cash flow information:
Cash paid for interest $ 19
$ 21
$ —
Cash paid for taxes, net 87
212
3
Non-cash items:
Changes in capital additions, accrued but not paid $ 19
$ (15 ) $ (6 )


	Six Months Ended
		August 4,		July 29,
		2023		2022
Operating activities:
Net income		$	701	$	589
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		666		590
Stock-based compensation		599		593

Deferred income taxes, net		(237)		(80)
(Gain) loss on equity securities and disposition of assets, net		4		(12)









Other		6		3
Changes in assets and liabilities, net of acquisitions:
Accounts receivable		72		222
Other current assets and other assets		(291)		(418)
Due from related parties		752		180
Accounts payable		(49)		(31)
Accrued expenses, customer deposits and other liabilities		717		(319)

Income taxes payable		37		114
Unearned revenue		(653)		9
Due to related parties		(130)		(38)
Net cash provided by operating activities		2,194		1,402
Investing activities:
Additions to property and equipment		(199)		(219)

Sales of investments in equity securities		—		20


Purchases of strategic investments		(3)		(8)
Proceeds from disposition of assets		10		90
Business combinations, net of cash acquired, and purchases of intangible assets		(8)		(4)



Net cash used in investing activities		(200)		(121)
Financing activities:

Proceeds from issuance of common stock		5		124



Repayment of term loan		—		(1,500)





Repurchase of common stock		—		(89)

Shares repurchased for tax withholdings on vesting of restricted stock		(300)		(205)




Principal payments on finance lease obligations		(3)		(2)
Net cash used in financing activities		(298)		(1,672)

Net increase (decrease) in cash, cash equivalents and restricted cash		1,696		(391)
Cash, cash equivalents and restricted cash at beginning of the period		5,127		3,663
Cash, cash equivalents and restricted cash at end of the period		$	6,823	$	3,272
Supplemental disclosures of cash flow information:

Cash paid for interest		$	154	$	140
Cash paid for taxes, net		416		184
Non-cash items:
Changes in capital additions, accrued but not paid		$	(12)	$	9

The accompanying notes are an integral part of the condensed consolidated financial statements.

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VMware, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in millions)

(unaudited)


	Three Months Ended August 4, 2023
	Class A Common Stock			Additional Paid-in Capital	Retained Earnings		Accumulated Other Comprehensive Loss				Stockholders’ Equity
	Shares	Par Value
Balance, May 5, 2023	430	$	4		$	1,204	$	663	$	(4)		$	1,867
Proceeds from issuance of common stock	—	—			4		—		—			4


Issuance of restricted stock	2	—			—		—		—			—
Shares withheld for tax withholdings on vesting of restricted stock	(1)	—			(116)		—		—			(116)
Stock-based compensation	—	—			317		—		—			317



Total other comprehensive loss	—	—			—		—		(2)			(2)



Net income	—	—			—		477		—			477
Balance, August 4, 2023	431	$	4		$	1,409	$	1,140	$	(6)		$	2,547


	Six Months Ended August 4, 2023
	Class A Common Stock			Additional Paid-in Capital	Retained Earnings		Accumulated Other Comprehensive Loss				Stockholders’ Equity
	Shares	Par Value
Balance, February 3, 2023	427	$	4		$	1,095	$	439	$	(4)		$	1,534
Proceeds from issuance of common stock	—	—			5		—		—			5


Issuance of restricted stock	7	—			—		—		—			—
Shares withheld for tax withholdings on vesting of restricted stock	(3)	—			(305)		—		—			(305)
Stock-based compensation	—	—			614		—		—			614



Total other comprehensive loss	—	—			—		—		(2)			(2)



Net income	—	—			—		701		—			701
Balance, August 4, 2023	431	$	4		$	1,409	$	1,140	$	(6)		$	2,547


	Three Months Ended July 29, 2022
	Class A Common Stock			Additional Paid-in Capital	Accumulated Deficit		Accumulated Other Comprehensive Loss				Stockholders’ Equity (Deficit)
	Shares	Par Value
Balance, April 29, 2022	421	$	4		$	227	$	(633)	$	(9)		$	(411)
Proceeds from issuance of common stock	—	—			5		—		—			5


Issuance of restricted stock	3	—			—		—		—			—
Shares withheld for tax withholdings on vesting of restricted stock	(1)	—			(115)		—		—			(115)
Stock-based compensation	—	—			318		—		—			318



Total other comprehensive loss	—	—			—		—		(4)			(4)



Net income	—	—			—		347		—			347
Balance, July 29, 2022	423	$	4		$	435	$	(286)	$	(13)		$	140


	Six Months Ended July 29, 2022
	Class A Common Stock			Additional Paid-in Capital	Accumulated Deficit		Accumulated Other Comprehensive Loss				Stockholders’ Equity (Deficit)
	Shares	Par Value
Balance, January 28, 2022	419	$	4		$	—	$	(875)	$	(5)		$	(876)
Proceeds from issuance of common stock	1	—			124		—		—			124

Repurchase and retirement of common stock	(1)	—			(89)		—		—			(89)
Issuance of restricted stock	5	—			—		—		—			—
Shares withheld for tax withholdings on vesting of restricted stock	(1)	—			(208)		—		—			(208)
Stock-based compensation	—	—			608		—		—			608



Total other comprehensive loss	—	—			—		—		(8)			(8)



Net income	—	—			—		589		—			589
Balance, July 29, 2022	423	$	4		$	435	$	(286)	$	(13)		$	140

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” or the “Company”) originally pioneered the development and application of virtualization technologies with x86 server-based computing, separating application software from the underlying hardware, and then evolved to become the private cloud and mobility management leader. Building upon that leadership, VMware is ~~a leader in virtualization~~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 ~~infrastructure~~models, ultimately guiding businesses and ~~business mobility solutions that enable businesses to transform~~their product teams through a digital transformation. To take on these challenges, the ~~way they build, deliver~~Company is helping customers drive their multi-cloud strategy by providing the multi-cloud platform for all applications, enabling digital innovation and ~~consume information technology resources in a manner that is based on their specific needs. VMware’s virtualization infrastructure solutions, which include a suite~~enterprise control.

Basis of products and services designed to deliver a software-defined data center, run on industry-standard desktop computers, servers and mobile devices and support a wide range of operating system and application environments, as well as networking and storage infrastructures.

~~Change in Fiscal Year End~~

Effective January 1, 2017, VMware’s fiscal year changed from a fiscal year ending on December 31 of each calendar year to a fiscal year consisting of a 52- or 53-week period ending on the Friday nearest to January 31 of each year. The period that began on January 1, 2017 and ended on February 3, 2017 is reflected as a transition period (the “Transition Period”). VMware’s first full fiscal year 2018 under the revised fiscal calendar is a 52-week year that began on February 4, 2017 and will end on February 2, 2018.

The Company has included its unaudited condensed consolidated financial statements for the Transition Period in this report on Form 10-Q. As permitted under SEC rules, prior-period financial statements have not been recast, as management believes (i) the three and nine months ended September 30, 2016 are comparable to the three and nine months ended November 3, 2017 and (ii) recasting prior-period results was not practicable or cost justified.

~~Accounting Principles~~Presentation

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 fiscal year for VMware is the 52 or 53 weeks ending on the Friday nearest to January 31 of each year. Fiscal 2024 is a 52-week fiscal year and fiscal 2023 was a 53-week fiscal year, in which the fourth quarter had 14 weeks.

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 ~~2018.~~2024. 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 ~~February 24, 2017.~~ March 28, 2023.

~~Effective September7, 2016,~~On November 1, 2021, VMware’s spin-off from Dell Technologies Inc. (“Dell”) ~~(formerly Denali Holding Inc.) acquired EMC Corporation (“EMC”), including EMC’s majority control of VMware~~was completed (the ~~“Dell Acquisition”~~“Spin-Off”). As a result of the ~~Dell Acquisition, EMC~~Spin-Off, VMware became a ~~wholly-owned subsidiary~~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 ~~an indirectly held, majority-owned subsidiary~~owners of ~~Dell. As of November 3, 2017, Dell controlled 81.9%~~direct interests in VMware representing 39.2% and 9.7%, respectively, of VMware’s outstanding ~~common~~ stock, ~~and 97.6%~~based on the shares outstanding as of ~~the combined voting power of VMware’s outstanding common stock, including 31 million shares of VMware’s Class A common stock and all of VMware’s ClassB common stock.~~

~~As VMware is a majority-owned and controlled subsidiary of Dell, its results of operations and financial position are consolidated with Dell’s financial statements. Transactions prior~~August 4, 2023. Due to the ~~effective date of~~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 ~~Dell Acquisition represent transactions only with EMC and its consolidated subsidiaries.~~Spin-Off.

Management believes the assumptions underlying the condensed consolidated financial statements are reasonable. However, the amounts recorded for VMware’s ~~intercompany~~related party transactions with Dell and its consolidated subsidiaries may not be considered arm’s length with an unrelated third party. Therefore, the condensed consolidated financial statements included herein may not necessarily reflect the results of operations, financial position and cash flows had VMware engaged in such transactions with an unrelated third party during all periods presented. Accordingly, VMware’s historical financial information is not necessarily indicative of what the Company’s results of operations, financial position and cash flows will be in the future, if and when VMware contracts at arm’s length with unrelated third parties for products and services the Company receives from and provides to Dell.

Broadcom Merger Agreement

On May 26, 2022, VMware entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Broadcom Inc. (“Broadcom”). Under the terms of the Merger Agreement, each share of Class A common stock, par value $0.01 per share, of the Company (“Common Stock”) issued and outstanding immediately prior to the effective time of the transaction will be indirectly converted into the right to receive, at the election of the holder of such share of Common Stock, and subject to proration in accordance with the Merger Agreement as described below: (i) $142.50 per share in cash, without interest (the “Cash Consideration”), or (ii) 0.25200 (the “Exchange Ratio”) shares of common stock, par value $0.001 per share, of

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VMware, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Broadcom (“Broadcom Common Stock,” and such consideration, the “Stock Consideration”). The stockholder election will be subject to a proration mechanism, such that the total number of shares of Common Stock entitled to receive the Cash Consideration and the total number of shares of Common Stock entitled to receive the Stock Consideration will, in each case, be equal to 50% of the aggregate number of shares of Common Stock issued and outstanding immediately prior to the consummation of the transaction. Holders of Common Stock that do not make an election will be treated as having elected to receive the Cash Consideration or the Stock Consideration in accordance with the proration methodology in the Merger Agreement.

The Merger Agreement contains customary representations, warranties and covenants. The Merger Agreement also

contains termination rights for either or each of Broadcom and the Company. On August 21, 2023, in accordance with the

Merger Agreement, the Company and Broadcom each delivered to the other a mutual notice to extend the Outside Date (as

defined in the Merger Agreement) to November 26, 2023.

The transaction, which is expected to be consummated on October 30, 2023, was approved by VMware shareholders at a special meeting held on November 4, 2022 but remains subject to the receipt of regulatory approvals and other customary closing conditions. If the transaction is consummated, the Common Stock will be delisted from the New York Stock Exchange and deregistered under the Securities Exchange Act of 1934, as amended.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of VMware and ~~its subsidiaries.~~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.

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, ~~and rebates,~~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 Pronouncements~~Income Taxes

~~Topic 606,~~In July 2023, the Internal Revenue ~~from Contracts with Customers~~

~~During May 2014,~~Service released Notice 2023-55, which provides temporary relief for taxpayers in determining whether a foreign tax is eligible for a foreign tax credit under Sections 901 and 903 of the ~~Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09,~~Internal Revenue ~~from Contracts with Customers (Topic 606). In 2016,~~Code. As a result of the ~~FASB issued ASU 2016-08, ASU 2016-10 and ASU 2016-12, which provide interpretive clarifications~~temporary relief, the Company recognized a discrete tax benefit of approximately $60 million in income tax provision on the ~~guidance~~condensed consolidated statements of income during each of the three and six months ended August 4, 2023.

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 Topic 606 (collectively, “Topic 606”). The updated revenue standard replaces all existing revenue recognition guidance under GAAP and establishes common principles for recognizing revenue for all industries. It also provides guidanceadvance 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 ~~accounting for costs to fulfill or obtain a customer contract. The core principle underlying~~condensed consolidated balance sheets. Contract assets were $33 million as of August 4, 2023 and February 3, 2023. Contract asset balances will fluctuate based upon the ~~updated standard is the recognition~~timing of ~~revenue based on consideration expected to be entitled from~~ the transfer of ~~goods or~~ services, ~~to a customer. The updated standard~~billings and customers’ acceptance of contractual milestones.

Contract Liabilities

Contract liabilities consist of unearned revenue, which is ~~effective for interim and annual periods beginning after December 15, 2017 and permits the use of either the full retrospective or cumulative effect transition method.~~

generally recorded when VMware plans to adopt Topic 606 using the full retrospective transition method when it becomes effective for the Company in the first quarter of fiscal 2019. Currently, VMware defers all license revenue related to the sale of its perpetual licenses in the event certain revenue recognition criteria are not met. This would include transactions that offer undelivered future products including emerging products that are offered as part of product promotions where vendor-specific objective evidence (“VSOE”) of fair value has ~~not been established.~~However, under Topic 606, the Company would generally expect that substantially all license revenue related to the sale of its perpetual licenses will be recognized upon delivery, including arrangements that also include offers of future products, such as emerging products that are offered as part of product promotions. Topic 606 is also expected to impact the timing and recognition of costs to obtain contracts with customers, such as commissions. Under the updated standard, incremental costs to obtain contracts with customers are deferred and recognized over the expected period of benefit. As a result, VMware expects deferred commission costs recognized on the consolidated balance sheets to be material upon adoption. The Company is continuing to evaluate the effects that Topic 606 will have on its consolidated financial statements and related disclosures, and its preliminary assessments are subject to change.

~~ASU No. 2016-02, Leases~~

During February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires a lessee to recognize a lease liability for the obligation to make lease payments and a right-of-use asset for the right to ~~use the underlying asset~~invoice or payments have been received for ~~the lease term. The updated standard also requires additional disclosure regarding leasing arrangements. It is effective~~undelivered products or services.

Customer Deposits

Customer deposits include prepayments from customers related to amounts received for ~~interim and annual periods beginning after December 15, 2018 and requires a modified retrospective adoption, with early adoption permitted. The Company is currently evaluating the effect~~contracts that ~~the updated standard will have on its consolidated financial statements and related disclosures, and expects that most of its lease commitments will be subject to the updated standard and recognized~~include certain cancellation rights, such as ~~lease liabilities and right-of-use assets upon adoption.~~

~~ASU No. 2016-16, Income Taxes~~

During October 2016, the FASB issued ASU No. 2016-16, Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory (Topic 740), which requires entities to recognize at the transaction date the income tax consequences of intra-entity asset transfers. Previous guidance required the tax effects from intra-entity asset transfers to be deferred until that asset is sold to a third party or recovered through use. The updated standard is effectivetermination for annual and interim periods beginning after December 15, 2017 and requires a modified retrospective transition method. While the Company is continuing to assess the potential effects, the updated standard could have a material impact on the Company’s consolidated financial statements due to the changed treatment of the income tax consequences of business combinations and asset transfers with the Company’s international entities.

convenience. If customers do not exercise their cancellation rights, amounts in

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VMware, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

~~ASU No. 2016-09, Compensation~~

~~VMware adopted ASU No. 2016-09, Compensation–Stock Compensation (Topic 718), on a prospective basis, effective February 4, 2017. Prior periods have not been reclassified to conform to~~customer deposits will be recognized as revenue over time, in accordance with the ~~fiscal 2018 presentation. Net excess tax benefits recognized in connection with stock-based awards~~performance obligations of the contracts and transfer of control of these obligations. Unredeemed, prepaid credits eligible for consumption of VMware’s hosted services (“cloud credits”) are ~~now~~also included in customer deposits. Upon customers’ redemption of cloud credits, the ~~income tax provision~~net value of the consumed credits is classified as unearned revenue and recognized as revenue over time, in accordance with the Company’s transfer of control of the hosted services.

As of August 4, 2023, customer deposits of $2.0 billion were included in current liabilities on the condensed consolidated balance sheets and primarily consisted of customer prepayments received for contracts that include certain cancellation rights, such as termination for convenience, of $1.6 billion and cloud credits of $380 million. In addition, customer deposits of $179 million were included in other liabilities on the condensed consolidated balance sheets and primarily consisted of cloud credits.

As of February 3, 2023, customer deposits of $1.1 billion were included in current liabilities on the condensed consolidated balance sheets and primarily consisted of customer prepayments received for contracts that include certain cancellation rights, such as termination for convenience, of $681 million and cloud credits of $405 million. In addition, customer deposits of $182 million were included in other liabilities on the condensed consolidated balance sheets and primarily consisted of cloud credits.

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 August 4, 2023 and February 3, 2023 were not material. Deferred commissions included in other assets were $1.6 billion and $1.5 billion as of August 4, 2023 and February 3, 2023, respectively.

Amortization expense for deferred commissions was included in sales and marketing on the condensed consolidated statements of income ~~(loss). Net excess tax benefits~~and was $183 million and $362 million during the three and six months ended August 4, 2023, respectively, and $158 million and $301 million during the three and six months ended July 29, 2022, respectively.

Unearned Revenue

Unearned revenue as of the periods presented consisted of the following (table in millions):


	August 4,		February 3,
	2023		2023
Unearned license revenue	$	11	$	21
Unearned subscription and software-as-a-service (“SaaS”) revenue	4,488		4,401
Unearned software maintenance revenue	6,095		6,805
Unearned professional services revenue	1,496		1,516
Total unearned revenue	$	12,090	$	12,743

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 August 4, 2023 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 August 4, 2023 were $2.2 billion and $2.3 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 six months ended August 4, 2023 were $3.9 billion and $4.6 billion, respectively, and did not include amounts for performance obligations that were fully satisfied upon delivery, such as on-premises licenses.

Revenue recognized during the three and ~~nine~~six months ended ~~November~~July 29, 2022 was $2.2 billion and $4.3 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.

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VMware, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

As of August 4, 2023, the aggregate transaction price allocated to remaining performance obligations was $12.9 billion, of which approximately 55% was expected to be recognized as revenue over the next twelve months and the remainder thereafter. As of February 3, ~~2017 were $32 million~~2023, the aggregate transaction price allocated to remaining performance obligations was $13.6 billion, of which approximately 54% was expected to be recognized as revenue during fiscal 2024 and ~~$76 million, respectively. Prior to adopting~~ the ~~updated standard, such amounts were recognized in additional paid-in capital on the Company’s consolidated balance sheets.~~remainder thereafter.

Additionally, all tax-related cash flows resulting from stock-based awards are reported as operating activities in the statements of cash flows. Prior to adopting the updated standard, excess tax benefits were reported as a cash inflow from financing activities in the statements of cash flows.

B.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 ~~the~~ transactions ~~entered into~~ with ~~Dell and Dell’s consolidated subsidiaries, including EMC. Transactions prior to September 7, 2016 reflect transactions only with EMC and its consolidated subsidiaries.~~Dell.

Transactions with Dell

VMware and Dell engaged in the following ongoing ~~intercompany~~related party transactions, which resulted in revenue and receipts, and unearned revenue for VMware:

•Pursuant to original equipment manufacturer (“OEM”) and reseller arrangements, ~~with~~ Dell ~~Dell~~integrates or bundles VMware’s products and services with Dell’s products and sells them to end users. Dell also ~~resells~~acts as a distributor, purchasing VMware’s standalone products and services for resale to ~~end users and other~~end-user customers through VMware-authorized resellers. ~~Reseller revenue~~Revenue under these arrangements is presented net of related marketing development funds and rebates paid to Dell.

~~Dell purchases products and services from VMware for its internal use.~~

In addition, VMware provides professional services to end users based upon contractual agreements with Dell.

~~Pursuant to an ongoing distribution agreement, VMware acts as the selling agent for certain~~•Dell purchases products and services ~~of Pivotal Software, Inc. (“Pivotal”), a subsidiary of Dell, in exchange~~from VMware for ~~an agency fee. Under this agreement, cash is collected from the end user by~~its internal use.

•From time to time, VMware and ~~remitted~~Dell enter into agreements to ~~Pivotal, net of the contractual agency fee.~~

collaborate on technology projects, in connection with which Dell pays VMware ~~provides various~~for services ~~to Pivotal. Support~~or reimburses VMware for costs incurred by ~~VMware are reimbursed to VMware~~VMware.

During the three and ~~are recorded~~six months ended August 4, 2023, revenue from Dell accounted for 37% and 36% of VMware’s consolidated revenue, respectively. During each of the three and six months ended August 4, 2023, revenue recognized on transactions where Dell acted as ~~a reduction to~~an OEM accounted for 13% of total revenue from Dell, and 5% of VMware’s consolidated revenue.

During the ~~costs incurred by VMware.~~three and six months ended July 29, 2022, revenue from Dell accounted for 40% and 39% of VMware’s consolidated revenue, respectively. During each of the three and six months ended July 29, 2022, revenue recognized on transactions where Dell acted as an OEM accounted for 13% of total revenue from Dell, and 5% of VMware’s consolidated revenue.

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								Unearned Revenue
	Three Months Ended				Six Months Ended				As of
	August 4,		July 29,		August 4,		July 29,			August 4,		February 3,
	2023		2022		2023		2022			2023		2023
Reseller revenue	$	1,225	$	1,313	$	2,380	$	2,451		$	5,632	$	6,145
Internal-use revenue	44		15		58		27			44		19

Revenue and Receipts Unearned Revenue
Transition Period As of
Three Months Ended Nine Months Ended January 1 to Transition Period
November 3, September 30, November 3, September 30, February 3, November 3, December 31, February 3,
2017 2016 2017 2016 2017 2017 2016 2017
Reseller revenue $ 294
$ 98
$ 799
$ 261
$ 44
$ 911
$ 637
$ 616
Internal-use revenue 16
5
25
24
7
19
15
18
Professional services revenue 27
28
82
79
3
—
—
—
Agency fee revenue —
1
1
3
—
—
—
—
Reimbursement for services to Pivotal —
—
—
1
—
n/a
n/a
n/a
Customer deposits resulting from transactions with Dell were $1.1 billion and $766 million as of August 4, 2023 and February 3, 2023, 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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

•From time to time, VMware and Dell ~~engaged~~enter into agreements to collaborate on technology projects, in connection with which VMware pays Dell for services provided to VMware by Dell.

•Through the ~~following ongoing intercompany transactions, which resulted~~end of fiscal 2023, in ~~costs to VMware:~~

~~VMware purchases and leases products and purchases services from Dell.~~

In certain geographic regions where VMware ~~does~~did not have an established legal entity, VMware ~~contracts~~contracted with Dell subsidiaries for support services and support from Dell personnel who ~~are~~were managed by VMware. The costs incurred by Dell on VMware’s behalf related to these employees ~~are~~were 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~~were included as expenses on ~~VMware’s~~VMware’s condensed consolidated statements of income ~~(loss)~~ and primarily include salaries, benefits, travel and occupancy expenses. Payments for Dell ~~also incurs certain~~subsidiary support and administrative costs ~~on VMware’s behalf in~~were not material during the ~~United States that are recorded as expenses on VMware’s condensed consolidated statements of income (loss).~~

~~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~~three and ~~remitted to Dell.~~six months ended July 29, 2022.

Information about VMware’s ~~costs from~~payments for such arrangements during the periods presented consisted of the following (table in millions):

Transition Period
Three Months Ended Nine Months Ended January 1 to
November 3, September 30, November 3, September 30, February 3,
2017 2016 2017 2016 2017
Purchases and leases of products and purchases of services $ 34
$ 24
$ 103
$ 58
$ 14
Dell subsidiary support and administrative costs 30
30
92
74
13


	Three Months Ended				Six Months Ended
	August 4,		July 29,		August 4,		July 29,
	2023		2022		2023		2022
Purchases and leases of products and purchases of services	$	51	$	53	$	89	$	95

VMware also purchases Dell products through Dell’s channel ~~partners. Purchases of Dell products through Dell’s channel~~ partners, however such amounts were not ~~significant~~material during the periods presented.

~~During the second quarter of fiscal 2018,~~From time to time, VMware ~~acquired Wavefront, Inc. (“Wavefront”). Upon closing of the acquisition,~~and Dell ~~was paid $20 million in cash~~also enter into joint marketing, sales, branding and product development arrangements, for ~~its ownership interest in Wavefront.~~which both parties may incur costs.

Dell Financial Services (“DFS”)

DFS ~~provided~~provides financing to certain of VMware’s end ~~customers based on~~users at the ~~customer’s~~end users’ discretion. Upon acceptance of the financing arrangement by both VMware’s end ~~customer~~users and DFS, amounts classified as trade accounts receivable are reclassified to the current portion of due from related parties ~~net~~ on ~~the~~ thecondensed consolidated balance ~~sheets.~~sheets. Revenue recognized on transactions financed through DFS was recorded net of financing fees. Financing fees ~~which~~on arrangements accepted by both parties were $6$21 million and ~~$15~~$17 million during the ~~three and nine~~six months ended ~~November 3, 2017, respectively. Financing fees~~August 4, 2023 and July 29, 2022, respectively, and were not material during each of the three ~~and nine~~ months ended ~~September 30, 2016~~August 4, 2023 and ~~the Transition Period were not significant.~~July 29, 2022.

Tax ~~Sharing~~ Agreement with Dell

Pursuant to the Tax Matters Agreement, effective April 14, 2021 (the “Tax Matters Agreement”), VMware ~~has made payments~~and Dell have agreed to indemnify one another 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):


	August 4,		February 3,
	2023		2023
Due from related parties:
Current	$	—	$	1
Non-current	267		208
Due to related parties:
Current	$	341	$	306
Non-current	504		648

Amounts due to Dell pursuant to the Tax Matters Agreement primarily related to VMware’s estimated tax obligation resulting from the mandatory, one-time transition tax on accumulated earnings of foreign subsidiaries (“Transition Tax”) of $334 million and $445 million as of August 4, 2023 and February 3, 2023, respectively. The U.S. Tax Cuts and Jobs Act enacted on December 22, 2017 (the “2017 Tax Act”) included a deferral election for an eight-year installment payment method

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

on the Transition Tax. The Company expects to pay the remainder of its Transition Tax as of August 4, 2023 over a period of two years. In addition, amounts due to Dell included uncertain tax ~~sharing agreement. The following table summarizes~~positions of $292 million and $285 million as of August 4, 2023 and February 3, 2023, respectively.

During each of the three and six months ended August 4, 2023, payments received from Dell pursuant to the Tax Matters Agreement were not material, and payments made ~~during~~to Dell were $113 million. During each of the three and six months ended July 29, 2022, payments received from Dell pursuant to the Tax Matters Agreement were not material, and payments made to Dell were $59 million. Payments made to Dell for the periods presented ~~(table in millions):~~were primarily related to the Transition Tax.

Transition Period
Three Months Ended Nine Months Ended January 1 to
November 3, September 30, November 3, September 30, February 3,
2017 2016 2017 2016 2017
Payments from VMware to Dell $ —
$ 54
$ 12
$ 148
$ —

~~The timing of the tax payments due to and from related parties is governed by a tax sharing agreement.~~ Payments from VMware to Dell under the ~~tax sharing agreement~~Tax Matters Agreement relate to VMware’s portion of federal income taxes on Dell’s consolidated tax return, ~~as well as~~ state tax payments for combined ~~states.~~states and the estimated tax obligation resulting from the Transition Tax. The ~~amounts that VMware pays~~timing of the tax payments due to and from Dell ~~for its~~is governed by the Tax Matters Agreement. VMware’s portion of ~~federal income taxes~~the Transition Tax is governed by a letter agreement between Dell, EMC and VMware executed on ~~Dell’s~~April 1, 2019 (the “Letter Agreement”).

D. Commitments and Contingencies

Litigation

On June 2, 2020, WSOU Investments LLC (doing business as Brazos Licensing & Development) (“WSOU”) filed four patent infringement lawsuits against VMware (also naming Dell and EMC) in the United States District Court for the Western District of Texas (the “Texas Court”), asserting one patent in each lawsuit. The Texas Court consolidated ~~tax return differ from~~ the ~~amounts VMware would owe~~four lawsuits for all purposes. During the course of the lawsuit, WSOU dropped one of the asserted patents and on February 21, 2023, trial began for the remaining three patents, with WSOU seeking certain damages. On the first day of trial, the Texas Court granted summary judgment of non-infringement as to two patents, leaving one patent to continue to trial. At the conclusion of the plaintiff’s case, the Texas Court granted VMware’s motion for a ~~separate tax return basis~~directed verdict on the remaining patent. The parties are in the post-trial motion stage and the ~~difference~~Texas Court’s rulings are subject to appeal. In the event of an appeal, the Company intends to vigorously defend against this matter.

On March 31, 2020, a securities class action lawsuit was filed against VMware and certain present and former officers of the Company in the United States District Court for the Northern District of California (the “California Court”). On September 18, 2020, the plaintiff filed a consolidated amended complaint alleging that the Company’s statements about backlog and the related internal controls during the period from August 2018 through February 2020 were materially misleading. The defendants filed a motion to dismiss, which was granted with leave to amend on September 10, 2021. On October 8, 2021, the plaintiffs filed their Second Amended Consolidated Complaint based on the same alleged disclosure deficiencies. The defendants’ motion to dismiss the Second Amended Consolidated Complaint was filed on November 5, 2021. On April 2, 2023, the California court denied the defendants’ motion to dismiss, finding that the plaintiffs had adequately stated claims under Sections 10 and 20A of the Exchange Act. The parties are currently in the discovery stage of the proceedings. The Company is ~~presented as~~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 ~~component~~loss is not probable and reasonably estimable. The Company intends to vigorously defend against this matter.

On March 5, 2020, two purported Pivotal stockholders filed a petition for appraisal in the Delaware Court of ~~stockholders’ equity.~~Chancery (the “Chancery Court”) seeking a judicial determination of the fair value of an aggregate total of 10,000,100 Pivotal shares (the “Appraisal Action”). 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. A trial in the Appraisal Action took place in July 2022. Thereafter, the parties completed a post-trial briefing, and a post-trial hearing was held on December 13, 2022. On August 14, 2023, the Chancery Court issued a ruling finding that the fair value for the acquisition was $14.83 per share. The ruling is subject to appeal. As a result, recognition of the estimated gain contingency, which primarily represents the difference between the ~~amount~~purchase price of ~~tax calculated on a separate return basis~~$15.00 per share and the ~~amount~~fair value per share, will occur in the period in which all underlying events or contingencies are resolved and is not expected to be material to the condensed consolidated financial statements. In the event of ~~tax calculated~~an appeal, the Company intends to vigorously defend against 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”) asserting two patent infringement claims and three trademark claims. A first jury trial was held on these claims in January 2020, following which, in December 2020, the Delaware Court ordered a new trial. During the proceedings, VMware counter-asserted eight patent infringement claims against Cirba, and Cirba asserted an additional two patent infringement claims against VMware. VMware filed invalidity challenges in the United States Patent and Trademark Office against all four patents asserted by Cirba. In those proceedings, one patent (“367 patent”) survived an ex parte reexamination and one patent (“687 patent”) remains under review in an ex parte reexamination. In addition, the Patent Trial and Appeal Board found one patent invalid (“492 patent”) pursuant to ~~the tax sharing agreement was estimated at up to $14 million~~an inter partes review and ~~$16 million during the three and nine months ended November 3, 2017, respectively, subject to final verification, and was~~

one patent invalid (“459

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

$13 million during the nine months ended September 30, 2016. The difference between the amount of tax calculated on a separate return basis and the amount of tax calculated pursuant to the tax sharing agreement was not significant during the three months ended September 30, 2016 and the Transition Period.

~~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):~~

Transition Period
November 3, December 31, February 3,
2017 2016 2017
Due (to) related parties $ (84 ) $ (71 ) $ (85 )
Due from related parties 338
203
178
Due from related parties, net $ 254
$ 132
$ 93

Income tax related asset, net $ —
$ 181
$ —
Income tax due (to) related parties (17 ) —
(21 )

~~Amounts included in due from related parties, net, which are unrelated to DFS and tax obligations, are generally settled in cash within 60 days of each quarter-end.~~

~~Stock Purchase Arrangements with Dell~~

~~On March 29, 2017, VMware and Dell entered into a stock purchase agreement (the “2017 Purchase Agreement”~~patent”) pursuant to ~~which VMware~~a post-grant review. Cirba severed and ~~Dell may commit~~stayed the 492 patent and 459 patent claims from the Delaware Court proceedings and appealed both decisions to ~~purchases~~the Federal Circuit. Of the eight patents asserted by VMware, ~~of VMware Class A common stock from Dell.~~

~~On August 23, 2017, VMware entered into a stock purchase commitment~~one was held invalid pursuant to the 2017 Purchase Agreement to purchase $300 million of VMware Class A common stock from Dell. During the third quarter of fiscal 2018, VMware paid Dell $300 million in exchange for 2.7 million shares.a Section 101 challenge and four were voluntarily dismissed. The aggregate number of shares purchased was determined based upon a volume-weighted average price during a defined period, less an agreed upon discount. On November 3, 2017, the stock purchase with Dell was completed.

~~On March 29, 2017, VMware entered into a stock purchase commitment pursuant~~remaining three patents were severed and stayed. Prior to the ~~2017 Purchase Agreement~~second jury trial, the Delaware Court granted VMware’s summary judgment motion on Cirba’s three trademark claims. Beginning on April 24, 2023, the second jury trial was held on Cirba’s 367 patent and 687 patent claims. On May 1, 2023, the jury returned a verdict finding that VMware infringed both patents. Specifically, the jury’s verdict found that VMware willfully infringed one patent and that one of Cirba’s patents that VMware asserted invalidity against was valid. The jury awarded damages to ~~purchase $300 million~~Cirba of ~~VMware Class A common stock from Dell.~~$85 million. The parties are now in the post-trial motion stage. During the first quarter of fiscal ~~2018,~~2024, VMware paid Dell $300 million in exchange for an initial delivery of 2.7 million shares, or approximately 80% of the expected total shares to be received and retired under the arrangement. On May 10, 2017, the stock purchase with Dell was completed and VMware received an additional 0.7 million shares. The aggregate number of 3.4 million shares purchased was determined based upon the volume-weighted average price duringaccrued a ~~defined period, less an agreed upon discount.~~

On December 15, 2016, VMware entered into a stock purchase agreement to purchase $500 million of VMware Class A common stock from Dell. VMware purchased 4.8 million shares for $375 million through December 31, 2016. On February 15, 2017, the stock purchase agreement with Dell was completed. A total of $500 million was paid in exchange for 6.2 million shares. The aggregate number of shares purchased was determined based upon the volume-weighted average price during a defined period, less an agreed upon discount.

~~Notes Payable to Dell~~

~~On January 21, 2014, VMware entered into a note exchange agreement with Dell providing for the issuance of three promissory notes in the aggregate principal amount of $1,500~~$85 million, which ~~consisted of outstanding principal due~~reflects the estimated losses that are considered both probable and reasonably estimable at this time. The amount accrued for this matter was included in accrued expenses and other on the ~~following dates: $680 million due May 1, 2018, $550 million due May 1, 2020~~condensed consolidated balance sheets as of August 4, 2023, and ~~$270 million due December 1, 2022.~~

~~On August 21, 2017, VMware repaid two of~~ the ~~notes payable to Dell~~charge was included in ~~the aggregate principal amount of $1,230 million, representing repayment of the note due May 1, 2018 at par value~~general and repayment of the note due May 1, 2020 at a discount. During the three and nine months ended November 3, 2017, VMware recognized a gain on extinguishment of debt of $6 million, which was recorded in other income (expense), netadministrative expense on the condensed consolidated statements of income ~~(loss). The remaining note payable of $270 million due December 1, 2022 may be prepaid without penalty or premium.~~

~~Interest is payable quarterly in arrears, at~~during the ~~annual rate of 1.75%. During the three and nine~~six months ended November 3, 2017, $2 million and $15 million, respectively, of interest expense was recognized. During the three and nine months ended September 30, 2016 and the Transition Period, $7 million, $20 million and $2 million, respectively, of interest expense was recognized.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

~~C. Business Combinations, Definite-Lived Intangible Assets, Net and Goodwill~~

~~Business Combinations~~

During the second quarter of fiscal 2018, VMware completed the acquisitions of Wavefront and Apteligent, Inc., which were not material to the condensed consolidated financial statements. These acquisitions are a part of a strategy to accelerate the development of VMware’s Cloud services and other technologies.August 4, 2023. The aggregate purchase price for the two acquisitions was $238 million, net of cash acquired of $35 million. The aggregate purchase price included $36 million of identifiable intangible assets and $238 million of goodwill thatCompany is not expected to be deductible for tax purposes. The identifiable intangible assets primarily relate to purchased technology, with estimated useful lives of five years. The fair value of assumed unvested equity attributed to post-combination services was $37 million and will be expensed over the remaining requisite service periods on a straight-line basis. The estimated fair value of the stock options assumed by the Company was determined using the Black-Scholes option pricing model.

Prior to the closing of the acquisition, VMware held an ownership interest in Wavefront. Upon completion of the step acquisition, VMware recognized a gain of $34 million in other income (expense), net for the remeasurement of its ownership interest to fair value, which was $49 million. The gain recognized in the step acquisition is not expected to be taxable and resulted in a discrete tax benefit of $13 million during the second quarter of fiscal 2018. Upon closing of the acquisition, Dell was paid $20 million in cash for its ownership interest in Wavefront.

The pro forma financial information assuming the acquisition had occurred as of the beginning of the fiscal year prior to the fiscal year of acquisition, as well as the revenue and earnings generated during the current fiscal year, were not material for disclosure purposes.

~~Definite-Lived Intangible Assets, Net~~

~~As of the periods presented, definite-lived intangible assets consisted of the following (amounts in tables in millions):~~

November 3, 2017
Weighted-Average Useful Lives
(in years) Gross Carrying Amount Accumulated Amortization Net Book Value
Purchased technology 6.5 $ 663
$ (438 ) $ 225
Leasehold interest 34.9 149
(27 ) 122
Customer relationships and customer lists 8.2 135
(75 ) 60
Trademarks and tradenames 8.5 63
(29 ) 34
Other 5.7 5
(3 ) 2
Total definite-lived intangible assets $ 1,015
$ (572 ) $ 443

December 31, 2016
Weighted-Average Useful Lives
(in years) Gross Carrying Amount Accumulated Amortization Net Book Value
Purchased technology 6.6 $ 641
$ (358 ) $ 283
Leasehold interest 34.9 149
(24 ) 125
Customer relationships and customer lists 8.3 132
(62 ) 70
Trademarks and tradenames 8.7 61
(23 ) 38
Other 5.7 4
(3 ) 1
Total definite-lived intangible assets $ 987
$ (470 ) $ 517

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

Transition Period February 3, 2017
Weighted-Average Useful Lives
(in years) Gross Carrying Amount Accumulated Amortization Net Book Value
Purchased technology 6.5 $ 641
$ (366 ) $ 275
Leasehold interest 34.9 149
(24 ) 125
Customer relationships and customer lists 8.3 132
(64 ) 68
Trademarks and tradenames 8.7 61
(23 ) 38
Other 5.7 4
(3 ) 1
Total definite-lived intangible assets $ 987
$ (480 ) $ 507

Amortization expense on definite-lived intangible assets was $34 million and $100 million during the three and nine months ended November 3, 2017, respectively, and $33 million and $99 million during the three and nine months ended September 30, 2016, respectively. Amortization expense on definite-lived intangible assets was $10 million during the Transition Period.

Based on intangible assets recorded as of November 3, 2017 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 2018 $ 34
2019 124
2020 100
2021 46
2022 31
Thereafter 108
Total $ 443

~~Goodwill~~

~~The following table summarizes the changes in the carrying amount of goodwill during the nine months ended November 3, 2017 (table in millions):~~

Balance, February 3, 2017 $ 4,032
Increase in goodwill related to business combinations 239
Balance, November 3, 2017 $ 4,271

VMware previously evaluated goodwill for impairment during the fourth quarter of each year. Effective January 1, 2017, the Company changed its fiscal year end from December 31 of each calendar year to a 52- or 53-week period ending on the Friday nearest to January 31 of each year. During the third quarter of fiscal 2018, VMware changed the date of its annual goodwill impairment test from the fourth quarter to the third quarter. Management believesunable at this voluntary change is preferable as the timing of its annual goodwill impairment test during the third quarter aligns with Dell’s. The goodwill impairment test date change was applied prospectively for the fiscal year beginning February 3, 2017 and had no effect on the Company’s condensed consolidated financial statements as of November 3, 2017 and December 31, 2016.

~~D. Realignment and Loss on Disposition~~

~~Disposition of VMware vCloud Air Business~~

During the second quarter of fiscal 2018, VMware completed the sale of its VMware vCloud Air business (“vCloud Air”) to OVH US LLC (“OVH”). Losses recognized in connection with this transaction were $2 million and $88 million during the three and nine months ended November 3, 2017, respectively, and were recorded in realignment and loss on disposition on the condensed consolidated statements of income (loss). Losses recognized on the disposition of vCloud Air include the impairment of fixed assets identified as part of the sale, as well as the costs associated with certain transition services, which primarily

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

include employee-related expenses and costs associated with data-center colocation services. Transition services are to be provided over a period of 18 months, starting from the date of the sale. The losses recognized on the disposition of vCloud Air are deductible for tax purposes and resulted in a discrete tax benefit of $12 million during the second quarter of fiscal 2018.

~~Realignment~~

On January 22, 2016, VMware approved a plan to streamline its operations, with plans to reinvest the associated savings in field, technical and support resources related to growth products. As a result of these actions, approximately 800 positions were eliminated during the nine months ended September 30, 2016. VMware recognized $49 million of severance-related realignment expenses during the nine months ended September 30, 2016 on the condensed consolidated statements of income. Additionally, VMware consolidated certain facilities as part of this plan, which resulted in the recognition of $3 million of related expenses during the nine months ended September 30, 2016. Actions associated with this plan were substantially completed by December 31, 2016.

~~The following table summarizes the activity for the accrued realignment expenses for the period presented (table in millions):~~

Nine Months Ended September 30, 2016

Balance as of
January 1, 2016
Realignment Utilization
Balance as of
September 30, 2016
Severance-related costs $ 3
$ 49
$ (51 ) $ 1
Costs to exit facilities —
3
(1 ) 2
Total $ 3
$ 52
$ (52 ) $ 3

~~E. Net Income (Loss) per Share~~

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income by the weighted-average number of common shares 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, including performance stock units, and stock options, including purchase options under VMware’s employee stock purchase plan. Securities are excluded from the computation of diluted net income (loss) per share if their effect would be anti-dilutive. VMware uses the two-class method to calculate net income (loss) per share as both classes share the same rights in dividends, therefore basic and diluted earnings per share are the same for both classes.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

~~The following table sets forth the computations of basic and diluted net income (loss) per share during the periods presented (table in millions, except per share amounts and shares in thousands):~~

Transition Period
Three Months Ended Nine Months Ended January 1 to
November 3, September 30, November 3, September 30, February 3,
2017 2016 2017 2016 2017
Net income (loss) $ 443
$ 319
$ 1,009
$ 745
$ (8 )
Weighted-average shares, basic for Classes A and B 406,733
421,704
407,856
423,341
408,625
Effect of other dilutive securities 6,280
3,304
6,101
2,510
—
Weighted-average shares, diluted for Classes A and B 413,013
425,008
413,957
425,851
408,625
Net income (loss) per weighted-average share, basic for Classes A and B $ 1.09
$ 0.76
$ 2.47
$ 1.76
$ (0.02 )
Net income (loss) per weighted-average share, diluted for Classes A and B ⁽¹⁾
$ 1.07
$ 0.75
$ 2.44
$ 1.75
$ (0.02 )

⁽¹⁾ ~~During the Transition Period, VMware incurred a net loss. As a result, all potentially dilutive securities were anti-dilutive and excluded from the computation of diluted net loss per share.~~

The following table sets forth the weighted-average common share equivalents of Class A common stock that were excluded from the diluted net income (loss) per share calculations during the periods presented, because their effect would have been anti-dilutive (shares in thousands):

Transition Period
Three Months Ended Nine Months Ended January 1 to
November 3, September 30, November 3, September 30, February 3,
2017 2016 2017 2016 2017
Anti-dilutive securities:
Employee stock options —
1,655
585
2,027
2,353
Restricted stock units —
3,632
109
2,416
3,259
Total —
5,287
694
4,443
5,612

~~During the three months ended November 3, 2017, there were no anti-dilutive shares.~~

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

~~F. Cash, Cash Equivalents and Investments~~

~~Cash, cash equivalents and investments as of the periods presented consisted of the following (tables in millions):~~

November 3, 2017
Cost or Amortized Cost Unrealized Gains Unrealized Losses Aggregate Fair Value
Cash $ 415
$ —
$ —
$ 415
Cash equivalents:
Money-market funds $ 5,503
$ —
$ —
$ 5,503
U.S. Government and agency obligations 5
—
—
5
U.S. and foreign corporate debt securities 89
—
—
89
Total cash equivalents $ 5,597
$ —
$ —
$ 5,597
Short-term investments:
U.S. Government and agency obligations $ 1,000
$ —
$ (4 ) $ 996
U.S. and foreign corporate debt securities 4,347
5
(8 ) 4,344
Foreign governments and multi-national agency obligations 95
—
—
95
Mortgage-backed securities 134
—
(1 ) 133
Marketable available-for-sale equity securities 15
17
—
32
Total short-term investments $ 5,591
$ 22
$ (13 ) $ 5,600

December 31, 2016
Cost or Amortized Cost Unrealized Gains Unrealized Losses Aggregate Fair Value
Cash $ 512
$ —
$ —
$ 512
Cash equivalents:
Money-market funds $ 2,235
$ —
$ —
$ 2,235
Time deposits 26
—
—
26
Municipal obligations 17
—
—
17
Total cash equivalents $ 2,278
$ —
$ —
$ 2,278
Short-term investments:
U.S. Government and agency obligations $ 734
$ —
$ (3 ) $ 731
U.S. and foreign corporate debt securities 3,885
2
(18 ) 3,869
Foreign governments and multi-national agency obligations 32
—
—
32
Municipal obligations 365
—
—
365
Asset-backed securities 4
—
—
4
Mortgage-backed securities 196
—
(2 ) 194
Total short-term investments $ 5,216
$ 2
$ (23 ) $ 5,195
Other assets:
Marketable available-for-sale equity securities $ 15
$ 7
$ —
$ 22

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

Transition Period February 3, 2017
Cost or Amortized Cost Unrealized Gains Unrealized Losses Aggregate Fair Value
Cash $ 720
$ —
$ —
$ 720
Cash equivalents:
Money-market funds $ 2,471
$ —
$ —
$ 2,471
Time deposits 26
—
—
26
Municipal obligations 3
—
—
3
Total cash equivalents $ 2,500
$ —
$ —
$ 2,500
Short-term investments:
U.S. Government and agency obligations $ 733
$ —
$ (3 ) $ 730
U.S. and foreign corporate debt securities 3,884
3
(16 ) 3,871
Foreign governments and multi-national agency obligations 32
—
—
32
Municipal obligations 350
—
—
350
Asset-backed securities 4
—
—
4
Mortgage-backed securities 188
—
(2 ) 186
Total short-term investments $ 5,191
$ 3
$ (21 ) $ 5,173
Other assets:
Marketable available-for-sale equity securities $ 15
$ 7
$ —
$ 22

VMware evaluated its available-for-sale investments as of November 3, 2017, December 31, 2016 and February 3, 2017 for other-than-temporary declines in fair value and did not consider any to be other-than-temporarily impaired. The realized gains and losses on investments during the three and nine months ended November 3, 2017 and September 30, 2016 and the Transition Period were not significant.

Unrealized losses on cash equivalents and available-for-sale investments, which have been in a net loss position for less than twelve months as of the periods presented, were classified by sector as follows (table in millions):

Transition Period
November 3, 2017 December 31, 2016 February 3, 2017
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
U.S. and foreign corporate debt securities $ 2,236
$ (5 ) $ 2,595
$ (18 ) $ 2,287
$ (16 )

As of the periods presented, unrealized losses on cash equivalents and available-for-sale investments in the other investment categories, which have been in a net loss position for less than twelve months, were not significant. Unrealized losses on cash equivalents and available-for-sale investments, which have been in a net loss position for twelve months or greater, were not significant for the periods presented.

~~Contractual Maturities~~

~~The contractual maturities of fixed income securities included in short-term investments on the condensed consolidated balance sheets and held as of~~ ~~November 3, 2017, consisted of the following (table in millions):~~

Amortized
Cost Basis

Aggregate
Fair Value
Due within one year $ 1,978
$ 1,976
Due after 1 year through 5 years 3,406
3,400
Due after 5 years through 10 years 98
98
Due after 10 years 94
94
Total fixed income securities $ 5,576
$ 5,568

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

~~G. Debt~~

~~Long-term Debt~~

On August 21, 2017, VMware issued three unsecured senior notes (“Senior Notes”) pursuant to a public debt offering. The proceeds from the issuance were $3,961 million, net of debt discount of $9 million and debt issuance costs of $30 million.

~~The carrying value of the Senior Notes as of November 3, 2017 was as follows (amounts in millions):~~

November 3, Effective Interest Rate
2017
Long-term debt:
2.30% Senior Note Due August 21, 2020 $ 1,250
2.56%
2.95% Senior Note Due August 21, 2022 1,500
3.17%
3.90% Senior Note Due August 21, 2027 1,250
4.05%
Total principal amount 4,000

Less: unamortized discount (9 )
Less: unamortized debt issuance costs (29 )
Net carrying amount $ 3,962

Interest is payable semiannually in arrears, on February 21 and August 21 of each year. During the three and nine months ended November 3, 2017, $26 million of interest expense, which included amortization of discount and issuance costs, was recognized on the condensed consolidated statements of income (loss). The discount and issuance costs are amortized over the term of the Senior Notes.

~~The Senior Notes are redeemable in whole at any time or in part from~~ time to ~~time at VMware’s option, subject~~assess whether, or 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 purchase. The Senior Notes rank equally in right of payment with VMware’s other unsecured and unsubordinated indebtedness. The Senior Notes also include 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.

~~Refer to Note B for information regarding the notes payable to Dell.~~

~~Revolving Credit Facility~~

On September 12, 2017, VMware entered into an unsecured credit agreement establishing a revolving credit facility (“Credit Facility”) with a syndicate of lenders that provides the company with a borrowing capacity of up to $1,000 million, which may be used for general corporate purposes. Commitments under the 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. A~~s of November 3, 2017, there were no outstanding borrowings under the Credit Facility. The credit agreement contains certain representations, warranties and covenants.~~ Commitment fees, interest rates and other terms of borrowing under the Credit Facility may vary based on VMware’s external credit ratings. The amount paid in connection with the ongoing commitment fee, which is payable quarterly in arrears, was not significant during the three and nine months ended November 3, 2017.

~~H. 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 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are noted as being 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

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

~~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’s fixed income securities were primarily classified as Level 2, with the exception of some of the U.S. Government and agency obligations that were classified as Level 1. Additionally, VMware’s Level 2 classification included forward contracts, notes payable to Dell and the Senior Notes.

As of November 3, 2017, December 31, 2016 and February 3, 2017, VMware’s Level 2 investment securities were generally priced using non-binding market consensus prices that were corroborated by observable market data, quoted market prices for similar instruments, or pricing models such as discounted cash flow techniques.

VMware did not have any significant assets or liabilities that were classified as Level 3 of the fair value hierarchy for the periods presented, and there have been no transfers between fair value measurement levels during the periods presented.

The following tables set forth the fair value hierarchy of VMware’s cash equivalents, short-term investments and derivatives that were required to be measured at fair value as of the periods presented (tables in millions):

November 3, 2017
Level 1 Level 2 Total
Cash equivalents:

Money-market funds $ 5,503
$ —
$ 5,503
U.S. Government and agency obligations 5
—
5
U.S. and foreign corporate debt securities —
89
89
Total cash equivalents $ 5,508
$ 89
$ 5,597
Short-term investments:
U.S. Government and agency obligations $ 728
$ 268
$ 996
U.S. and foreign corporate debt securities —
4,344
4,344
Foreign governments and multi-national agency obligations —
95
95
Mortgage-backed securities —
133
133
Marketable available-for-sale equity securities 32
—
32
Total short-term investments $ 760
$ 4,840
$ 5,600
Other current assets:
Forward contracts $ —
$ 5
$ 5

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

December 31, 2016
Level 1 Level 2 Total
Cash equivalents:
Money-market funds $ 2,235
$ —
$ 2,235
Time deposits —
26
26
Municipal obligations —
17
17
Total cash equivalents $ 2,235
$ 43
$ 2,278
Short-term investments:
U.S. Government and agency obligations $ 441
$ 290
$ 731
U.S. and foreign corporate debt securities —
3,869
3,869
Foreign governments and multi-national agency obligations —
32
32
Municipal obligations —
365
365
Asset-backed securities —
4
4
Mortgage-backed securities —
194
194
Total short-term investments $ 441
$ 4,754
$ 5,195
Other current assets:
Derivative due to stock purchase with Dell $ —
$ 8
$ 8
Other assets:
Marketable available-for-sale equity securities $ 22
$ —
$ 22

Transition Period February 3, 2017
Level 1 Level 2 Total
Cash equivalents:
Money-market funds $ 2,471
$ —
$ 2,471
Time deposits —
26
26
Municipal obligations —
3
3
Total cash equivalents $ 2,471
$ 29
$ 2,500
Short-term investments:
U.S. Government and agency obligations $ 445
$ 285
$ 730
U.S. and foreign corporate debt securities —
3,871
3,871
Foreign governments and multi-national agency obligations —
32
32
Municipal obligations —
350
350
Asset-backed securities —
4
4
Mortgage-backed securities —
186
186
Total short-term investments $ 445
$ 4,728
$ 5,173
Other current assets:
Derivative due to stock purchase with Dell $ —
$ 9
$ 9
Other assets:
Marketable available-for-sale equity securities $ 22
$ —
$ 22

During the first quarter of fiscal 2018, marketable available-for-sale equity securities were reclassified to short-term investments on the condensed consolidated balance sheets, as restrictions on the Company’s ability to sell the common stock lapse within twelve months of the balance sheet date. As of December 31, 2016 and February 3, 2017, these securities were classified as other assets on the condensed consolidated balance sheets.

The notes payable to Dell and the Senior Notes were not adjusted to fair value. The fair value of the notes payable to Dell was approximately $255 million, $1,489 million and $1,492 million as of November 3, 2017, December 31, 2016 and February 3, 2017, respectively. The fair value of the Senior Notes was approximately $4,008 million as of November 3, 2017.

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~~VMware, Inc.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

~~Fair value for both the notes 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. The net impact to the condensed consolidated statements of income (loss) is not significant since changes in the fair value of the assets substantially 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 approximately $57 million, $35 million and $36 million as of November 3, 2017, December 31, 2016 and February 3, 2017, respectively, and are included in other assets and other liabilities on the condensed consolidated balance sheets.

~~Assets Measured and Recorded at Fair Value on a Non-Recurring Basis~~

VMware holds strategic investments in its portfolio accounted for using the cost method. These strategic investments are periodically assessed for other-than-temporary impairment. VMware uses Level 3 inputs as part of its impairment analysis, including pre- and post-money valuations of recent financing events, the impact of financing events on its ownership percentages, and other available information relevant to the issuer’s historical and forecasted performance. The estimated fair value of these investments is considered in VMware’s impairment review if any events or changes in circumstances occur that might have a significant adverse effect on their value. If VMware determines that an other-than-temporary impairment has occurred, VMware writes down the investment to its fair value.

During the three and nine months ended September 30, 2016, VMware determined that certain strategic investments were considered to be other-than-temporarily impaired and accordingly, approximately $7 million and $12 million, respectively, was recognized as an impairment charge. Impairment charges recognized during the three and nine months ended November 3, 2017 and the Transition Period were not significant. Strategic investments are included in other assets on the condensed consolidated balance sheets. The carrying value of VMware’s strategic investments was $148 million, $139 million and $139 million as of November 3, 2017, December 31, 2016 and February 3, 2017, respectively.

~~I. 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 thewhat 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, by monitoring credit ratings and credit spreads of, 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 income (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 (loss) in the same period that the underlying expenses are incurred. During the three and nine months ended November 3, 2017 and September 30, 2016 and the Transition Period, the effective portion of gains or losses reclassified to the condensed consolidated statements of income (loss) was not significant. Interest charges or “forward points” on VMware’s forward contracts are excluded from the assessment of hedge effectiveness and are recorded in other income (expense), net on the condensed consolidated statements of income (loss) as incurred.

These forward contracts have contractual maturities of twelve months or less, and as of November 3, 2017, December 31, 2016 and February 3, 2017, outstanding forward contracts had a total notional value of $67 million, $22 million and $250 million, respectively. The notional value represents the gross amount of foreign currency that will be bought or sold upon maturity of the forward contract.

~~During the three and nine months ended November 3, 2017 and September 30, 2016 and the Transition Period, 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

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

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 (loss).

These forward contracts have a contractual maturity of one month, and as of November 3, 2017, December 31, 2016 and February 3, 2017, outstanding forward contracts had a total notional value of $722 million, $875 million and $834 million, respectively. The notional value represents the gross amount of foreign currency that will be bought or sold upon maturity of the forward contract.

During the nine months ended November 3, 2017 and September 30, 2016 and the Transition Period, VMware recognized losses of $33 million, $12 million and $18 million, respectively, relating to the settlement of forward contracts. Losses recognized during the three months ended November 3, 2017 and September 30, 2016 were not significant. Gains and losses are recorded in other income (expense), net on the condensed consolidated statements of income (loss).

The combined gains and losses related to forward contracts and the underlying foreign currency denominated assets and liabilities resulted in a net loss of $6 million and a net gain of $8 million during the three and nine months ended November 3, 2017, respectively. Net losses during the three and nine months ended September 30, 2016 and the Transition Period were not significant. ~~Net gains and losses are recorded in other income (expense), net on the condensed consolidated statements of income (loss).~~

~~J. Contingencies~~

~~Litigation~~

On March 27, 2015, Phoenix Technologies (“Phoenix”) filed a complaint against VMware in the U.S. District Court for the Northern District of California asserting claims for copyright infringement and breach of contract relating to a version of Phoenix’s BIOS software that VMware licensed from Phoenix. Following trial, the jury ~~issued its~~ verdict ~~on June 12, 2017, finding that VMware did not infringe on any of the four bases asserted by Phoenix. The Court entered judgment in VMware’s favor,~~will stand following post-trial motions and ~~the parties have filed post-trial motions.~~appeals. The Company intends to continue to vigorously ~~defending itself~~defend against this ~~lawsuit.~~

On March 4, 2015, Christoph Hellwig, a software developer who alleged that software code he wrote is used in a component of the Company’s vSphere product, filed a lawsuit against VMware in the Hamburg Regional Court in Germany alleging copyright infringement for failing to comply with the terms of the open source General Public License v.2 (“GPL v.2”). On July 8, 2016, the German court issued a written decision dismissing Mr. Hellwig’s lawsuit. Mr. Hellwig has appealed the Regional Court’s decision. No hearing schedule has yet been set by the appellate court.matter.

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 condensed 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 ~~November 3, 2017,~~August 4, 2023, amounts accrued relating to these other matters arising as part of the ordinary course of business were considered ~~immaterial.~~not material. VMware does not believe that any liability from any reasonably ~~foreseeable~~possible disposition of such claims and litigation, individually or in the aggregate, would have a material adverse effect on its condensed 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):


	August 4, 2023
	Weighted-Average Useful Lives (in years)	Gross Carrying Amount		Accumulated Amortization		Net Book Value
Purchased technology	5.4	$	787	$	(658)	$	129
Customer relationships and customer lists	12.0	626		(402)		224
Trademarks and tradenames	6.8	69		(54)		15
Total definite-lived intangible assets		$	1,482	$	(1,114)	$	368

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VMware, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)


	February 3, 2023
	Weighted-Average Useful Lives (in years)	Gross Carrying Amount		Accumulated Amortization		Net Book Value
Purchased technology	5.3	$	819	$	(623)	$	196
Customer relationships and customer lists	11.9	632		(371)		261
Trademarks and tradenames	6.8	69		(48)		21

Total definite-lived intangible assets		$	1,520	$	(1,042)	$	478

~~K. Unearned Revenue~~Amortization expense on definite-lived intangible assets was $58 million and $118 million during the three and six months ended August 4, 2023, respectively, and $63 million and $129 million during the three and six months ended July 29, 2022, respectively.

~~Unearned revenue~~Based on intangible assets recorded as of August 4, 2023 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 2024	$	88
2025	114
2026	73
2027	43
2028	16
Thereafter	34
Total	$	368

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, using the treasury stock method. Potentially dilutive securities primarily include unvested restricted stock, which includes restricted stock unit (“RSU”) and performance stock unit (“PSU”) awards, and stock options, including purchase options under VMware’s employee stock purchase plan. Securities are excluded from the computation of diluted net income per share if their effect would be anti-dilutive.

The following table sets forth the computations of basic and diluted net income per share during the periods presented (table in millions, except per share amounts and shares in thousands):



	Three Months Ended				Six Months Ended
	August 4,		July 29,		August 4,		July 29,
	2023		2022		2023		2022
Net income	$	477	$	347	$	701	$	589
Weighted-average shares, basic	430,395		422,002		429,290		421,294
Effect of other dilutive securities	3,695		2,123		3,549		2,267
Weighted-average shares, diluted	434,090		424,125		432,839		423,561
Net income per weighted-average share, basic	$	1.11	$	0.82	$	1.63	$	1.40
Net income per weighted-average share, diluted	$	1.10	$	0.82	$	1.62	$	1.39

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VMware, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The following table sets forth the weighted-average common share equivalents of Common Stock that were excluded from the diluted net income per share calculations during the periods presented because their effect would have been anti-dilutive (shares in thousands):



	Three Months Ended		Six Months Ended
	August 4,	July 29,	August 4,	July 29,
	2023	2022	2023	2022
Anti-dilutive securities:
Employee stock options	—	159	—	126
RSUs	87	876	1,297	679
Total	87	1,035	1,297	805

G. Cash, Cash Equivalents and Restricted Cash

Cash and Cash Equivalents

Cash and cash equivalents totaled $6.8 billion and $5.1 billion as of August 4, 2023 and February 3, 2023, respectively. Cash equivalents were $6.0 billion as of August 4, 2023 and consisted of money-market funds of $6.0 billion and time deposits of $42 million. Cash equivalents were $4.3 billion as of February 3, 2023 and consisted of money-market funds of $4.2 billion and time deposits of $19 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 ~~consisted of the following~~ (table in millions):


	August 4,		February 3,
	2023		2023
Cash and cash equivalents	$	6,801	$	5,100
Restricted cash within other current assets	21		24
Restricted cash within other assets	1		3
Total cash, cash equivalents and restricted cash	$	6,823	$	5,127

Amounts included in restricted cash primarily relate to certain employee-related benefits.

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 issued unsecured senior notes on April 7, 2020 (the “2020 Senior Notes”) and on August 21, 2017 (the “2017 Senior Notes,” collectively with the 2020 Senior Notes and 2021 Senior Notes, the “Senior Notes”).

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VMware, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Transition Period
November 3, December 31, February 3,
2017 2016 2017
Unearned license revenue $ 503
$ 503
$ 484
Unearned software maintenance revenue 4,623
4,628
4,405
Unearned professional services revenue 521
493
451
Total unearned revenue $ 5,647
$ 5,624
$ 5,340
The carrying value of the Senior Notes as of the periods presented was as follows (amounts in millions):

~~Unearned license revenue~~


	August 4,		February 3,		Effective Interest Rate
	2023		2023
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 amount	9,250		9,250
Less: unamortized discount	(11)		(12)
Less: unamortized debt issuance costs	(39)		(46)
Net carrying amount	$	9,200	$	9,192
Current portion of long-term debt	$	1,000	$	1,000
Long-term debt	8,200		8,192

Beginning on February 15, 2022, interest on the 2021 Senior Notes became payable semiannually in arrears, on February 15 and August 15 of each year. Beginning on November 15, 2020, interest on the 2020 Senior Notes became payable semiannually in arrears, on May 15 and November 15 of each year. The interest rate on the 2020 Senior Notes is ~~generally~~subject to adjustment based on certain rating events. Beginning on February 21, 2018, interest on the 2017 Senior Notes became payable semiannually in arrears, on February 21 and August 21 of each year. Interest expense was $60 million and $123 million during the three and six months ended August 4, 2023, respectively, and $61 million and $123 million during the three and six months ended July 29, 2022, respectively. Interest expense, which included amortization of discount and issuance costs, was recognized ~~upon delivery~~on the condensed consolidated statements of ~~existing or future products or services, or is otherwise recognized ratably~~income. The discount and issuance costs are amortized over the term of the ~~arrangement. Future products include,~~Senior Notes on a straight-line basis, which approximates the effective interest method.

The Senior Notes are redeemable in ~~some cases, emerging products~~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, ~~are offered as part~~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 ~~product promotions where the purchaser~~all or substantially all of ~~an existing product is entitled to receive the~~VMware’s assets.

The future ~~product at no additional charge. To the extent the future product has not been delivered and VSOE of fair value cannot be established, revenue~~principal payments for the ~~entire order~~next five fiscal years and thereafter for the Senior Notes as of August 4, 2023 were as follows (amounts in millions):



Remainder of 2024	$	1,000
2025	1,250
2026	750
2027	1,500
2028	1,750
Thereafter	3,000
Total	$	9,250

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VMware, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

On August 15, 2023, subsequent to the second quarter of fiscal 2024, VMware repaid the $1.0 billion unsecured senior note due August 15, 2023.

Senior Unsecured Term Loan Facility

On September 2, 2021, VMware received commitments from financial institutions for a three-year senior unsecured term loan facility and a five-year senior unsecured term loan facility that provided the Company with a one-time aggregate borrowing capacity of up to $4.0 billion (the “2021 Term Loan”). The Company drew down an aggregate of $4.0 billion on November 1, 2021 and has since repaid $2.8 billion, of which $1.5 billion was repaid during the six months ended July 29, 2022. As of August 4, 2023 and February 3, 2023, the outstanding balance on the 2021 Term Loan of $1.2 billion, net of unamortized debt issuance costs, respectively, was included in long-term debt on the condensed consolidated balance sheets. As of August 4, 2023, the weighted-average interest rate on the outstanding 2021 Term Loan was 6.23%.

During the three months ended August 4, 2023, VMware entered into an amendment to the outstanding five-year senior unsecured term loan facility to change the referenced interest rate index from London Interbank Offered Rate (“LIBOR”) to Secured Overnight Financing Rate (“SOFR”). The Company has elected the optional expedient pursuant to Accounting Standards Codification 848, Reference Rate Reform, (“ASC 848”) to account for the amendment prospectively. The amendment did not have a significant impact on the Company’s condensed consolidated financial statements during the three months ended August 4, 2023.

The 2021 Term Loan contains certain representations, warranties and covenants. Interest expense for the 2021 Term Loan, including amortization of issuance costs, was $19 million and $37 million during the three and six months ended August 4, 2023, respectively and was not significant and $22 million during the three and six months ended July 29, 2022, respectively.

Revolving Credit Facility

On September 2, 2021, VMware entered into an unsecured credit agreement establishing a revolving credit facility with a syndicate of lenders that provides the Company with a borrowing capacity of up to $1.5 billion for general corporate purposes (the “2021 Revolving Credit Facility”). Commitments under the 2021 Revolving Credit Facility are available for a period of five years, which may be extended, subject to the satisfaction of certain conditions, by up to two one-year periods. As of August 4, 2023 and February 3, 2023, there was no outstanding borrowing under the 2021 Revolving Credit Facility. The 2021 Revolving Credit Facility contains certain representations, warranties and covenants. Commitment fees, interest rates and other terms of borrowing under the 2021 Revolving Credit Facility may vary based on VMware’s external credit ratings. The amount incurred in connection with the ongoing commitment fee, which is ~~deferred until all product delivery obligations~~payable quarterly in arrears, was not significant during each of the three and six months ended August 4, 2023 and July 29, 2022, respectively.

During the three months ended August 4, 2023, VMware entered into an amendment to the 2021 Revolving Credit Facility to change the referenced interest rate index from LIBOR to SOFR. The Company has elected the optional expedient pursuant to ASC 848 to account for the amendment prospectively. The amendment did not have ~~been fulfilled. In~~a significant impact on the ~~event~~Company’s condensed consolidated financial statements during the ~~arrangement does not include professional services~~three months ended August 4, 2023.

I. Fair Value Measurements

Assets and ~~if the customer is granted the right to receive unspecified future products or VSOE of~~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 ~~software maintenance element~~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 ~~arrangement does~~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 ~~exist, then unearned license revenue may also~~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.

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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 ~~recognized ratably. Unearned license revenue derived from commitments~~measured at fair value as of the periods presented (tables in millions):


	August 4, 2023
	Level 1		Level 2		Total
Cash equivalents:
Money-market funds	$	6,003	$	—	$	6,003
Time deposits(1)	—		42		42
Total cash equivalents	$	6,003	$	42	$	6,045


	February 3, 2023
	Level 1		Level 2		Total
Cash equivalents:
Money-market funds	$	4,250	$	—	$	4,250
Time deposits(1)	—		19		19
Total cash equivalents	$	4,250	$	19	$	4,269

(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 $8.4 billion and $8.5 billion as of August 4, 2023 and February 3, 2023. The fair value of the 2021 Term Loan approximated its carrying value as of August 4, 2023 and February 3, 2023. 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 non-qualified deferred compensation plan (the “NQDC Program”) for eligible employees, which allows participants to ~~future products that~~defer payment of part or all of their compensation. There is no net impact to the condensed consolidated statements of income under the NQDC Program since changes in the fair value of the assets offset changes in the fair value of the liabilities. As such, assets and liabilities associated with the NQDC Program have not been ~~delivered represents~~included in the above tables. Assets associated with the NQDC Program were the same as the liabilities at $184 million and $166 million as of August 4, 2023 and February 3, 2023, respectively, and were included in other assets on the condensed consolidated balance sheets. Liabilities associated with the NQDC Program included in accrued expenses and other on the condensed consolidated balance sheets were $17 million and $16 million as of August 4, 2023 and February 3, 2023, respectively. Liabilities associated with the NQDC Program included in other liabilities on the condensed consolidated balance sheets were $167 million and $150 million as of August 4, 2023 and February 3, 2023, respectively.

Equity Securities Without a Readily Determinable Fair Value

VMware’s equity securities include investments in privately held companies, which do not have a readily determinable fair value. As of August 4, 2023 and February 3, 2023, investments in privately held companies, which consisted primarily of equity securities, had a carrying value of $83 million and $87 million, respectively, and were included in other assets on the condensed consolidated balance sheets.

All gains and losses on these securities, whether realized or unrealized, were not significant for the periods presented and were recognized in other income (expense), net on the condensed consolidated statements of income.

J. 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 ~~total unearned license revenue~~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

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VMware, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

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 six months ended August 4, 2023 and July 29, 2022, the effective portion of gains or losses reclassified to the condensed consolidated statements of income was not significant to each of the individual functional line items, as well as in aggregate. Interest charges or forward points on VMware’s forward contracts were excluded from the assessment of hedge effectiveness and were recorded to the related operating expense line item on the condensed consolidated statements of income in the same period that the interest charges are incurred.

These forward contracts have maturities of fourteen months or less, and as of ~~November~~August 4, 2023 and February 3, ~~2017. Upon adoption~~2023, outstanding forward contracts had a total notional value of ~~Topic 606,~~ $357 million and $677 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 August 4, 2023 and February 3, 2023.

During the three and six months ended August 4, 2023 and July 29, 2022, all cash flow hedges were considered effective.

Forward Contracts Not Designated as Hedges

VMware ~~expects~~has established a program that utilizes forward contracts to offset the foreign currency risk associated with net outstanding monetary asset and liability positions. These forward contracts are not designated as hedging instruments under applicable accounting guidance, and therefore, all changes in the fair value of the forward contracts are reported in other income (expense), net on the condensed consolidated statements of income.

These forward contracts generally have a maturity of one month, and as of August 4, 2023 and February 3, 2023, outstanding forward contracts had a total ~~unearned revenue~~notional value of $1.3 billion and $1.7 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 August 4, 2023 and February 3, 2023.

Gains related to ~~decline as a result~~the settlement of ~~transactions that include offers for future products, such as emerging products that~~forward contracts were not significant and $30 million during the three and six months ended August 4, 2023, respectively. Gains related to the settlement of forward contracts were not significant and $56 million during the three and six months endedJuly 29, 2022, respectively. Gains and losses are ~~offered as part~~recorded in other income (expense), net on the condensed consolidated statements of ~~VMware’s product promotions.~~income.

~~Unearned software maintenance revenue is attributable~~The combined gains and losses related to ~~VMware’s maintenance~~the settlement of forward contracts and the underlying foreign currency denominated assets and liabilities were not significant during the three and six months ended August 4, 2023, and resulted in net losses of $20 million and $29 million during the three and six months endedJuly 29, 2022, respectively. Net gains and losses are recorded in other income (expense), net on the condensed consolidated statements of income.

K. Leases

VMware has operating and finance leases primarily related to office facilities and equipment, which have remaining lease terms of one month to 23 years.

The components of lease expense during the periods presented were as follows (table in millions):


	Three Months Ended				Six Months Ended
	August 4,		July 29,		August 4,		July 29,
	2023		2022		2023		2022
Operating lease expense	$	46	$	48	$	94	$	99
Finance lease expense:
Amortization of right-of-use (“ROU”) assets	3		2		5		3
Interest on lease liabilities	—		—		1		1
Total finance lease expense	3		2		6		4
Short-term lease expense	1		—		1		—
Variable lease expense	8		9		17		15
Total lease expense	$	58	$	59	$	118	$	118

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VMware, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The Company subleases certain leased office space to third parties when it determines there is ~~generally recognized ratably over~~excess leased capacity. Sublease income was not significant during each of the ~~contract period. The weighted-average remaining term~~three and six months ended August 4, 2023 and July 29, 2022.

Supplemental cash flow information related to operating and finance leases during the periods presented was as follows (table in millions):


	Six Months Ended
	August 4,		July 29,
	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	93	$	86
Operating cash flows from finance leases	1		1
Financing cash flows from finance leases	3		2
ROU assets obtained in exchange for lease liabilities:
Operating leases	$	15	$	53
Finance leases	11		—

Supplemental balance sheet information related to operating and finance leases as of ~~November 3, 2017~~the periods presented was ~~approximately two years. Unearned professional services revenue results~~as follows (table in millions):





	August 4, 2023
	Operating Leases		Finance Leases
ROU assets, non-current(1)	$	913	$	53

Lease liabilities, current(2)	$	139	$	12
Lease liabilities, non-current(3)	785		43
Total lease liabilities	$	924	$	55


	February 3, 2023
	Operating Leases		Finance Leases
ROU assets, non-current(1)	$	974	$	47

Lease liabilities, current(2)	$	144	$	9
Lease liabilities, non-current(3)	845		39
Total lease liabilities	$	989	$	48

(1) ROU assets for operating leases are included in other assets and ROU assets for finance leases are included in property and equipment, net on the condensed consolidated balance sheets.

(2) Current lease liabilities are included primarily ~~from prepaid professional services, including training,~~in accrued expenses and ~~is generally recognized~~other on the condensed consolidated balance sheets.

(3) Non-current operating lease liabilities are presented as operating lease liabilities on the ~~services~~condensed consolidated balance sheets. Non-current finance lease liabilities are ~~delivered.~~included in other liabilities on the condensed consolidated balance sheets.

~~Unearned license~~

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VMware, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Lease term and ~~software maintenance revenue will fluctuate based upon a variety~~discount rate related to operating and finance leases as of ~~factors including sales volume,~~ the ~~timing~~periods presented were as follows:


	August 4,		February 3,
	2023		2023
Weighted-average remaining lease term (in years)
Operating leases	11.8		11.8
Finance leases	4.8		5.7
Weighted-average discount rate
Operating leases	3.7	%	3.5	%
Finance leases	3.5	%	3.2	%

The following represents VMware’s future minimum lease payments under non-cancellable operating and finance leases as of ~~both product promotion offers and delivery~~August 4, 2023 (table in millions):



	Operating Leases		Finance Leases
Remainder of 2024	$	88	$	8
2025	138		12
2026	127		13
2027	113		10
2028	99		7
Thereafter	606		9
Total future minimum lease payments	1,171		59
Less: Imputed interest	(247)		(4)
Total lease liabilities(1)	$	924	$	55

(1) Total lease liabilities as of August 4, 2023 excluded legally binding lease payments for leases signed but not yet commenced of $6 million.

The amount of the future ~~products offered,~~operating lease commitments after fiscal 2028 is primarily for the ground leases on VMware’s Palo Alto, California headquarter facilities, which expire in fiscal 2047. As several of VMware’s operating leases are payable in foreign currencies, the operating lease payments may fluctuate in response to changes in the exchange rate between the U.S. dollar and the amount of arrangements sold with ratable revenue recognition. Additionally, the amount of unearned revenue derived from transactions denominated in a foreign currency is affected by fluctuations in the foreign currencies in which ~~VMware invoices.~~the commitments are payable.

L. 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 ~~can~~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.

As of August 4, 2023, the cumulative authorized amount remaining for stock repurchases under the October 2021 authorized repurchase program was $1.6 billion. In connection with its entry into the Merger Agreement, VMware suspended its stock repurchase program during the second quarter of fiscal 2023.

The following table summarizes stock repurchase activity during the three and six months endedJuly 29, 2022 (aggregate purchase price in millions, shares in thousands):

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VMware, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)


	Three Months Ended		Six Months Ended
	July 29,		July 29,
	2022		2022
Aggregate purchase price	$	—	$	89
Class A common stock repurchased	—		803
Weighted-average price per share	$	—	$	111.33

~~The following table summarizes stock repurchase activity, including shares purchased from Dell, during the periods presented (aggregate purchase price in millions, shares in thousands):~~

Three Months Ended Nine Months Ended
November 3, September 30, November 3, September 30,
2017 2016 2017 2016
Aggregate purchase price^(1)(2)(3)
$ 855
$ 1,016
$ 1,280
$ 1,016
Class A common shares repurchased 7,771
13,999
12,598
13,999
Weighted-average price per share $ 110.00
$ 72.57
$ 101.59
$ 72.57

⁽¹⁾~~The aggregate purchase price of repurchased shares is classified as a reduction to additional paid-in capital.~~

⁽²⁾ The aggregate purchase price of $855 million during the three months ended November 3, 2017 includes the purchase price associated with the delivery of 2.7 million shares under the August 23, 2017 purchase commitment with Dell.

⁽³⁾The aggregate purchase price of $1,280 million during the nine months ended November 3, 2017 includes the purchase price associated with the final delivery of 1.4 million shares under the December 15, 2016 stock purchase agreement with Dell and 3.4 million and 2.7 million shares under the March 29, 2017 and August 23, 2017 purchase commitments pursuant to the 2017 Purchase Agreement with Dell, respectively.

~~VMware did not repurchase any shares of its Class A common stock during the Transition Period.~~

~~VMware~~ Restricted Stock

~~VMware’s restricted~~Restricted stock primarily consists of ~~restricted stock unit (“RSU”)~~RSU awards ~~which have been~~ 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~~VMware’s Class A common stock.

~~VMware’s restricted~~Restricted stock also includes ~~performance stock unit (“PSU”)~~PSU awards ~~which have been~~ granted to certain VMware executives and employees. ~~The~~ PSU awards ~~include~~have performance conditions and ~~in certain cases,~~ a ~~time-based or market-based~~service-based vesting component. Upon vesting, PSU awards convert into ~~VMware’s~~ Class A common stock at various ratios ranging from ~~0.5~~0.1 to 2.0 shares per PSU, depending upon the degree of achievement of the ~~performance or market-based target~~performance-based targets 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 1, 2017~~February 3, 2023 (units in thousands):



	Number of Units	Weighted-Average Grant Date Fair Value (per unit)
Outstanding, February 3, 2023	23,522	$	117.73
Granted	9,146	141.63
Vested	(6,952)	120.41
Forfeited	(1,341)	121.61
Outstanding, August 4, 2023	24,375	125.72

Number of Units
Weighted-Average Grant Date Fair Value
(per unit)
Outstanding, January 1, 2017 20,866
$ 67.54
Vested (256 ) 77.07
Forfeited (159 ) 68.11
Outstanding, February 3, 2017 20,451
67.41
Granted 7,000
90.45
Vested (7,603 ) 67.39
Forfeited (1,471 ) 71.80
Outstanding, November 3, 2017 18,377
75.93

The ~~total~~aggregate vesting date fair value of ~~VMware~~ restricted stock that vested during the ~~nine~~six months ended ~~November 3, 2017 and the Transition Period~~August 4, 2023 was ~~$764 million and $21 million, respectively.~~$880 million. As of ~~November 3, 2017,~~August 4, 2023, restricted stock representing ~~18.4~~24.4 million shares of VMware’s Class A common stock were outstanding, with an aggregate intrinsic value of ~~$2,167 million~~$3.9 billion based on VMware’s closing stock price as of ~~November 3, 2017.~~August 4, 2023.

Net Excess Tax Benefits (Tax Deficiencies)

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~~VMware, Inc.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

~~Accumulated Other Comprehensive Income (Loss)~~

~~The changes~~Net excess tax benefits or tax deficiencies recognized in ~~components of accumulated other comprehensive~~connection with stock-based awards are included in income ~~(loss) during the periods presented were as follows (tables in millions):~~

Unrealized Gain (Loss) on
Available-for-Sale Securities Unrealized Gain (Loss) on
Forward Contracts Total
Balance, January 1, 2017 $ (8 ) $ (1 ) $ (9 )
Unrealized gains, net of tax provision of $1, $— and $1 2
3
5
Balance, February 3, 2017 $ (6 ) $ 2
$ (4 )
Unrealized gains, net of tax provision of $5, $—, and $5 9
3
12
Amounts reclassified from accumulated other comprehensive income (loss) to the consolidated statements of income, net of tax benefit of $2, $— and $2 3
(2 ) 1
Other comprehensive income, net 12
1
13
Balance, November 3, 2017 $ 6
$ 3
$ 9

Unrealized Gain (Loss) on
Available-for-Sale Securities Unrealized Gain (Loss) on
Forward Contracts Total
Balance, January 1, 2016 $ (7 ) $ (1 ) $ (8 )
Unrealized gains, net of tax provision of $12, $—, and $12 19
—
19
Amounts reclassified from accumulated other comprehensive income (loss) to the consolidated statements of income, net of tax (provision) of ($3), $—, and ($3) 4
1
5
Balance, September 30, 2016 $ 16
$ —
$ 16

~~Unrealized gains and losses on VMware’s available-for-sale securities are reclassified to investment income~~tax provision on the condensed consolidated statements of income ~~(loss) in the period that such gains~~ and ~~losses are realized.~~

The effective portion of gains or losses resulting from changes in the fair value of forward contracts designated as cash flow hedging instruments is reclassified to its related operating expense line item on the condensed consolidated statements of income (loss) in the same period that the underlying expenses are incurred. The amounts recorded to their related operating expense functional line items on the condensed consolidated statements of income (loss) were not ~~significant to~~material during each of the ~~individual functional line items during the periods presented.~~three and six months ended August 4, 2023 and July 29, 2022.

M. Segment Information

VMware operates in one reportable operating ~~segment,~~segment; thus, all required financial segment information is included in the condensed consolidated financial statements. ~~Operating segments are~~An operating segment is defined as ~~components~~the component of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker in ~~deciding how~~order to allocate resources and ~~assessing~~assess performance. VMware’s chief operating decision maker allocates resources and assesses performance based upon discrete financial information at the consolidated level.

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VMware, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Revenue by type during the periods presented was as follows (table in millions):



	Three Months Ended				Six Months Ended
	August 4,		July 29,		August 4,		July 29,
	2023		2022		2023		2022
Revenue:
License	$	619	$	796	$	1,136	$	1,369
Subscription and SaaS	1,259		943		2,476		1,842

Services:
Software maintenance	1,222		1,299		2,456		2,609
Professional services	308		298		617		604
Total services	1,530		1,597		3,073		3,213
Total revenue	$	3,408	$	3,336	$	6,685	$	6,424

Revenue by geographic area during the periods presented was as follows (table in millions):

Transition Period
Three Months Ended Nine Months Ended January 1 to
November 3, September 30, November 3, September 30, February 3,
2017 2016 2017 2016 2017
United States $ 978
$ 916
$ 2,800
$ 2,587
$ 248
International 998
862
2,812
2,473
248
Total $ 1,976
$ 1,778
$ 5,612
$ 5,060
$ 496

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~~VMware, Inc.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~



	Three Months Ended				Six Months Ended
	August 4,		July 29,		August 4,		July 29,
	2023		2022		2023		2022
United States	$	1,621	$	1,648	$	3,176	$	3,166
International	1,787		1,688		3,509		3,258
Total	$	3,408	$	3,336	$	6,685	$	6,424

Revenue by geographic area is based on the ship-to addresses of VMware’s customers. No individual country other than the ~~United States~~U.S. accounted for 10% or more of revenue during each of the three and ~~nine~~six months ended ~~November 3, 2017~~August 4, 2023 and ~~September 30, 2016 and the Transition Period.~~July 29, 2022.

Long-lived assets by geographic area, which primarily include property and equipment, net, as of the periods presented were as follows (table in millions):


	August 4,		February 3,
	2023		2023
United States	$	814	$	840
International	243		261
Total	$	1,057	$	1,101

Transition Period
November 3, December 31, February 3,
2017 2016 2017
United States $ 744
$ 784
$ 777
International 122
132
131
Total $ 866
$ 916
$ 908

~~No individual country other than~~As of August 4, 2023, the ~~United States~~U.S. and India each accounted for more than 10% ~~or more~~ of these assets, aswith India accounting for 12% of ~~November 3, 2017, December 31, 2016 and~~these assets. As of February 3, ~~2017.~~

~~N. Transition Period~~

~~Comparable Financial Information~~

~~In conjunction~~2023, the U.S. and India each accounted for more than 10% of these assets, with ~~VMware’s change in fiscal year end, the Company had a Transition Period~~India accounting for 13% of ~~34 days that began on January 1, 2017 and ended on February 3, 2017. The most comparable prior-year period, the one month ended January 31, 2016, had a duration of 31 days.~~

~~The following table presents certain financial information during the periods presented (table in millions, except per share amounts and shares in thousands):~~these assets.

Transition Period Comparable Period
January 1 to January 1 to
February 3, January 31,
2017 2016
Total revenue $ 496
$ 470
Operating income (loss) (41 ) 22
Income tax provision (benefit) (26 ) 4
Net income (loss) (8 ) 22

Net income (loss) per weighted-average share, basic for Classes A and B $ (0.02 ) $ 0.05
Net income (loss) per weighted-average share, diluted for Classes A and B $ (0.02 ) $ 0.05

Weighted-average shares, basic for Classes A and B 408,625
422,067
Weighted-average shares, diluted for Classes A and B ⁽¹⁾
408,625
423,092

~~Income Taxes~~

The Company’s net deferred tax assets were $462 million and $716 million as of December 31, 2016 and February 3, 2017, respectively. The increase from December 31, 2016 to February 3, 2017 primarily resulted from higher deferred tax assets related to unearned revenue which were $324 million and $566 million as of December 31, 2016 and February 3, 2017, respectively. The increase in deferred tax assets was a result of the Dell Acquisition and VMware’s new fiscal year calendar. VMware believes it is more-likely-than-not that the net deferred tax assets as of December 31, 2016 and February 3, 2017 will be realized in the foreseeable future, as VMware believes that it will generate sufficient taxable income in future years. VMware's ability to generate sufficient taxable income in future years in appropriate tax jurisdictions will determine the amount of net deferred tax asset balances to be realized in future periods.

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~~VMware, Inc.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

~~O. Subsequent Event~~

During November 2017, VMware entered into a definitive agreement to acquire VeloCloud Networks, Inc. (“VeloCloud”), a provider of cloud-delivered software-defined wide-area network (SD-WAN) technology for enterprises and service providers. The acquisition of VeloCloud will enable VMware to build on its network virtualization platform, VMware NSX, and to expand its networking portfolio. The cash payment upon the closing of the transaction is estimated to be approximately $470 million; however, the determination of the purchase price is dependent upon various factors at the date of closing and cannot be reasonably estimated until such time. The transaction is expected to close during the fourth quarter of fiscal 2018 and is subject to regulatory approvals and customary closing conditions.


~~ITEM 2.~~	~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management’s discussion and analysis ~~(“MD&A”)~~ is provided in addition to the accompanying condensed consolidated financial statements and notes to assist in understanding our results of operations and financial condition. Financial information as of ~~November 3, 2017~~August 4, 2023 should be read in conjunction with our consolidated financial statements for the year ended ~~December 31, 2016~~February 3, 2023 contained in our Annual Report on Form 10-K filed on March 28, 2023.

Our fiscal year is the 52 or 53 weeks ending on the Friday nearest to January 31 of each year. We refer to our fiscal year ending February ~~24, 2017.~~2, 2024 and fiscal year ended February 3, 2023 as “fiscal 2024” and “fiscal 2023,” respectively. The first and second quarter of fiscal 2024 and fiscal 2023 were each 13-week fiscal quarters.

Period-over-period changes are calculated based upon the respective underlying non-rounded data. Unless the context requires otherwise, we are referring to VMware, Inc. and its consolidated subsidiaries when we use the terms “VMware,” the “Company,” “we,” “our” or “us.”

Overview

~~The information~~We originally pioneered the development and application of virtualization technologies with x86 server-based computing, separating application software from the underlying hardware, and then evolved to become the private cloud and mobility management leader. Building upon that leadership, we are focused on becoming the multi-cloud leader. Information technology (“IT”) ~~industry is transforming, moving from a hardware-based traditional model~~driven innovation continues to ~~one of a software-defined infrastructure. We~~disrupt markets and industries. Technologies emerge faster than organizations can absorb, creating increasingly complex environments. Organizations’ IT departments and corporate divisions are ~~a leader in virtualization~~working at an accelerated pace to harness new technologies, platforms and cloud ~~infrastructure~~models, ultimately guiding businesses and ~~business mobility solutions utilized~~their product teams through a digital transformation. To take on these challenges, we are helping customers drive their multi-cloud strategy by ~~organizations to help transform~~providing the ~~way they build, deliver~~multi-cloud platform for all applications, enabling digital innovation and ~~consume IT resources.~~enterprise control.

Over the years, we have increased our product offerings beyond compute virtualization to include offerings that allow organizations to manage IT resources across private clouds and complex multi-cloud, multi-device environments by leveraging synergies across three product categories: Software-Defined Data Center (“SDDC”), Hybrid Cloud Computing and End-User Computing. Our portfolio supports and addresses our customers’ key priorities, including modernizing their applications, managing multi-cloud environments, accelerating their cloud journey, modernizing the ~~four key IT priorities~~network using commodity hardware, embracing zero-trust security and empowering anywhere workspaces. We enable digital transformation of customers’ applications, infrastructure and operations for their constantly evolving business and employee needs.

End users can purchase the full breadth of our ~~customers: modernizing data centers, integrating public clouds, empowering digital workspaces~~subscription, software-as-a-service (“SaaS”), license and ~~transforming security.~~

~~We sell our solutions using~~services portfolio through discrete purchases or through enterprise agreements (“EAs”) ~~or as part of our non-EA, or transactional, business.~~. EAs are ~~comprehensive volume license offerings, offered both directly by us~~sold to our direct customers and through ~~certain~~ channel partners ~~that also provide for~~and can include our license, multi-year maintenance and ~~support. We continue to experience strong renewals, including renewals of our EAs, resulting in additional license sales of both our existing~~support, subscription and ~~newer products and solutions.~~SaaS offerings.

~~SDDC or Software-Defined Data Center~~

Our SDDC technologies are the basis for the private cloud environment and provide the capabilities for our customers to extend their private cloud to the public cloud and to help them run, manage, secure and connect all their applications across all clouds and devices. While overall sales of our VMware vSphere (“vSphere”) offerings have remained strong, the majority of our license sales originate from products and services solutions across our portfolio beyond our compute products. We continue to experience growth in sales of VMware NSX (“NSX”), our network virtualization solution, and VMware vSAN (“vSAN”) products.

~~Hybrid Cloud Computing~~

Our overarching cloud strategy contains three key components: (i) continue to expand beyond compute virtualization in the private cloud, (ii) extend the private cloud into the public cloud and (iii) connect and secure endpoints across a range of public clouds. During the ~~nine~~six months ended November 3, 2017, hybrid cloud computing was comprised of VMware Cloud Provider Program (previously referred to as VMware vCloud Air Network) and VMware vCloud Air (“vCloud Air”) offerings. During the second quarter of fiscal 2018,August 4, 2023, we ~~completed the sale of our vCloud Air business to OVH US LLC (“OVH”). We~~ continued to see an increase in the portion of our sales occurring through our subscription and SaaS offerings compared to the portion of our on-premises solutions sold as perpetual licenses. As this trend continues, we expect a greater portion of our revenue to be recognized over time as subscription and SaaS revenue rather than license revenue, which is typically recognized in the fiscal period in which sales occur. In addition, the rate of growth ~~derived from~~in our ~~VMware Cloud Provider Program offering during~~license revenue has and will likely continue to be less relevant on a standalone basis, and we believe that the ~~third quarter~~overall growth rate of ~~fiscal 2018.~~

~~End-User Computing~~

~~Our End-User Computing solution consists of VMware Workspace ONE~~our subscription and SaaS revenue and annual recurring revenue (“~~Workspace ONE”), our digital workspace platform, which includes VMware AirWatch (“AirWatch”~~ARR”) for subscription and ~~VMware Horizon (“Horizon”). Our AirWatch business model includes an on-premises solution that we offer through the sale of perpetual licenses and an off-premises solution that we offer~~SaaS, as ~~software-as-a-service (“SaaS”). Our mobile and desktop products and services within Workspace ONE continued to contribute to~~well as the growth of our ~~End-User Computing product group~~remaining performance obligations, are becoming better indicators of our future growth prospects. In addition, our operating margin was negatively impacted during the ~~three and nine~~six months ended ~~November 3, 2017.~~

~~Change~~August 4, 2023, and will continue to be impacted in ~~Fiscal Year End~~

Asfiscal 2024, as a result of our incremental investment in our subscription and SaaS portfolio.

Broadcom Merger Agreement

On May 26, 2022, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Broadcom Inc. (“Broadcom”). Under the ~~change~~terms of the Merger Agreement, each share of our Class A common stock (“Common Stock”), par value $0.01 per share, issued and outstanding immediately prior to ~~our fiscal year from a fiscal year ending on December 31~~the effective time of ~~each calendar year~~the transaction will be indirectly converted into the right to receive, at the election of the holder of such share of Common Stock, and subject to proration in accordance with the Merger Agreement as described below: (i) $142.50 per share in cash, without interest (the “Cash Consideration”), or (ii) 0.25200 (the “Exchange Ratio”) shares of common stock, par value $0.001 per share, of Broadcom (“Broadcom Common Stock,” and such consideration, the “Stock Consideration”). The stockholder election will be subject to a ~~fiscal year ending on~~proration mechanism, such that the ~~Friday nearest~~total number of shares of Common Stock entitled to ~~January 31~~receive the Cash Consideration, and the total number of shares of Common Stock entitled to receive the Stock Consideration, will, in each ~~year,~~case, be equal to 50% of the ~~period that began on January 1, 2017~~aggregate number of shares of Common Stock issued and ended on February 3, 2017 was a transition period (the “Transition Period”). Our first full fiscal year 2018 is a 52-week year that began on February 4, 2017 and will end on February 2, 2018. As permitted under SEC rules, prior-period financial statements have not been recast as we believe (i) the three and nine months ended September 30, 2016 are comparableoutstanding immediately prior to the ~~three and nine months ended November 3, 2017 and (ii) recasting prior-period results was~~consummation of the transaction. Holders of Common Stock that do not ~~practicable~~make an election will be treated as having elected to receive the Cash Consideration or ~~cost justified. We have included certain unaudited condensed consolidated financial statements for~~ the ~~Transition Period~~Stock Consideration in ~~this Form 10-Q and will include audited financial statements for~~accordance with the ~~Transition Period~~proration methodology in the ~~Form 10-K filed for~~Merger Agreement.

The transaction, which is expected to be consummated on October 30, 2023, was approved by our shareholders at a special meeting held on November 4, 2022 but remains subject to the ~~fiscal year ended February 2, 2018.~~receipt of regulatory approvals and other customary closing

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conditions. On August 21, 2023, in accordance with the Merger Agreement, we and Broadcom each delivered to the other a mutual notice to extend the Outside Date (as defined in the Merger Agreement) to November 26, 2023. If the transaction is consummated, the Common Stock will be delisted from the New York Stock Exchange and deregistered under the Securities Exchange Act of 1934, as amended.

Results of Operations

Approximately 70% of our sales are denominated in the U.S. ~~dollar, however, in~~dollar. In certain countries, however, we also invoice and collect in ~~the following currencies: euro;~~various foreign currencies, principally euro, British ~~pound;~~pound, Japanese ~~yen;~~yen, Australian ~~dollar;~~dollar and Chinese renminbi. In addition, we incur and pay operating expenses in currencies other than the U.S. dollar. As a result, our financial statements, including our revenue, operating expenses, unearned revenue and the resulting cash flows derived from the U.S. dollar equivalent of foreign currency transactions, are affected by foreign exchange fluctuations.

Revenue

Our revenue during the periods presented was as follows (dollars in millions):

Three Months Ended Nine Months Ended
November 3, September 30, November 3, September 30,
2017 2016 $ Change % Change 2017 2016 $ Change % Change
Revenue:
License $ 785
$ 691
$ 94
14 % $ 2,127
$ 1,907
$ 219
12 %
Services:
Software maintenance 1,023
947
76
8
3,011
2,753
258
9
Professional services 168
140
28
20
474
400
75
19
Total services 1,191
1,087
104
10
3,485
3,153
333
11
Total revenue $ 1,976
$ 1,778
$ 198
11
$ 5,612
$ 5,060
$ 552
11

Revenue:
United States $ 978
$ 916
$ 61
7 % $ 2,800
$ 2,587
$ 213
8 %
International 998
862
137
16
2,812
2,473
339
14
Total revenue $ 1,976
$ 1,778
$ 198
11
$ 5,612
$ 5,060
$ 552
11

Hybrid cloud, including VMware Cloud Provider Program and vCloud Air, and our SaaS offerings, which include our AirWatch mobile solutions, increased to greater than 8% of our total revenue during the three and nine months ended November 3, 2017 from approximately 8% during the three and nine months ended September 30, 2016. VMware Cloud Provider Program revenue is included in license revenue, and SaaS revenue, including vCloud Air and our AirWatch mobile solutions, is included in both license and services revenue. We completed our sale of the vCloud Air business during the second quarter of fiscal 2018.


	Three Months Ended								Six Months Ended
	August 4,		July 29,						August 4,		July 29,
	2023		2022		$ Change		% Change		2023		2022		$ Change		% Change
Revenue:
License	$	619	$	796	$	(177)	(22)	%	$	1,136	$	1,369	$	(232)	(17)	%
Subscription and SaaS	1,259		943		317		34		2,476		1,842		634		34

Services:
Software maintenance	1,222		1,299		(77)		(6)		2,456		2,609		(153)		(6)
Professional services	308		298		10		3		617		604		12		2
Total services	1,530		1,597		(67)		(4)		3,073		3,213		(141)		(4)
Total revenue	$	3,408	$	3,336	$	72	2		$	6,685	$	6,424	$	261	4

Revenue:
United States	$	1,621	$	1,648	$	(27)	(2)	%	$	3,176	$	3,166	$	10	—	%
International	1,787		1,688		99		6		3,509		3,258		251		8
Total revenue	$	3,408	$	3,336	$	72	2		$	6,685	$	6,424	$	261	4

License revenue relating to the sale of ~~perpetual~~on-premises licenses that are part of a multi-year ~~arrangement~~contract is generally recognized upon delivery of the underlying license, whereas revenue derived from our ~~hybrid cloud~~subscription and SaaS offerings is generally recognized ~~based~~over time as customers consume the services or ratably over the term of the subscription, commencing upon provisioning of the service. Our subscription offerings consisted primarily of our VMware Cloud Provider Program (“VCPP”) and VMware Tanzu offerings, and our SaaS offerings consisted primarily of our VMware Aria, Workspace ONE, VMware Carbon Black Cloud and VMware Cloud on ~~consumption~~AWS offerings. Subscription and SaaS offerings generally have a duration of one month, one-year, or ~~over~~three-years and are invoiced to the customers either upfront, annually, quarterly or monthly.

As customers adopt our subscription and SaaS offerings, license and software maintenance revenue has been, and may continue to be, lower and subject to greater fluctuation in the future, driven by a higher proportion of our sales occurring through our subscription and SaaS offerings as well as the variability of large deals between fiscal quarters. Such large deals historically have had a large license revenue impact.

Furthermore, revenue from term-based license offerings in certain EAs subject to termination for convenience (“TFC”) clauses is recognized ratably as subscription and SaaS revenue, rather than as license revenue, due to the requirement to refund any unused, pre-paid fees upon termination. Any concentration of such sales in any given future period ~~of time.~~could have a material negative impact on our license revenue in such future periods.

License Revenue

~~During the three and nine months ended November 3, 2017, license revenue benefited from balanced performance in all major geographies and broad strength across our product portfolio.~~ License revenue ~~growth~~decreased during the three and ~~nine~~six months ended ~~November 3, 2017~~August 4, 2023 compared to the three and ~~nine~~six months ended ~~September 30, 2016 continued~~July 29, 2022, largely due to ~~be driven by~~increased sales of our ~~NSX~~subscription and ~~vSAN~~SaaS offerings ~~as well as growth in our End-User Computing and VMware Cloud Provider Program offerings. Strength in renewals~~relative to the portion of our on-premises solutions sold as perpetual licenses, as we continue to transition our portfolio from a perpetual license to a subscription and SaaS model. The decrease was also partially driven by an increase in sales of our term-based license offerings

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in certain EAs ~~also contributed~~that were subject to TFC clauses, which resulted in revenues being recognized ratably as subscription and SaaS revenue, rather than license revenue.

Subscription and SaaS Revenue

Subscription and SaaS revenue, ~~growth~~which includes revenue from term-based license offerings in certain EAs subject to TFC clauses, increased during the three and ~~nine~~six months ended ~~November 3, 2017~~August 4, 2023 compared to the three and ~~nine~~six months ended ~~September 30, 2016.~~July 29, 2022, primarily due to increased sales of our VMware Aria, VCPP, Horizon, VMware Tanzu and vSphere offerings.

ARR represents the annualized value of our committed customer subscription and SaaS contracts as of the end of the reporting period, assuming any contract that expires during the next 12 months is renewed on its existing terms and any applicable TFC rights are not exercised, except that, for consumption-based subscription and SaaS offerings, ARR represents the annualized quarterly revenue based on revenue recognized for the current reporting period. ARR is an operating measure we use to assess the strength of our subscription and SaaS offerings. ARR is a performance metric and should be viewed independently of, and not as a substitute for or combined with, revenue and unearned revenue. ARR was $5.3 billion as of August 4, 2023 and $3.9 billion as of July 29, 2022.

Services Revenue

~~During~~Software maintenance revenue decreased during the three and ~~nine~~six months ended ~~November 3, 2017,~~August 4, 2023 compared to the three and six months ended July 29, 2022, largely due to the continued shift in demand from our on-premises licenses sold with the associated software maintenance ~~revenue benefited from strong renewals of our EAs, maintenance contracts sold in previous periods~~to subscription and ~~additional maintenance contracts sold in conjunction with new software license sales.~~SaaS offerings. In each period presented, customers purchased, on a weighted-average basis, ~~more~~greater than ~~two and a half~~three years of support and maintenance with each new license purchased.

Professional services revenue increased ~~20% and 19%~~ during the three and ~~nine~~six months ended ~~November 3, 2017, respectively, as~~August 4, 2023 compared to the three and ~~nine~~six months ended ~~September 30, 2016. We have~~July 29, 2022. Services we provide through our consultants and technical account managers, and our continued ~~our~~ focus on solution deployments, including our ~~products such as NSX~~networking, security, cloud management and ~~vSAN, which attributed~~anywhere workspace offerings, contributed to the increase in professional services revenue.

Our professional services revenue ~~will~~may vary, ~~based on the delivery channels used in any given period~~ as ~~well as~~we continue to enable our partners to deliver professional services for our solutions. Further, the timing of ~~service engagements.~~services rendered will also impact the amount of professional services revenue we recognize during a period.

Unearned Revenue

Unearned revenue as of the periods presented consisted of the following (table in millions):


	November 3,		December 31,			August 4,		February 3,
	2017		2016			2023		2023
Unearned license revenue	$	503	$	503	Unearned license revenue	$	11	$	21
Unearned subscription and SaaS revenue					Unearned subscription and SaaS revenue	4,488		4,401
Unearned software maintenance revenue	4,623		4,628		Unearned software maintenance revenue	6,095		6,805
Unearned professional services revenue	521		493		Unearned professional services revenue	1,496		1,516
Total unearned revenue	$	5,647	$	5,624	Total unearned revenue	$	12,090	$	12,743

Unearned ~~license~~subscription and SaaS revenue is generally recognized ~~upon delivery of existing or future products or~~over time as customers consume the services or ~~is otherwise recognized~~ ratably over the term of the arrangement. Future products include, in some cases, emerging products that are offered as part of product promotions where the purchaser of an existing product is entitled to receive the future product at no additional charge. To the extent the future product has not been delivered and vendor-specific objective evidence (“VSOE”) of fair value cannot be established, revenue for the entire order is deferred until all product delivery obligations have been fulfilled. In the event the arrangement does not include professional services and if the customer is granted the right to receive unspecified future products or VSOE of fair value on the software maintenance elementsubscription, commencing upon provisioning of the arrangement does not exist, then unearned license revenue may also be recognized ratably. Unearned license revenue derived from commitments to future products that have not been delivered represents a significant portion of total unearned license revenue as of November 3, 2017. Upon adoption of Topic 606, we expect total unearned revenue to decline as a result of transactions that include offers for future products, such as emerging products that are offered as part of our product promotions.service.

Unearned software maintenance revenue is attributable to our maintenance contracts and is generally recognized ratably over the contract ~~period.~~duration. The weighted-average remaining contractual term as of ~~November 3, 2017~~August 4, 2023 was approximately two years.

Unearned professional services revenue results primarily from prepaid professional services ~~including training,~~ and is generally recognized as the services are ~~delivered.~~performed.

~~Unearned license~~Remaining Performance Obligations and ~~software maintenance revenue will fluctuate based upon a variety of factors including sales volume,~~Backlog

Remaining Performance Obligations

Remaining performance obligations represent the ~~timing of both product promotion offers and delivery~~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 ~~products offered,~~installment payments and certain unfulfilled orders against accepted, non-cancellable customer contracts at the end of any given period.

Table of ~~arrangements sold with ratable~~Contents

As of February 3, 2023, the aggregate transaction price allocated to remaining performance obligations was $13.6 billion, of which approximately 54% was expected to be recognized as revenue ~~recognition. Additionally,~~during fiscal 2024 and the ~~amount of unearned revenue derived from transactions denominated~~remainder thereafter.

Remaining performance obligations do not include customer prepayments received for contracts that include certain cancellation rights, such as TFC, which are included in ~~a foreign currency is affected by fluctuations in the foreign currencies in which we invoice.~~

In connection with the disposition of vCloud Air, approximately $35 million of total unearned revenue, which included $18 million of unearned license revenue, was transferred to OVH during the second quarter of fiscal 2018. Refer to Note D tocustomer deposits on the condensed consolidated ~~financial statements in Part I, Item 1~~balance sheets and were $1.6 billion as of ~~this Quarterly Report on Form 10-Q for further discussion.~~August 4, 2023.

Backlog

Backlog is comprised of unfulfilled ~~orders against~~ purchase orders or unfulfilled executed agreements ~~received~~ at the end of ~~the~~a given period and is ~~presented~~ net of related estimated rebates and marketing development funds. Backlog consists of licenses, subscription and SaaS and services. As of ~~November~~August 4, 2023 and February 3, ~~2017,~~2023, our total backlog was ~~approximately $210~~$22 million ~~generally consisting~~and $72 million, respectively, substantially all of ~~licenses, maintenance~~which consisted of orders received on the last day of the quarter that were not shipped or provisioned to customers, and ~~services. Our backlog~~orders held due to our export control process. Backlog related to licenses was ~~approximately $90 million, which we expect~~not material as of August 4, 2023 and February 3, 2023. Backlog associated with contracts subject to ~~ship and recognize as revenue or unearned revenue during~~cancellation until the ~~fourth quarter of fiscal 2018. Total and license backlog at the beginning and end~~fulfillment of the ~~quarter~~performance obligation was excluded from remaining performance obligations, and these amounts were ~~comparable.~~not material as of August 4, 2023 and February 3, 2023.

The amount and composition of backlog will fluctuate period to period. We do not believe ~~that~~ the amount of backlog ~~as of any particular date,~~ is indicative of future ~~sales.~~sales or revenue or that the mix of backlog at the end of any given period correlates with actual sales performance of a particular geography or particular products and services.

Cost of License Revenue, Cost of Subscription and SaaS Revenue, Cost of Services Revenue and Operating Expenses

~~Our~~Collectively, our cost of ~~services revenue~~revenues and operating expenses primarily reflected increasing cash-based employee-related expenses, driven by ~~incremental growth~~an increase in ~~headcount and increasing compensation across most of our income statement expense categories~~salaries during the three and ~~nine~~six months ended ~~November 3, 2017. We expect increases in cash-based employee-related expenses to continue.~~August 4, 2023.

Cost of License Revenue

Cost of license revenue primarily consists of the cost of fulfillment of our ~~software,~~SD-WAN offerings, royalty costs in connection with technology licensed from third-party providers and amortization of intangible assets. The cost of fulfillment of our software and hardware SD-WAN offerings includes personnel costs and related overhead associated with ~~the physical and electronic~~ delivery of our ~~software~~ products.

Cost of license revenue during the periods presented was as follows (dollars in millions):


	Three Months Ended										Six Months Ended
	August 4,			July 29,							August 4,			July 29,
	2023			2022			$ Change		% Change		2023			2022			$ Change		% Change
Cost of license revenue	$	37		$	39		$	(2)	(5)	%	$	75		$	73		$	3	4	%
Stock-based compensation	—			—			—		(9)		1			1			—		(9)
Total expenses	$	37		$	39		$	(2)	(5)		$	76		$	74		$	3	3
% of License revenue	6		%	5		%					7		%	5		%

Three Months Ended Nine Months Ended
November 3, September 30, November 3, September 30,
2017 2016 $ Change % Change 2017 2016 $ Change % Change
Cost of license revenue $ 38
$ 40
$ (2 )
(5 )% $ 115
$ 119
$ (5 ) (4 )%
Stock-based compensation —
—
—
(33 ) 1
2
—
(11 )
Total expenses $ 38
$ 40
$ (2 ) (6 ) $ 116
$ 121
$ (5 ) (4 )
% of License revenue 5 % 6 % 5 % 6 %

Cost of license revenue remained relatively flat during the three and ~~nine~~six months ended ~~November 3, 2017~~August 4, 2023 compared to the three and ~~nine~~six months ended ~~September 30, 2016.~~July 29, 2022.

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Cost of Subscription and SaaS Revenue

Cost of subscription and SaaS revenue primarily includes personnel costs and related overhead associated with hosted services supporting our SaaS offerings. Additionally, cost of subscription and SaaS revenue also includes depreciation of equipment supporting our subscription and SaaS offerings.

Cost of subscription and SaaS revenue during the periods presented was as follows (dollars in millions):


	Three Months Ended										Six Months Ended
	August 4,			July 29,							August 4,			July 29,
	2023			2022			$ Change		% Change		2023			2022			$ Change		% Change
Cost of subscription and SaaS revenue	$	197		$	190		$	6	3	%	$	398		$	376		$	22	6	%
Stock-based compensation	6			6			1		13		13			11			2		15
Total expenses	$	203		$	196		$	7	4		$	411		$	387		$	23	6
% of Subscription and SaaS revenue	16		%	21		%					17		%	21		%

Cost of subscription and SaaS revenue increased during the three months ended August 4, 2023 compared to the three months ended July 29, 2022. The increase was primarily driven by increased equipment and depreciation.

Cost of subscription and SaaS revenue increased during the six months ended August 4, 2023 compared to the six months ended July 29, 2022. The increase was primarily driven by growth in cash-based employee-related expenses, which was primarily driven by incremental growth in salaries, as well as increased equipment and depreciation.

Cost of Services Revenue

Cost of services revenue primarily includes the costs of personnel and related overhead to ~~physically and electronically~~ deliver technical support for our products and costs to ~~provide~~deliver professional services. Additionally, cost of services revenue includes depreciation onof equipment supporting our service offerings.

Cost of services revenue during the periods presented was as follows (dollars in millions):


	Three Months Ended										Six Months Ended
	August 4,			July 29,							August 4,			July 29,
	2023			2022			$ Change		% Change		2023			2022			$ Change		% Change
Cost of services revenue	$	376		$	344		$	32	9	%	$	751		$	696		$	55	8	%
Stock-based compensation	23			25			(2)		(8)		45			48			(3)		(6)
Total expenses	$	399		$	369		$	30	8		$	796		$	744		$	52	7
% of Services revenue	26		%	23		%					26		%	23		%

Three Months Ended Nine Months Ended
November 3, September 30, November 3, September 30,
2017 2016 $ Change % Change 2017 2016 $ Change % Change
Cost of services revenue $ 227
$ 213
$ 14
7 % $ 683
$ 620
$ 63
10 %
Stock-based compensation 13
13
—
(1 ) 38
38
—
1
Total expenses $ 240
$ 226
$ 14
6
$ 721
$ 658
$ 63
10
% of Services revenue 20 % 21 % 21 % 21 %

Cost of services revenue increased during the three ~~and nine~~ months ended ~~November 3, 2017~~August 4, 2023 compared to the three ~~and nine~~ months ended ~~September 30, 2016.~~July 29, 2022. The increase was primarily ~~due to~~driven by growth in cash-based employee-related expenses of ~~$15~~$29 million, ~~and $60 million during the three and nine months ended November 3, 2017, respectively,~~largely driven by incremental growth in ~~headcount~~salaries and headcount.

Cost of services revenue increased during the six months ended August 4, 2023 compared to the six months ended July 29, 2022. The increase was primarily driven by growth in cash-based employee-related expenses of $57 million, primarily driven by incremental growth in salaries and headcount, as well as ~~increased IT development~~merger-related costs incurred in connection with our pending acquisition by Broadcom (“Merger-Related Costs”), including retention compensation incurred to preserve our business organization through the consummation of the merger (“Retention Compensation”) of $19 million. These increases were partially offset by decreased third-party professional services costs of ~~$17 million during the nine months ended November 3, 2017. These increased costs were offset in part by a decrease in equipment, depreciation and facilities-related costs~~$15 million.

Table of ~~$27 million during the nine months ended November 3, 2017.~~Contents

Research and Development Expenses

Research and development expenses include ~~the~~ personnel and related overhead costs associated with the development of our ~~product software~~products and ~~service~~services offerings. We continue to invest in and focus on expanding our subscription and SaaS offerings.

Research and development expenses during the periods presented were as follows (dollars in millions):


	Three Months Ended										Six Months Ended
	August 4,			July 29,							August 4,			July 29,
	2023			2022			$ Change		% Change		2023			2022			$ Change		% Change
Research and development	$	689		$	657		$	32	5	%	$	1,389		$	1,299		$	90	7	%
Stock-based compensation	146			146			—		—		293			278			14		5
Total expenses	$	835		$	803		$	32	4		$	1,682		$	1,577		$	105	7
% of Total revenue	24		%	24		%					25		%	25		%

Three Months Ended Nine Months Ended
November 3, September 30, November 3, September 30,
2017 2016 $ Change % Change 2017 2016 $ Change % Change
Research and development $ 353
$ 309
$ 45
15 % $ 1,032
$ 885
$ 148
17 %
Stock-based compensation 96
80
15
19
266
224
42
19
Total expenses $ 449
$ 389
$ 60
15
$ 1,298
$ 1,109
$ 190
17
% of Total revenue 23 % 22 % 23 % 22 %

Research and development expenses increased during the three and ~~nine~~six months ended ~~November 3, 2017~~August 4, 2023 compared to the three and ~~nine~~six months ended ~~September 30, 2016.~~July 29, 2022. The increase was primarily due to growth in cash-based employee-related expenses of ~~$36~~$28 million and ~~$150~~$84 million, respectively, during the three and ~~nine~~six months ended ~~November 3, 2017, respectively,~~August 4, 2023, largely driven by incremental growth in ~~headcount and~~ salaries. In addition, stock-based compensation increased by $15 million and $42 million, respectively, primarily driven by an increase in restricted stock unit awards granted after the third quarter of 2016. Research and development expenses also increased due to higher equipment, depreciation and facilities-related costs of $11 million and $19 million during the three and nine months ended November 3, 2017, respectively. These increases were offset in part by an increase in capitalized internal-use software development costs of $14 million and $48 million during the three and nine months ended November 3, 2017, respectively.

Sales and Marketing Expenses

Sales and marketing expenses include personnel costs, sales commissions and related overhead associated with the sale and marketing of our license, subscription and SaaS and services offerings, as well as the cost of product launches and marketing initiatives. ~~Sales commissions for~~A significant portion of our ~~license offerings are generally earned and expensed when a firm order is received from the customer. In the event of an EA with multi-year support and maintenance or our SaaS offerings,~~ sales commissions are ~~generally expensed~~deferred and recognized over the ~~term~~expected period of ~~the arrangement.~~benefit.

Sales and marketing expenses during the periods presented were as follows (dollars in millions):


	Three Months Ended										Six Months Ended
	August 4,			July 29,							August 4,			July 29,
	2023			2022			$ Change		% Change		2023			2022			$ Change		% Change
Sales and marketing	$	1,012		$	987		$	25	3	%	$	2,039		$	1,960		$	77	4	%
Stock-based compensation	88			93			(6)		(6)		166			174			(7)		(4)
Total expenses	$	1,100		$	1,080		$	19	2		$	2,205		$	2,134		$	69	3
% of Total revenue	32		%	32		%					33		%	33		%

Three Months Ended Nine Months Ended
November 3, September 30, November 3, September 30,
2017 2016 $ Change % Change 2017 2016 $ Change % Change
Sales and marketing $ 555
$ 513
$ 42
8 % $ 1,712
$ 1,562
$ 151
10 %
Stock-based compensation 52
51
1
2
150
146
3
2
Total expenses $ 607
$ 564
$ 43
8
$ 1,862
$ 1,708
$ 154
9
% of Total revenue 31 % 32 % 33 % 34 %

Sales and marketing expenses increased during the three ~~and nine~~ months ended ~~November 3, 2017~~August 4, 2023 compared to the three ~~and nine~~ months ended ~~September 30, 2016.~~July 29, 2022. The increase was primarily due to growth in cash-based employee-related expenses of $32 million and $154 million during the three and nine months ended November 3, 2017, respectively, driven by incremental growth in headcount and salaries. The increase in cash-based employee-related expenses was also driven by higher commission costs ~~during the nine months ended November 3, 2017,~~of $17 million, resulting from increased sales ~~volume.~~volume, as well as Retention Compensation during the three months ended August 4, 2023.

Sales and marketing expenses increased during the six months ended August 4, 2023 compared to the six months ended July 29, 2022. The increase was primarily due to higher commission costs of $47 million resulting from increased sales volume, as well as Retention Compensation of $21 million during the six months ended August 4, 2023.

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General and Administrative Expenses

General and administrative expenses include personnel and related overhead costs to support the business. These expenses include the costs associated with finance, human resources, IT infrastructure and legal, as well as expenses related to corporate costs and ~~initiatives, including certain charitable donations to the VMware Foundation.~~initiatives.

General and administrative expenses during the periods presented were as follows (dollars in millions):


	Three Months Ended										Six Months Ended
	August 4,			July 29,							August 4,			July 29,
	2023			2022			$ Change		% Change		2023			2022			$ Change		% Change
General and administrative	$	240		$	235		$	5	2	%	$	579		$	446		$	133	30	%
Stock-based compensation	47			41			6		15		81			81			—		1
Total expenses	$	287		$	276		$	12	4		$	660		$	527		$	134	25
% of Total revenue	8		%	8		%					10		%	8		%

Three Months Ended Nine Months Ended
November 3, September 30, November 3, September 30,
2017 2016 $ Change % Change 2017 2016 $ Change % Change
General and administrative $ 154
$ 152
$ 2
1 % $ 428
$ 454
$ (27 ) (6 )%
Stock-based compensation 21
26
(5 ) (19 ) 58
62
(3 ) (6 )
Total expenses $ 175
$ 178
$ (3 ) (2 ) $ 486
$ 516
$ (31 ) (6 )
% of Total revenue 9 % 10 % 9 % 10 %

General and administrative expenses ~~were relatively flat~~increased during the three months ended ~~November 3, 2017~~August 4, 2023 compared to the three months ended ~~September 30, 2016. During~~July 29, 2022. The increase was primarily due to increased Merger-Related Costs of $18 million, as well as Retention Compensation of $19 million during the ~~nine~~three months ended November 3, 2017, general and administrative expenses decreased compared to the nine months ended September 30, 2016. The decrease was primarily driven by a decrease in: IT development costs of $27 million; equipment, depreciation and facilities-related costs of $20 million; contractor spending

~~of $11 million; and telecom costs of $10 million.~~August 4, 2023. These ~~decreases~~increases were offset in part by decreased ~~capitalization~~legal fees of ~~internal-use software development costs~~$22 million.

General and administrative expenses increased during the six months ended August 4, 2023 compared to the six months ended July 29, 2022. The increase was primarily due to an accrual of ~~$26~~$85 million recognized for the Cirba Inc. patent lawsuit against VMware, as well as increased ~~cash-based employee-related expenses~~Merger-Related Costs of ~~$23~~$51 million ~~resulting primarily from incremental growth in headcount~~ and ~~salaries~~Retention Compensation of $38 million during the ~~nine~~six months ended ~~November 3, 2017.~~August 4, 2023. These increases were partially offset by decreased legal fees of $27 million.

~~Realignment and Loss on Disposition~~Investment Income

~~Realignment expenses and loss on disposition~~Investment income during the periods presented ~~were~~was as follows (dollars in millions):


	Three Months Ended										Six Months Ended
	August 4,			July 29,							August 4,			July 29,
	2023			2022			$ Change		% Change		2023			2022			$ Change		% Change
Investment income	$	74		$	7		$	67	935	%	$	138		$	8		$	130	N/M
% of Total revenue	2		%	—		%					2		%	—		%
N/M - Change in percentage is not considered meaningful.

Three Months Ended Nine Months Ended
November 3, September 30, November 3, September 30,
2017 2016 $ Change 2017 2016 $ Change
Realignment and loss on disposition $ 2
$ —
$ 2
$ 88
$ 52
$ 36
% of Total revenue — % — % 2 % 1 %

~~During the second quarter of fiscal 2018, we completed the sale of vCloud Air to OVH. Losses recognized in connection with this transaction were $2 million and $88 million~~Investment income increased during the three and ~~nine~~six months ended ~~November 3, 2017, respectively. Losses recognized on~~August 4, 2023 compared to the disposition of vCloud Air include the impairment of fixed assets identified as part of the sale, as well as the costs associated with certain transition services, which primarily include employee-related expensesthree and ~~costs associated with data-center colocation services. Transition services are to be provided over a period of 18 months, starting from the date of the sale.~~

On January 22, 2016, we approved a plan to streamline our operations, with plans to reinvest the associated savings in field, technical and support resources associated with growth products. As a result of these actions, approximately 800 positions were eliminated during the ninesix months ended ~~September 30, 2016. We recognized $49 million of severance-related realignment expenses during the nine months ended September 30, 2016~~July 29, 2022, primarily driven by higher investment yields on the condensed consolidated statements of income. Additionally, we consolidated certain facilities as part of this plan, which resulted in the recognition of $3 million of related expenses during the nine months ended September 30, 2016. Actions associated with this plan were substantially completed by December 31, 2016.our cash equivalents.

Interest ~~expense~~Expense

Interest expense during the periods presented was as follows (dollars in millions):


	Three Months Ended										Six Months Ended
	August 4,			July 29,							August 4,			July 29,
	2023			2022			$ Change		% Change		2023			2022			$ Change		% Change
Interest expense	$	79		$	74		$	6	8	%	$	159		$	145		$	15	10	%
% of Total revenue	2		%	2		%					2		%	2		%

Three Months Ended Nine Months Ended
November 3, September 30, November 3, September 30,
2017 2016 $ Change 2017 2016 $ Change
Interest expense $ (28 ) $ (7 ) $ (21 ) $ (41 ) $ (20 ) $ (21 )
% of Total revenue (1 )% — % (1 )% — %

On August 21, 2017, we issued three unsecured senior notes (“Senior Notes”) pursuant to a public debt offering in the aggregate amount of $4,000 million. Upon closing, a portion of the net proceeds from the offering was used to repay two of the notes payable to Dell in the aggregate principal amount of $1,230 million. Interest expense increased ~~by $21 million~~ during the three and ~~nine~~six months ended ~~November 3, 2017~~August 4, 2023 compared to the three and ~~nine~~six months ended ~~September 30, 2016, due to the issuance of the Senior Notes,~~July 29, 2022. The increase was primarily driven by higher interest rates on our senior unsecured term loan facility, offset in part by the effect of a ~~reduction~~lower outstanding principal balance on the term loan facility during the first half of fiscal 2024 compared to the first half of fiscal 2023.

Refer to Note H to the condensed consolidated financial statements in ~~interest expense with Dell. We expect interest expense~~Part I, Item 1 of this Quarterly Report on Form 10-Q for ~~the fiscal year 2018 to be approximately $75 million.~~more information regarding our outstanding indebtedness.

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Other Income (Expense), net

Other income (expense), net during the periods presented was as follows (dollars in millions):


	Three Months Ended								Nine Months Ended									Three Months Ended										Six Months Ended
	November 3,			September 30,					November 3,			September 30,						August 4,			July 29,							August 4,			July 29,
	2017			2016			$ Change		2017			2016			$ Change			2023			2022			$ Change		% Change		2023			2022			$ Change		% Change
Other income (expense), net	$	(2	)	$	(8	)	$	6	$	51		$	(8	)	$	59	Other income (expense), net	$	19		$	(20)		$	40	206	%	$	26		$	(30)		$	55	185	%
% of Total revenue	—		%	(1		)%			1		%	—		%			% of Total revenue	1		%	(1)		%					—		%	—		%

~~During the third quarter of fiscal 2018, we repaid two of the notes payable to Dell~~The change in ~~the aggregate principal amount of $1,230 million, representing repayment of the note due May 1, 2018 at par value and repayment of the note due May 1, 2020 at a discount. During~~other income (expense), net during the three and ~~nine~~six months ended August 4, 2023 compared to the three and six months ended July 29, 2022 was primarily driven by changes in gains and losses, whether realized or unrealized, on our investments in equity securities, as well as changes in gains and losses on foreign currency exchange.

Pursuant to a tax matters agreement entered into with Dell effective April 14, 2021 (the “Tax Matters Agreement”), we have agreed to indemnify one another for certain tax liabilities or tax benefits relating to periods prior to our spin-off from Dell on November ~~3, 2017, we~~1, 2021 and certain adjustments to these amounts that will be recognized ~~a gain on extinguishment of debt of $6 million, which was~~in future periods will be recorded in other income (expense), ~~net.~~net on the consolidated statements of income. While the adjustments recognized have not been material, we cannot reasonably predict the amount that we may receive or pay in future periods, which could introduce significant risk of variability to our consolidated statements of income.

During the second quarter of fiscal 2018, we acquired all of the outstanding shares of Wavefront, Inc. (“Wavefront”). Prior to the closing of the acquisition, we held an ownership interest in Wavefront. Upon completion of the step acquisition, we recognized a gain of $34 million in other income (expense), net for the remeasurement of our ownership interest to fair value.Income Tax Provision

~~Transition Period~~

In conjunction with our change in fiscal year end, we had a Transition Period of 34 days that began on January 1, 2017 and ended on February 3, 2017. The most comparable prior-year period, the one month ended January 31, 2016, had a duration of 31 days.

The following table ~~presents certain financial information~~summarizes our income tax provision during the periods presented ~~(table~~(dollars in ~~millions, shares in thousands)~~millions):


	Three Months Ended						Six Months Ended
	August 4,			July 29,			August 4,			July 29,
	2023			2022			2023			2022
Income tax provision	$	84		$	132		$	159		$	218
Effective income tax rate	15.0		%	27.6		%	18.5		%	27.0		%

During the Transition Period, total revenue increased and license sales declined when compared to the one-month period ended January 31, 2016. Operating loss during the Transition Period reflected costs related to our global sales event, as well as increases in employee-related expenses compared to the one month ended January 31, 2016. Factors contributing to the increase in employee-related expenses include both incremental headcount and costs associated with three additional days of expense included in the Transition Period.

The income tax benefit recognized during the Transition Period was driven by the pre-tax loss incurred during the period and our Internal Revenue Code Section 199 deduction (“Deduction”), which reflected the impact of claiming a higher Deduction for two of our U.S. tax return periods compared to the Deduction for the year ended December 31, 2016, which was calculated on a standalone basis. We were required to file two U.S. tax returns covering the period prior to the Dell Acquisition from January 1, 2016 to September 7, 2016 and the period following the Dell Acquisition through Dell’s fiscal year ended February 3, 2017. The Deduction was greater during the two U.S tax return periods due to higher taxable income resulting from the acceleration of income recognized from unearned revenue for tax purposes.

~~Income Tax Provision~~

Our quarterly effective income tax rate is based on our estimated annual income tax rate forecast and discrete tax items

recognized in the period. ~~Our~~The change in our effective income tax rate ~~was 5.4% and 10.9%~~ during the three and ~~nine~~six months ended ~~November 3, 2017, respectively. For~~August 4, 2023 compared to the three and ~~nine~~six months ended ~~September 30, 2016, our~~July 29, 2022 was primarily driven by a discrete tax benefit of approximately $60 million recognized from the impacts of Notice 2023-55, which was issued by the Internal Revenue Service during July 2023 and provides temporary relief for taxpayers in determining whether a foreign tax is eligible for a foreign tax credit under Sections 901 and 903 of the Internal Revenue Code.

Our effective tax rate ~~was 17.6%~~in the future will depend upon the proportion of our income before provision for income taxes earned in the U.S. and ~~19.4%, respectively. Our estimated annual effective income~~in jurisdictions with a tax rate ~~for fiscal 2018 increased slightly when compared to the annual effective tax rate for the year ended December 31, 2016.~~

Our effective income tax rate for the three and nine months ended November 3, 2017 declined primarily due to the recognition of excess tax benefits of $32 million and $76 million for the three and nine months ended November 3, 2017, respectively, in connection with our adoption of Accounting Standards Update (“ASU”) No. 2016-09, Compensation-Stock Compensation (Topic 718), during the first quarter of fiscal 2018. Prior to adopting the updated standard, such amounts were recognized in additional paid-in capital on the consolidated balance sheets. In addition, during the three and nine months ended November 3, 2017, we reduced our unrecognized tax benefits by $22 million due to the expiration of statutes of limitations during the third quarter of fiscal 2018. Our effective income tax rate for the nine months ended November 3, 2017 also benefited from certain discrete tax items, including $25 million related to a non-taxable gain recognized on the step acquisition of one of our strategic investments and deductible losses from the disposition of vCloud Air during the second quarter of fiscal 2018.

~~Our rate of taxation in non-U.S. jurisdictions is~~ lower than ~~our~~the U.S. ~~tax~~statutory rate. Our non-U.S. earnings are primarily earned by our ~~subsidiaries~~subsidiary organized in Ireland, where the rate of taxation is lower than our U.S. tax rate and, as such, our annual effective tax rate can be significantly affected by the composition of our earnings in ~~the~~ U.S. and non-U.S. jurisdictions.

We have historically been included in EMC’s consolidated group for U.S. federal income tax purposes, and with the closing of the Dell Acquisition, we are now included in Dell’s consolidated tax group. We will continue to be included in Dell’s consolidated group for periods in which Dell beneficially owns at least 80% of the total voting power and value of our

combined outstanding Class A and Class B common stock as calculated for U.S. federal income tax purposes. The percentage of voting power and value calculated for U.S. federal income tax purposes may differ from the percentage of outstanding shares beneficially owned by Dell due to the greater voting power of our Class B common stock as compared to our Class A common stock and other factors. Each member of a consolidated group during any part of a consolidated return year is jointly and severally liable for tax on the consolidated return of such year and for any subsequently determined deficiency thereon. Should Dell’s ownership fall below 80% of the total voting power or value of our outstanding stock in any period, then we would no longer be included in the Dell consolidated group for U.S. federal income tax purposes, and our U.S. federal income tax would be reported separately from that of the Dell consolidated group.

Although our results are included in the Dell consolidated return for U.S. federal income tax purposes, our income tax provision is calculated primarily as though we were a separate taxpayer. However, certain transactions that we and Dell are parties to are assessed using consolidated tax return rules.

Our future effective tax rate may be affected by such factors asas: changes in our business; changes in tax laws ~~changes in our business~~ or statutory ~~rates,~~rates; changing interpretation of existing laws or ~~regulations,~~regulations; the impact of accounting for stock-based ~~compensation and~~compensation; the recognition of excess tax benefits ~~and~~or tax deficiencies within the income tax provision or benefit in the period in which they ~~occur,~~occur; the impact of accounting for business ~~combinations,~~combinations; shifts in the amount of earnings in the ~~United States~~U.S. compared with other regions in the ~~world and~~world; overall levels of income before ~~tax,~~tax; changes in our international ~~organization, as well as~~organization; the expiration of statute of ~~limitations~~limitations; and settlements of audits. ~~U.S.~~

The Inflation Reduction Act (the “IRA”) was enacted in August 2022, and became effective for us commencing with our fiscal 2024. The key tax ~~reform legislation, if enacted~~provisions of the IRA relate to a new 15% corporate alternative minimum tax on ~~terms similar to current proposals, would significantly change the U.S. taxation of multinational businesses~~adjusted financial statement income for companies with profits greater than $1.0 billion and ~~could~~a 1% excise tax on stock repurchases by publicly traded companies. The IRA did not have ~~a material~~an impact on our ~~result~~income tax provision during the three and six months ended August 4, 2023. We will continue to evaluate the impact of ~~operations, effective~~these tax ~~rate, financial position and timing and amount of tax payments.~~law changes in future periods.

Our Relationship with Dell

AsTransactions 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.

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On November ~~3, 2017,~~1, 2021, in connection with the Spin-Off, we entered into the Commercial Framework Agreement with Dell ~~controlled 31 million shares~~to provide a framework under which our strategic commercial relationship will continue, particularly with respect to projects mutually agreed by the parties as having the potential to accelerate the growth of ~~Class A common stock~~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 all 300 million shares of Class B common stock, representing 81.9% of our total outstanding shares of common stock and 97.6% of the combined voting power of our outstanding common stock. For a description of related risks, refer to “Risks Related to Our Relationship with Dell” in Part II, Item 1A of this Quarterly Report on Form 10-Q.conditions.

Transactions with Dell

We engaged with Dell in the following ongoing ~~intercompany~~related party transactions, which resulted in revenue and receipts, and unearned revenue for us:

•Pursuant to original equipment manufacturer (“OEM”) and reseller arrangements, ~~with~~ Dell ~~Dell~~integrates or bundles our products and services with Dell’s products and sells them to end users. Dell also ~~resells~~acts as a distributor, purchasing our standalone products and services for resale to ~~end users and other~~end-user customers through VMware-authorized resellers. ~~Reseller revenue~~Revenue under these arrangements is presented net of related marketing development funds and rebates paid to Dell.

~~Dell purchases products and services from us for its internal use.~~

We In addition, we provide professional services to end users based upon contractual agreements with Dell.

~~Pursuant to an ongoing distribution agreement, we act as the selling agent for certain~~•Dell purchases products and services from us for its internal use.

•From time to time, we and Dell enter into agreements to collaborate on technology projects, in connection with which Dell pays us for services or reimburses us for costs incurred.

During the three and six months ended August 4, 2023, revenue from Dell accounted for 37% and 36% of ~~Pivotal Software, Inc. (“Pivotal”), a subsidiary of Dell, in exchange for an agency fee. Under this agreement, cash is collected from the end user by us and remitted to Pivotal, net~~our consolidated revenue, respectively. During each of the ~~contractual agency fee.~~three and six months ended August 4, 2023, revenue recognized on transactions where Dell acted as an OEM accounted for 13% of total revenue from Dell, and 5% of our consolidated revenue.

~~We provide various services to Pivotal. Support costs incurred by us are reimbursed to us~~During the three and ~~are recorded~~six months ended July 29, 2022, revenue from Dell accounted for 40% and 39% of our consolidated revenue, respectively. During each of the three and six months ended July 29, 2022, revenue recognized on transactions where Dell acted as ~~a reduction to the costs incurred by us.~~

an OEM accounted for 13% of total revenue from Dell, and 5% of our consolidated revenue.

Dell purchases our products and services directly from us, as well as through our channel partners. Information about our revenue and ~~receipts, and~~ unearned revenue from such arrangements for the periods presented consisted of the following (table in millions):


	Revenue								Unearned Revenue
	Three Months Ended				Six Months Ended				As of
	August 4,		July 29,		August 4,		July 29,			August 4,		February 3,
	2023		2022		2023		2022			2023		2023
Reseller revenue	$	1,225	$	1,313	$	2,380	$	2,451		$	5,632	$	6,145
Internal-use revenue	44		15		58		27			44		19

Revenue and Receipts Unearned Revenue
Transition Period As of
Three Months Ended Nine Months Ended January 1 to Transition Period
November 3, September 30, November 3, September 30, February 3, November 3, December 31, February 3,
2017 2016 2017 2016 2017 2017 2016 2017
Reseller revenue $ 294
$ 98
$ 799
$ 261
$ 44
$ 911
$ 637
$ 616
Internal-use revenue 16
5
25
24
7
19
15
18
Professional services revenue 27
28
82
79
3
—
—
—
Agency fee revenue —
1
1
3
—
—
—
—
Reimbursement for services to Pivotal —
—
—
1
—
n/a
n/a
n/a
Sales through Dell as a distributor, which is included in reseller revenue, comprise the largest route-to-market for our sales.

Customer deposits resulting from transactions with Dell were $1.1 billion and $766 million as of August 4, 2023 and February 3, 2023, respectively.

We engaged with Dell in the following ongoing ~~intercompany~~related party transactions, which resulted in costs to us:

•We purchase and lease products and purchase services from Dell.

In•From time to time, we and Dell enter into agreements to collaborate on technology projects, in connection with which we pay Dell for services it provides to us.

•Through the end of fiscal 2023, in certain geographic regions where we dodid not have an established legal entity, we ~~contract~~contracted with Dell subsidiaries for support services and support from Dell personnel who ~~are~~were managed by us. The costs incurred by Dell on our behalf related to these employees ~~are~~were charged to us with a mark-up intended to approximate costs that would have been incurred had we contracted for such services with an unrelated third party. These costs ~~are~~were included as expenses on our condensed consolidated statements of income and primarily include salaries, benefits, travel and occupancy expenses. Payments for Dell ~~also incurs certain~~subsidiary support and administrative costs ~~on our behalf in~~were not material during the ~~United States that are recorded as expenses on our condensed consolidated statements~~three and six months ended July 29, 2022.

Table of ~~income.~~Contents

~~From time to time, we invoice end users on behalf of Dell for certain services rendered by Dell. Cash related to these services is collected from the end user by us and remitted to Dell.~~

Information about our ~~costs from~~payments for such arrangements during the periods presented consisted of the following (table in millions):


	Three Months Ended				Six Months Ended
	August 4,		July 29,		August 4,		July 29,
	2023		2022		2023		2022
Purchases and leases of products and purchases of services	$	51	$	53	$	89	$	95

We also purchase Dell products through Dell’s channel ~~partners. Purchases of Dell products through Dell’s channel~~ partners, however such amounts were not ~~significant~~material during the periods presented.

~~During the second quarter of fiscal 2018,~~From time to time, we ~~acquired Wavefront. Upon closing of the acquisition,~~and Dell ~~was paid $20 million in cash~~also enter into joint marketing, sales, branding and product development arrangements, for ~~its ownership interest in Wavefront.~~which both parties may incur costs.

Dell Financial Services (“DFS”)

DFS ~~provided~~provides financing to certain of our end ~~customers based on the customer’s~~users at our end users’ discretion. Upon acceptance of the financing arrangement by both our end ~~customer~~users and DFS, amounts classified as trade accounts receivable are reclassified to the current portion of due from related parties ~~net~~ on the condensed consolidated balance ~~sheets.~~sheets. Revenue recognized on transactions financed through DFS was recorded net of financing fees. Financing fees ~~which~~on arrangements accepted by both parties were $6$21 million and ~~$15~~$17 million during the ~~three and nine months~~

~~ended November 3, 2017, respectively. Financing fees during the three and nine~~six months ended ~~September 30, 2016~~August 4, 2023 and ~~the Transition Period~~July 29, 2022, respectively, and were not ~~significant.~~

~~Tax Sharing Agreement with Dell~~

~~We have made payments to Dell pursuant to a tax sharing agreement. The following table summarizes the payments made~~material during ~~the periods presented (table in millions):~~

Transition Period
Three Months Ended Nine Months Ended January 1 to
November 3, September 30, November 3, September 30, February 3,
2017 2016 2017 2016 2017
Payments from us to Dell $ —
$ 54
$ 12
$ 148
$ —

~~The timing~~each of the tax payments due to and from related parties is governed by a tax sharing agreement. Payments from us to Dell under the tax sharing agreement relate to our portion of federal income taxes on Dell’s consolidated tax return as well as state tax payments for combined states. The amounts that we pay to Dell for our portion of federal income taxes on Dell’s consolidated tax return differ from the amounts we would owe on a separate tax return basis and the difference is presented as a component of stockholders’ equity. The difference between the amount of tax calculated on a separate return basis and the amount of tax calculated pursuant to the tax sharing agreement was estimated at up to $14 million and $16 million during the three and nine months ended November 3, 2017, respectively, subject to final verification, and was $13 million during the nine months ended September 30, 2016. The difference between the amount of tax calculated on a separate return basis and the amount of tax calculated pursuant to the tax sharing agreement was not significant during the three months ended ~~September 30, 2016~~August 4, 2023 and ~~the Transition Period.~~July 29, 2022.

~~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):~~

~~Amounts included in due from related parties, net, which are unrelated to DFS and tax obligations, are generally settled in cash within 60 days of each quarter-end.~~

~~Stock Purchase Arrangements with Dell~~

On March 29, 2017, we entered into a stock purchase agreement with Dell (the “2017 Purchase Agreement”) pursuant to which we and Dell may commit to purchases by us of our Class A common stock from Dell.

On August 23, 2017, we entered into a stock purchase commitment pursuant to the 2017 Purchase Agreement to purchase $300 million of our Class A common stock from Dell. During the third quarter of fiscal 2018, we paid Dell $300 million in exchange for 2.7 million shares. The aggregate number of shares purchased was determined based upon a volume-weighted average price during a defined period, less an agreed upon discount. On November 3, 2017, the stock purchase with Dell was completed.

On March 29, 2017, we entered into a stock purchase commitment pursuant to the 2017 Purchase Agreement to purchase $300 million of our Class A common stock from Dell. During the first quarter of fiscal 2018, we paid Dell $300 million in exchange for an initial delivery of 2.7 million shares, or approximately 80% of the expected total shares to be received and retired under the arrangement. On May 10, 2017, the stock purchase with Dell was completed and we received an additional 0.7 million shares. The aggregate number of 3.4 million shares purchased was determined based upon the volume-weighted average price during a defined period, less an agreed upon discount.

On December 15, 2016, we entered into a stock purchase agreement to purchase $500 million of our Class A common stock from Dell. We purchased 4.8 million shares for $375 million through December 31, 2016. On February 15, 2017, the

stock purchase agreement with Dell was completed. A total of $500 million was paid in exchange for 6.2 million shares. The aggregate number of shares purchased was determined based upon the volume-weighted average price during a defined period, less an agreed upon discount.

~~Notes Payable to Dell~~

On January 21, 2014, we entered into a note exchange agreement with Dell providing for the issuance of three promissory notes in the aggregate principal amount of $1,500 million, which consisted of outstanding principal due on the following dates: $680 million due May 1, 2018, $550 million due May 1, 2020 and $270 million due December 1, 2022.

On August 21, 2017, we repaid two of the notes payable to Dell in the aggregate principal amount of $1,230 million, representing repayment of the note due May 1, 2018 at par value and repayment of the note due May 1, 2020 at a discount. During the three and nine months ended November 3, 2017, we recognized a gain on extinguishment of debt of $6 million, which was recorded in other income (expense), net on the condensed consolidated statements of income (loss). The remaining note payable of $270 million due December 1, 2022 may be prepaid without penalty or premium.

Interest is payable quarterly in arrears, at the annual rate of 1.75%. During the three and nine months ended November 3, 2017, $2 million and $15 million, respectively, of interest expense was recognized. During the three and nine months ended September 30, 2016 and the Transition Period, $7 million, $20 million and $2 million, respectively, of interest expense was recognized.

Liquidity and Capital Resources

As of the periods presented, we held cash and cash equivalents ~~and short-term investments~~ as follows (table in millions):


	August 4,		February 3,
	2023		2023
Cash and cash equivalents	$	6,801	$	5,100

Transition Period
November 3, December 31, February 3,
2017 2016 2017
Cash and cash equivalents $ 6,012
$ 2,790
$ 3,220
Short-term investments 5,600
5,195
5,173
Total cash, cash equivalents and short-term investments $ 11,612
$ 7,985
$ 8,393

~~We hold a diversified portfolio~~Cash equivalents primarily consisted of amounts invested in money market ~~funds~~funds. To manage our credit risk, we monitor the diversity and ~~fixed income securities. Our fixed income securities are denominated in U.S. dollars~~concentration of our portfolio and ~~primarily consist of highly liquid debt instruments of the U.S. Government and its agencies, municipal obligations, mortgage-backed securities and U.S. and foreign corporate debt securities. We~~ limit the amount of ~~our~~ investments ~~with~~from any ~~single~~ issuer ~~and monitor the diversity of the portfolio and the amount of investments held at any single financial institution, thereby diversifying our credit risk.~~or fund.

As of November 3, 2017, our cash, cash equivalents and short-term investments held outside the United States were $8,232 million. If these overseas funds were needed for our operations in the U.S., we would be requiredWe continue to accrue and pay U.S. taxes on substantially all of the undistributed earnings to repatriate these funds. However, our intent is to indefinitely reinvest our non-U.S. earnings in our foreign operations and our current plans do not demonstrate a need to repatriate them to fund our U.S. operations.

During the nine months ended November 3, 2017, our cash, cash equivalents, and short-term investments increased primarily driven by the issuance of long-term debt and cash generated from operations, offset in part by the repayment of two of the notes payable to Dell and repurchases of our Class A common stock. We expect that cash generated by operations will be our primary source of liquidity. We also continue to believe that existing cash, ~~and~~ cash equivalents and our borrowing capacity, together with any cash generated from operations, will be sufficient to fund our operations for at least the next twelve months. While we believe these cash sources will be sufficient to fund our operations, our overall level of cash needs may be affected by capital allocation decisions that may include the number and size of acquisitions, ~~investments~~debt repayments and stock ~~repurchases.~~repurchases, among other things. In addition, we plan to continue with our balanced capital allocation policy through investing in our product and solution offerings, and acquisitions. Additionally, given the unpredictable nature of our outstanding legal proceedings, an unfavorable resolution of one or more legal proceedings, claims, or investigations could have a negative impact on our overall liquidity.

The 2017 Tax Act imposed a one-time transition tax on accumulated earnings of foreign subsidiaries (“Transition Tax”) and eliminated U.S. Federal taxes on foreign subsidiary distributions. The Transition Tax was calculated on a separate tax return basis. Our liability related to the Transition Tax as of August 4, 2023 was $334 million, which we expect to pay over the next two years pursuant to a letter agreement between Dell, EMC and us executed during the first quarter of fiscal 2020. Actual tax payments made to Dell pursuant to the Tax Matters Agreement, as defined in Note C to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, may differ materially from our total estimated tax liability calculated on a separate tax return basis. Pursuant to the Tax Matters Agreement with Dell, we have agreed to indemnify one another for certain tax liabilities or tax benefits relating to periods prior to the Spin-Off and certain adjustments to these amounts that will be recognized in future periods will be recorded in other income (expense), net on the consolidated statements of income. In addition, changes to Section 174 enacted as part of the 2017 Tax Act require companies to capitalize and amortize research and development expenditures for tax purposes. This provision became effective for us beginning in fiscal 2023. If this provision is not deferred, repealed or modified, our cash taxes may fluctuate significantly in the future.

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Our cash flows summarized for the periods presented were as follows (table in millions):


							Transition Period
	Nine Months Ended						January 1 to			Six Months Ended
	November 3,			September 30,			February 3,			August 4,		July 29,
	2017			2016			2017			2023		2022
Net cash provided by (used in):									Net cash provided by (used in):
Operating activities	$	2,364		$	1,917		$	361	Operating activities	$	2,194	$	1,402
Investing activities	(861		)	(752		)	7		Investing activities	(200)		(121)
Financing activities	1,289			(1,004		)	62		Financing activities	(298)		(1,672)
Net increase in cash and cash equivalents	$	2,792		$	161		$	430

Net increase (decrease) in cash, cash equivalents and restricted cash									Net increase (decrease) in cash, cash equivalents and restricted cash	$	1,696	$	(391)

Operating Activities

Cash provided by operating activities increased ~~$447~~by $791 million during the ~~nine~~six months ended ~~November 3, 2017~~August 4, 2023 compared to the ~~nine~~six months ended ~~September 30, 2016. Cash provided~~July 29, 2022, primarily driven by ~~operating activities benefited from a net increase in~~increased cash collections, ~~due to increased sales, decrease in tax payments~~lower cash outflows related to ~~the tax sharing agreement with Dell,~~operating expenses and ~~the absence of severance payments related to the January 2016 realignment plan.~~increased cash inflows resulting from higher investment yields on our cash equivalents. These ~~positive impacts~~activities were ~~partially~~ offset in part by ~~an increase in~~increased cash payments for employee-related expenses, including salaries, bonuses and commissions, ~~resulting primarily from growth in headcount.~~

Cash provided by operating activities of $361 million during the Transition Period primarily reflected cash provided by cash collections, partially offset by cash payments for employee-related expenses.as well as increased tax payments.

Investing Activities

Cash used in investing activities is generally attributable to the purchase of available-for-sale securities, business acquisitions and capital expenditures. Cash provided by investing activities is affected by the sales and maturities of our available-for-sale securities.

Cash used in investing activities increased ~~$109~~by $79 million during the ~~nine~~six months ended ~~November 3, 2017~~August 4, 2023 compared to the ~~nine~~six months ended ~~September 30, 2016, driven~~July 29, 2022, primarily ~~by the increase in net cash used in business combinations, capital additions~~due to decreased proceeds from disposition of assets and the ~~disposition~~absence of ~~vCloud Air,~~proceeds from sales of investments in equity securities during the six months ended August 4, 2023. These activities were offset in part by ~~the increase~~a decrease in ~~net cash provided by our available-for-sale securities.~~additions to property and equipment.

Financing Activities

Cash ~~provided by~~used in financing activities ~~increased $2,293 million~~decreased by $1.4 billion during the ~~nine~~six months ended ~~November 3, 2017~~August 4, 2023 compared to the ~~nine~~six months ended ~~September 30, 2016,~~July 29, 2022, primarily driven ~~primarily~~ by the ~~net cash proceeds received from the issuance~~absence of ~~long-term debt of $3,961 million, partially offset by~~ the repayment against the senior unsecured term loan facility of ~~two of~~$1.5 billion, as well as the suspension on our ~~outstanding notes payable to Dell of $1,225 million.~~

~~Cash provided by financing activities of $62 million during the Transition Period was driven by cash proceeds from the issuance of common~~ stock ~~of $61 million, resulting primarily from our~~repurchase program and employee stock purchase ~~plan.~~

~~Long-term Debt~~

~~On August 21, 2017, we issued Senior Notes pursuant to a public debt offering~~plan in connection with our entry into the ~~aggregate amount~~Merger Agreement during the second quarter of ~~$4,000~~fiscal 2023. These decreases were offset in part by an increase of $95 million ~~which consisted of outstanding principal due~~in shares repurchased for tax withholdings on the ~~following dates: $1,250 million due~~vesting of restricted stock during the six months ended August ~~21, 2020, $1,500 million due~~4, 2023.

Debt

Unsecured Senior Notes

We have unsecured senior notes (“Senior Notes”) outstanding with an aggregate net carrying value of $9.2 billion as of August 21, 2022 and $1,250 million due August 21, 2027. The notes bear interest, payable semi-annually in arrears on February 21 and August 21 of each year, at annual rates of 2.30%, 2.95% and 3.90%, respectively. In aggregate, the annual interest expense related to the three notes is expected to be approximately $130 million. We used a portion of the net proceeds from the offering to repay certain notes payable to Dell due May 1, 2018 and May 1, 2020, and intend to use the remaining proceeds to fund additional purchases of up to $1,000 million of our Class A common stock through August 31, 2018, and for general corporate purposes, including mergers and acquisitions and repaying other indebtedness.

4, 2023. The Senior Notes ~~also include~~mature between August 2023 and August 2031 and contain restrictive covenants that, in certain circumstances, limit our 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 our assets. During the six months ended August 4, 2023 and July 29, 2022, interest paid for the Senior Notes was $114 million and $117 million, respectively.

~~Revolving Credit~~On August 15, 2023, subsequent to the second quarter of fiscal 2024, we repaid the $1.0 billion unsecured senior note due August 15, 2023.

Senior Unsecured Term Loan Facility

~~On September 12, 2017, we entered into an~~We have senior unsecured ~~credit agreement, establishing a revolving credit facility (“Credit Facility”),~~term loan facilities that provided us with a ~~syndicate of lenders that provides the company with a~~one-time aggregate borrowing capacity of up to ~~$1,000 million, which may be used for general corporate purposes. Commitments under the 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.~~$4.0 billion (the “2021 Term Loan”). As of ~~November 3, 2017, there were no~~August 4, 2023, the outstanding ~~borrowings under~~balance was $1.2 billion. During the ~~Credit Facility. The credit agreement contains certain representations, warranties~~six months ended August 4, 2023 and ~~covenants.~~

~~Notes Payable to Dell~~

~~On January 21, 2014, we entered into a note exchange agreement with Dell providing~~July 29, 2022, interest paid for the issuance of three promissory notes in the aggregate principal amount of $1,500 million, which consisted of outstanding principal due on the following dates: $680 million due May 1, 2018, $550 million due May 1, 2020 and $270 million due December 1, 2022.

~~Interest is payable quarterly in arrears, at the annual rate of 1.75%. During the nine months ended November 3, 2017 and September 30, 2016, $18~~2021 Term Loan was $37 million and $20 million, respectively ~~was paid for interest related~~.

Refer to ~~these notes.~~

~~Disposition of our vCloud Air Business~~

~~As a part of~~Note H to the sale of vCloud Air, we agreed to provide certain transition services to OVH. Transition services consist primarily of payroll-related support services covering the migration of our vCloud Air customers to OVH. We will continue to make payments related to these transition services through the next 18 months from the date of the sale. In addition, we will make payments associated with the settlement of certain leases related to vCloud Air. Costs associated with transition services were included in the losses recognized in connection with the sale of vCloud Air recorded in realignment and loss on disposition on the condensed consolidated financial statements in Part I, Item 1 of ~~income (loss) during the three and nine months ended November 3, 2017.~~this Quarterly Report on Form 10-Q for more information regarding our outstanding indebtedness.

Stock Repurchase Program

From time to time, we repurchase stock pursuant to authorized stock repurchase programs in open market transactions as permitted by securities laws and other legal requirements. We are not obligated to purchase any shares under our stock repurchase programs. The timing of any repurchases and the actual number of shares repurchased depends on a variety of factors, including our stock price, cash requirements for operations and business combinations, corporate and regulatory requirements and other market and economic conditions. Purchases ~~can~~may be discontinued at any time we believe additional purchases are not warranted. ~~From time to time, we also purchase stock in private transactions, such as with Dell.~~ All shares repurchased under our stock repurchase programs are retired.

~~During January 2017,~~

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In connection with our ~~board of directors authorized~~entry into the ~~repurchase of up to $1,200 million of~~Merger Agreement, we suspended our Class A common stock through the end of fiscal 2018. During August 2017, our board of directors authorized the repurchase of up to an additional $1,000 million of Class A common stock through August 31, 2018. The authorization is in addition to our $1,200 million stock repurchase program, ~~authorized in January 2017,~~and we did not repurchase Common Stock subsequent to the first quarter of ~~which $1,045 million remained available for repurchase as of November 3, 2017.~~fiscal 2023. Refer to Note L to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for ~~further discussion.~~stock repurchase authorizations approved by our board of directors during the periods presented.

Critical Accounting ~~Policies and~~ Estimates

In preparing our condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”), we are required to make estimates, assumptions and judgments that affect the amounts reported on our financial statements and the accompanying disclosures. Estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require the exercise of judgment. We base our estimates, assumptions and judgments on historical experience and various other factors that we believe to be reasonable under the circumstances. These estimates may change in future periods and will be recognized in the condensed consolidated financial statementsas new events occur and additional information ~~is obtained, and are recognized in the condensed consolidated financial statements as soon as they become~~becomes known. Actual results could differ from those estimates and any such differences may be material to our financial statements. We believe that the critical accounting ~~policies and~~ estimates set forth within Part II, Item 7, “Critical Accounting Estimates” of our Annual Report on Form 10-K filed on ~~February 24, 2017~~March 28, 2023 involve a higher degree of judgment and complexity in their application than our other ~~significant~~ accounting ~~policies.~~estimates. Our senior management has reviewed our critical accounting ~~policies~~estimates and related disclosures with the Audit Committee of the Board of Directors. Historically, our assumptions ~~judgments~~ and ~~estimates~~judgments relative to our critical accounting ~~policies~~estimates have not differed materially from actual results.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical fact could be deemed forward-looking statements and words such as “expect,” “anticipate,” “target,” “goal,” “project,” “intent,” “plan,” “believe,” “momentum,” “seek,” “estimate,” “continue,” “potential,” “future,” “endeavor,” “will,” ~~“may”,~~“may,” “should,” “could,” “depend,” “predict,” and variations or the negative expression of such words and similar expressions

are intended to identify forward-looking statements. Forward-looking statements in this report include, but are not limited to, statements relating to expected industry trends and conditions; the expected timing and completion of the proposed transaction with Broadcom; future financial performance, trends or plans; anticipated impacts of developments in accounting rules and tax laws and rates; our expectations regarding the timing of tax payments and the impacts of changes in our corporate structure and alignment; plans for and anticipated benefits of VMware products, services and solutions and partner and alliance relationships; plans for, timing of and anticipated impacts and benefits of corporate ~~transaction,~~transactions, capital-raising activities, acquisitions, stock repurchases and investment activities; the outcome or impact of pending litigation, claims or disputes; our ESG-related programs including the objectives of our 2030 Agenda and our programs to further diversity, equity and inclusion; the impact of pandemics or public health crises on the global economy as well as any related effects on our business operations, financial performance, results of operations and stock price; our commercial relationship with Dell; our plans to repay our outstanding indebtedness; our commitment and ability to maintain an investment-grade credit rating; the sufficiency of our cash sources to fund our operations; and any statements of assumptions underlying any of the foregoing. These statements are based on current expectations about the industries in which VMware operates and the beliefs and assumptions of management. These forward-looking statements involve risks and uncertainties and the cautionary statements set forth above and those contained in the section of this report entitled “Risk Factors” identify important factors that could cause actual results to differ materially from those predicted in any such forward-looking statements. All forward-looking statements in this document are made as of the date hereof, based on information available to us as of the date hereof. We assume no obligation to and do not currently intend to, update these forward-looking statements.

Available Information

Our website is located at ~~www.vmware.com,~~vmware.com and our investor relations website is located at ~~http://~~ir.vmware.com. Our goal is to maintain the ~~Investor Relations~~investor relations website as a portal through which investors can easily find or navigate to pertinent information about us, all of which is made available free of charge, including:

•our ~~annual report~~Annual Report on Form 10-K, ~~quarterly reports~~Quarterly Reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, as soon as reasonably practicable after we electronically file that material with or furnish it to the Securities and Exchange Commission (“SEC”);

•announcements of investor conferences, speeches and events at which our executives discuss our products, services and competitive strategies;

•webcasts of our ~~quarterly~~ earnings calls and links to webcasts of investor conferences at which our executives appear (archives of these events are also available for a limited time);

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•additional information on financial metrics, including reconciliations of non-GAAP financial measures discussed in our presentations to the nearest comparable GAAP measure;

•press releases on quarterly earnings, product and service announcements, legal developments and international news;

•corporate governance information including our certificate of incorporation, bylaws, corporate governance guidelines, board committee charters, business conduct guidelines (which constitutes our code of business conduct and ethics) and other governance-related policies;

•ESG information;

•other news, blogs and announcements that we may post from time to time that investors might find useful or interesting; and

•opportunities to sign up for email alerts and RSS feeds to have information pushed in real time.

The information found on our website is not part of, and is not incorporated by reference into, this or any other report we file with, or furnish to, the SEC. The SEC also maintains a website at sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.


~~ITEM 3.~~	~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There were no material changes to our market risk exposures during the ~~nine~~six months ended ~~November 3, 2017 or the Transition Period.~~August 4, 2023. See Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K filed on ~~February 24, 2017~~March 28, 2023 for a detailed discussion of our market risk exposures.


~~ITEM 4.~~	~~CONTROLS AND PROCEDURES~~

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation required by the Securities Exchange Act of 1934, as amended (the “Exchange Act”), under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the most recent fiscal quarter ended ~~November 3, 2017~~August 4, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Controls

Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives as specified above. Our management, including our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management does not expect, however, that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.

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PART II

OTHER INFORMATION


~~ITEM 1.~~	~~LEGAL PROCEEDINGS~~

ITEM 1. LEGAL PROCEEDINGS

Refer to Note ~~J of~~D to the ~~“Notes to Condensed Consolidated Financial Statements”~~condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a description of legal proceedings. See also the risk factor entitled “We are involved in litigation, investigations and regulatory inquiries and proceedings that could negatively affect us” in Part II, Item 1A of this Quarterly Report on Form 10-Q for a discussion of potential risks to our results of operations and financial condition that may arise from legal proceedings.


~~ITEM 1A.~~	~~RISK FACTORS~~

ITEM 1A. RISK FACTORS

The risk factors that appear below could materially affect our business, financial condition and operating results. The risks and uncertainties described below are not the only risks and uncertainties ~~facing us.~~we face. Our business is also subject to general risks and uncertainties that affect many other companies. Specific risk factors related to our status as a controlled subsidiary of Dell Technologies Inc. (“Dell”) following Dell’s acquisition of our former majority stockholder EMC Corporation (“EMC”) on September 7, 2016 (the “Dell Acquisition”), including, among other things, overlapping business opportunities, Dell’s ability to control certain transactions and resource allocations and related persons transactions with Dell and its other affiliated companies, are set forth below under the heading “Risks Related to Our Relationship with Dell.”

Risks Related to Our ~~Business~~Pending Acquisition by Broadcom

~~Our success depends increasingly on customer acceptance~~The pendency of our ~~emerging~~acquisition by Broadcom may have an adverse effect on our business, results of operations, cash flows and financial position.

On May 26, 2022, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Broadcom Inc. (“Broadcom”), pursuant to which Broadcom agreed to acquire us subject to the terms and conditions set forth therein. Our pending acquisition by Broadcom may have an adverse effect on our operating results in the near term if our customers delay, defer, or cancel purchases pending completion of the transaction. In addition, the pendency of the transaction may cause reluctance by customers to begin or continue to do business with us due to potential uncertainty about the direction of our products and ~~services.~~solutions following consummation of the transaction.

Our products and services are primarily based on server virtualization and related compute technologies used for virtualizing on-premises data center servers, which form the foundation for private cloud computing. As the market for server virtualization continues to mature, the rate of growth in license sales of our vSphere hypervisor product has declined. We are ~~increasingly directing~~subject to additional risks in connection with the pendency of the proposed transaction, including:

•Parties with which we do business may be uncertain as to the effects the transaction may have on them, including with respect to current or future business relationships with us, and these relationships may be subject to disruption as channel partners, customers, suppliers and other persons with whom we have a business relationship may delay or defer certain business decisions or might decide to terminate, change or renegotiate their relationships with us, as applicable, or consider entering into business relationships with parties other than us. The risk, and adverse effect, of any disruption could be exacerbated by a delay in the consummation of the transaction or termination of the Merger Agreement;

•The restrictions imposed on our ~~product development~~business and ~~marketing efforts toward products~~operations pursuant to certain covenants set forth in the Merger Agreement obligates us to generally conduct our business in a commercially reasonable manner and ~~services that enable businesses~~in all material respects in the ordinary course of business consistent with past practice and may prevent us from pursuing certain opportunities, entering into certain contracts with customers, resellers and suppliers, or taking certain other actions without Broadcom’s approval;

•The Merger Agreement limits our ability to ~~utilize virtualization as~~pursue alternatives to the ~~foundation for private, public~~transaction and ~~hybrid cloud-based computing~~may discourage other companies from trying to acquire us;

•We may be unable to attract, recruit, retain and ~~mobile computing,~~motivate current and prospective employees who may be uncertain about their future roles following completion of the proposed transaction, and our operations, including our ~~vSphere-based software-defined data center (“SDDC”) products~~ability to execute our strategy and our cybersecurity and other risk management programs, could suffer due to employee attrition or a reduction in employee productivity as a result of this uncertainty;

•The pendency and outcome of legal proceedings that have been and may in the future be instituted against us, our directors, executive officers and others relating to the proposed transaction; and

•The pursuit of the transaction and planning for the integration has placed and may continue to place a significant burden on management and other internal resources, and the diversion of management’s attention away from day-to-day business concerns and other opportunities that may have been beneficial to us could adversely affect our business, financial condition and operating results.

In addition, since the merger consideration our stockholders will receive in the transaction will be in the form of both cash and common stock of Broadcom, our stock price will be impacted by changes in Broadcom’s stock price. Changes to Broadcom’s stock price may result from a variety of factors, such as changes in its business operations and outlook, changes in general market and economic conditions and regulatory considerations. These factors are beyond our ~~vRealize management~~control.

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Completion of the transaction is subject to the conditions contained in the Merger Agreement, including regulatory approvals, which may not be received, may take longer than expected or may impose conditions that are not presently anticipated or that cannot be met, and ~~automation offerings, VMware vSAN (“vSAN”) storage virtualization offerings,~~if these conditions are not satisfied or waived, the transaction will not be completed.

Before the transaction may be completed, various consents, clearances, approvals, authorizations and ~~network virtualization (“NSX”) offerings,~~declarations of non-objection, or expiration of waiting periods (or extensions thereof), must be obtained from certain regulatory and governmental authorities in the U.S., in the European Union and in certain other jurisdictions. In addition, the transaction may be reviewed under antitrust statutes or foreign direct investment regimes of other governmental authorities, including U.S. state laws.

In deciding whether to grant the required regulatory approval, consent or clearance, the relevant governmental entities will consider the effect of the transaction on competition within their relevant jurisdiction. Regulatory and governmental entities may impose conditions on their respective approvals, in which case lengthy negotiations may ensue among such regulatory or governmental entities, Broadcom and us. Such conditions, any such negotiations and the process of obtaining regulatory approvals could have the effect of delaying or preventing consummation of the transaction.

Subject to the terms of the Merger Agreement, we have agreed to use our reasonable best efforts to take all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable laws to consummate the transaction as ~~well~~promptly as practicable. Nonetheless, many of the closing conditions are not within our ~~Horizon client virtualization offerings, VMware AirWatch (“AirWatch”) mobile device management offerings~~control. For example, we cannot be certain that these regulatory clearances and approvals will be obtained in a timely manner or at all, or that the granting of these regulatory clearances and approvals will not involve the imposition of regulatory remedies on the completion of the transaction.

If any of these conditions are not satisfied or waived prior to November 26, 2023, it is possible that the Merger Agreement will be terminated.

Lawsuits have been and may in the future be filed against us and our directors challenging the transaction, and an adverse ruling in any such lawsuit may delay or prevent the consummation of the transaction and result in substantial costs to us.

In connection with the transaction, litigation was previously filed against VMware ~~Cloud~~and its board of directors and has now been dismissed.

However, it is possible that additional litigation against us or our directors may be filed in the future as securities class action lawsuits and derivative lawsuits are often brought against public companies that have entered into acquisition, merger or other business combination agreements like the Merger Agreement. Even if such a lawsuit is without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on ~~AWS offering, which became initially available~~our liquidity and financial condition. The outcome of any litigation is uncertain, and any such lawsuits could delay or prevent the consummation of the transaction and result in ~~August 2017. We have also been introducing software-as-a-service (“SaaS”) versions~~substantial costs to us. Any such actions may create uncertainty relating to the transaction and may be costly and distracting to management.

Further, one of ~~our on-premises products, including VMware Horizon Suite and certain AirWatch offerings, and are working~~the conditions to ~~extend our SDDC and NSX offerings and management software into~~ the ~~public cloud and to introduce cloud products and services~~completion of the transaction is that no injunction or law by investing in cloud and SaaS initiatives and partnering with public cloud providers such as Amazon Web Services (“AWS”) and IBM. These initiatives present new and difficult technological and compliance challenges, and significant investmentsany governmental entity of competent jurisdiction will be ~~required~~in effect that has the effect of restraining, enjoining or otherwise prohibiting the consummation of the transaction. As such, if an injunction prohibiting the consummation of the transaction is obtained, that injunction may prevent the transactions from becoming effective or from becoming effective within the expected timeframe.

The failure to ~~develop or acquire solutions to address those challenges. Our success depends~~complete the planned acquisition of us by Broadcom could have a material and adverse effect on our business, results of operations, financial condition, cash flows, and stock price.

The transaction, which is expected to be consummated on October 30, 2023, is subject to the satisfaction or waiver of customary closing conditions, and there is no assurance that all of the various conditions will be satisfied, or that the transaction will be completed on the proposed terms, within the expected timeframe or at all. The closing of the transaction may be delayed, and the transaction may ultimately not be completed, due to a number of factors, including as a result of the failure to obtain necessary government or regulatory approval or to satisfy any other requisite closing condition as described in the Merger Agreement and current and potential future ~~customers perceiving technological~~stockholder litigation and ~~operational benefits~~other legal and ~~cost savings associated with adopting~~regulatory proceedings, among others.

If the transaction does not close, we may suffer consequences that could adversely affect our ~~private~~ongoing and ~~hybrid cloud solutions~~future business, financial condition, operating results, cash flows and stock price, and our ~~client virtualization and mobile device management solutions. As the market~~stockholders would be exposed to additional risks, including for our server virtualization products continues to mature, and the scale of our business has increased, our rate of revenue growth increasingly depends upon the success of our newer product and service offerings. example:

•To the extent that the current market price of our ~~emerging products~~stock reflects an assumption that the transaction will be completed, the price of our common stock could decrease;

•Investor confidence in us could decline, additional stockholder litigation could be brought against us, relationships with existing and ~~services are adopted more slowly than revenue growth~~prospective customers and other business partners may be adversely impacted, we may be unable to

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hire or retain key personnel, and we may not be able to shift or overcome negative reactions from analysts and other media professionals in a timely manner or at all;

•Any disruptions to our business resulting from the announcement and pendency of the transaction, including adverse changes in our ~~established server virtualization offerings declines,~~relationships with employees, customers and other business partners, may continue or intensify;

•We have incurred significant costs, including professional services fees and other transaction costs, in connection with the proposed transaction that we would be unable to recover, and devoted substantial commitments of time and resources by our ~~revenue growth rates may slow materially or our revenue may decline substantially,~~management, which could have otherwise been devoted to day-to-day operations and other opportunities that could have been beneficial to us as an independent company; and

•If certain circumstances that give rise to a termination of the Merger Agreement occur, we may ~~fail~~be required to ~~realize returns on~~pay Broadcom a termination fee of $1.5 billion.

There can be no assurance that our ~~investments in new initiatives~~business, relationships with other parties, liquidity or financial condition will not be adversely affected, as compared to the condition prior to the announcement of the transaction, if the transaction is delayed or not consummated.

Operation of Business and ~~our operating results could be materially adversely affected.~~Strategic Risks

A significant decrease in demand for our ~~server~~data center virtualization products would adversely affect our operating results.

A significant portion of our revenue is derived, and will for the foreseeable future continue to be derived, from our ~~server~~data center virtualization products. As ~~more and~~ more businesses achieve high levels of virtualization in their data centers, the market for our ~~VMware~~ vSphere product continues to mature. Additionally, as businesses increasingly utilize public cloud and SaaS-based offerings, they are building more of their new compute workloads off-premises and ~~may also shift~~are increasingly shifting some of their existing and many of their new workloads to public cloud providers, thereby limiting growth and potentially reducing the market for on-premises deployments of ~~VMware~~ vSphere. Although sales of ~~VMware~~ vSphere have declined as a portion of our overall business and we expect this trend to continue, ~~VMware~~ vSphere remains key to our future growth as it serves as the foundation for our ~~newer~~ SDDC, network virtualization and ~~our planned new cloud~~subscription and SaaS offerings. Although we have launched, and are ~~developing~~continuing to develop, products to extend our vSphere-based SDDC offerings to the public cloud, due to our product concentration, a significant decrease in demand for our server virtualization products would adversely affect our operating results.

Our subscription and SaaS offerings, which constitute a growing portion of our business, and our initiatives to extend our data center virtualization and container platforms into the public cloud involve various risks, including, among others, reliance on third-party providers for data center space and colocation services and on public cloud providers to prevent service disruptions.

As we continue to develop and offer subscription and SaaS versions of our products, we must continue to evolve our processes to meet various intellectual property, regulatory, contractual and service compliance challenges, including compliance with licenses for open source and third-party software embedded in our offerings, compliance with export control and privacy regulations, protecting our services from external threats or inappropriate use, maintaining the continuous service levels and data security expected by our customers and adapting our go-to-market efforts. The expansion of our subscription and SaaS offerings also requires significant investments, and our operating margins, results of operations and operating cash flows may be adversely affected if our new offerings are not widely adopted by customers.

Additionally, our subscription and SaaS offerings rely upon third-party providers to supply data center space, equipment maintenance and other colocation services, and our initiatives to extend our virtualization and container platforms into the public cloud rely upon the ability of our public cloud and VMware Cloud Provider Program (“VCPP”) partners to maintain continuous service availability and protect customer data on their services. Although we have entered into various agreements for the lease of data center space, equipment maintenance and other services, third parties could fail to live up to their contractual obligations. The failure of a third-party provider to prevent service disruptions (including as a result of climate change), data losses or security breaches may require us to issue credits or refunds or indemnify or otherwise be liable to customers or third parties for damages that may occur, and contractual provisions with our third-party providers and public cloud partners may limit our recourse against the third-party provider or public cloud partner responsible for such failure. Additionally, if these third-party providers fail to deliver on their obligations, our reputation could be damaged, our customers could lose confidence in us, and our ability to maintain and expand our subscription and SaaS offerings would be impaired.

Our success depends upon our ability to adapt our business and pricing models to a subscription and SaaS model appropriately.

We continue to transition our portfolio from a perpetual license model to subscription and SaaS offerings. During this transition, we are recognizing less revenue up front than we would otherwise recognize under the license agreements through

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which we have typically sold our established offerings. Additionally, in order to provide customers flexibility, we offer one- and three-year term licenses for certain portions of our portfolio, which have certain characteristics that are similar to subscription products but are accounted for as license and services revenue. Furthermore, during the second half of fiscal 2023, we introduced termination for convenience (“TFC”) clauses with respect to term-based license offerings in certain enterprise agreements (“EAs”). Revenue from such term license offerings subject to TFC clauses is recognized ratably as subscription and SaaS revenue, rather than as license revenue, due to the requirement to refund any unused, pre-paid fees upon termination. Our transition to these term-based licenses and subscription and SaaS offerings involves various risks that may negatively affect our operating results, including:

•We may fail to set pricing for subscription and SaaS offerings at levels appropriate to maintain our revenue streams or our customers may choose to deploy products from our competitors that they believe are priced more favorably.

•We may fail to accurately predict subscription renewal and consumption rates or their impact on operating results and annual recurring revenue (“ARR”), and because revenue from subscriptions is recognized for our services over the term of the subscription, downturns or upturns in sales may not be immediately reflected in our results.

•As customers transition to our subscription and SaaS products and services, our revenue and license revenue growth rates have been and may in the future be adversely impacted during the period of transition when we recognize less revenue up front than we would otherwise recognize as part of perpetual license contracts. For example, effective with the fourth quarter of fiscal 2020, we commenced reporting revenue from our subscription and SaaS as a separate revenue line item, breaking out components that had previously been included in our license revenue and services revenue and prior period amounts were reclassified to conform with this presentation. As a result, the rate of growth in our license revenue, which was previously viewed as a leading indicator of our business performance, as well as our software maintenance revenue and deferred revenue were negatively impacted. At the same time, growth in subscription and SaaS revenue may not appear as robust because such revenue is recognized ratably over time as customers consume our subscription-based products.

•Inclusion of the TFC clauses with respect to term license and subscription and SaaS offerings in certain EAs adds uncertainty to our ability to forecast revenue in any particular period, could significantly increase our customer deposit liability balance in future periods and could cause results in a given period to materially differ from those in prior periods. If a concentration of customers exercise their rights under these TFC clauses in any given period, our subscription and SaaS revenue, subscription and SaaS ARR and cash flow results could be materially negatively impacted.

•The transition from selling support and maintenance with perpetual licenses to selling subscription and SaaS offerings may negatively affect our profitability, as the cost associated with software maintenance renewals is generally lower than the cost associated with selling new subscription and SaaS offerings.

•Term licenses are sold with shorter support and maintenance terms than perpetual licenses are, and customers may not renew such licenses at the end of their term or transition to subscription and SaaS offerings.

•As we offer more services that depend on converting users of free services to premium services and purchasers of our on-premises products to our SaaS offerings, our ability to maintain, improve and predict conversion rates will become more important.

We face intense competition that could adversely affect our operating results.

The ~~virtualization, cloud computing, end-user computing~~application platform, multi-cloud, digital workspace, networking and ~~software-defined data center industries~~security product areas are interrelated and rapidly evolving, and we face intense competition across all the markets for our products and services. Many of our current or

potential competitors have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical, sales, marketing and other resources than we do. Additionally, the adoption of public and distributed cloud, micro-services, containers, and open source technologies ~~has~~have the potential to ~~erode~~adversely affect our ~~profitability.~~operating results.

We face competition from, among others:

Providers of public cloud infrastructure and SaaS-based multi-cloud offerings. As businesses increasingly utilize public cloud and SaaS-based offerings, they are building more of their new compute workloads, ~~off-premises~~ and may also shift some of their existing ~~workloads.~~workloads, off premises. A significant percentage of new application development is happening in the public cloud, with providers such as Amazon Web Services (“AWS”), Microsoft Azure (“Azure”) or Google Cloud, or in a distributed fashion, and these new applications are often deployed on public cloud or multi-cloud infrastructure. As a result, the demand for on-premises information technology (“IT”) resources is expected to slow, and our products and services will need to increasingly compete for customers’ IT workloads with off-premises public cloud and SaaS-based ~~offerings.~~multi-cloud offerings, such as those offered by Datadog in monitoring and IT telemetry, ServiceNow in the automation space, and Apptio, which announced its agreement to be acquired by IBM in June 2023, in cloud cost management. If we fail to ~~develop products and services that~~ address evolving

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customer priorities or requirements, ~~for hybrid cloud computing,~~ the demand for VMware’s ~~virtualization~~ products and services may decline, and we could experience ~~lower~~slower than expected or no growth. Additionally, ~~VMware Cloud Provider Program~~VCPP offerings from our partners may compete directly with ~~infrastructure-as-a service~~infrastructure-as-a-service (“IaaS”) offerings from various public cloud providers, ~~such as AWS~~which are increasingly integrated with on-premises solutions. Although we have formed alliances with various public cloud providers to create hybrid and ~~Microsoft.~~ multi-cloud offerings, we continue to face intense competition from these public cloud providers.In ~~October 2016,~~fiscal 2018, we ~~announced~~entered into a strategic alliance with AWS to deliver a vSphere-based cloud service, ~~running on AWS. Although we expect our strategic alliance to provide significant advantages to customers when it is generally available, our strategic alliance with Amazon and our~~ VMware Cloud ~~Provider Program offerings from~~on AWS, running in AWS data centers available in certain geographies. In fiscal 2019, we extended our collaboration with AWS to include VMware Cloud on AWS Outposts to deliver VMware Cloud on AWS as a managed offering in on-premises facilities. In fiscal 2020, we also announced partnerships with Microsoft (Azure VMware Solution by CloudSimple), Google (Google Cloud VMware Engine), and Oracle (Oracle Cloud VMware Solution) under the framework of our VCPP that enable customers to run native VMware-based workloads on each of Azure, Google Cloud, and Oracle Cloud. Our partnerships with AWS and other ~~partners~~public cloud providers may ~~not prevent or completely offset a decline in demand for our virtualization products and services. Our strategic alliance with Amazon may also~~ be seen as competitive with each other and with other VCPP partners, while some partners may elect to include solutions such as VMware Cloud ~~Provider Program~~on AWS as part of their managed services provider offerings. In addition, many of these public cloud providers, including AWS and Microsoft, are delivering hybrid cloud hardware solutions with integrated software, such as distributed cloud management, which may be based on specialized technologies such as smart network interface cards (“SmartNICs”), data processing units (“DPUs”) or infrastructure processing units (“IPUs”). These specialized technologies can take on an array of compute, storage, security and networking functions, enabling greater cloud efficiency and performance gains, as well as security benefits, namely in the form of CPU hardware isolation, that may undergird hybrid cloud offerings like AWS Outposts. Public cloud infrastructure providers have also developed offerings based on servers using Arm CPUs to reduce energy costs, such as AWS Graviton, announced in 2018. To the extent customers and partners, including service providers, choose to adopt co-processor or non-x86-based models to operate native or hybrid cloud environments, demand for VMware’s on-premises, hybrid and multi-cloud products and our operating results could be materially adversely affected.

Providers of application modernization and open source developer platform services. Many public cloud infrastructure and multi-cloud SaaS competitors also offer standalone or embedded application development, or Platform-as-a-Service (“PaaS”), services. With respect to AWS, Azure and Google Cloud, PaaS services are often bundled with consumption-based IaaS offerings. These IaaS providers and other developer solution partners, such as Red Hat, a subsidiary of IBM, and HashiCorp, offer tools and services based on containers and DevSecOps (development, security and operations), “shift-left” or continuous integration and continuous delivery practices. These providers may offer services, such as application security testing, application performance monitoring and automation, earlier in the application lifecycle or during development, in addition to during production. While VMware offers Aria Operations for Applications (formerly Tanzu Observability), which directly competes in this space, competitor DevSecOps offerings may reduce the demand for or put pricing pressure on traditional VMware management and automation product offerings, which are often deployed for production use cases. Open source technologies for containerization and cloud platforms, such as Xen, KVM, Docker, rkt, OpenShift, Mesos, Kubernetes and OpenStack, and other open source software-based products, solutions and services may reduce the demand for our solutions, put pricing pressure on our offerings and enable competing vendors to leverage open source technologies to compete directly with us. New platform technologies and standards based on open source software are consistently being developed and can gain popularity quickly. Improvements in open source software could cause customers to replace software purchased from us with open source software. In step with these trends, we deliver a comprehensive container, Kubernetes and Cloud Native Application technologies portfolio with VMware Tanzu and have increased our level of commitment to open source projects and communities, such as the Cloud Native Computing Foundation (“CNCF”), that are designed to increase the rate at which customers adopt micro-services architectures. The adoption of distributed micro-service application architectures, and their alignment with container technologies, represents an emerging area of competition. As we continue to invest in these areas, we will experience increasing competitive overlap with other cloud native vendors, such as Red Hat, and the large providers of public cloud infrastructure and developer services. Such competitive pressure or the availability of new open source software may cause us to experience reduced sales, increased pricing pressure, increased sales and marketing expenses and reduced operating margins, any one of which may adversely affect our ~~relationship~~operating results.

Providers of enterprise security offerings. With our acquisition of Carbon Black Inc. (“Carbon Black”) in 2019, we launched a new set of enterprise security solutions that includes the Carbon Black endpoint security platform and the intrinsic security elements of our existing NSX virtual networking, Workspace ONE end user and our compute offerings. The cybersecurity market is large, highly competitive, fragmented and subject to rapidly evolving technology, shifting customer needs and frequent introductions of new solutions. Competitors in the end point security space range from established solution providers such as Microsoft and Trend Micro to next-generation endpoint security providers such as CrowdStrike and SentinelOne. While we believe that the intrinsic security elements in our existing offerings coupled with ~~VMware Cloud Provider Program partners.~~our Carbon Black endpoint security offerings and new combined offerings we expect to develop and introduce in the future will enable us to provide an integrated security offering with significant advantages over our competitors’ current offerings, our ability to gain traction and market share as a new entrant into this well-established market segment is uncertain. Additionally, new trends, such as Extended Threat Detection and Response (XDR), Secure Access Service Edge (SASE) and Zero Trust Network Access

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(ZTNA), represent the coalescence of formerly distinct markets, such as identity management, secure web gateway (SWG), SD-WAN, network firewall and cloud access security brokers (CASBs). These new trends may bring existing partners, such as Fortinet, Zscaler and Okta into a more competitive position with our Carbon Black, VeloCloud and other distributed network security offerings. If we are unable to successfully adapt our product and service offerings to meet these opportunities and rapidly evolving trends our operating results could be adversely affected.

Large, diversified enterprise software and hardware companies. These competitors supply a wide variety of products and services to, and have well-established relationships with, our current and prospective end users. For example, small- to medium-sized businesses and companies in emerging markets that are evaluating the adoption of virtualization-based technologies and solutions may be inclined to consider Microsoft solutions because of their existing use of Windows and Office products. Some of these competitors have in the past and may in the future take advantage of their existing relationships to engage in business practices that make our products and services less attractive or more expensive to our end users. For example, in 2019, Microsoft modified its on-premises licensing terms to require end users who wish to deploy Microsoft software on certain dedicated hosted cloud services other than Microsoft’s Azure cloud service, including VMware Cloud on AWS, to purchase additional rights from Microsoft. Other competitors have limited or denied support for their applications running in VMware virtualization environments. In addition, these competitors could integrate competitive capabilities into their existing products and services and make them available without additional charge. For example, Oracle provides free server virtualization software intended to support Oracle and non-Oracle applications, ~~and~~ Microsoft offers its own server, network and storage virtualization software packaged with its Windows Server product ~~and offers~~as well as built-in virtualization in the client version of ~~Windows.~~Windows and Cisco includes network virtualization technology in many of its data center networking platforms. As a result, existing and prospective VMware customers may elect to use products that are perceived to be “free” or “very low cost” instead of purchasing VMware products and services for certain applications where they do not believe that more advanced and robust capabilities are required.

~~Companies offering competing platforms based on open source technologies~~. Open source technologies for virtualization, containerization and cloud platforms such as Xen, KVM, Docker, Rocket, OpenShift, Mesos, Kubernetes and OpenStack appear to provide pricing competition and enable competing vendors to leverage these open source technologies to compete directly with our SDDC initiative. Enterprises and service providers have shown interest in building their own clouds based on open source projects such as OpenStack, and other companies have indicated their intention to expand offerings of virtual management and cloud computing solutions as well. Additionally, a number of enterprise IT hardware vendors have released solutions based on OpenStack, including IBM and Cisco. VMware is delivering container technologies such as Photon OS™ and vSphere Integrated Containers designed to help customers adopt micro-services architectures. The adoption of distributed micro-service application architectures, and their alignment with container technologies, represents an emerging area of competition.

Other industry alliances. Many of our competitors have entered into or extended partnerships or other strategic relationships to offer more comprehensive virtualization and cloud computing solutions than they individually had offered. We expect these trends to continue as companies attempt to strengthen or maintain their positions in the evolving virtualization infrastructure and enterprise IT solutions industry. For example, Google Cloud is a member of the CrowdXDR Alliance, a CrowdStrike initiative competitive with VMware security offerings that also includes other VMware partners such as Zscaler. Many public cloud infrastructure providers have also entered into strategic partnerships with mobile telecommunications network providers (such as AWS with Verizon and Microsoft Azure with AT&T) to jointly embed distributed cloud infrastructure and management tools into 5G mobile networks as applications are increasingly deployed closer to end users at the “edge.” These alliances may result in more compelling product and service offerings than those we offer.

Our partners and members of our developer and technology partner ecosystem. We face competition from our partners. For example, third parties currently selling our products and services could build and market their own competing products and services or market competing products and services of other vendors. Additionally, as formerly distinct sectors of enterprise IT, such as software-based virtualization and hardware-based server, networking and storage solutions, converge, we also increasingly compete with companies who are members of our developer and technology partner ecosystem. For example, in 2019, one of our important partners and customers, IBM, acquired Red Hat, one of our competitors in the cloud native applications space. In 2020, Nvidia acquired Mellanox, a SmartNIC provider, and, similarly, in 2022, AMD acquired Xilinx, a field-programmable gate array (“FPGA”) provider, and Pensando, a DPU provider, giving Nvidia and AMD the potential to offer offloaded, FAC-embedded competitive virtualization, storage, security and networking software to enterprise customers for their on-premises environments. In 2022, Intel formed a partnership with Google Cloud to develop public cloud instances using Intel IPUs, and each of Microsoft Azure and Google Cloud announced agreements with Ampere, an Arm-based CPU provider. Consequently, when such convergences occur, we may find it more difficult to continue to ~~work together~~collaborate productively on other projects with these partners, and the advantages we derive from our ecosystem could diminish.

~~This~~These various forms of competition could result in increased pricing pressure and sales and marketing expenses, thereby materially reducing our operating margins, and could also prevent our new products and services from gaining market acceptance, thereby harming our ability to increase, or causing us to lose, market share.

Our commercial relationship with Dell could adversely impact our business, stock price, market share and ability to build and maintain other strategic relationships.

Our commercial relationship with Dell is significant and complex. During the time in which we were a majority-owned subsidiary of Dell, the portion of our sales that were realized through the Dell sales channel grew more rapidly than our sales through non-Dell resellers and distributors. As a standalone company following the Spin-Off, we continue to transact a significant amount of business with Dell pursuant to the commercial framework agreement between us and Dell that became effective upon the Spin-Off, which involves various risks such as:

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Reliance on our relationship with Dell. During the six months ended August 4, 2023, revenue from Dell, including purchases of products and services directly from us, as well as through our channel partners, accounted for 36% of our consolidated revenue, which included revenue from Dell selling joint solutions as an OEM, acting as a distributor to other non-Dell resellers, reselling products and services as a reseller and purchasing products and services for its own internal use. On certain transactions, Dell Financial Services also provides financing to our end users and channel partners at our end users’ and channel partners’ discretion. Our reliance on the Dell sales channel could negatively impact our ability to negotiate favorable go-to-market arrangements with Dell and our relationships with other channel partners.

Dell’s arrangements with our competitors. Dell maintains significant partnerships with certain of our competitors, including Microsoft, and may enter into more such partnerships in the future. Further, Dell may choose to partner with our competitors instead of with us. These partnerships may adversely impact our relationship with Dell, impede our standalone competitive success and result in declines in our stock price or market share. Additionally, our potential strategic relationships may be negatively affected by our relationship with Dell, as companies may favor or choose to partner with our competitors because of those competitors’ relationship with Dell or due to our relationship with Dell.

Overlaps in areas in which we and Dell compete. We and Dell compete across the IT infrastructure industry providing products and services that overlap in various areas, including software-based storage, management, hyperconverged infrastructure and cloud computing. Dell competes with us in these areas now and may compete with us in new areas and engage in increased competition with us in the future. Some of our products compete directly with products sold or distributed by Dell, which could result in declines in VMware sales. Additionally, this competition could result in increased pricing pressure and sales and marketing expenses, thereby materially reducing our operating margins, and could also prevent our new products and services from gaining market acceptance, thereby harming our ability to increase, or causing us to lose, market share.

Our arrangements with Dell’s competitors. We partner and have arrangements with a number of companies that compete with Dell, including certain of our significant channel, technology and other marketing partners, such as IBM and Hewlett-Packard. Our relationship with Dell could adversely affect our relationships with these companies or other customers, suppliers and partners. Further, our relationships with these companies could adversely impact our relationship with Dell.

We believe that our commercial relationship with Dell provides us a unique opportunity to leverage the respective technical expertise, product strengths and market presence of Dell for the benefit of our customers and stockholders while enabling us to compete more effectively with our larger competitors. However, such transactions may prove not to be successful and may divert our resources or the attention of our management from other opportunities. Negotiating and implementing these arrangements can be time consuming and cause delays in the introduction of joint product and service offerings and disruptions to VMware’s business. Additionally, cloud and on-premises infrastructure companies may choose not to partner with us to the full extent or at all due to our historical and on-going commercial relationship with Dell. As a result, we may be unable to capitalize, either strategically or commercially, on partnerships with other companies, and our business, stock price, market share and relationships may suffer.

Our success depends increasingly on customer acceptance of our newer products and services.

Our products and services are primarily based on data center virtualization, application modernization and related multi-cloud technologies used to manage distributed computing architectures, which form the foundation for multi-cloud computing. As the market for server virtualization continues to mature, the rate of growth in license sales of vSphere has declined. We are increasingly directing our product development and marketing and sales efforts toward products and services that enable businesses to modernize applications and efficiently implement their multi-cloud services. We have also been introducing SaaS versions of our on-premises products, including vRealize Cloud Universal, and investing in a range of SaaS and cloud-native technologies and products, including through acquisitions such as CloudHealth Technologies, Inc., Carbon Black and Pivotal Software, Inc. (“Pivotal”). These cloud and SaaS initiatives present new and difficult technological, operational and compliance challenges, and significant investments continue to be required to develop or acquire solutions to address those challenges. Our success depends on our current and future customers perceiving technological and operational benefits and cost savings associated with adopting our multi-cloud and application platform solutions. As the market for our data center virtualization products continues to mature, and the scale of our business continues to increase, our rate of revenue growth increasingly depends upon the success of our newer product and service offerings. To the extent that adoption rates for our newer products and services are not sufficient to offset declines in revenue growth for our established server virtualization offerings, our overall revenue growth rates may slow materially or our revenue may decline substantially. Additionally, we may fail to realize returns on our investments in new initiatives and our operating results could be materially adversely affected.

Our AI strategy and offerings introduce risks, which, if realized, could adversely impact our business.

We are striving to become a globally trusted provider of infrastructure for generative AI (“genAI”). We use machine learning (“ML”), artificial intelligence (“AI”) and analytics in our offerings and have announced partnerships, technology

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previews and beta testing focused on AI-related innovations. For example, we recently unveiled our perspective on genAI in the enterprise with the introduction of Private AI, an architectural approach that balances the business gains from AI with the practical privacy and compliance needs of an organization, in conjunction with which we announced our VMware Private AI Foundation with NVIDIA offering. However, we face significant competition. If our investments fail to strategically or sufficiently incorporate AI in our business, or if we are unable to timely or successfully differentiate our AI offerings, our financial results may be adversely impacted.

Further, AI technologies are complex, rapidly advancing, and present risks spanning, among other factors, development, training, sourcing, usage, IP leakage, investment, and compliance. For example, datasets used to develop AI models, content generated by AI systems, or application of AI systems may be unexpected, flawed, biased, offensive, harmful, or violative of confidentially agreements or current or future laws and regulations; third-party genAI systems we use could reuse our data for their future training of external AI models, which could harm our business and benefit our competitors; and the way in which our offerings incorporate and use AI may be incompatible with our customers’ own compliance requirements. Any perceived or actual inappropriate or controversial data practices by us or our partners could impair the acceptance of our AI solutions, harm our reputation and negatively impact our financial results.

AI technologies also present unique ethical issues and the regulatory landscape is evolving. AI-related regulations may develop at different rates and inconsistently across jurisdictions, require us to develop AI-specific governance controls, increase investment costs, and cause delays in or disruption to our offerings. Further, our introduction or enablement of new AI offerings or features may result in new or enhanced governmental or regulatory scrutiny, litigation, ethical concerns, or other complications that could adversely affect our return on investment, ability to compete, reputation, or financial results. Any of these factors could adversely affect our business.

Competition for our highly skilled employees is intense and costly, and our business and growth prospects may suffer if we cannot attract and retain them.

We must continue to attract and retain highly qualified personnel, particularly software and cloud engineers and sales and customer experience personnel, for which competition, particularly against companies with greater resources, startups and emerging growth companies, is intense. Research and development personnel are also aggressively recruited by startup and emerging growth companies, which are especially active in many of the technical areas and geographic regions in which we conduct product and service development. This competition results in increased costs in the form of cash and stock-based compensation and can have a dilutive impact on our stock. We have experienced, and we expect to continue to experience, difficulty in hiring and retaining highly skilled employees with appropriate qualifications, and, if we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could suffer.

The loss of key management personnel could harm our business.

We depend on the continued services of key management personnel. We generally do not have employment or non-compete agreements with our employees, and, therefore, they could terminate their employment with us at any time without penalty and could pursue employment opportunities with any of our competitors. In addition, we do not maintain any key-person life insurance policies. The loss of key management personnel could harm our business.

~~Competition for our target employees is intense~~Our current research and ~~costly, and we~~development efforts may not ~~be able~~produce significant revenue for several years, if at all.

Developing our products and services is expensive, and developing and launching disruptive technologies requires significant investment often entailing greater risk than incremental investments in existing products and services. Our research and development expenses were approximately 25% of our total revenue during the six months ended August 4, 2023. We plan to ~~attract and retain highly skilled employees.~~

~~To execute on our strategy, we must~~ continue to ~~attract~~significantly invest in our research and ~~retain highly qualified personnel. Competition for these personnel is intense, especially for senior sales executives~~development efforts to maintain our competitive position. Our investments in research and ~~engineers with significant experience designing and developing software and cloud offerings. We~~development may result in products or services that generate less revenue than we anticipate or may not ~~be successful~~result in ~~attracting~~marketable products and ~~retaining qualified personnel.~~ services for several years or at all.

Acquisitions and divestitures could materially harm our business and operating results.

We have acquired in the past, ~~experienced,~~ and ~~we expect to continue to experience~~may acquire in the future, other businesses, products or technologies. We also sell or divest businesses, products and technologies from time to time. Acquisitions and divestitures involve significant risks and uncertainties, including:

•disruptions to our ongoing operations and diverting management from day-to-day responsibilities due to, for example, the need to provide transition services in connection with a disposition or difficulty ~~in hiring~~integrating the operations, technologies, products, customers and ~~retaining highly skilled employees with appropriate qualifications. Many~~personnel of the companies with which we compete for experienced personnel have greater resources than we have. Research and development personnel are also aggressively recruited by startup and emerging growth companies, which are especially active in many of the technical areas and geographic regions in which we conduct product and service development. Competition for our key personnel results in increased costs in the form of cash and stock-based compensation and can have a dilutive impact on our stock. Additionally, changes in immigration and work permit laws and regulations or the administration or interpretation of such laws or regulations could impair our abilityacquired businesses effectively;

•adverse impacts to ~~attract and retain highly qualified employees. If we fail to attract new personnel or fail to retain and motivate our current personnel,~~ our business and ~~future growth prospects~~financial results resulting from increases to our expenses due to, among other things, integrating business operations and on-boarding personnel and the incurrence of amortization expense related to identifiable intangible assets acquired and other accounting consequences of acquisitions;

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•reductions to our cash available for operations, stock repurchase programs and other uses, potentially dilutive issuances of equity securities or the incurrence of additional debt;

•uncertainties in achieving the expected benefits of an acquisition or disposition, including with respect to our business strategy, revenue, technology, human resources, cost and operating efficiencies and other synergies, due to, among other things, a lack of experience in new markets, products or technologies; or an initial dependence on unfamiliar distribution partners or vendors;

•unidentified issues or liabilities that were not discovered during the diligence process, including issues with the acquired or divested business’s intellectual property, product quality, security, privacy and accounting practices, regulatory compliance or legal contingencies;

•lawsuits resulting from an acquisition or disposition or that relate to the acquired business;

•maintenance or establishment of acceptable standards, controls, procedures or policies with respect to an acquired business; and

•the need to later divest acquired assets at a loss if an acquisition does not meet our expectations.

Disruptions to our distribution channels, including our various routes to market through Dell, could ~~suffer.~~

~~Adverse economic conditions may~~ harm our business.

Our ~~business depends~~future success is highly dependent on ~~the overall demand for IT~~our relationships with channel partners, including distributors, resellers, system vendors and ~~on the economic health~~systems integrators, which contribute to a significant portion of our ~~current~~revenue. Recruiting and ~~prospective customers. The purchase~~retaining qualified channel partners and training them in the use of our technology and product offerings requires significant time and resources. Our failure to maintain good relationships with channel partners would likely lead to a loss of end users of our products and services, which would adversely affect our revenue. We generally do not have long-term contracts or minimum purchase commitments with our channel partners, and the contracts that we do have with these channel partners do not prohibit them from offering products or services that compete with ours.

Sales via our various route-to-market relationships with Dell accounted for 36% of our consolidated revenue during the six months ended August 4, 2023, and transactions where Dell acted as an OEM accounted for 13% of the revenue from Dell, or 5% of our consolidated revenue. Such routes to market include Dell selling joint solutions as an OEM, acting as a distributor to other non-Dell resellers, reselling products and services as a reseller or purchasing products and services for its own internal use. Although we and Dell entered into a commercial agreement effective upon the Spin-Off that is ~~often discretionary~~intended to preserve and enhance our strategic partnership, as a standalone company, our relationship with Dell is fundamentally different from the relationship that we had with Dell when we were its majority-owned subsidiary. Following the Spin-Off, Dell no longer consolidates VMware’s revenues, and Dell may ~~involve a significant commitment of capital~~not be sufficiently incentivized to drive VMware business through our various route-to-market relationships. If sales through Dell decline and ~~other resources. Weak economic conditions or significant uncertainty regarding the stability of financial markets could adversely impact~~VMware is unable to shift business to suitable alternative channel partners, our business ~~financial condition~~ and operating results ~~in a number of ways, including by lengthening sales cycles, affecting~~will be negatively affected. Additionally, any disruption or significant change to our relationship with Dell or the ~~size of enterprise agreements (“EAs”) that customers will commit to, reducing the level of our non-EA transactional sales, lowering prices for~~terms upon which they sell and distribute our products and services ~~reducing unit sales and reducing~~could have a negative impact on our operating results until such time as we arrange to replace these distribution services with the ~~rate~~services of ~~adoption~~existing or new distributors.

Other than Dell, none of our ~~products~~distributors accounted for 10% or more of our consolidated revenue during the six months ended August 4, 2023. Although we believe that we have, or would have in place by the date of any such termination, agreements with replacement distributors sufficient to maintain our revenue from distribution, if we were to lose the distribution services of a significant distributor, such loss could have a negative impact on our operating results until such time as we arrange to replace these distribution services with the services of existing or new distributors.

The evolution of our business requires more complex go-to-market strategies, which involve significant risk.

Our increasing focus on developing and ~~services by new customers~~marketing IT management and ~~the willingness of current~~automation and IaaS offerings (including software-defined networking, VCPP-integrated virtual desktop and mobile device, multi-cloud and SaaS) that enable customers to ~~purchase upgrades~~transform their IT systems requires a greater focus on marketing and selling product suites and more holistic solutions, rather than selling on a product-by-product basis. Consequently, we have developed, and must continue to develop, new strategies for marketing and selling our offerings. In addition, marketing and selling new technologies to enterprises requires us to invest significant time and resources to educate customers on the benefits of our offerings. These investments can be costly and educating our sales force can distract from their efforts to sell existing products and services. ~~For example, a recurrence of the sovereign debt crisis in Europe, repercussions~~Additionally, from ~~the vote by the United Kingdom~~time to ~~exit the European Union~~time, we reorganize our go-to-market teams to increase efficiencies and improve customer coverage, but these reorganizations can cause short-term disruptions that may negatively impact sales over one or ~~that region’s failure~~more fiscal periods. Further, upon entering into new industry segments, we may choose to ~~recover from recession would threaten~~go to ~~suppress demand and our customers’ access to credit in that region, which is an important~~ market ~~for our products and services. In response to sustained economic uncertainty, many national and local governments~~with third-party manufactured hardware appliances that are ~~current or prospective~~integrated with our software—as we did when we entered into the SD-WAN space through our acquisitions of VeloCloud Networks, Inc. and Nyansa, Inc.—which requires us to rapidly develop, deploy and scale new hardware procurement, supply chain and inventory management processes and product support services and integrate them into our ongoing business systems and controls.

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Similarly, our launches of managed subscription services, such as VMware Cloud on AWS and VMware Cloud on Dell EMC, required us to implement new methods to deliver and monitor end user services and adjust our model for releasing product upgrades. As our customers ~~for~~increasingly shift from one-time purchases of perpetual software licenses to purchasing our ~~products~~software via more subscription and ~~services, including~~SaaS-based programs, our go-to-market teams will need to alter their outreach to customers to support ongoing consumption of our offerings, and we will need to appropriately adjust the ~~U.S. federal government, have made, or threatened~~variable compensation programs we use to ~~make, significant spending cutbacks which could reduce the amount of government spending on IT~~incentivize our sales teams. If we fail to successfully adjust, develop and ~~the potential demand for~~implement effective go-to-market strategies, our ~~products and services from the government sector.~~

Regional economic uncertainty can also result in general and ongoing tightening in the credit markets, lower levels of liquidity, increases in the rates of default and bankruptcy and significant volatility in the credit, equity and fixed income markets. Changes in governmental fiscal, monetary and tax policies may also impact interest rates on credit and debt, which have been at historically low levels for several years. As a result, current or potential customersfinancial results may be unable to fund software purchases, which could cause them to delay, decrease or cancel purchases of our products and services. Even if customers are willing to purchase our products and services, if they do not meet our credit requirements, we may not be able to record accounts receivable or unearned revenue or recognize revenue from these customers until we receive payment, which couldmaterially adversely affect the amount of revenue we are able to recognize and our cash flows in a particular period. Increases in our cost of borrowing could also impact our ability to access capital markets should we wish to raise additional funding for business investments, which could adversely affect our ability to repay or refinance our existing notes payable to Dell, fund future product development and acquisitions or conduct stock buybacks.impacted.

We may not be able to respond to rapid technological changes with new solutions and services offerings.

The ~~virtualization, cloud computing, end-user computing and SDDC~~ industries in which we compete are characterized by rapid, ~~technological change, changing~~complex and disruptive changes in technology, customer ~~needs, frequent new software product introductions~~demands and ~~evolving industry standards. The introduction of third-party solutions embodying new technologies and the emergence of new~~ industry standards that could make it difficult for us to effectively compete and cause our existing and future software solutions to become obsolete and unmarketable. ~~Cloud~~Our ability to react quickly to new technology trends—such as cloud computing, ~~has proven to be a disruptive technology that~~which is ~~altering~~disrupting the ~~way that~~ways businesses consume, manage and provide physical IT resources, applications, data and IT ~~services.~~

~~We may not be able to establish or sustain our thought leadership in the cloud computing~~services, and enterprise software fields, and our customers may not view our products and services as innovative and best-of-breed, which could result in a reduction in market share and our inability to command a pricing premium over competitor products and services. We may not be able to develop updated products and services that keep pace with technological developments and emerging industry standards, that address the increasingly sophisticated needs of our customers or that interoperate with new or updated operating systems and hardware devices.

~~Our ability to react quickly to new technology trends~~ AI—and customer requirements is negatively impacted by the length of some of our development ~~cycle~~cycles for new and enhanced products and services, ~~and product and service enhancements,~~ which has frequently been longer than we originally anticipated. This is due in part to the increasing complexity of our product offerings as we increase their interoperability ~~introduce them into product suites~~ and maintain their compatibility with ~~multiple~~ IT resources, such as public clouds, utilized by our customers ~~which can significantly increase the development time~~while sustaining and ~~effort necessary to achieve the interoperability of product suite components while maintaining~~enhancing product quality. When we release significant new versions of our existing offerings, the complexity of our products may require existing customers to remove and replace prior versions to take full advantage of substantial new capabilities, which may subdue initial demand for the new versions or depress demand for existing versions until the customer is ready to purchase and install the newest release. If we are unable to evolve our solutions and offerings in time to respond to and remain ahead of new technological ~~developments,~~developments—in applications, networking or security, for example—or in ways that are compelling to customers, our ability to retain or increase market share and revenue ~~in the virtualization, cloud computing, end-user computing and SDDC industries~~ could be materially adversely affected. ~~With respect to our SDDC products, if we~~We may also fail to ~~introduce compelling~~adequately anticipate the commercialization of emerging technologies, such as blockchain and AI, and the development of new ~~features in future upgrades to our VMware vSphere product line, manage the transition to hybrid cloud platforms, develop new or tightly integrate existing~~markets and applications for our ~~virtualization~~ technology, such as edge computing and Private AI, and thereby fail to take advantage of new market opportunities or fall behind early movers in those markets.

We operate a global business that ~~address customer requirements~~exposes us to additional risks.

A significant portion of our employees, customers, channel partners and third-party providers whom we rely upon to help deliver our subscription and SaaS services are located outside the U.S. Our international activities account for ~~integration, automation~~a substantial portion of our revenue and ~~management~~profits, and our investment portfolio includes investments in non-U.S. financial instruments and holdings in non-U.S. financial institutions. In addition to the risks described elsewhere in these risk factors, our international operations subject us to a variety of ~~their IT systems with public cloud resources, overall demand for~~risks, including:

•difficulties in delivering support, training and documentation; enforcing contracts; collecting accounts receivable; transferring funds; maintaining appropriate controls relating to revenue recognition practices; and longer payment cycles in certain countries and especially in emerging markets;

•network security and privacy concerns, which could make foreign customers reluctant to purchase products and services ~~based~~from U.S.-based technology companies;

•tariffs, trade barriers and other regulatory or contractual limitations on ~~VMware vSphere may decline. Additionally, if we fail~~our ability to ~~realize returns on investments~~develop and sell our products and services in certain non-U.S. geographies, such as in China, whose government has adopted laws and regulations relating to the procurement of key network equipment and security products that might cause our ~~newer SaaS~~business in such geographies to suffer and ~~cloud initiatives,~~expose us to civil and criminal penalties;

•laws and regulations regarding the storage and processing of data in certain non-U.S. geographies, such as in China, might cause our ~~operating margins~~business in such geographies to suffer and ~~results~~expose us to civil and criminal penalties;

•localized impacts of ~~operations will be adversely impacted.~~

~~Breaches~~pandemics or other public health crises that persist or flare up in particular regions, such as in India where several of our ~~cybersecurity systems~~global support services as well as research and development personnel are located, have in the past and in the future could ~~seriously harm our business.~~

~~We increasingly depend upon our IT systems to conduct virtually all~~cause delays or disruptions in certain of our business operations ~~ranging from our internal operations~~ and product ~~development activities to~~development;

•regional impacts of climate change, which increase the risk of extreme weather events, wildfire and drought that can impact local infrastructure such as the reliability of local electrical grids and telecommunications;

•global economic conditions, including inflation, recession and supply chain disruptions, could materially and adversely affect our ~~marketing and sales efforts and communications with our~~business, prospects, results of operations, financial condition or cash flows;

•economic or political instability, military actions or armed conflict, such as the Russian invasion of Ukraine, in locations where we have employees, partners or customers, and uncertainty about or changes in government and trade

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relationships, policies, and treaties that could adversely affect the ability of U.S.-based companies to conduct business ~~partners. Unauthorized parties~~in non-U.S. geographies, such as in the U.K. where Brexit created regulatory uncertainty; and

•legal risks, particularly in emerging markets, relating to compliance with U.S. exchange control requirements and international and U.S. anti-corruption laws and associated exposure to significant fines, penalties and reputational harm.

Our failure to manage any of these risks successfully could negatively affect our reputation and materially adversely affect our operating results.

Russia’s military actions in Ukraine have ~~penetrated~~affected and may continue to affect our ~~network security~~business.

In response to Russian military actions in Ukraine, we ceased business operations in Russia and suspended business operations in Belarus, including with respect to sales, support on existing contracts and professional services in both countries. Furthermore, the sanctions imposed by the U.S. and other countries in connection with the Russian invasion of Ukraine include restrictions on selling or importing goods, services or technology in or from affected regions and travel bans and asset freezes impacting connected individuals and political, military, business and financial organizations in Russia. Sanctions imposed on Russia and our ~~website~~suspension of business operations in Russia could impact the fulfillment of existing orders, future revenue streams from impacted customers and the recoverability of certain financial assets. It is not possible to predict the broader consequences of this conflict, which have included and could in the ~~past~~future include further sanctions, embargoes, regional instability, geopolitical shifts and ~~may do so in~~adverse effects on the ~~future. These cyberattacks threaten to misappropriate our proprietary information, cause interruptions of our IT services and commit fraud. Because~~global economy.

Our success depends on the techniques used by unauthorized persons to access or sabotage networks change frequently and may not be recognized until launched against a target, we may be unable to anticipate these tactics. Further, if unauthorized access or sabotage remains undetected for an extended period of time, the effects of such breach could be exacerbated. In addition, sophisticated hardware and operating system software and applications that we produce or procure from third parties may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly interfere with the operation of our systems and processes. Our exposure to cybersecurity threats and negative consequences of cybersecurity breaches will likely increase as our customers conduct more purchase and service transactions online, and we store increasing amounts of customer data and host or manage parts of customers’ businesses in cloud-based IT environments.

We have also outsourced a number of our business functions to third parties, and we rely upon distributors, resellers, system vendors and systems integrators to sell our products and services. Accordingly, if our cybersecurity systems and those of our contractors, partners and vendors fail to protect against breaches, our ability to conduct our business could be damaged in a number of ways, including:

~~sensitive data regarding our business, including intellectual property and other proprietary data, could be stolen;~~

our electronic communications systems, including email and other methods, could be disrupted, and our ability to conduct our business operations could be seriously damaged until such systems can be restored and secured;

~~our ability to process customer orders and electronically deliver products and services could be degraded, and our distribution channels could be disrupted, resulting in delays in revenue recognition;~~

defects and security vulnerabilities could be exploited or introduced into our software products or our hybrid cloud and SaaS offerings, thereby damaging the reputation and perceived reliability and securityinteroperability of our products and services ~~and potentially making the data systems~~with those of other companies.

The success of our ~~customers vulnerable~~products depends upon the cooperation of hardware and software vendors to ~~further data loss~~ensure interoperability with our products and ~~cyber incidents;~~offer compatible products and

~~personally identifiable~~ services to end users. In addition, we extend the functionality of various products to work with native public cloud applications, which in some cases requires the cooperation of public cloud vendors. To the extent that hardware, software and public cloud vendors perceive that their products and services compete with ours, they may have an incentive to withhold their cooperation, decline to share access or ~~confidential data~~sell to us their proprietary APIs, protocols or formats, or engage in practices to actively limit the functionality, compatibility and certification of our ~~customers, employees and business partners could be stolen~~products. In addition, vendors may fail to certify or ~~lost.~~

~~Should~~support or continue to certify or support our products for their systems. If any of the ~~above events occur,~~foregoing occurs, our product development efforts may be delayed or foreclosed and it may be difficult and more costly for us to achieve functionality and service levels that would make our services attractive to end users, any of which could negatively impact our business and operating results.

Failure to effectively manage our product and service lifecycles could harm our business.

As part of the natural lifecycle of our products and services, we ~~could~~periodically inform customers that products or services will be reaching their end of life or end of availability and will no longer be supported or receive updates and security patches. To the extent these products or services remain subject to ~~significant claims for liability from~~a service contract with the customer, we offer to transition the customer to alternative products or services. Failure to effectively manage our ~~customers, we~~product and service lifecycles could ~~face regulatory actions from governmental agencies, our ability~~lead to ~~protect our intellectual property rights~~customer dissatisfaction and contractual liabilities, which could be compromised, our reputation and competitive position could be materially harmed and we could incur significant costs in order to upgrade our cybersecurity systems and remediate damages. Consequently,adversely affect our business ~~financial condition~~ and operating ~~results could be adversely affected.~~results.

Financial Risks

Our operating results may fluctuate significantly.

Our operating results may fluctuate due to a variety of factors, many of which are outside of our control. As a result, comparing our operating results on a period-to-period basis may not be meaningful, and our past results should not be relied upon as an indication of our future performance. In addition, a significant portion of our quarterly sales typically occurs during the last two weeks of the quarter, which generally reflects customer buying patterns for enterprise technology. As a result, our quarterly operating results are difficult to predict even in the near term. If our revenue or operating results fall below the expectations of investors or securities analysts or below any guidance we may provide to the market, the price of our Class A common stock (“Common Stock”) would likely decline substantially.

Factors that may ~~cause~~contribute to fluctuations in our operating results include, among others, the factors described elsewhere in this ~~risk factors~~Risk Factors section and the following:

•fluctuations in demand, adoption and renewal rates, sales cycles ~~(which have been increasing in length)~~ and pricing levels for our products and services;

~~changes~~•variations in ~~customers’ budgets for information technology purchases~~customer choices among our on-premises and ~~in the timing of their purchasing decisions;~~

~~the timing of recognizing revenue in any given quarter,~~subscription and SaaS offerings, which can ~~be affected by a number~~impact our rates of ~~factors, including product announcements, beta programs~~total revenue and ~~product promotions that can cause~~license revenue ~~recognition of certain orders to be deferred until future products to which customers are entitled become available;~~growth;

•the timing of announcements or releases of new or upgraded products and services by us, our partners or ~~by our~~ competitors;

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•the timing of sales orders processing, which can cause fluctuations in our backlog and ~~size~~impact our bookings and timing of ~~business realignment plans and restructuring charges;~~revenue recognition;

•our ability to maintain scalable internal systems for reporting, order processing, license fulfillment, product delivery, purchasing, billing and general accounting, among other functions;

•our ability to control costs, including our operating ~~expenses;~~expenses, and the timing and amount of internal use software development costs that may be capitalized;

•the credit risks ofassociated with our distributors, who account for a significant portion of our product revenue and accounts ~~receivable;~~receivable, and our customers;

•the timing and size of ~~when sales orders are processed, which can cause fluctuations in our backlog~~realignment plans and ~~impact our bookings and timing of revenue recognition;~~restructuring charges;

•seasonal factors such as ~~the~~ end of fiscal period ~~budget~~ expenditures by our customers and the timing of holiday and vacation periods; and

~~renewal rates and the amounts of the renewals for EAs as original EA terms expire;~~

~~the timing and amount of internally developed software development costs that may be capitalized;~~

•unplanned events that could affect market perception of the quality or cost-effectiveness of our products and ~~solutions;~~solutions.

Adverse economic conditions may harm our business.

Our business success depends in part on worldwide economic conditions. The overall demand for and spend on IT may be viewed by our current and prospective customers as discretionary and, in times of economic uncertainty, customers may delay, decrease, reduce the value and duration, or cancel purchases and upgrades of our products and services. Weak economic conditions or significant uncertainty regarding the stability of financial markets related to stock market volatility, inflation, recession, changes in tariffs, trade agreements or governmental fiscal, monetary and tax policies, among others, have in the past and could in the future adversely impact our business, financial condition and operating results. General and ongoing tightening in the credit market, lower levels of ~~new accounting pronouncements, for example, the adoption~~liquidity, increases in rates of ~~Accounting Standards Update (“ASU”) 2016-09, which will likely result in increased~~default and bankruptcy and significant volatility in ~~the provision for income taxes because excess tax benefits~~equity and ~~tax deficiencies are now recognized within the income tax provision in the period in which they occur;~~

fixed-income markets could all negatively impact our ~~ability to accurately predict the degree to which customers will elect to purchase our subscription-based offerings in place of licenses to our on-premises offerings; and~~

~~to the extent~~customers’ purchasing decisions. Adverse developments that ~~we buy back shares of our common stock in private transactions with Dell~~affect financial institutions, transactional counterparties or other third parties, ~~through~~such as bank failures, or concerns or speculation about any similar events or risks, could lead to market-wide liquidity problems, which in turn may cause third parties, including customers, to become unable to meet their obligations under various types of financial arrangements as well as general disruptions or instability in the financial markets. Increases in interest rates on credit and debt that ~~are accounted for as derivative instruments, fluctuations~~would increase the cost of our borrowing could impact our ability to access the capital markets and adversely affect our ability to repay or refinance our outstanding indebtedness, fund future product development and acquisitions or conduct stock buybacks.

For example, inflation rates in ~~our stock price during~~ the ~~pricing reference periods of such arrangements~~U.S. have increased to levels not seen in several years, which may result in ~~gains or losses in our quarterly earnings.~~

~~We are exposed to foreign exchange risks.~~

Because we conduct business in currencies other than the U.S. dollar but report our operating results in U.S. dollars, we face exposure to fluctuations in currency exchange rates. During the nine months ended November 3, 2017, approximately 30% of our sales were invoiced and collected in non-U.S. dollar denominated currencies. The realized gain or loss on foreign currency transactions is dependent upon the types of foreign currency transactions that we enter into, the exchange rates associated these transactions and changes in those rates, the net realized gain or loss on our foreign currency forward contracts, and other factors. Although we hedge a portion of our foreign currency exposure, a significant fluctuation in exchange rates between the U.S. dollar and foreign currencies may adversely affect our operating results. For example, we experienced a measurable negative impact to our revenue in 2015 due to exchange rate fluctuations. Any further weakening of foreign currency exchange rates against the U.S. dollar would likely result in additional adverse impact on our revenue.

~~We operate a global business that exposes us to additional risks.~~

~~Our international activities account~~decreased demand for a substantial portion of our revenue and profits, and we plan to further expand internationally. In addition, our investment portfolio includes investments in non-U.S. financial instruments and holdings in non-U.S. financial institutions, including European institutions. In addition to the risks described elsewhere in these risk factors, our international operations subject us to a variety of risks, including:

~~difficulties in enforcing contracts and collecting accounts receivable and longer payment cycles, especially in emerging markets;~~

~~difficulties in delivering support, training and documentation in certain foreign markets;~~

~~tariffs and trade barriers and other regulatory or contractual limitations on our ability to sell or develop~~ our products and services, increases in ~~certain foreign markets;~~our operating costs, constrained credit and liquidity, reduced government spending and increased volatility in financial markets.

~~changes~~Additionally, trade tensions between the U.S. and ~~instability~~its trading partners, like China, have caused and may continue to cause significant volatility in ~~government policies~~global financial markets. Amidst sustained economic uncertainty, many national and ~~international trade arrangements that could adversely affect the ability of U.S.-based companies to conduct business in non-U.S. markets;~~

~~economic or political instability and security concerns in countries~~local governments that are ~~important~~current or prospective customers, including the U.S. federal government, may need to ~~our international sales and operations;~~

~~difficulties~~make significant changes in ~~transferring funds from certain countries;~~

~~increased compliance risks, particularly in emerging markets; and~~

~~difficulties in maintaining appropriate controls relating to revenue recognition practices.~~

~~An example is~~their spending priorities, which could reduce the ~~ongoing efforts~~amount of ~~the Chinese~~ government ~~to more closely regulate network security. A new Cyber Security Law was enacted in November 2016 and came into effect~~spending on June 1, 2017, which promotes utilization of “secure and reliable” network products and services, requires the sale of certain key network equipment and network security products to be subject to security certification, and imposes data localization measures and various network security measures relevant to a vaguely defined scope of “critical information infrastructure.” Among those network security measures is a requirement that certain network products and services procured by operators of “critical information infrastructure” undergo a formal security assessment in order to evaluate their “security” and “controllability.” The specific technical requirements of the security assessment have not yet been clarified. In December 2015, China enacted an Anti-Terrorism Law that gives local public security and state security authorities the broad discretionary authority to require companies to provide access to their equipment and decryption support in particular cases. Failure to comply with such requests can result in fines and imprisonment. In addition, a broad range of businesses will be required to verify the identities of customers and are prohibited from providing services to customers whose identities are unclear or who refuse to cooperate in the verification process. If we are not able to, or choose not to, comply with these and other information and network security standards that the Chinese government might implement in the future, our business in China may suffer.

~~Furthermore, if we fail to comply with legal and regulatory requirements covering the foreign activities of U.S. corporations, such as export control requirements~~IT and the Foreign Corrupt Practices Act, as well as with local regulatory requirements in non-U.S. jurisdictions, we may be exposed to significant fines and penalties and reputational harm. These risks will increase as we expandpotential demand for our ~~operations in locations with a higher incidence of corruption and fraudulent business practices.~~

In addition, potential fallout from past disclosures related to the U.S. Internet and communications surveillance and possible efforts to enable increased surveillance could make foreign customers reluctant to purchase products and services from ~~U.S.-based technology companies~~the government sector.

These adverse economic conditions can arise suddenly, have unpredictable impacts and ~~impair our growth rate in foreign markets.~~

~~Our failure to manage any of these risks successfully could negatively affect our reputation and~~materially adversely affect our future sales and operating results. Further, volatility due to these types of adverse economic conditions in financial and other capital markets, has and may continue to adversely impact our stock price and may in the future impact our ability to access the equity or debt capital markets on attractive terms or at all for a period of time, which could have an adverse effect on our liquidity position.

We have ~~outstanding~~substantial indebtedness, ~~in the form of unsecured notes~~ and we may incur other debt in the future, which may adversely affect our financial condition and future financial results.

OnAs of August ~~21, 2017,~~4, 2023, we ~~issued $4,000 million in unsecured notes through a debt offering and repaid $1,230 million~~had an aggregate of ~~the notes payable to Dell, utilizing a portion~~$10.4 billion of ~~the proceeds from the offering. An additional unsecured promissory note with an~~ outstanding ~~principal amount of $270 million owed to Dell remains outstanding. On September 12, 2017,~~indebtedness. Additionally, we entered into a ~~$1,000 million~~$1.5 billion unsecured ~~credit agreement establishing a~~ revolving credit facility ~~(“Credit Facility”) that~~during the third quarter of fiscal 2022, which is ~~currently~~ undrawn. ~~Our current and any future debt may adversely affect our financial condition and future financial results by, among other things:~~

requiring the dedication of a portion of our expected cash flow from operations to service our indebtedness, thereby reducing the amount of expected cash flow available for other purposes, including capital expenditures and acquisitions; and

~~limiting our flexibility in planning for, or reacting to, changes in our business and our industry.~~

The terms of our ~~unsecured notes~~indebtedness and ~~Credit Facility~~revolving credit facility impose restrictions on us, ~~and require us to maintain compliance with~~including in specified and customary ~~covenants. Our ability to comply~~covenants, our compliance with ~~these covenants~~which may be affected by events beyond our control, including prevailing economic, financial and industry conditions. If we fail to satisfy any of the terms or breach any of the covenants and do not obtain a waiver from the lenders or note holders, then, subject to applicable cure periods, any outstanding indebtedness may be declared immediately due and ~~payable.~~payable or, with respect to the unsecured notes, we may be required to repurchase our unsecured notes at a price equal to 101% of the aggregate principal plus any accrued and unpaid interest.

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We intend to reduce our indebtedness during the next fiscal years. While we believe our remaining cash balances and cash generated by our business operations will be sufficient to fund our operations and enable us to pursue our existing stock repurchase program and strategic plans, if our business operations do not generate the cash flows we expect, then our ability to fund future stock repurchases, invest in our business and pursue strategic alternatives, including business acquisitions, will be reduced, which could reduce our ability to manage dilution of our stock and limit our future growth. If in the future we are unable to generate sufficient operating cash flows to service our debt, we may be required to, among other things, seek additional financing in the debt or equity markets, refinance or restructure all or a portion of our indebtedness, sell selected assets or reduce or delay planned expenditures. Even so, such measures may not be sufficient to enable us to service our debt.

Our current and any future debt may adversely affect our financial condition and future financial results by, among other things, increasing our vulnerability to adverse changes in general economic condition, including exposure to interest rate volatility due to our variable rate indebtedness, and industry conditions, necessitating use or dedication of our expected cash flow from operations to service our indebtedness instead of for other purposes, such as capital expenditures and acquisitions, impairing our ability to obtain additional financing for working capital, capital expenditures, acquisitions or other purposes, and limiting our flexibility in planning for, or reacting to, business changes.

In addition, any actual or anticipated changes to our credit ratings, including any announcement that our credit ratings are under review by any rating agency, ~~may~~ may:

•negatively impact the value and liquidity of ~~both~~ our debt and equity ~~securities. Under certain circumstances, if our credit ratings are downgraded or other negative action is taken,~~securities;

•result in an increase in the interest rate payable by us and the cost of borrowing under our ~~Credit Facility could increase. Downgrades in our~~revolving credit ~~ratings could also~~facility and senior unsecured term loan facility;

•negatively affect the terms of and restrict our ability to obtain ~~additional~~ financing in the ~~future. In addition,~~ future; and

•upon the occurrence of certain downgrades of the ratings of our unsecured notes, ~~we may be required~~require us to repurchase our unsecured notes at a ~~repurchase~~ price equal to 101% of the aggregate principal plus any accrued and unpaid ~~interest~~interest.

Refer to “Liquidity and Capital Resources” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of this Quarterly Report on Form 10-Q for more information on our outstanding indebtedness.

We have potential tax liabilities as a result of our former controlling ownership by Dell, which could have an adverse effect on our operating results and financial condition.

Membership in a consolidated tax group. We were included in EMC’s consolidated group for U.S. federal income tax purposes, as well as in certain consolidated, combined or unitary groups that include EMC or certain of its subsidiaries for state and local income tax purposes, from the time of our acquisition by EMC in 2004 through the acquisition of EMC by Dell effective September 7, 2016 (the “Dell Acquisition”), when we became included in Dell’s consolidated tax group. Each member of a consolidated group during any part of a consolidated return year is jointly and severally liable for tax on the consolidated return of such year and for any subsequently determined deficiency thereon. Similarly, in some jurisdictions, each member of a consolidated, combined or unitary group for state, local or foreign income tax purposes is jointly and severally liable for the state, local or foreign income tax liability of each other member of such group. Accordingly, for any period in which we were included in the Dell consolidated group for U.S. federal income tax purposes or any other consolidated, combined or unitary group of Dell and its subsidiaries, we could be liable in the event that any income tax liability was incurred, but not discharged, by any other member of any such group. Additionally, the impact of the 2017 Tax Cuts and Jobs Act (the “2017 Tax Act”) upon consolidated groups is highly complex and uncertain, and its impact must be further interpreted in the context of various tax-related agreements we have agreed to with EMC and Dell (the “Tax Agreements”) to determine VMware’s related payment. As a result of the Spin-Off, we are no longer a member of Dell’s consolidated tax group, however, we are still subject to potential tax liabilities for the periods prior to the Spin-Off.

Tax Agreements. We have agreed to Tax Agreements that govern, among other things, our potential liabilities for other members of the consolidated tax groups of which we are considered members. Pursuant to the Tax Agreements, we and Dell generally will make payments to each other such that, with respect to tax returns for any taxable period in which we or any of our subsidiaries are included in Dell’s consolidated group for U.S. federal income tax purposes or any other consolidated, combined or unitary group of Dell or its subsidiaries, the amount of taxes to be paid by us will be determined, subject to certain consolidated return adjustments, as if we and each of our subsidiaries included in such consolidated, combined or unitary group filed our own consolidated, combined or unitary tax return. Although the Tax Agreements provide that our tax liability is calculated primarily as though VMware were a separate taxpayer, certain tax attributes and transactions are assessed using consolidated tax return rules as applied to the Dell consolidated tax group and are subject to other specialized terms under the Tax Agreements. In April 2019, we expanded the Tax Agreements by entering into a letter agreement with Dell and EMC that governs our portion of the one-time transition tax imposed by the 2017 Tax Act on accumulated earnings of foreign subsidiaries. Additionally, in December 2019, we amended the Tax Agreements to, subject to certain exceptions, generally limit

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VMware’s maximum annual tax liability to Dell to the amount VMware would owe on a separate tax return basis. Concurrent with the signing of the Separation and Distribution Agreement in April 2021, we and Dell entered into a new tax matters agreement and terminated a preceding tax sharing agreement. A substantial lack of alignment or disagreement between us and Dell regarding the applicability or interpretation of the Tax Agreements, or any unanticipated material tax liability arising pursuant to the Tax Agreements, could adversely impact our financial condition and operating results.

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 initial public offering in April 2018. Pivotal continued to be included on Dell’s unitary state tax returns until the Spin-Off. Pursuant to a tax agreement between Pivotal and Dell, Pivotal may receive or owe payments from or to Dell for tax benefits or expenses that Dell realized due to Pivotal’s inclusion on such returns.

Tracking Stock. Pursuant to the Tax Agreements, if it is subsequently determined that the tracking stock issued in connection with the Dell Acquisition and which Dell subsequently eliminated through a share exchange constitutes a taxable distribution, we could be liable for all or a portion of the tax liability, which could have a material adverse effect on our operating results and financial condition.

Spin-Off. If the Spin-Off is later determined to not be tax-free for any reason, we could be liable for all or a portion of the tax liability. Additionally, under the Tax Agreements, we are prohibited from taking or failing to take any action that prevents the Spin-Off from being tax-free for U.S. federal income tax purposes. We would be responsible for any taxes imposed on Dell or any of its affiliates as a result of the failure of the Spin-Off to qualify for favorable treatment under the Internal Revenue Code if such failure is attributable to certain actions taken after the Spin-Off by or in respect of us, which could have a material adverse effect on our operating results and financial condition. Further, during the two-year period following the Spin-Off, without obtaining the consent of Dell, a private letter ruling from the Internal Revenue Service (“IRS”) or an unqualified opinion of a nationally recognized law firm, we may be prohibited from taking certain specified actions that could impact the treatment of the Spin-Off, such as significant equity transactions that shift more than a significant portion of the value or total combined voting power of all outstanding shares of our stock. These restrictions may limit our ability to pursue strategic transactions or engage in new business or other transactions that may maximize the value of our business. These obligations may also discourage, delay or prevent a change of control of our company.

In connection with the Merger Agreement with Broadcom, we provided Dell with an opinion from our counsel, Gibson Dunn, to the effect that the transaction will not result in the Spin-Off failing to qualify as a tax-free transaction under Section 355 of the Internal Revenue Code. Moreover, the Merger Agreement includes a representation by us to Broadcom that such opinion has not been revoked, substantively modified or withdrawn (unless an acceptable replacement opinion has been received), and Broadcom’s obligation to consummate the transaction is conditioned on such representation being true and correct in all respects as of the date of ~~purchase.~~the Merger Agreement and as of the closing of the transaction, as though made on and as of the closing of the transaction. Broadcom may, in its sole discretion, waive the condition relating to the accuracy of this representation. Dell could seek to enjoin the consummation of the transaction if (1) there is a breach of our representation regarding the opinion, (2) Broadcom waives the condition relating to the accuracy of the opinion, and (3) we do not obtain an IRS private letter ruling confirming that the transaction will not cause the Spin-Off to fail to qualify as a tax-free transaction under Section 355 of the Internal Revenue Code. The opinion of counsel is based on, among other things, various assumptions and the accuracy of representations made by us, Broadcom, Dell and certain other persons in connection with the Spin-Off and the execution of the Merger Agreement. If any of these assumptions or representations were, or were to become, inaccurate or incomplete, the opinion may be invalid. No ruling from the IRS is being sought regarding the U.S. federal income tax consequences of the transaction, and an opinion of counsel is not binding on the IRS or any court. Accordingly, there can be no assurance that the IRS will not disagree with or challenge any of the conclusions in the opinion of counsel or that a court will not sustain such a challenge. Regardless of whether the condition in the Merger Agreement relating to the accuracy of our representation regarding the opinion required by the Tax Matters Agreement is satisfied or waived by Broadcom, if the Spin-Off were determined to be taxable as a result of the transaction, Dell, its affiliates and, potentially, its stockholders would incur significant tax liabilities and, under the Tax Agreements, we (following the consummation of the transaction, as a wholly owned subsidiary of Broadcom) may be required to indemnify Dell and its affiliates for any such tax liabilities, which would be material.

~~Additionally,~~Our operating results may be adversely impacted by exposure to additional tax liabilities and higher than expected tax rates.

We are subject to income taxes as well as non-income-based taxes, such as payroll, sales and property taxes, in many of the jurisdictions in which we operate. Our tax liabilities are dependent on the allocation of revenue and expenses in different jurisdictions and the timing of recognizing revenue and expenses. Significant judgment is required to determine our ~~parent company,~~worldwide provision for income taxes and other tax liabilities. For example, in the ordinary course of our global business, we execute intercompany transactions, including intellectual property transfers, that require us to make tax estimates because the ultimate tax determination is uncertain.

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We are subject to income and indirect tax examinations and are undergoing audits in various jurisdictions, including examinations by the IRS for the Dell ~~currently~~consolidated group, of which VMware was a member beginning in Dell’s fiscal year 2017. As a result of the Spin-Off, VMware is no longer a member of the Dell consolidated group, however, we are still subject to examination by the IRS for the periods in which we were a member of the Dell consolidated group. While we believe we have complied with all applicable income tax laws and made reasonable tax estimates, a governing tax authority could have a different legal interpretation, and a final determination of tax audits or disputes may differ from what is reflected in our historical income tax provisions or benefits and accruals and we may be assessed with additional taxes. Further, the Tax Agreements between us and Dell provide that, when we become subject to federal income tax audits as a member of Dell’s consolidated group, Dell has ~~a significant level~~authority to control the audit and represent Dell and our interests to the IRS. Accordingly, if we and Dell differ on appropriate responses and positions to take with respect to tax questions that may arise in the course of ~~debt financing. Accordingly, negative changes~~an audit, our ability to ~~Dell’s credit rating could also negatively~~affect the outcome of such audits may be impaired.

In addition, regulatory guidance is still forthcoming with respect to the 2017 Tax Act and such guidance may adversely impact our ~~credit rating~~tax provision. Any assessment of additional taxes could materially affect our financial condition and operating results. Further, beginning in fiscal 2023, the ~~value and liquidity of any future debt we might raise.~~

~~Our current~~2017 Tax Act eliminates the option to deduct research and development ~~efforts~~expenditures immediately in the year incurred and requires taxpayers to amortize such expenditures over five years for domestic expenses and fifteen years for certain foreign expenses. Although the U.S. Congress is considering various legislative options that would defer the amortization requirement to later years, we have no assurance that the provision will be repealed or otherwise modified. This provision became effective for us beginning in fiscal 2023. If this provision is not deferred, repealed or modified, our cash taxes may ~~not produce~~further increase in the future.

Our future effective tax rate may also be affected by such factors as:

•the expiration of legal statutes of limitation and settlements of audits;

•the impact of accounting for stock-based compensation and for business combinations;

•the recognition of excess tax benefits or deficiencies within the income tax provision or benefit in the period in which they occur;

•the overall levels and proportion of our income before provision for income taxes earned in the U.S. and in jurisdictions with a tax rate lower than the U.S. statutory rate; and

•other developments related to tax laws or their interpretations, in our business or statutory rates, and in our corporate structure.

For example, numerous other countries have also recently enacted or are considering enacting changes to tax laws, administrative interpretations, decisions, policies and positions. In addition, the Organization for Economic, Co-operation and Development (“OECD”), an international association of countries, including the U.S., has made changes and is contemplating additional changes to numerous long-standing tax principles. Further, the Inflation Reduction Act (the “IRA”) was enacted in August 2022 and is effective for us commencing with our fiscal 2024. The key tax provisions of the IRA relate to a new 15% corporate alternative minimum tax on adjusted financial statement income for companies with profits greater than $1.0 billion and a 1% excise tax on stock repurchases by publicly traded companies.

These and any other significant ~~revenue~~developments related to U.S. or international tax laws could materially adversely affect our effective tax rate, the timing and amount of our tax liabilities and payments, our financial condition and operating results.

Security Risks

Cybersecurity breaches of our systems or the systems of our vendors, partners and suppliers could materially harm our business.

Cyber risks represent a large and growing risk to our business, as we depend upon our IT systems, internally developed and proprietary software and services, as well as the software and systems of SaaS providers, to conduct virtually all of our business operations. Some of the factors that contribute to significant cyber risks include:

•We increasingly develop and maintain large data sets and rely on ML, AI and analytics to provide services to our customers and partners.

•Customers conduct purchase and service transactions online, and we store increasing amounts of customer data and host or manage parts of customers’ businesses in cloud-based IT environments.

•We rely on third parties and their systems for ~~several years, if at all.~~

~~Developing~~a number of our business functions and to sell our products and services ~~is expensive. In particular, developing~~as distributors, resellers, system vendors and ~~launching disruptive technologies~~systems integrators.

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•Hardware, software and applications that we produce or procure from third parties can contain vulnerabilities, such as the Log4J vulnerability reported in ~~new areas, as we are continuing to do~~December 2021, that have in the past and could in the future interfere with our systems and processes and compromise and introduce vulnerabilities into our products and services.

•Our leadership position in the enterprise security industry, and the widespread use of our services and products in the computing ecosystem, makes us, our employees and contractors and our products a target of threat actors seeking to compromise product security.

•Our large and globally distributed workforce, many of which “work from anywhere,” may increase our exposure to internal threats, social engineering and cyber-attacks.

•Our products, to function as intended, often require heightened permissions within customer environments, and also serve as underlying technology infrastructure for customers’ other systems, making our products more attractive targets for malicious actors, including for example, ransomware attackers such as those engaged in the ESXiArgs campaign exploiting known vulnerabilities in servers running outdated versions of VMware’s ESXi software.

•We are considered an essential supplier in the digital supply chain for the United States government and other entities, including entities operating critical infrastructure, which makes us and our products a target for those seeking to threaten the confidentiality, availability and integrity of critical infrastructure globally.

Cyber-attacks, which are increasing in number and technical sophistication, threaten to misappropriate our proprietary information, cause interruptions of our IT services, introduce or exploit vulnerabilities or introduce malicious files into our IT systems and our products and services for financial gain and unlawful, fraudulent or other malicious purposes, including rendering customers’ core IT infrastructure inoperable. Malicious actors often target company employees and contractors in an effort to compromise our IT systems and products using techniques such as email phishing, credential stuffing, password spraying and social engineering, which risk may be heightened as greater numbers of employees and contractors work remotely. Furthermore, geopolitical tensions, such as the current conflict between Russia and Ukraine, could increase the risk of retaliatory state-sponsored cyber-attacks to exploit vulnerabilities in VMware ~~NSX virtual networking, vSAN virtual storage, cloud~~systems and products. We may not be able to adequately prepare for or mitigate against such attacks, including, among other reasons, because techniques used in such attacks change frequently. This may cause a delay in our detection and response time, which could in turn exacerbate the scope and impact of the compromise of our and our customers’ systems.

Unauthorized actors (external malicious actors, including nation states and individuals sponsored by them, as well as internal actors bypassing internal controls) have penetrated our network security and our website in the past and may do so in the future. Malicious actors are also actively probing our environments for exploitable vulnerabilities, including in open-source components we utilize, and will likely continue doing so in the future. We are increasingly targeted by malicious actors who seek to extort or steal funds from companies and employees. Significant and increasing investments of time, resources and management and Board attention have been, and will continue to be, required to anticipate and address cybersecurity risks and incidents. Accordingly, if our cybersecurity risk management program and those of our contractors, partners and vendors is not effective in protecting against, containing or recovering from breaches, internal threats or other incidents, our ability to conduct our business could be damaged in a number of ways, including:

•Commercially and competitively sensitive business information, such as our intellectual property and other proprietary data, could be stolen, exposed or misused;

•our IT systems could be disrupted, and our ability to conduct our business operations could be severely impeded untilthey are restored and secured;

•our supply chain may be compromised, which may in turn impact the confidentiality, availability and integrity of our internal or customer-facing systems and products;

•our ability to process and electronically deliver customer orders could be degraded, and our distribution channels could be disrupted, resulting in delays in revenue recognition; and

•personal information or data of our customers, employees and business partners could be compromised, misused or lost.

Should any of the above events occur, or are perceived to have occurred, we could be subject to significant claims for damages or injunctive relief from our customers, partners, vendors, or employees (among others); we could face costly and time-intensive investigations, inquiries or actions by regulators or government policymakers, and sanctions, penalties or injunctive demands from governmental agencies under privacy, data protection, cybersecurity, incident notification, or other laws and regulations; our ability to protect our intellectual property rights could be compromised; our ability to attract and retain customers could be negatively impacted; our reputation and competitive position could be materially harmed; we could face material losses as the result of successful financial cyber-fraud schemes; and we could incur significant costs in order to

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upgrade our cybersecurity systems, remediate damages and defend the Company in any legal, regulatory, legislative or administrative proceedings. Consequently, our business, financial condition and operating results could be materially adversely affected.

Our products and services are highly technical and may contain, or be subject to our own or suppliers’, errors, defects or security vulnerabilities.

Our products and services are highly technical and complex and, when deployed, contain errors, defects or security vulnerabilities, some of which may not be discovered before or after a product or service has been released, installed and used by customers. The complexity and breadth of our technical and production environment, which involves multiple and dispersed product and engineering teams in different countries, including China, working on different product initiatives, increases the risk that vulnerabilities or defects are introduced into our products and services and may delay our ability to detect, mitigate or remediate such vulnerabilities. The need to coordinate with multiple parties in the supply chain when vulnerabilities are detected can also delay mitigation or remediation, thereby increasing risks to customers. Our internal logging, alerting, and cyber incident detection mechanisms may not cover every system potentially targeted by threat actors, may not have the capability to detect certain types of unauthorized activities, and may not capture and surface information sufficient to enable us to detect and take responsive action. In addition, our internal access control policies, mechanisms and training, including around credentials security and management, may not be effective in eradicating in all instances previously identified or known risks, particularly in scenarios where our credentials and related policies have been exposed or obtained externally. Employees or contractors have also bypassed our access control mechanisms and introduced vulnerabilities in, and enabled the exploitation of, our IT environments, our software products (and correspondingly our customers’ environments), and our subscription and SaaS ~~initiatives, requires~~offerings in the past and may do so in the future.

Security vulnerabilities in our IT environments, software products or customer environments, installation errors or misuse can also lead to increased cybersecurity risks for customers and partners, including unintended access to or exploitation of our products, which risks are exacerbated if customers fail to timely implement (or to implement at all) security recommendations and software updates that we and other IT vendors issue from time to time when significant ~~investments~~issues have been identified. Undiscovered or unresolved vulnerabilities in our products or services could expose our customers to hackers, threat actors or other unscrupulous third parties who develop and deploy viruses, worms and other malicious software programs that could attack customers using our products or services. Further, our use of ~~resources and often entails greater risk than incremental investments~~open-source software in ~~existing~~our offerings can make our products and ~~services. Our investment~~services vulnerable to additional security risks not posed by proprietary products.

In the past, VMware has been made aware of public postings by hackers of portions of our proprietary source code. It is possible that the released source code could expose unknown security vulnerabilities in ~~research~~our products and ~~development may not~~services that could be exploited by hackers or others. In addition, public exposure, or exploitation of vulnerabilities in our products by threat actors, could result in ~~marketable~~reputational damage and lost customers and could negatively affect our operating results and those of our customers.

VMware products and services are also subject to known and unknown security vulnerabilities resulting from integration with products or services of other companies (such as applications, operating systems or semiconductors).

Actual or perceived errors, defects or security vulnerabilities in our products or services could harm our reputation, result in litigation or regulatory actions or lead some customers to return products or services or ~~may result in~~cancel subscriptions, reduce or delay future purchases or use competitive products or services, any of which could materially negatively impact our business, operating results and stock price.

Problems with our information systems could interfere with our business and could adversely impact our operations.

We rely on our information systems and those of third parties for fulfilling contractual obligations, including processing customer orders, delivering products and providing services, ~~that generate less revenue than~~performing accounting operations, supporting our employees, managing employee data and otherwise running our business. If our systems fail, our disaster and data recovery planning and capacity may prove insufficient to enable timely recovery of important functions and business records. Additionally, our information systems may not efficiently support new business models and initiatives, and significant investments could be required in order to upgrade existing or implement new systems. Business requirements may require additional capabilities including implementation of a new information system. In particular, our systems and operations were built to support a perpetual software licensing model, and significant enhancements are required to support our transition to subscription and SaaS products and services. Further, we ~~anticipate. Our research~~continuously work to enhance our information systems, such as our enterprise resource planning software, and ~~development expenses were approximately 23%~~the implementation of such enhancements is frequently disruptive to the underlying enterprise, which may especially be the case for us due to the size and complexity of our ~~total revenue during the nine months ended November 3, 2017. Our future plans include significant investments in software research~~business, and ~~development~~may disrupt internal controls and ~~related product opportunities. We believe~~business processes that ~~we must continue~~could introduce unintended vulnerability to ~~dedicate a significant amount of resources~~error. Any such disruption to our ~~research~~information systems and ~~development efforts to maintain~~those of the third parties upon whom we rely could have a material impact on our ~~competitive position. However, we may not receive significant revenue from these investments for several years, if at all.~~business.

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Legal and Compliance Risks

We are involved in litigation, investigations and regulatory inquiries and proceedings that could negatively affect us.

~~From time~~As described in Note D to ~~time,~~the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, we are, and may become, involved in various legal ~~administrative~~ and regulatory proceedings, ~~claims, demands~~ and investigations relating to our business, ~~which may include claims~~including with respect to ~~commercial, product liability, intellectual property,~~antitrust and competition, breach of contract, ~~employment,~~ class action, commercial, corporate governance, cybersecurity, employment, intellectual property, privacy, securities, and whistleblower ~~and other~~ matters. ~~In the ordinary course of~~Matters such as these may impact our business ~~we also receive inquiries from and have discussions with government entities regarding the compliance of our contracting and sales practices with laws and regulations.~~

~~We have been, and expect to continue to be, subject to intellectual~~in different ways. Intellectual property infringement claims, ~~including claims by entities that do not have operating businesses of their own and therefore~~for example, may ~~limit our ability to~~ seek ~~counterclaims for damages and~~ injunctive ~~relief. In addition to monetary judgments, a judgment could also include an injunction~~relief or other court ~~order~~orders that could prevent us from offering our products. ~~In addition,~~As a result, we might be required to seek a license for the use of such intellectual property, which may not be available on commercially reasonable terms or at ~~all. Alternatively,~~all, or we may be required to develop non-infringing technology, which could require significant effort and expense and may ultimately not be successful. Third parties may also assert infringement claims against our customers and channel partners, which could require us to initiate or defend potentially protracted and costly litigation on their behalf, regardless of the merits of these claims, becauseBecause we generally indemnify our customers and ~~channel~~ partners from ~~claims of~~intellectual property infringement ~~of proprietary rights of third parties~~claims in connection with the use of our ~~products. These matters~~products, we may be called on to defend these customers and partners in litigation. In addition, we have already been, and may continue to be, subject to demands, claims and lawsuits arising out of Broadcom’s proposed acquisition of VMware. We may also be subject to demands, claims, lawsuits, regulatory investigations and Congressional inquiries relating to cybersecurity incidents. From time to time, we also receive inquiries from and have discussions with government entities regarding our compliance with laws and regulations. Such litigation, investigations, regulatory inquiries, and proceedings can be unpredictable and time-consuming, divert management’s attention and resources, ~~and~~ cause us to incur significant ~~expenses.~~expenses, and could result in ancillary consequences that limit our ability to avail ourselves of certain legal benefits or protections for periods of time. For example, as a result of our settlement with the SEC in September 2022, we no longer qualify for well-known seasoned issuer status, we are ineligible for certain private offering exemptions under the Securities Act that would otherwise make our public offerings of debt more efficient and we are unable to rely on protection of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995 again until September 2025. Allegations made in ~~the course of regulatory or legal proceedings~~connection with these matters may ~~also~~ harm our reputation, regardless of ~~whether there is~~their merit ~~to such claims. Furthermore, because litigation~~ and ~~the outcome of regulatory proceedings are inherently unpredictable,~~could have a material adverse impact on our business, financial condition, cash flows or ~~operating~~ results ~~could be materially affected~~of operations if decided adversely to or settled by ~~an unfavorable resolution of one or more of these proceedings, claims, demands or investigations.~~

~~Refer to Note J to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a description of certain claims and litigation.~~us.

We may not be able to adequately protect our intellectual property rights.

We depend on our ability to protect our proprietary technology. We rely on trade secret, patent, copyright and trademark laws and confidentiality agreements with employees and third parties, all of which offer only limited protection. As such, despite our efforts, the steps we have taken to protect our proprietary rights may not be adequate to prevent misappropriation of our proprietary information or infringement of our intellectual property rights, and our ability to police such misappropriation

or infringement is uncertain, particularly in countries outside of the ~~United States.~~U.S. In addition, we rely on confidentiality orand license agreements with third parties in connection with their use of our products and technology. There is no guarantee that such parties will abide by the terms of such agreements or that we will be able to adequately enforce our rights, in part because we rely on “click-wrap” and “shrink-wrap” licenses in some instances.

Detecting and protecting against the unauthorized use of our products, technology proprietary rights and intellectual property rights is expensive, difficult, uncertain and, in some cases, impossible. Litigation is necessary from time to time to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. Despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property, which could result in a substantial loss of our market share.

Actual or perceived non-compliance with privacy and data protection laws, regulations and standards could adversely impact our business.

Our business is subject to laws and regulations by various federal, state and international legislative and governmental agencies responsible for legislating, monitoring and enforcing privacy and data protection laws (“Data Privacy Laws”). The regulatory framework regarding the collection, protection, use, transfer and disclosure of personal information is rapidly evolving, and Data Privacy Laws are subject to new and changing interpretations and amendments, creating uncertainty and additional legal obligations for ourselves, our partners, vendors and customers. We expect that there will continue to be newly proposed or changes to interpretations of existing Data Privacy Laws and industry standards, including self-regulatory standards advocated by industry groups, in various jurisdictions globally, and we may not be able to appropriately anticipate or timely respond to the impacts such and similar developments may have on our business or the businesses of our partners, vendors and customers.

We continue to regularly enhance our policies and controls across our business relating to how we and our business partners collect, protect and use customer and employee personal information. Ongoing changes to the regulatory landscape will likely increase the cost and complexity of our business relationships, internal operations and the delivery of our products and services. In addition, this may affect our ability to run promotions and effectively market our offerings and could subsequently impact the demand for our products and services.

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Any actual or perceived failure by us or our business partners to comply with Data Privacy Laws, the privacy commitments contained in our contracts, or the privacy notices we have posted on our website could subject us to investigations, sanctions, enforcement actions, negative financial consequences, civil and criminal liability or injunctions. For example, failure to comply with the EU’s General Data Protection Regulation requirements may lead to fines of up to €20 million or 4% of the annual global revenues of the infringer, whichever is greater. Additionally, as a technology provider, our customers expect us to demonstrate compliance with current Data Privacy Laws and further make contractual commitments and implement processes to enable the customer to comply with their own obligations under Data Privacy Laws, and our actual or perceived inability to do so may adversely impact sales of our products and services, particularly to customers in highly regulated industries. As a result, our reputation and brand may be harmed, we could incur significant costs, and our financial and operating results could be materially adversely affected.

Our use of “open source” software in our products could negatively affect our ability to sell our products and subject us to litigation.

Many of our products and services incorporate so-called “open source” software, and we may incorporate open source software into other products and services in the future. Open source software is generally licensed by its authors or other third parties under open source licenses. Open source licensors generally do not provide warranties or assurance of title or controls on origin of the software, which exposes us to potential liability if the software fails to work or infringes the intellectual property of a third party.

We monitor our use of open source software in an effort to avoid subjecting our products to conditions we do not intend and avoid exposing us to unacceptable financial risk. However, the processes we follow to monitor our use of open source software could fail to achieve their intended result. In addition, although we believe that we have complied with our obligations under the various applicable licenses for open source software that we use, there is little or no legal precedent governing the interpretation of terms in most of these licenses, which increases the risk that a court could interpret the ~~license~~licenses differently than we do.

From time to time, we receive inquiries or claims from authors or distributors of open source software included in our products regarding our compliance with the conditions of one or more open source licenses. An adverse outcome to a claim could require us to:

•pay significant damages;

•stop distributing our products that contain the open source software;

•revise or modify our product code to remove alleged infringing code;

•release the source code of our proprietary software; or

•take other steps to avoid or remedy an alleged infringement.

~~In March 2015, a software developer who alleges that software code he wrote is used in a component~~We have faced and successfully defended against allegations of ~~our vSphere product filed a lawsuit against us in Germany alleging~~ copyright infringement ~~for~~and failing to comply with the terms of ~~the~~an open source ~~General Public License v.2 (“GPL v.2”) and seeking an order requiring us to comply~~license, but we can provide no assurances that we will not face similar lawsuits with the GPL v.2 or cease distribution of any affected code within Germany. On July 8, 2016, the German court issued a written decision dismissing the lawsuit. On August 9, 2016, a Notice of Appeal was filed. We have filed our responsive appellate brief. An adverse outcome to this claim on appeal or to other claims could have a material adverse impact on our intellectual property rights, our operating results and financial condition.

~~The evolution of our business requires more complex go-to-market strategies, which involve significant risk.~~

Our increasing focus on developing and marketing IT management and automation and IaaS (including software-defined networking, VMware Cloud Provider Program-integrated virtual desktop and mobile device, cloud and SaaS) offerings that enable customers to transform their IT systems requires a greater focus on marketing and selling product suites and more holistic solutions, rather than selling on a product-by-product basis. Consequently, we have developed, and must continue to develop, new strategies for marketing and selling our offerings. Additionally, the duration of sales cycles for our offerings has increased as our customers’ purchasing decisions become more complex and require additional levels of approval. In addition, marketing and selling new technologies to enterprises requires significant investment of time and resources in order to educate customers on the benefits of our new product offerings. These investments can be costly and the additional effort required to educate both customers and our own sales force can distract from their efforts to sell existing products and services.

~~Our success depends upon our ability to develop appropriate business and pricing models.~~

If we cannot adapt our business models to keep pace with industry trends, including the industry-wide transition to cloud-based computing, our revenue could be negatively impacted. Certain of our new product initiatives, such as our VMware Cloud Provider Program and SaaS offerings, have a subscription model. As we increase our adoption of subscription-based pricing

models for our products, we may fail to set pricing at levels appropriate to maintain our revenue streams or our customers may choose to deploy products from our competitors that they believe are priced more favorably. In addition, we may fail to accurately predict subscription renewal rates or their impact on operating results, and because revenue from subscriptions is recognized for our services over the term of the subscription, downturns or upturns in sales may not be immediately reflected in our results. Additionally, as customers transitionrespect to our ~~hybrid cloud and SaaS products and services, our revenue growth rate may be adversely impacted during the period~~use of transition as we will recognize less revenue up front than we would otherwise recognize as part of the multi-year license arrangements through which we typically sell our established offerings. Finally, as we offer more services that depend on converting users of free services to users of premium services and converting purchasers of our on-premises products to our SaaS offerings, and as such services grow in size, our ability to maintain or improve and to predict conversion rates will become more important.

~~Our products and services are highly technical and may contain errors, defects or security vulnerabilities.~~

Our products and services are highly technical and complex and, when deployed, have contained and may contain errors, defects or security vulnerabilities. Some errors in our products or services may only be discovered after a product or service has been installed and used by customers. Undiscovered vulnerabilities in our products or services could expose our customers to hackers or other unscrupulous third parties who develop and deploy viruses, worms and other maliciousopen source software programs that could attack our products or services. In the past, VMware has been made aware of public postings by hackers of portions of our source code. It is possible that the released source code could expose unknown security vulnerabilities in our products and services that could be exploited by hackers or others. We may also inherit unknown security vulnerabilities when we integrate the products or services of other companies into VMware products or services. Actual or perceived errors, defects or security vulnerabilities in our products or services could harm our reputation and lead some customers to return products or services, reduce or delay future purchases or use competitive products or services.

~~Failure to effectively manage our product and service lifecycles could harm our business.~~

As part of the natural lifecycle of our products and services, we periodically inform customers that products or services will be reaching their end of life or end of availability and will no longer be supported or receive updates and security patches. To the extent these products or services remain subject to a service contract with the customer, we offer to transition the customer to alternative products or services. Failure to effectively manage our product and service lifecycles could lead to customer dissatisfaction and contractual liabilities, which could adversely affect our business and operating results.

~~Our success depends on the interoperability of our products and services with those of other companies.~~

The success of our products depends upon the cooperation of hardware and software vendors to ensure interoperability with our products and offer compatible products and services to end users. In addition, we intend to extend the functionality of various products to work with native public cloud applications, which may require the cooperation of public cloud vendors. To the extent that hardware, software and public cloud vendors perceive that their products and services compete with ours or those of our controlling stockholder, Dell, which completed its acquisition of EMC in September 2016, they may have an incentive to withhold their cooperation, decline to share access or sell to us their proprietary APIs, protocols or formats, or engage in practices to actively limit the functionality, compatibility and certification of our products. In addition, vendors may fail to certify or support or continue to certify or support our products for their systems. If any of the foregoing occurs, our product development efforts may be delayed or foreclosed and it may be difficult and more costly for us to achieve functionality and service levels that would make our services attractive to end users, any of which could negatively impact our business and operating results.

~~Disruptions to our distribution channels could harm our business.~~

Our future success is highly dependent on our relationships with distributors, resellers, system vendors and systems integrators, which account for a significant portion of our revenue. Recruiting and retaining qualified channel partners and training them in the use of our technology and product offerings requires significant time and resources. Our failure to maintain good relationships with channel partners would likely lead to a loss of end users of our products and services, which would adversely affect our revenue. We generally do not have long-term contracts or minimum purchase commitments with our distributors, resellers, system vendors and systems integrators, and our contracts with these channel partners do not prohibit them from offering products or services that compete with ours.

~~Three of our distributors each accounted for 10% or more of our consolidated revenue during~~future, nor what the ~~nine months ended November 3, 2017. Although we believe that we have in place, or would have in place by the date~~outcome of any such termination, agreements with replacement distributors sufficient to maintain our revenue from distribution, if we were to lose the distribution services of a significant distributor, such loss could have a negative impact on our operating results until such time as we arrange to replace these distribution services with the services of existing or new distributors.

~~Our SaaS offerings rely on third-party providers for data center space and colocation services.~~

Our SaaS offerings rely upon third-party providers to supply data center space, equipment maintenance and other colocation services. Although we have entered into various agreements for the lease of data center space, equipment maintenance and other services, third parties could fail to live up to the contractual obligations under those agreements. The failure of a third-party provider to prevent service disruptions, data losses or security breacheslawsuits may require us to issue credits or refunds or indemnify or otherwise be liable to customers or third parties for damages that may occur. Additionally, if these third-party providers fail to deliver on their obligations, our reputation could be damaged, our customers could lose confidence in us and our ability to maintain and expand our SaaS offerings would be impaired.

~~Joint ventures may not yield expected benefits and outcomes.~~

As we expand our offerings into new technologies such as the public cloud and seek more efficient methods of marketing our products and services in regions where local partners can operate more easily, we sometimes rely upon joint ventures with established providers of IT products and services in particular regions, for example as go-to-market and channel partners. Joint ventures are inherently risky and the requirements for close ongoing cooperation and commitments from the joint venture partners to devote adequate resources often present significant challenges. Joint ventures can also be difficult to manage, given the potentially different interests of joint venture partners. Accordingly, there can be no guarantee that our joint ventures will achieve their intended objectives. If we are unable to continue our strategic alignment with joint venture partners or obtain the cooperation and commitments we are relying upon, our ability to successfully expand our offerings globally and in certain regions may diminish.

~~SaaS offerings, which involve various risks, constitute an important part of our business.~~

As we continue to develop and offer SaaS versions of our products, we will need to continue to evolve our processes to meet a number of regulatory, intellectual property, contractual and service compliance challenges. These challenges include compliance with licenses for open source and third-party software embedded in our SaaS offerings, maintaining compliance with export control and privacy regulations, including HIPAA, protecting our services from external threats, maintaining the continuous service levels and data security expected by our customers, preventing the inappropriate use of our services and adapting our go-to-market efforts. The expansion of our SaaS and related cloud offerings will also require significant investments, and our operating margins, results of operations and operating cash flows may be adversely affected if our new offerings are not widely adopted by customers.

~~Improper disclosure and use of personal data could result in liability and impact our business.~~

Our business is subject to a wide variety of laws and regulations regarding privacy and protection of personal data. Federal, state and foreign governments and agencies have adopted or are considering adopting laws and regulations regarding the collection, storage, use and disclosure of this information. We collect contact and other personal or identifying information from our customers, and our customers increasingly use our services to store and process personal information and other regulated data, including protected health information subject to stringent data privacy laws. In the course of providing employee compensation and benefits, we also maintain personal data of our employees and share that information with third party payroll and benefits providers. Our hybrid cloud computing service offerings, pursuant to which we offer hybrid cloud services and enable third-party service providers to offer hybrid cloud services built on our technology, expose us to particularly significant risks. We rely on the contractual representations of these third parties that they do not violate any applicable privacy laws and regulations or their own privacy policies.

Any failure or perceived failure by us or our business partners to comply with posted privacy policies, other federal, state or international privacy-related or data protection laws and regulations, or the privacy commitments contained in contracts could result in proceedings against us by governmental entities or others and significant fines, which could have a material adverse effect on our business and operating results and harm our reputation. Further, any systems failure, unauthorized access or other compromise of our security that results in the release of our customers’ or employees’ data could (i) subject us to substantial damage claims, (ii) expose us to costly regulatory remediation, (iii) harm our reputation and brand, and (iv) disrupt our business activities. The application of U.S. and international data privacy laws and regulations to cloud computing vendors is evolving and uncertain, and our existing contractual provisions may prove to be inadequate to protect us from claims for data loss or regulatory noncompliance made against cloud computing providers with whom we may partner. Additionally, privacy laws and regulations could negatively affect demand for our services, thereby reducing our revenue.

The European Union data protection law, the General Data Protection Regulation (“GDPR”), which will become effective in May 2018, is wide-ranging in scope. In order to adapt to these new requirements, we are investing resources necessary to enhance our policies and controls across our business units and services relating to how we collect and use personal data relating to customers, employees and vendors. Additionally, we expect that the international transfer of personal data will present ongoing compliance challenges and complicate our business transactions as we negotiate and implement suitable arrangements with international customers and international and domestic vendors. Failure to comply may lead to fines of up to

€20 million or up to 4% of the annual global revenues of the infringer, whichever is greater. EU data protection laws and their interpretations continue to develop, and may be inconsistent from jurisdiction to jurisdiction, which may further impact our information processing activities. Further, laws such as the EU’s proposed e-Privacy Regulation are increasingly aimed at the use of personal information for marketing purposes, and the tracking of individuals’ online activities. In addition, countries outside the EU are considering or have passed legislation that requires local storage and processing of data, which could increase the cost and complexity of delivering our services. Our current arrangements for the transfer of personal data will need to continue to adapt to future judicial decisions and regulatory activity as laws on privacy and the protection of personal data continue to evolve in the countries in which we do business.be.

If we fail to comply with ~~our customer contracts or~~ government contracting regulations, our business could be adversely affected.

~~Contracts with many of our customers include unique and specialized performance requirements. In particular, our~~Our contracts with federal, state, local and non-U.S. governmental customers and our arrangements with distributors and resellers who may sell directly to governmental customers are subject to various procurement regulations, contract provisions and other requirements relating to their formation, administration and performance. Any failure by us to comply with ~~provisions in our customer contracts or any violation of~~ government contracting regulations (such as cybersecurity-related requirements) could result in the imposition of various civil and criminal penalties, which may include termination of contracts, forfeiture of profits, suspension of payments, ~~and, in the case of our government contracts,~~ fines and suspension from future government ~~contracting.~~contracting, any of which could adversely affect our business, operating results or financial condition. Further, any negative publicity related to our ~~customer~~government contracts or any proceedings surrounding them, regardless of ~~its~~ accuracy, may damage our business and affect our ability to compete for new contracts. ~~In the ordinary course of business, we also receive inquiries from and have ongoing discussions with government entities regarding the compliance~~

Some of our ~~contracting~~directors have potential conflicts of interest with Dell.

The Chairman of our Board of Directors, Michael Dell, is also chairman and ~~sales practices~~chief executive officer of Dell and is a significant stockholder of Dell, and one of our directors, Egon Durban, serves on the Dell board of directors and as managing partner of Silver Lake Partners, a significant stockholder of Dell. Ownership of Dell common stock by our directors and the presence of executive officers or directors of Dell on our board of directors could create, or appear to create, conflicts of interest with ~~laws~~respect to matters involving both us and ~~regulations. A failure~~Dell that could have different implications for Dell than they do for us. Our Board has approved resolutions that address corporate opportunities that are presented to Messrs. Dell and Durban. These provisions may not adequately address potential conflicts of interest or ensure that potential conflicts of interest will be resolved in our

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favor. As a result, we may not be able to take advantage of corporate opportunities presented to individuals who are directors of both us and Dell and we may be precluded from pursuing certain growth initiatives.

Risks Related to Owning Our Common Stock

The MSD Stockholders and the ~~future to comply~~SLP Stockholders have significant influence over us, and their interests may conflict with ~~federal~~our interests and ~~state governmental contracting requirements could~~the interests of our other stockholders.

As a result inof the ~~termination~~Spin-Off, the entities affiliated with Michael Dell (“MSD Stockholders”) and the entities affiliated with Silver Lake Partners (“SLP Stockholders”) became direct beneficial holders of ~~customer contracts,~~VMware with interests representing 39.2% and 9.7%, respectively, of our ~~suspension from government work,~~outstanding stock, based on the ~~imposition~~number of ~~fines~~shares outstanding as of September 1, 2023. As a result, the MSD Stockholders and the SLP Stockholders have significant influence over all matters requiring stockholder approval, including the election of directors and significant corporate transactions, such as a merger or other ~~government sanctions~~sale of our company or ~~an inability~~our assets. The interests of the MSD Stockholders or the SLP Stockholders could conflict with or differ from our interests or the interests of our other stockholders. For example, the concentration of voting power held by the MSD Stockholders and SLP Stockholders could delay, defer or prevent a change of control of us or impede a merger, takeover or other business combination which we or others of our stockholders may view favorably. Effective upon the consummation of the Spin-Off, we entered into a stockholders agreement pursuant to ~~compete for new contracts, any~~which the MSD Stockholders have the right to nominate up to two members of ~~which could~~our Board and the SLP Stockholders have the right to nominate one member of our Board, subject to maintaining certain ownership thresholds. Michael Dell, the Chairman of our Board, is the first MSD Stockholders nominee; the MSD Stockholders have the right to nominate a second member of the Board. Egon Durban is the SLP Stockholders’ nominee. This concentrated control may negatively impact other stockholders’ ability to influence corporate matters and may also adversely affect our ~~business, operating results~~stock price. The MSD Stockholders and SLP Stockholders collectively beneficially own 65.6% of Dell’s outstanding stock as of September 1, 2023. Accordingly, their interests may not be aligned with other VMware stockholders with respect to actions involving or ~~financial condition.~~impacting Dell.

~~Acquisitions~~The price of our Common Stock has fluctuated significantly in recent years and ~~divestitures could harm~~may fluctuate significantly in the future.

The trading price of our ~~business and operating results.~~

~~We have acquired~~Common Stock has fluctuated significantly in the past and ~~plan to acquire~~could fluctuate substantially in the future, and stockholders’ investments in our stock could lose some or all of their value. The stock market in general and technology companies in particular have often experienced extreme price and volume fluctuations. Neither the MSD Stockholders nor the SLP Stockholders are restricted from selling their respective shares, and each is entitled to certain registration rights. If a significant number of these shares enters the public trading markets in a short period of time, the market price of our Common Stock may decline. Broad market and industry factors may also decrease the market price of our Common Stock, regardless of our actual operating performance. Additionally, fluctuations and declines in our stock price have been, and in the future may be, due to, among other ~~businesses, products~~reasons, the factors discussed in this Risk Factors section and elsewhere in this report, as well as:

•perceived progress, or ~~technologies. We also from time~~lack thereof, in the satisfaction of conditions precedent to ~~time sell~~and speculation regarding the timing of the consummation of our acquisition by Broadcom;

•our ability to meet or ~~divest businesses, products~~exceed the forward-looking guidance we have given, to give forward-looking guidance consistent with past practice and ~~technologies. For instance, in May 2017, we sold the VMware vCloud Air business (“vCloud Air”)~~any changes to ~~OVH US LLC. Acquisitions and divestitures involve~~or withdrawal of previous guidance or long-range targets;

•trading activity by directors, executive officers, significant ~~risks and uncertainties, which include:~~

~~disrupting~~stockholders or a limited number of stockholders who together beneficially own a significant portion of our ~~ongoing operations, diverting management from day-to-day responsibilities, increasing our expenses, and adversely impacting our business, financial condition and operating results;~~

~~failure of an acquired business to further our business strategy;~~

~~uncertainties in achieving the expected benefits of an acquisition or disposition, including enhanced revenue, technology, human resources, cost savings, operating efficiencies and other synergies;~~

~~reducing cash available for operations,~~outstanding common stock, ~~repurchase programs and other uses and resulting in potentially dilutive issuances of equity securities~~ or the ~~incurrence~~market’s perception that such holders intend to sell;

•the inclusion or exclusion of ~~debt;~~

~~incurring amortization expense related to identifiable intangible assets acquired that could impact~~ our ~~operating results;~~

~~difficulty integrating the operations, systems, technologies, products and personnel of acquired businesses effectively;~~

~~the need to provide transition services in connection with a disposition,~~stock from any trading indices, such as the ~~sale~~S&P 500 Index;

•speculation in the press and on social media; and

•changes in recommendations regarding our stock or more favorable relative recommendations about our competitors by the industry or securities analysts who cover and publish about us, our business, our competitors, or the markets in which we compete.

In addition to direct value lost, volatility or declines in our stock price may adversely affect our ability to retain key employees, most of ~~vCloud Air,~~whom are compensated, in part, based on the performance of our stock price. In the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted, including against us, and, if not resolved swiftly, can result in substantial costs and a diversion of management’s attention and resources.

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Anti-takeover provisions in Delaware law and our charter documents could discourage takeover attempts.

Certain provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management. These provisions include the following:

•the division of our board of directors into three classes, with each class serving for a staggered three-year term, which prevents stockholders from electing an entirely new board of directors at any annual meeting;

•that any director may only be removed for cause and only by the affirmative vote of holders of at least a majority of the votes entitled to be cast to elect any such director;

•the right of the board of directors to elect a director to fill a vacancy created by the expansion of the board of directors;

•the prohibition of cumulative voting in the election of directors or any other matters, which would otherwise allow less than a majority of stockholders to elect director candidates;

•the requirement for advance notice for nominations for election to the board of directors or for proposing matters that can be acted upon at a stockholders’ meeting;

•the ability of the board of directors to issue, without stockholder approval, up to 100,000,000 shares of preferred stock with terms set by the board of directors, which rights could be senior to those of common stock; and

•stockholders may not act by written consent and may not call special meetings of the stockholders.

In addition, Section 203 of the Delaware General Corporation Law may discourage, delay or prevent a change in control of our company and could reduce the price that investors may be willing to pay for shares of our common stock. Section 203 imposes certain restrictions on merger, business combinations and other transactions between us and large stockholders, in particular those owning 15% or more of our outstanding voting stock.

Our bylaws provide for an exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our bylaws include a provision providing that the Court of Chancery of the State of Delaware is the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law:

•any derivative action or proceeding brought on our behalf;

•any action asserting a claim of breach of a fiduciary duty owed by, or other wrongdoing by, any of our directors, officers, employees or stockholders to us or to our stockholders;

•any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law or as to which the Delaware General Corporation Law confers jurisdiction on the Court of Chancery of the State of Delaware; or

•any action asserting a claim governed by the internal affairs doctrine.

This provision would not apply to suits brought to enforce any duty or liability created by the Securities Exchange Act of 1934 (the “Exchange Act”). Furthermore, Section 22 of the Securities Act of 1933 (the “Securities Act”) creates concurrent jurisdiction for federal and state courts over all such Securities Act actions.

While the Delaware courts have determined that exclusive forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than the one we have designated. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provision of our bylaws, which may ~~result in the diversion~~require significant expenditures of resources, and, ~~focus;~~ultimately, there can be no assurance that the provisions would be enforced by a court in those other jurisdictions. This exclusive forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees and may discourage these types of lawsuits. If a court were to find the exclusive forum provision contained in our bylaws to be inapplicable or unenforceable in an action, we may incur additional costs to resolve such action in other jurisdictions.

~~difficulty achieving expected~~General Risks

We are exposed to foreign exchange risks.

We conduct a meaningful portion of our business in currencies other than the U.S. dollar, but report our operating results ~~due~~in U.S. dollars. Accordingly, our operating results are subject to ~~a lack~~fluctuations in currency exchange rates. The realized gain or loss on foreign currency transactions is dependent upon the types of ~~experience in new markets, products or technologies or~~foreign currency transactions into which we enter, the ~~initial dependence on unfamiliar distribution partners or vendors;~~

~~retaining~~exchange rates associated with these transactions and ~~motivating key personnel from acquired companies;~~

~~declining employee morale and retention issues affecting employees of businesses that we acquire or dispose of, which may result from~~ changes in ~~compensation,~~those rates, the net realized gain or ~~changes~~loss on our foreign currency forward contracts, among other factors. Although we hedge a portion of our foreign currency exposure, significant fluctuations in ~~management, reporting relationships,~~

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exchange rates between the U.S. dollar and foreign currencies have adversely affected, and may adversely affect in the future, ~~prospects or~~our operating results. For example, the ~~direction~~economic uncertainty introduced by Brexit resulted in significant volatility in the value of the ~~acquired or disposed business;~~

~~assuming~~British pound and other currencies, and the ~~liabilities of an acquired business, including acquired litigation-related liabilities~~COVID-19 pandemic has made in the past and ~~regulatory compliance issues,~~may in the future make it more difficult for us to accurately forecast future transactions in foreign currencies and ~~potential litigation or regulatory action arising from a proposed or completed acquisition;~~

~~lawsuits resulting from an acquisition or disposition;~~

~~maintaining good relationships with customers or business partners of an acquired business or our own customers as a result of any integration of operations or~~cause us to have to modify hedging positions, thereby adversely impacting the ~~divestiture of a business upon which our customers rely, such as our recent divestiture~~efficacy of our ~~vCloud Air business;~~

~~unidentified issues not discovered during~~foreign currency hedging strategy and our operating results. Any future weakening of foreign currency exchange rates against the diligence process, including issues with the acquired or divested business’s intellectual property, product quality, security, privacy practices, accounting practices, regulatory compliance or legal contingencies;

~~maintaining or establishing acceptable standards, controls, procedures or policies with respect to an acquired business;~~

~~risks relating to the challenges and costs of closing a transaction; and~~

~~the need to later divest acquired assets at a loss if an acquisition does not meet~~U.S. dollar would likely result in additional adverse impacts on our ~~expectations.~~revenue.

If our goodwill or amortizable intangible assets become impaired, we may be required to record a significant charge to earnings.

We may not realize all the economic benefit from our business acquisitions, ~~of other companies,~~ which could result in an impairment of goodwill or intangibles. As of ~~November 3, 2017,~~August 4, 2023, goodwill and amortizable intangible assets were ~~$4,271 million~~$9.6 billion and ~~$443~~$368 million, respectively. We review our goodwill and amortizable intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. We test goodwill for impairment at least annually. Factors that may lead to impairment include a substantial decline in stock price and market capitalization or cash flows, reduced future cash flow estimates related to the assets and slower growth rates in our industry. We may be required to record a significant charge in our financial statements during the period in which any impairment of our goodwill or amortizable intangible assets is determined, which would negatively impact our operating results.

~~Problems with our information systems could interfere with our business and could adversely impact our operations.~~

We rely on our information systems and those of third parties for processing customer orders, delivering products, providing services and support to our customers, billing and tracking our customer orders, fulfilling contractual obligations, performing accounting operations and otherwise running our business. If our systems fail, our disaster and data recovery planning and capacity may prove insufficient to enable timely recovery of important functions and business records. Any disruption in our information systems and those of the third parties upon whom we rely could have a significant impact on our business. In addition, we continuously work to enhance our information systems, such as our enterprise resource planning software. The implementation of these types of enhancements is frequently disruptive to the underlying business of an enterprise, which may especially be the case for us due to the size and complexity of our business. Implementation may disrupt internal controls and business processes and could introduce unintended vulnerability to error. Additionally, our information systems may not support new business models and initiatives and significant investments could be required in order to upgrade them. For example, in February 2017 we implemented a change in our fiscal calendar, which required us to make adjustments to our critical business processes and data systems. In addition, in connection with our adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), we plan to implement new revenue accounting software, utilizing internal and third party resources. Delays in adapting our information systems to address new business models could limit the success or result in the failure of such initiatives and impair the effectiveness of our internal controls. Even if we do not encounter these adverse effects, the implementation of these enhancements may be much more costly than we anticipated. If we are unable to successfully implement the information systems enhancements as planned, our operating results could be negatively impacted.

~~We may have exposure to additional tax liabilities, and our operating results may be adversely impacted by higher than expected tax rates.~~

As a multinational corporation, we are subject to income taxes as well as non-income based taxes, such as payroll, sales, use, value-added, net worth, property and goods and services taxes, in both the U.S. and various foreign jurisdictions. Our domestic and international tax liabilities are subject to the allocation of revenue and expenses in different jurisdictions and the timing of recognizing revenue and expenses. Significant judgment is required in determining our worldwide provision for income taxes and other tax liabilities. We are subject to income and indirect tax examinations. The Dell-owned EMC consolidated group is routinely under audit by the Internal Revenue Service (the “IRS”). All U.S. federal income tax matters have been concluded for years through 2011, except for any matters under appeal. In addition, we are under corporate income tax audits in various states and non-U.S. jurisdictions. While we believe we have complied with all applicable income tax laws, a governing tax authority could have a different interpretation of the law and assess us with additional taxes. Any assessment of additional taxes could materially affect our financial condition and operating results.

Our future effective tax rate may be affected by such factors as changes in tax laws, changes in our business or statutory rates, changing interpretation of existing laws or regulations, the impact of accounting for stock-based compensation and the recognition of excess tax benefits and tax deficiencies within the income tax provision in the period in which they occur, the impact of accounting for business combinations, shifts in the amount of earnings in the United States compared with other

~~regions in the world and overall levels of income before tax, changes in our international organization, as well as the expiration of statute of limitations and settlements of audits.~~

In addition, in the ordinary course of our global business, there are many intercompany transactions, including the transfer of intellectual property, where the ultimate tax determination is uncertain. Although we believe that our tax estimates are reasonable, the final determination of tax audits or tax disputes may differ from what is reflected in our historical income tax provisions and accruals.

Our rate of taxation in foreign jurisdictions is lower than our U.S. tax rate. Our international income is primarily earned by our subsidiaries organized in Ireland, and, as such, our effective tax rate can be impacted by the composition of our earnings in the U.S. and foreign jurisdictions. During October 2014, Ireland announced revisions to its tax regulations that will require foreign earnings of our subsidiaries organized in Ireland to be taxed at higher rates. We will be impacted by the changes in tax laws in Ireland beginning in 2021. Prior to this date, we may proactively make structural changes in Ireland that may reduce the impact to our future tax rates. Currently, there are certain structural changes in Ireland that may be available to multi-national companies. However, due to the Dell Acquisition, we could be subject to higher tax obligations in the event we executed similar structural changes.

The U.S. House of Representatives (the “House”) and the U.S. Senate (the “Senate”) have each passed versions of legislation that would significantly change the U.S. taxation of multinational businesses, such as VMware. Although the House and Senate versions differ in certain respects, each includes provisions that would, if enacted, reduce U.S. corporate tax rates, change how U.S. multinational corporations are taxed on international earnings, immediately impose tax on our current foreign cash holdings, limit certain deductions for executive compensation and place certain limitations on interest deductions and other tax benefits. Any significant change to U.S. or international tax laws could have a material impact on our effective tax rate, financial condition, operating results and timing and amount of tax payments.

In addition, numerous other countries have recently enacted or are considering enacting changes to tax laws, administrative interpretations, decisions, policies and positions. The Organisation for Economic Cooperation and Development issued guidelines and proposals during October 2015 that may change how our tax obligations are determined in many of the countries in which we do business. These changes could adversely affect our effective tax rate or result in higher cash tax liabilities.

~~Catastrophic events or geo-political conditions could disrupt our business.~~

Our corporate headquarters are located in the San Francisco Bay Area, a region known for seismic activity. A significant natural disaster, such as an earthquake, fire, flood or other act of God, could have a material adverse impact on our business and operating results. Abrupt political change, terrorist activity and armed conflict pose a risk of general economic disruption in affected countries, and disease pandemics could temporarily sideline a substantial part of our or our customers’ workforce at any particular time, any of which could disrupt our business. Furthermore, some of our new product initiatives and business functions are hosted and carried out by third parties that may be vulnerable to disruptions of these sorts, many of which may be beyond our control. Unanticipated disruptions in services provided through localized physical infrastructure, such as utility or telecommunication outages, can curtail the functioning of local offices as well as critical components of our information systems, and adversely affect our ability to process orders, provide services, respond to customer requests and maintain local and global business continuity. To the extent that such disruptions result in delays or cancellations of customer orders, or the deployment or availability of our products and services, our revenue would be adversely affected. Additionally, any such catastrophic event could cause us to incur significant costs to repair damages to our facilities, equipment and infrastructure.

Changes in accounting principles and guidance could result in unfavorable accounting charges or effects.

We prepare our ~~condensed~~ consolidated financial statements in accordance with accounting principles generally accepted in the ~~United States.~~U.S. These principles are subject to interpretation by the SEC and various bodies formed to create and interpret appropriate accounting principles and guidance. A change in these principles or guidance, or in their interpretations, may have a material effect on our reported results, as well as our processes and related controls, and may retroactively affect previously reported results. For example, during May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). We plan to adopt Topic 606 using the full retrospective transition method when it becomes effective for us in the first fiscal quarter of 2019, under the Company’s new fiscal calendar. Currently, we defer all license revenue related to the sale of perpetual licenses in the event certain revenue recognition criteria are not met. This would include transactions that offer undelivered future products including emerging products that are offered as part of product promotions where vendor-specific objective evidence of fair value has not been established. However, under Topic 606, we would generally expect that substantially all license revenue related to sale of perpetual licenses will be recognized upon delivery, including arrangements that also include offers of future products, such as emerging products that are offered as part of product promotions. Topic 606 is also expected to impact the timing and recognition of costs to obtain contracts with customers, such as commissions. Under the new standard, incremental costs to obtain contracts with customers are deferred and recognized over the expected period of benefit. As a result, we expect deferred commission costs to increase.

~~We are continuing to evaluate the effect that Topic 606 will have on our financial statements and related disclosures, and preliminary assessments are subject to change.~~

~~Additionally, during October 2016, the FASB issued ASU No. 2016-16, Income Taxes: Intra-Entity Transfers~~Natural disasters, catastrophic events or Assets Other Than Inventory (Topic 740), which changes the timing of recognition of the income tax consequences of intra-entity asset transfers. The updated standard is effective for annual and interim periods beginning after December 15, 2017 and could have a material impact on the consolidated financial statements due to the changed treatment of the income tax consequences of business combinations and asset transfers with our international entities.

~~Risks Related to Our Relationship with Dell~~

~~Our stock price fluctuated significantly following the announcement of the Dell Acquisition, and our future relationship with Dell may adversely impact our business and stock price in the future.~~

Dell acquired EMC on September 7, 2016. In connection with the Dell Acquisition, Dell issued a tracking stock to EMC shareholders, Class V common stock, that is intended to reflect our economic performance as partial consideration to the EMC shareholders. The Class V common stock tracks the performance of an approximately 50% economic interest in our business.

Our stock price fluctuated significantly following the announcement of the Dell Acquisition. A number of factors relating to our future relationship with Dell could adversely affect our business or our stock price in the future, including:

Dell is able to control matters requiring our stockholders’ approval, including the election of a majority of our directors and the other matters over which EMC formerly had control, as described in the risk factors below.

~~Dell could implement changes to our business, including changing our commercial relationship with Dell or taking other corporate actions that our other stockholders may not view as beneficial.~~

We have arrangements with a number of companies that compete with Dell, and the completion of the Dell Acquisition could adversely affect our relationship with these companies or other customers, suppliers and partners.

Dell has a right to approve certain matters under our certificate of incorporation, including acquisitions or investments in excess of $100 million, and Dell may choose not to consent to matters that our board of directors believes are in the best interests of VMware.

~~We anticipate certain synergies and benefits from the Dell Acquisition that may not be realized.~~

The Class V common stock issued by Dell on September 7, 2016, while not a VMware issued security, increases the supply of publicly traded securities that track VMware’s economic performance and may create the perception that the Class V common stock dilutes the holdings of our public stockholders, both of which may put downward pressure on our stock price. While the price of Class V common stock has initially been relatively stable, it may be volatile from time-to-time as a consistent trading market in Class V common stock is established. Any volatility in the market for Class V common stock could contribute to volatility in the price of VMware Class A common stock.

With the closing of the Dell Acquisition, Dell has become more highly leveraged and may be required to commit a substantial portion of its cash flows to servicing its indebtedness. While Dell has publicly stated that it plans to leave VMware free to use its cash to invest in the VMware business, Dell’s significant debt could create the perception that Dell may exercise its control over us to limit our growth in favor of its other businesses or cause us to transfer cash to Dell. In addition, if Dell defaults, or appears in danger of defaulting, on its indebtedness, the trading price of the Class V common stock issued by Dell would be adversely affected, which could negatively impact the price of our Class A common stock, and uncertainty as to the impact of such a default on VMwaregeo-political conditions could disrupt our business.

~~Some~~A significant natural disaster, such as an earthquake, fire, flood or other act of God, catastrophic event or pandemic, abrupt political change, terrorist activity and armed conflict, and any similar disruption, as well as any derivative disruption, such as those to services provided through localized physical infrastructure, including utility or telecommunication outages, or any to the continuity of our, ~~products compete directly with products sold or distributed by Dell, which could result in reduced sales.~~

~~Holders of~~ our ~~Class A common stock have limited ability to influence matters requiring stockholder approval.~~

~~As of November 3, 2017, Dell controlled 30,679,000 shares of~~partners’ and our Class A common stock and all 300,000,000 shares of our Class B common stock, representing 81.9% of the total outstanding shares of common stock or 97.6% of the voting power of outstanding common stock held by EMC. Through its control of the Class B common stock, which is generally entitled to 10 votes per share, Dell controls the vote to elect all of our directors and to approve or disapprove all other matters submitted to a stockholder vote.

Prior to a distribution by Dell to its stockholders under Section 355 of the Internal Revenue Code of 1986, as amended (a “355 Distribution”), shares of Class B common stock transferred to any party other than a successor-in-interest or a subsidiary of EMC automatically convert into Class A common stock. Dell’s voting control over VMware will continue so long as the shares of Class B common stock it controls continue to represent at least 20% of our outstanding stock. If its ownership falls below 20% of the outstanding shares of our common stock, all outstanding shares of Class B common stock will automatically convert to Class A common stock. If Dell effects a 355 Distribution at a time when it holds shares of Class B common stock, its

stockholders will receive Class B common stock. These shares will remain entitled to 10 votes per share, holders of these shares will remain entitled to elect 80% of the total number of directors on our board of directors and the holders of our Class A common stock will continue to have limited ability to influence matters requiring stockholder approval and have limited ability to elect members of our board of directors. Following a 355 Distribution, shares of Class B common stock may convert to Class A common stock if such conversion is approved by VMware stockholders after the 355 Distribution and we have obtained a private letter ruling from the Internal Revenue Service. In January 2014, the IRS announced in Revenue Procedure 2014-3 that, generally, it would no longer issue private letter rulings on 355 Distributions.

~~Dell has the ability to prevent us from taking actions that might be in our best interest.~~

Under our certificate of incorporation and the master transaction agreement we entered into with EMC, we must (subject to certain exceptions) obtain the consent of EMC (which is controlled by Dell) or its successor-in-interest, as the holder of our Class B common stock, prior to taking specified actions, such as acquiring other companies for consideration in excess of $100 million, issuing stock or other VMware securities, except pursuant to employee benefit plans (provided that we obtain Class B common stockholder approval of the aggregate annual number of shares to be granted under such plans), paying dividends, entering into any exclusive or exclusionary arrangement with a third party involving, in whole or in part, products or services that are similar to EMC’s or amending certain provisions of our charter documents. In addition, we have agreed that for so long as EMC or its successor-in-interest continues to own greater than 50% of the voting control of our outstanding common stock, we will not knowingly take or fail to take any action that could reasonably be expected to preclude the ability of EMC or its successor-in-interest (including Dell) to undertake a tax-free spin-off. Dell is entitled to exercise the voting control and contractual rights of EMC, and may do so in a manner that could vary significantly from EMC’s historic practice. If Dell does not provide any requisite consent allowing us to conduct such activities when requested, we will not be able to conduct such activities. As a result, we may have to forgo capital raising or acquisition opportunities that would otherwise be available to us, and we may be precluded from pursuing certain growth initiatives.

By becoming a stockholder in our company, holders of our Class A common stock are deemed to have notice of and have consented to the provisions of our certificate of incorporation and the master transaction agreement with respect to the limitations that are described above.

~~Dell has the ability to prevent a change-in-control transaction and may sell control of VMware without benefiting other stockholders.~~

Dell’s voting control and its additional rights described above give Dell the ability to prevent transactions that would result in a change of control of VMware, including transactions in which holders of our Class A common stock might otherwise receive a premium for their shares over the then-current market price. In addition, Dell is not prohibited from selling a controlling interest in us to a third party and may do so without the approval of the holders of our Class A common stock and without providing for a purchase of any shares of Class A common stock held by persons other than Dell. Accordingly, shares of Class A common stock may be worth less than they would be if Dell did not maintain voting control over us or if Dell did not have the additional rights described above.

If Dell’s level of ownership significantly increases, Dell could unilaterally effect a merger of VMware into Dell without a vote of VMware stockholders or the VMware Board of Directors at a price per share that might not reflect a premium to then-current market prices.

As of November 3, 2017, Dell controlled 81.9% of VMware’s outstanding common stock, and Dell’s percentage ownership of VMware common stock could increase as a result of repurchases by VMware of its Class A common stock or purchases by Dell. Section 253 of the Delaware General Corporation Law permits a parent company, when it owns 90% or more of each class of a subsidiary’s stock that generally would be entitled to vote on a merger of that subsidiary with the parent, to unilaterally effect a merger of the subsidiary into the parent without a vote of the subsidiary’s board or stockholders. Accordingly, if Dell becomes the holder of at least 90% of VMware’s outstanding stock, neither VMware’s board of directors nor VMware’s stockholders would be entitled to vote on a merger of VMware into Dell (the “short-form merger”). Moreover, a short-form merger is not subject to the stringent “entire fairness” standard and the parent company is not required to negotiate with a special committee of disinterested directors that would serve to approximate arm’s length negotiations designed to ensure that a fair price is paid. Rather, a minority stockholder’s sole remedy in the context of a short-form merger is to exercise appraisal rights under Delaware law. In such a proceeding, petitioning stockholders may be awarded more or less than the merger price or the amount they would have received in a merger negotiated between the parent and a disinterested special committee advised by independent financial and legal advisors. Dell is prohibited through September 7, 2018 under its charter from purchasing or otherwise acquiring any shares of common stock of VMware if such acquisition would cause the common stock of VMware to no longer be publicly traded on a U.S. securities exchange or VMware to no longer be required to file reports under Sections 13 and 15(d) of the Exchange Act, in each case, unless such acquisition of VMware common stock is required in order for VMware to continue to be a member of the affiliated group of corporations filing a consolidated tax return with Dell.

~~We engage in related persons transactions with Dell that may divert our resources, create opportunity costs and prove to be unsuccessful.~~

We currently engage in a number of related persons transactions with Dell that include joint product development, go-to-market, branding, sales, customer service activities, real estate and various support services, and we expect to engage in additional related persons transactions with Dell to leverage the benefits of our strategic alignment. Additionally, in 2013 we contributed technology and transferred employees to Pivotal Software, Inc. (“Pivotal”). We continue to hold a significant ownership interest in Pivotal after contributing $20 million in cash to Pivotal during 2016, in exchange for additional preferred equity interests in Pivotal.

We believe that these related persons transactions provide us a unique opportunity to leverage the respective technical expertise, product strengths and market presence of Dell and its subsidiaries for the benefit of our customers and stockholders while enabling us to compete more effectively with competitors who are much larger than us. However, these transactions may prove not to be successful and may divert our resources or the attention of our management from other opportunities. Negotiating and implementing these arrangements can be time consuming and cause delays in the introduction of joint product and service offerings and disruptions to VMware’s business. We cannot predict whether our stockholders and industry or securities analysts who cover us will react positively to announcements of new related persons transactions with Dell, and such announcements could have a negative impact on our stock price. Our participation in these transactions may also cause certain of our other vendors and ecosystem partners who compete with Dell and its subsidiaries to also view us as their competitors. Additionally, if Pivotal requires additional funding, we may be asked to contribute capital resources to Pivotal or accept dilution in our ownership interest, and we may be unable to realize any value from the technology and resources that we contributed to Pivotal.

~~Our business and Dell’s businesses overlap, and Dell may compete with us, which could reduce our market share.~~

We and Dell are IT infrastructure companies providing products and services that overlap in various areas, including software-based storage, management, hyper-converged infrastructure and cloud computing. Dell competes with us in these areas now and may engage in increased competition with us in the future. In addition, the intellectual property agreement that we have entered into with EMC (which is controlled by Dell) provides EMC the ability to use our source code and intellectual property, which, subject to limitations, it may use to produce certain products that compete with ours. EMC’s rights in this regard extend to its majority-owned subsidiaries, which could include joint ventures where EMC holds a majority position and one or more of our competitors hold minority positions.

Dell could assert control over us in a manner that could impede our growth or our ability to enter new markets or otherwise adversely affect our business. Further, Dell could utilize its control over us to cause us to take or refrain from taking certain actions, including entering into relationships with channel, technology and other marketing partners, enforcing our intellectual property rights or pursuing business combinations, other corporate opportunities (which EMC is expressly permitted to pursue under the circumstances set forth in our certificate of incorporation) or product development initiatives that could adversely affect our competitive position, including our competitive position relative to that of Dell in markets where we compete with Dell. In addition, Dell maintains significant partnerships with certain of our competitors, including Microsoft.

~~Dell’s competition in certain markets may affect our ability to build and maintain partnerships.~~

Our existing and potential partner relationships may be negatively affected by our relationship with Dell. We partner with a number of companies that compete with Dell in certain markets in which Dell participates. Dell’s control of EMC’s majority ownership in us may affect our ability to effectively partner with these companies. These companies may favor our competitors because of our relationship with Dell.

Dell competes with certain of our significant channel, technology and other marketing partners, including IBM and Hewlett-Packard. Pursuant to our certificate of incorporation and other agreements that we have with EMC, EMC and Dell may have the ability to impact our relationship with those of our partners that compete with EMC or Dell, whichcustomers’ workforce, could have a material adverse ~~effect~~impact on our business and operating ~~results and our ability to pursue opportunities which may otherwise be available to us.~~

~~The realignment of our fiscal calendar to coincide with Dell’s and Dell’s reporting~~results. Our worldwide operations are dependent on our ~~financial results may make it more difficult to compare our year-over-year performance~~network infrastructure, internal technology systems and ~~identify changes in business trends and conditions.~~

Dell provides segment reporting on VMware in its public reports on financial results. However, prior to February 2017, the fiscal calendars for Dell and VMware did not align. VMware reported on a calendar year basis through December 31, 2016, whereas Dell reports on a 52- or 53-week fiscal year basis ending on the Friday nearest to January 31 of each year. Effective January 1, 2017, our fiscal calendar changed to align with Dell’s.

The period beginning on January 1, 2017 and ending on February 3, 2017 is being reported as a transition period (the “Transition Period”). Accordingly, our first full fiscal year under our revised fiscal calendar began on February 4, 2017 and will end on February 2, 2018.

We are including certain unaudited condensed consolidated financial statements for the Transition Period in this Form 10-Q and will include audited financial statements for the Transition Period in the Form 10-K for the fiscal year ended February 2, 2018. Following the change in our fiscal calendar and for the first fiscal year, we will compare results from each fiscal period under our new fiscal calendar to the corresponding period under our prior calendar. For example, this Form 10-Q compares the results of the first, second and third quarter of our 2018 fiscal year running from February 4, 2017 through November 3, 2017 to the results of the first, second and third quarter of our 2016 fiscal year which ran from January 1, 2016 through September 30, 2016, and in accordance with generally accepted accounting practices, we will not denote any full fiscal quarters or a fiscal year as a “2017” fiscal period.

Our fiscal year transition may also distort the impact of seasonal factors that we have observed in our business, such as the end of fiscal period budget expenditures by our customers and the timing of holiday and vacation periods on our quarterly results. Consequently, it may be difficult to accurately determine the extent to which year-over-year changes in our financial results represent actual changes to business conditions and trends or are instead artifacts of our fiscal period transition.

Additionally, the financial results for Dell’s VMware business segment may differ from the financial results reported by us due to the impact of intercompany transactions, purchase accounting, and reporting practices. These differences in the reporting of VMware’s financial results by us and Dell could result in volatility and fluctuations in the price of our Class A common stock.

Further, the process of implementing a fiscal calendar transition required us to make adjustments to many of the critical business processes and data systems that our management and personnel rely upon to conduct our business operations and coordinate our worldwide activities. Although we believe that we have successfully managed the transition of our processes and systems to the new fiscal calendar, there can be no assurance that errors and failures will not occur that could impact comparisons of our year-over-year results.

We could be held liable for the tax liabilities of other members of Dell’s consolidated tax group, and compared to our historical results as a member of the EMC consolidated tax group, our tax liabilities may increase, fluctuate more widely and be less predictable.

~~We have historically been included in EMC’s consolidated group for U.S. federal income tax purposes,~~website, as well as in certain consolidated, combined or unitary groups that include EMC Corporation or certain of its subsidiaries for state and local income tax purposes, and with the closing of the Dell Acquisition, we are now included in Dell’s consolidated tax group. Effective as of the close of the Dell Acquisition, we amended our tax sharing agreement with EMC to include Dell. Although our tax sharing agreement provides that our tax liability is calculated primarily as though VMware were a separate taxpayer, certain tax attributes and transactions are assessed using consolidated tax return rules as applied to the Dell consolidated tax group and are subject to other specialized terms under the tax sharing agreement. Pursuant to our agreement, we and Dell generally will make payments to each other such that, with respect to tax returns for any taxable period in which we or any of our subsidiaries are included in Dell’s consolidated group for U.S. federal income tax purposes or any other consolidated, combined or unitary group of Dell or its subsidiaries, the amount of taxes to be paid by us will be determined, subject to certain consolidated return adjustments, as if we and each of our subsidiaries included in such consolidated, combined or unitary group filed our own consolidated, combined or unitary tax return. Consequently, compared to our historical results as a member of the EMC consolidated tax group, the amount of our tax sharing payment compared to our separate standalone liability may increase, vary more widely from period to period and be less predictable.

When we become subject to federal income tax audits as a member of Dell’s consolidated group, the tax sharing agreement provides that Dell has authority to control the audit and represent Dell and our interests to the IRS. Accordingly, if we and Dell or its successor-in-interest differ on appropriate responses and positions to take with respect to tax questions that may arise in the course of an audit, our ability to affect the outcome of such audits may be impaired. In addition, if Dell effects a 355 Distribution or other transaction that is subsequently determined to be taxable, we could be liable for all or a portion of the tax liability, which could have a material adverse effect on our operating results and financial condition.

We have been included in the EMC consolidated group for U.S. federal income tax purposes since our acquisition by EMC, and will continue to be included in Dell’s consolidated group for periods in which Dell or its successor-in-interest beneficially owns at least 80% of the total voting power and value of our outstanding stock. Each member of a consolidated group during any part of a consolidated return year is jointly and severally liable for tax on the consolidated return of such year and for any subsequently determined deficiency thereon. Similarly, in some jurisdictions, each member of a consolidated, combined or unitary group for state, local or foreign income tax purposes is jointly and severally liable for the state, local or foreign income tax liability of each other member of the consolidated, combined or unitary group. Accordingly, for any period in which we are included in the Dell consolidated group for U.S. federal income tax purposes or any other consolidated, combined or unitary group of Dell and its subsidiaries, we could be liable in the event that any income tax liability was incurred, but not discharged, by any other member of any such group.

Also, under the tax sharing agreement, if it is subsequently determined that the tracking stock issued in connection with the Dell Acquisition constitutes a taxable distribution, we could be liable for all or a portion of the tax liability, which could have a material adverse effect on our operating results and financial condition.

~~We have limited ability to resolve favorably any disputes that arise between us and Dell.~~

Disputes may arise between Dell and us in a number of areas relating to our ongoing relationships, including our reseller, technology and other business agreements with Dell, areas of competitive overlap, strategic initiatives, requests for consent to activities specified in our certificate of incorporation and the terms of our intercompany agreements. We may not be able to resolve any potential conflicts with Dell, and even if we do, the resolution may be less favorable than if we were dealing with an unaffiliated party.

While we are controlled by Dell, we may not have the leverage to negotiate amendments to these agreements if required on terms as favorable to us as those we would negotiate with an unaffiliated third party, if at all.

~~Our CEO, our CFO and some of our directors have potential conflicts of interest with Dell.~~

Our CEO, our CFO and some of our directors received shares of Dell Class V common stock in partial consideration for their EMC common stock when the Dell Acquisition closed. In addition, some of our directors are executive officers or directors of Dell, and Dell, through its control of EMC, which is the sole holder of our Class B common stock, is entitled to elect 8 of our 9 directors. Ownership of Dell Class V common stock by our directors and the presence of executive officers or directors of Dell on our board of directors could create, or appear to create, conflicts of interest with respect to matters involving both us and Dell that could have different implications for Dell than they do for us. Our Board has approved resolutions that address corporate opportunities that are presented to our directors or officers that are also directors or officers of Dell. These provisions may not adequately address potential conflicts of interest or ensure that potential conflicts of interest will be resolved in our favor. As a result, we may not be able to take advantage of corporate opportunities presented to individuals who are officers or directors of both us and Dell and we may be precluded from pursuing certain growth initiatives.

~~Dell’s ability to control our board of directors may make it difficult for us to recruit independent directors.~~

So long as Dell beneficially owns shares of our common stock representing at least a majority of the votes entitled to be cast by the holders of outstanding voting stock, Dell can effectively control and direct our board of directors. Further, the interests of Dell and our other stockholders may diverge. Under these circumstances, persons who might otherwise accept our invitation to join our board of directors may decline.

~~Our historical financial information as a majority-owned subsidiary may not be representative of the results of a completely independent public company.~~

The financial information covering the periods included in this report does not necessarily reflect what our financial condition, operating results or cash flows would have been had we been a completely independent entity during those periods. In certain geographic regions where we do not have an established legal entity, we contract with Dell subsidiaries for support services and Dell personnel who are managed by us. The costs incurred by Dell on our behalf related to these employees are passed on to us and we are charged a mark-up intended to approximate costs that would have been charged had we contracted for such services with an unrelated third party. These costs are included as expenses on our condensed consolidated statements of income. Additionally, we engage with Dell in intercompany transactions, including agreements regarding the use of Dell’s and our intellectual property and ~~real estate, agreements regarding~~personnel, significant portions of which, including our corporate headquarters, are located in California, a region known for seismic activity, fires and floods. Disruption to these dependencies may negatively impact our ability to respond to customer requests, process orders, provide services and maintain local and global business continuity. Delays or cancellations of customer orders or the ~~sale~~deployment or availability of ~~goods and services to one another and to Pivotal, and agreements for Dell to resell~~ our products and services, ~~to third party customers. If Dell were to distribute its shares~~for example, could materially impact our revenue. Furthermore, some of our ~~common stock~~newer product initiatives, offerings and business functions are hosted or carried out by third parties that may be vulnerable to ~~its stockholders~~these same types of disruptions, the response to or ~~otherwise divest itself~~resolution of ~~all~~which may be beyond our control. Additionally, any such disruption could cause us to incur significant costs to repair damages to our facilities, equipment, infrastructure and business relationships.

Climate change may have a long-term negative impact on our business.

Risks related to rapid climate change, such as extreme weather conditions, sea-level rise, drought, flooding and wildfires, may have an increasingly adverse impact on our business and those of our customers, partners and vendors in the longer term. While we seek to mitigate the business risks associated with climate change for our operations, there are inherent climate-related risks wherever business is conducted. Access to clean water and reliable energy in the communities where we conduct our business, whether for our offices, data centers, vendors, customers or other stakeholders, is a ~~significant portion~~priority. Any of ~~its VMware shares, there would~~our primary locations may be ~~numerous implications~~vulnerable to ~~us,~~the adverse effects of climate change and the impacts of extreme weather events, which have caused regional short-term systemic failures in the U.S. and elsewhere. For example, our California headquarters are projected to be vulnerable to future water scarcity due to climate change, and unanticipated extreme cold weather has resulted in electrical grid outages in Texas where many of our U.S. employees are located. While this danger currently has a low-assessed risk of disrupting normal business operations in the near term, it has the potential to impact employees’ abilities to commute to work or to work from home and stay connected effectively. Climate-related events, including the ~~fact that~~increasing frequency of extreme weather events, their impact on critical infrastructure in the U.S. and internationally and their potential to increase political instability in regions where we, ~~could lose~~our customers, partners and our vendors do business, have the ~~benefit of these arrangements with Dell. There can be no assurance that we would be able~~potential to ~~renegotiate these arrangements with Dell or replace them on the same or similar terms. Additionally,~~disrupt our business, ~~could face significant disruption~~our third-party suppliers, or the business of our customers and ~~uncertainty as we transition from these arrangements with Dell. Moreover, our historical financial information is not necessarily indicative of what our financial condition, operating results~~partners, and may cause us to experience higher attrition and additional costs to maintain or ~~cash flows would be~~resume operations. Climate change and environmental regulations may result in changes in the ~~future if~~ supply, demand or available sources of energy or other resources that could adversely impact the availability or cost of goods

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and ~~when we contract at arm’s length with independent third parties for the~~ services, we have received and currently receive from Dell. During the three and nine months ended November 3, 2017, we recognized revenue of $337 million and $907 million, respectively, and as of November 3, 2017, $930 million of sales were includedincluding natural resources necessary to run our business. Additionally, changes in unearned revenue from such transactions with Dell. For additional information, refer to “Our Relationship with Dell” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 and Note B to the consolidated financial statements in Part I, Item 1 of this Quarterly report on Form 10-Q.

~~Risks Related to Owning Our Class A Common Stock~~

~~The price of our Class A common stock has fluctuated significantly in recent years and may fluctuate significantly~~climate in the ~~future.~~

~~The trading price~~locations where we operate may increase the costs of powering and cooling the computer hardware we use to develop software and deliver our ~~Class A common stock has fluctuated significantly in the past~~subscription and could fluctuate substantially in the future due to the factors discussed in this Risk Factors section and elsewhere in this report. The trading market for Dell Class V common stock that was issued upon the closing of the Dell Acquisition that is expected to track the performance of VMware,SaaS-based offerings as well as ~~continuing volatility~~the costs of carbon offsets and renewable energy that we may procure from time to time as we pursue our net zero carbon objectives.

Social and ethical issues, including our ability to make progress on our ESG goals and commitments, may result in ~~technology company share prices, could also lead~~reputational harm and liability.

In December 2020, we announced our 2030 Agenda, which represents our ESG strategy to ~~volatility in our stock price.~~

~~Dell, which beneficially owned 81.9%~~drive outcomes of ~~our outstanding stock as of November 3, 2017, is not restricted from selling its shares~~sustainability, equity and is entitled to certain registration rights. If a significant number of shares enters the public trading markets in a short period of time, the market price of our Class A common stock may decline. In addition, if our Class B common stock is distributed to Dell stockholders and remains outstanding, it would trade separately from and potentially at a premium to our Class A common stock, and could thereby contribute additional volatility to the price of our Class A common stock.

Broad market and industry factors may also decrease the market price of our Class A common stock, regardless of our actual operating performance. The stock market in general and technology companies in particular have often experienced extreme price and volume fluctuations.trust. Our public ~~float is also relatively small due~~commitments include promoting environmental sustainability and decarbonization; human capital development and diversity, equity and inclusion; and cybersecurity, privacy, digital ethics and transparent business practices. Each of these are areas of increasing scrutiny from the investment community, customers, employees, partners, suppliers and communities who expect us to ~~Dell’s holdings, which can result in greater volatility in~~report transparently on our ~~stock compared~~progress. In order to ~~that of other companies~~meet expectations from our stakeholders, we are working to align our reporting with ~~a market capitalization similar to ours. It is also uncertain what impact~~emerging disclosure and accounting standards such as the ~~trading of Dell Class V common stock, which represents approximately 50% of~~Financial Stability Board’s Task Force on Climate-Related Financial Disclosures (“TCFD”), the ~~economic interest in us, will have on~~Sustainability Accounting Standards Board (“SASB”), the ~~volatility~~Global Reporting Initiative (“GRI”), and the ~~liquidity~~Corporate Sustainability Reporting Directive (“CSRD”), as well as potential new disclosure requirements from regulators such as the SEC while we also seek to report timely on progress toward our 2030 Agenda objectives. In order to do so, we are continuing to develop internal operational, information and data assurance systems that will enable us to accurately report on these matters on a timely basis. If we fail to report accurately or on a timely basis or fail to anticipate reporting requirements and expectations in this emerging area, our reputation may be adversely affected, and we could be exposed to increased risk of litigation. Additionally, if we are perceived as failing to make or accurately report on our ~~Class A common stock~~progress on our ESG goals or to follow through on our commitments, our brand and ~~how the Dell Class V common stock will trade in relation~~our reputation may be harmed, we may be exposed to increased risk of litigation, our ~~Class A common stock over time. In addition, in the past, following periods of volatility in the overall market~~ability to attract and ~~the market price of a company’s securities, securities class action litigation has often been instituted, including against us,~~retain employees may be damaged and ~~if not resolved swiftly, can result in substantial costs~~our financial performance and ~~a diversion of management’s attention and resources.~~

~~If securities or industry analysts change their recommendations regarding our stock adversely, our~~ stock price ~~and trading volume could decline.~~may be adversely affected.

The trading market for our Class A common stock is influenced by the research and reports that industry or securities analysts publish about us, our business, our market or our competitors. If any of the analysts who cover us or who cover the Dell Class V common stock change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, our stock price would likely decline.

~~Anti-takeover provisions in Delaware law and our charter documents could discourage takeover attempts.~~

As our controlling stockholder, Dell has the ability to prevent a change in control of VMware. Provisions in our certificate of incorporation and bylaws may also have the effect of delaying or preventing a change of control or changes in our management. These provisions include the following:

the division of our board of directors into three classes, with each class serving for a staggered three-year term, which prevents stockholders from electing an entirely new board of directors at any annual meeting;

~~the right of the board of directors to elect a director to fill a vacancy created by the expansion of the board of directors;~~

following a 355 Distribution of Class B common stock by Dell to its stockholders, the restriction that a beneficial owner of 10% or more of our Class B common stock may not vote in any election of directors unless such person or group also owns at least an equivalent percentage of Class A common stock or obtains approval of our board of directors prior to acquiring beneficial ownership of at least 5% of Class B common stock;

~~the prohibition of cumulative voting in the election of directors or any other matters, which would otherwise allow less than a majority of stockholders to elect director candidates;~~

~~the requirement for advance notice for nominations for election to the board of directors or for proposing matters that can be acted upon at a stockholders’ meeting;~~

the ability of the board of directors to issue, without stockholder approval, up to 100,000,000 shares of preferred stock with terms set by the board of directors, which rights could be senior to those of common stock; and

in the event that Dell or its successor-in-interest no longer owns shares of our common stock representing at least a majority of the votes entitled to be cast in the election of directors, stockholders may not act by written consent and may not call special meetings of the stockholders.

In addition, we have elected to apply the provisions of Section 203 of the Delaware General Corporation Law. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us. These provisions in our certificate of incorporation and bylaws and under Delaware law could discourage potential takeover attempts and could reduce the price that investors might be willing to pay for shares of our common stock.


~~ITEM 2.~~	~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) Sales of Unregistered Securities

None.

(b) Use of Proceeds from Public Offering of Common Stock

None.

From time to time, we repurchase stock pursuant to authorized stock repurchase programs in open market transactions as permitted by securities laws and other legal requirements. We are not obligated to purchase any shares under our stock repurchase programs. The timing of any repurchases and the actual number of shares repurchased depends on a variety of factors, including our stock price, cash requirements for operations and business combinations, corporate and regulatory requirements and other market and economic conditions. Purchases may be discontinued at any time we believe additional purchases are not warranted. All shares repurchased under our stock repurchase programs are retired.

As of ~~equity securities~~August 4, 2023, the cumulative authorized amount remaining for stock repurchases under the October 2021 authorized repurchase program was $1.6 billion. In connection with our entry into the Merger Agreement, we suspended our stock repurchase program during the second quarter of fiscal 2023.

ITEM 5. OTHER INFORMATION

During the three months ended ~~November 3, 2017:~~August 4, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

Total Number of Shares Purchased⁽¹⁾

Average Price Paid Per Share⁽²⁾

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽¹⁾

Approximate Dollar Value of Shares That May Yet Be Purchased Under the Publicly Announced Plans or Programs ⁽³⁾
August 5 – September 1, 2017 623,700
104.55
623,700
1,834,792,596
September 2 – September 29, 2017 4,944,895
108.65
4,944,895
1,297,553,604
September 30 – November 3, 2017 2,202,741
114.54
2,202,741
1,045,244,983
7,771,336
$ 109.99
7,771,336
1,045,244,983

⁽¹⁾

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During January 2017, VMware’s board of directors authorized the repurchase of up to $1,200 million of VMware’s Class A common stock through the end of fiscal 2018. During August 2017, VMware’s board of directors authorized the repurchase of up to an additional $1,000 million of Class A common stock through August 31, 2018. The authorization is in addition to VMware’s $1,200 million stock repurchase program authorized in January 2017. On August 23, 2017, VMware entered into a stock purchase commitment with Dell to purchase $300 million of VMware Class A common stock. During the third quarter of fiscal 2018, VMware paid Dell $300 million in exchange for 2.7 million shares. The aggregate number of shares purchased was determined based upon the volume-weighted average price during a defined period, less an agreed upon discount.


⁽²⁾	~~The average price paid per share excludes commissions.~~


⁽³⁾	~~Represents the amounts remaining in the VMware stock repurchase authorizations.~~


~~ITEM 6.~~	~~EXHIBITS~~

~~See~~ITEM 6.EXHIBITS

The Company hereby files, furnishes or incorporates by reference the ~~Exhibit Index following the signature page~~exhibits listed below:

Incorporated by Reference

Exhibit
Number

Exhibit Description

Form

File No.

Exhibit

Filing Date

2.1

Agreement and Plan of Merger, dated as of May 26, 2022, by and among VMware, Inc., Broadcom Inc, Verona Holdco, Inc., Verona Merger Sub, Inc., Barcelona Merger Sub 2, Inc. and Barcelona Merger Sub 3, LLC

8-K

001-33622

2.1

5/26/22

3.1

Amended and Restated Certificate of Incorporation

8-K

001-33622

3.1

11/4/22

3.2

Amended and Restated Bylaws

8-K

001-33622

3.1

4/6/23

10.1*

Term Loan Credit Agreement Amendment, dated as of May 19, 2023, among VMware, Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent

31.1*

Certification of Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*

Certification of Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1ǂ

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2ǂ

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS*

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH*

Inline XBRL Taxonomy Extension Schema

101.CAL*

Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF*

Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB*

Inline XBRL Taxonomy Extension Label Linkbase

101.PRE*

Inline XBRL Taxonomy Extension Presentation Linkbase

104

Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document (included in Exhibit 101)

+ Indicates management contract or compensatory plan or arrangement

* Filed herewith

ǂ Furnished herewith

Table of ~~this Quarterly Report on Form 10-Q for a list of exhibits.~~Contents

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		VMWARE, INC.
Dated:	September 7, 2023	By:	/s/ Pebbie Verdecanna
~~Dated:~~	~~December 11, 2017~~	~~By:~~	~~/s/ Kevan Krysler~~
	~~Kevan Krysler~~ ~~Senior Vice President,~~ Pebbie Verdecanna Chief Accounting Officer (Principal Accounting Officer)

~~EXHIBIT INDEX~~

Incorporated by Reference
Exhibit
Number
Exhibit Description Form File No. Exhibit Filing Date

3.1

Amended and Restated Certificate of Incorporation
10-Q 001-33622 3.1 6/9/17
3.2

Amended and Restated Bylaws
8-K 001-33622 3.1 2/23/17
4.2

Indenture, by and between VMware and The Bank of New York Mellon Trust Company, N.A., as trustee, dated August 21, 2017
8-K 001-33622 4.1 8/21/17
4.3

First Supplemental Indenture, by and between VMware and The Bank of New York Mellon Trust Company, N.A., as trustee, dated August 21, 2017
8-K 001-33622 4.2 8/21/17
4.4

Second Supplemental Indenture, by and between VMware and The Bank of New York Mellon Trust Company, N.A., as trustee, dated August 21, 2017
8-K 001-33622 4.3 8/21/17
4.5

Third Supplemental Indenture, by and between VMware and The Bank of New York Mellon Trust Company, N.A., as trustee, dated August 21, 2017
8-K 001-33622 4.4 8/21/17
10.36

Purchase Commitment Supplement No. 2, dated as of August 23, 2017, by and among Dell Technologies Inc., EMC Equity Assets LLC and VMware, Inc.
8-K 001-33622 99.1 8/24/17
31.1*

Certification of Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*

Certification of Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1ǂ

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2ǂ

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS*
XBRL Instance Document
101.SCH*
XBRL Taxonomy Extension Schema
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase
101.DEF*
XBRL Taxonomy Extension Definition Linkbase
101.LAB*
XBRL Taxonomy Extension Label Linkbase
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase

* Filed herewith

~~ǂ Furnished herewith~~



	Revenue and Receipts										Unearned Revenue
									Transition Period		As of
	Three Months Ended				Nine Months Ended				January 1 to						Transition Period
	November 3,		September 30,		November 3,		September 30,		February 3,		November 3,		December 31,		February 3,
	2017		2016		2017		2016		2017		2017		2016		2017
Reseller revenue	$	294	$	98	$	799	$	261	$	44	$	911	$	637	$	616
Internal-use revenue	16		5		25		24		7		19		15		18
Professional services revenue	27		28		82		79		3		—		—		—
Agency fee revenue	—		1		1		3		—		—		—		—
Reimbursement for services to Pivotal	—		—		—		1		—		n/a		n/a		n/a



	November 3, 2017
	Weighted-Average Useful Lives (in years)	Gross Carrying Amount		Accumulated Amortization			Net Book Value
Purchased technology	6.5	$	663	$	(438	)	$	225
Leasehold interest	34.9	149		(27		)	122
Customer relationships and customer lists	8.2	135		(75		)	60
Trademarks and tradenames	8.5	63		(29		)	34
Other	5.7	5		(3		)	2
Total definite-lived intangible assets		$	1,015	$	(572	)	$	443



	December 31, 2016
	Weighted-Average Useful Lives (in years)	Gross Carrying Amount		Accumulated Amortization			Net Book Value
Purchased technology	6.6	$	641	$	(358	)	$	283
Leasehold interest	34.9	149		(24		)	125
Customer relationships and customer lists	8.3	132		(62		)	70
Trademarks and tradenames	8.7	61		(23		)	38
Other	5.7	4		(3		)	1
Total definite-lived intangible assets		$	987	$	(470	)	$	517



	Transition Period February 3, 2017
	Weighted-Average Useful Lives (in years)	Gross Carrying Amount		Accumulated Amortization			Net Book Value
Purchased technology	6.5	$	641	$	(366	)	$	275
Leasehold interest	34.9	149		(24		)	125
Customer relationships and customer lists	8.3	132		(64		)	68
Trademarks and tradenames	8.7	61		(23		)	38
Other	5.7	4		(3		)	1
Total definite-lived intangible assets		$	987	$	(480	)	$	507



Remainder of 2018	$	34
2019	124
2020	100
2021	46
2022	31
Thereafter	108
Total	$	443



Balance, February 3, 2017	$	4,032
Increase in goodwill related to business combinations	239
Balance, November 3, 2017	$	4,271



	Nine Months Ended September 30, 2016
	Balance as of January 1, 2016		Realignment		Utilization			Balance as of September 30, 2016
Severance-related costs	$	3	$	49	$	(51	)	$	1
Costs to exit facilities	—		3		(1		)	2
Total	$	3	$	52	$	(52	)	$	3



	November 3, 2017
	Cost or Amortized Cost		Unrealized Gains		Unrealized Losses			Aggregate Fair Value
Cash	$	415	$	—	$	—		$	415
Cash equivalents:
Money-market funds	$	5,503	$	—	$	—		$	5,503
U.S. Government and agency obligations	5		—		—			5
U.S. and foreign corporate debt securities	89		—		—			89
Total cash equivalents	$	5,597	$	—	$	—		$	5,597
Short-term investments:
U.S. Government and agency obligations	$	1,000	$	—	$	(4	)	$	996
U.S. and foreign corporate debt securities	4,347		5		(8		)	4,344
Foreign governments and multi-national agency obligations	95		—		—			95
Mortgage-backed securities	134		—		(1		)	133
Marketable available-for-sale equity securities	15		17		—			32
Total short-term investments	$	5,591	$	22	$	(13	)	$	5,600



	Amortized Cost Basis		Aggregate Fair Value
Due within one year	$	1,978	$	1,976
Due after 1 year through 5 years	3,406		3,400
Due after 5 years through 10 years	98		98
Due after 10 years	94		94
Total fixed income securities	$	5,576	$	5,568



	Number of Units		Weighted-Average Grant Date Fair Value (per unit)
Outstanding, January 1, 2017	20,866		$	67.54
Vested	(256	)	77.07
Forfeited	(159	)	68.11
Outstanding, February 3, 2017	20,451		67.41
Granted	7,000		90.45
Vested	(7,603	)	67.39
Forfeited	(1,471	)	71.80
Outstanding, November 3, 2017	18,377		75.93



	Unrealized Gain (Loss) on Available-for-Sale Securities			Unrealized Gain (Loss) on Forward Contracts			Total
Balance, January 1, 2017	$	(8	)	$	(1	)	$	(9	)
Unrealized gains, net of tax provision of $1, $— and $1	2			3			5
Balance, February 3, 2017	$	(6	)	$	2		$	(4	)
Unrealized gains, net of tax provision of $5, $—, and $5	9			3			12
Amounts reclassified from accumulated other comprehensive income (loss) to the consolidated statements of income, net of tax benefit of $2, $— and $2	3			(2		)	1
Other comprehensive income, net	12			1			13
Balance, November 3, 2017	$	6		$	3		$	9



	Transition Period			Comparable Period
	January 1 to			January 1 to
	February 3,			January 31,
	2017			2016
Total revenue	$	496		$	470
Operating income (loss)	(41		)	22
Income tax provision (benefit)	(26		)	4
Net income (loss)	(8		)	22

Net income (loss) per weighted-average share, basic for Classes A and B	$	(0.02	)	$	0.05
Net income (loss) per weighted-average share, diluted for Classes A and B	$	(0.02	)	$	0.05

Weighted-average shares, basic for Classes A and B	408,625			422,067
Weighted-average shares, diluted for Classes A and B ⁽¹⁾	408,625			423,092



	Total Number of Shares Purchased⁽¹⁾	Average Price Paid Per Share⁽²⁾		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽¹⁾	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Publicly Announced Plans or Programs ⁽³⁾
August 5 – September 1, 2017	623,700	104.55		623,700	1,834,792,596
September 2 – September 29, 2017	4,944,895	108.65		4,944,895	1,297,553,604
September 30 – November 3, 2017	2,202,741	114.54		2,202,741	1,045,244,983
	7,771,336	$	109.99	7,771,336	1,045,244,983