Securities registered pursuant to Section 12(g) of the Act: None

This Annual Report on Form 10-K 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,” “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; future financial performance, trends or plans; anticipated impacts of developments in accounting rules and tax laws and rates; VMware’s expectations regarding the timing of tax payments and the impacts of changes in VMware’s 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 transactions, acquisitions, stock repurchases and investment activities; the outcome or impact of pending litigation, claims or disputes; the economic impact of the coronavirus/COVID-19;COVID-19 pandemic on the global economy as well as our business operations, financial performance, results of operations and stock price; future plans with respect to Dell’s ownership interest in us, including any possible spin-off of its ownership to Dell stockholders and any potential related transactions, such as a special cash dividend to be paid by us and the sources of funding for any such special cash dividend; 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.

VMware, Inc. (“VMware”) originally pioneered the development and application of virtualization technologies with x86 server-based computing, separating application software from the underlying hardware. Information technology (“IT”) driven innovation continues to disrupt markets and industries. Technologies emerge faster than organizations can absorb, creating increasingly complex environments. IT is working at an accelerated pace to harness new technologies, platforms and cloud models, ultimately guiding their businessbusinesses through a digital transformation. To take on these challenges, we are working with customers in the areas of hybrid and multi-cloud, virtual cloud networking, digital workspaces, modern applications networking, security and digital workspaces.intrinsic security. Our software provides a flexible digital foundation to enable customers in their digital transformation.

We incorporated in Delaware in 1998, were acquired by EMC Corporation (“EMC”) in 2004 and conducted our initial public offering of our Class A common stock in August 2007. In September 2016, Dell Technologies Inc. (“Dell”) acquired EMC. As a result, EMC became a wholly-ownedwholly owned subsidiary of Dell, and we became an indirectly-held,indirectly held, majority-owned subsidiary of Dell. In December 2019, we acquired Pivotal Software, Inc., a subsidiary of Dell. We are considered a “controlled company” under the rules of the New York Stock Exchange (“NYSE”). As of January 31, 2020,29, 2021, Dell controlled approximately 80.9%80.6% of our outstanding common stock, including 31 million shares of our Class A common stock and all of our Class B common stock.

Total revenue in fiscal 20202021 increased 12%9% to $10.8$11.8 billion. Total revenue is comprised of license revenue of $3.2$3.0 billion, subscription and SaaS revenue of $1.9$2.6 billion and services revenue of $5.8$6.1 billion. While salesAs customers shift from our on-premises offerings to our cloud-based offerings, license revenue may be lower and subject to greater fluctuation in the future, driven by a higher percentage of our VMware vSphere (“vSphere”) product have remained strong, the majority of our license sales originate from solutions across our broad portfolio beyond our compute products.cloud-based offerings being sold.

Our corporate headquarters are located at 3401 Hillview Avenue, Palo Alto, California, and we have 169127 offices worldwide.

VMware vSphere (“vSphere”), VMware vSAN (“ vSAN”), VMware NSX (“NSX”) and vRealize Cloud Management are foundational products that provide solutions to our customers. VMware Cloud Foundation (“VCF”) is a hybrid cloud platform that combines our vSphere, vSAN and NSX offerings with vRealize Cloud Management into an integrated stack that delivers developer-ready cloud infrastructure for private and public clouds. VMware Cloud Foundation software can be consumed as a software-only solution on customers’ choice of hardware, as an integrated system pre-installed at the first company to articulate a vision for SDDC, whereby infrastructure is increasingly virtualized and deliveredfactory such as Dell EMC VxRail (“VxRail”) or as a service enabling data center management to be entirely automated by software, from one unified platform. Traditional data centers are collections of technology silos where each application type has its own vertical stack consisting of a CPUon leading public clouds including Amazon Web Services (“AWS”), Azure, Google Cloud, IBM Cloud and operating system, storage pool, networking, security, and management systems. Over time, costs to maintain data center infrastructure have increased as the data center environment has become more heterogeneous and complex, requiring greater resources to manage and maintain IT infrastructures. SDDC is designed to transform and modernize the data center into an on-demand service that addresses application requirements by abstracting, pooling and automating the services that are required from the underlying hardware. SDDC dramatically simplifies data center operations and lowers costs.Oracle.

We have continued to develop vSphere solutions to be compatible with new technologiesvSAN and tools utilized by software developers and enterprises, including modern cloud-native applications.

vRealize Cloud Management solutions–available as a service or on-premises offerings–help customers manage hybrid and multi-cloud environments running in both virtual machines and containers. VMware cloud management offerings optimize cloud usage and costs, automate the deployment, management and migration of applications and data, improve cloud security and compliance, and monitor application and cloud infrastructure. Key products in the VMware cloud management product portfolio include CloudHealth by VMware, vRealize Automation, vRealize Operations, VMware vRealize Suite and VMware vCloud Suite are packaged solutions for buildingSuite. VMware vRealize Cloud Universal, which was launched in fiscal 2021, is a single offering that combines VMware’s SaaS and managing a completeon-premises cloud infrastructure optimized for usemanagement capabilities with the vSphere platform:

VMware Cloud Foundation is a unified platform that combines our compute, storage and networking technologies with cloud management into an integrated stack that delivers enterprise-ready cloud infrastructure for private and public clouds. The offering includes lifecycle management capabilitiesVCF extends to span the full stack.

Our EUC portfolio offers a digital workspace toofferings enable our customers to more securely deliver access to applications and data for their end users from any device of the user’s choice and from any location. Our EUC solutionsThese offerings are designed to optimizedeliver simplicity and choice for end users, while providing more security and control to corporate IT organizations. IT organizations can enhance their enterprise security for corporate applications, data and endpoints utilizing our EUC solutions.endpoints.

Our complete EUCdigital workspace solution consists ofis VMware Workspace ONE (“Workspace ONE”), our digital workspacethe platform that more securely delivers and manages any application on any device by integrating access control, application management and multi-platform endpoint management. Workspace ONE is powered bybrings together Workspace ONE Unified Endpoint Management (formerly known as AirWatch)(“UEM”), Workspace ONE Access (“Access”) and VMware Horizon (“Horizon”) application and desktop virtualization,, tied together with a common access control layer:

While Unified Endpoint ManagementWorkspace ONE UEM, Access and Horizon are also offered separately, together this solutionthe complete Workspace ONE platform provides customers with a completeholistic digital workspace solution that combines identity, mobile management, employee productivity tools and application and desktop virtualization solutions. Through the continued expansion of our virtual desktop portfolio, we offer customers the opportunity to run virtual desktops as-a-service through multiple environments including the Azure platform, VMware Cloud on AWS and IBM Cloud.

We make security intrinsic by leveraging the infrastructure to provide visibility for apps, users and devices, and combining that with leading threat detection and response capabilities to deliver a unique (and better) approach to security. The VMware Carbon Black platform is at the center of the VMware Tanzu portfoliosecurity portfolio. VMware Carbon Black Cloud is a SaaS-delivered cloud native endpoint and workload protection platform.

We have more than 1,000900 technology partners with whom we bring offerings to the marketplace and over 4,500 active cloud and managed service provider partners. We classify our partners as follows:

In addition to our base of active partnerships with cloud providers, we have a strategic alliance with AWS to build and deliver an integrated hybrid offering, VMware Cloud on AWS, that enables customers to run applications across vSphere-based private, public and multi-cloud environments.

Our Technology Alliance Partner (“TAP”) program facilitates collaborative solution creation and coordinated go-to-market activities for our greatermore than 1,000900 technology partner ecosystem. Created exclusively for IHV and ISV partners, the TAP program

Our ISVs and other alliance partners, developers and additional VMware community members continue to distribute software applications as virtual appliances. We invest significant capital in testing and certification of infrastructure to rigorously ensure our software is compatible with major hardware and software products.

We have made, and expect to continue to make, significant investments in research and development (“R&D”). We have assembled an experienced group of developers with expertise in software-defined data centers, hybrid and multiple public clouds, the modernization, migration and management of applications, networking, security, and digital workspaces. We also have strong ties to leading academic institutions around the world, and we invest in joint research with academia.

We prioritize our product development efforts through a combination of engineering-driven innovation and customer- and market-driven feedback. Our R&D culture places a high value on innovation, quality and open collaboration with our partners. We currently participate in numerous standards groups, and our employees hold a variety of standards organization leadership positions.

We have a highly leveraged go-to-market strategy that includes a direct sales force, including a specialized sales force for our key growth products,offerings, and our channel and cloud partners.

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.

End users can purchase the full breadth of our offeringssubscription, SaaS, perpetual license, and services portfolio through discrete purchases to meet their immediate needs or through the adoption of enterprise agreements (“EAs”). Both of which provide access to a range of flexible purchasing programs. EAs are comprehensive volumeofferings that may include license offeringsand subscription and SaaS, offered both directly by us and through certain channel partners that also provide for multi-year maintenance and support at negotiated prices.support. EAs enable us to build long-term relationships with our customers as they commit to our virtual infrastructure solutions. Our sales cycle can vary greatly depending on numerous factors, including the size and complexity of the proposed offering and customer’s infrastructure footprint.

In establishing list prices for our products, we take into account, among other numerous factors, the value our products and solutions deliver and the cost of alternative virtualization, end-user computing and hardware solutions.

Our marketing efforts focus on communicating the benefits of our solutions and educating our customers and users, distributors, resellers, system vendors, systems integrators, the media and analysts about the advantages of our innovative virtualization technology, cloud services and digital workspace solutions.offerings. We raise awareness of our company and brands, market our products and generate sales leads through VMware and industry events, public relations efforts, marketing materials, advertising, direct marketing, social media initiatives, free downloads and trials, and our website. We have invested in multiple online communities that enable customers and partners to share and discuss sales and development resources, best practices implementation and industry trends among other topics. Our annual user conference,conferences, VMworld, is held in both the United States (“U.S.”)vForum, Connect and Europe, while our vForum eventsSpringOne are held in the Asia Pacific and Japan region.globally. We also offer management presentations, seminars and webinars on our virtualizationsolutions and EUC products and cloud services. We believe the combination of these activities strengthens our brand and enhances our leading positions in the industries in which we compete.

We continue joint marketing, sales, branding and product development efforts with Dell and other Dell companies to enhance the collective value we deliver to our mutual customers. Our collective business with Dell continued to create synergies that benefited our sales during fiscal 2020.2021. Bookings through Dell sales channels have grown more rapidly than through non-Dell resellers and distributors, and Dell sales channels in aggregate comprise the largest route-to-market for our sales. We also have strategic partnerships with AWS, Google, IBM and Microsoft to jointly provide the expertise, solutions and

Our business is subject to seasonality in the sale of our products and services. For example, our fourth quarter revenue is affected by a number of seasonal factors, including year-end spending trends which impact the timing of renewals of our EAs and support and maintenance contracts.

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 customer contracts at the end of any given period.

As of January 31, 2020,29, 2021, the aggregate transaction price allocated to remaining performance obligations was $10.3$11.3 billion, of which approximately 54%55% is expected to be recognized as revenue over the next twelve months and the remainder thereafter.

As of February 1, 2019,January 31, 2020, the aggregate transaction price allocated to remaining performance obligations was $8.7$10.3 billion, of which approximately 55%54% was expected to be recognized as revenue during fiscal 2020,2021, and the remainder thereafter.

Backlog is comprised of unfulfilled purchase orders or unfulfilled executed agreements at the end of a given period and is net of related estimated rebates and marketing development funds. Backlog consists of licenses, subscription and SaaS, and services. As of January 31, 2020,29, 2021, our total backlog was $18 million. Backlog primarily consists of licenses, maintenance$93 million and services. Ourour backlog related to licenses was $5 million, which$23 million. For our backlog related to licenses, we generally expect to deliver and recognize as revenue during the following quarter. Backlog totaling $18 million as of January 29, 2021 was excluded from the remaining performance obligations because such contracts are subject to cancellation until fulfillment of the performance obligation occurs.

As of January 31, 2020, our total backlog was $18 million, and our backlog related to licenses was $5 million. The amount excluded from the remaining performance obligations because such contracts were subject to cancellation until fulfillment of the performance obligation occurs was not material as of January 31, 2020.

The amount and composition of backlog will fluctuate period to period, and backlog is managed based upon multiple considerations, including product and geography. We do not believe that the amount of backlog is indicative of future sales or revenue or that the mix of backlog at the end of any given period correlates with actual sales performance of a particular geography or particular products or services.

Our product offerings allow customers to manage IT resources across private clouds and complex multi-cloud, multi-device environments. Customer deployments range in size from a single virtualized server for small businesses to thousands of virtual machines and managed devices for our largest enterprise customers.

During fiscal 2020, two distributors, who purchased software licenses and software support from us for resale to end-user customers directly or via resellers, each accounted for over 10% of our consolidated revenue. Arrow Electronics, Inc. and Tech Data Corporation accounted for 12% and 10%, respectively, of our consolidated revenue in fiscal 2020. Our distribution agreements are typically terminable at will by either party upon 30 to 90 days’ prior written notice to the other party, and neither party has any obligation to purchase or sell any products under the agreement.

We face intense competition across all markets for our products and services. We believe that the key factors in our ability to successfully compete include the level of reliability, interoperability and new functionality of our product and service offerings; the ability of our product offerings to support multiple hardware platforms, operating systems, applications frameworks and public cloud platforms; our ability to anticipate customer needs in rapidly evolving markets for IT resources; the pricing of our product and service offerings; the ability to integrate open source technologies that are critical in private and public cloud computing architectures; the ability to attract and retain key employees; and the ability to maintain and expand our ecosystem of technology partners, service providers and sales channel partners. While we believe that we are a technology leader in virtualization and cloud infrastructure solutions and have a strong, favorable image with our customers, many of our

We face competition from, among others:

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.

We incorporated in Delaware in 1998, were acquired by EMC Corporation (“EMC”) in 2004 and conducted our initial public offering of our Class A common stock in August 2007. In September 2016, Dell Technologies Inc. (“Dell”) acquired EMC. As a result, EMC became a wholly owned subsidiary of Dell, and we became an indirectly held, majority-owned subsidiary of Dell. In December 2019, we acquired Pivotal Software, Inc., a subsidiary of Dell. We are considered a “controlled company” under the rules of the New York Stock Exchange (“NYSE”). As of January 29, 2021, Dell controlled approximately 80.6% of our outstanding common stock, including 31 million shares of our Class A common stock and all of our Class B common stock.

We refer to our fiscal years ended January 28, 2022, January 29, 2021 and January 31, 2020 as “fiscal 2022,” “fiscal 2021” and “fiscal 2020,” respectively.

We have been grantedmore than 900 technology partners with whom we bring offerings to the marketplace and over 4,500 active cloud and managed service provider partners. We classify our partners as follows:

Our ISVs and other alliance partners, developers and additional VMware community members continue to us.distribute software applications as virtual appliances. We invest significant capital in testing and certification of infrastructure to rigorously ensure our software is compatible with major hardware and software products.

We have made, and expect to continue to make, significant investments in research and development (“R&D”). We have assembled an experienced group of developers with expertise in software-defined data centers, hybrid and multiple public clouds, the modernization, migration and management of applications, networking, security, and digital workspaces. We also have been granted or assigned patentsstrong ties to leading academic institutions around the world, and we invest in joint research with academia.

In establishing list prices for our products, we take into account, among other numerous factors, the value our products and solutions deliver and the cost of alternative virtualization, end-user computing and hardware solutions.

We continue joint marketing, sales, branding and product development efforts with Dell and other technologies.Dell companies to enhance the collective value we deliver to our mutual customers. Our collective business with Dell continued to create synergies that benefited our sales during fiscal 2021. Bookings through Dell sales channels have grown more rapidly than through non-Dell resellers and distributors, and Dell sales channels in aggregate comprise the largest route-to-market for our sales. We also have numerous pending U.S. provisionalstrategic partnerships with AWS, Google, IBM and non-provisional patent applications,Microsoft to jointly provide the expertise, solutions and numerous pending foreign

Our business is subject to seasonality in the sale of our virtualizationproducts and other technologies.

Remaining performance obligations represent the aggregate amount of the U.S. patent filings are intendedtransaction price in contracts allocated to provideperformance obligations not delivered, or partially undelivered, as of the holderend of the reporting period. Remaining performance obligations include unearned revenue, multi-year contracts with a rightfuture installment payments and certain unfulfilled orders against accepted customer contracts at the end of any given period.

As of January 29, 2021, the aggregate transaction price allocated to exclude others from making, using, offeringremaining performance obligations was $11.3 billion, of which approximately 55% is expected to sell, selling or importing intobe recognized as revenue over the U.S. products covered by the claims of granted patents.

As of January 31, 2020, we had approximately 31,000 employees in 169 offices worldwide, less than 5%the aggregate transaction price allocated to remaining performance obligations was $10.3 billion, of which were contracted through Dell. None of our employees are represented by labor unions, and we consider current employee relationsapproximately 54% was expected to be good.recognized as revenue during fiscal 2021, and the remainder thereafter.

Backlog is comprised of unfulfilled purchase orders or unfulfilled executed agreements at the end of a full-time basis. These individuals are located in countries in which we do not currently have an operating subsidiarygiven period and are predominantly dedicated to our salesis net of related estimated rebates and marketing efforts.development funds. Backlog consists of licenses, subscription and SaaS, and services. As of January 29, 2021, our total backlog was $93 million and our backlog related to licenses was $23 million. For our backlog related to licenses, we generally expect to deliver and recognize as revenue during the following quarter. Backlog totaling $18 million as of January 29, 2021 was excluded from the remaining performance obligations because such contracts are subject to cancellation until fulfillment of the performance obligation occurs.

The amount and composition of backlog will fluctuate period to period, and backlog is managed based upon multiple considerations, including product and geography. We use contractors from time to time for temporary assignments and in locations in which we do not currently have operating subsidiaries. In the event that these contractor resources were not available, we do not believe that this would havethe amount of backlog is indicative of future sales or revenue or that the mix of backlog at the end of any given period correlates with actual sales performance of a material adverse effect onparticular geography or particular products or services.

Our product offerings allow customers to manage IT resources across private clouds and complex multi-cloud, multi-device environments. Customer deployments range in size from a single virtualized server for small businesses to thousands of virtual machines and managed devices for our operations.largest enterprise customers.

During fiscal 2021, another distributor, Arrow Electronics, Inc., who purchased software licenses and conductsoftware support from us for resale to end-user customers directly or via resellers, accounted for 11% of our business operations. The magnitude and duration of the resulting decline in business activity cannot currently be estimated with any degree of certainty and threatensconsolidated revenue. Our distribution agreements are typically terminable at will by either party upon 30 to (1) negatively impact the demand for our products and services, (2) restrict our sales operations and marketing efforts, (3) disrupt the supply chain of hardware needed to operate our SaaS offerings, offer hardware appliances that integrated with our software products or run our business and (4) disrupt our ability to conduct product development and other important business activities. For example, in response90 days’ prior written notice to the COVID-19 pandemic, certain industry events that we sponsorother party, and neither party has any obligation to purchase or at which we present and certain customer events have been canceled, postponed or moved to virtual-only experiences; we are encouraging all of our employees to work remotely; and we may deem it advisable to similarly alter, postpone or cancel entirely additional customer, employee or industry events insell any products under the future. Accordingly, we expect the COVID-19 pandemic to have a negative impact on our sales and our results of operations, the size and duration of which we are currently unable to predict. Additionally, concerns over the economic impact of COVID-19 have caused extreme volatility in financial and other capital markets which has and may continue to adversely impact our stock price and our ability to access capital markets.agreement.

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

We face competition from, among others:

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.

As of January 31, 2020,29, 2021, Dell beneficially owned 30,678,605 shares of our Class A common stock and all 307,221,836 shares of our Class B common stock, representing 80.9%80.6% of the total outstanding shares of common stock or 97.5%97.4% of the voting power of outstanding common stock held by EMC, and we are considered a “controlled” company under the rules of the NYSE.New York Stock Exchange (“NYSE”). Accordingly, strategic and business decisions made by Dell can impact our strategic and business decisions and relationships, and public speculation regarding Dell’s strategic direction and prospects, as well as our relationship with Dell, can cause our stock price to fluctuate.

For example, during 2018,in July 2020, Dell announced that it was reviewingexploring its strategic opportunities,alternatives with respect to its ownership interest in us, including a possible business combination with us,spin-off of its ownership interest to Dell stockholders and that as part of that exploration it also expected to explore certain terms and conditions that could include negotiating a special cash dividend to be paid by VMware on a pro rata basis to all VMware stockholders that VMware would fund, in part, through the incurrence of additional indebtedness. A special committee of independent directors of our board of directors has been evaluating the spin-off. However, there can be no assurance that a spin-off will occur. Previously, during 2018, Dell had conducted a review of its strategic alternatives that led to Dell’s exchange of its Class V common stock designed to track our financial performance for its Class C

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 IRS. In January 2014, the IRS announced in Revenue Procedure 2014-3 that, generally, it would no longer issue private letter rulings on 355 Distributions.

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

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’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.

As of January 31, 2020,29, 2021, Dell controlled 80.9%80.6% 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. Pursuant to a letter agreement entered into by VMware and Dell on July 1, 2018, until the ten-year anniversary of the agreement, Dell may not purchase or otherwise acquire 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 transaction has been approved in advance by a special committee of the VMware Board of Directors comprised solely of independent and disinterested directors or 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 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. For example, in December 2019, we acquired Pivotal, a then majority owned subsidiary of Dell and a company in which we held a significant ownership interest. Additionally, in December 2019, personnel in the Dell Technologies Consulting group who provide professional services for VMware product offerings to Dell customers transferred to VMware’s professional services group.

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

We and Dell are IT infrastructure companies 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 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.

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, which could have a material adverse effect on our operating results and our ability to pursue opportunities whichthat may otherwise be available to us.

We have historically been 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, and since the Dell Acquisition, we have been 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 return basis liability may increase, vary more widely from period to period and be less predictable. Additionally, the impact of the 2017 Tax Act upon consolidated groups is highly complex and uncertain and its impact must be further interpreted in the context of the tax sharing agreement to determine VMware’s tax sharing payment. In April 2019, VMware, Dell and EMC entered into a letter agreement that governs our portion of the one-time transition tax imposed by the 2017 Tax Act on accumulated earnings of foreign subsidiaries.

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 in 2004 and will continue to be included in Dell’s consolidated group for periods in which Dell or its successor-in-interest

During the fourth quarter of fiscal 2020, we completed the acquisition of Pivotal. Pivotal will continue to file its 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 (“IPO”) in April 2018. Pivotal continues to be included on Dell’s unitary state tax returns. Pursuant to a tax sharing agreement, Pivotal historically receivedmay receive or owe payments from or to Dell for the tax benefits derived from the inclusion of its losses in certain Dell U.S. federal and state group returns. This has reduced the amount of benefit or expense received by Pivotal since the IPO to the amount of benefit or expenses that Dell realizes fromrealized due to Pivotal’s inclusion on unitary state taxsuch returns.

OnIn December 30, 2019, VMware entered into a secondamended the tax sharing agreement with Dell in connection with, and effective as of, the Pivotal acquisition. The tax sharing agreement with Dell, as amended and subject to certain exceptions, generally limits VMware’s maximum annual tax liability to Dell to the amount VMware would owe on a separate tax return basis.

Also, under the tax sharing agreement, 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.

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 renewals or 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.

The Chairman of our Board of Directors, Michael Dell, is also Chairman and CEO of Dell and is a significant stockholder of Dell, and one of our directors, Egon Durbin, is member of the Dell board of directors and managing partner of Silver Lake Partners, which is a significant stockholder of Dell. Another of our directors also holds shares of Dell common stock. Dell, through its controlling voting interest in our outstanding common stock, is entitled to elect 8 of our 910 directors and possesses sufficient voting control to elect the remaining director.directors. 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 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 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 directors of both us and Dell and we may be precluded from pursuing certain growth initiatives.

Dell owns more than 50% of the total voting power of our common stock and, as a result, we are a “controlled company” under the NYSE corporate governance standards. As a controlled company, we are exempt under the NYSE standards from the obligation to comply with certain NYSE corporate governance requirements, including the requirements:

While we have voluntarily caused our Compensation and Corporate Governance Committee to currently be composed entirely of independent directors, reflecting the requirements of the NYSE, we are not required to maintain the independent composition of the committee. As a result of our use of the “controlled company” exemptions, holders of our Class A common stock will not have the same protection afforded to stockholders of companies that are subject to all of the NYSE corporate governance requirements.

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, it may become difficult for us to recruit independent directors.

The financial information covering the periods included in this reportAnnual Report on Form 10-K 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 consolidated statements of income. Additionally, we engage with Dell in related party transactions, including agreements regarding the use of Dell’s and our intellectual property and real estate, agreements regarding the sale of goods and services to one another, and agreements for Dell to resell and distribute our products and services to third party customers. If Dell were to distribute its shares of our common stock to its stockholders or otherwise divest itself of all or a significant portion of its VMware shares, there would be numerous implications to us, including the fact that we could lose the benefit of these arrangements with Dell. There can be no assurance that we would be able to renegotiate these arrangements with Dell or replace them on the same or similar terms. Additionally, our business could face significant disruption 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 or cash flows would be in the future if 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 year ended January 31, 2020,29, 2021, we recognized revenue of $3.4$4.1 billion, and as of January 31, 2020, $3.829, 2021, $5.0 billion of sales were included 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 II, Item 7 and Note D to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.

The trading price of our Class A common stock has fluctuated significantly in the past and could fluctuate substantially in the future due to the factors discussed in this Risk Factors section and elsewhere in this report.Annual Report on Form 10-K.

Dell, which beneficially owned 80.9%80.6% of our outstanding stock as of January 31, 2020,29, 2021, is not restricted from selling its shares 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

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. Our public float is also relatively small due to Dell’s holdings, which can result in greater volatility in our stock compared to that of other companies with a market capitalization similar to ours. In addition, 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.

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 change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, our stock price would likely decline.

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, our partners’ and our charter documentscustomers’ workforce, could discourage takeover attempts.have a material adverse impact on our business and operating results. Our worldwide operations are dependent on our network infrastructure, internal technology systems and website, as well as our intellectual property and 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 deployment or availability of our products and services, for example, could materially impact our revenue. Furthermore, some of our newer product initiatives, offerings and business functions are hosted or carried out by third parties that may be vulnerable to these same types of disruptions, the response to or resolution of 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.

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:

We believe that our current facilities are suitable forwill support our current employee headcount and will sustain us through fiscal 2021, but we intend2022 while working in a distributed manner that empowers our people to add new facilities or expand existing facilities as needed as we add employeeswork from any location, consistent with business requirements. We review our real estate on an ongoing basis to support our growing employee base and expand ouroperational excellence.

Refer to Note E to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K 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 I, Item 1A of this Annual Report on Form 10-K for a discussion of potential risks to our results of operations and financial condition that may arise from legal proceedings.

Not applicable.

Our Class A common stock, par value $0.01 per share, trades on the New York Stock Exchange under the symbol VMW.

WeAs of March 16, 2021, we had 2726 holders of record of our Class A common stock and three holders of record of our Class B common stock, EMC Corporation (“EMC”), VMW Holdco LLC and EMC Equity Assets LLC, each of which is an indirect wholly owned subsidiary of Dell Technologies Inc. (“Dell”), as of March 17, 2020..

Subsequent to our initial public offering in August 2007, we have not declared or paid regular cash dividends on our common stock. On July 1, 2018, we declared a conditional special dividend of $11.0 billion, (the “Special Dividend”). During the fourth quarter of fiscal 2019, the conditions of the Special Dividend were met. The record date for the dividendwhich was December 27, 2018, the dividend payment date waspaid on December 28, 2018, and thewith a per share dividend amount wasof $26.81.

We currently do not anticipate declaring any cash dividendsOn July 15, 2020, Dell Technologies Inc. (“Dell”) announced that it is exploring potential alternatives with respect to its ownership interest in the foreseeable future. Any future determinationVMware, Inc. (“VMware”), including a potential spin-off of its ownership interest to declare cash dividends will be made atDell stockholders that is intended to qualify as generally tax-free for U.S. federal income tax purposes to Dell and its stockholders (a “Spin-off”). VMware has formed a special committee of the discretion of our board of directors subject(the “Special Committee”) to the consentevaluate and engage in discussions and negotiations with Dell with respect to any proposal that may be made by Dell with respect to a Spin-off. As part of the holdersdiscussions, VMware expects that it may negotiate with Dell the payment of our Class B common stock pursuanta special cash dividend by VMware, which would be paid on a pro rata basis to our certificateall of incorporation.VMware’s stockholders. Holders of our Class A common stock and our Class B common stock will share equally on a per share basis in any dividend declared on our common stock by our board of directors.

Issuer purchases of Class A common stock during the quarterthree months ended January 31, 202029, 2021 were as follows:

Note: The stock price performance shown on the graph above is not necessarily indicative of future price performance. This graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section nor shall it be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act, regardless of any general incorporation language in such filing.

To better understand our results of operations and financial condition, selected financial data presented below should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 and6 is no longer required as the accompanying consolidated financial statements and notes thereto in Part II,Company has adopted certain provisions within the amendments to Regulation S-K that eliminate Item 8 of this Annual Report on Form 10-K. The historical results are not necessarily indicative of the results to be expected in any future period.301.

The following management’s discussion and analysis is provided in addition to the accompanying consolidated financial statements and notes to assist in understanding our results of operations and financial condition.

In December 2019, VMware completed the acquisition of Pivotal formerlySoftware, Inc. (“Pivotal”), which was, at the time, a subsidiary of VMware’s parent company, Dell.Dell Technologies Inc. (“Dell”). The acquisitionpurchase of the controlling interest in Pivotal from Dell was accounted for as a transaction between entities under common control in accordance with Accounting Standards Codification 805-50, Business Combination - Related Issues, which requires retrospective combination of entities for all periods presented, as if the combination had been in effect since the inception of common control. As such, prior period

Additionally, effective with the fourth quarter of fiscal 2020, VMware presentedis presenting new revenue and new cost of revenue line items entitled, “subscription and SaaS revenue” and “cost of subscription and SaaS revenue” in this Annual Report on Form 10-K.revenue.” Previously, subscription and software-as-a-service (“SaaS”) revenue was referred to as “hybrid cloud subscription and SaaS revenuerevenue” and was allocated between license revenue and services revenue on the consolidated statements of income. In light of the Company’sour recent acquisitions, management decided thatto separately present revenue recognized from subscription and SaaS offerings will be presented separately as management believes it provides a more meaningful representation of the nature of its revenue. Revenue and its related costs from prior periods were reclassified to conform to the current presentation.

Period-over-period changes are calculated based upon the respective underlying, non-rounded data. We refer to our fiscal years ended January 29, 2021, January 31, 2020 and February 1, 2019 and February 2, 2018 as “fiscal 2021,” “fiscal 2020,” “fiscal 2019” and “fiscal 2018,2019,” respectively. 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.”

We originally pioneered the development and application of virtualization technologies with x86 server-based computing, separating application software from the underlying hardware. Information technology (“IT”) driven innovation continues to disrupt markets and industries. Technologies emerge faster than organizations can absorb, creating increasingly complex environments. IT is working at an accelerated pace to harness new technologies, platforms and cloud models, ultimately guiding their businessbusinesses through a digital transformation. To take on these challenges, we are working with customers in the areas of hybrid and multi-cloud, modern applications, networking, security and digital workspaces. Our software provides a flexible digital foundation to enable customers in their digital transformation.transformations.

We sell our solutions using enterprise agreements (“EAs”) or as part of our non-EA, or transactional, business. EAs are comprehensive volumeofferings that may include license offerings,and subscription and SaaS, offered both directly by us and through certain channel partners that also provide for 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 and newer products and solutions.

During fiscal 2020,2021, revenue growth in our subscription and SaaS offerings was primarily driven by our Pivotal and VCPP offerings. We expect CloudHealth by VMware Cloud Provider Program (“CloudHealth”VCPP”) and, VMware Workspace ONE (“Workspace ONE”), VMware Tanzu, VMware Cloud on AWS to contribute toand VMware Carbon Black Cloud. We expect revenue growth in fiscal 2021.

During the fourth quarter of fiscal 2020,2021, we saw an increase in the portion of our sales occurring through our subscription and SaaS-basedSaaS offerings compared to the portion of our on-premises solutions sold with perpetual licenses. As this trend continues, a greater portion of our revenue will be recognized over time as subscription and SaaS revenue rather than license revenue, which is typically recognized in the fiscal period in which sales occur. We expect our license revenue line item to have a slower growth rate than it has historically to the extent customers adopt our cloud-based offerings which are now be recorded in the new subscription and SaaS line item. Accordingly, license revenue may be lower and subject to greater fluctuation in the future driven by a higher percentage of cloud-based offerings being sold, as well as the variability of large deals between fiscal quarters, that historically have had a large license revenue impact. As a result, the rate of growth in our license revenue, which has historically been viewed as a leading indicator of our business performance, may be less relevant and we believe that the overall growth in the combinationrate of our combined license and subscription and SaaS revenue, as well as the growth in remaining performance obligations, will become a better indicatorindicators of our future growth prospects.

We continue joint marketing, sales, branding and product development efforts with Dell and other Dell companies to enhance the collective value we deliver to our mutual customers. Our collective business built withDuring fiscal 2021, revenue from Dell, continued to create opportunities that benefitedincluding purchases of

The worldwide spread of the COVID-19 virus is expectedhas resulted in, and may continue to result incause, a global slowdown of economic activity which is likely to decrease demand for a broad variety of goods and services, including from our customers, while also disrupting sales channels and marketing activities for an unknown period of time until the disease is contained. We expect thisWhile the COVID-19 pandemic has not had a material adverse financial impact on our operations to date, the future course of the pandemic, any resulting economic impact and the degree and rate of economic recovery remain highly uncertain and continue to rapidly evolve. Although the pandemic has not had the level of financial impact on our business in fiscal 2021 we initially expected, we did experience negative impacts on our sales and certain of our financial results and there continues to be uncertainty regarding the economic effects of the COVID-19 pandemic and the extent to which it will have a negative impact on our sales and our financial results into fiscal 2022. For example, license revenue decreased during fiscal 2021 due in part to the effects of operations,COVID-19 as a number of our customers’ business plans were impacted by the sizepandemic. We also expect our operating margin to benefit into fiscal 2022 from some of the short-term COVID-19 impacts on our operating expenses, including travel-, employee- and durationfacilities-related costs.

We continue to closely monitor the impact of which we are currently unable to predict.the pandemic on all aspects of our business.

Approximately 70% of our sales are denominated in the United States (“U.S.”) dollar, however, indollar. In certain countries, however, we also invoice and collect in various foreign currencies, principally euro;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.