Company Quick10K Filing
Quick10K
Vmware
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$197.69 410 $81,140
10-Q 2019-05-03 Quarter: 2019-05-03
10-K 2019-02-01 Annual: 2019-02-01
10-Q 2018-11-02 Quarter: 2018-11-02
10-Q 2018-08-03 Quarter: 2018-08-03
10-Q 2018-05-04 Quarter: 2018-05-04
10-K 2018-02-02 Annual: 2018-02-02
10-Q 2017-11-03 Quarter: 2017-11-03
10-Q 2017-08-04 Quarter: 2017-08-04
10-Q 2017-05-05 Quarter: 2017-05-05
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-06-25 Shareholder Vote
8-K 2019-06-12 Shareholder Vote
8-K 2019-05-30 Shareholder Vote
8-K 2019-05-29 Earnings, Other Events, Exhibits
8-K 2019-01-18 Shareholder Vote
8-K 2018-12-28 Regulation FD, Exhibits
8-K 2018-12-11 Regulation FD, Exhibits
8-K 2018-11-29 Earnings, Exhibits
8-K 2018-11-14 Enter Agreement, Shareholder Vote, Other Events, Exhibits
8-K 2018-11-01 Shareholder Vote
8-K 2018-09-14 Officers, Exhibits
8-K 2018-08-23 Shareholder Vote
8-K 2018-07-19 Shareholder Vote
8-K 2018-07-01 Enter Agreement, Shareholder Vote, Regulation FD, Other Events, Exhibits
8-K 2018-05-31 Earnings, Exhibits
8-K 2018-03-01 Earnings, Exhibits
8-K 2018-01-25 Shareholder Vote
8-K 2018-01-19 Other Events
STAY Extended Stay America 3,410
SSB South State 2,610
PSEC Prospect Capital 2,470
FFBC First Financial Bancorp 2,450
CHUY Chuy's Holdings 387
SPKE Spark Energy 336
CBL CBL & Associates Properties 217
SGRP Spar Group 14
MWPP Markham Woods Press Publishing Company 0
CAVF Cavendish Futures Fund 0
VMW 2019-05-03
Part I
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-10.32 vmw-532019x10qex1032.htm
EX-31.1 vmw-532019x10qex311.htm
EX-31.2 vmw-532019x10qex312.htm
EX-32.1 vmw-532019x10qex321.htm
EX-32.2 vmw-532019x10qex322.htm

Vmware Earnings 2019-05-03

VMW 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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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 May 3, 2019
OR
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)
 
 
3401 Hillview Avenue
Palo Alto, CA
94304
(Address of principal executive offices)
(Zip Code)
(650) 427-5000
(Registrant’s telephone number, including area code)
_____________________________________________________

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Class A common stock
 
VMW
 
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes  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
 þ
 
Accelerated filer
o
Non-accelerated filer
 o
 
Smaller reporting company
o
 
 
 
Emerging growth company
o
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 May 31, 2019, the number of shares of common stock, par value $0.01 per share, of the registrant outstanding was 409,209,870, of which 109,209,870 shares were Class A common stock and 300,000,000 shares were Class B common stock.



TABLE OF CONTENTS
 
 
Page
PART I – FINANCIAL INFORMATION
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
PART II – OTHER INFORMATION
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 
 
 
VMware, Workspace ONE, vSphere, VMware vSAN, vRealize, VMware Cloud, NSX, Heptio, CloudHealth, VeloCloud, vCloud, vCloud Air, Horizon, and Horizon Suite are registered trademarks or trademarks of VMware or its subsidiaries in the United States and other jurisdictions. All other marks and names mentioned herein may be trademarks of their respective companies.


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Table of Contents

PART I
FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS
VMware, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(amounts in millions, except per share amounts, and shares in thousands)
(unaudited)
 
Three Months Ended
 
May 3,

May 4,
 
2019

2018
Revenue(1):
 
 
 
License
$
869

 
$
774

Services
1,397

 
1,234

Total revenue
2,266

 
2,008

Operating expenses(2):
 
 
 
Cost of license revenue
50

 
45

Cost of services revenue
302

 
251

Research and development
533

 
453

Sales and marketing
779

 
706

General and administrative
187

 
169

Realignment and loss on disposition

 
2

Operating income
415

 
382

Investment income
14

 
48

Interest expense
(34
)
 
(34
)
Other income (expense), net
145

 
779

Income before income tax
540

 
1,175

Income tax provision
35

 
233

Net income
$
505

 
$
942

Net income per weighted-average share, basic for Classes A and B
$
1.23

 
$
2.33

Net income per weighted-average share, diluted for Classes A and B
$
1.21

 
$
2.29

Weighted-average shares, basic for Classes A and B
410,414

 
404,968

Weighted-average shares, diluted for Classes A and B
418,387

 
410,932

__________
 
 
 
(1)   Includes related party revenue as follows (refer to Note C):
License
$
295

 
$
167

Services
329

 
204

(2)   Includes stock-based compensation as follows:
 
 
Cost of services revenue
$
16

 
$
11

Research and development
95

 
84

Sales and marketing
57

 
46

General and administrative
26

 
20

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
(in millions)
(unaudited)
 
Three Months Ended
 
May 3,
 
May 4,
 
2019
 
2018
Net income
$
505

 
$
942

Other comprehensive income (loss):
 
 
 
Changes in market value of available-for-sale securities:
 
 
 
Unrealized gains (losses), net of tax provision (benefit) of $— and ($5)
(1
)
 
(15
)
Changes in market value of effective foreign currency forward contracts:
 
 
 
Unrealized gains (losses), net of tax provision (benefit) of $— for all periods
5

 
(9
)
Total other comprehensive income (loss)
4

 
(24
)
Total comprehensive income, net of taxes
$
509

 
$
918

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)
 
May 3,

February 1,
 
2019

2019
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
3,311

 
$
2,830

Short-term investments

 
19

Accounts receivable, net of allowance for doubtful accounts of $2 and $2
1,192

 
1,576

Due from related parties, net
442

 
937

Other current assets
343

 
289

Total current assets
5,288

 
5,651

Property and equipment, net
1,139

 
1,133

Other assets
2,671

 
1,853

Deferred tax assets
69

 
103

Intangible assets, net
392

 
541

Goodwill
5,414

 
5,381

Total assets
$
14,973

 
$
14,662

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
150

 
$
135

Accrued expenses and other
1,276

 
1,593

Unearned revenue
4,019

 
3,968

Total current liabilities
5,445

 
5,696

Note payable to Dell
270

 
270

Long-term debt
3,974

 
3,972

Unearned revenue
3,100

 
3,010

Income tax payable
896

 
889

Other liabilities
727

 
274

Total liabilities
14,412

 
14,111

Contingencies (refer to Note J)

 

Stockholders’ equity:
 
 
 
Class A common stock, par value $0.01; authorized 2,500,000 shares; issued and outstanding 110,267 and 110,715 shares
1

 
1

Class B convertible common stock, par value $0.01; authorized 1,000,000 shares; issued and outstanding 300,000 shares
3

 
3

Additional paid-in capital
30

 
531

Accumulated other comprehensive income
6

 
2

Retained earnings
521

 
14

Total stockholders’ equity
561

 
551

Total liabilities and stockholders’ equity
$
14,973

 
$
14,662

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)
 
Three Months Ended
 
May 3,
 
May 4,
 
2019
 
2018
Operating activities:
 
 
 
Net income
$
505

 
$
942

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
174

 
156

Stock-based compensation
194

 
161

Deferred income taxes, net
31

 
180

Unrealized (gain) loss on equity securities, net
(129
)
 
(776
)
(Gain) loss on disposition of assets, revaluation and impairment, net
(4
)
 

Other
1

 
1

Changes in assets and liabilities, net of acquisitions:
 
 
 
Accounts receivable
384

 
393

Other current assets and other assets
(144
)
 
(136
)
Due to/from related parties, net
489

 
351

Accounts payable
13

 
101

Accrued expenses and other liabilities
(338
)
 
(215
)
Income taxes payable
(45
)
 
20

Unearned revenue
142

 
(83
)
Net cash provided by operating activities
1,273

 
1,095

Investing activities:
 
 
 
Additions to property and equipment
(71
)
 
(61
)
Purchases of available-for-sale securities

 
(391
)
Sales of available-for-sale securities

 
148

Maturities of available-for-sale securities

 
371

Purchases of strategic investments

 
(2
)
Proceeds from disposition of assets
20

 
2

Business combinations, net of cash acquired, and purchases of intangible assets
(45
)
 
(26
)
Net cash paid on disposition of a business
(3
)
 
(2
)
Net cash provided by (used in) investing activities
(99
)
 
39

Financing activities:
 
 
 
Proceeds from issuance of common stock
103

 
91

Repurchase of common stock
(591
)
 

Shares repurchased for tax withholdings on vesting of restricted stock
(204
)
 
(94
)
Net cash used in financing activities
(692
)
 
(3
)
Net increase in cash, cash equivalents and restricted cash
482

 
1,131

Cash, cash equivalents and restricted cash at beginning of the period
2,894

 
6,003

Cash, cash equivalents and restricted cash at end of the period
$
3,376

 
$
7,134

Supplemental disclosures of cash flow information:
 
 
 
Cash paid for interest
$
62

 
$
63

Cash paid for taxes, net
88

 
42

Non-cash items:
 
 
 
Changes in capital additions, accrued but not paid
$
3

 
$
11

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

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Table of Contents

VMware, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions)
(unaudited)
 
Class A
Common Stock
 
Class B
Convertible
Common Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Stockholders’
Equity
Three Months Ended May 3, 2019
Shares
 
Par Value
 
Shares
 
Par Value
 
Balance, February 1, 2019
111

 
$
1

 
300

 
$
3

 
$
531

 
$
14

 
$
2

 
$
551

Cumulative effect of adoption of new accounting pronouncements

 

 

 

 

 
2

 

 
2

Proceeds from issuance of common stock
1

 

 

 

 
103

 

 

 
103

Repurchase and retirement of common stock
(3
)
 

 

 

 
(591
)
 

 

 
(591
)
Issuance of restricted stock, net of cancellations
2

 

 

 

 

 

 

 

Shares withheld for tax withholdings on vesting of restricted stock
(1
)
 

 

 

 
(207
)
 

 

 
(207
)
Stock-based compensation

 

 

 

 
194

 

 

 
194

Total other comprehensive income (loss)

 

 

 

 

 

 
4

 
4

Net income

 

 

 

 

 
505

 

 
505

Balance, May 3, 2019
110

 
$
1

 
300

 
$
3

 
$
30

 
$
521

 
$
6

 
$
561


Class A
Common Stock
 
Class B
Convertible
Common Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Stockholders’
Equity
Three Months Ended May 4, 2018
Shares
 
Par Value
 
Shares
 
Par Value
 
Balance, February 2, 2018
104

 
$
1

 
300

 
$
3

 
$
844

 
$
7,791

 
$
(15
)
 
$
8,624

Cumulative effect of adoption of new accounting pronouncements

 

 

 

 

 
(15
)
 
(15
)
 
(30
)
Proceeds from issuance of common stock

 

 

 

 
91

 

 

 
91

Issuance of restricted stock, net of cancellations
1

 

 

 

 

 

 

 

Shares withheld for tax withholdings on vesting of restricted stock
(1
)
 

 

 

 
(104
)
 

 

 
(104
)
Stock-based compensation

 

 

 

 
161

 

 

 
161

Total other comprehensive income (loss)

 

 

 

 

 

 
(24
)
 
(24
)
Net income

 

 

 

 

 
942

 

 
942

Balance, May 4, 2018
104

 
$
1

 
300

 
$
3

 
$
992

 
$
8,718

 
$
(54
)
 
$
9,660

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

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Table of Contents

VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A. Overview and Basis of Presentation
Company and Background
VMware, Inc. (“VMware” or the “Company”) originally pioneered the development and application of virtualization technologies with x86 server-based computing, separating application software from the underlying hardware. 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 business through a digital transformation. To take on these challenges, VMware is working with customers in the areas of hybrid cloud, multi-cloud, modern applications, networking and security, and digital workspaces. VMware’s software provides a flexible digital foundation to help enable customers in their digital transformations.
Accounting Principles
The financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Unaudited Interim Financial Information
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. In the opinion of management, these unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments and accruals, for a fair statement of VMware’s condensed consolidated results of operations, financial position and cash flows for the periods presented. Results of operations are not necessarily indicative of the results that may be expected for the full fiscal year 2020. 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 Form 10-K filed on March 29, 2019. 
Effective September 7, 2016, Dell Technologies Inc. (“Dell”) (formerly Denali Holding Inc.) acquired EMC Corporation (“EMC”), VMware’s parent company, including EMC’s majority control of VMware (the “Dell Acquisition”). As of May 3, 2019, Dell controlled 80.6% of VMware’s outstanding common stock and 97.4% of the combined voting power of VMware’s outstanding common stock, including 31 million shares of VMware’s Class A common stock and all of VMware’s Class B 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 to the effective date of the Dell Acquisition represent transactions only with EMC and its consolidated subsidiaries.
Management believes the assumptions underlying the condensed consolidated financial statements are reasonable. However, the amounts recorded for VMware’s related party transactions with Dell and its consolidated subsidiaries may not be considered arm’s length with an unrelated third party. Therefore, the condensed consolidated financial statements included herein may not necessarily reflect the results of operations, financial position and cash flows had VMware engaged in such transactions with an unrelated third party during all periods presented. Accordingly, VMware’s historical financial information is not necessarily indicative of what the Company’s results of operations, financial position and cash flows will be in the future, if and when VMware contracts at arm’s length with unrelated third parties for products and services the Company receives from and provides to Dell.
Principles of Consolidation
The unaudited condensed consolidated financial statements include the accounts of VMware and subsidiaries in which VMware has a controlling financial interest. All intercompany transactions and account balances between VMware and its subsidiaries have been eliminated in consolidation. Transactions with Dell and its consolidated subsidiaries are generally settled in cash and are classified on the condensed consolidated statements of cash flows based upon the nature of the underlying transaction.
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

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

periods, and the disclosure of contingent liabilities at the date of the financial statements. Estimates are used for, but not limited to, trade receivable valuation, marketing development funds, expected period of benefit for deferred commissions, useful lives assigned to fixed assets and intangible assets, valuation of goodwill and definite-lived intangibles, income taxes, stock-based compensation and contingencies. Actual results could differ from those estimates.
Significant Accounting Policies
During February 2016, the Financial Accounting Standards Board issued ASU 2016-02, Leases (“Topic 842”). The updated standard requires the recognition of a liability for lease obligations and corresponding right-of-use (“ROU”) assets on the balance sheet, and disclosures of certain information regarding leasing arrangements. VMware adopted this standard effective February 2, 2019 and applied it retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment to retained earnings. The Company elected to apply practical expedients upon transition to this standard, which allow the Company to use the beginning of the period of adoption as the date of initial application, and to not reassess lease classification, treatment of initial direct costs, or whether an existing or expired contract contains a lease. Prior period amounts were not recast under this standard.
Upon adoption, VMware recognized ROU assets of $666 million, a liability for lease obligations of $629 million, and an immaterial cumulative-effect adjustment to retained earnings, net of taxes, as of February 2, 2019. The updated standard did not have a material impact on the condensed consolidated statements of income or net cash provided by or used in operating, investing and financing activities on the condensed consolidated statements of cash flows.
Significant accounting policies applicable to leases reflect the adoption of Topic 842. There were no other changes to VMware’s significant accounting policies described in the Form 10-K filed on March 29, 2019 that have had a material impact on the Company’s condensed consolidated financial statements and related notes.
Leases
VMware determines if an arrangement contains a lease at inception by evaluating whether the arrangement conveys the right to use an identified asset and whether the Company obtains substantially all economic benefits from and has the ability to direct the use of the asset. ROU assets resulting from operating leases are included in other assets on the condensed consolidated balance sheets, and operating lease liabilities are included in accrued expenses and other, and other liabilities on the condensed consolidated balance sheets.
Operating lease ROU assets and liabilities are measured at the present value of the future minimum lease payments over the lease term at commencement date using the incremental borrowing rate. The incremental borrowing rate is generally determined using factors such as the Treasury yields, the Company’s credit rating and interest rates of similar debt instruments with comparable credit ratings, among others.
The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that VMware will exercise that option. Lease expense resulting from the minimum lease payments is amortized on a straight-line basis over the remaining lease term. VMware elected the practical expedient to exclude leasing arrangements with a duration of less than 12 months.
The Company’s lease agreements generally do not contain any material residual value guarantees or material restrictive covenants. Certain lease agreements may contain lease and non-lease components, such a common-area maintenance costs. The Company elected to account for these components as a single lease component in determining the lease liability. Variable lease payments, which are primarily comprised of common-area maintenance, utilities and real estate taxes that are passed on from the lessor in proportion to the space leased by the Company, are recognized in operating expenses in the period in which the obligation for those payments was incurred.
The Company subleases certain leased office space to third parties when it determines there is excess leased capacity. Sublease income was not material for all periods presented.
B. Revenue, Unearned Revenue and Remaining Performance Obligations
Revenue
Contract Assets
A contract asset is recognized when a conditional right to consideration exists and transfer of control has occurred. Contract assets include fixed fee professional services where transfer of services has occurred in advance of the Company’s right to invoice. Contract assets are classified as accounts receivables upon invoicing. Contract assets are included in other current assets on the condensed consolidated balance sheets. Contract assets were $25 million and $24 million as of May 3,

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

2019 and February 1, 2019, respectively. Contract asset balances will fluctuate based upon the timing of transfer of services, billings and customers’ acceptance of contractual milestones.
Contract Liabilities
Contract liabilities consist of unearned revenue, which is generally recorded when VMware has the right to invoice or payments have been received for undelivered products or services.
Customer Deposits
Customer deposits include prepayments from customers related to amounts received for contracts that include certain cancellation rights. Purchased credits eligible for redemption of VMware’s hosted services (“cloud credits”) are included in customer deposits until the cloud credit is consumed or is contractually committed to a specific hosted service. Cloud credits are redeemable by the customer for the gross value of the hosted offering. Upon contractual commitment for a hosted service, the net value of the cloud credits that are expected to be recognized as revenue when the obligation is fulfilled will be classified as unearned revenue.
As of May 3, 2019, customer deposits related to customer prepayments and cloud credits of $239 million were included in accrued expenses and other and $69 million were included in other long-term liabilities on the condensed consolidated balance sheets. As of February 1, 2019, customer deposits related to customer prepayments were $238 million and were included in accrued expenses and other on the condensed consolidated balance sheets and $60 million were included in other long-term liabilities on the condensed consolidated balance sheets.
Deferred Commissions
Deferred commissions are classified as current or non-current based on the duration of the expected period of benefit. Deferred commissions, including the employer portion of payroll taxes, included in other current assets as of May 3, 2019 and February 1, 2019 were not significant. Deferred commissions included in other assets were $755 million and $756 million as of May 3, 2019 and February 1, 2019, respectively.
Amortization expense for deferred commissions was included in sales and marketing on the condensed consolidated statements of income and was $74 million and $67 million during the three months ended May 3, 2019 and May 4, 2018, respectively.
Unearned Revenue
Unearned revenue as of the periods presented consisted of the following (table in millions):
 
May 3,
 
February 1,
 
2019
 
2019
Unearned license revenue
$
303

 
$
255

Unearned software maintenance revenue
6,029

 
5,972

Unearned professional services revenue
787

 
751

Total unearned revenue
$
7,119

 
$
6,978


Unearned license revenue is primarily related to the allocated portion of VMware’s software-as-a-service (“SaaS”) offerings and 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 over time on a ratable basis over the contract duration. The weighted-average remaining contractual term as of May 3, 2019 was approximately two years. In addition, unearned software maintenance revenue also includes the allocated portion of VMware’s SaaS offerings. Unearned professional services revenue results primarily from prepaid professional services and is generally recognized as the services are performed.

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

The following table summarizes unearned revenue activity during the period presented:
 
Three Months Ended
 
May 3,
 
2019
Balance, beginning of the period
$
6,978

Current period billings
1,506

Revenue recognized from amounts previously classified as unearned revenue(1)
(1,365
)
Balance, end of the period
$
7,119

(1) Revenue recognized from amounts previously classified as unearned revenue did not include revenue for performance obligations that were fully satisfied upon delivery, such as on-premises license.
Revenue recognized during the three months ended May 4, 2018, from amounts previously classified as unearned revenue, was $1,215 million, and did not include revenue for performance obligations that were fully satisfied upon delivery, such as on-premises license.
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 customer contracts at the end of any given period.
As of May 3, 2019, the aggregate transaction price allocated to remaining performance obligations was $7,675 million, of which approximately 56% is expected to be recognized as revenue over the next 12 months and the remainder thereafter. As of February 1, 2019, the aggregate transaction price allocated to remaining performance obligations was $7,749 million, of which approximately 56% was expected to be recognized as revenue during fiscal year 2020, and the remainder thereafter.
C. Related Parties
The information provided below includes a summary of the transactions entered into with Dell and Dell’s consolidated subsidiaries, including EMC (collectively, “Dell”).
Transactions with Dell
VMware and Dell engaged in the following ongoing related party transactions, which resulted in revenue and receipts, and unearned revenue for VMware:
Pursuant to original equipment manufacturer and reseller arrangements, Dell integrates or bundles VMware’s products and services with Dell’s products and sells them to end users. Dell also acts as a distributor, purchasing VMware’s standalone products and services for resale to end-user customers through VMware-authorized resellers. Revenue under these arrangements is presented net of related marketing development funds and rebates paid to Dell. In addition, VMware provides professional services to end users based upon contractual agreements with Dell.
Dell purchases products and services from VMware for its internal use.
Pursuant to an ongoing distribution agreement, VMware acts as the selling agent for certain products and services 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 VMware and remitted to Pivotal, net of the contractual agency fee.
From time to time, VMware and Dell enter into agreements to collaborate on technology projects, and Dell pays VMware for services or reimburses VMware for costs incurred by VMware, in connection with such projects.

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

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

Revenue and Receipts
 
Unearned Revenue

Three Months Ended
 
As of

May 3,
 
May 4,
 
May 3,

February 1,

2019
 
2018
 
2019

2019
Reseller revenue
$
618


$
360

 
$
2,519


$
2,375

Internal-use revenue
6


7

 
13


13

Agency fee revenue


4

 



Collaborative technology project receipts
2



 
 n/a


 n/a


Customer deposits resulting from transactions with Dell were $92 million and $85 million as of May 3, 2019 and February 1, 2019, respectively.
VMware and Dell engaged in the following ongoing related party transactions, which resulted in costs to VMware:
VMware purchases and leases products and purchases services from Dell.
From time to time, VMware and Dell enter into agreements to collaborate on technology projects, and VMware pays Dell for services provided to VMware by Dell related to such projects.
In certain geographic regions where VMware does not have an established legal entity, VMware contracts with Dell subsidiaries for support services and support from Dell personnel who are managed by VMware. The costs incurred by Dell on VMware’s behalf related to these employees are charged to VMware with a mark-up intended to approximate costs that would have been incurred had VMware contracted for such services with an unrelated third party. These costs are included as expenses on VMware’s condensed consolidated statements of income and primarily include salaries, benefits, travel and occupancy expenses. Dell also incurs certain administrative costs on VMware’s behalf in the United States (“U.S.”) that are recorded as expenses on VMware’s condensed consolidated statements of income.
In certain geographic regions, Dell files a consolidated indirect tax return, which includes value added taxes and other indirect taxes collected by VMware from its customers. VMware remits the indirect taxes to Dell and Dell remits the tax payment to the foreign governments on VMware’s behalf.
From time to time, VMware invoices end users on behalf of Dell for certain services rendered by Dell. Cash related to these services is collected from the end user by VMware and remitted to Dell.
Information about VMware’s payments from such arrangements during the periods presented consisted of the following (table in millions):
 
Three Months Ended
 
May 3,

May 4,
 
2019

2018
Purchases and leases of products and purchases of services(1)
$
80


$
49

Dell subsidiary support and administrative costs
26


28


(1) Amount includes indirect taxes that were remitted to Dell during the periods presented.
VMware also purchases Dell products through Dell’s channel partners. Purchases of Dell products through Dell’s channel partners were not significant during the periods presented.
From time to time, VMware and Dell also enter into joint marketing, sales, branding and product development arrangements, for which both parties may incur costs.
During the third quarter of fiscal 2019, VMware acquired technology and employees related to the Dell EMC Service Assurance Suite, which provides root cause analysis management software for communications service providers, from Dell. The purchase of the Dell EMC Service Assurance Suite was accounted for as a transaction by entities under common control. The amount of the purchase price in excess of the historical cost of the acquired assets was recognized as a reduction to retained

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

earnings on the condensed consolidated balance sheets. Transition services are to be provided by Dell over a period of 18 months, starting from the date of the acquisition. Payments for transition services are not expected to be significant.
Dell Financial Services (“DFS”)
DFS provided financing to certain of VMware’s end users at the end users’ discretion. Upon acceptance of the financing arrangement by both VMware’s end user and DFS, amounts classified as trade accounts receivable are reclassified to due from related parties, net on the condensed consolidated balance sheets. Revenue recognized on transactions financed through DFS was recorded net of financing fees, which were $12 million and $16 million during the three months ended May 3, 2019 and May 4, 2018, respectively.
Tax Sharing Agreement with Dell
Payments made to Dell pursuant to a tax sharing agreement were $37 million during the three months ended May 3, 2019, and not significant during the three months ended May 4, 2018.
Payments from VMware to Dell under the tax sharing 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. The timing of the tax payments due to and from related parties is governed by the tax sharing agreement. VMware’s portion of the mandatory one-time transition tax on accumulated earnings of foreign subsidiaries is governed by a letter agreement between Dell, EMC and VMware executed during the first quarter of fiscal 2020. The amounts that VMware pays to Dell for its portion of federal income taxes on Dell’s consolidated tax return differ from the amounts VMware would owe on a separate tax return basis and the difference is recognized as a component of additional paid-in capital, generally in the period in which the consolidated tax return is filed. The difference between the amount of tax calculated on a separate tax return basis and the amount of tax calculated pursuant to the tax sharing agreement that was recorded in additional paid-in capital during the three months ended May 3, 2019 and May 4, 2018 was not significant.
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):
 
May 3,
 
February 1,
 
2019
 
2019
Due from related parties, current
$
609

 
$
1,079

Due to related parties, current(1)
167

 
142

Due from related parties, net, current(2)
$
442


$
937

 
 
 
 
Income tax related asset, net, current
$
41


$

Income tax due to related parties, non-current
614


646


(1) Includes an immaterial amount related to the Company’s current lease liabilities due to related parties as of May 3, 2019.
(2) The Company also recognized an immaterial amount related to non-current lease liabilities due to related parties. This amount has been included in other liabilities on the condensed consolidated balance sheets as of May 3, 2019.
Amounts included in due from related parties, net, excluding DFS and tax obligations, includes the current portion of amounts due to and due from related parties. Amounts included in due from related parties, net are generally settled in cash within 60 days of each quarter-end.
Notes Payable to Dell
On January 21, 2014, VMware entered into a note exchange agreement with its parent company 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, VMware 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. 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 months ended May 3, 2019 and May 4, 2018, interest expense on the notes payable to Dell was not significant.

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

Pivotal
Prior to Pivotal’s initial public offering on April 20, 2018, VMware’s previously held preferred shares were converted to shares of non-trading Class B common stock, resulting in VMware having a financial interest of 17% and a voting interest of 24% in Pivotal as of February 1, 2019. As of May 3, 2019, VMware had a financial interest of 16% and a voting interest of 24% in Pivotal. Refer to Note H for information regarding VMware’s investment in Pivotal.
D. Business Combination, Definite-Lived Intangible Assets, Net and Goodwill
Business Combination
During the first quarter of fiscal 2020, VMware completed the acquisition of AetherPal Inc., a provider of remote support solutions, to enhance VMware’s Workspace ONE offering. The total purchase price was $45 million, which primarily included $12 million of identifiable intangible assets and $33 million of goodwill that is not expected to be deductible for tax purposes. The identifiable intangible assets primarily consisted of completed technology and customer relationships, with estimated useful lives of three years to five years.
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):
 
May 3, 2019
 
Weighted-Average Useful Lives
(in years)
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Book Value
Purchased technology
6.3
 
$
782

 
$
(531
)
 
$
251

Customer relationships and customer lists
7.5
 
199

 
(103
)
 
96

Trademarks and tradenames
7.9
 
86

 
(43
)
 
43

Other
1.3
 
5

 
(3
)
 
2

Total definite-lived intangible assets
 
 
$
1,072

 
$
(680
)
 
$
392

 
February 1, 2019
 
Weighted-Average Useful Lives
(in years)
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Book Value
Purchased technology
6.3
 
$
781

 
$
(503
)
 
$
278

Leasehold interest
34.9
 
149

 
(33
)
 
116

Customer relationships and customer lists
7.5
 
193

 
(96
)
 
97

Trademarks and tradenames
7.9
 
86

 
(40
)
 
46

Other
3.9
 
7

 
(3
)
 
4

Total definite-lived intangible assets
 
 
$
1,216

 
$
(675
)
 
$
541


Upon adoption of Topic 842 on February 2, 2019, leasehold interest of $116 million related to favorable terms of certain ground lease agreements was derecognized and adjusted to the carrying amount of the ROU assets and classified as other assets on the condensed consolidated balance sheets. Prior to adoption, these assets were classified as intangible assets on the condensed consolidated balance sheets.
Amortization expense on definite-lived intangible assets was $44 million and $39 million during the three months ended May 3, 2019 and May 4, 2018, respectively.

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

Based on intangible assets recorded as of May 3, 2019 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 2020
$
110

2021
96

2022
80

2023
56

2024
38

Thereafter
12

Total
$
392


Goodwill
The following table summarizes the changes in the carrying amount of goodwill during the three months ended May 3, 2019 (table in millions):
Balance, February 1, 2019
$
5,381

Increase in goodwill related to business combination
33

Balance, May 3, 2019
$
5,414


E. Net Income Per Share
Basic net income per share is computed by dividing net income 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 (“RSUs”), including performance stock unit (“PSU”) awards, and stock options, including purchase options under VMware’s employee stock purchase plan. Securities are excluded from the computation of diluted net income per share if their effect would be anti-dilutive. VMware uses the two-class method to calculate net income per share as both classes share the same rights in dividends; therefore, basic and diluted earnings per share are the same for both classes.
The following table sets forth the computations of basic and diluted net income per share during the periods presented (table in millions, except per share amounts and shares in thousands):
 
Three Months Ended
 
May 3,

May 4,
 
2019

2018
Net income
$
505

 
$
942

Weighted-average shares, basic for Classes A and B
410,414

 
404,968

Effect of other dilutive securities
7,973

 
5,964

Weighted-average shares, diluted for Classes A and B
418,387

 
410,932

Net income per weighted-average share, basic for Classes A and B
$
1.23

 
$
2.33

Net income per weighted-average share, diluted for Classes A and B
$
1.21

 
$
2.29



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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 Class A common stock that were excluded from the diluted net income per share calculations during the periods presented because their effect would have been anti-dilutive (shares in thousands):
 
Three Months Ended
 
May 3,
 
May 4,
 
2019
 
2018
Anti-dilutive securities:
 
 
 
Restricted stock units
81

 
177

Total
81

 
177


F. Cash and Cash Equivalents
Cash and cash equivalents as of the periods presented consisted of the following (tables in millions):
 
May 3, 2019
 
Cost or Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Aggregate Fair Value
Cash
$
492

 
$

 
$

 
$
492

Cash equivalents:
 
 
 
 
 
 
 
Money-market funds
$
2,791

 
$

 
$

 
$
2,791

Demand deposits and time deposits
28

 

 

 
28

Total cash equivalents
$
2,819

 
$

 
$

 
$
2,819

 
February 1, 2019
 
Cost or Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Aggregate Fair Value
Cash
$
461

 
$

 
$

 
$
461

Cash equivalents:
 
 
 
 
 
 
 
Money-market funds
$
2,316

 
$

 
$

 
$
2,316

Demand deposits and time deposits
53

 

 

 
53

Total cash equivalents
$
2,369

 
$

 
$

 
$
2,369


Restricted Cash
The following table provides a reconciliation of the Company’s cash and cash equivalents, current portion and non-current portion of restricted cash reported within the condensed consolidated balance sheets that sum to the total cash, cash equivalents and restricted cash as of May 3, 2019 and February 1, 2019 (table in millions):
 
May 3,
 
February 1,
 
2019
 
2019
Cash and cash equivalents
$
3,311

 
$
2,830

Restricted cash within other current assets
37

 
35

Restricted cash within other assets
28

 
29

Total cash, cash equivalents and restricted cash
$
3,376

 
$
2,894


Amounts included in restricted cash primarily relate to certain employee-related benefits, as well as amounts related to installment payments to certain employees as part of acquisitions, subject to the achievement of specified future employment conditions.

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

G. Debt
Long-term Debt
On August 21, 2017, VMware issued three series of 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 the periods presented were as follows (amounts in millions):
 
May 3,
 
February 1,
 
Effective Interest Rate
 
2019
 
2019
 
Long-term debt:
 
 
 
 
 
2.30% Senior Note Due August 21, 2020
$
1,250

 
$
1,250

 
2.56%
2.95% Senior Note Due August 21, 2022
1,500

 
1,500

 
3.17%
3.90% Senior Note Due August 21, 2027
1,250

 
1,250

 
4.05%
Total principal amount
4,000

 
4,000

 
 
Less: unamortized discount
(6
)
 
(7
)
 
 
Less: unamortized debt issuance costs
(20
)
 
(21
)
 
 
Net carrying amount
$
3,974

 
$
3,972

 
 

Interest is payable semiannually in arrears, on February 21 and August 21 of each year. During the three months ended May 3, 2019 and May 4, 2018, interest expense of $32 million, which included amortization of discount and issuance costs, was recognized on the condensed consolidated statements of income. The discount and issuance costs are amortized over the term of the Senior Notes on a straight-line basis, which approximates the effective interest method.
The Senior Notes are redeemable in whole at any time or in part from time to time at VMware’s option, 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 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 C for information regarding the note 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. As of May 3, 2019 and February 1, 2019, 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 months ended May 3, 2019 and May 4, 2018.
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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VMware, Inc.
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.
As of May 3, 2019 and February 1, 2019, 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 and short-term investments that were required to be measured at fair value as of the periods presented (tables in millions):
 
May 3, 2019
 
Level 1
 
Level 2
 
Total
Cash equivalents:
 
 
 
 


Money-market funds
$
2,791

 
$

 
$
2,791

Demand deposits and time deposits

 
28

 
28

Total cash equivalents
$
2,791

 
$
28

 
$
2,819


 
February 1, 2019
 
Level 1
 
Level 2
 
Total
Cash equivalents:
 
 
 
 
 
Money-market funds
$
2,316

 
$

 
$
2,316

Demand deposits and time deposits

 
53

 
53

Total cash equivalents
$
2,316

 
$
53

 
$
2,369

Short-term investments:
 
 
 
 
 
Marketable available-for-sale equity securities
$
19

 
$

 
$
19

Total short-term investments
$
19

 
$

 
$
19


The note payable to Dell and the Senior Notes were not adjusted to fair value. The fair value of the note payable to Dell was approximately $257 million and $252 million as of May 3, 2019 and February 1, 2019, respectively. The fair value of the Senior Notes was approximately $3,939 million and $3,862 million as of May 3, 2019 and February 1, 2019, respectively. Fair value for both the note payable to Dell and the Senior Notes was estimated primarily based on observable market interest rates (Level 2 inputs).
VMware offers a deferred compensation plan for eligible employees, which allows participants to defer payment for part or all of their compensation. The net impact to the condensed consolidated statements of income 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 $91 million and $77 million as of May 3, 2019 and February 1, 2019, respectively, and are included in other assets and other liabilities on the condensed consolidated balance sheets.
Equity Securities Carried at Fair Value
As of February 1, 2019, VMware held a publicly traded equity security, which was measured at its fair value of $19 million using quoted prices for identical assets in an active market (Level 1). During the three months ended May 3, 2019, VMware sold its investment in this equity security. The realized gain recognized on the condensed consolidated statements of income during the three months ended May 3, 2019 was not significant.
The fair value of VMware’s investment in Pivotal was $965 million and $833 million as of May 3, 2019 and February 1, 2019, respectively, and was determined using the quoted market price of Pivotal’s Class A common stock as of each reporting period, adjusted for the impact of superior voting rights (Level 2).
During the three months ended May 3, 2019, VMware recognized an unrealized gain of $132 million to adjust its investment in Pivotal to its fair value. During the three months ended May 4, 2018, VMware recognized an unrealized gain of $781 million to adjust its investment in Pivotal to its fair value, including an unrealized gain of $668 million recognized as a

18

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

result of Pivotal’s initial public offering. A discrete tax expense of $33 million for the three months ended May 3, 2019 and $179 million, net of the reversal of the previously recorded valuation allowance, for the three months ended May 4, 2018 was recognized related to the book and tax basis difference on the investment in Pivotal. Subsequent to May 3, 2019, Pivotal’s stock price has declined significantly. If Pivotal’s stock price remains unchanged from its current value, VMware will recognize a substantial unrealized loss on its investment in Pivotal as of the next measurement date.
Financial information of Pivotal is made publicly available. The following tables include summarized financial information for fiscal 2019 obtained from Pivotal’s most recent Form 10-K filed with the SEC on March 29, 2019 (tables in millions):
 
Three Months Ended
 
Year Ended
 
February 1,
 
February 1,
 
2019
 
2019
Results of Operations Data:
 
 
 
Revenue
$
169

 
$
657

Gross profit
110
</