þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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94-3292913
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification Number)
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3401 Hillview Avenue
Palo Alto, CA
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94304
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(Address of principal executive offices)
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(Zip Code)
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Large accelerated filer
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þ
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Accelerated filer
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o
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Non-accelerated filer
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o
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(Do not check if a smaller reporting company)
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Smaller reporting company
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o
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Page
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Item 1.
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Item 2.
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Item 3.
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Item 4.
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Item 1.
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Item 1A.
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Item 2.
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Item 6.
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ITEM 1.
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FINANCIAL STATEMENTS
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Three Months Ended
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Nine Months Ended
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||||||||||||
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September 30,
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September 30,
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||||||||||||
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2016
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2015
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2016
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2015
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||||||||
Revenue:
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||||||||
License
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$
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691
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$
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681
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$
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1,907
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$
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1,896
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Services
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1,087
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991
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3,153
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2,883
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GSA settlement
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—
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—
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—
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(76
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)
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||||
Total revenue
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1,778
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1,672
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5,060
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4,703
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Operating expenses
(1)
:
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||||||||
Cost of license revenue
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40
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46
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121
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142
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Cost of services revenue
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226
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212
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658
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609
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Research and development
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389
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331
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1,109
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958
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Sales and marketing
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564
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556
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1,708
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1,656
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General and administrative
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178
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201
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516
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568
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Realignment
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—
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—
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52
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20
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Operating income
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381
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326
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896
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750
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Investment income
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21
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13
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56
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38
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Interest expense with Dell
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(7
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)
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(7
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)
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(20
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)
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(20
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)
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Other income (expense), net
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(8
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)
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(7
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(8
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)
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(8
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Income before income taxes
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387
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325
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924
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760
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Income tax provision
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68
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69
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179
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137
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Net income
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$
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319
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$
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256
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$
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745
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$
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623
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Net income per weighted-average share, basic for Class A and Class B
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$
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0.76
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$
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0.61
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$
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1.76
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$
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1.47
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Net income per weighted-average share, diluted for Class A and Class B
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$
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0.75
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$
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0.60
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$
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1.75
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$
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1.46
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Weighted-average shares, basic for Class A and Class B
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421,704
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422,329
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423,341
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424,799
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Weighted-average shares, diluted for Class A and Class B
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425,008
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423,981
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425,851
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427,466
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__________
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(1)
Includes stock-based compensation as follows:
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Cost of license revenue
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$
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—
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$
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—
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$
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2
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$
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1
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Cost of services revenue
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13
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11
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38
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32
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Research and development
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80
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56
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224
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164
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Sales and marketing
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51
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43
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146
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124
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General and administrative
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26
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16
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62
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47
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Three Months Ended
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Nine Months Ended
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September 30,
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September 30,
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||||||||||||
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2016
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2015
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2016
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2015
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Net income
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$
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319
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$
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256
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$
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745
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$
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623
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Other comprehensive income (loss):
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||||||||
Changes in market value of available-for-sale securities:
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Unrealized gains (losses), net of taxes of $(2), $1, $12 and $1
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(4
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)
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1
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19
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2
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Reclassification of (gains) losses realized during the period, net of taxes of $0, $0, $3 and $0
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—
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—
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4
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—
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Net change in market value of available-for-sale securities
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(4
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)
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1
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23
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2
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Changes in market value of effective foreign currency forward contracts:
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Unrealized gains (losses), net of taxes of $0 for all periods
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—
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1
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—
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(4
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)
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Reclassification of (gains) losses realized during the period, net of taxes of $0 for all periods
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—
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(2
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)
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1
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—
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Net change in market value of effective foreign currency forward contracts
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—
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(1
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)
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1
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(4
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)
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Total other comprehensive income (loss)
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(4
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)
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—
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24
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(2
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)
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Total comprehensive income (loss), net of taxes
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$
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315
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$
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256
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$
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769
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$
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621
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Nine Months Ended
|
||||||
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September 30,
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||||||
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2016
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2015
|
||||
Operating activities:
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Net income
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$
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745
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$
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623
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Adjustments to reconcile net income to net cash provided by operating activities:
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Depreciation and amortization
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261
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246
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Stock-based compensation
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472
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368
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Excess tax benefits from stock-based compensation
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(7
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)
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(27
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)
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Deferred income taxes, net
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(24
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)
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(44
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)
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Impairment of strategic investments
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12
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5
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Gain on sales of strategic investments
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(1
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)
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—
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Loss on disposal of assets
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12
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—
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Other
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(1
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)
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—
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Changes in assets and liabilities, net of acquisitions:
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Accounts receivable
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513
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508
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Other assets
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(22
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)
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14
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Due to/from related parties, net
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55
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31
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Accounts payable
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(26
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)
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(36
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)
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Accrued expenses
|
(64
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)
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(153
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)
|
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Income taxes payable
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(26
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)
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24
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Unearned revenue
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18
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(148
|
)
|
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Net cash provided by operating activities
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1,917
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1,411
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|
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Investing activities:
|
|
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|
||||
Additions to property and equipment
|
(109
|
)
|
|
(274
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)
|
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Purchases of available-for-sale securities
|
(3,337
|
)
|
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(2,675
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)
|
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Sales of available-for-sale securities
|
1,769
|
|
|
1,700
|
|
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Maturities of available-for-sale securities
|
1,015
|
|
|
840
|
|
||
Proceeds from disposal of assets
|
3
|
|
|
—
|
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Purchases of strategic investments
|
(33
|
)
|
|
(11
|
)
|
||
Sales of strategic investments
|
1
|
|
|
2
|
|
||
Business acquisitions, net of cash acquired
|
(59
|
)
|
|
(21
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)
|
||
Decrease (increase) in restricted cash
|
(2
|
)
|
|
77
|
|
||
Net cash used in investing activities
|
(752
|
)
|
|
(362
|
)
|
||
Financing activities:
|
|
|
|
||||
Proceeds from issuance of common stock
|
106
|
|
|
123
|
|
||
Proceeds from non-controlling interests
|
—
|
|
|
4
|
|
||
Payment to acquire non-controlling interests
|
(4
|
)
|
|
—
|
|
||
Repurchase of common stock
|
(1,016
|
)
|
|
(1,050
|
)
|
||
Excess tax benefits from stock-based compensation
|
7
|
|
|
27
|
|
||
Shares repurchased for tax withholdings on vesting of restricted stock
|
(97
|
)
|
|
(141
|
)
|
||
Net cash used in financing activities
|
(1,004
|
)
|
|
(1,037
|
)
|
||
Net increase in cash and cash equivalents
|
161
|
|
|
12
|
|
||
Cash and cash equivalents at beginning of the period
|
2,493
|
|
|
2,071
|
|
||
Cash and cash equivalents at end of the period
|
$
|
2,654
|
|
|
$
|
2,083
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
||||
Cash paid for interest
|
$
|
21
|
|
|
$
|
21
|
|
Cash paid for taxes, net
|
212
|
|
|
155
|
|
||
Non-cash items:
|
|
|
|
||||
Changes in capital additions, accrued but not paid
|
$
|
(15
|
)
|
|
$
|
(49
|
)
|
Cash
|
$
|
7
|
|
Intangible assets
|
26
|
|
|
Goodwill
|
38
|
|
|
Deferred tax assets
|
5
|
|
|
Other acquired assets
|
1
|
|
|
Total assets acquired
|
77
|
|
|
Deferred tax liabilities
|
(10
|
)
|
|
Total liabilities assumed
|
(10
|
)
|
|
Fair value of assets acquired and liabilities assumed
|
$
|
67
|
|
|
September 30, 2016
|
||||||||||||
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Weighted-Average
Useful Lives (in years) |
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
||||||
Purchased technology
|
6.6
|
|
$
|
632
|
|
|
$
|
(337
|
)
|
|
$
|
295
|
|
Leasehold interest
|
34.9
|
|
149
|
|
|
(23
|
)
|
|
126
|
|
|||
Customer relationships and customer lists
|
8.2
|
|
135
|
|
|
(60
|
)
|
|
75
|
|
|||
Trademarks and tradenames
|
8.6
|
|
61
|
|
|
(22
|
)
|
|
39
|
|
|||
Other
|
5.4
|
|
5
|
|
|
(2
|
)
|
|
3
|
|
|||
Total definite-lived intangible assets
|
|
|
$
|
982
|
|
|
$
|
(444
|
)
|
|
$
|
538
|
|
|
December 31, 2015
|
||||||||||||
|
Weighted-Average
Useful Lives (in years) |
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
||||||
Purchased technology
|
6.6
|
|
$
|
648
|
|
|
$
|
(298
|
)
|
|
$
|
350
|
|
Leasehold interest
|
34.9
|
|
149
|
|
|
(20
|
)
|
|
129
|
|
|||
Customer relationships and customer lists
|
8.4
|
|
148
|
|
|
(62
|
)
|
|
86
|
|
|||
Trademarks and tradenames
|
8.6
|
|
61
|
|
|
(16
|
)
|
|
45
|
|
|||
Other
|
2.9
|
|
20
|
|
|
(14
|
)
|
|
6
|
|
|||
Total definite-lived intangible assets
|
|
|
$
|
1,026
|
|
|
$
|
(410
|
)
|
|
$
|
616
|
|
Remainder of 2016
|
$
|
32
|
|
2017
|
125
|
|
|
2018
|
115
|
|
|
2019
|
92
|
|
|
2020
|
42
|
|
|
Thereafter
|
132
|
|
|
Total
|
$
|
538
|
|
Balance, January 1, 2016
|
3,993
|
|
|
Increase in goodwill related to a business combination
|
39
|
|
|
Balance, September 30, 2016
|
$
|
4,032
|
|
|
For the Nine Months Ended September 30, 2016
|
||||||||||||||
|
Balance as of
January 1, 2016
|
|
Realignment
|
|
Utilization
|
|
Balance as of
September 30, 2016
|
||||||||
Severance-related costs
|
$
|
3
|
|
|
$
|
49
|
|
|
$
|
(51
|
)
|
|
$
|
1
|
|
Costs to exit facilities
|
—
|
|
|
3
|
|
|
(1
|
)
|
|
2
|
|
||||
Total
|
$
|
3
|
|
|
$
|
52
|
|
|
$
|
(52
|
)
|
|
$
|
3
|
|
|
For the Nine Months Ended September 30, 2015
|
||||||||||||
|
Balance as of
January 1, 2015
|
|
Realignment
|
|
Utilization
|
|
Balance as of
September 30, 2015
|
||||||
Severance-related costs
|
$
|
8
|
|
|
20
|
|
|
(27
|
)
|
|
$
|
1
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Net income
|
$
|
319
|
|
|
$
|
256
|
|
|
$
|
745
|
|
|
$
|
623
|
|
Weighted-average shares, basic for Class A and Class B
|
421,704
|
|
|
422,329
|
|
|
423,341
|
|
|
424,799
|
|
||||
Effect of dilutive securities
|
3,304
|
|
|
1,652
|
|
|
2,510
|
|
|
2,667
|
|
||||
Weighted-average shares, diluted for Class A and Class B
|
425,008
|
|
|
423,981
|
|
|
425,851
|
|
|
427,466
|
|
||||
Net income per weighted-average share, basic for Class A and Class B
|
$
|
0.76
|
|
|
$
|
0.61
|
|
|
$
|
1.76
|
|
|
$
|
1.47
|
|
Net income per weighted-average share, diluted for Class A and Class B
|
$
|
0.75
|
|
|
$
|
0.60
|
|
|
$
|
1.75
|
|
|
$
|
1.46
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||
|
September 30,
|
|
September 30,
|
||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||
Anti-dilutive securities:
|
|
|
|
|
|
|
|
||||
Employee stock options
|
1,655
|
|
|
2,129
|
|
|
2,027
|
|
|
2,173
|
|
Restricted stock units
|
3,632
|
|
|
365
|
|
|
2,416
|
|
|
58
|
|
Total
|
5,287
|
|
|
2,494
|
|
|
4,443
|
|
|
2,231
|
|
|
September 30, 2016
|
||||||||||||||
|
Cost or Amortized Cost
|
|
Unrealized Gains
|
|
Unrealized Losses
|
|
Aggregate
Fair Value |
||||||||
Cash
|
$
|
565
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
565
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
||||||||
Money-market funds
|
$
|
2,015
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,015
|
|
Time deposits
|
35
|
|
|
—
|
|
|
—
|
|
|
35
|
|
||||
Municipal obligations
|
39
|
|
|
—
|
|
|
—
|
|
|
39
|
|
||||
Total cash equivalents
|
$
|
2,089
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,089
|
|
Short-term investments:
|
|
|
|
|
|
|
|
||||||||
U.S. Government and agency obligations
|
$
|
818
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
820
|
|
U.S. and foreign corporate debt securities
|
4,109
|
|
|
19
|
|
|
(2
|
)
|
|
4,126
|
|
||||
Foreign governments and multi-national agency obligations
|
35
|
|
|
—
|
|
|
—
|
|
|
35
|
|
||||
Municipal obligations
|
401
|
|
|
—
|
|
|
—
|
|
|
401
|
|
||||
Asset-backed securities
|
5
|
|
|
—
|
|
|
—
|
|
|
5
|
|
||||
Mortgage-backed securities
|
213
|
|
|
1
|
|
|
(1
|
)
|
|
213
|
|
||||
Total short-term investments
|
$
|
5,581
|
|
|
$
|
22
|
|
|
$
|
(3
|
)
|
|
$
|
5,600
|
|
Other assets:
|
|
|
|
|
|
|
|
||||||||
Marketable available-for-sale equity securities
|
$
|
15
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
22
|
|
|
December 31, 2015
|
||||||||||||||
|
Cost or Amortized Cost
|
|
Unrealized Gains
|
|
Unrealized Losses
|
|
Aggregate
Fair Value
|
||||||||
Cash
|
$
|
725
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
725
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
||||||||
Money-market funds
|
$
|
1,763
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,763
|
|
Time deposits
|
5
|
|
|
—
|
|
|
—
|
|
|
5
|
|
||||
Total cash equivalents
|
$
|
1,768
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,768
|
|
Short-term investments:
|
|
|
|
|
|
|
|
||||||||
Time deposits
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12
|
|
U.S. Government and agency obligations
|
753
|
|
|
—
|
|
|
(3
|
)
|
|
750
|
|
||||
U.S. and foreign corporate debt securities
|
3,263
|
|
|
1
|
|
|
(12
|
)
|
|
3,252
|
|
||||
Foreign governments and multi-national agency obligations
|
35
|
|
|
—
|
|
|
—
|
|
|
35
|
|
||||
Municipal obligations
|
705
|
|
|
1
|
|
|
—
|
|
|
706
|
|
||||
Asset-backed securities
|
20
|
|
|
—
|
|
|
—
|
|
|
20
|
|
||||
Mortgage-backed securities
|
243
|
|
|
—
|
|
|
(2
|
)
|
|
241
|
|
||||
Total short-term investments
|
$
|
5,031
|
|
|
$
|
2
|
|
|
$
|
(17
|
)
|
|
$
|
5,016
|
|
Other assets:
|
|
|
|
|
|
|
|
||||||||
Marketable available-for-sale equity securities
|
$
|
15
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
18
|
|
|
September 30, 2016
|
|
December 31, 2015
|
||||||||||||
|
Fair Value
|
|
Unrealized
Losses
|
|
Fair Value
|
|
Unrealized
Losses
|
||||||||
U.S. Government and agency obligations
|
$
|
170
|
|
|
$
|
—
|
|
|
$
|
657
|
|
|
$
|
(3
|
)
|
U.S. and foreign corporate debt securities
|
915
|
|
|
(2
|
)
|
|
2,564
|
|
|
(11
|
)
|
||||
Mortgage-backed securities
|
88
|
|
|
(1
|
)
|
|
171
|
|
|
(1
|
)
|
||||
Total
|
$
|
1,173
|
|
|
$
|
(3
|
)
|
|
$
|
3,392
|
|
|
$
|
(15
|
)
|
|
Amortized
Cost Basis
|
|
Aggregate
Fair Value
|
||||
Due within one year
|
$
|
1,693
|
|
|
$
|
1,694
|
|
Due after 1 year through 5 years
|
3,545
|
|
|
3,562
|
|
||
Due after 5 years through 10 years
|
111
|
|
|
112
|
|
||
Due after 10 years
|
232
|
|
|
232
|
|
||
Total short-term investments
|
$
|
5,581
|
|
|
$
|
5,600
|
|
•
|
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 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
|
•
|
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
|
|
September 30, 2016
|
||||||||||
|
Level 1
|
|
Level 2
|
|
Total
|
||||||
Cash equivalents:
|
|
|
|
|
|
|
|||||
Money-market funds
|
$
|
2,015
|
|
|
$
|
—
|
|
|
$
|
2,015
|
|
Time deposits
|
—
|
|
|
35
|
|
|
35
|
|
|||
Municipal obligations
|
—
|
|
|
39
|
|
|
39
|
|
|||
Total cash equivalents
|
$
|
2,015
|
|
|
$
|
74
|
|
|
$
|
2,089
|
|
Short-term investments:
|
|
|
|
|
|
||||||
U.S. Government and agency obligations
|
$
|
485
|
|
|
$
|
335
|
|
|
$
|
820
|
|
U.S. and foreign corporate debt securities
|
—
|
|
|
4,126
|
|
|
4,126
|
|
|||
Foreign governments and multi-national agency obligations
|
—
|
|
|
35
|
|
|
35
|
|
|||
Municipal obligations
|
—
|
|
|
401
|
|
|
401
|
|
|||
Asset-backed securities
|
—
|
|
|
5
|
|
|
5
|
|
|||
Mortgage-backed securities
|
—
|
|
|
213
|
|
|
213
|
|
|||
Total short-term investments
|
$
|
485
|
|
|
$
|
5,115
|
|
|
$
|
5,600
|
|
Other assets:
|
|
|
|
|
|
||||||
Marketable available-for-sale equity securities
|
$
|
22
|
|
|
$
|
—
|
|
|
$
|
22
|
|
|
December 31, 2015
|
||||||||||
|
Level 1
|
|
Level 2
|
|
Total
|
||||||
Cash equivalents:
|
|
|
|
|
|
||||||
Money-market funds
|
$
|
1,763
|
|
|
$
|
—
|
|
|
$
|
1,763
|
|
Time deposits
|
—
|
|
|
5
|
|
|
5
|
|
|||
Total cash equivalents
|
$
|
1,763
|
|
|
$
|
5
|
|
|
$
|
1,768
|
|
Short-term investments:
|
|
|
|
|
|
||||||
Time deposits
|
$
|
—
|
|
|
$
|
12
|
|
|
$
|
12
|
|
U.S. Government and agency obligations
|
543
|
|
|
207
|
|
|
750
|
|
|||
U.S. and foreign corporate debt securities
|
—
|
|
|
3,252
|
|
|
3,252
|
|
|||
Foreign governments and multi-national agency obligations
|
—
|
|
|
35
|
|
|
35
|
|
|||
Municipal obligations
|
—
|
|
|
706
|
|
|
706
|
|
|||
Asset-backed securities
|
—
|
|
|
20
|
|
|
20
|
|
|||
Mortgage-backed securities
|
—
|
|
|
241
|
|
|
241
|
|
|||
Total short-term investments
|
$
|
543
|
|
|
$
|
4,473
|
|
|
$
|
5,016
|
|
Other assets:
|
|
|
|
|
|
||||||
Marketable available-for-sale equity securities
|
$
|
18
|
|
|
$
|
—
|
|
|
$
|
18
|
|
Accrued expenses and other:
|
|
|
|
|
|
||||||
Forward contracts
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
(1
|
)
|
|
September 30, 2016
|
|
December 31, 2015
|
||||
Unearned license revenue
|
$
|
425
|
|
|
$
|
428
|
|
Unearned software maintenance revenue
|
4,201
|
|
|
4,174
|
|
||
Unearned professional services revenue
|
468
|
|
|
474
|
|
||
Total unearned revenue
|
$
|
5,094
|
|
|
$
|
5,076
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Aggregate purchase price
|
$
|
1,016
|
|
|
$
|
200
|
|
|
$
|
1,016
|
|
|
$
|
1,050
|
|
Class A common shares repurchased
|
13,999
|
|
|
2,408
|
|
|
13,999
|
|
|
12,524
|
|
||||
Weighted-average price per share
|
$
|
72.57
|
|
|
$
|
83.06
|
|
|
$
|
72.57
|
|
|
$
|
83.84
|
|
|
Number of Units
|
|
Weighted-
Average Grant
Date Fair
Value
(per unit)
|
|||
Outstanding, January 1, 2016
|
18,693
|
|
|
$
|
77.29
|
|
Granted
|
11,008
|
|
|
57.73
|
|
|
Vested
|
(4,660
|
)
|
|
79.72
|
|
|
Forfeited
|
(2,916
|
)
|
|
77.01
|
|
|
Outstanding, September 30, 2016
|
22,125
|
|
|
67.08
|
|
|
Unrealized Gain (Loss) on
Available-for-Sale Securities |
|
Unrealized Gain (Loss) on
Forward Contracts |
|
Total
|
||||||
Balance, January 1, 2016
|
$
|
(7
|
)
|
|
$
|
(1
|
)
|
|
$
|
(8
|
)
|
Unrealized gains (losses), net of taxes of $12, $0 and $12
|
19
|
|
|
—
|
|
|
19
|
|
|||
Amounts reclassified from accumulated other comprehensive income (loss) to the consolidated statement of income, net of taxes of $3, $0 and $3
|
4
|
|
|
1
|
|
|
5
|
|
|||
Balance, September 30, 2016
|
$
|
16
|
|
|
$
|
—
|
|
|
$
|
16
|
|
|
Unrealized Gain (Loss) on
Available-for-Sale Securities |
|
Unrealized Gain (Loss) on
Forward Contracts
|
|
Total
|
||||||
Balance, January 1, 2015
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
(1
|
)
|
Unrealized gains (losses), net of taxes of $1, $0 and $1
|
2
|
|
|
(4
|
)
|
|
(2
|
)
|
|||
Balance, September 30, 2015
|
$
|
2
|
|
|
$
|
(5
|
)
|
|
$
|
(3
|
)
|
•
|
Pursuant to ongoing reseller arrangements with Dell, Dell bundles VMware’s products and services with Dell’s products and sells them to end users.
|
•
|
Dell purchases products and services from VMware for internal use.
|
•
|
VMware provides professional services to end users based upon contractual agreements with Dell.
|
•
|
Pursuant to an ongoing distribution agreement, VMware acts as the selling agent for certain 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.
|
•
|
VMware provides various services to Pivotal. Support costs incurred by VMware are reimbursed to VMware and are recorded as a reduction to the costs incurred by VMware.
|
|
Revenue and Receipts
|
|
Unearned Revenue
|
||||||||||||||||||||
|
Three Months Ended
|
|
Nine Months Ended
|
|
As of
|
|
As of
|
||||||||||||||||
|
September 30,
|
|
September 30,
|
|
September 30,
|
|
December 31,
|
||||||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||||||
Reseller revenue
|
$
|
98
|
|
|
$
|
68
|
|
|
$
|
261
|
|
|
$
|
199
|
|
|
$
|
553
|
|
|
$
|
292
|
|
Internal-use revenue
|
5
|
|
|
4
|
|
|
24
|
|
|
13
|
|
|
17
|
|
|
11
|
|
||||||
Professional services revenue
|
28
|
|
|
20
|
|
|
79
|
|
|
68
|
|
|
—
|
|
|
3
|
|
||||||
Agency fee revenue
|
1
|
|
|
1
|
|
|
3
|
|
|
4
|
|
|
—
|
|
|
—
|
|
||||||
Reimbursement for services to Pivotal
|
—
|
|
|
2
|
|
|
1
|
|
|
3
|
|
|
n/a
|
|
|
n/a
|
|
•
|
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 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 rent expenses. Dell also incurs certain administrative costs on VMware’s behalf in the U.S. that are recorded as expenses on VMware’s condensed consolidated statements of income.
|
•
|
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.
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Purchases and leases of products and purchases of services
|
$
|
24
|
|
|
$
|
14
|
|
|
$
|
58
|
|
|
$
|
45
|
|
Collaborative technology project costs
|
—
|
|
|
1
|
|
|
—
|
|
|
4
|
|
||||
Dell subsidiary support and administrative costs
|
30
|
|
|
24
|
|
|
74
|
|
|
79
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Payments from VMware to Dell
|
$
|
54
|
|
|
$
|
—
|
|
|
$
|
148
|
|
|
$
|
92
|
|
|
September 30,
|
|
December 31,
|
||||
|
2016
|
|
2015
|
||||
Due (to) related parties
|
$
|
(54
|
)
|
|
$
|
(68
|
)
|
Due from related parties
|
77
|
|
|
142
|
|
||
Due (to) from related parties, net
|
$
|
23
|
|
|
$
|
74
|
|
|
|
|
|
||||
Income tax due (to) from related parties
|
$
|
—
|
|
|
$
|
(18
|
)
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
United States
|
$
|
916
|
|
|
$
|
861
|
|
|
$
|
2,587
|
|
|
$
|
2,364
|
|
International
|
862
|
|
|
811
|
|
|
2,473
|
|
|
2,339
|
|
||||
Total
|
$
|
1,778
|
|
|
$
|
1,672
|
|
|
$
|
5,060
|
|
|
$
|
4,703
|
|
|
September 30, 2016
|
|
December 31, 2015
|
||||
United States
|
$
|
793
|
|
|
$
|
831
|
|
International
|
128
|
|
|
148
|
|
||
Total
|
$
|
921
|
|
|
$
|
979
|
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
•
|
SDDC or Software-Defined Data Center
|
•
|
Hybrid Cloud Computing
|
•
|
End-User Computing
|
|
Three Months Ended
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
||||||||||||||||||||
|
September 30,
|
|
$ Change
|
|
% Change
|
|
September 30,
|
|
$ Change
|
|
% Change
|
||||||||||||||||||||||||
|
2016
|
|
2015
|
|
Actual
|
|
Actual
|
|
Constant
Currency
|
|
2016
|
|
2015
|
|
Actual
|
|
Actual
|
|
Constant
Currency
|
||||||||||||||||
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
License
|
$
|
691
|
|
|
$
|
681
|
|
|
$
|
10
|
|
|
1
|
%
|
|
1
|
%
|
|
$
|
1,907
|
|
|
$
|
1,896
|
|
|
$
|
12
|
|
|
1
|
%
|
|
1
|
%
|
Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Software maintenance
|
947
|
|
|
863
|
|
|
84
|
|
|
10
|
|
|
|
|
2,753
|
|
|
2,505
|
|
|
249
|
|
|
10
|
|
|
|
||||||||
Professional services
|
140
|
|
|
128
|
|
|
14
|
|
|
11
|
|
|
|
|
400
|
|
|
378
|
|
|
21
|
|
|
6
|
|
|
|
||||||||
Total services
|
1,087
|
|
|
991
|
|
|
97
|
|
|
10
|
|
|
|
|
3,153
|
|
|
2,883
|
|
|
270
|
|
|
9
|
|
|
|
||||||||
GSA settlement
|
—
|
|
|
—
|
|
|
—
|
|
|
n/a
|
|
|
|
|
—
|
|
|
(76
|
)
|
|
76
|
|
|
(100
|
)
|
|
|
||||||||
Total revenue
|
$
|
1,778
|
|
|
$
|
1,672
|
|
|
$
|
107
|
|
|
6
|
|
|
7
|
|
|
$
|
5,060
|
|
|
$
|
4,703
|
|
|
$
|
357
|
|
|
8
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
United States
|
$
|
916
|
|
|
$
|
861
|
|
|
$
|
56
|
|
|
6
|
%
|
|
|
|
$
|
2,587
|
|
|
$
|
2,364
|
|
|
$
|
223
|
|
|
9
|
%
|
|
|
||
International
|
862
|
|
|
811
|
|
|
51
|
|
|
6
|
|
|
|
|
2,473
|
|
|
2,339
|
|
|
135
|
|
|
6
|
|
|
|
||||||||
Total revenue
|
$
|
1,778
|
|
|
$
|
1,672
|
|
|
$
|
107
|
|
|
6
|
|
|
7
|
|
|
$
|
5,060
|
|
|
$
|
4,703
|
|
|
$
|
357
|
|
|
8
|
|
|
8
|
|
|
September 30, 2016
|
|
December 31, 2015
|
||||
Unearned license revenue
|
$
|
425
|
|
|
$
|
428
|
|
Unearned software maintenance revenue
|
4,201
|
|
|
4,174
|
|
||
Unearned professional services revenue
|
468
|
|
|
474
|
|
||
Total unearned revenue
|
$
|
5,094
|
|
|
$
|
5,076
|
|
|
Three Months Ended
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
||||||||||||||||||
|
September 30,
|
|
|
|
|
|
September 30,
|
|
|
|
|
||||||||||||||||||
|
2016
|
|
2015
|
|
$ Change
|
|
% Change
|
|
2016
|
|
2015
|
|
$ Change
|
|
% Change
|
||||||||||||||
Cost of license revenue
|
$
|
40
|
|
|
$
|
46
|
|
|
$
|
(6
|
)
|
|
(13
|
)%
|
|
$
|
119
|
|
|
$
|
141
|
|
|
$
|
(22
|
)
|
|
(15
|
)%
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
2
|
|
|
1
|
|
|
—
|
|
|
5
|
|
||||||
Total expenses
|
$
|
40
|
|
|
$
|
46
|
|
|
$
|
(6
|
)
|
|
(13
|
)
|
|
$
|
121
|
|
|
$
|
142
|
|
|
$
|
(22
|
)
|
|
(15
|
)
|
% of License revenue
|
6
|
%
|
|
7
|
%
|
|
|
|
|
|
6
|
%
|
|
8
|
%
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
||||||||||||||||||
|
September 30,
|
|
|
|
|
|
September 30,
|
|
|
|
|
||||||||||||||||||
|
2016
|
|
2015
|
|
$ Change
|
|
% Change
|
|
2016
|
|
2015
|
|
$ Change
|
|
% Change
|
||||||||||||||
Cost of services revenue
|
$
|
213
|
|
|
$
|
201
|
|
|
$
|
11
|
|
|
6
|
%
|
|
$
|
620
|
|
|
$
|
577
|
|
|
$
|
43
|
|
|
7
|
%
|
Stock-based compensation
|
13
|
|
|
11
|
|
|
3
|
|
|
25
|
|
|
38
|
|
|
32
|
|
|
6
|
|
|
18
|
|
||||||
Total expenses
|
$
|
226
|
|
|
$
|
212
|
|
|
$
|
14
|
|
|
7
|
|
|
$
|
658
|
|
|
$
|
609
|
|
|
$
|
48
|
|
|
8
|
|
% of Services revenue
|
21
|
%
|
|
21
|
%
|
|
|
|
|
|
21
|
%
|
|
21
|
%
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
||||||||||||||||||
|
September 30,
|
|
|
|
|
|
September 30,
|
|
|
|
|
||||||||||||||||||
|
2016
|
|
2015
|
|
$ Change
|
|
% Change
|
|
2016
|
|
2015
|
|
$ Change
|
|
% Change
|
||||||||||||||
Research and development
|
$
|
309
|
|
|
$
|
275
|
|
|
$
|
34
|
|
|
13
|
%
|
|
$
|
885
|
|
|
$
|
794
|
|
|
$
|
90
|
|
|
11
|
%
|
Stock-based compensation
|
80
|
|
|
56
|
|
|
24
|
|
|
42
|
|
|
224
|
|
|
164
|
|
|
61
|
|
|
37
|
|
||||||
Total expenses
|
$
|
389
|
|
|
$
|
331
|
|
|
$
|
58
|
|
|
18
|
|
|
$
|
1,109
|
|
|
$
|
958
|
|
|
$
|
151
|
|
|
16
|
|
% of Total revenue
|
22
|
%
|
|
20
|
%
|
|
|
|
|
|
22
|
%
|
|
20
|
%
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
||||||||||||||||||
|
September 30,
|
|
|
|
|
|
September 30,
|
|
|
|
|
||||||||||||||||||
|
2016
|
|
2015
|
|
$ Change
|
|
% Change
|
|
2016
|
|
2015
|
|
$ Change
|
|
% Change
|
||||||||||||||
Sales and marketing
|
$
|
513
|
|
|
$
|
513
|
|
|
$
|
—
|
|
|
—
|
%
|
|
$
|
1,562
|
|
|
$
|
1,532
|
|
|
$
|
30
|
|
|
2
|
%
|
Stock-based compensation
|
51
|
|
|
43
|
|
|
8
|
|
|
20
|
|
|
146
|
|
|
124
|
|
|
22
|
|
|
18
|
|
||||||
Total expenses
|
$
|
564
|
|
|
$
|
556
|
|
|
$
|
8
|
|
|
1
|
|
|
$
|
1,708
|
|
|
$
|
1,656
|
|
|
$
|
52
|
|
|
3
|
|
% of Total revenue
|
32
|
%
|
|
33
|
%
|
|
|
|
|
|
34
|
%
|
|
35
|
%
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
||||||||||||||||||
|
September 30,
|
|
|
|
|
|
September 30,
|
|
|
|
|
||||||||||||||||||
|
2016
|
|
2015
|
|
$ Change
|
|
% Change
|
|
2016
|
|
2015
|
|
$ Change
|
|
% Change
|
||||||||||||||
General and administrative
|
$
|
152
|
|
|
$
|
185
|
|
|
$
|
(33
|
)
|
|
(18
|
)%
|
|
$
|
454
|
|
|
$
|
521
|
|
|
$
|
(66
|
)
|
|
(13
|
)%
|
Stock-based compensation
|
26
|
|
|
16
|
|
|
10
|
|
|
59
|
|
|
62
|
|
|
47
|
|
|
14
|
|
|
31
|
|
||||||
Total expenses
|
$
|
178
|
|
|
$
|
201
|
|
|
$
|
(23
|
)
|
|
(12
|
)
|
|
$
|
516
|
|
|
$
|
568
|
|
|
$
|
(51
|
)
|
|
(9
|
)
|
% of Total revenue
|
10
|
%
|
|
12
|
%
|
|
|
|
|
|
10
|
%
|
|
12
|
%
|
|
|
|
|
•
|
Pursuant to ongoing reseller arrangements with Dell, Dell bundles our products and services with Dell’s products and sells them to end users.
|
•
|
Dell purchases products and services from us for internal use.
|
•
|
We provide professional services to end users based upon contractual agreements with Dell.
|
•
|
Pursuant to an ongoing distribution agreement, we act as the selling agent for certain 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 us and remitted to Pivotal, net of the contractual agency fee.
|
•
|
We provide various services to Pivotal. Support costs incurred by us are reimbursed to us and are recorded as a reduction to the costs incurred by us.
|
|
Revenue and Receipts
|
|
Unearned Revenue
|
||||||||||||||||||||
|
Three Months Ended
|
|
Nine Months Ended
|
|
As of
|
|
As of
|
||||||||||||||||
|
September 30,
|
|
September 30,
|
|
September 30,
|
|
December 31,
|
||||||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||||||
Reseller revenue
|
$
|
98
|
|
|
$
|
68
|
|
|
$
|
261
|
|
|
$
|
199
|
|
|
$
|
553
|
|
|
$
|
292
|
|
Internal-use revenue
|
5
|
|
|
4
|
|
|
24
|
|
|
13
|
|
|
17
|
|
|
11
|
|
||||||
Professional services revenue
|
28
|
|
|
20
|
|
|
79
|
|
|
68
|
|
|
—
|
|
|
3
|
|
||||||
Agency fee revenue
|
1
|
|
|
1
|
|
|
3
|
|
|
4
|
|
|
—
|
|
|
—
|
|
||||||
Reimbursement for services to Pivotal
|
—
|
|
|
2
|
|
|
1
|
|
|
3
|
|
|
n/a
|
|
|
n/a
|
|
•
|
We purchase and lease products and purchase services from Dell.
|
•
|
From time to time, we and Dell enter into agreements to collaborate on technology projects, and we pay Dell for services provided to us by Dell related to such projects.
|
•
|
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 charged to us with a mark-up intended to approximate costs that would have been incurred had we contracted for such services with an unrelated third party. These costs are included as expenses on our condensed consolidated statements of income and primarily include salaries, benefits, travel and rent expenses. Dell also incurs certain administrative costs on our behalf in the U.S. that are recorded as expenses on our condensed consolidated statements of income.
|
•
|
From time to time, we invoice end users on behalf of Dell for certain services rendered by Dell. Cash related to these services is collected from the end user by us and remitted to Dell.
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Purchases and leases of products and purchases of services
|
$
|
24
|
|
|
$
|
14
|
|
|
$
|
58
|
|
|
$
|
45
|
|
Collaborative technology project costs
|
—
|
|
|
1
|
|
|
—
|
|
|
4
|
|
||||
Dell subsidiary support and administrative costs
|
30
|
|
|
24
|
|
|
74
|
|
|
79
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Payments from us to Dell
|
$
|
54
|
|
|
$
|
—
|
|
|
$
|
148
|
|
|
$
|
92
|
|
|
September 30,
|
|
December 31,
|
||||
|
2016
|
|
2015
|
||||
Due (to) related parties
|
$
|
(54
|
)
|
|
$
|
(68
|
)
|
Due from related parties
|
77
|
|
|
142
|
|
||
Due (to) from related parties, net
|
$
|
23
|
|
|
$
|
74
|
|
|
|
|
|
||||
Income tax due (to) from related parties
|
$
|
—
|
|
|
$
|
(18
|
)
|
|
September 30,
|
||||||
|
2016
|
|
2015
|
||||
Cash and cash equivalents
|
$
|
2,654
|
|
|
$
|
2,083
|
|
Short-term investments
|
5,600
|
|
|
5,139
|
|
||
Total cash, cash equivalents and short-term investments
|
$
|
8,254
|
|
|
$
|
7,222
|
|
|
Nine Months Ended
|
||||||
|
September 30,
|
||||||
|
2016
|
|
2015
|
||||
Net cash provided by (used in):
|
|
|
|
||||
Operating activities
|
$
|
1,917
|
|
|
$
|
1,411
|
|
Investing activities
|
(752
|
)
|
|
(362
|
)
|
||
Financing activities
|
(1,004
|
)
|
|
(1,037
|
)
|
||
Net increase (decrease) in cash and cash equivalents
|
$
|
161
|
|
|
$
|
12
|
|
•
|
our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable after we electronically file that material with or furnish it to the Securities and Exchange Commission (“SEC”);
|
•
|
announcements of investor conferences, speeches and events at which our executives discuss our products, services and competitive strategies;
|
•
|
webcasts of our quarterly earnings calls and links to webcasts of investor conferences at which our executives appear (archives of these events are also available for a limited time);
|
•
|
additional information on financial metrics, including reconciliations of non-GAAP financial measures discussed in our presentations to the nearest comparable GAAP measure;
|
•
|
press releases on quarterly earnings, product and service announcements, legal developments and international news;
|
•
|
corporate governance information including our certificate of incorporation, bylaws, corporate governance guidelines, board committee charters, business conduct guidelines (which constitutes our code of business conduct and ethics) and other governance-related policies;
|
•
|
other news, blogs and announcements that we may post from time to time that investors might find useful or interesting; and
|
•
|
opportunities to sign up for email alerts and RSS feeds to have information pushed in real time.
|
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
ITEM 4.
|
CONTROLS AND PROCEDURES
|
ITEM 1.
|
LEGAL PROCEEDINGS
|
ITEM 1A.
|
RISK FACTORS
|
•
|
fluctuations in demand, adoption rates, sales cycles (which have been increasing in length) and pricing levels for our products and services;
|
•
|
changes in customers’ budgets for information technology purchases and in the timing of their purchasing decisions;
|
•
|
the timing of recognizing revenue in any given quarter, which can be affected by a number of factors, including product announcements, beta programs and product promotions that can cause revenue recognition of certain orders to be deferred until future products to which customers are entitled become available;
|
•
|
the timing of announcements or releases of new or upgraded products and services by us or by our competitors;
|
•
|
the timing and size of business realignment plans and restructuring charges;
|
•
|
our ability to maintain scalable internal systems for reporting, order processing, license fulfillment, product delivery, purchasing, billing and general accounting, among other functions;
|
•
|
our ability to control costs, including our operating expenses;
|
•
|
credit risks of our distributors, who account for a significant portion of product revenue and accounts receivable;
|
•
|
our ability to process sales at the end of quarter;
|
•
|
seasonal factors such as the end of fiscal period budget expenditures by our customers and the timing of holiday and vacation periods;
|
•
|
renewal rates and the amounts of the renewals for EAs as original EA terms expire;
|
•
|
the timing and amount of internally developed software development costs that may be capitalized;
|
•
|
unplanned events that could affect market perception of the quality or cost-effectiveness of our products and solutions; and
|
•
|
our ability to accurately predict the degree to which customers will elect to purchase our subscription-based offerings in place of licenses to our on-premises offerings.
|
•
|
sensitive data regarding our business, including intellectual property and other proprietary data, could be stolen;
|
•
|
our electronic communications systems, including email and other methods, could be disrupted, and our ability to conduct our business operations could be seriously damaged until such systems can be restored and secured;
|
•
|
our ability to process customer orders and electronically deliver products and services could be degraded, and our distribution channels could be disrupted, resulting in delays in revenue recognition;
|
•
|
defects and security vulnerabilities could be exploited or introduced into our software products or our hybrid cloud and SaaS offerings, thereby damaging the reputation and perceived reliability and security of our products and services and potentially making the data systems of our customers vulnerable to further data loss and cyber incidents; and
|
•
|
personally identifiable or confidential data of our customers, employees and business partners could be stolen or lost.
|
•
|
difficulties in enforcing contracts and collecting accounts receivable and longer payment cycles, especially in emerging markets;
|
•
|
difficulties in delivering support, training and documentation in certain foreign markets;
|
•
|
tariffs and trade barriers and other regulatory or contractual limitations on our ability to sell or develop our products and services in certain foreign markets;
|
•
|
economic or political instability and security concerns in countries that are important to our international sales and operations;
|
•
|
difficulties in transferring funds from certain countries;
|
•
|
increased compliance risks, particularly in emerging markets; and
|
•
|
difficulties in maintaining appropriate controls relating to revenue recognition practices.
|
•
|
pay significant damages;
|
•
|
stop distributing our products that contain the open source software;
|
•
|
revise or modify our product code to remove alleged infringing code;
|
•
|
release the source code of our proprietary software; or
|
•
|
take other steps to avoid or remedy an alleged infringement.
|
•
|
disrupting our ongoing operations, diverting management from day-to-day responsibilities, increasing our expenses, and adversely impacting our business, financial condition and operating results;
|
•
|
failure of an acquired business to further our business strategy;
|
•
|
uncertainties in achieving the expected benefits of an acquisition or disposition, including enhanced revenue, technology, human resources, cost savings, operating efficiencies and other synergies;
|
•
|
reducing cash available for operations, stock repurchase programs and other uses and resulting in potentially dilutive issuances of equity securities or the incurrence of debt;
|
•
|
incurring amortization expense related to identifiable intangible assets acquired that could impact our operating results;
|
•
|
difficulty integrating the operations, systems, technologies, products and personnel of acquired businesses effectively;
|
•
|
the need to provide transition services in connection with a disposition, which may result in the diversion of resources and focus;
|
•
|
difficulty achieving expected business results due to a lack of experience in new markets, products or technologies or the initial dependence on unfamiliar distribution partners or vendors;
|
•
|
retaining and motivating key personnel from acquired companies;
|
•
|
declining employee morale and retention issues affecting employees of businesses that we acquire or dispose of, which may result from changes in compensation, or changes in management, reporting relationships, future prospects or the direction of the acquired or disposed business;
|
•
|
assuming the liabilities of an acquired business, including acquired litigation-related liabilities and regulatory compliance issues, and potential litigation or regulatory action arising from a proposed or completed acquisition;
|
•
|
lawsuits resulting from an acquisition or disposition;
|
•
|
maintaining good relationships with customers or business partners of an acquired business or our own customers as a result of any integration of operations;
|
•
|
unidentified issues not discovered during the diligence process, including issues with the acquired business’s intellectual property, product quality, security, privacy practices, accounting practices, regulatory compliance or legal contingencies;
|
•
|
maintaining or establishing acceptable standards, controls, procedures or policies with respect to an acquired business;
|
•
|
risks relating to the challenges and costs of closing a transaction; and
|
•
|
the need to later divest acquired assets at a loss if an acquisition does not meet our expectations.
|
•
|
Dell is able to control matters requiring our stockholders’ approval, including the election of a majority of our directors and the other matters over which EMC formerly had control, as described in the risk factors below.
|
•
|
Dell could implement changes to our business, including changing our commercial relationship with Dell and EMC or taking other corporate actions that our other stockholders may not view as beneficial.
|
•
|
We have arrangements with a number of companies that compete with Dell, and the completion of the Dell Acquisition could adversely affect our relationship with these companies or other customers, suppliers and partners.
|
•
|
Dell has a right of consent to matters formerly requiring EMC’s approval under our certificate of incorporation, including acquisitions or investments in excess of $100 million, and Dell may choose not to consent to matters that our board of directors believes are in the best interests of VMware.
|
•
|
We anticipate certain synergies and benefits from the Dell Acquisition that may not be realized.
|
•
|
The Class V common stock issued by Dell on September 7, 2016, while not a VMware issued security, increases the supply of publicly traded securities that track VMware’s economic performance and may create the perception that the Class V common stock dilutes the holdings of our public stockholders, both of which may put downward pressure on our stock price. While the price of Class V common stock was initially relatively stable, it may be volatile from time-to-time as a consistent trading market in Class V common stock is established. Any volatility in the market for Class V common stock could contribute to volatility in the price of VMware Class A common stock.
|
•
|
With the closing of the Dell Acquisition, Dell has become more highly leveraged and may be required to commit a substantial portion of its cash flows to servicing its indebtedness. While Dell has publicly stated that it plans to leave VMware free to use its cash to invest in the VMware business, Dell’s significant debt could create the perception that Dell may exercise its control over us to limit our growth in favor of its other businesses or cause us to transfer cash to Dell. In addition, if Dell defaults, or appears in danger of defaulting, on its indebtedness, the trading price of the Class V common stock issued by Dell would be adversely affected, which could negatively impact the price of our Class A common stock, and uncertainty as to the impact of such a default on VMware could disrupt our business.
|
•
|
Some of our products compete directly with products sold or distributed by Dell, which could result in reduced sales.
|
•
|
The consummation of the Dell Acquisition creates uncertainty for our employees, which could make it difficult to attract and retain employees.
|
•
|
The consummation of the Dell Acquisition could distract management’s focus from executing on other strategic initiatives.
|
•
|
The Dell Acquisition creates potential litigation risk. Various lawsuits have been filed against EMC and others in connection with the Dell Acquisition, including two in which the Company and our directors are named as defendants. It is possible that we or our directors may be named in other lawsuits.
|
•
|
the division of our board of directors into three classes, with each class serving for a staggered three-year term, which prevents stockholders from electing an entirely new board of directors at any annual meeting;
|
•
|
the right of the board of directors to elect a director to fill a vacancy created by the expansion of the board of directors;
|
•
|
following a 355 Distribution of Class B common stock by Dell to its stockholders, the restriction that a beneficial owner of 10% or more of our Class B common stock may not vote in any election of directors unless such person or group also owns at least an equivalent percentage of Class A common stock or obtains approval of our board of directors prior to acquiring beneficial ownership of at least 5% of Class B common stock;
|
•
|
the prohibition of cumulative voting in the election of directors or any other matters, which would otherwise allow less than a majority of stockholders to elect director candidates;
|
•
|
the requirement for advance notice for nominations for election to the board of directors or for proposing matters that can be acted upon at a stockholders’ meeting;
|
•
|
the ability of the board of directors to issue, without stockholder approval, up to 100,000,000 shares of preferred stock with terms set by the board of directors, which rights could be senior to those of common stock; and
|
•
|
in the event that Dell or its successor-in-interest no longer owns shares of our common stock representing at least a majority of the votes entitled to be cast in the election of directors, stockholders may not act by written consent and may not call special meetings of the stockholders.
|
ITEM 2.
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
|
Total Number of Shares Purchased (1)
|
|
Average Price Paid Per Share
(1)(2)
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
(1)
|
|
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Publicly Announced Plans or Programs
(1)(3)
|
||||||
July 1 – July 31, 2016
|
2,255,341
|
|
|
$
|
71.48
|
|
|
2,255,341
|
|
|
$
|
1,039,204,591
|
|
August 1 – August 31, 2016
|
5,260,322
|
|
|
71.87
|
|
|
5,260,322
|
|
|
661,142,285
|
|
||
September 1 – September 30, 2016
|
6,483,541
|
|
|
73.47
|
|
|
6,483,541
|
|
|
184,771,879
|
|
||
|
13,999,204
|
|
|
$
|
72.55
|
|
|
13,999,204
|
|
|
184,771,879
|
|
(1)
|
In April 2016, VMware’s board of directors authorized the repurchase of up to an aggregate of
$1,200 million
of VMware’s Class A common stock through the end of 2016. The April 2016 stock repurchase authorization includes the
$835 million
remaining from VMware’s previous stock repurchase authorization announced in January 2015. VMware’s Class A common stock has been, and may in the future be, purchased pursuant to our stock repurchase authorizations, from time to time, in the open market or through private transactions, subject to market conditions. We are not obligated to purchase any shares under our stock repurchase program. Subject to applicable laws, repurchases under our stock repurchase program may be made at such times and in such amounts as we deem appropriate. The timing of any repurchases and the actual number of shares repurchased will depend on a variety of factors, including VMware’s stock price, cash requirements for operations and business combinations, corporate and regulatory requirements and other market and economic conditions. Purchases under our stock repurchase program can be discontinued at any time that we feel additional purchases are not warranted.
|
(2)
|
The average price paid per share excludes commissions.
|
(3)
|
Represents the amounts remaining in the VMware stock repurchase authorizations.
|
ITEM 6.
|
EXHIBITS
|
|
|
VMWARE, INC.
|
|
|
|
|
|
Dated:
|
November 7, 2016
|
By:
|
/s/ Kevan Krysler
|
|
|
|
Kevan Krysler
Senior Vice President, Chief Accounting Officer
(Principal Accounting Officer)
|
|
|
|
|
|
Incorporated by Reference
|
||||
Exhibit
Number
|
|
Exhibit Description
|
|
Filed
Herewith
|
|
Form/
File No.
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
|
3.1
|
|
|
Amended and Restated Certificate of Incorporation
|
|
|
|
S-1/A-2
|
|
7/9/2007
|
3.2
|
|
|
Amended and Restated Bylaws
|
|
|
|
8-K
|
|
3/8/2011
|
10.10+
|
|
|
Form of Restricted Stock Unit Agreement, as amended August 12, 2016
|
|
X
|
|
|
|
|
10.31+
|
|
|
Form of Restricted Stock Unit Agreement for U.K. Participants, as amended September 1, 2016
|
|
X
|
|
|
|
|
10.32
|
|
|
Amended and Restated Tax Sharing Agreement between VMware, Inc. and Dell Technologies Inc. effective as of September 6, 2016
|
|
X
|
|
|
|
|
31.1
|
|
|
Certification of Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
X
|
|
|
|
|
31.2
|
|
|
Certification of Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
X
|
|
|
|
|
32.1
|
|
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
X
|
|
|
|
|
32.2
|
|
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
X
|
|
|
|
|
101.INS
|
|
|
XBRL Instance Document
|
|
X
|
|
|
|
|
101.SCH
|
|
|
XBRL Taxonomy Extension Schema
|
|
X
|
|
|
|
|
101.CAL
|
|
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
X
|
|
|
|
|
101.DEF
|
|
|
XBRL Taxonomy Extension Definition Linkbase
|
|
X
|
|
|
|
|
101.LAB
|
|
|
XBRL Taxonomy Extension Label Linkbase
|
|
X
|
|
|
|
|
101.PRE
|
|
|
XBRL Taxonomy Extension Presentation Linkbase
|
|
X
|
|
|
|
|
|
|
|
Name:
|
|
(“Participant”)
|
Grant Number:
|
|
|
|
|
|
Date of Grant:
|
|
|
|
|
|
Vesting Commencement Date:
|
|
|
|
|
|
Number of RSUs:
|
|
|
|
|
•
|
an election under Section 431(1) of the Income Tax (Earnings and Pensions) Act 2003 (in a form approved by the Company) for the full disapplication of Chapter 2 of Part 7 of that Act in relation to all the shares of Common Stock subject to this RSU;
|
•
|
a joint election with the Company and/or any Subsidiary in accordance with Paragraph 3B(1) of Schedule 1 of the Social Security Contributions and Benefits Act 1992 (the “SSCBA”) (either by executing this Agreement so as to be bound by the terms of this NIC Election or in such other form the Company may require from time to time) for the whole of any liability for Employer national insurance contributions to be transferred to you;
|
•
|
a deed of adherence (in such form as determined by the Company from time to time) pursuant to which you become a party to and bound by any applicable shareholder agreement (or similar agreement) as amended or replaced from time to time.
|
(a)
|
For the purposes of this NIC Election, “Relevant Employment Income” means:
|
(b)
|
The Employer may be liable to pay secondary Class 1 National Insurance Contributions in respect of any Relevant Employment Income (the “Secondary Liability”).
|
(c)
|
The Participant and the Company (on behalf of the Employer) hereby jointly elect that the whole of the Secondary Liability is hereby transferred to the Participant on the terms set out in this NIC Election.
|
(d)
|
The Participant hereby authorizes the Company and the Employer to recover an amount from the Participant sufficient to cover the Secondary Liability to the extent transferred to the Participant under this NIC Election. Such recovery may be made by the Company and the Employer in accordance with any of the following:
|
(e)
|
The Company agrees to pay, or procure the payment of, the Secondary Liability to HMRC within 14 days after the end of the tax month during which the vesting, settlement, assignment or release (as the case may be) of the RSUs (or part thereof) occurred.
|
(f)
|
HM Revenue & Customs has approved the form of this NIC Election and the arrangements for securing that the liability transferred by this NIC Election will be met.
|
(g)
|
This NIC Election shall continue in effect until the earlier of:
|
(h)
|
The terms of this NIC Election will continue in force regardless of whether the Participant ceases to be an employee of the Employer.
|
(i)
|
The Participant hereby confirms that in entering into the Agreement he will be personally liable for the Secondary Liability covered by this NIC Election, including in relation to any other Award.
|
(j)
|
This NIC Election will not apply to the extent that it relates to Relevant Employment Income which is employment income of the Participant by virtue of Chapter 3A of Part 7 of the Income Tax (Earnings and Pensions) Act 2003 (employment income: securities with artificially depressed market value).
|
(k)
|
This NIC Election does not apply to any liability, or any part of any liability, arising as a result of regulations given retrospective effect by virtue of section 4B(2) of either the SSCBA or the Social Security Contributions and Benefits (Northern Ireland) Act 1992.
|
(l)
|
By accepting this Agreement in writing, electronically, or otherwise, the Company and the Participant hereby agree (inter alia) to be bound by the terms of this NIC Election as set out herein.
|
Section 1.
|
Definitions.
|
Section 2.
|
Preparation and Filing of Tax Returns.
|
Section 3.
|
Liability for Taxes.
|
Section 4.
|
Deconsolidation Events.
|
Section 5.
|
Distribution Taxes.
|
Section 6.
|
Indemnification.
|
Section 7.
|
Payments.
|
Section 8.
|
Tax Proceedings.
|
Section 9.
|
Stock Options and Restricted Stock.
|
Section 10.
|
Miscellaneous Provisions.
|
1.
|
I have reviewed this quarterly report on Form 10-Q of VMware, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date:
|
November 7, 2016
|
By:
|
|
/s/ Patrick Gelsinger
|
|
|
|
|
Patrick Gelsinger
Chief Executive Officer
(Principal Executive Officer)
|
1.
|
I have reviewed this quarterly report on Form 10-Q of VMware, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date:
|
November 7, 2016
|
By:
|
|
/s/ Zane Rowe
|
|
|
|
|
Zane Rowe
Chief Financial Officer and Executive Vice President
(Principal Financial Officer)
|
Date:
|
November 7, 2016
|
By:
|
|
/s/ Patrick Gelsinger
|
|
|
|
|
Patrick Gelsinger
Chief Executive Officer
(Principal Executive Officer)
|
Date:
|
November 7, 2016
|
By:
|
|
/s/ Zane Rowe
|
|
|
|
|
Zane Rowe
Chief Financial Officer and Executive Vice President
(Principal Financial Officer)
|