VMware 2010 Annual Report Download - page 71

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Table of Contents
This analysis also assumes a parallel adverse shift of all foreign currency exchange rates against the U.S. Dollar; however, foreign currency
exchange rates do not always move in such a manner and actual results may differ materially. We do not enter into speculative foreign exchange
contracts for trading purposes. See Note D to the consolidated financial statements for further information.
Interest Rate Risk
Fixed Income Securities
During the second quarter of 2010, we began investing in fixed income securities. Our fixed income investment portfolio is denominated in
U.S. Dollars and consists of various holdings, types and maturities.
Our primary objective for holding fixed income securities is to achieve an appropriate investment return consistent with preserving
principal and managing risk. At any time, a sharp rise in interest rates or credit spreads could have a material adverse impact on the fair value of
our fixed income investment portfolio. Hypothetical changes in interest rates of 50 basis points and 100 basis points would have changed the fair
value of our fixed income investment portfolio as of December 31, 2010
by $7.6 million and $15.1 million, respectively. This sensitivity analysis
assumes a parallel shift of all interest rates, however, interest rates do not always move in such a manner and actual results may differ materially.
We monitor our interest rate and credit risk, including our credit exposures to specific rating categories and to individual issuers. There were no
impairment charges on our cash equivalents and fixed income securities during 2010. These instruments are not leveraged and we do not enter
into speculative securities for trading purposes. See Notes C and D to the consolidated financial statements for further information.
Note Payable to EMC
As of December 31, 2010, $450.0 million was outstanding on our consolidated balance sheet in relation to the note payable with EMC. The
interest rate on the note payable was 0.84% as of both December 31, 2010 and 2009 and 4.43% as of December 31, 2008. In 2010, 2009 and
2008, $4.1 million, $6.5 million and $18.6 million, respectively, of interest expense was recorded related to the note payable.
The note may be repaid, without penalty, at any time. The note matures in April 2012 and bears an interest rate of the 90-day LIBOR plus
55 basis points, with interest payable quarterly in arrears. The interest rate on the note resets quarterly and is determined on the two business
days prior to the first day of each fiscal quarter. If the interest rate on the note payable were to change 100 basis points from the December 31,
2010 rate and assuming no additional repayments on the principal were made, our annual interest expense would change by $4.5 million.
Equity Price Risk
Our investments in equity securities expose us to market risk associated with publicly traded equity securities. These investments are
classified as short-term investments on our consolidated balance sheets. A hypothetical change of 10% and 20% in the publicly traded price for
our investments in equity securities would have changed the fair value of these investments by $5.2 million and $10.4 million, respectively, as of
December 31, 2010.
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