VMware 2014 Annual Report Download - page 85

Table of Contents VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
consider any of its fixed income investments to be other-than-temporarily impaired. The realized gains and realized losses on fixed income
investments during the years ended December 31, 2014 and 2013 were not material.
Unrealized losses on cash equivalents and short-term investments as of December 31, 2014 and 2013 , which have been in a net loss
position for less than twelve months, were classified by investment category as follows (table in millions):
As of December 31, 2014 and 2013 , unrealized losses on cash equivalents and short-
term investments in other investment categories, which
have been in a net loss position for less than twelve months, were not material. Unrealized losses on cash equivalents and short-term
investments, which have been in a net loss position for twelve months or greater, were not material as of December 31, 2014 and 2013 .
Contractual Maturities
The contractual maturities of cash equivalents and short-term investments held at December 31, 2014 consisted of the following (table in
millions):
F. 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
Most of VMware’s fixed income securities are classified as Level 2, with the exception of some of the U.S government and agency
obligations which are classified as Level 1. At December 31, 2014 and 2013 , the majority of VMware’s Level 2 securities were priced using
non-binding market consensus prices that are corroborated by observable market data, quoted market prices for similar instruments, or pricing
models such as discounted cash flow techniques. VMware’s procedures include controls to ensure that appropriate fair values are recorded such
as comparing prices obtained from multiple independent sources.
Additionally, VMware’s Level 2 classification includes foreign currency forward contracts and notes payable to EMC as the valuation
inputs for these are based upon quoted prices, quoted pricing intervals from public data sources, observable market data and discounted cash
flow techniques. The fair value of the foreign currency forward contracts was not material for any period presented. As of December 31, 2014 ,
the fair value of the notes payable to EMC approximated its carrying value due to the minimal change in the interest rate between December 31,
2014 and the date the notes were entered into. As such, the notes payable to EMC are excluded from the fair value table below.
80
December 31, 2014
December 31, 2013
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
U.S. and foreign corporate debt securities
$
1,964
$
(5
)
$
750
$
(3
)
Mortgage-backed securities
107
(1
)
91
(1
)
Total
$
2,071
$
(6
)
$
841
$
(4
)
Amortized
Cost Basis
Aggregate
Fair Value
Due within one year
$
2,594
$
2,594
Due after 1 year through 5 years
3,361
3,360
Due after 5 years
236
236
Total cash equivalents and short-term investments
$
6,191
$
6,190
• 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