VMware 2009 Annual Report Download - page 68

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Table of Contents
the gains and losses associated with the underlying foreign currency denominated assets and liabilities that we hedge, and are reported in other
income (expense), net in the consolidated statements of income. We will continue to experience foreign currency gains and losses in certain
instances where it is not possible or cost effective to hedge our foreign currency exposures. We do not enter into speculative foreign exchange
contracts for trading purposes.
Our foreign currency forward contracts are generally traded on a monthly basis with a contractual term of one month. As of December 31,
2009, we had outstanding forward contracts with a total notional value of $130.7 million. The fair value of these forward contracts was
immaterial as of December 31, 2009. There can be no assurance that our hedging activities will adequately protect us against the risks associated
with foreign currency fluctuations. A hypothetical adverse foreign currency exchange rate movement of 10% would have resulted in a potential
loss in fair value of our foreign currency forward contracts of $13.1 million as of December 31, 2009. This sensitivity analysis assumes a parallel
adverse shift of all foreign currency exchange rates against the U.S. Dollar; however, all foreign currency exchange rates do not always move in
such a manner and actual results may differ materially. See Note C to the consolidated financial statements for further information.
Interest Rate Risk
As of December 31, 2009, $450.0 million was outstanding on the consolidated balance sheet in relation to the note payable with EMC. The
interest rate on the note payable as of December 31, 2009, 2008, and 2007 was 0.84%, 4.43%, and 5.78%, respectively. In 2009, 2008 and 2007,
$6.5 million, $18.6 million and $26.6 million, respectively, of interest expense was recorded related to the note payable.
Our exposure to market risk for changes in interest rates relates primarily to the variable interest obligation on the $450.0 million
outstanding on the consolidated balance sheet in relation to the note payable to EMC. 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. As a result of a
lower 90-day LIBOR rate, we expect our interest expense on the note payable to decrease in the first quarter of 2010. If the interest rate on the
note payable were to change 100 basis points from the December 31, 2009 rate and assuming no additional repayments on the principal were
made, our annual interest expense would change by $4.5 million.
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