VMware 2011 Annual Report Download - page 63

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Table of Contents
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, 2011 by $12.0 million and $24.0 million , respectively. This sensitivity analysis
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 2011 . 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, 2011 , $450.0 million was outstanding on our consolidated balance sheet in relation to the note payable to EMC. The
interest rate on the note payable was 0.92% as of December 31, 2011 and 0.84% as of both December 31, 2010 and 2009. In 2011 , 2010 and
2009 , $3.9 million , $4.1 million and $6.5 million , respectively, of interest expense was recorded related to the note payable.
The note may be repaid, without penalty, at any time. In June 2011, we and EMC amended and restated the note to extend the maturity date
of the note to April 16, 2015 and to modify the principal amount of the note to reflect the outstanding balance of $450.0 million . The amended
agreement continues to bear 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, 2011 rate and assuming no additional repayments on the principal were
made, our annual interest expense would change by $4.5 million.
Equity Price Risk
During 2011, we sold our investment in Terremark Worldwide, Inc., which was acquired by Verizon in a cash transaction. As a result of the
sale of our investment, we no longer have investments in equity securities that expose us to market risk associated with publicly traded equity
securities.
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