Fair Value Measurements

6 Months Ended

Jun. 30, 2012

Fair Value Disclosures [Abstract]

Fair Value Measurements

E. Fair Value Measurements

Generally accepted accounting principles provide that fair value is an exit price, representing the amount that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, generally accepted accounting principles established a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) inputs are quoted prices in active markets for identical assets or liabilities; (Level 2) inputs other than the quoted prices included within Level 1 that are observable for the assets or liabilities, either directly or indirectly; and (Level 3) unobservable inputs for the assets or liabilities in which there is little or no market data, which requires VMware to develop its own assumptions.

VMware’s Level 1 classification of the fair value hierarchy includes money market funds and certain available-for-sale fixed income securities because these securities are valued using quoted prices in active markets for identical assets.

VMware’s Level 2 classification includes the remainder of the available-for-sale fixed income securities because these securities are priced using quoted market prices for similar instruments and non-binding market prices that are corroborated by observable market data. VMware obtains the fair values of its Level 2 financial instruments based upon fair values obtained from its custody bank. In addition, VMware obtains fair values of its Level 2 financial instruments from the asset manager of each of its portfolios. VMware validates the fair value provided by its custody bank by comparing it against the independent pricing information obtained from the asset managers. Independently, the custody bank and the asset managers use professional pricing services to gather pricing data which may include quoted market prices for identical or comparable instruments, or inputs other than quoted prices that are observable either directly or indirectly. VMware is ultimately responsible for the financial statements and underlying estimates.

Additionally, VMware’s Level 2 classification includes foreign currency forward contracts as the valuation inputs for these are based upon quoted prices and quoted pricing intervals from public data sources. These contracts were not material for any period presented. VMware does not have any material assets or liabilities that fall into Level 3 of the fair value hierarchy.

The following tables set forth the fair value hierarchy of VMware’s money market funds and available-for-sale securities, including those securities classified within cash and cash equivalents on the consolidated balance sheets, that were required to be measured at fair value as of June 30, 2012 and December 31, 2011 (tables in thousands):

	June 30, 2012
	Level 1		Level 2		Total
Money-market funds	$	1,644,790	$	—	$	1,644,790
U.S. Government and agency obligations	283,364		193,339		476,703
U.S. and foreign corporate debt securities	—		1,554,617		1,554,617
Foreign governments and multi-national agency obligations	—		39,123		39,123
Municipal obligations	—		1,168,226		1,168,226
Asset-backed securities	—		36,691		36,691
Mortgage-backed securities	—		65,103		65,103
Total cash equivalents and investments	$	1,928,154	$	3,057,099	$	4,985,253
	December 31, 2011
	Level 1		Level 2		Total
Money-market funds	$	1,345,904	$	—	$	1,345,904
U.S. Government and agency obligations	170,744		347,870		518,614
U.S. and foreign corporate debt securities	—		1,143,378		1,143,378
Foreign governments and multi-national agency obligations	—		58,397		58,397
Municipal obligations	—		769,241		769,241
Asset-backed securities	—		27,086		27,086
Mortgage-backed securities	—		49,734		49,734
Total cash equivalents and investments	$	1,516,648	$	2,395,706	$	3,912,354