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Fair Value Measurements

9 Months Ended

Oct. 30, 2020

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;


•	Level 2 - Inputs other than Level 1 inputs that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not 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; and


•	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.

VMware did not have any significant assets or liabilities that were classified as Level 3 of the fair value hierarchy for the periods presented, and there have been no transfers between fair value measurement levels during the periods presented.

The following tables set forth the fair value hierarchy of VMware’s cash equivalents that were required to be measured at fair value as of the periods presented (tables in millions):



	October 30, 2020
	Level 1		Level 2		Total
Cash equivalents:
Money-market funds	$	3,146	$	—	$	3,146
Time deposits⁽¹⁾	—		55		55
Total cash equivalents	$	3,146	$	55	$	3,201



	January 31, 2020
	Level 1		Level 2		Total
Cash equivalents:
Money-market funds	$	2,158	$	—	$	2,158
Time deposits⁽¹⁾	—		102		102
Total cash equivalents	$	2,158	$	102	$	2,260

⁽¹⁾ Time deposits were valued at amortized cost, which approximated fair value.

The note payable to Dell, the Senior Notes and the Term Loan were not adjusted to fair value. The fair value of the note payable to Dell was approximately $275 million and $269 million as of October 30, 2020 and January 31, 2020, respectively. The fair value of the Senior Notes was approximately $5.3 billion and $4.1 billion as of October 30, 2020 and January 31, 2020, respectively. The fair value of the Term Loan approximated its carrying value as of January 31, 2020 due to its short-term nature. Fair value for the note payable to Dell, the Senior Notes and the Term Loan was estimated primarily based on observable market interest rates (Level 2 inputs).

VMware offers a deferred compensation plan for eligible employees, which allows participants to defer payment for part or all of their compensation. There is no net impact to the condensed consolidated statements of income since changes in the fair value of the assets offset changes in the fair value of the liabilities. As such, assets and liabilities associated with this plan have not been included in the above tables. Assets associated with this plan were the same as the liabilities at $125 million and $106 million as of October 30, 2020 and January 31, 2020, respectively, and were included in other assets and other liabilities on the condensed consolidated balance sheets, respectively.

Equity Securities With a Readily Determinable Fair Value

VMware’s equity securities include an investment in a company that completed its initial public offering during the third quarter of fiscal 2021. As a result of the initial public offering, VMware’s investment was adjusted to its fair value of $214 million using quoted prices for identical assets in an active market (Level 1), and VMware recognized an unrealized gain of $189 million in other income (expense), net on the condensed consolidated statements of income. The investment was included in other assets on the condensed consolidated balance sheets. VMware also recognized a discrete tax expense of $62 million related to its book and tax basis difference on this investment.

Equity Securities Without a Readily Determinable Fair Value

VMware’s equity securities also include investments in privately held companies, which do not have a readily determinable fair value. As of October 30, 2020 and January 31, 2020, investments in privately held companies, which consisted primarily of equity securities, had a carrying value of $122 million and $159 million, respectively, and were included in other assets on the condensed consolidated balance sheets. During each of the three and nine months ended October 30, 2020, VMware recognized an unrealized loss of $15 million on these securities. The unrealized gains recognized during the three and nine months ended November 1, 2019 were $12 million and $35 million, respectively. All gains and losses on these securities, whether realized or unrealized, are recognized in other income (expense), net on the condensed consolidated statements of income.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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