Derivatives and Hedging Activities |
3 Months Ended |
|---|---|
Apr. 30, 2021 | |
| Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
| Derivatives and Hedging Activities | Derivatives and Hedging Activities VMware conducts business on a global basis in multiple foreign currencies, subjecting the Company to foreign currency risk. To mitigate a portion of this risk, VMware utilizes hedging contracts as described below, which potentially expose the Company to credit risk to the extent that the counterparties may be unable to meet the terms of the agreements. VMware manages counterparty risk by seeking counterparties of high credit quality and by monitoring credit ratings, credit spreads and other relevant public information about its counterparties. VMware does not, and does not intend to, use derivative instruments for trading or speculative purposes. Cash Flow Hedges To mitigate its exposure to foreign currency fluctuations resulting from certain operating expenses denominated in certain foreign currencies, VMware enters into forward contracts that are designated as cash flow hedging instruments as the accounting criteria for such designation are met. Therefore, the effective portion of gains or losses resulting from changes in the fair value of these instruments is initially reported in accumulated other comprehensive loss on the condensed consolidated balance sheets and is subsequently reclassified to the related operating expense line item on the condensed consolidated statements of income in the same period that the underlying expenses are incurred. During the three months ended April 30, 2021 and May 1, 2020, the effective portion of gains or losses reclassified to the condensed consolidated statements of income was not significant. Interest charges or forward points on VMware’s forward contracts were excluded from the assessment of hedge effectiveness and were recorded to the related operating expense line item on the condensed consolidated statements of income in the same period that the interest charges are incurred. These forward contracts have contractual maturities of twelve months or less, and as of April 30, 2021 and January 29, 2021, outstanding forward contracts had a total notional value of $374 million and $486 million, respectively. The notional value represents the gross amount of foreign currency that will be bought or sold upon maturity of the forward contract. The fair value of these forward contracts was not significant as of April 30, 2021 and January 29, 2021. During the three months ended April 30, 2021 and May 1, 2020, all cash flow hedges were considered effective. Forward Contracts Not Designated as Hedges VMware has established a program that utilizes forward contracts to offset the foreign currency risk associated with net outstanding monetary asset and liability positions. These forward contracts are not designated as hedging instruments under applicable accounting guidance, and therefore all changes in the fair value of the forward contracts are reported in other income (expense), net on the condensed consolidated statements of income. These forward contracts generally have a contractual maturity of one month, and as of April 30, 2021 and January 29, 2021, outstanding forward contracts had a total notional value of $907 million and $1.2 billion, respectively. The notional value represents the gross amount of foreign currency that will be bought or sold upon maturity of the forward contract. The fair value of these forward contracts was not significant as of April 30, 2021 and January 29, 2021. Gains related to the settlement of forward contracts were not significant during the three months ended April 30, 2021, and were $15 million during the three months ended May 1, 2020. Gains and losses are recorded in other income (expense), net on the condensed consolidated statements of income. The combined gains and losses related to the settlement of forward contracts and the underlying foreign currency denominated assets and liabilities were not significant during the three months ended April 30, 2021 and May 1, 2020. Net gains and losses are recorded in other income (expense), net on the condensed consolidated statements of income.
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