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Table of Contents VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
are recorded such as comparing prices obtained from multiple independent sources. 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. The fair value of these contracts was 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 as of December 31, 2013 and 2012 , and there
have been no transfers between fair value measurement levels during the years ended December 31, 2013 and 2012 .
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 December 31, 2013 and
2012 (tables in millions):
G. Derivatives and Hedging Activity
VMware conducts business in several foreign currencies and has international sales and expenses denominated in foreign currencies, subjecting the
Company to foreign currency risk. To mitigate this risk, VMware enters into hedging activities as described below. The counterparties to VMware’s foreign
currency forward contracts are multi-national commercial banks considered to be credit-worthy. VMware does not enter into speculative foreign exchange
contracts for trading purposes.
Cash Flow Hedging Activities
To mitigate its exposure to foreign currency fluctuations resulting from operating expenses denominated in certain foreign currencies, VMware enters
into foreign currency forward contracts. The Company designates these forward contracts as cash flow hedging instruments as the accounting criteria for such
designation has been met. Therefore, the effective portion of gains or losses resulting from changes in the fair value of these hedges is initially reported in
accumulated other comprehensive income (loss) on the consolidated balance sheet and is subsequently reclassified to the related operating expense line item
in the consolidated statements of income in the same period that the underlying expenses are incurred. For the years ended December 31, 2013 , 2012 and
2011 , the effective portion of gains or losses reclassified to the consolidated statements of income were not material. Interest charges or “forward points” on
VMware’s forward contracts are excluded from the
76
December 31, 2013
Level 1
Level 2
Total
Money-market funds
$
1,808
$
—
$
1,808
U.S. Government and agency obligations
385
152
537
U.S. and foreign corporate debt securities
—
2,366
2,366
Foreign governments and multi-national agency obligations
—
37
37
Municipal obligations
—
816
816
Asset-backed securities
—
—
—
Mortgage-backed securities
—
128
128
Total
$
2,193
$
3,499
$
5,692
December 31, 2012
Level 1
Level 2
Total
Money-market funds
$
1,125
$
—
$
1,125
U.S. Government and agency obligations
250
155
405
U.S. and foreign corporate debt securities
—
1,567
1,567
Foreign governments and multi-national agency obligations
—
41
41
Municipal obligations
—
976
976
Asset-backed securities
—
1
1
Mortgage-backed securities
—
79
79
Total
$
1,375
$
2,819
$
4,194