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Table of Contents VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table sets 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, 2011 and 2010 (table in thousands):
E. Derivative Instruments
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 entered into foreign currency forward contracts starting in the fourth quarter of 2011. 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 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. Interest charges or "forward points" on VMware's forward contracts are excluded from the
assessment of hedge effectiveness and are recorded in other income (expense), net in the consolidated statements of income as incurred. For the
year ended December 31, 2011, all amounts recognized on the consolidated statements of income related to VMware's cash flow hedging
program were immaterial.
VMware generally enters into cash flow hedges semi-annually with maturities of six months or less. As of December 31, 2011 , VMware
had forward contracts to purchase currency designated as cash flow hedges with a total notional value of $47.1 million . The fair value of these
forward contracts was immaterial as of December 31, 2011 , and therefore excluded from the fair value tables above. For the year ended
December 31, 2011, all cash flow hedges were considered effective.
Balance Sheet Hedging Activities
In order to manage exposure to foreign currency fluctuations, VMware enters into foreign currenc y forward contracts to hedge a portion of
its net outstanding monetary assets and liabilities against movements in certain foreign exchange rates. These forward contracts are not
designated as hedging instruments under applicable accounting guidance, and therefore all
73
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
December 31, 2010
Level 1
Level 2
Total
Money-market funds
$
1,436,319
$
—
$
1,436,319
U.S. government and agency obligations
66,762
312,543
379,305
U.S. and foreign corporate debt securities —
537,544
537,544
Foreign governments and multi-national agency obligations —
63,161
63,161
Municipal obligations —
659,487
659,487
Asset-backed securities —
55,749
55,749
Equity securities
51,800
—
51,800
Total cash equivalents and investments
$
1,554,881
$
1,628,484
$
3,183,365