VMware 2010 Annual Report Download - page 61

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Table of Contents
primarily consist of highly liquid debt instruments of the U.S. government and its agencies, U.S. municipal obligations, and U.S. and foreign
corporate debt securities.
We expect to continue to generate positive cash flows from operations in 2011 and to use cash generated by operations as our primary
source of liquidity. We believe that existing cash and cash equivalents, together with any cash generated from operations will be sufficient to
meet normal operating requirements including strategic acquisitions and capital expenditures for at least the next twelve months.
Operating Activities
Cash provided by operating activities is driven by our net income, adjusted for non-cash items and changes in assets and liabilities. Non-
cash adjustments include depreciation, amortization of intangible assets, amortization of premiums paid upon purchase of investments in our
fixed income portfolio, stock-based compensation expense, deferred income taxes, excess tax benefits from stock-based compensation and other
adjustments. Net changes in assets and liabilities were impacted by increases in unearned revenues in the periods presented, and we expect this
trend to continue in the future.
Cash provided by operating activities increased by $188.8 to $1,174.4 in 2010, as compared with $985.6 in 2009. The increase in operating
cash flows for 2010 was the result of an increase in cash collections from customers driven by strong sales volume. The increase in cash
collections was partially offset by increases in our core operating expenses, primarily related to incremental headcount from strategic hiring and
business acquisitions as well as an increase in the excess tax benefit from stock-based compensation due to the increase in market value of our
stock.
Cash flows from operating activities in 2009 were positively impacted by the collection of $107.6 from EMC related to the 2008 joint
income tax return with EMC. The receivable was due to our stand-alone taxable loss for the year-ended December 31, 2008, which was
primarily attributable to tax deductions arising from both non-qualified stock option exercises and from restricted stock where the restrictions
lapsed. Under the tax sharing agreement with EMC, EMC is obligated to pay us an amount equal to the tax benefit that EMC will recognize on
its tax return. In 2009, the receipt was offset by the payment of $14.2 for our portion of EMC’s consolidated federal and state income taxes for
various periods, as well as the conclusion of the 2005 and 2006 federal income tax audit.
Investing Activities
Cash used in investing activities is primarily attributable to the purchase of fixed income securities, business acquisitions, capital
expenditures and capitalized software development costs. Cash provided by investing activities is primarily attributable to the sales or maturities
of fixed income securities.
We began investing in fixed income securities during the second quarter of 2010 to achieve our objective of an appropriate investment
return consistent with the preservation of principal and management of risk. Total fixed income securities of $2,101.9 purchased in 2010 are
classified as cash outflows from investing activities. We classify these investments as short-term investments on our consolidated balance sheets
based upon the nature of the security and their availability for use in current operations or for other purposes, such as business acquisitions and
strategic investments. These cash outflows were partially offset by a cash inflow of $516.3 as a result of the sales and maturities of these fixed
income securities.
In 2010, we acquired certain software product technology and expertise from EMC’s Ionix IT management business for $175.0 and paid
$10.6 in contingent amounts to EMC. The net assets and expertise acquired from EMC constituted a business and were accounted for as a
business combination between entities under common control. See Note E to the consolidated financial statements included elsewhere in this
filing for further information.
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