VMware 2011 Annual Report Download - page 54

Table of Contents
Our non-GAAP operating cash flows and free cash flows for 2011 , 2010 and 2009 were as follows:
Free cash flows increased by $744.0 or 62% to $1,946.0 for the year ended December 31, 2011 from $1,202.0 for the year ended
December 31, 2010 , and by $362.2 or 43% to $1,202.0 for the year ended December 31, 2010 from $839.8 for the year ended December 31,
2009 . The increases in free cash flows in 2011 and 2010 were primarily due to increased sales and related cash collections.
Historically, we have invested excess cash predominantly in money market securities that are liquid and of high quality investment grade.
The fair value for money market securities is determined based on quoted market prices as of the valuation date. We limit the amount of our
domestic and international investments with any single issuer and any single financial institution, and also monitor the diversity of the portfolio,
thereby diversifying the credit risk. In the second quarter of 2010, we began investing in fixed income securities. As of December 31, 2011 , we
held a diversified portfolio of money market funds and fixed income securities, which primarily consisted 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. Within our portfolio, we held
$58.4 of foreign government and agencies securities, $38.0 of which was deemed sovereign debt, at December 31, 2011. These sovereign debt
securities had an average credit rating of AAA and were predominantly from Australia, Canada and Great Britain. None of the securities deemed
sovereign debt were from Greece, Ireland, Italy, Portugal or Spain.
As of December 31, 2011 , our total cash, cash equivalents and short-term investments were $4,512.3 of which $2,072.0 was held outside
the U.S. If these overseas funds are needed for our operations in the U.S., we would be required to accrue and pay U.S. taxes on related
undistributed earnings to repatriate these funds. However, our intent is to indefinitely reinvest our non-U.S. earnings in our foreign operations
and our current plans do not demonstrate a need to repatriate them to fund our U.S. operations.
We expect to continue to generate positive cash flows from operations in 2012 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, 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 $851.2 to $2,025.6 in 2011 from $1,174.4 in 2010 . The increase in operating cash flows
for 2011 was primarily the result of an increase in cash collections from customers driven by strong sales volumes. In addition, we benefited
from the net receipt of $302.3 from EMC related to income taxes. During 2010, there were no significant amounts collected from or paid to
EMC under the tax sharing agreement. Under the tax sharing agreement, EMC is obligated to pay us an amount equal to the tax benefit
generated by us that EMC will recognize on its consolidated tax return. The net receipt of $302.3 in 2011 primarily related to refunds received
for both the 2011 and 2010 tax years. We expect the amount of cash received related to tax refunds to decline in 2012 as compared to 2011. The
increase in cash collections and the benefit from the collection of the income tax receivable was partially offset by increases in our core
operating expenses, primarily related to incremental headcount from strategic hiring and business acquisitions.
Cash provided by operating activities increased by $188.8 to $1,174.4 in 2010 from $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.
48
For the Year Ended December 31,
2011
2010 2009
Net cash provided by operating activities
$
2,025.6
$
1,174.4
$
985.6
Capitalized software development costs
(74.0
)
(64.1
)
(68.6
)
Excess tax benefits from stock-based compensation
224.5
223.4
26.2
Non-GAAP operating cash flows
2,176.1
1,333.7
943.2
Capital expenditures
(230.1
)
(131.7
)
(103.4
)
Free cash flows
$
1,946.0
$
1,202.0
$
839.8