VMware 2009 Annual Report Download - page 59

Table of Contents
Our operating activities for each year in the three years ended December 31, 2009 have generated sufficient cash to meet our operating
needs. As of December 31, 2009, we had cash and cash equivalents totaling $2,486.5, compared with $1,840.8 as of December 31, 2008. During
the year ended December 31, 2009, key drivers in the overall increase of cash was the generation of $985.6 of cash from operating activities and
$227.7 in proceeds from the issuance of common stock through the exercise of employee stock options, partially offset by the acquisition of
SpringSource for $356.3 and additions to capital expenditures of $103.4.
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 one issuer and also monitor the diversity of the portfolio, thereby diversifying the credit risk. As
of December 31, 2009, we held a diversified portfolio of money market funds, which invest in municipal bonds and notes, government agency
debt, corporate bonds, and commercial paper. The Temporary Guarantee Program for Money Market Funds expired on September 18, 2009, and
as such, our investments in certain money market funds no longer have a guarantee backed by the U.S. Treasury.
As of December 31, 2009, $2,388.3 or 96% of our cash and cash equivalents balance was invested in money market securities. Of our
money market portfolio, 59% of our money market securities were held domestically and 41% were held internationally. In addition to
investments in money market securities, we also use excess cash to support our growing infrastructure needs, to expand our operations, and as
consideration for acquisitions and strategic investments.
We expect to continue to generate positive cash flow from operations in 2010, 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.
Cash Flows from 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, stock-based compensation expense, excess tax benefits from stock-
based compensation, and other adjustments.
The year ended December 31, 2009 was positively impacted by the collection of $107.6 of the 2008 income tax receivable from 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 2005 and
2006 federal income tax audit. In 2008 and 2007, cash flows from operating activities were negatively impacted by the payment of $64.3 and
$86.4, respectively, for our portion of EMC’s consolidated federal income taxes.
Cash provided by operations in the years ended December 31, 2009, 2008, and 2007 benefited from increasing sales in each period. As a
result, our deferred revenue balance increased which had a positive impact on operating cash flows. The increase in our deferred revenue balance
was largely driven by increases in deferred maintenance revenue for which we are typically paid in advance. In each annual period, the increases
to deferred revenues were partially offset by an increase in our accounts receivable.
As a result of the general release of VMware vSphere in the second quarter of 2009, capitalized software development costs decreased
compared with 2008, thereby shifting the related cash flows from investing cash flows to operating cash flows as compared with 2008.
56