VMware 2009 Annual Report Download - page 61

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Table of Contents
vested. These cash inflows were partially offset by cash outflows of $31.5 in 2009 and $44.5 in 2008 to repurchase our shares to cover tax
withholding obligations in conjunction with the net share settlement upon the vesting of restricted stock. We had no excess tax benefit from
stock-based compensation, as well as no cash outflows to repurchase our shares to cover tax withholding obligations in 2007.
In 2007, as a result of the completion of our IPO, we received net proceeds of $1,035.2 from issuance of our Class A common stock. We
also received net proceeds of $218.3 from the sale of our Class A common stock to Intel Capital in 2007. We used a portion of these proceeds to
pay $350.0 of principal on the intercompany note payable owed to EMC.
Future cash proceeds from issuances of common stock and the excess tax benefit from stock-based compensation and future cash outflows
to repurchase our shares to cover tax withholding obligations will depend upon, and could fluctuate significantly from period-to-period based on
the market value of our stock, the number of awards exercised, sold or vested, the tax benefit realized, and the tax-affected compensation
recognized.
To date, inflation has not had a material impact on our financial results.
Non
-GAAP Financial Measures
Regulation S-K Item 10(e), “Use of non-GAAP financial measures in Commission filings,”
defines and prescribes the conditions for use of
certain non-GAAP financial information. Our measures of non-GAAP operating cash flows and free cash flows each meet the definition of a
non-GAAP financial measure. We define non-GAAP operating cash flows as net cash provided by operating activities less capitalized software
development costs plus the excess tax benefits from stock-based compensation. We define free cash flows as non-GAAP operating cash flows
less capital expenditures. VMware’s management uses non-GAAP operating cash flows as a measure of cash flows from operations because this
measure offers a perspective of VMware’s operating cash flows that aligns with how management internally views our overall and individual
functional group operating results. When viewing operating results for evaluating our past performance and for planning purposes, management
excludes certain items, including the effect of capitalizing and amortizing software development costs and items related to stock-based
compensation, which are also excluded in the non-GAAP operating cash flows measure. VMware’s management uses free cash flows as a
measure of financial progress in our business, as it balances operating results, cash management, and capital efficiency. We believe that our
measures of non-GAAP operating cash flows and free cash flows provide useful information to investors and others, as they allow for
meaningful period-to-period comparisons of our operating cash flows for analysis of trends in our business. Additionally, we believe that
information regarding non-GAAP operating cash flows and free cash flows provides investors and others with an important perspective on cash
that we may choose to make available for strategic acquisitions and investments, the repurchase of shares, ongoing operations, and other capital
expenditures.
We deduct capitalization of software development costs from both measures because these costs are considered to be a necessary
component of our ongoing operations and the amount capitalized under generally accepted accounting principles (“GAAP”) can vary
significantly from period-to-
period depending upon the timing of products reaching technological feasibility and being made generally available.
Consequently, software development costs paid out during a period that are capitalized under GAAP and do not impact GAAP operating cash
flows for that period do result in a decrease to our measures of non-GAAP operating cash flows and non-GAAP free cash flows, thereby
providing management with useful measures of cash flows generated from operations during the period. We add back the excess income tax
benefits from stock-based compensation to our measures of non-GAAP operating cash flows and free cash flows as management internally
views cash flows arising from income taxes as similar to operating cash flows rather than as financing cash flows as required under GAAP.
Furthermore, we exclude capital expenditures on property and equipment from free cash flows because these expenditures are also considered to
be a necessary component of ongoing operations.
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