VMware 2012 Annual Report Download - page 55

Table of Contents
requirements, our overall level of cash needs may be impacted by the number and size of acquisitions and investments we consummate and the
amount of stock we buy back in 2013. Should we require additional liquidity, we may seek to arrange debt financing or enter into credit
facilities.
Our cash flows for 2012 , 2011 and 2010 were as follows:
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 and amortization, stock-based compensation, excess tax benefits from stock-
based compensation and other
adjustments.
Cash provided by operating activities decreased by $128.1 to $1,897.5 in the 2012 from $2,025.6 in 2011 . The decrease was primarily
driven by the timing of tax payments we received from 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 and we are obligated to pay EMC an amount equal to the tax expense
generated by us that EMC may recognize in a given year on its consolidated tax return. In 2012, we received $19.3 from EMC under the tax
sharing agreement, but in 2011 we benefited from the net receipt of $302.3, which included amounts primarily related to refunds received for
both the 2011 and 2010 tax years. In future periods, we expect to be in a net payable position to EMC.
In 2012, cash provided by operating activities benefited from increases in cash collections driven by growth in sales to our customers and
was negatively impacted by increases in our core operating expenses, primarily due to headcount. In 2012, increases in cash collections from
customers outpaced the increases in our core operating expenses. Additionally, the excess tax benefit from stock-based compensation decreased
by $86.4 in 2012, which positively impacted our cash provided by operating activities. This change was primarily due to changes in the market
value of our stock and the number of equity awards exercised, sold or vested.
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. The net receipt of $302.3 in 2011 primarily related to refunds received for both the 2011 and 2010 tax
years. 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.
In evaluating our liquidity internally, we focus on long-term, sustainable growth in free cash flows over trailing twelve months periods,
which we consider to be a relevant measure of our long-term progress. We define free cash flows, a non-GAAP financial measure, as net cash
provided by operating activities less capital expenditures. See “Non-GAAP Financial Measures” for additional information.
Our free cash flows for 2012 , 2011 and 2010 were as follows:
Free cash flows decreased by $132.5 or 7% to $1,663.0 for 2012 from $1,795.5 in 2011 . The decrease was primarily due to a decrease of
$283.0 for net amounts we received from EMC under the tax sharing agreement as described above. This decrease was partially offset by the net
benefit received from increased sales and related cash collections that outpaced our growth in operating expenses. Free cash flows increased by
$752.8 or 72% to $1,795.5 for 2011 from $1,042.7 in 2010 . The
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For the Year Ended December 31,
2012
2011 2010
Net cash provided by (used in):
Operating activities
$
1,897.5
$
2,025.6
$
1,174.4
Investing activities
(2,034.6
)
(1,611.0
)
(2,261.9
)
Financing activities
(209.3
)
(87.9
)
230.1
Net increase (decrease) in cash and cash equivalents
$
(346.4
)
$
326.7
$
(857.4
)
For the Year Ended December 31,
2012
2011 2010
Net cash provided by operating activities
$
1,897.5
$
2,025.6
$
1,174.4
Capital expenditures
(234.5
)
(230.1
)
(131.7
)
Free cash flows
$
1,663.0
$
1,795.5
$
1,042.7