The two big unknowns, unless you analzye cash flow, are deferred revenue and accounts receivable.
According to pages 9 and 76 of Amendment No. 4 to S-4:
"Our second quarter ended on June 30, 2007. Although our financial statements for the quarter ended June 30, 2007 are not yet complete and it is possible that the actual results may vary from the information set forth below, the data below reflects our results based on currently available information. Set forth below is a summary and discussion of our unaudited results for the three and six months ended June 30, 2007 and 2006. The unaudited financial information reflects all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of this information. The results of operations for the three and six months ended June 30, 2007 and 2006 are not necessarily indicative of the results to be expected for the entire fiscal year. "
Under the "Liquidity and Financial Condition" heading.
"Liquidity and Financial Condition
For the quarters ended March 31, 2007 and March 31, 2006, our cash flows were:
Three months ended
Net cash provided by operating activities
$ 104.9 $ 99.6
Net cash used in investing activities
(22.6 ) (22.6 )
Net cash used in financing activities
Cash provided by operating activities was $104.9 and $99.6 in the first quarter of 2007 and 2006, respectively.
In the first quarter of 2007, our operating cash flow reflected net income generated during the period of $41.1, adjusted for non-cash items such as depreciation and amortization expense of $21.2 and stock-based compensation of $11.6. Additionally, working capital, including short- and long-term deferred revenue, income taxes payable and deferred income taxes, generated cash flow of $30.4, as a result of a decrease in accounts receivable of $46.4 and an increase in deferred revenues of $33.7. Our deferred revenue balance consisted of deferred license revenues of $76.4 and deferred service revenues of $263.9 at March 31, 2007, of which $262.1 of the total deferred revenue balance was classified as current. Of the $78.2 classified as long-term, $41.2 will be recognized as revenue subsequent to December 31, 2008.
In the first quarter of 2006, our operating cash flow reflected net income generated during the period of $21.6, adjusted for non-cash items such as depreciation and amortization expense of $12.6 and stock-based compensation of $6.5. Additionally, working capital, including short- and long-term deferred revenue, income taxes payable and deferred income taxes, generated cash flow of $59.8, primarily as a result of an increase in deferred revenue of $29.9 and a decrease in accounts receivable of $13.9."
IMHO, Q2 SANDBAG because of deferred revenue and accounts receivable revisions.
My main concern is that VMW incorrectly amortized its R&D instead of expensing it. This could lead to restatement of the finacial statements. Per GAAP, companies should expense R&D costs when the intangible assets are not specifically identifiable. Intangible assets that are identifiable such as design costs (trademark), registration/consulting, and legal fees can be capitalized instead of expensing them as incurred.
Other note: Isn't deferred revenues the same thing as unearned revenues (which is a liability)? My understanding is that service companies collect cash in advanced, which shows up on the cash flow statement, but is recorded as unearned revenues (a liability) per GAAP on the balance sheet.
With the passage of time, these unearned revenues are matched against the service provided and become "earned revenues" in the income statement, which results in a decrease in the inearned revenue liabilities.
I may be wrong about these things, but that's my understanding regarding the GAAP accounting and the financial statements. I hope I'm wrong because I sure want VMW to continue its upward trend.
They owe EMC 1 800 millions in dividend.
"The intercompany indebtedness was incurred in April 2007 to fund an $800 million dividend paid to EMC
in the form of a note."
They intend to use the proceed for:
"� to repay $350.0 million of our intercompany indebtedness owed to EMC;
� to purchase from EMC our new headquarters facilities for an amount equal to the cost expended by
EMC to date in constructing the facilities, which totaled approximately $127.0 million, which purchase
will be effected through the transfer of the equity interests of the EMC entity which holds the rights to
the facilities; and
� for working capital and other general corporate purposes, including to finance our growth, develop new
products and fund capital expenditures and potential acquisitions."
So it looks like after paying $350 million to EMC, they still owe 450 million.
They only have $250m left after the IPO, and yes, this is how much they spend in 1 yr giving them a current ratio of about 1.
ok- just checking.
So basically, you assumed FCF == cash from operation since capex, working cap, amo/dep are negligible?
Well they do have close to 1B in debt. Would you not account for the interest expense in your Cashflow analysis? Also, tax would not be negligible either.