EMC 2008 Annual Report Download - page 32

Table of Contents
with acquisitions by both EMC's Information Infrastructure business and the VMware Virtual Infrastructure business. The decrease in stock-based
compensation consisted of a $43.0 decrease within EMC's Information Infrastructure business, offset by a $20.2 increase within the VMware Virtual
Infrastructure business. The decrease in stock-based compensation expense within EMC's Information Infrastructure business was primarily attributable to
higher valued options becoming fully vested in 2006. For segment reporting purposes, corporate reconciling items are not allocated to our various operating
segments.
SG&A expenses within EMC's Information Infrastructure business, as a percentage of EMC's Information Infrastructure business revenues, were 26.8%,
26.0% and 25.9% in 2008, 2007 and 2006, respectively. SG&A expenses increased by $393.1 and $389.8 in 2008 and 2007, respectively, primarily due to
higher personnel-related costs, depreciation and facilities costs to support the overall growth of the business. Personnel-related costs increased by $265.5 and
$262.7, depreciation increased by $34.9 and $51.8 and facilities increased by $20.8 and $5.5 in 2008 and 2007, respectively. Bad debt provisions increased by
$24.1 in 2008 when compared to 2007 and increased $1.8 in 2007 when compared to 2006. Travel costs decreased $2.9 in 2008 when compared to 2007 due
to cost savings initiatives and increased $37.5 in 2007 when compared to 2006.
SG&A expenses within the VMware Virtual Infrastructure business, as a percentage of VMware's revenues, were 39.8%, 41.1% and 39.3% in 2008,
2007 and 2006, respectively. SG&A expenses increased $204.2 and $265.0 in 2008 and 2007, respectively. The increase in SG&A expenses in 2008 and 2007
was primarily the result of higher salaries and benefits due to increases in sales, marketing and administrative personnel costs of $153.5 and $180.5,
respectively. The resources were added to support the growth of the business, including greater finance and legal personnel in response to being a public
company, as well as higher commission expense resulting from increased sales volume. SG&A expenses also increased due to marketing expenses related to
VMware's international market expansion and VMware's branding initiative.
In-Process Research and Development
In-process research and development ("IPR&D") was $85.8, $1.2 and $35.4 in 2008, 2007 and 2006, respectively. During 2008, IPR&D projects relating
to two of EMC's Information Infrastructure acquisitions and two VMware acquisitions were identified and written off at the time of the respective date of each
acquisition because they had no alternative uses and had not reached technological feasibility. The value assigned to the IPR&D was determined utilizing the
income approach by determining cash flow projections relating to the identified IPR&D projects. The stage of completion of each in-process project was
estimated to determine the discount rates to be applied to the valuation of the in-process technology. Based upon the level of completion and the risk
associated with the in-process technology, we applied discount rates ranging from 20% to 60% to value the IPR&D projects acquired. The increase in IPR&D
in 2008 when compared to 2007 was primarily attributable to higher levels of in-process R&D of acquisitions consummated during the respective period. The
decrease in IPR&D in 2007 when compared to 2006 was primarily attributable to lower levels of in-process R&D of acquisitions consummated during the
respective period.
Restructuring Charges and Impairment
In 2008, 2007 and 2006, we incurred restructuring charges of $250.3, $31.3 and $162.6, respectively.
To further improve the competitiveness and efficiency of our global business in response to a challenging global economy, in the fourth quarter of 2008,
we implemented a restructuring program to further streamline the costs related to our Information Infrastructure business. The plan includes the following
components:
A reduction in force resulting in the elimination of approximately 2,400 positions which will be substantially completed by the end of 2009 and
fully completed by the third quarter of 2010.
The consolidation of facilities and the termination of contracts. These actions are expected to be completed by 2015.
The write-off of certain assets for which EMC has determined it will no longer derive any benefit. These actions were completed in the fourth
quarter of 2008.
In addition to this plan, we also recognized an asset impairment charge for certain assets for which the forecasted cash flows from the assets are less than
the assets' net book value.
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