EMC 2008 Annual Report Download - page 37

Table of Contents
of reserves associated with the expiration of statutes of limitations for which we believe we had certain tax exposure favorably reduced our effective tax rate
by an additional 1.2 percentage points. The net effect of non-deductible permanent differences, state taxes, tax credits and other items was an increase to the
rate of 0.6 percentage points.
In 2006, the lower aggregate income tax rate in foreign jurisdictions reduced our effective rate by 13.9 percentage points compared to our statutory
federal tax rate of 35.0%. The resolution of income tax audits and elimination of reserves associated with the expiration of statutes of limitations for which we
believe we had certain tax exposure favorably reduced our effective tax rate by an additional 12.4 percentage points. The net effect of tax credits, state taxes,
non-deductible permanent differences and changes in valuation allowances collectively had a negative impact on the rate of 3.0 percentage points, driven
principally by non-deductible permanent differences.
The effect of non-deductible permanent differences increased the tax rate by 4.6% in 2008 compared to 1.7% in 2007. The increase was principally due
to increased non-deductible IPR&D and taxable earnings from foreign subsidiaries in 2008. Tax credits in 2008 reduced the effective tax rate by 4.9%
compared to a 2.0% reduction in 2007. The increase was attributable to higher foreign tax credits relating to distributions from foreign subsidiaries in 2008
and higher U.S. R&D credits.
Minority Interest in VMware
The minority interest in VMware was $44.7 and $15.5 in 2008 and 2007, respectively. The minority interest increased in 2008 compared to 2007
primarily due to an increase in VMware's net income and an increase in the weighted average minority interest percentage in 2008 compared to 2007.
VMware's net income was $290.1 and $218.1 in 2008 and 2007, respectively, representing an increase of 33.0%. The weighted average minority interest was
approximately 15% and 7% in 2008 and 2007, respectively.
Cash Flows and Financial Condition
Cash provided by operating activities was $3,565.1, $3,126.6 and $2,140.4 in 2008, 2007 and 2006, respectively. Cash received from customers was
$15,378.1, $13,333.5 and $11,167.2 in 2008, 2007 and 2006, respectively. The increase in cash received from customers was primarily attributable to higher
sales volume. Cash paid to suppliers and employees was $11,747.0, $10,182.6 and $8,666.6 in 2008, 2007 and 2006, respectively. The increase was partially
attributable to higher headcount. Total headcount was approximately 42,100, 37,700 and 31,100 at December 31, 2008, 2007 and 2006, respectively. The
headcount increase was due to the growth of the business, as well as continued acquisition activity. Cash received from dividends and interest was $240.0,
$254.1 and $258.6 in 2008, 2007 and 2006, respectively. In 2008, 2007 and 2006, we paid $232.3, $202.3 and $592.1, respectively, in income taxes. These
payments are comprised of estimated taxes for the current year, extension payments for the prior year and refunds or payments associated with income tax
filings and tax audits. Despite higher pre-tax income, cash paid for income taxes decreased from 2006 to 2007, principally due to increased deductions for
stock-based compensation, increased federal R&D credits arising from a change in law and increased utilization of acquired net operating losses.
Cash used in investing activities was $1,614.9, $1,162.9 and $2,296.7 in 2008, 2007 and 2006, respectively. Cash paid for acquisitions, net of cash
acquired was $725.5, $692.0 and $2,618.4 in 2008, 2007 and 2006, respectively. Capital additions were $695.9, $699.0 and $718.1 in 2008, 2007 and 2006,
respectively. Capitalized software development costs were $295.0, $232.0 and $192.9 in 2008, 2007 and 2006, respectively. The increase in capitalized
software development costs was attributable to a greater level of development costs being capitalized for VMware development activities. Net sales and
maturities of investments were $75.1, $322.3 and $1,253.6 in 2008, 2007 and 2006, respectively. This activity varies from period to period based upon our
cash collections, cash requirements and maturity dates of our investments. During 2007, we received $150.0 in net proceeds from the sale of 6.0 million
shares of our interest in VMware to Cisco.
Cash (used in) provided by financing activities was $(534.0), $679.5 and $(392.0) in 2008, 2007 and 2006, respectively. In 2008, 2007 and 2006 we
spent $1,489.5, $1,453.7 and $3,655.4 to repurchase 112.2 million, 89.4 million and 302.3 million shares of our common stock, respectively. We generated
$431.2, $785.2 and $257.8 in 2008, 2007 and 2006, respectively, from the exercise of stock options. Stock options exercises from VMware's stock option
grants contributed $190.1 to the $431.2 generated in cash from the exercise of options in 2008. Additionally, the exercising of stock options generated excess
tax benefits of $97.7 in 2008, $91.8 in 2007 and $20.0 in 2006. In 2008, we received $412.3 in proceeds from our securities lending program. The program
enables us to receive an incremental return on our investment. We spent $13.3 to purchase 500,000 shares of VMware common stock previously sold to Intel
Capital Corporation. During 2007, we received proceeds
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