EMC 2004 Annual Report Download - page 22

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Table of Contents
Costs and expenses
The following table presents our costs and expenses and net income. Certain columns may not add due to rounding.
Percentage Change
2004 2003 2002 2004 vs 2003 2003 vs 2002
Cost of revenue:
Information storage products $ 2,876.4 $ 2,594.8 $2,541.0 11% 2%
Information storage and management services 748.4 638.5 601.3 17 6
EMC Software Group products and services 315.7 115.5 101.0 173 14
VMware products and services 44.7 – – * –
Other businesses 29.7 46.0 76.3 (35) (40)
Total cost of revenue 4,014.9 3,394.8 3,319.5 18 2
Gross margins:
Information storage products 2,103.5 1,611.6 1,221.0 31 32
Information storage and management services 782.0 624.0 398.7 25 57
EMC Software Group products and services 1,121.7 553.0 433.8 103 27
VMware products and services 173.5 – – * –
Other businesses 33.9 53.5 65.3 (37) (18)
Total gross margin 4,214.6 2,842.1 2,118.8 48 34
Operating expenses:
Research and development 847.9 718.5 781.5 18 (8)
Selling, general and administrative 2,266.7 1,656.2 1,680.8 37 (1)
Restructuring and other special charges 56.1 66.3 150.4 (15) (56)
Total operating expenses 3,170.6 2,440.9 2,612.7 30 (7)
Operating income (loss) 1,043.9 401.2 (493.8) 160 *
Investment income, interest expense and other expenses, net 141.0 169.9 197.3 (17) (14)
Income (loss) before income taxes (benefit) 1,185.0 571.0 (296.5) 108 *
Provision (benefit) for income taxes 313.8 74.9 (177.8) 319 *
Net income (loss) $ 871.1 $ 496.1 $(118.7) 76% *
* Not Measurable
Gross Margins
Our overall gross margin percentages were 51.2% in 2004, 45.6% in 2003 and 39.0% in 2002.
Information storage products gross margin percentages were 42.2%, 38.3% and 32.5% in 2004, 2003 and 2002, respectively. The increase in the gross
margin percentage for both 2004 and 2003 was attributable to achieving higher sales volumes while at the same time improving our operating cost structure.
Partially offsetting the improvements in the gross margin percentages in 2004 and 2003 were increased provisions for product warranties which were $146.5
in 2004 and $90.4 in 2003. The increases in the provisions for both 2004 and 2003 were attributable to a greater number of systems sold and a longer average
warranty period provided to customers compared to prior years. The gross margin percentage for 2002 was favorably impacted by $61.6, or 1.6%, resulting
primarily from the sale of previously identified obsolete inventory for which a reserve was established in 2001.
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