EMC 2007 Annual Report Download - page 36

Gain on Sale of VMware Stock to Cisco
The gain on sale of VMware stock for the year ended December 31, 2007 consists of a $148.6 gain on the sale of 6.0 million shares of Class A common
stock of VMware held by EMC sold to Cisco for proceeds of approximately $150.0.
Investment Income
Investment income was $249.3, $224.9 and $190.4 in 2007, 2006 and 2005, respectively. Investment income increased in 2007 compared to 2006 due to
higher average outstanding cash and investment balances and lower realized losses on investments. Investment income increased in 2006 compared to 2005
due to greater yields on investments and lower realized losses on investments, partially offset by lower average outstanding cash and investment balances due
to a significant increase in repurchases of our common stock in the open market when compared to 2005. The weighted average return on investments,
excluding realized gains and losses, was 4.3%, 4.2% and 3.4% in 2007, 2006 and 2005, respectively. Net realized losses were $10.1, $27.8 and $58.9 in 2007,
2006 and 2005, respectively.
Interest Expense
Interest expense was $72.9, $34.1 and $8.0 in 2007, 2006 and 2005, respectively. The annual increases in interest expense were primarily due to higher
debt balances. In September 2006, we borrowed $2,200.0 under a six-month unsecured credit facility to finance the acquisition of RSA. In November 2006,
we completed the issuance of our $1,725.0 1.75% convertible senior notes due 2011 (the "2011 Notes") and our $1,725.0 1.75% convertible senior notes due
2013 (the "2013 Notes" and, together with the 2011 Notes, the "Notes"). A portion of the proceeds from the Notes was used to repay in full the $2,200.0 of
outstanding indebtedness under the aforementioned unsecured credit facility. Interest expense in 2005 was primarily attributable to interest associated with
our $125.0 4.5% Senior Convertible Notes due April 1, 2007, which were assumed in connection with the Documentum (the "Documentum Notes")
acquisition. The Documentum Notes were redeemed in April 2006.
Other Expense, Net
Other expense, net was $4.7, $8.6 and $10.6 in 2007, 2006 and 2005, respectively. The decrease in other expense in both 2007 and 2006 as compared to
the comparable prior period was primarily attributable to reductions in foreign currency transaction losses.
Provision for Income Taxes
Our effective income tax rate was 18.4%, 11.7% and 31.4% in 2007, 2006 and 2005, respectively. The effective income tax rate is based upon the
income for the year, the composition of the income in different countries, and adjustments, if any, for the potential tax consequences, benefits or resolutions of
audits or other tax contingencies. Our aggregate income tax rate in foreign jurisdictions is lower than our income tax rate in the United States.
In 2007, the lower aggregate income tax rate in foreign jurisdictions reduced our effective rate by 14.5 percentage points compared to our statutory
federal tax rate of 35.0%. We had a reduction in our valuation allowance which principally arose from the utilization of capital loss carryforwards towards the
capital gain on the sale of VMware stock to Cisco, resulting in a benefit to our effective tax rate of 1.5 percentage points. 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 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.
In 2005, the lower aggregate income tax rate in foreign jurisdictions reduced our effective rate by 8.3 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
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