EMC 2008 Annual Report Download - page 36

Table of Contents
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 Systems, Inc. for proceeds of approximately $150.0.
Investment Income
Investment income was $247.0, $249.3 and $224.9 in 2008, 2007 and 2006, respectively. Investment income decreased $2.3 in 2008 compared to 2007,
due to a decrease in the weighted average return on investments, partially offset by higher average outstanding cash and investment balances and improved
returns on sales of investments. Investment income increased in 2007 compared to 2006 due to higher average outstanding cash and investment balances and
lower realized losses on investments. The weighted-average return on investments, excluding realized gains and losses, was 3.1%, 4.3% and 4.2% in 2008,
2007 and 2006, respectively. Net realized gain (losses) were $6.6, $(10.1) and $(27.8) in 2008, 2007 and 2006, respectively. We expect investment income to
decline in 2009 compared to 2008 due to lower weighted average returns, excluding realized gains and losses.
Interest Expense
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 was $73.8, $72.9 and $34.1 in 2008, 2007 and 2006,
respectively. Interest expense consists primarily of interest on the Notes.
Effective in 2009, we adopted FASB Staff Position No. APB 14-1, "Accounting for Convertible Debt Instruments that may be settled in Cash upon
Conversion (Including Partial Cash Settlement)". The statement requires that we revise our prior period financial statements. As a result of this revision, the
Notes will be recorded at a discount to their face amount which will be accreted to their face amount over the term of the Notes resulting in additional interest
expense. The incremental interest expense will represent a non-cash charge. This will result in recognizing incremental non-cash interest expense of $11.5,
$96.9 and $102.6 in 2006, 2007 and 2008, respectively. The incremental non-cash interest charge in 2009 will be $108.3.
Other Expense, Net
Other expense, net was $39.4, $4.7 and $8.6 in 2008, 2007 and 2006, respectively. The increase in 2008 was primarily attributable to an increase in
foreign currency transaction losses. The decrease in 2007 was primarily attributable to reductions in foreign currency transaction losses.
Provision for Income Taxes
Our effective income tax rate was 18.4%, 18.4% and 11.7% in 2008, 2007 and 2006, 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 2008, the lower aggregate income tax rate in foreign jurisdictions reduced our effective rate by 15.0 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 2.7 percentage points. The net effect of non-deductible
permanent differences, state taxes, tax credits and other items was an increase to the rate of 1.1 percentage points.
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
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