EMC 2009 Annual Report Download - page 27

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Table of Contents
Costs and Expenses
The following table presents our costs and expenses, other income and net income attributable to EMC Corporation.
Percentage Change
2009 2008 2007 2009 vs 2008 2008 vs 2007
Cost of revenue:
Information Storage $ 5,256.7 $ 5,670.1 $ 5,237.2 (7.3)% 8.3%
Content Management and Archiving 274.8 305.6 271.5 (10.1) 12.6
RSA Information Security 186.5 170.6 144.4 9.3 18.1
VMware Virtual Infrastructure 316.3 268.7 188.6 17.7 42.5
Corporate reconciling items 246.8 238.7 177.2 3.4 34.7
Total cost of revenue 6,281.0 6,653.8 6,018.9 (5.6) 10.5
Gross margins:
Information Storage 5,402.7 5,962.2 5,373.6 (9.4) 11.0
Content Management and Archiving 464.8 480.0 501.8 (3.2) (4.3)
RSA Information Security 419.5 410.7 380.9 2.1 7.8
VMware Virtual Infrastructure 1,704.7 1,608.2 1,132.2 6.0 42.0
Corporate reconciling items (246.8) (238.7) (177.2) 3.4 34.7
Total gross margin 7,744.9 8,222.4 7,211.3 (5.8) 14.0
Operating expenses:
Research and development(1) 1,627.5 1,721.3 1,526.9 (5.4) 12.7
Selling, general and administrative(2) 4,595.6 4,601.6 3,912.7 (0.1) 17.6
In-process research and development — 85.8 1.2 (100.0) 7,050.0
Restructuring and acquisition-related charges 107.5 244.7 31.3 (56.1) 681.8
Total operating expenses 6,330.6 6,653.4 5,472.1 (4.9) 21.6
Operating income 1,414.3 1,568.9 1,739.3 (9.9) (9.8)
Investment income, interest expense and other expenses(3) (39.7) 31.3 223.4 (226.8) (86.0)
Income before income taxes 1,374.6 1,600.2 1,962.6 (14.1) (18.5)
Income tax provision 252.8 280.4 348.2 (9.8) (19.5)
Net income 1,121.8 1,319.8 1,614.4 (15.0) (18.2)
Less: Net income attributable to the non-controlling interest in VMware, Inc. (33.7) (44.7) (15.5) (24.6) 188.4
Net income attributable to EMC Corporation $ 1,088.1 $ 1,275.1 $ 1,599.0 (14.7)% (20.3)%
(1) Amount includes corporate reconciling items of $235.8, $175.4 and $119.4 for the year ended December 31, 2009, 2008 and 2007, respectively.
(2) Amount includes corporate reconciling items of $495.5, $367.2 and $275.6 for the year ended December 31, 2009, 2008 and 2007, respectively.
(3) Amount includes gain of $148.6 on sale of VMware stock to Cisco in 2007.
Gross Margins
Our gross margin percentages were 55.2%, 55.3% and 54.5% in 2009, 2008 and 2007, respectively. The decline in the gross margin percentage in 2009
compared to 2008 was primarily attributable to the Information Storage segment, which decreased overall gross margins by 17 basis points and the RSA
Information Security segment, which decreased overall gross margins by 5 basis points. These declines were partially offset by the VMware Virtual
Infrastructure segment which improved overall gross margins by 11 basis points, and the Content Management and Archiving segment which improved
overall gross margins by 7 basis points. The increase in corporate reconciling items, consisting of stock-based compensation, acquisition-related intangible
asset amortization, restructuring charges and transition costs, decreased the consolidated gross margin percentage by 6 basis points. The improvement in the
gross margin percentage in 2008 compared to 2007 was attributable to the VMware Virtual Infrastructure segment, which contributed 123 basis points, and
the Information Storage segment, which contributed 21 basis points to the overall gross margin improvement. These improvements were partially offset by the
margin impact of the Content Management and Archiving segment, which decreased overall gross margins by 19 basis points and the RSA Information
Security segment, which decreased overall gross margins by 1 basis point. The increase in corporate reconciling items, consisting of stock-based
compensation and acquisition-related intangible asset amortization, decreased the consolidated gross margin percentage by 44 basis points.
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