EMC 2009 Annual Report Download - page 28

Table of Contents
For segment reporting purposes, stock-based compensation, acquisition-related intangible asset amortization, restructuring charges and transition costs
are recognized as corporate expenses and are not allocated among our various operating segments. The increase of $8.1 in the corporate reconciling items in
2009 was attributable to a $12.5 increase in restructuring charges, a $19.3 increase in stock-based compensation expense and $3.1 in transition costs, partially
offset by a $26.8 decrease in acquisition-related intangible asset amortization expense. The $12.5 increase in restructuring charges in 2009 was attributable to
a loss recognized on a contractual obligation with a minimum purchase obligation that is not expected to be fulfilled. The $19.3 increase in stock-based
compensation expense was primarily attributable to incremental expense associated with options exchanged in the acquisition of Data Domain and expense
associated with VMware's equity grants. The decrease in intangible asset amortization expense in 2009 was attributable to acquisition-related intangible assets
acquired in acquisitions becoming fully amortized. The transition costs represent the incremental costs incurred to transform our current cost structure to a
more streamlined cost structure. The increase of $61.5 in the corporate reconciling items in 2008 was attributable to a $38.6 increase in intangible asset
amortization expense associated with acquisitions and a $22.9 increase in stock-based compensation expense, primarily attributable to VMware equity grants.
The gross margin percentages for the Information Storage segment were 50.7%, 51.3% and 50.6% in 2009, 2008 and 2007, respectively. The decrease
in the gross margin percentage in 2009 compared to 2008 was primarily attributable to lower sales volume and a greater mix of lower margin Iomega revenue.
Iomega, acquired in June 2008, operates within the consumer and small business marketplace which historically has had lower gross margins than
marketplaces typically served by our Information Storage segment. Partially offsetting these declines was an improvement in the gross margin attributable to a
greater mix of higher margin services revenues as a percentage of total segment revenues. Services revenues as a percentage of total Information Storage
segment revenues increased to 32.5% in 2009 from 29.0% in 2008. The increase in the gross margin percentage in 2008 compared to 2007 was primarily
attributable to our ability to achieve higher gross margins from our focus on selling overall solutions to our customers, partially offset by the margin impact
from the acquisition of Iomega.
The gross margin percentages for the Content Management and Archiving segment were 62.8%, 61.1% and 64.9% in 2009, 2008 and 2007,
respectively. The increase in the gross margin percentage in 2009 compared to 2008 was primarily attributable to a change in the mix of services revenues
with a higher proportion of maintenance revenues and a lower proportion of professional services revenues to total services revenues. Maintenance revenues
generally provide a higher margin percentage than professional services revenues. The decrease in the gross margin percentage in 2008 compared to 2007 was
primarily attributable to a decline in product revenues as a percentage of total segment revenues. Product revenues as a percentage of total revenues decreased
from 43.6% in 2007 to 35.4% in 2008. Product revenues generally provide a higher gross margin percentage than software maintenance and other services
revenues.
The gross margin percentages for the RSA Information Security segment were 69.2%, 70.6% and 72.5% in 2009, 2008 and 2007, respectively. The
decreases in the gross margin percentage in 2009 and 2008 were primarily due to a decrease in product revenues as a percentage of total segment revenues.
Product revenues as a percentage of total revenues decreased from 68.1% in 2007 to 61.1% in 2008 and to 56.2% in 2009. Product revenues generally provide
a higher gross margin percentage than services revenues.
The gross margin percentages for the VMware Virtual Infrastructure segment were 84.4% in 2009, 85.7% in 2008 and 85.7% in 2007. The decrease in
the gross margin percentage in 2009 was primarily attributable to an increase in the amortization of software development costs as a percentage of total
segment revenues. The amortization of software development costs as a percentage of total segment revenues increased to 3.3% in 2009, compared to 2.3% in
2008. The consistency in the gross margin percentage in 2008 and 2007 was primarily due to consistent software license and maintenance revenue mix as a
percentage of total revenues. Software license and maintenance revenues as a percentage of total revenues decreased slightly from 93.2% in 2007 to 92.2% in
2008.
Research and Development
As a percentage of revenues, R&D expenses were 11.6%, 11.6% and 11.5% in 2009, 2008 and 2007, respectively. R&D expenses decreased $93.8 in
2009 primarily due to a decrease in personnel-related costs, depreciation expense, materials costs and facilities costs. Personnel-related costs decreased by
$19.9, depreciation expense decreased by $19.1, the cost of materials to support new product development decreased by $14.0 and the cost of facilities
decreased by $11.9. Capitalized software development costs, which reduce R&D expense, increased by $9.5. R&D expenses increased $194.4 in 2008
primarily due to an increase in personnel-related costs and facilities costs. Personnel-related costs increased by $218.5 and the cost of facilities increased by
$26.4. Partially offsetting these increases was a decrease in the cost of materials to support new product development of $13.2. Capitalized software
development costs, which reduce R&D expense, increased by $59.9.
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