EMC 2009 Annual Report Download - page 30

Table of Contents
2009 driven by the cost reduction efforts implemented in the fourth quarter of 2008. Personnel-related costs, travel, supplies and other administrative costs
declined by $228.0. Additionally, our provisions for bad debts decreased by $21.2. Partially offsetting these decreased costs was an increase in depreciation
expense of $15.8. In 2008, SG&A expenses increased by $393.1 primarily due to higher personnel-related costs, depreciation and other SG&A costs.
Personnel-related costs increased by $265.5, depreciation expense increased by $34.9 and other SG&A costs increased by $42.0.
SG&A expenses within the VMware Virtual Infrastructure business, as a percentage of VMware's revenues, were 41.7%, 39.8% and 41.1% in 2009,
2008 and 2007, respectively. SG&A expenses increased $94.5 and $204.2 in 2009 and 2008, respectively. The increase in SG&A expenses consisted
primarily of higher commissions, increased salaries and benefits resulting from increased sales volume and incremental headcount added in conjunction with
VMware's international expansion, as well as increased spending to enhance the sales and marketing systems infrastructure of its business. These cost
increases were partially offset by decreased travel and entertainment costs resulting from the austerity measure implemented in the fourth quarter of 2008 and
decreased marketing program expenses as compared with VMware's branding initiative in 2008. These austerity measures included, but were not limited to,
reduced travel and entertainment costs, decreased contractor costs and hiring limited to roles that fit VMware strategic initiatives. In 2008, SG&A expenses
increased by $204.2 primarily due to higher salaries and benefits due to increases in sales, marketing and administrative personnel costs of $153.5. The
resources were added to support the growth of the business, including a greater number of finance and legal personnel needed to comply with public company
requirements, as well as higher commission expense resulting from increased sales volume. SG&A expenses also increased due to marketing expenses related
to VMware's international market expansion and VMware's branding initiative.
In-Process Research and Development
We incurred no in-process research and development ("IPR&D") charges to the Consolidated Income Statement in 2009. As a result of accounting rule
changes which were effective at the beginning of 2009, IPR&D resulting from business combinations is now capitalized as an asset with amortization
commencing upon completion of the project. In connection with acquisitions in 2009, we acquired and capitalized $175.0 of IPR&D. IPR&D expense was
$85.8 and $1.2 in 2008 and 2007, respectively.
During 2008, IPR&D projects relating to two EMC Information Infrastructure acquisitions and two VMware acquisitions were identified and written
off at the time of the respective date of each acquisition because they had no alternative uses and had not reached technological feasibility. The value assigned
to the IPR&D was determined utilizing the income approach by determining cash flow projections relating to the identified IPR&D projects. The stage of
completion of each in-process project was estimated to determine the discount rates to be applied to the valuation of the in-process technology. Based upon
the level of completion and the risk associated with the in-process technology, we applied discount rates ranging from 20% to 60% to value the IPR&D
projects acquired. The increase in IPR&D in 2008 when compared to 2007 was primarily attributable to higher levels of in-process R&D of acquisitions
consummated during the respective period.
Restructuring and Acquisition-Related Charges
In 2009, 2008 and 2007, we incurred restructuring and acquisition-related charges of $107.5, $250.3 and $31.3, respectively. In 2009, we incurred
$88.4 of restructuring charges, primarily related to our 2008 restructuring program and $19.1 of costs in connection with acquisitions for financial advisory,
legal and accounting services. In 2008 and 2007, all charges are only related to restructuring activities.
In the fourth quarter of 2008, to further improve the competitiveness and efficiency of our global business in response to a challenging global economy,
we implemented a restructuring program to further streamline the costs related to our Information Infrastructure business. The plan included the following
components:
• A reduction in force resulting in the elimination of approximately 2,400 positions which was substantially completed by the end of 2009 and will be
fully completed in 2010.
• The consolidation of facilities and the termination of contracts. These actions are expected to be completed by 2015.
• The write-off of certain assets for which EMC has determined it will no longer derive any benefit. These actions were completed in the fourth
quarter of 2008.
In addition to this plan, we also recognized in 2008 an asset impairment charge of $28.0 for certain assets for which the forecasted cash flows from the
assets are less than the assets' net book value.
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