EMC 2009 Annual Report Download - page 31

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Table of Contents
The total charge resulting from these actions is expected to be approximately $400.0, with $247.9 recognized in 2008, $87.0 recognized in 2009, $35.0
expected to be recognized in 2010 and the remainder expected to be recognized in 2011 through 2015.
The remaining cash portion owed for these programs is approximately $69.0 which will be paid over periods through 2015. See Note Q to the
Consolidated Financial Statements.
Investment Income
Investment income was $140.4, $247.0 and $249.3 in 2009, 2008 and 2007, respectively. Investment income decreased in 2009 and 2008 primarily due
to lower weighted-average returns on investments. The weighted-average return on investments, excluding realized losses and gains, was 1.3%, 3.1% and
4.3% in 2009, 2008 and 2007, respectively. Net realized gain (losses) were $20.8, $6.6 and $(10.1) in 2009, 2008 and 2007, respectively.
Interest Expense
Interest expense was $182.5, $176.4 and $169.8 in 2009, 2008 and 2007, respectively. Interest expense consists primarily of interest on our long-term
convertible debt. Included in interest expense are non-cash interest charges of $108.3, $102.6 and $96.9 in 2009, 2008 and 2007, respectively. We are
accreting our long-term convertible debt to their face values over their term. See Note F to the Consolidated Financial Statements.
Other Income (Expense), Net
Other income (expense), net was $2.4, $(39.4) and $(4.7) in 2009, 2008 and 2007, respectively. The change in 2009 was primarily attributable to gains
on common stock investments in Data Domain and SpringSource. As part of the acquisition of these entities, our previously held investments were re-
measured to fair value, resulting in $25.8 of gains. Absent these gains, other income (expense) is primarily foreign currency translation losses. Foreign
currency transaction losses were lower in 2009 when compared to 2008. The increase in 2008 was primarily attributable to an increase in foreign currency
transaction losses.
Provision for Income Taxes
Our effective income tax rate was 18.4%, 17.5% and 17.7% in 2009, 2008 and 2007, 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 substantially lower than our income tax rate in the United States.
In 2009, the lower aggregate income tax rate in foreign jurisdictions reduced our effective rate by 17.5 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 4.5 percentage points. In 2009, we effected a plan to reorganize
our international operations by transferring certain assets of our RSA and Data Domain entities and legacy foreign corporations owned directly by EMC into a
single EMC international holding company. As a result of this reorganization, we incurred income taxes which negatively impacted the rate by 4.4 percentage
points. The net effect of tax credits, state taxes, non-deductible permanent differences and changes in valuation allowances and other items collectively
increased the rate by 1.0 percentage point, driven principally by non-deductible permanent differences.
In 2008, the lower aggregate income tax rate in foreign jurisdictions reduced our effective rate by 15.9 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 2.9 percentage points. The net effect of non-deductible
permanent differences, state taxes, tax credits and other items was an increase to the rate of 1.3 percentage points.
In 2007, the lower aggregate income tax rate in foreign jurisdictions reduced our effective rate by 15.2 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 1.3 percentage points. The net effect of non-deductible permanent differences, state taxes, tax credits and other items was an
increase to the rate of 0.7 percentage points.
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