EMC 2010 Annual Report Download - page 30

Table of Contents
Partially offsetting these increases was a decrease in acquisition-related intangible asset amortization expense of $5.1. The increase in stock-based
compensation expense in 2009 was primarily attributable to incremental expense associated with VMware's equity grants and expense associated with options
exchanged in the acquisition of Data Domain.
SG&A expenses within EMC's Information Infrastructure business, as a percentage of EMC's Information Infrastructure business revenues, were
26.4%, 27.1% and 26.8% in 2010, 2009 and 2008, respectively. SG&A expenses increased $479.0 in 2010 primarily due to increases in personnel-related
costs, commissions, travel costs, business development costs, cost of facilities and depreciation. Personnel-related costs increased by $258.8, commissions
increased by $108.4, travel costs increased by $52.0, business development costs increased by $35.3, cost of facilities increased by $21.1 and depreciation
expense increased by $14.9. Partially offsetting these increases was a decrease in professional services costs of $12.3. SG&A expenses decreased by $228.8 in
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.
SG&A expenses within the VMware Virtual Infrastructure business, as a percentage of VMware's revenues, were 40.7%, 41.7% and 39.8% in 2010,
2009 and 2008, respectively. SG&A expenses increased $318.7 in 2010. The increase in SG&A expenses in 2010 was primarily the result of higher salaries
and benefits costs resulting from incremental headcount from strategic hiring and acquisitions as well as commission expense on higher sales volumes. Also
contributing to the change was increased spending on marketing programs. SG&A expenses increased $94.5 in 2009. The increase in SG&A expenses in 2009
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 measures 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-Process Research and Development
In connection with acquisitions in 2010 and 2009, we acquired and capitalized $43.9 and $175.0 of in-process research and development ("IPR&D"),
respectively. Projects acquired in 2010 are expected to be completed in 2012. Projects related to the IPR&D acquired in 2009 were completed in 2010. As a
result of accounting rule changes which were effective at the beginning of 2009, IPR&D resulting from business combinations was capitalized as an asset
with amortization commencing upon completion of the project. It was expensed at the time of acquisition prior to 2009. IPR&D expense was $85.8 in 2008.
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 19% to 22% to
value the IPR&D projects acquired in 2010, 17% to 21% to the value of projects acquired in 2009 and 20% to 60% for amounts expensed related to IPR&D
projects in 2008.
Restructuring and Acquisition-Related Charges
In 2010, 2009 and 2008, we incurred restructuring and acquisition-related charges of $84.4, $107.5 and $250.3, respectively. In 2010, we incurred
$76.7 of restructuring charges, of which $37.8 related to our fourth quarter 2010 program. The remainder was primarily related to our 2008 restructuring
program and $7.7 of costs in connection with acquisitions for financial advisory, legal and accounting services. Our 2008 restructuring program includes the
consolidation of facilities. We will incur restructuring charges of $29.2 through 2015 as we vacate these facilities.
In the fourth quarter of 2010, we implemented a restructuring program to create further operational efficiencies which will result in a workforce
reduction of approximately 400 positions. The program resulted in a charge of $37.8. The action will impact positions around the globe covering our
Information Storage, RSA Information Security and Information Intelligence Group segments. The actions are expected to be completed by the end of 2011.
In 2009, we incurred $88.4 of restructuring charges and $19.1 of costs in connection with acquisitions for financial advisory, legal and accounting
services. In 2008, all charges only relate to restructuring activities. (See Note P to the Consolidated Financial Statements).
29