EMC 2010 Annual Report Download - page 31

Table of Contents
Investment Income
Investment income was $142.5, $140.4 and $247.0 in 2010, 2009 and 2008, respectively. Investment income increased slightly in 2010 primarily due to
increased interest income on our sales-type leases. The weighted-average return on investments, excluding realized gains, was 1.2%, 1.3% and 3.1% in 2010,
2009 and 2008, respectively. Net realized gains were $15.8, $20.8 and $6.6 in 2010, 2009 and 2008, respectively.
Interest Expense
Interest expense was $178.3, $182.5 and $176.4 in 2010, 2009 and 2008, respectively. Interest expense consists primarily of interest on our convertible
debt. Included in interest expense are non-cash interest charges related to amortization of the debt discount attributable to the conversion feature of $114.5,
$108.3 and $102.6 in 2010, 2009 and 2008, respectively. We are accreting our convertible debt to their stated values over their term. (See Note E to the
Consolidated Financial Statements).
Other Income (Expense), Net
Other income (expense), net was $(39.5), $2.4 and $(39.4) in 2010, 2009 and 2008, respectively. Other expense in 2010 was primarily attributable to
our consolidated share of the losses from our cloud infrastructure joint venture, VCE Company LLC, of $42.8. This joint venture is accounted for under the
equity method. Other income in 2009 was primarily attributable to gains on strategic investments. 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 24.5%, 18.4% and 17.5% in 2010, 2009 and 2008, 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 2010, the lower aggregate income tax rate in foreign jurisdictions reduced our effective rate by 12.2 percentage points compared to our statutory
federal tax rate of 35.0%. In 2010, we effected a plan to reorganize our international operations by transferring certain assets of Isilon, Archer Technologies
and Bus-Tech entities into a single EMC international holding company. As a result of this reorganization, we incurred an income tax charge which negatively
impacted the rate by 3.2 percentage points. We had a reduction in our valuation allowance which arose from the utilization of a certain subsidiary's foreign net
operating loss carryforwards resulting in a benefit to our effective tax rate of 0.6 percentage points. The net effect of tax credits, state taxes, non-deductible
permanent differences, resolution of income tax audits and elimination of reserves associated with the expiration of statutes of limitations and other items
collectively decreased the rate by 0.9 percentage points.
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.
The effective tax rate increased from 2009 to 2010 by 6.1%, from 18.4% to 24.5%. This increase was principally attributable to differences in the
composition of the income in different countries and the favorable resolution of income tax audits in 2009, which was partially offset by reductions in our
non-deductible permanent differences and the reorganization of our international operations. The effective tax rate increased from 2008 to 2009 by 0.9%,
from 17.5% to 18.4%. This increase was principally attributable to the reorganization of RSA and Data Domain in 2009, which was partially offset by
incremental benefits from the favorable resolution of uncertain tax positions inclusive of the expiration of statutes of limitation.
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