EMC 2010 Annual Report Download - page 33

Table of Contents
See Note E to the consolidated financial statements.
We have available for use a credit line of $50.0 in the United States. As of December 31, 2010, we had no borrowings outstanding on the line of credit.
The credit line bears interest at the bank's base rate and requires us, upon utilization of the credit line, to meet certain financial covenants with respect to
limitations on losses. In the event the covenants are not met, the lender may require us to provide collateral to secure the outstanding balance. At
December 31, 2010, we were in compliance with the covenants. As of December 31, 2010, the aggregate amount of liabilities of our subsidiaries was
approximately $4,891.1.
At December 31, 2010, our total cash, cash equivalents, and short-term and long-term investments were $9,491.2. This balance includes approximately
$3,323.6 held by VMware and $1,549.4 held by EMC in overseas entities.
Use of Non-GAAP Financial Measures and Reconciliations to GAAP Results
EMC uses certain non-GAAP financial measures, which exclude stock-based compensation, amortization of intangible assets, restructuring and
acquisition-related charges, infrequently occurring gains and losses, special tax items and provision for litigation to measure its gross margin, operating
margin, net income and diluted earnings per share. EMC also assesses its financial performance by measuring its free cash flow which is also a non-GAAP
financial measure. These non-GAAP financial measures should be considered in addition to, not as a substitute for, measures of EMC's financial performance
or liquidity prepared in accordance with GAAP. EMC's non-GAAP financial measures may be defined differently from time to time and may be defined
differently than similar terms used by other companies, and accordingly, care should be exercised in understanding how EMC defines its non-GAAP financial
measures.
EMC's management uses the non-GAAP financial measures to gain an understanding of EMC's comparative operating performance (when comparing
such results with previous periods or forecasts) and future prospects and excludes these items from its internal financial statements for purposes of its internal
budgets and each reporting segment's financial goals. Free cash flow is defined as net cash provided by operating activities, less additions to property, plant
and equipment and capitalized software development costs. These non-GAAP financial measures are used by EMC's management in their financial and
operating decision-making because management believes they reflect EMC's ongoing business in a manner that allows meaningful period-to-period
comparisons. EMC's management believes that these non-GAAP financial measures provide useful information to investors and others (a) in understanding
and evaluating EMC's current operating performance and future prospects in the same manner as management does, if they so choose, and (b) in comparing in
a consistent manner EMC's current financial results with EMC's past financial results.
Our non-GAAP operating results for the three months and year ended December 31, 2010 and 2009 were as follows:
For the Three Months Ended For the Year Ended
December 31,
2010
December 31,
2009
December 31,
2010
December 31,
2009
Gross margin $ 3,028.4 $ 2,444.3 $ 10,271.4 $ 7,988.5
Gross margin percentage 61.9% 59.6% 60.4% 57.0%
Operating income 1,243.0 916.5 3,738.0 2,445.2
Operating income percentage 25.4% 22.4% 22.0% 17.4%
Income tax provision 249.8 168.2 824.0 452.1
Net income attributable to EMC 920.1 695.5 2,715.3 1,858.4
Diluted earnings per share attributable to EMC $ 0.42 $ 0.33 $ 1.26 $ 0.90
The improvements in the non-GAAP gross margin and non-GAAP gross margin percentage were attributable to higher sales volume, a change in mix
attributable to higher margin product offerings and improved cost control. The improvements in the non-GAAP operating income and non-GAAP operating
income percentage were attributable to an improved gross margin percentage and growing revenues faster than both our R&D and SG&A expenses. Non-
GAAP R&D expenses, as a percentage of revenues, were 8.5% and 8.6% for the three months ended December 31, 2010 and 2009, respectively, and 9.4%
and 10.0% for the year ended December 31, 2010 and 2009, respectively. Non-GAAP SG&A expenses, as a percentage of revenues, were 28.0% and 28.6%
for the three months ended December 31, 2010 and 2009, respectively, and 29.0% and 29.5% for the year ended December 31, 2010 and 2009, respectively.
We also monitor our ability to generate free cash flow in relationship to our non-GAAP net income attributable to EMC. For the year ended
December 31, 2010, our free cash flow was $3,440.5, an increase of 31.4% compared to the free cash flow generated for the year ended December 31, 2009.
The free cash flow for the twelve months ended December 31, 2010 exceeded our non-GAAP net income attributable to EMC by $725.2.
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