Document and Entity Information
Document and Entity Information | |
3 Months Ended
Mar. 31, 2010 | |
Document Type | 10-Q |
Amendment Flag | false |
Document Period End Date | 2010-03-31 |
Document Fiscal Year Focus | 2,010 |
Document Fiscal Period Focus | Q1 |
Trading Symbol | EMC |
Entity Registrant Name | EMC CORP |
Entity Central Index Key | 0000790070 |
Current Fiscal Year End Date | --12-31 |
Entity Filer Category | Large Accelerated Filer |
Entity Common Stock, Shares Outstanding | 2,055,608,355 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS (USD $) | ||
In Thousands | 3 Months Ended
Mar. 31, 2010 | 12 Months Ended
Dec. 31, 2009 |
Current assets: | ||
Cash and cash equivalents | $6,256,626 | $6,302,499 |
Short-term investments | 641,576 | 392,839 |
Accounts and notes receivable, less allowance for doubtful accounts of $50,504 and $47,414 | 1,735,043 | 2,108,575 |
Inventories | 851,501 | 886,289 |
Deferred income taxes | 580,845 | 564,174 |
Other current assets | 309,534 | 283,926 |
Total current assets | 10,375,125 | 10,538,302 |
Long-term investments | 3,254,641 | 2,692,323 |
Property, plant and equipment, net | 2,226,238 | 2,224,346 |
Intangible assets, net | 1,194,104 | 1,185,632 |
Goodwill | 9,402,851 | 9,210,376 |
Other assets, net | 1,015,004 | 961,024 |
Total assets | 27,467,963 | 26,812,003 |
Current liabilities: | ||
Accounts payable | 796,688 | 899,298 |
Accrued expenses | 1,896,188 | 1,944,210 |
Income taxes payable | 49,595 | 41,691 |
Deferred revenue | 2,502,646 | 2,262,968 |
Total current liabilities | 5,245,117 | 5,148,167 |
Income taxes payable | 240,004 | 235,976 |
Deferred revenue | 1,495,602 | 1,373,798 |
Deferred income taxes | 631,649 | 708,378 |
Long-term convertible debt | 3,128,079 | 3,100,290 |
Other liabilities | 183,445 | 184,920 |
Total liabilities | 10,923,896 | 10,751,529 |
Commitments and contingencies (see Note 12) | ||
Shareholders' equity: | ||
Preferred stock, par value $0.01; authorized 25,000 shares; none outstanding | ||
Common stock, par value $0.01; authorized 6,000,000 shares; issued and outstanding 2,055,608 and 2,052,441 shares | 20,556 | 20,524 |
Additional paid-in capital | 3,933,124 | 3,875,791 |
Retained earnings | 12,131,993 | 11,759,289 |
Accumulated other comprehensive loss, net | (109,689) | (105,722) |
Total EMC Corporation's shareholders' equity | 15,975,984 | 15,549,882 |
Non-controlling interest in VMware, Inc. | 568,083 | 510,592 |
Total shareholders' equity | 16,544,067 | 16,060,474 |
Total liabilities and shareholders' equity | $27,467,963 | $26,812,003 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) | ||
In Thousands, except Per Share data | Mar. 31, 2010
| Dec. 31, 2009
|
Accounts and notes receivable, allowance for doubtful accounts | $50,504 | $47,414 |
Preferred stock, par value | 0.01 | 0.01 |
Preferred stock, authorized | 25,000 | 25,000 |
Preferred stock, outstanding | 0 | 0 |
Common stock, par value | 0.01 | 0.01 |
Common stock, authorized | 6,000,000 | 6,000,000 |
Common stock, issued | 2,055,608 | 2,052,441 |
Common stock, outstanding | 2,055,608 | 2,052,441 |
CONSOLIDATED INCOME STATEMENTS
CONSOLIDATED INCOME STATEMENTS (USD $) | ||
In Thousands, except Per Share data | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Revenues: | ||
Product sales | $2,478,717 | $1,969,120 |
Services | 1,411,975 | 1,181,642 |
Revenues, Total | 3,890,692 | 3,150,762 |
Costs and expenses: | ||
Cost of product sales | 1,161,922 | 1,013,330 |
Cost of services | 510,251 | 454,177 |
Research and development | 434,933 | 383,293 |
Selling, general and administrative | 1,261,284 | 1,024,773 |
Restructuring and acquisition-related charges | 18,502 | 15,572 |
Operating income | 503,800 | 259,617 |
Non-operating income (expense): | ||
Investment income | 31,532 | 39,844 |
Interest expense | (42,968) | (45,543) |
Other expense, net | (9,021) | (10,758) |
Total non-operating expense | (20,457) | (16,457) |
Income before provision for income taxes | 483,343 | 243,160 |
Income tax provision | 95,653 | 37,815 |
Net income | 387,690 | 205,345 |
Less: Net income attributable to the non-controlling interest in VMware, Inc. | (14,986) | (11,276) |
Net income attributable to EMC Corporation | $372,704 | $194,069 |
Net income per weighted average share, basic attributable to EMC Corporation common shareholders | 0.18 | 0.1 |
Net income per weighted average share, diluted attributable to EMC Corporation common shareholders | 0.17 | 0.1 |
Weighted average shares, basic | 2,051,030 | 2,008,915 |
Weighted average shares, diluted | 2,119,192 | 2,021,062 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) | ||
In Thousands | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Cash flows from operating activities: | ||
Cash received from customers | $4,615,013 | $3,860,223 |
Cash paid to suppliers and employees | (3,213,917) | (2,877,408) |
Dividends and interest received | 26,634 | 46,656 |
Interest paid | (4,670) | (4,007) |
Income taxes paid | (105,714) | (161,773) |
Net cash provided by operating activities | 1,317,346 | 863,691 |
Cash flows from investing activities: | ||
Additions to property, plant and equipment | (114,048) | (95,320) |
Capitalized software development costs | (93,161) | (87,627) |
Purchases of short and long-term available-for-sale securities | (1,475,229) | (2,277,512) |
Sales of short and long-term available-for-sale securities | 628,504 | 2,077,730 |
Maturities of short and long-term available-for-sale securities | 40,346 | 91,365 |
Business acquisitions, net of cash acquired | (288,246) | |
Increase in strategic and other related investments | (5,240) | (1,960) |
Other | (16,648) | 1,054 |
Net cash used in investing activities | (1,323,722) | (292,270) |
Cash flows from financing activities: | ||
Issuance of EMC's common stock from the exercise of stock options | 130,338 | 8,637 |
Issuance of VMware's common stock from the exercise of stock options | 109,775 | 4,503 |
EMC purchase of VMware's common stock | (99,500) | |
Repayments of proceeds from securities lending | (65,179) | |
Excess tax benefits from stock-based compensation | 35,248 | 776 |
Payment of long-term and short-term obligations | (2,327) | (19,257) |
Proceeds from long-term and short-term obligations | 1,116 | 1,038 |
Net cash used in financing activities | (32,958) | (69,482) |
Effect of exchange rate changes on cash and cash equivalents | (6,539) | (22,172) |
Net (decrease) increase in cash and cash equivalents | (45,873) | 479,767 |
Cash and cash equivalents at beginning of period | 6,302,499 | 5,843,685 |
Cash and cash equivalents at end of period | 6,256,626 | 6,323,452 |
Reconciliation of net income to net cash provided by operating activities: | ||
Net income | 387,690 | 205,345 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and amortization | 281,580 | 255,798 |
Non-cash interest expense on convertible debt | 25,921 | 26,299 |
Non-cash restructuring | 162 | 2,072 |
Stock-based compensation expense | 158,805 | 112,647 |
Increase in provision for doubtful accounts | 7,226 | 5,388 |
Deferred income taxes, net | (28,766) | (4,527) |
Excess tax benefits from stock-based compensation | (35,248) | (776) |
Other | (820) | 795 |
Changes in assets and liabilities, net of acquisitions: | ||
Accounts and notes receivable | 380,790 | 550,917 |
Inventories | 2,198 | (2,226) |
Other assets | (24,760) | (22,271) |
Accounts payable | (102,803) | (80,021) |
Accrued expenses | (83,164) | (222,591) |
Income taxes payable | 18,705 | (119,431) |
Deferred revenue | 336,305 | 153,156 |
Other liabilities | (6,475) | 3,117 |
Net cash provided by operating activities | 1,317,346 | 863,691 |
Parent | ||
Cash flows from financing activities: | ||
Repurchase of common stock | (176,260) | |
Non-controlling Interest in VMware | ||
Cash flows from financing activities: | ||
Repurchase of common stock | ($31,348) |
CONSOLIDATED STATEMENTS OF SHAR
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (USD $) | ||||||
In Thousands | Common Stock
| Additional Paid-in Capital
| Retained Earnings
| Other Comprehensive Loss
| Non-controlling Interest in VMware
| Total
|
Beginning Balance at Dec. 31, 2008 | $20,129 | $2,817,054 | $10,671,212 | ($179,952) | $327,507 | $13,655,950 |
Beginning Balance (in shares) at Dec. 31, 2008 | 2,012,938 | |||||
Stock issued through stock option and stock purchase plans (in shares) | 1,557 | |||||
Stock issued through stock option and stock purchase plans | 16 | 8,621 | 8,637 | |||
Tax benefit (shortfall) from stock options exercised | (11,890) | (11,890) | ||||
Restricted stock grants, cancellations and withholdings, net (in shares) | (1,492) | |||||
Restricted stock grants, cancellations and withholdings, net | (15) | (35,459) | (35,474) | |||
Stock-based compensation | 119,351 | 119,351 | ||||
Impact from equity transactions of VMware, Inc. | (7,798) | 10,061 | 2,263 | |||
Change in market value of investments | 4,426 | 4,426 | ||||
Change in market value of derivatives | 1,802 | 1,802 | ||||
Translation adjustment | (26,735) | (26,735) | ||||
Net income | 194,069 | 11,276 | 205,345 | |||
Ending Balance (in shares) at Mar. 31, 2009 | 2,013,003 | |||||
Ending Balance at Mar. 31, 2009 | 20,130 | 2,889,879 | 10,865,281 | (200,459) | 348,844 | 13,923,675 |
Beginning Balance at Dec. 31, 2009 | 20,524 | 3,875,791 | 11,759,289 | (105,722) | 510,592 | 16,060,474 |
Beginning Balance (in shares) at Dec. 31, 2009 | 2,052,441 | |||||
Stock issued through stock option and stock purchase plans (in shares) | 12,238 | |||||
Stock issued through stock option and stock purchase plans | 122 | 130,216 | 130,338 | |||
Tax benefit (shortfall) from stock options exercised | 57,321 | 57,321 | ||||
Restricted stock grants, cancellations and withholdings, net (in shares) | 1,268 | |||||
Restricted stock grants, cancellations and withholdings, net | 13 | (29,096) | (29,083) | |||
Repurchase of common stock (in shares) | (10,339) | |||||
Repurchase of common stock | (103) | (176,157) | (176,260) | |||
EMC purchase of VMware stock | (86,636) | (12,864) | (99,500) | |||
Stock options issued in business acquisitions | 38 | 38 | ||||
Stock-based compensation | 165,507 | 165,507 | ||||
Impact from equity transactions of VMware, Inc. | (3,860) | 55,289 | 51,429 | |||
Change in market value of investments | 5,555 | 80 | 5,635 | |||
Change in market value of derivatives | (3,456) | (3,456) | ||||
Translation adjustment | (6,066) | (6,066) | ||||
Net income | 372,704 | 14,986 | 387,690 | |||
Ending Balance (in shares) at Mar. 31, 2010 | 2,055,608 | |||||
Ending Balance at Mar. 31, 2010 | $20,556 | $3,933,124 | $12,131,993 | ($109,689) | $568,083 | $16,544,067 |
CONSOLIDATED STATEMENTS OF COMP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $) | ||
In Thousands | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Net income | $387,690 | $205,345 |
Other comprehensive income, net of taxes (benefit): | ||
Foreign currency translation adjustments | (6,066) | (26,735) |
Changes in market value of investments, including unrealized gains and losses and reclassification adjustment to net income, net of taxes of $3,116 and $5,903 | 5,635 | 4,426 |
Changes in market value of derivatives, net of taxes (benefit) of $(1,631) and $681 | (3,456) | 1,802 |
Other comprehensive loss | (3,887) | (20,507) |
Comprehensive income | 383,803 | 184,838 |
Less: Net income attributable to the non-controlling interest in VMware, Inc. | (14,986) | (11,276) |
Less: Other comprehensive income attributable to the non-controlling interest in VMware, Inc. | (80) | |
Comprehensive income attributable to EMC Corporation | $368,737 | $173,562 |
1_CONSOLIDATED STATEMENTS OF CO
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) (USD $) | ||
In Thousands | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Changes in market value of investments, including unrealized gains and losses and reclassification adjustment to net income, taxes | $3,116 | $5,903 |
Changes in market value of derivatives, taxes (benefit) | ($1,631) | $681 |
Basis of Presentation
Basis of Presentation | |
3 Months Ended
Mar. 31, 2010 | |
Basis of Presentation | 1.Basis of Presentation Company EMC Corporation (EMC) and its subsidiaries develop, deliver and support the Information Technology (IT) industrys broadest range of information infrastructure and virtual infrastructure technologies and solutions. EMCs Information Infrastructure business provides a foundation for customers to manage and secure their vast and ever-increasing quantities of information, automate their data center operations, reduce power and cooling costs, and leverage critical information for business agility and competitive advantage. EMCs Information Infrastructure business comprises three segments Information Storage, Content Management and Archiving and RSA Information Security. EMCs VMware Virtual Infrastructure business, which is represented by EMCs majority equity stake in VMware,Inc. (VMware), is the leading provider of virtual infrastructure software solutions from the desktop to the data center and to the cloud. VMwares virtual infrastructure software solutions run on industry-standard desktop computers and servers and support a wide range of operating system and application environments, as well as networking and storage infrastructures. General The accompanying interim consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. These consolidated financial statements include the accounts of EMC, its wholly owned subsidiaries and VMware, a company majority-owned by EMC. All intercompany transactions have been eliminated. Certain information and footnote disclosures normally included in our annual consolidated financial statements have been condensed or omitted. Accordingly, these interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December31, 2009 which are contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February26, 2010. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for any future period or the entire fiscal year. The interim consolidated financial statements, in the opinion of management, reflect all adjustments necessary to fairly state the results as of and for the three-month periods ended March31, 2010 and 2009. Net Income Per Share Basic net income per weighted average share has been computed using the weighted average number of shares of common stock outstanding during the period. Diluted net income per weighted average share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Common equivalent shares consist of stock options, restricted stock and restricted stock units, our $1.725 billion 1.75% convertible senior notes due 2011 and our $1.725 billion 1.75% convertible senior notes due 2013 (the Notes) and associated warrants. Additionally, for purposes of calculating diluted net income per weighted average share, net income is adjusted for the difference be |
Revenue Recognition
Revenue Recognition | |
3 Months Ended
Mar. 31, 2010 | |
Revenue Recognition | 2.Revenue Recognition We derive revenue from sales of information systems, software and services. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectability is reasonably assured. This policy is applicable to all sales, including sales to resellers and end users. Product is considered delivered to the customer once it has been shipped or electronically delivered and risk of loss has been transferred. For most of our product sales, these criteria are met at the time the product is shipped. The following summarizes the major terms of our contractual relationships with our customers and the manner in which we account for sales transactions. Systems sales Systems sales consist of the sale of hardware storage and hardware-related devices. Revenue for hardware is generally recognized upon shipment. Software sales Software sales consist of the sale of required storage operating systems and optional value-added software application programs. Our software application programs provide customers with resource management, backup and archiving, content management, information security and server virtualization capabilities. Revenue for software is generally recognized upon shipment or electronic delivery. License revenue from royalty payments is recognized upon either receipt of final royalty reports or payments from third parties. Services revenue Services revenue consists of installation services, professional services, software maintenance, hardware maintenance and training. EMC recognizes revenue from fixed-price support or maintenance contracts sold for both hardware and software, including extended warranty contracts, ratably over the contract period and recognizes the costs associated with these contracts as incurred. Generally, installation and professional services are not considered essential to the functionality of our products as these services do not alter the product capabilities and may be performed by our customers or other vendors. Installation services revenues are recognized as the services are being performed. Professional services revenues on engagements for which reasonably dependable estimates of progress toward completion are capable of being made are recognized as earned based upon the hours incurred. Where services are considered essential to the functionality of our products, revenue for the products and services is recorded over the service period. Professional services engagements that are on a time and materials basis are recognized based upon hours incurred. Revenues on all other professional services engagements are recognized upon completion. Multiple element arrangements When more than one element, such as hardware, software and services are contained in a single arrangement, we first allocate revenue based upon the relative selling price into two categories: (1)non-software components, such as hardware and any hardware related items, such as required software that functions with the hardware to deliver the essential functionality of the hardware and related p |
Acquisitions
Acquisitions | |
3 Months Ended
Mar. 31, 2010 | |
Acquisitions | 3.Acquisitions In the first quarter of 2010, we acquired all of the outstanding capital stock of Archer Technologies, LLC, a provider of governance, risk and compliance software. This acquisition complements and expands our Information Security segment. Additionally, VMware acquired two businesses, including Zimbra, a leading vendor of e-mail and collaboration software. The aggregate cash consideration for these three acquisitions was $288.2 million. The results of these acquisitions have been included in the consolidated financial statements from the date of purchase. Pro forma results of operations have not been presented as the results of the acquired companies were not material, individually or in aggregate, to the Companys consolidated results of operations for the three months ended March31, 2010 or 2009. |
Non-controlling Interest in VMw
Non-controlling Interest in VMware, Inc. | |
3 Months Ended
Mar. 31, 2010 | |
Non-controlling Interest in VMware, Inc. | 4.Non-controlling Interest in VMware, Inc. The effect of changes in our ownership interest in VMware on our equity was as follows (table in thousands): March31, 2010 March31, 2009 Net income attributable to EMC Corporation $ 372,704 $ 194,069 Transfers (to) from the non-controlling interest in VMware: Increase in EMC Corporations additional paid-in-capital for VMwares equity issuances 38,496 1,730 Decrease in EMC Corporations additional paid-in-capital for VMwares other equity activity (42,356 ) (9,528 ) Net transfers (to) from non-controlling interest (3,860 ) (7,798 ) Change from net income attributable to EMC Corporation and transfers from the non-controlling interest in VMware, Inc. $ 368,844 $ 186,271 |
Investments
Investments | |
3 Months Ended
Mar. 31, 2010 | |
Investments | 5.Investments Our investments are comprised primarily of debt securities that are classified as available for sale and recorded at their fair market values. We determine fair value using the following hierarchy: Level 1 Quoted prices in active markets for identical assets or liabilities. Level 2 Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Most of our debt securities are classified as Level 2 securities, with the exception of some of our U.S. government and agency obligations, which are classified as Level 1 securities and all of our auction rate securities, which are classified as Level 3. At March31, 2010, the vast majority of our Level 2 investments were priced by pricing vendors. These pricing vendors utilize the most recent observable market information in pricing these securities or, if specific prices are not available for these securities, use other observable inputs like market transactions involving identical or comparable securities. In the event observable inputs are not available, we assess other factors to determine the securitys market value, including broker quotes or model valuations. Each month, we perform independent price verifications of all of our holdings. In the event a price fails a pre-established tolerance check, it is researched so that we can assess the cause of the variance to determine what we believe is the appropriate fair market value. In January 2010, the FASB issued authoritative guidance related to additional disclosures of fair value measurements. The guidance requires the gross presentation of activity within the Level 3 fair value measurement roll forward and details of transfers in and out of Level 1 and 2 fair value measurements. It also clarified two existing disclosure requirements on the level of disaggregation of fair value measurements and disclosures on inputs and valuation techniques. We adopted all of this guidance in the first quarter of 2010. Hierarchy of an investment from its current level could change in the period that the pricing methodology of that investment changes. Disclosure of the transfer of securities from Level 1 to Level 2 or Level 3 will be made in the event that the related security is significant to total cash and investments. In general, investments with remaining effective maturities of 12 months or less from the balance sheet date are classified as short-term investments. Investments with remaining effective maturities of more than 12 months from the balance sheet date are classified as long-term investments. As a result of the lack of liquidity for auction rate securities, we have classified these as long-term investments as of March31, 2010. At March31, 2010, all of our available for sa |
Inventories
Inventories | |
3 Months Ended
Mar. 31, 2010 | |
Inventories | 6.Inventories Inventories consist of (table in thousands): March31, 2010 December 31, 2009 Purchased parts $ 40,111 $ 73,612 Work-in-process 485,830 469,901 Finished goods 325,560 342,776 $ 851,501 $ 886,289 |
Property, Plant and Equipment
Property, Plant and Equipment | |
3 Months Ended
Mar. 31, 2010 | |
Property, Plant and Equipment | 7.Property, Plant and Equipment Property, plant and equipment consist of (table in thousands): March31, 2010 December31, 2009 Furniture and fixtures $ 230,917 $ 229,006 Equipment 3,527,815 3,447,209 Buildings and improvements 1,427,119 1,427,656 Land 121,839 122,260 Building construction in progress 100,023 91,501 5,407,713 5,317,632 Accumulated depreciation and amortization (3,181,475 ) (3,093,286 ) $ 2,226,238 $ 2,224,346 Building construction in progress at March31, 2010 includes $65.6 million for facilities not yet placed in service that we are holding for future use. |
Accrued Expenses
Accrued Expenses | |
3 Months Ended
Mar. 31, 2010 | |
Accrued Expenses | 8.Accrued Expenses Accrued expenses consist of (table in thousands): March31, 2010 December 31, 2009 Salaries and benefits $ 669,364 $ 742,748 Product warranties 269,567 271,594 Restructuring (see Note 11) 88,844 105,760 Other 868,413 824,108 $ 1,896,188 $ 1,944,210 Product Warranties Systems sales include a standard product warranty. At the time of the sale, we accrue for the systems warranty costs. The initial systems warranty accrual is based upon our historical experience, expected future costs and specific identification of the systems requirements. Upon expiration of the initial warranty, we may sell additional maintenance contracts to our customers. Revenue from these additional maintenance contracts is deferred and recognized ratably over the service period. The following represents the activity in our warranty accrual for our standard product warranty (table in thousands): For the Three Months Ended March31, 2010 March31, 2009 Balance, beginning of the period $ 271,594 $ 269,218 Current period provision 36,960 25,435 Amounts charged to the accrual (38,987 ) (32,398 ) Balance, end of the period $ 269,567 $ 262,255 The provision includes amounts accrued for systems at the time of shipment, adjustments for changes in estimated costs for warranties on systems shipped in the period and changes in estimated costs for warranties on systems shipped in prior periods. It is not practicable to determine the amounts applicable to each of the components |
Income Taxes
Income Taxes | |
3 Months Ended
Mar. 31, 2010 | |
Income Taxes | 9.Income Taxes Our effective income tax rates were 19.8% and 15.6% for the three months ended March31, 2010 and 2009, respectively. The effective income tax rate is based upon the estimated income for the year, the composition of the income in different countries, and adjustments, if any, in the applicable quarterly periods for the potential tax consequences, benefits or resolutions of tax audits or other tax contingencies. For the three months ended March31, 2010 and 2009, the effective tax rate varied from the statutory tax rate principally as a result of the mix of income attributable to foreign versus domestic jurisdictions. Our aggregate income tax rate in foreign jurisdictions is lower than our income tax rate in the United States. The increase in the effective tax rate in 2010 compared to 2009 was primarily attributable to the expiration of the U.S. federal research and development tax credit for 2010. We have substantially concluded all U.S. federal income tax matters for years through 2006 and are currently under audit for U.S. federal income taxes for 2007 and 2008. We also have income tax audits in process in numerous state, local and international jurisdictions. Based on the timing and outcome of examinations of EMC, the result of the expiration of statutes of limitations for specific jurisdictions or the timing and result of ruling requests from taxing authorities, it is reasonably possible that the related unrecognized tax benefits could change from those recorded in our statement of financial position. We anticipate that several of these audits may be finalized within the next 12 months. Based on the status of these examinations, and the protocol of finalizing such audits, it is not possible to estimate the impact of the amount of such changes, if any, to our previously recorded uncertain tax positions. |
Shareholders' Equity
Shareholders' Equity | |
3 Months Ended
Mar. 31, 2010 | |
Shareholders' Equity | 10.Shareholders Equity The reconciliation from basic to diluted earnings per share for both the numerators and denominators is as follows (table in thousands): For the Three Months Ended March31, 2010 March31, 2009 Numerator: Net income attributable to EMC Corporation, basic $ 372,704 $ 194,069 Incremental dilution from VMware (1,883 ) (188 ) Net income attributable to EMC Corporation, diluted $ 370,821 $ 193,881 Denominator: Basic weighted average common shares outstanding 2,051,030 2,008,915 Weighted average common stock equivalents 47,835 12,147 Assumed conversion of the Notes 20,327 Diluted weighted average shares outstanding 2,119,192 2,021,062 Due to the cash settlement feature of the principal amount of the Notes, we only include the impact of the premium feature in our diluted earnings per share calculation when the stock price equals or exceeds the conversion price of the Notes. Conversion of the Notes may occur upon the occurrence of specified events at a conversion price of approximately $16.08 per share of our common stock. The conversion price is subject to adjustment in some events. Options to acquire 74.6million and 214.9million of common stock for the three months ended March31, 2010 and 2009, respectively, were excluded from the calculation of diluted earnings per share because they were antidilutive. The incremental dilution from VMware represents the impact of VMwares dilutive securities on EMCs consolidated diluted net income per share and is calculated by multiplying the difference between VMwares basic and diluted earnings per share by the number of VMware shares owned by EMC. Repurchases of Common Stock We utilize authorized and unissued shares (including repurchased shares) to satisfy all shares issued under our equity plans.In 2008, our Board of Directors authorized the repurchase of 250.0million shares of our common stock.For the three months ended March31, 2010, we spent $176.3 million to repurchase 10.3million shares of our common stockand plan to spend up to $1.0 billion for the year on common stock repurchases.Of the 250.0million shares authorized for repurchase, we have repurchased 71.7million shares at a cost of $884.5 million, leaving a remaining balance of 178.3million shares. Accumulated Other Comprehensive Loss Accumulated other comprehensive loss, which is presented net of tax, consists of the following (table in thousands): March31, 2010 December31, 2009 Foreign currency translation adjustments $ (8,415 ) $ (2,349 ) Unrealized losses on temporarily impaired investments, net of tax benefits of $(7,858) and $(8,679) (13,804 ) (15,361 ) Unrealized gains on investments, net of taxes of $16,624 and $14,329 27,695 23,617 Unrealized gains (losses) on derivatives, net of taxes (benefits) of $(1,032) and $599 (1,245 ) 2,211 Recognition of actuarial net loss from pension and other postret |
Restructuring and Acquisition-R
Restructuring and Acquisition-Related Charges | |
3 Months Ended
Mar. 31, 2010 | |
Restructuring and Acquisition-Related Charges | 11.Restructuring and Acquisition-Related Charges For the three months ended March31, 2010, we incurred restructuring and acquisition-related charges of $18.5 million compared to $15.6 million of restructuring charges for the three months ended March31, 2009. For the three months ended March31, 2010, we incurred $17.0 million of restructuring charges, primarily related to our 2008 restructuring program and $1.5 million of charges in connection with acquisitions for financial advisory, legal and accounting services. 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. The total charge resulting from these actions is expected to be approximately $400.0 million, with $247.9million recognized in 2008, $87.0 million recognized in 2009, $35.0 million expected to be recognized in 2010 and the remainder expected to be recognized in 2011 through 2015. The activity for the December 2008 restructuring program for the three months ended March31, 2010 and 2009 is presented below (table in thousands): 2010 Category Balance as of December31, 2009 2010Charges Relating to the 2008 Plan Utilization Balanceasof March31, 2010 Workforce reductions $ 84,266 $ $ (28,294 ) $ 55,972 Consolidation of excess facilities and other contractual obligations 4,885 16,967 (2,871 ) 18,981 Total $ 89,151 $ 16,967 $ (31,165 ) $ 74,953 In the first quarter of 2010, we recognized $17.0 million of lease termination costs for facilities vacated in the quarter in accordance with our plan as part of our 2008 restructuring program. 2009 Category Balance as of December31, 2008 2009Charges Relating to the 2008 Plan Utilization Balanceasof March31, 2009 Workforce reductions $ 184,440 $ 6,809 $ (51,924 ) $ 139,325 Consolidation of excess facilities and other contractual obligations 2,376 9,089 (7,299 ) 4,166 Total $ 186,816 $ 15,898 $ (59,223 ) $ 143,491 |
Commitments and Contingencies
Commitments and Contingencies | |
3 Months Ended
Mar. 31, 2010 | |
Commitments and Contingencies | 12.Commitments and Contingencies Line of Credit We have available for use a credit line of $50.0 million in the United States. As of March31, 2010, we had no borrowings outstanding on the line of credit. The credit line bears interest at the banks 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 March31, 2010, we were in compliance with the covenants. Litigation We are involved in a variety of claims, demands, suits, investigations, and proceedings, including those identified below, that arise from time to time relating to matters incidental to the ordinary course of our business, including actions with respect to contracts, intellectual property, product liability, employment, benefits and securities matters. As required by authoritative guidance, we have estimated the amount of probable losses that may result from any such pending matters, and such amounts are reflected in our consolidated financial statements. We have disclosed the specific amount recorded for a particular matter where required by authoritative guidance. Because litigation is inherently unpredictable, however, the actual amounts of loss may prove to be larger or smaller than the amounts reflected in our consolidated financial statements, and we could incur judgments or enter into settlements of claims that could adversely affect our operating results or cash flows in a particular period. United States ex rel. Rille and Roberts v. EMC Corporation. Effective as of May 4, 2010, EMC entered into a settlement agreement (the Agreement) with the United States of America, acting through the Civil Division of the United States Department of Justice (the DoJ). The Agreement relates to a previously disclosed qui tam action that followed an investigation conducted by the DoJ regarding (i)EMCs fee arrangements with systems integrators and other partners in federal government transactions, and (ii)EMCs compliance with the terms and conditions of certain agreements pursuant to which we sold products and services to the federal government, primarily a schedule agreement we entered into with the General Services Administration in November 1999. Pursuant to the Agreement, EMC will pay the United States $87.5 million. In consideration of this payment, the United States has agreed to release EMC with respect to the matters investigated and the claims alleged by the DoJ in the civil action. As set forth in the Agreement, EMC expressly denies any liability or wrongdoing in connection with such matters and claims, and the settlement represents a compromise to avoid the costs, distraction, and uncertainty of continued litigation. As previously disclosed, EMC recorded an $87.5 million accrual for this contingency as of December31, 2009. Derivative Demand Letters. We have received derivative demand letters sent on behalf of purported EMC shareholders. The letters contain allegations to the effect that the existence of the matter captioned United States ex rel. Rill |
Segment Information
Segment Information | |
3 Months Ended
Mar. 31, 2010 | |
Segment Information | 13.Segment Information We manage our business in two broad categories: EMC Information Infrastructure and VMware Virtual Infrastructure. EMC Information Infrastructure operates in three segments: Information Storage, Content Management and Archiving and RSA Information Security, while VMware Virtual Infrastructure operates in a single segment. Our management measures are designed to assess performance of these operating segments excluding certain items. As a result, the corporate reconciling items are used to capture the items excluded from the segment operating performance measures, including stock-based compensation expense and acquisition-related intangible asset amortization expense. Additionally, in certain instances, restructuring and acquisition-related charges, transition costs and infrequently occurring gains or losses are also excluded from the measures used by management in assessing segment performance. The VMware Virtual Infrastructure amounts represent the revenues and expenses of VMware as reflected within EMCs consolidated financial statements. Research and development expenses, selling, general and administrative and other income associated with the EMC Information Infrastructure business are not allocated to the segments within the EMC Information Infrastructure business, as they are managed centrally at the business unit level. For the three segments within the EMC Information Infrastructure business, gross profit is the segment operating performance measure. Our segment information for the three months ended March31, 2010 and 2009 is as follows (tables in thousands, except percentages): EMC Information Infrastructure Information Storage Content Management andArchiving RSA Information Security EMC Information Infrastructure VMware Virtual Infrastructure within EMC Corp Reconciling Items Consolidated Three Months Ended: March 31, 2010 Revenues: Product revenues $ 2,017,314 $ 63,662 $ 85,814 $ 2,166,790 $ 311,927 $ $ 2,478,717 Services revenues 901,781 114,502 75,654 1,091,937 320,038 1,411,975 Total consolidated revenues 2,919,095 178,164 161,468 3,258,727 631,965 3,890,692 Cost of sales 1,401,514 63,332 52,256 1,517,102 95,504 59,567 1,672,173 Gross profit $ 1,517,581 $ 114,832 $ 109,212 1,741,625 536,461 (59,567 ) 2,218,519 Gross profit percentage 52.0 % 64.5 % 67.6 % 53.4 % 84.9 % 57.0 % Research and development 266,876 101,975 66,082 434,933 Selling, general and administrative 879,157 257,115 125,012 1,261,284 Res |
Subsequent Event
Subsequent Event | |
3 Months Ended
Mar. 31, 2010 | |
Subsequent Event | 14.Subsequent Event In April 2010, we consummated the transaction contemplated by the agreement that we entered into with VMware in the first quarter of 2010 to transfer assets for a total cash purchase price of up to $200.0 million. Pursuant to the terms of the agreement, EMC transferred certain technology and intellectual property of EMCs Ionix IT management business to VMware. These products and expertise will complement VMwares existing development efforts and expand their vCenter product family. As the transfer relates to entities under common control, there will be no change to the accounting basis of the transferred net assets. |