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EMC Reports First-Quarter 2009 Financial Results

Posted on: Thursday, 23 April 2009, 06:05 CDT

First-Quarter 2009 Highlights

- Consolidated revenue $3.15 billion

- GAAP net income attributable to EMC $194.1 million

- Strong operating cash flow $864 million

- Record cash and investments $9.8 billion

HOPKINTON, Mass., April 23 /PRNewswire-FirstCall/ -- EMC Corporation (NYSE: EMC), the world leader in information infrastructure solutions, today reported first-quarter 2009 revenue of $3.15 billion, reflecting solid revenue results in a challenging global economic environment. Through its continued emphasis on operational efficiency, in the first quarter EMC generated operating cash flow of $864 million and free cash flow of $681 million, all contributing to record cash and investments of $9.8 billion.

First-quarter consolidated revenue of $3.15 billion declined 9.2% compared with the year-ago period, or 5.7%, adjusting for the impact from currency. First-quarter 2009 GAAP net income attributable to EMC was $194.1 million or $0.10 per diluted share, compared with $251.6 million or $0.12 per diluted share for the first quarter of 2008. First-quarter 2009 non-GAAP(1) net income attributable to EMC was $323.7 million or $0.16 per diluted share, compared with $460.1 million or $0.22 per diluted share for the first quarter of 2008.(2)

Joe Tucci, EMC Chairman, President and Chief Executive Officer, said, "Within a very tough economy, EMC executed soundly in the first quarter, leveraging the unique power of our highly complementary information infrastructure and virtual infrastructure strategies. As we look to the balance of 2009, we believe the global IT spending environment has reached or is very near the bottom. We expect IT spending to improve in the second half of 2009 as customers will have better budget visibility, be further through their own restructuring programs and broader stimulus packages should be underway."

Tucci continued, "Looking ahead, EMC will advance our place among our customers' most strategic IT providers as they take advantage of trends shaping the future of IT such as the virtual data center and cloud computing. As a technology-driven company, we will continue to use our financial strength to remain aggressive with R&D, extend our technology leadership, forge even tighter and deeper strategic alliances and deliver customers even more advanced solutions and services for their most strategic IT initiatives."

David Goulden, EMC Executive Vice President and Chief Financial Officer, said, "EMC's first-quarter results reflect the resiliency of our business in a very challenging global economy. We executed well on our cost reduction plans during the quarter and maintained disciplined expense control, which resulted in decent profitability and excellent free cash flow, while continuing investments to further enhance our product and services offerings and expand our customer reach."

Goulden continued, "We are taking additional near-term cost reduction actions that will save EMC an additional $100 million in 2009. We now expect to reduce EMC's 2009 Information Infrastructure costs by approximately $450 million from our 2008 spend, increasing to approximately $500 million in 2010. We believe these near- and longer-term actions to improve our effectiveness and efficiency will help EMC ride out this period of economic uncertainty and put us in a position of even greater strength when conditions improve."

EMC's best estimate is that 2009 global IT spending will decline as a percentage in the very-high-single-digit to very-low-double-digit range compared with 2008. EMC also expects second-quarter 2009 global IT spending will probably be flat compared with the first quarter of 2009, and the second half of 2009 will be stronger than the first half of the year.

First-Quarter Highlights

EMC's Information Infrastructure business revenue for the first quarter - comprising Information Storage, RSA Security, and Content Management & Archiving - was $2.7 billion. During the quarter, the business benefited from new, industry-leading products, the quality and breadth of EMC's global services portfolio, technology integrations and product enhancements from across EMC's information infrastructure portfolio. First-quarter Information Infrastructure business highlights included customer demand for EMC's:

• Industry-leading networked storage solutions, in particular EMC's unified storage systems that connect to a variety of networks and the company's high-end and midrange storage systems with solid state drives that use flash memory.
• Expansive portfolio of industry-leading backup, recovery and archive solutions that leverage data deduplication to meet their data protection requirements, reduce cost and mitigate risk.
• RSA security solutions helping customers solve their most complex information security challenges, with particular strength in the quarter from the RSA security information and event management solutions, and the RSA identity protection and verification suite.
• Broad consulting and professional services portfolio helping customers meet their near-term cost containment requirements while supporting their longer-term objectives, such as consolidation and virtualization.
• Solutions for effective content management that advance collaboration, business process and IT efficiency and compliance.

VMware (NYSE: VMW), which is majority-owned by EMC, contributed first-quarter revenue of $470.4 million, an increase of 7.4% compared with the year-ago quarter.

EMC consolidated first-quarter revenue from the United States was $1.64 billion and represented 52% of total first-quarter revenue. Revenue from EMC's operations outside of the United States was $1.51 billion and represented 48% of total first-quarter revenue.

Certain Items Impacting 2009

The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially. These statements do not give effect to the potential impact of mergers, acquisitions, divestitures or business combinations that may be announced or closed after the date hereof. The items set forth under "Certain Items Impacting 2009" in EMC's news release dated January 27, 2009 still represent EMC's current expectations unless specifically superseded by these statements.

All dollar amounts and percentages set forth below should be considered to be approximations.

The following items are expected to impact EMC's 2009 results:

• In 2009, savings from cost reduction actions are expected to reduce the company's 2008 cost base by $450 million, up $100 million from the company's previous estimate of $350 million. The savings are expected to be weighted toward the latter half of 2009.
• Due to pressure on IT spending, EMC anticipates lower gross and operating margins for 2009 compared with 2008.
• Operating profitability should show signs of improvement from first-quarter 2009 levels in the second half of 2009.
• VMware's contributions to consolidated diluted earnings per share are expected to be $0.02 lower in the second quarter of 2009 compared with the first quarter of 2009.

Due to the current macro-economic conditions and limited visibility, EMC is not offering revenue, EPS or other financial outlook at this time.

Supporting Resources

• EMC will host its 2009 first-quarter earnings conference call today at 8:30 a.m. ET, which will be available on EMC's web site at http://www.emc.com/about/investor-relations/index.htm

• Additional information regarding EMC's financials, as well as a webcast of the conference call, will be available at 8:30 a.m. ET at http://www.emc.com/about/investor-relations/index.htm

• Visit http://ir.vmware.com for more information about VMware's first-quarter financial results

About EMC

EMC Corporation (NYSE: EMC) is the world's leading developer and provider of information infrastructure technology and solutions that enable organizations of all sizes to transform the way they compete and create value from their information. Information about EMC's products and services can be found at www.EMC.com.

(1) Items excluded from the non-GAAP results are stock-based compensation and intangible asset amortization for the first quarters of 2009 and 2008, a restructuring charge for the first quarter of 2009 and an in-process research and development charge for the first quarter of 2008. See attached schedules for reconciliation of GAAP to non-GAAP.

(2) The results for 2008 have been adjusted to give effect to the adoption of Statement of Financial Accounting Standards No. 160, "Non-controlling Interests in Consolidated Financial Statements-An Amendment of ARB No. 51" and FASB Staff Position No. APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)".

EMC is a registered trademark of EMC Corporation. RSA is a registered trademark of RSA Security Inc. VMware is a registered trademark of VMware, Inc. All other trademarks used are the property of their respective owners.

Forward-Looking Statements

This release contains "forward-looking statements" as defined under the Federal Securities Laws. Actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors, including but not limited to: (i) adverse changes in general economic or market conditions; (ii) delays or reductions in information technology spending; (iii) our ability to protect our proprietary technology; (iv) risks associated with managing the growth of our business, including risks associated with acquisitions and investments and the challenges and costs of integration, restructuring and achieving anticipated synergies; (v) fluctuations in VMware, Inc.'s operating results and risks associated with trading of VMware stock; (vi) competitive factors, including but not limited to pricing pressures and new product introductions; (vii) the relative and varying rates of product price and component cost declines and the volume and mixture of product and services revenues; (viii) component and product quality and availability; (ix) the transition to new products, the uncertainty of customer acceptance of new product offerings and rapid technological and market change; (x) insufficient, excess or obsolete inventory; (xi) war or acts of terrorism; (xii) the ability to attract and retain highly qualified employees; (xiii) fluctuating currency exchange rates; (xiv) litigation that we may be involved in; and (xv) other one-time events and other important factors disclosed previously and from time to time in EMC's filings with the U.S. Securities and Exchange Commission. Statements in this release regarding market conditions are based on current expectations. These statements are forward-looking, and actual results may differ materially. EMC disclaims any obligation to update any forward-looking statements in this release after the date of this release.

Use of Non-GAAP Financial Measures

This release contains non-GAAP financial measures. These non-GAAP financial measures, which are used as measures of EMC's performance or liquidity, 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 in this release.

Where specified in the accompanying schedules for various periods entitled "Reconciliation of GAAP to Non-GAAP," certain items noted on each such specific schedule (including, where noted, amounts relating to stock-based compensation expense, intangible asset amortization, restructuring charges and IPR&D charges) are excluded from the non-GAAP financial measures.

EMC's management uses the non-GAAP financial measures in the accompanying schedules to gain an understanding of EMC's comparative operating performance (when comparing such results with previous periods or forecasts) and future prospects and excludes the above-listed items from its internal financial statements for purposes of its internal budgets and each reporting segment's financial goals. 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 the Company's current financial results with the Company's past financial results.

This release also includes disclosures regarding free cash flow which is a non-GAAP financial measure. Free cash flow is defined as net cash provided by operating activities less additions to property, plant and equipment and capitalized software development costs. EMC uses free cash flow, among other measures, to evaluate the ability of its operations to generate cash that is available for purposes other than capital expenditures and capitalized software development costs. Management believes that information regarding free cash flow provides investors with an important perspective on the cash available to make strategic acquisitions and investments, repurchase shares, service debt and fund ongoing operations. As free cash flow is not a measure of liquidity calculated in accordance with GAAP, free cash flow should be considered in addition to, but not as a substitute for, the analysis provided in the statement of cash flows.

All of the foregoing non-GAAP financial measures have limitations. Specifically, the non-GAAP financial measures that exclude the items noted above do not include all items of income and expense that affect EMC's operations. Further, these non-GAAP financial measures are not prepared in accordance with GAAP, may not be comparable to non-GAAP financial measures used by other companies and do not reflect any benefit that such items may confer on EMC. Management compensates for these limitations by also considering EMC's financial results as determined in accordance with GAAP.

EMC CORPORATION Consolidated Income Statements (in thousands, except per share amounts) Unaudited Three Months Ended ------------------ March 31, March 31, 2009 2008 ---- ---- Revenues: Product sales $1,969,120 $2,340,430 Services 1,181,642 1,129,629 --------- --------- 3,150,762 3,470,059 Cost and expenses: Cost of product sales 1,013,330 1,074,583 Cost of services 454,177 486,081 Research and development 383,293 433,514 Selling, general and administrative 1,024,773 1,082,215 In-process research and development - 79,204 Restructuring charge (credit) 15,572 (357) ------ ---- Operating income 259,617 314,819 Investment income 39,844 77,140 Interest expense (45,543) (43,069) Other expense, net (10,758) (4,763) ------- ------ Income before tax 243,160 344,127 Income tax provision 37,815 86,319 ------ ------ Net income 205,345 257,808 Less: Net income attributable to the non-controlling interests in VMware, Inc. (11,276) (6,161) ------- ------ Net income attributable to EMC Corporation $194,069 $251,647 ======== ======== Net income per weighted average share, basic attributable to EMC Corporation common stockholders $0.10 $0.12 ===== ===== Net income per weighted average share, diluted attributable to EMC Corporation common stockholders $0.10 $0.12 ===== ===== Weighted average shares, basic 2,008,915 2,075,152 Weighted average shares, diluted 2,021,062 2,110,805 Reconciliation of GAAP to Non-GAAP For the Three Months Ended March 31, 2009 (in thousands, except per share amounts) Unaudited Research Selling, Cost of and General and Revenue Revenue Development Administrative ------- ------- ----------- -------------- ------------- EMC Consolidated GAAP $3,150,762 $1,467,507 $383,293 $1,024,773 ------------- Restructuring charge - - - - --- --- --- --- --------------- EMC Consolidated Adjusted (1) 3,150,762 1,467,507 383,293 1,024,773 ---------------- Stock-based compensation expense - (19,894) (41,242) (51,511) Intangible amortization - (30,610) (3,210) (25,368) --- ------- ------ ------- ------------ EMC Consolidated Non-GAAP (2) $3,150,762 $1,417,003 $338,841 $947,894 ------------- ========== ========== ======== ======== -------------------- EMC Information Infrastructure GAAP $2,680,361 $1,392,825 $278,499 $823,249 -------------------- Restructuring charge - - - - --- --- --- --- -------------- EMC Information Infrastructure Adjusted (3) 2,680,361 1,392,825 278,499 823,249 --------------- Stock-based compensation expense - (14,233) (17,312) (29,404) Intangible amortization - (27,853) (3,210) (24,816) --- ------- ------ ------- -------------- EMC Information Infrastructure Non-GAAP (4) $2,680,361 $1,350,739 $257,977 $769,029 --------------- ========== ========== ======== ======== ---------------- VMware standalone GAAP $470,310 $75,003 $105,401 $203,003 ---------------- GAAP adjustments and eliminations 91 (321) (607) (1,479) --- ---- ---- ------ ---------- VMware within EMC GAAP (5) 470,401 74,682 104,794 201,524 ----------- Stock-based compensation expense - (5,661) (23,930) (22,107) Intangible amortization - (2,757) - (552) --- ------ --- ---- ------------ VMware within EMC Non-GAAP (6) $470,401 $66,264 $80,864 $178,865 ------------- ======== ======= ======= ======== Other Income Restructuring Operating Expense, Before Charge Income net Taxes ------------- --------- -------- -------- ---------------------- EMC Consolidated GAAP $15,572 $259,617 $(16,457) $243,160 ---------------------- Restructuring charge (15,572) 15,572 - 15,572 ------- ------ --- ------ --------------- EMC Consolidated Adjusted (1) - 275,189 (16,457) 258,732 ---------------- Stock-based compensation expense - 112,647 - 112,647 Intangible amortization - 59,188 - 59,188 --- ------ --- ------ ---------------------------- EMC Consolidated Non-GAAP (2) $- $447,024 $(16,457) $430,567 ---------------------------- === ======== ======== ======== -------------------- EMC Information Infrastructure GAAP $15,572 $170,216 $(13,508) $156,708 -------------------- Restructuring charge (15,572) 15,572 - 15,572 ------- ------ --- ------ -------------- EMC Information Infrastructure Adjusted (3) - 185,788 (13,508) 172,280 --------------- Stock-based compensation expense - 60,949 - 60,949 Intangible amortization - 55,879 - 55,879 --- ------ --- ------ -------------- EMC Information Infrastructure Non-GAAP (4) $- $302,616 $(13,508) $289,108 --------------- === ======== ======== ======== ---------------------- VMware standalone GAAP $- $86,903 $(1,436) $85,467 ---------------------- GAAP adjustments and eliminations - 2,498 (1,513) 985 --- ----- ------ --- ------------- VMware within EMC GAAP (5) - 89,401 (2,949) 86,452 ------------- Stock-based compensation expense - 51,698 - 51,698 Intangible amortization - 3,309 - 3,309 --- ----- --- ----- ------------ VMware within EMC Non-GAAP (6) $- $144,408 $(2,949) $141,459 ------------- === ======== ======= ======== Net Net Income Income Income Tax Net Attributable Attributable Provision Income to VMware to EMC --------- ------ ------------- ------------- ---------------------- EMC Consolidated GAAP $37,815 $205,345 $(11,276) $194,069 ---------------------- Restructuring charge 6,115 9,457 - 9,457 ----- ----- --- ----- --------------- EMC Consolidated Adjusted (1) 43,930 214,802 (11,276) 203,526 ---------------- Stock-based compensation expense 24,340 88,307 (6,672) 81,635 Intangible amortization 20,321 38,867 (345) 38,522 ------ ------ ---- ------ --------------- EMC Consolidated Non-GAAP (2) $88,591 $341,976 $(18,293) $323,683 ---------------- ======= ======== ======== ======== -------------------- EMC Information Infrastructure GAAP $22,081 $134,627 $- $134,627 -------------------- Restructuring charge 6,115 9,457 - 9,457 ----- ----- --- ----- -------------- EMC Information Infrastructure Adjusted (3) 28,196 144,084 - 144,084 --------------- Stock-based compensation expense 14,030 46,919 - 46,919 Intangible amortization 19,153 36,726 - 36,726 ------ ------ --- ------ -------------- EMC Information Infrastructure Non-GAAP (4) $61,379 $227,729 - $227,729 --------------- ======= ======== === ======== ----------- VMware standalone GAAP $15,532 $69,935 $- $69,935 ----------- GAAP adjustments and eliminations 202 783 (11,276) (10,493) --- --- ------- ------- -------- VMware within EMC GAAP (5) 15,734 70,718 (11,276) 59,442 --------- Stock-based compensation expense 10,310 41,388 (6,672) 34,716 Intangible amortization 1,168 2,141 (345) 1,796 ----- ----- ---- ----- ------------- VMware within EMC Non-GAAP (6) $27,212 $114,247 $(18,293) $95,954 ---------------- ======= ======== ======== ======= Net Income Net Income per Weighted per Weighted Average Share, Average Share, Basic Diluted -------------- -------------- ---------------------- EMC Consolidated GAAP $0.097 $0.096 ---------------------- Restructuring charge $0.005 $0.005 ------ ------ ---------------------------- EMC Consolidated Adjusted (1) $0.101 $0.101 ----------------------------- Stock-based compensation expense $0.041 $0.040 Intangible amortization $0.019 $0.019 ------ ------ ---------------------------- EMC Consolidated Non-GAAP (2) $0.161 $0.160 ----------------------------- ====== ====== ----------------------------------- EMC Information Infrastructure GAAP $0.067 $0.067 ----------------------------------- Restructuring charge $0.005 $0.005 ------ ------ ----------------------------- EMC Information Infrastructure Adjusted (3) $0.072 $0.071 ------------------------------ Stock-based compensation expense $0.023 $0.023 Intangible amortization $0.018 $0.018 ------ ------ ----------------------------- EMC Information Infrastructure Non-GAAP (4) $0.113 $0.113 ------------------------------ ====== ====== ---------------------- VMware standalone GAAP $0.035 $0.035 ---------------------- GAAP adjustments and eliminations $(0.005) $(0.005) ------- ------- ------------------------- VMware within EMC GAAP (5) $0.030 $0.029 -------------------------- Stock-based compensation expense $0.017 $0.017 Intangible amortization $0.001 $0.001 ------ ------ ----------------------------- VMware within EMC Non-GAAP (6) $0.048 $0.047 ----------------------------- ====== ====== Wtd. Average Share O/S 2,008,915 2,021,062 ========= ========= Reconciliation of GAAP to Non-GAAP For the Three Months Ended March 31, 2009 (in thousands, except per share amounts) Unaudited (Continued) The following costs are included in EMC Consolidated Non-GAAP and EMC Information Infrastructure Non-GAAP results Selling, Research General Cost of and and Revenue Revenue Development Administrative ------- ------- ----------- -------------- Non - cash interest expense on convertible debt (7) $- $- $- $- Transition costs (8) - 896 393 8,366 --- --- --- ----- $- $896 $393 $8,366 === ==== ==== ====== Income Restructuring Operating Other expense, Before Charge Income net Taxes ------------- --------- -------------- -------- Non - cash interest expense on convertible debt (7) $- $- $(26,299) $(26,299) Transition costs (8) - (9,655) - (9,655) --- ------ --- ------ $- $(9,655) $(26,299) $(35,954) === ======= ======== ======== Income Net Income Net Income Tax Net Attributable Attributable Provision Income to VMware to EMC --------- ------ ------------ ------------ Non - cash interest expense on convertible debt (7) $(8,234) $(18,065) $- $(18,065) Transition costs (8) (3,346) (6,309) - $(6,309) ------ ------ --- ------- $(11,580) $(24,374) $- $(24,374) ======== ======== === ======== Net Income Net Income per Weighted per Weighted Average Average Share, Share, Basic Diluted ------------ ------------ Non - cash interest expense on convertible debt (7) $(0.009) $(0.009) Transition costs (8) $(0.003) $(0.003) ------- ------- $(0.012) $(0.012) ======= ======= (1) Represents EMC Consolidated GAAP excluding restructuring charge. (2) Represents EMC Consolidated Adjusted excluding stock-based compensation expense and intangible amortization. (3) Represents EMC Information Infrastructure GAAP excluding restructuring charge. (4) Represents EMC Information Infrastructure Adjusted excluding stock- based compensation expense and intangible amortization. (5) Represents VMware within EMC GAAP. (6) Represents VMware within EMC excluding stock-based compensation expense and intangible amortization. (7) Represents the non-cash interest charge associated with our convertible senior notes due 2011 and 2013 totalling $3,450 million required to be recognized pursuant to FSP 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)". (8) Represents incremental costs incurred to transform our current cost structure to a more streamlined cost structure. Note: schedule may not add due to rounding Reconciliation of GAAP to Non-GAAP For the Three Months Ended March 31, 2008 (in thousands, except per share amounts) Unaudited Selling, Cost of Research and General and Revenue Revenue Development Administrative ------- ------- ------------ -------------- ---------------- EMC Consolidated GAAP $3,470,059 $1,560,664 $433,514 $1,082,215 ---------------- IPR&D - - - - --- --- --- --- --------------- EMC Consolidated Adjusted (1) 3,470,059 1,560,664 433,514 1,082,215 ---------------- Stock-based compensation expense - (18,312) (38,825) (61,950) Intangible amortization - (38,198) (3,011) (24,791) --- ------- ------ ------- --------------- EMC Consolidated Non-GAAP (2) $3,470,059 $1,504,154 $391,678 $995,474 ---------------- ========== ========== ======== ======== --------------- EMC Information Infrastructure GAAP $3,031,889 $1,483,604 $315,428 $890,640 --------------- IPR&D - - - - --- --- --- --- -------------- EMC Information Infrastructure Adjusted (3) 3,031,889 1,483,604 315,428 890,640 --------------- Stock-based compensation expense - (12,136) (17,912) (44,412) Intangible amortization - (35,888) (3,011) (23,250) --- ------- ------ ------- -------------- EMC Information Infrastructure Non-GAAP (4) $3,031,889 $1,435,580 $294,505 $822,978 --------------- ========== ========== ======== ======== ----------------- VMware standalone GAAP $438,175 $77,170 $119,255 $193,359 ----------------- GAAP adjustments and eliminations (5) (110) (1,169) (1,784) --- ---- ------ ------ ------------- VMware within EMC GAAP (5) 438,170 77,060 118,086 191,575 ------------- Stock-based compensation expense - (6,176) (20,913) (17,538) Intangible amortization - (2,310) - (1,541) --- ------ --- ------ ---------------- VMware within EMC Non-GAAP (6) $438,170 $68,574 $97,173 $172,496 ----------------- ======== ======= ======= ======== Restructuring Operating Other Income, Income Before and IPR&D Income net Taxes ------------- --------- ------------- ------------- ---------------- EMC Consolidated GAAP $78,847 $314,819 $29,308 $344,127 ------------- IPR&D (79,204) 79,204 - 79,204 ------- ------ --- ------ --------------- EMC Consolidated Adjusted (1) (357) 394,023 29,308 423,331 ---------------- Stock-based compensation expense - 119,087 - 119,087 Intangible amortization - 66,000 - 66,000 --- ------ --- ------ ---------------- EMC Consolidated Non-GAAP (2) $(357) $579,110 $29,308 $608,418 ---------------- ===== ======== ======= ======== --------------- EMC Information Infrastructure GAAP $78,847 $263,370 $26,669 $290,039 --------------- IPR&D (79,204) 79,204 - 79,204 ------- ------ --- ------ -------------- EMC Information Infrastructure Adjusted (3) (357) 342,574 26,669 369,243 --------------- Stock-based compensation expense - 74,460 - 74,460 Intangible amortization - 62,149 - 62,149 --- ------ --- ------ -------------- EMC Information Infrastructure Non-GAAP (4) $(357) $479,183 $26,669 $505,852 --------------- ===== ======== ======= ======== ---------------------- VMware standalone GAAP $- $48,391 $2,639 $51,030 ---------------------- GAAP adjustments and eliminations - 3,058 - 3,058 --- ----- --- ----- -------------------------- VMware within EMC GAAP (5) - 51,449 2,639 54,088 -------------------------- Stock-based compensation expense - 44,627 - 44,627 Intangible amortization - 3,851 - 3,851 --- ----- --- ----- ----------------- VMware within EMC Non-GAAP (6) $- $99,927 $2,639 $102,566 ----------------- === ======= ====== ======== Net Net Income Income Income Tax Net Attributable Attributable Provision Income to VMware to EMC ---------- ------ ------------ ------------ ------------- EMC Consolidated GAAP $86,319 $257,808 $(6,161) $251,647 ------------- IPR&D - 79,204 - 79,204 --- ------ --- ------ --------------- EMC Consolidated Adjusted (1) 86,319 337,012 (6,161) 330,851 ---------------- Stock-based compensation expense 27,831 91,256 (5,095) 86,161 Intangible amortization 22,533 43,467 (349) 43,118 ------ ------ ---- ------ --------------- EMC Consolidated Non-GAAP (2) $136,683 $471,735 $(11,605) $460,130 ---------------- ======== ======== ======== ======== -------------------- EMC Information Infrastructure GAAP $77,600 $212,439 $- $212,439 -------------------- IPR&D - 79,204 - 79,204 --- ------ --- ------ -------------- EMC Information Infrastructure Adjusted (3) 77,600 291,643 - 291,643 --------------- Stock-based compensation expense 18,834 55,626 - 55,626 Intangible amortization 21,122 41,027 - 41,027 ------ ------ --- ------ -------------- EMC Information Infrastructure Non-GAAP (4) $117,557 $388,295 $- $388,295 --------------- ======== ======== === ======== ---------------- VMware standalone GAAP $7,975 $43,055 $- $43,055 ---------------- GAAP adjustments and eliminations 744 2,314 (6,161) (3,847) --- ----- ------ ------ ------------- VMware within EMC GAAP (5) 8,719 45,369 (6,161) 39,208 ------------- Stock-based compensation expense 8,997 35,630 (5,095) 30,535 Intangible amortization 1,411 2,440 (349) 2,091 ----- ----- ---- ----- ---------------- VMware within EMC Non-GAAP (6) $19,126 $83,440 $(11,605) $71,834 ---------------- ======= ======= ======== ======= Net Income per Net Income per Weighted Average Weighted Average Share, Basic Share, Diluted ---------------- ---------------- ---------------------- EMC Consolidated GAAP $0.121 $0.118 ---------------------- IPR&D $0.038 $0.038 ------ ------ ---------------------------- EMC Consolidated Adjusted (1) $0.159 $0.156 ----------------------------- Stock-based compensation expense $0.042 $0.041 Intangible amortization $0.021 $0.020 ------ ------ ---------------------------- EMC Consolidated Non-GAAP (2) $0.222 $0.217 ----------------------------- ====== ====== ----------------------------------- EMC Information Infrastructure GAAP $0.102 $0.101 ----------------------------------- IPR&D $0.038 $0.038 ------ ------ ------------------------------ EMC Information Infrastructure Adjusted (3) $0.141 $0.138 ------------------------------ Stock-based compensation expense $0.027 $0.026 Intangible amortization $0.020 $0.019 ------ ------ ------------------------------ EMC Information Infrastructure Non-GAAP (4) $0.187 $0.184 ------------------------------ ====== ====== ---------------------- VMware standalone GAAP $0.021 $0.020 ---------------------- GAAP adjustments and eliminations $(0.002) $(0.003) ------- ------- -------------------------- VMware within EMC GAAP (5) $0.019 $0.018 -------------------------- Stock-based compensation expense $0.015 $0.014 Intangible amortization $0.001 $0.001 ------ ------ ------------------------------ VMware within EMC Non-GAAP (6) $0.035 $0.033 ------------------------------ ====== ====== Wtd. Average Share O/S 2,075,152 2,110,805 ========= ========= Reconciliation of GAAP to Non-GAAP For the Three Months Ended March 31, 2008 (in thousands, except per share amounts) Unaudited (Continued) The following costs are included in EMC Consolidated Non-GAAP and EMC Information Infrastructure Non-GAAP results Selling, Cost of Research and General and Revenue Revenue Development Administrative ------- ------- ------------ -------------- Non - cash interest expense on convertible debt (7) $- $- $- $- Other Income Restructuring Operating Income, Before and IPR&D Income net Taxes ------------- --------- ------- ------ Non - cash interest expense on convertible debt (7) $- $- $(25,027) $(25,027) Net Income Net Income Income Tax Attributable Attributable Provision Net Income to VMware to EMC ---------- ---------- ------------ ------------ Non - cash interest expense on convertible debt (7) $(7,836) $(17,191) $- $(17,191) Net Income Net Income per Weighted per Weighted Average Average Share, Share, Basic Diluted ------------ ------------ Non - cash interest expense on convertible debt (7) $(0.008) $(0.008) (1) Represents EMC Consolidated GAAP excluding IPR&D. (2) Represents EMC Consolidated Adjusted excluding stock-based compensation expense and intangible amortization. (3) Represents EMC Information Infrastructure GAAP excluding IPR&D. (4) Represents EMC Information Infrastructure Adjusted less stock-based compensation expense and intangible amortization. (5) Represents VMware within EMC GAAP. (6) Represents VMware within EMC excluding stock-based compensation expense and intangible amortization. (7) Represents the non-cash interest charge associated with our convertible senior notes due 2011 and 2013 totalling $3,450 million required to be recognized pursuant to FSP 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)". Note: schedule may not add due to rounding EMC CORPORATION Consolidated Balance Sheets (in thousands, except per share amounts) Unaudited March 31, December 31, 2009 2008 ---- ---- ASSETS Current assets: Cash and cash equivalents $6,323,452 $5,843,685 Short-term investments 928,277 963,292 Accounts and notes receivable, less allowance for doubtful accounts of $51,875 and $48,080 1,700,096 2,252,640 Inventories 820,504 842,803 Deferred income taxes 511,680 477,101 Other current assets 312,152 285,508 ------- ------- Total current assets 10,596,161 10,665,029 Long-term investments 2,533,237 2,370,493 Property, plant and equipment, net 2,192,096 2,223,007 Intangible assets, net 738,259 795,616 Other assets, net 799,873 773,631 Goodwill, net 7,042,473 7,046,799 --------- --------- Total assets $23,902,099 $23,874,575 =========== =========== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $657,793 $757,405 Accrued expenses 1,712,979 1,901,884 Securities lending payable 347,142 412,321 Income taxes payable 33,815 136,802 Deferred revenue 2,139,253 2,010,024 --------- --------- Total current liabilities 4,890,982 5,218,436 Income taxes payable 244,849 255,182 Deferred revenue 1,210,207 1,182,360 Deferred income taxes 430,110 389,787 Long-term convertible debt 3,018,242 2,991,943 Other liabilities 184,034 180,917 ------- ------- Total liabilities 9,978,424 10,218,625 Commitments and contingencies EMC Corporation's stockholders' equity: Preferred stock, par value $.01; authorized 25,000 shares, none outstanding - - Common stock, par value $.01; authorized 6,000,000 shares; issued 2,013,003 and 2,012,938 shares 20,130 20,129 Additional paid-in capital 2,889,879 2,817,054 Retained earnings 10,865,281 10,671,212 Accumulated other comprehensive loss (200,459) (179,952) -------- -------- Total EMC Corporation's stockholders' equity 13,574,831 13,328,443 Non-controlling interest in VMware, Inc. 348,844 327,507 ------- ------- Total stockholders' equity 13,923,675 13,655,950 Total liabilities and stockholders' equity $23,902,099 $23,874,575 =========== =========== EMC CORPORATION Consolidated Statements of Cash Flows (in thousands) Unaudited Three Months Ended ------------------ March 31, March 31, 2009 2008 --------- --------- Cash flows from operating activities: Cash received from customers $3,860,223 $4,066,805 Cash paid to suppliers and employees (2,877,408) (3,056,784) Dividends and interest received 46,656 77,958 Interest paid (4,007) (2,865) Income taxes paid (161,773) (166,822) -------- -------- Net cash provided by operating activities 863,691 918,292 ------- ------- Cash flows from investing activities: Additions to property, plant and equipment (95,320) (146,512) Capitalized software development costs (87,627) (54,321) Purchases of short and long-term available for sale securities (2,277,512) (608,819) Sales and maturities of short and long- term available for sale securities 2,169,095 1,196,985 Acquisitions, net of cash acquired - (337,809) Other (906) (3,030) ---- ------ Net cash (used in) provided by investing activities (292,270) 46,494 -------- ------ Cash flows from financing activities: Issuance of EMC's common stock from the exercise of stock options 8,637 27,397 Issuance of VMware's common stock from the exercise of stock options 4,503 23,669 Payments on securities lending (65,179) - Repurchase of EMC's common stock - (557,244) Excess tax benefits from stock-based compensation 776 28,511 Payment of short and long-term obligations (19,257) (3,782) Proceeds from short and long-term obligations 1,038 1,114 ----- ----- Net cash used in financing activities (69,482) (480,335) ------- -------- ------- ------ Effect of exchange rate changes on cash (22,172) 11,784 ------- ------ Net increase in cash and cash equivalents 479,767 496,235 Cash and cash equivalents at beginning of period 5,843,685 4,482,211 --------- --------- Cash and cash equivalents at end of period $6,323,452 $4,978,446 ========== ========== Reconciliation of net income to net cash provided by operating activities: Net income attributable to EMC Corporation $194,069 $251,647 Adjustments to reconcile net income to net cash provided by operating activities: Net income attributable to non-controlling interest in VMware, Inc. 11,276 6,161 Depreciation and amortization 255,798 254,619 Non-cash interest expense on convertible debt 26,299 25,027 Non-cash restructuring and in-process research and development 2,072 80,970 Stock-based compensation expense 112,647 119,087 Increase in provision for doubtful accounts 5,388 3,975 Deferred income taxes, net (4,527) (34,492) Excess tax benefits from stock-based compensation (776) (28,511) Other 795 (4,887) Changes in assets and liabilities, net of acquisitions: Accounts and notes receivable 550,917 416,788 Inventories (2,226) (28,174) Other assets (22,271) (78,881) Accounts payable (80,021) 27,501 Accrued expenses (222,591) (253,761) Income taxes payable (119,431) (46,545) Deferred revenue 153,156 175,983 Other liabilities 3,117 31,785 ----- ------ Net cash provided by operating activities $863,691 $918,292 ======== ======== EMC Corporation Reconciliation of Cash Flow from Operations to Free Cash Flow (in thousands) Unaudited Three Months Ended ------------------ March 31, March 31, 2009 2008 ---- ---- EMC Consolidated Cash flow from Operations $863,691 $918,292 Capital Expenditures (95,320) (146,512) Capitalized Software (87,627) (54,321) ------- ------- Free Cash Flow $680,744 $717,459 ======== ======== VMware within EMC Cash flow from Operations $240,943 $106,058 Capital Expenditures (24,326) (41,019) Capitalized Software (29,935) (4,164) ------- ------ Free Cash Flow $186,682 $60,875 ======== ======= EMC Information Infrastructure Cash flow from Operations $622,748 $812,234 Capital Expenditures (70,994) (105,493) Capitalized Software (57,692) (50,157) ------- ------- Free Cash Flow $494,062 $656,584 ======== ======== EMC Corporation Reconciliation of EMC Information Storage Gross Margin GAAP to Non-GAAP (In thousands) Unaudited Q1 '07 Q2 '07 Q3 '07 Q4 '07 EMC Information Storage ---------- ---------- ---------- ---------- Gross Margin GAAP $1,174,130 $1,269,402 $1,327,380 $1,524,768 Less: Stock-based compensation 12,755 11,516 9,530 8,853 Intangible amortization 8,343 8,352 8,885 9,727 ---------- ---------- ---------- ---------- EMC Information Storage Gross Margin Non-GAAP $1,195,228 $1,289,270 $1,345,795 $1,543,348 ========== ========== ========== ========== Q1 '08 Q2 '08 Q3 '08 Q4 '08 EMC Information Storage ---------- ---------- ---------- ---------- Gross Margin GAAP $1,370,420 $1,455,853 $1,472,280 $1,571,111 Less: Stock-based compensation 10,131 10,406 13,060 13,877 Intangible amortization 10,374 11,394 11,614 11,681 ---------- ---------- ---------- ---------- EMC Information Storage Gross Margin Non-GAAP $1,390,925 $1,477,653 $1,496,954 $1,596,669 ========== ========== ========== ========== Q1 '09 EMC Information Storage ---------- Gross Margin GAAP $1,108,748 Less: Stock-based compensation 11,885 Intangible amortization 8,217 ---------- EMC Information Storage Gross Margin Non-GAAP $1,128,850 ========== EMC Corporation Supplemental Revenue Analysis (in thousands) Unaudited Supplemental Revenue Data Q1 2008 Q2 2008 Q3 2008 Q4 2008 ----------- ----------- ----------- ----------- Storage: Product Revenue $1,903,639 $2,018,026 $2,056,498 $2,285,366 Services Revenue 808,190 855,221 851,825 853,539 ---------- ---------- ---------- ---------- Total Storage Revenue $2,711,829 $2,873,247 $2,908,323 $3,138,905 ========== ========== ========== ========== Content Management and Archiving: Product Revenue $61,128 $73,415 $62,576 $81,054 Services Revenue 124,075 130,591 125,493 127,316 -------- -------- -------- -------- Total Content Management and Archiving Revenue $185,203 $204,006 $188,069 $208,370 ======== ======== ======== ======== Security: Product Revenue $81,683 $89,067 $88,779 $95,534 Services Revenue 53,174 54,979 58,561 59,498 -------- -------- -------- -------- Total Security Revenue $134,857 $144,046 $147,340 $155,032 ======== ======== ======== ======== EMC Information Infrastructure: Product Revenue $2,046,450 $2,180,508 $2,207,853 $2,461,954 Services Revenue 985,439 1,040,791 1,035,879 1,040,353 ---------- ---------- ---------- ---------- Total EMC Information Infrastructure Revenue $3,031,889 $3,221,299 $3,243,732 $3,502,307 ========== ========== ========== ========== VMware: Product Revenue 293,980 281,143 285,088 314,840 Services Revenue 144,190 171,432 186,772 199,491 -------- -------- -------- -------- Total VMware Revenue $438,170 $452,575 $471,860 $514,331 ======== ======== ======== ======== YTD 2008 Q1 2009 ------------ ----------- Storage: Product Revenue $8,263,529 $1,572,408 Services Revenue 3,368,775 790,932 ----------- ---------- Total Storage Revenue $11,632,304 $2,363,340 =========== ========== Content Management and Archiving: Product Revenue $278,173 $58,710 Services Revenue 507,475 115,605 -------- -------- Total Content Management and Archiving Revenue $785,648 $174,315 ======== ======== Security: Product Revenue $355,063 $80,671 Services Revenue 226,212 62,035 -------- -------- Total Security Revenue $581,275 $142,706 ======== ======== EMC Information Infrastructure: Product Revenue $8,896,765 $1,711,789 Services Revenue 4,102,462 968,572 ----------- ---------- Total EMC Information Infrastructure Revenue $12,999,227 $2,680,361 =========== ========== VMware: Product Revenue 1,175,051 $257,331 Services Revenue 701,885 213,070 ---------- -------- Total VMware Revenue $1,876,936 $470,401 ========== ======== Q1 Q2 Q3 Q4 2008 2008 2008 2008 ------- ------- ------- ------- Consolidated Revenues Product Revenue $2,340,430 $2,461,651 $2,492,941 $2,776,794 Services Revenue 1,129,629 1,212,223 1,222,651 1,239,844 ---------- ---------- ---------- ---------- Total Consolidated Revenues $3,470,059 $3,673,874 $3,715,592 $4,016,638 ========== ========== ========== ========== Percentage impact to EMC revenue growth rate due to changes in exchange rates from the prior year 2.3% 2.7% 1.2% (2.3)% YTD Q1 2008 2009 ------- ------- Consolidated Revenues Product Revenue $10,071,816 $1,969,120 Services Revenue 4,804,347 1,181,642 ----------- ---------- Total Consolidated Revenues $14,876,163 $3,150,762 =========== ========== Percentage impact to EMC revenue growth rate due to changes in exchange rates from the prior year 0.8% (3.5)%

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SOURCE EMC Corporation

Source: PR Newswire

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