EMC Reports Record Revenue and 58% Profit Growth

Third-Quarter Highlights

- All-time record consolidated revenue up 20% year over year

- Balanced, double-digit year-over-year revenue growth across U.S. and International geographies

- GAAP net income up 58% year over year

- Record third-quarter non-GAAP net income up 35% year over year

- Strong year-over-year increase in gross and operating margins

Oct 19, 2010, 07:00 ET from EMC Corporation

HOPKINTON, Mass., Oct. 19 /PRNewswire-FirstCall/ -- EMC Corporation (NYSE: EMC) today reported record financial results for the company’s third fiscal quarter of 2010.  Strong execution and continued healthy customer demand for the company’s storage, data protection, virtualization, and security products and services contributed to EMC achieving all-time record consolidated revenue and record third-quarter non-GAAP net income.  

For the third quarter, consolidated revenue was $4.21 billion, an increase of 20% compared with the year-ago quarter; GAAP net income attributable to EMC increased 58% year over year to $472.5 million; and GAAP diluted earnings per share were $0.22, up 57% year over year.  Non-GAAP(1) net income attributable to EMC for the third quarter was $649.4 million, an increase of 35% compared with the year-ago quarter, and non-GAAP(1) earnings per diluted share were $0.30, an increase of 30% year over year.  

During the quarter, EMC expanded gross and operating margins substantially on a year-over-year basis.  The company achieved all-time record year-to-date operating cash flow and free cash flow of $3.0 billion and $2.2 billion, which grew 31% and 22%, respectively, compared with the year-ago period.  The company completed the quarter with $10.5 billion in cash and investments.   

Joe Tucci, EMC’s Chairman and Chief Executive Officer, said, “Customers are embracing EMC in increasing numbers as a trusted partner for their cloud computing build-outs.  To lead this transformational IT wave, EMC remains focused on – and is taking share in – markets that are growing considerably faster than IT as a whole.  With our compelling technology and services portfolio, partner ecosystem, and strong product roadmap, we remain confident that we’ll continue to produce double-digit growth rates over the long term.”

David Goulden, EMC’s Executive Vice President and Chief Financial Officer, said, “For the third consecutive quarter EMC achieved our ‘triple play’ – we gained market share, invested aggressively to capitalize on the shift to cloud computing, and increased profitability.  Cloud computing is driving a fundamental change in the way IT is designed and managed, represents a massive opportunity, and is happening now in various phases across the globe.  Our strategy and business model remain strong, and our investments continue to pay off.  Moving forward, EMC has never been better positioned to deliver our ‘triple play’ results over the long term.”

Third-Quarter Highlights

Third-quarter highlights included strong customer demand and double-digit revenue growth for the company’s market-leading high-end EMC Symmetrix storage product portfolio, which increased 23% compared with the year-ago quarter, and EMC’s mid-tier storage product portfolio(2), which grew revenue 22% year over year.  Revenue from EMC’s RSA information security business grew 22% year over year, and VMware (NYSE: VMW), which is majority-owned by EMC, increased revenue 46% compared with the year-ago quarter.  Additional third-quarter highlights included strong customer demand for EMC’s backup and recovery solutions as part of the company’s fast-growing Backup and Recovery Systems Division, and a number of significant new customer wins with EMC’s Information Intelligence solutions.  Also in the third quarter, EMC completed its acquisition of data warehousing and business analytics pioneer Greenplum, forming the foundation of the company’s new Data Computing Products Division.  The new division is focused on helping customers rapidly deploy and generate disruptive competitive advantage from “big data” clouds and self-service analytics.

EMC consolidated third-quarter revenue from the United States reached $2.3 billion, an increase of 21% year over year, representing 54% of consolidated third-quarter revenue.  Revenue from EMC’s business operations outside of the United States reached $1.9 billion, an increase of 19% year over year, representing 46% of consolidated third-quarter revenue. Within this, revenue increased 14%, 28% and 23% year over year, respectively, in EMC’s Europe, Middle East and Africa; Asia Pacific and Japan; and Latin America regions.

Business Outlook

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.  These statements supersede all prior statements regarding 2010 financial results set forth in prior EMC news releases.

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

  • For 2010, EMC expects consolidated revenues of $16.9 billion, $0.91 in consolidated GAAP diluted earnings per share, and $1.25 in consolidated non-GAAP diluted earnings per share, which excludes the impact of restructuring and acquisition-related charges, stock-based compensation expense, and intangible asset amortization.
  • For 2010, consolidated restructuring and acquisition-related charges, stock-based compensation expense, and intangible asset amortization are expected to be $0.02, $0.23 and $0.09 per diluted share, respectively.
  • GAAP operating income is expected to be 15% to 16% of revenues for 2010, and non-GAAP operating income is expected to be 21% to 22% of revenues for 2010.  Excluded from non-GAAP operating income are restructuring and acquisition-related charges, stock-based compensation expense, and intangible asset amortization, which account for less than 1%, 4% and less than 2% of revenues, respectively.  
  • The consolidated GAAP income tax rate is expected to be 20% for 2010.  Excluding the impact of restructuring and acquisition-related charges, stock-based compensation expense, and intangible asset amortization, which collectively impact the tax rate by 2%, the consolidated non-GAAP income tax rate is expected to be 22% for 2010.  The expected annual GAAP and non-GAAP income tax rates assume that the U.S. research and development tax credit will be re-enacted in 2010 which is expected to favorably impact both the GAAP and non-GAAP income tax expense by $45 million to $50 million.  The R&D credit is expected to favorably impact the GAAP tax rate by 2% and the non-GAAP tax rate by 1%.
  • Total non-operating expense, which includes investment income, interest expense, and other expense, is expected to be $80 million in 2010.
  • The total weighted average diluted outstanding shares for 2010 are expected to be 2.14 billion.
  • EMC expects to repurchase up to $1.0 billion of the company’s common stock in 2010.

Supporting Resources

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 restructuring and acquisition-related charges, stock-based compensation expense and intangible asset amortization for the third quarters of 2010 and 2009.  In addition, for the third quarter of 2009, gains on Data Domain and SpringSource common stock were also excluded. See attached schedules for reconciliation of GAAP to non-GAAP.

(2) Mid-tier platform products include hardware and software products from EMC CLARiiON, EMC Celerra, EMC Centera, EMC Data Domain, EMC Avamar and EMC Atmos.

EMC, Atmos, Avamar, Celerra, Centera, CLARiiON, Data Domain, RSA and Symmetrix are either registered trademarks or trademarks of EMC Corporation in the United States and/or other countries. VMware is a registered trademark or trademark of VMware, Inc. in the United States and/or other countries. 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; and (xiv) 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.  EMC disclaims any obligation to update any such forward-looking statements after the date of this release.

Use of Non-GAAP Financial Measures

This release, the accompanying schedules and the additional content that is available on EMC’s website contain 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 restructuring and acquisition-related charges, stock-based compensation expense, intangible asset amortization and amounts relating to gains on Data Domain and SpringSource common stock) 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

Nine Months Ended

September 30,

September 30,

September 30,

September 30,

2010

2009

2010

2009

Revenues:

Product sales

$    2,675,925

$    2,200,581

$    7,707,958

$    6,174,971

Services

1,536,346

1,317,049

4,418,502

3,750,773

4,212,271

3,517,630

12,126,460

9,925,744

Cost and expenses:

Cost of product sales

1,194,297

1,107,400

3,513,961

3,177,935

Cost of services

531,000

470,013

1,547,807

1,380,559

Research and development

483,264

422,092

1,395,922

1,203,266

Selling, general and administrative

1,343,325

1,177,775

3,888,260

3,253,752

Restructuring and acquisition-related charges

12,561

34,781

40,902

83,587

Operating income

647,824

305,569

1,739,608

826,645

Non-operating (expense) income:

Investment income

40,563

38,106

104,198

109,293

Interest expense

(44,827)

(46,227)

(132,539)

(135,928)

Other (expense) income, net

(5,823)

28,022

(12,714)

17,281

Total non-operating (expense) income

(10,087)

19,901

(41,055)

(9,354)

Income before provision for income taxes

637,737

325,470

1,698,553

817,291

Income tax provision

148,663

20,602

381,292

96,462

Net income

489,074

304,868

1,317,261

720,829

Less: Net income attributable to the non-controlling interest in VMware, Inc.

(16,558)

(6,688)

(45,825)

(23,348)

Net income attributable to EMC Corporation

$       472,516

$       298,180

$    1,271,436

$       697,481

Net income per weighted average share, basic attributable to EMC Corporation

common shareholders

$             0.23

$             0.15

$             0.62

$             0.35

Net income per weighted average share, diluted attributable to EMC Corporation

common shareholders

$             0.22

$             0.14

$             0.59

$             0.34

Weighted average shares, basic

2,055,876

2,027,347

2,053,026

2,015,920

Weighted average shares, diluted

2,146,753

2,065,951

2,132,948

2,038,984

Reconciliation of GAAP to Non-GAAP

For the Three Months Ended September 30, 2010

(in thousands, except per share amounts)

Unaudited

Cost of Revenue

Research and Development

Selling, General and Administrative

Restructuring and Acquisition- Related Charges

Operating Income

Other (Expense) Income, net

Income Before Taxes

Income Tax Provision

Net Income

Net Income Attributable to VMware

Net Income Attributable to EMC

Net Income per Weighted Average Share, Basic

Net Income per Weighted Average Share, Diluted

Revenue

EMC Consolidated GAAP

$ 4,212,271

$       1,725,297

$                            483,264

$                                     1,343,325

$                                                               12,561

$                 647,824

$                              (10,087)

$                  637,737

$                  148,663

$ 489,074

$                                         (16,558)

$                                 472,516

$                                                                  0.230

$                                                                    0.219

Restructuring and acquisition-related charges

-

-

-

-

(12,561)

12,561

-

12,561

2,222

10,339

(202)

10,137

$                                                                  0.005

$                                                                    0.005

EMC Consolidated Adjusted (1)

4,212,271

1,725,297

483,264

1,343,325

-

660,385

(10,087)

650,298

150,885

499,413

(16,760)

482,653

$                                                                  0.235

$                                                                    0.224

Stock-based compensation expense

-

(27,871)

(66,387)

(77,513)

-

171,771

406

172,177

41,525

130,652

(12,913)

117,739

$                                                                  0.057

$                                                                    0.055

Intangible asset amortization

-

(32,342)

(6,456)

(34,631)

-

73,429

-

73,429

22,606

50,823

(1,802)

49,021

$                                                                  0.024

$                                                                    0.023

EMC Consolidated Non-GAAP (2)

$ 4,212,271

$       1,665,084

$                            410,421

$                                     1,231,181

$                                                                      -

$                 905,585

$                                (9,681)

$                  895,904

$                  215,016

$ 680,888

$                                         (31,475)

$                                 649,413

$                                                                  0.316

$                                                                    0.301

EMC Information Infrastructure GAAP

$ 3,500,812

$       1,598,897

$                            309,800

$                                     1,027,760

$                                                               11,527

$                 552,828

$                              (12,100)

$                  540,728

$                  136,450

$ 404,278

$                                                  -

$                                 404,278

$                                                                  0.197

$                                                                    0.188

Restructuring and acquisition-related charges

-

-

-

-

(11,527)

11,527

-

11,527

2,222

9,305

-

9,305

$                                                                  0.005

$                                                                    0.004

EMC Information Infrastructure Adjusted (3)

3,500,812

1,598,897

309,800

1,027,760

-

564,355

(12,100)

552,255

138,672

413,583

-

413,583

$                                                                  0.201

$                                                                    0.193

Stock-based compensation expense

-

(18,285)

(23,474)

(51,763)

-

93,522

406

93,928

29,259

64,669

-

64,669

$                                                                  0.031

$                                                                    0.030

Intangible asset amortization

-

(24,182)

(5,829)

(33,498)

-

63,509

-

63,509

21,893

41,616

-

41,616

$                                                                  0.020

$                                                                    0.019

EMC Information Infrastructure Non-GAAP (4)

$ 3,500,812

$       1,556,430

$                            280,497

$                                        942,499

$                                                                      -

$                 721,386

$                              (11,694)

$                  709,692

$                  189,824

$ 519,868

$                                                  -

$                                 519,868

$                                                                  0.253

$                                                                    0.242

VMware standalone GAAP

$    714,245

$          126,562

$                            175,429

$                                        318,242

$                                                                      -

$                   94,012

$                                  2,733

$                    96,745

$                    12,145

$   84,600

$                                                  -

$                                   84,600

$                                                                  0.041

$                                                                    0.039

GAAP adjustments and eliminations

(2,786)

(162)

(1,965)

(2,677)

1,034

984

(720)

264

68

196

(16,558)

(16,362)

$                                                                (0.008)

$                                                                  (0.009)

VMware within EMC GAAP (5)

711,459

126,400

173,464

315,565

1,034

94,996

2,013

97,009

12,213

84,796

(16,558)

68,238

$                                                                  0.033

$                                                                    0.031

Acquisition-related charges

-

-

-

-

(1,034)

1,034

-

1,034

-

1,034

(202)

832

$                                                                  0.000

$                                                                    0.000

VMware within EMC Adjusted (6)

711,459

126,400

173,464

315,565

-

96,030

2,013

98,043

12,213

85,830

(16,760)

69,070

$                                                                  0.034

$                                                                    0.031

Stock-based compensation expense

-

(9,586)

(42,913)

(25,750)

-

78,249

-

78,249

12,266

65,983

(12,913)

53,070

$                                                                  0.026

$                                                                    0.025

Intangible asset amortization

-

(8,160)

(627)

(1,133)

-

9,920

-

9,920

713

9,207

(1,802)

7,405

$                                                                  0.004

$                                                                    0.003

VMware within EMC Non-GAAP (7)

$    711,459

$          108,654

$                            129,924

$                                        288,682

$                                                                      -

$                 184,199

$                                  2,013

$                  186,212

$                    25,192

$ 161,020

$                                         (31,475)

$                                 129,545

$                                                                  0.063

$                                                                    0.059

Wtd. Average Share O/S

2,055,876

2,146,753

Reconciliation of GAAP to Non-GAAP

For the Three Months Ended September 30, 2010

(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:

 Revenue

Cost of Revenue

Research and Development

Selling, General and Administrative

Restructuring and Acquisition- Related Charges

Operating Income

Other (Expense) Income, net

Income Before Taxes

Income Tax Provision

Net Income

Net Income Attributable to VMware

Net Income Attributable to EMC

Net Income per Weighted Average Share, Basic

Net Income per Weighted Average Share, Diluted

Non-cash interest expense on convertible debt (8)

$-

$                    -

$                                      -

$                                                  -

$-

$                          -

$                              (26,559)

$                  (26,559)

$                    (9,581)

$ (16,978)

$-

$                                  (16,978)

$                                                                (0.008)

$                                                                  (0.008)

Transition costs (9)

-

536

1,093

6,183

-

(7,812)

-

(7,812)

(2,238)

(5,574)

-

(5,574)

$                                                                (0.003)

$                                                                  (0.003)

$-

$                 536

$                                1,093

$                                            6,183

$-

$                   (7,812)

$                              (26,559)

$                  (34,371)

$                  (11,819)

$ (22,552)

$-

$                                  (22,552)

$                                                                (0.011)

$                                                                  (0.011)

(1) Represents EMC Consolidated GAAP excluding restructuring and acquisition-related charges.

(2) Represents EMC Consolidated Adjusted excluding stock-based compensation expense and intangible asset amortization.

(3) Represents EMC Information Infrastructure GAAP excluding restructuring and acquisition-related charges.

(4) Represents EMC Information Infrastructure Adjusted excluding stock-based compensation expense and intangible asset amortization.

(5) Represents VMware within EMC GAAP.

(6) Represents VMware within EMC GAAP excluding acquisition-related charges.

(7) Represents VMware within EMC Adjusted excluding stock-based compensation expense and intangible asset amortization.

(8) Represents the non-cash interest charge associated with our convertible senior notes due 2011 and 2013 totaling $3,450 million.

(9) 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 September 30, 2009

(in thousands, except per share amounts)

Unaudited

Cost of Revenue

Research and Development

Selling, General and Administrative

Restructuring and Acquisition- Related Charges

Operating Income

Other Income (Expense), net

Income Before Taxes

Income Tax Provision

Net Income

Net Income Attributable to VMware

Net Income Attributable to EMC

Net Income per Weighted Average Share, Basic

Net Income per Weighted Average Share, Diluted

Revenue

EMC Consolidated GAAP

$   3,517,630

$       1,577,413

$               422,092

$              1,177,775

$                         34,781

$                  305,569

$                                   19,901

$                     325,470

$                        20,602

$   304,868

$                                                (6,688)

$                                        298,180

$                                                                       0.147

$                                                                          0.144

Gain on Data Domain and SpringSource common stock

-

-

-

-

-

-

(25,822)

(25,822)

-

(25,822)

1,025

(24,797)

$                                                                      (0.012)

$                                                                        (0.012)

Restructuring and acquisition-related charges

-

(12,485)

-

-

(34,781)

47,266

-

47,266

14,724

32,542

(135)

32,407

$                                                                       0.016

$                                                                          0.016

EMC Consolidated Adjusted (1)

3,517,630

1,564,928

422,092

1,177,775

-

352,835

(5,921)

346,914

35,326

311,588

(5,798)

305,790

$                                                                       0.151

$                                                                          0.148

Stock-based compensation expense

-

(27,106)

(62,557)

(99,915)

-

189,578

-

189,578

47,078

142,500

(9,181)

133,319

$                                                                       0.066

$                                                                          0.065

Intangible asset amortization

-

(34,121)

(3,261)

(25,903)

-

63,285

-

63,285

21,651

41,634

(405)

41,229

$                                                                       0.020

$                                                                          0.020

EMC Consolidated Non-GAAP (2)

$   3,517,630

$       1,503,701

$               356,274

$              1,051,957

$                                 -

$                  605,698

$                                    (5,921)

$                     599,777

$                      104,055

$   495,722

$                                              (15,384)

$                                        480,338

$                                                                       0.237

$                                                                          0.232

EMC Information Infrastructure GAAP

$   3,028,725

$       1,481,485

$               289,715

$                 944,637

$                         34,008

$                  278,880

$                                   14,334

$                     293,214

$                        26,897

$   266,317

$                                                        -

$                                        266,317

$                                                                       0.131

$                                                                          0.129

Gain on Data Domain common stock

-

-

-

-

-

-

(19,963)

(19,963)

-

(19,963)

-

(19,963)

$                                                                      (0.010)

$                                                                        (0.010)

Restructuring and acquisition-related charges

-

(12,485)

-

-

(34,008)

46,493

-

46,493

14,724

31,769

-

31,769

$                                                                       0.016

$                                                                          0.015

EMC Information Infrastructure Adjusted (3)

3,028,725

1,469,000

289,715

944,637

-

325,373

(5,629)

319,744

41,621

278,123

-

278,123

$                                                                       0.137

$                                                                          0.135

Stock-based compensation expense

-

(17,608)

(28,307)

(76,146)

-

122,061

-

122,061

32,023

90,038

-

90,038

$                                                                       0.044

$                                                                          0.044

Intangible asset amortization

-

(31,228)

(3,221)

(25,389)

-

59,838

-

59,838

20,518

39,320

-

39,320

$                                                                       0.019

$                                                                          0.019

EMC Information Infrastructure Non-GAAP (4)

$   3,028,725

$       1,420,164

$               258,187

$                 843,102

$                                 -

$                  507,272

$                                    (5,629)

$                     501,643

$                        94,162

$   407,481

$                                                        -

$                                        407,481

$                                                                       0.201

$                                                                          0.197

VMware standalone GAAP

$      489,751

$            96,073

$               133,509

$                 236,933

$                                 -

$                    23,236

$                                     8,638

$                       31,874

$                        (6,345)

$     38,219

$                                                        -

$                                          38,219

$                                                                       0.019

$                                                                          0.018

GAAP adjustments and eliminations

(846)

(145)

(1,132)

(3,795)

773

3,453

(3,071)

382

50

332

(6,688)

(6,356)

$                                                                      (0.003)

$                                                                        (0.003)

VMware within EMC GAAP (5)

488,905

95,928

132,377

233,138

773

26,689

5,567

32,256

(6,295)

38,551

(6,688)

31,863

$                                                                       0.016

$                                                                          0.015

Gain on SpringSource common stock

-

-

-

-

-

-

(5,859)

(5,859)

-

(5,859)

1,025

(4,834)

$                                                                      (0.002)

$                                                                        (0.002)

Acquisition-related charges

-

-

-

-

(773)

773

-

773

-

773

(135)

638

$                                                                             -

$                                                                                -

VMware within EMC Adjusted (6)

488,905

95,928

132,377

233,138

-

27,462

(292)

27,170

(6,295)

33,465

(5,798)

27,667

$                                                                       0.014

$                                                                          0.013

Stock-based compensation expense

-

(9,498)

(34,250)

(23,769)

-

67,517

-

67,517

15,055

52,462

(9,181)

43,281

$                                                                       0.021

$                                                                          0.021

Intangible asset amortization

-

(2,893)

(40)

(514)

-

3,447

-

3,447

1,133

2,314

(405)

1,909

$                                                                       0.001

$                                                                          0.001

VMware within EMC Non-GAAP (7)

$      488,905

$            83,537

$                 98,087

$                 208,855

$                                 -

$                    98,426

$                                       (292)

$                       98,134

$                          9,893

$     88,241

$                                              (15,384)

$                                          72,857

$                                                                       0.036

$                                                                          0.035

Wtd. Average Share O/S

2,027,347

2,065,951

Reconciliation of GAAP to Non-GAAP

For the Three Months Ended September 30, 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

Cost of Revenue

Research and Development

Selling, General and Administrative

Restructuring and Acquisition- Related Charges

Operating Income

Other Income (Expense), net

Income Before Taxes

Income Tax Provision

Net Income

Net Income Attributable to VMware

Net Income Attributable to EMC

Net Income per Weighted Average Share, Basic

Net Income per Weighted Average Share, Diluted

Revenue

Non-cash interest expense on convertible debt (8)

$-

$                    -

$                        -

$                           -

$-

$                            -

$                                  (27,483)

$                      (27,483)

$                        (9,153)

$   (18,330)

$-

$                                        (18,330)

$                                                                      (0.009)

$                                                                        (0.009)

Transition costs (9)

-

789

3,159

12,825

-

(16,773)

-

(16,773)

(4,943)

(11,830)

-

(11,830)

$                                                                      (0.006)

$                                                                        (0.006)

$-

$                 789

$                   3,159

$                   12,825

$-

$                  (16,773)

$                                  (27,483)

$                      (44,256)

$                      (14,096)

$   (30,160)

$-

$                                        (30,160)

$                                                                      (0.015)

$                                                                        (0.015)

(1) Represents EMC Consolidated GAAP excluding gain on Data Domain and SpringSource common stock and restructuring and acquisition-related charges.

(2) Represents EMC Consolidated Adjusted excluding stock-based compensation expense and intangible asset amortization.

(3) Represents EMC Information Infrastructure GAAP excluding gain on Data Domain common stock and restructuring and acquisition-related charges.

(4) Represents EMC Information Infrastructure Adjusted excluding stock-based compensation expense and intangible asset amortization.

(5) Represents VMware within EMC GAAP.

(6) Represents VMware within EMC GAAP excluding gain on SpringSource common stock and acquisition-related charges.

(7) Represents VMware within EMC adjusted excluding stock-based compensation expense and intangible asset amortization.

(8) Represents the non-cash interest charge associated with our convertible senior notes due 2011 and 2013 totaling $3,450 million.

(9) Represents incremental costs incurred to transform our current cost structure to a more streamlined cost structure.

Note: schedule may not add due to rounding

EMC CORPORATION

Consolidated Balance Sheets

(in thousands, except per share amounts)

Unaudited

September 30,

December 31,

2010

2009

(unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$    4,940,592

$   6,302,499

Short-term investments

1,712,410

392,839

Accounts and notes receivable, less allowance

    for doubtful accounts of $56,763 and $47,414

2,120,679

2,108,575

Inventories

838,622

886,289

Deferred income taxes

596,568

564,174

Other current assets

387,362

283,926

Total current assets

10,596,233

10,538,302

Long-term investments

3,860,062

2,692,323

Property, plant and equipment, net

2,430,679

2,224,346

Intangible assets, net

1,213,680

1,185,632

Goodwill

9,787,321

9,210,376

Other assets, net

1,038,933

961,024

     Total assets

$  28,926,908

$ 26,812,003

LIABILITIES  &  SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable

$       827,181

$      899,298

Accrued expenses

2,033,790

1,944,210

Income taxes payable

46,055

41,691

Deferred revenue

2,641,559

2,262,968

Total current liabilities

5,548,585

5,148,167

Income taxes payable

253,075

235,976

Deferred revenue

1,628,473

1,373,798

Deferred income taxes

605,400

708,378

Long-term convertible debt

3,185,417

3,100,290

Other liabilities

186,122

184,920

Total liabilities

11,407,072

10,751,529

Commitments and contingencies

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 2,060,396 and 2,052,441 shares

20,604

20,524

Additional paid-in capital

3,886,415

3,875,791

Retained earnings

13,030,725

11,759,289

Accumulated other comprehensive loss, net

(120,268)

(105,722)

     Total EMC Corporation's shareholders' equity

16,817,476

15,549,882

Non-controlling interest in VMware, Inc.

702,360

510,592

Total shareholders' equity

17,519,836

16,060,474

     Total liabilities and shareholders' equity

$  28,926,908

$ 26,812,003

EMC CORPORATION

Consolidated Statements of Cash Flows

(in thousands)

Unaudited

Nine Months Ended

September 30, 2010

September 30, 2009

Cash flows from operating activities:

Cash received from customers

$  12,733,156

$  10,600,727

Cash paid to suppliers and employees

(9,567,360)

(8,098,216)

Dividends and interest received

92,834

95,024

Interest paid

(41,621)

(39,550)

Income taxes paid

(180,403)

(232,257)

Net cash provided by operating activities

3,036,606

2,325,728

Cash flows from investing activities:

Additions to property, plant and equipment

(541,866)

(277,589)

Capitalized software development costs

(272,492)

(222,432)

Purchases of short and long-term available-for-sale securities

(5,091,454)

(4,224,872)

Sales of short and long-term available-for-sale securities

2,624,509

4,880,173

Business acquisitions, net of cash acquired

(851,380)

(2,664,141)

Increase in strategic and other related investments

(5,642)

(152,667)

Net cash used in investing activities

(4,138,325)

(2,661,528)

Cash flows from financing activities:

Issuance of EMC's common stock from the exercise of stock options

552,846

226,276

Issuance of VMware's common stock from the exercise of stock options

355,846

166,523

EMC repurchase of EMC's common stock

(800,267)

-

EMC purchase of VMware's common stock

(289,587)

-

VMware repurchase of VMware's common stock

(285,940)

-

Payments on securities lending

-

(412,321)

Excess tax benefits from stock-based compensation

210,711

25,355

Payment of long-term and short-term obligations

(3,755)

(19,836)

Proceeds from long-term and short-term obligations

1,116

1,615

Net cash used in financing activities

(259,030)

(12,388)

Effect of exchange rate changes on cash and cash equivalents

(1,158)

22,862

Net decrease in cash and cash equivalents

(1,361,907)

(325,326)

Cash and cash equivalents at beginning of period

6,302,499

5,843,685

Cash and cash equivalents at end of period

$    4,940,592

$    5,518,359

Reconciliation of net income to net cash provided

by operating activities:

Net income

$    1,317,261

$       720,829

Adjustments to reconcile net income to net cash

provided by operating activities:

Depreciation and amortization

862,964

791,043

Non-cash interest expense on convertible debt

78,731

80,562

Non-cash restructuring and other special charges

3,114

22,138

Stock-based compensation expense

484,141

420,947

Provision for doubtful accounts

18,599

15,160

Deferred income taxes, net

(41,355)

8,101

Excess tax benefits from stock-based compensation

(210,711)

(25,355)

Gain on Data Domain and SpringSource common stock

-

(25,822)

Other  

(9,192)

(13,567)

Changes in assets and liabilities, net of acquisitions:

Accounts and notes receivable

(14,380)

455,116

Inventories

(55,862)

(61,265)

Other assets

(127,401)

(35,483)

Accounts payable

(71,839)

66,868

Accrued expenses

(38,343)

(175,982)

Income taxes payable

242,244

(143,896)

Deferred revenue

602,477

204,707

Other liabilities

(3,842)

21,627

Net cash provided by operating activities

$    3,036,606

$    2,325,728

   EMC Corporation    Reconciliation of Cash Flow from Operations to Free Cash Flow    (in thousands)    Unaudited

Nine Months Ended

Three Months Ended

September 30,

September 30,

September 30,

September 30,

2010

2009

2010

2009

EMC Consolidated

Cash flow from Operations

$                       3,036,606

$                   2,325,728

$                          962,400

$                      887,649

Capital Expenditures

(541,866)

(277,589)

(240,674)

(72,077)

Capitalized Software

(272,492)

(222,432)

(86,858)

(70,658)

Free Cash Flow

$                       2,222,248

$                   1,825,707

$                          634,868

$                      744,914

EMC Corporation

Reconciliation of GAAP to Non-GAAP Tax Rate

(in thousands)

Unaudited

For the three months ended September 30, 2010

Income Before

Tax

Tax

Tax

Provision

Rate

EMC Consolidated GAAP

$          637,737

$ 148,663

23%

Stock-based compensation expense

172,177

41,525

24%

Intangible asset amortization

73,429

22,606

31%

Restructuring and acquisition-related charges

12,561

2,222

18%

EMC Consolidated Non-GAAP

$          895,904

$ 215,016

24%

EMC Corporation

Supplemental

Revenue Analysis

(in thousands)

Unaudited

Supplemental Revenue Data

Q1 2009

Q2 2009

Q3 2009

Q4 2009

FY 2009

Q1 2010

Q2 2010

Q3 2010

YTD 2010

Storage:

Product Revenue

$ 1,572,408

$ 1,632,309

$ 1,818,230

$ 2,175,104

$   7,198,051

$ 2,017,314

$ 2,076,855

$ 2,172,875

$   6,267,044

Services Revenue

790,932

842,558

880,807

947,061

3,461,358

901,781

922,067

966,414

2,790,262

Total Storage Revenue

$ 2,363,340

$ 2,474,867

$ 2,699,037

$ 3,122,165

$ 10,659,409

$ 2,919,095

$ 2,998,922

$ 3,139,289

$   9,057,306

Information Intelligence Group:

Product Revenue

$      58,710

$      60,792

$      58,209

$      83,125

$      260,836

$      63,662

$      62,329

$      59,078

$      185,069

Services Revenue

115,605

119,445

118,979

124,724

478,753

114,502

116,105

116,713

347,320

Total Information Intelligence Group Revenue

$    174,315

$    180,237

$    177,188

$    207,849

$      739,589

$    178,164

$    178,434

$    175,791

$      532,389

Security:

Product Revenue

$      80,671

$      84,080

$      84,080

$      91,441

$      340,272

$      85,814

$      90,876

$    102,442

$      279,132

Services Revenue

62,035

63,055

68,420

72,168

265,678

75,654

82,460

83,290

241,404

Total Security Revenue

$    142,706

$    147,135

$    152,500

$    163,609

$      605,950

$    161,468

$    173,336

$    185,732

$      520,536

EMC Information Infrastructure:

Product Revenue

$ 1,711,789

$ 1,777,181

$ 1,960,519

$ 2,349,670

$   7,799,159

$ 2,166,790

$ 2,230,060

$ 2,334,395

$   6,731,245

Services Revenue

968,572

1,025,058

1,068,206

1,143,953

4,205,789

1,091,937

1,120,632

1,166,417

3,378,986

Total EMC Information Infrastructure Revenue

$ 2,680,361

$ 2,802,239

$ 3,028,725

$ 3,493,623

$ 12,004,948

$ 3,258,727

$ 3,350,692

$ 3,500,812

$ 10,110,231

VMware:

Product Revenue

$    257,331

$    228,089

$    240,062

$    303,504

$   1,028,986

$    311,927

$    323,256

$    341,530

$      976,713

Services Revenue

213,070

227,024

248,843

303,039

991,976

320,038

349,549

369,929

1,039,516

Total VMware Revenue

$    470,401

$    455,113

$    488,905

$    606,543

$   2,020,962

$    631,965

$    672,805

$    711,459

$   2,016,229

Consolidated Revenues:

Product Revenue

$ 1,969,120

$ 2,005,270

$ 2,200,581

$ 2,653,174

$   8,828,145

$ 2,478,717

$ 2,553,316

$ 2,675,925

$   7,707,958

Services Revenue

1,181,642

1,252,082

1,317,049

1,446,992

5,197,765

1,411,975

1,470,181

1,536,346

4,418,502

Total Consolidated Revenues

$ 3,150,762

$ 3,257,352

$ 3,517,630

$ 4,100,166

$ 14,025,910

$ 3,890,692

$ 4,023,497

$ 4,212,271

$ 12,126,460

Percentage impact to EMC revenue growth rate

due to changes in exchange rates from the prior year

(3.5)%

(3.7)%

(1.3)%

2.5%

(1.4)%

2.4%

0.0%

(0.6)%

0.6%

EMC Corporation Reconciliation of Gross Margin GAAP to Non-GAAP (in thousands) Unaudited

Q3 2010

Q3 2009

Gross Margin GAAP

$         2,486,974

$         1,940,217

           Restructuring and acquisition-related charges

-

12,485

           Stock-based compensation expense

27,871

27,106

           Intangible asset amortization

32,342

34,121

Gross Margin Non-GAAP

$         2,547,187

$         2,013,929

Revenues

$         4,212,271

$         3,517,630

% GAAP

59.0%

55.2%

% Non-GAAP

60.5%

57.3%

EMC Corporation Reconciliation of Operating Margin GAAP to Non-GAAP (in thousands) Unaudited

Q3 2010

Q3 2009

Operating Margin GAAP

$            647,824

$            305,569

        Restructuring and acquisition-related charges

12,561

47,266

        Stock-based compensation expense

171,771

189,578

        Intangible asset amortization

73,429

63,285

Operating Margin Non-GAAP

$            905,585

$            605,698

Revenues

$         4,212,271

$         3,517,630

% GAAP

15.4%

8.7%

% Non-GAAP

21.5%

17.2%

EMC Corporation 

Reconciliation of EMC's Compounded Annual Growth Rate

(in thousands)

Unaudited

Actual

Guidance

Guidance

2004

2010

CAGR

GAAP diluted earnings per share

$               0.36

$             0.91

17%

Restructuring and acquisition-related charges

0.01

0.02

9%

Stock-based compensation expense

0.02

0.23

55%

Intangible asset amortization

0.03

0.09

21%

Non-GAAP diluted earnings per share

$               0.41

$             1.25

20%

Schedule may not add due to rounding

SOURCE EMC Corporation



RELATED LINKS

http://www.emc.com