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ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



FORM 10-K


ý

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008

OR

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For transition period from                        to                       

Commission File Number 1-9853



EMC CORPORATION
(Exact name of registrant as specified in its charter)

Massachusetts   04-2680009
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification Number)

176 South Street
Hopkinton, Massachusetts 01748
(Address of principal executive offices, including zip code)

(508) 435-1000
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class:    Name of Each Exchange on Which Registered: 
Common Stock, par value $.01 per share   New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None



         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý    No o

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

         Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o
(Do not check if a smaller reporting company)
  Smaller reporting company o

         Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o    No ý

         The aggregate market value of voting stock held by non-affiliates of the registrant was $30,309,822,720 based upon the closing price on the New York Stock Exchange on the last business day of the registrant's most recently completed second fiscal quarter (June 30, 2008).

         The number of shares of the registrant's Common Stock, par value $.01 per share, outstanding as of January 31, 2009 was 2,011,875,734.

DOCUMENTS INCORPORATED BY REFERENCE

         Information required in response to Part III of Form 10-K (Items 10, 11, 12, 13 and 14) is hereby incorporated by reference to the specified portions of the registrant's Proxy Statement for the Annual Meeting of Shareholders to be held on May 6, 2009.


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EMC CORPORATION

 
   
  Page No.  

PART I

 

ITEM 1.

 

Business

    1  

ITEM 1A.

 

Risk Factors

    9  

ITEM 1B.

 

Unresolved Staff Comments

    16  

ITEM 2.

 

Properties

    17  

ITEM 3.

 

Legal Proceedings

    17  

ITEM 4.

 

Submission of Matters to a Vote of Security Holders

    18  

PART II

 

ITEM 5.

 

Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

    20  

ITEM 6.

 

Selected Consolidated Financial Data

    21  

ITEM 7.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

    22  

ITEM 7A.

 

Quantitative and Qualitative Disclosures About Market Risk

    43  

ITEM 8.

 

Financial Statements and Supplementary Data

    45  

ITEM 9.

 

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

    111  

ITEM 9A.

 

Controls and Procedures

    111  

ITEM 9B.

 

Other Information

    111  

PART III

 

ITEM 10.

 

Directors, Executive Officers and Corporate Governance

    113  

ITEM 11.

 

Executive Compensation

    113  

ITEM 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters

    113  

ITEM 13.

 

Certain Relationships and Related Transactions, and Director Independence

    113  

ITEM 14.

 

Principal Accountant Fees and Services

    113  

PART IV

 

ITEM 15.

 

Exhibits and Financial Statement Schedules

    113  

Signatures

   
114
 

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FACTORS THAT MAY AFFECT FUTURE RESULTS

        This Annual Report on Form 10-K contains forward-looking statements, within the meaning of the Federal securities laws, about our business and prospects. The forward-looking statements do not include the potential impact of any mergers, acquisitions, divestitures, securities offerings or business combinations that may be announced or closed after the date hereof. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "plans," "intends," "expects," "goals" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these words. Our future results may differ materially from our past results and from those projected in the forward-looking statements due to various uncertainties and risks, including those described in Item 1A of Part I (Risk Factors). The forward-looking statements speak only as of the date of this Annual Report and undue reliance should not be placed on these statements. We disclaim any obligation to update any forward-looking statements contained herein after the date of this Annual Report.


PART I

ITEM 1.    BUSINESS

General

        EMC Corporation develops, delivers and supports the Information Technology ("IT") industry's broadest range of information infrastructure technologies and solutions.

        EMC's Information Infrastructure business provides a foundation for customers to manage and secure their vast and ever-increasing quantities of information, automate their data center operations, reduce power and cooling costs, and leverage critical information for business agility and competitive advantage.

        EMC's VMware Virtual Infrastructure business, which is represented by a majority equity stake in VMware, Inc., is the leading provider of virtual infrastructure software solutions from the desktop to the data center. VMware's virtual infrastructure software solutions run on industry-standard desktops and servers and support a wide range of operating system and application environments, as well as networking and storage infrastructures.

        EMC was incorporated in Massachusetts in 1979. Our corporate headquarters are located at 176 South Street, Hopkinton, Massachusetts.

Products and Offerings

EMC's Information Infrastructure Business

        EMC's Information Infrastructure business comprises three segments — Information Storage, Content Management and Archiving, and RSA Information Security.

Information Storage Segment

        EMC offers a wide range of networked information storage systems, software and services to support customers' information storage and management strategies. As the foundation of an information infrastructure, our storage systems can be deployed in storage area network ("SAN"), networked attached storage ("NAS"), content addressed storage ("CAS") and/or direct attached storage ("DAS") environments.

        EMC's information storage systems are designed to consume less energy per terabyte than alternative solutions. EMC's advanced tools and services optimize energy efficiency in data centers by reducing energy demands, costs and outages caused by overburdened power grids. EMC has developed software which generally controls and enables functions that take place within the EMC networked storage system. These functions include local and remote replication, optimization and data movement, with products such as EMC SRDF (Symmetrix Remote Data Facility), EMC MirrorView, EMC TimeFinder, EMC SnapView and EMC Celerra Replicator, which customers use to copy, protect and share data across varied distances. Additionally, EMC has integrated advanced security technology from RSA, The Security Division of EMC, to enable authentication, authorization and auditing within customers' networked storage systems.

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    EMC Symmetrix Systems

        The EMC Symmetrix family of high-end networked storage systems delivers our highest functionality, performance, data availability and information protection while enabling customers to incrementally scale the capacity of a single array from seven terabytes to more than a petabyte, distinguishing EMC Symmetrix as the most scalable enterprise disk storage system in the industry.

        In early 2008, EMC became the first enterprise storage vendor to integrate next-generation solid state drives ("SSDs") into its information storage portfolio as part of its EMC Symmetrix DMX-4 storage system. SSDs utilize flash memory to store and retrieve data, yielding response times that are dramatically faster than the fastest hard disk drives. In addition, because there are no mechanical components in flash drives, they require less power to operate.

        In addition, EMC also introduced EMC Virtual Provisioning and new management capabilities for EMC Symmetrix DMX enterprise storage systems. Virtual provisioning technology enables Symmetrix to present an application with more storage capacity than is physically allocated to it within the storage array. This delivers 'just-in-time' capacity allocation and enhanced management flexibility, while lowering the total cost of ownership in high-end storage environments.

    EMC CLARiiON Systems

        The EMC CLARiiON family of mid-tier networked storage systems provides flexible levels of functionality, performance, scalability and availability for midsize enterprises and branch offices.

        In August 2008, EMC introduced the next generation of the EMC CLARiiON family, the EMC CLARiiON CX4. Featuring a new architecture specifically optimized for virtual environments and incorporating SSDs, connectivity, processing power, manageability and energy efficiency, CLARiiON CX4 makes it easier for customers to cost-effectively consolidate, manage and protect their information assets.

    EMC Celerra IP Storage Systems

        Our EMC Celerra family of multi-protocol storage systems range from the midrange to the high-end of the NAS market and delivers advanced scalability and functionality, high availability and simplified management for customers that want to access storage via iSCSI, Fibre Channel and/or NAS networks.

        In August 2008, EMC unveiled a new, cost-effective and easy-to-use entry point to the EMC Celerra NS series of storage systems. The new Celerra NX4 system can simultaneously connect to multiple types of storage networks, while offering leading price/performance and a high level of reliability.

    EMC Centera Content Addressed Storage Systems

        EMC Centera provides fast, secure online access to archived fixed content data that cannot be modified or will not change over time, such as digital x-ray images, movies, check images, medical records, e-mail correspondence and other similar types of digital objects. Centera also helps customers comply with complex governance and regulatory requirements for digital record retention, archiving and access.

        In 2008, EMC was instrumental in driving new industry standards for archiving by offering an EMC Centera software development kit and Early Adopter Program for the new eXtensible Access Method ("XAM") specification. As a leading industry proponent of open standards and contributor of intellectual property to the XAM specification, EMC is helping customers obtain the maximum business value from their fixed content, unchanging digital information, by enabling multi-vendor solution interoperability.

    EMC Connectrix Directors and Switches

        The EMC Connectrix family includes high-end directors and departmental switches to help customers of all sizes increase the connectivity between servers and storage systems in a SAN, consolidate their networked storage systems, improve total cost of ownership and tier their storage environments.

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    EMC Consumer and Small Business Products Division

        In June 2008, EMC formed EMC's Consumer and Small Business Products Division within our Information Storage segment upon its acquisition of Iomega Corporation. In addition to its strong brand, products, partner ecosystem and worldwide sales channels, Iomega's industry expertise enhances EMC's reach and focus in the consumer and small business markets. This division also includes EMC Retrospect and EMC LifeLine software.

        EMC introduced EMC LifeLine software to help consumers and small office and home office ("SOHO") users safely and securely store, protect and share all of their digital files from a networked device at any time. The new Linux software, developed by EMC for manufacturers of consumer-grade NAS appliances, delivers extensive network-based storage, backup, protection and management features for such digital content as business records, photos, music and video, along with powerful, industry standard media streaming capabilities. Both Iomega and Intel Corporation have introduced devices that utilize EMC LifeLine software.

        In 2008, Iomega introduced a variety of new products, including the Iomega eGo Helium portable hard drive for the Apple MacBook Air notebook. To provide a link between the home network and the home theater, Iomega introduced Iomega ScreenPlay TV Link and the Iomega ScreenPlay Pro HD Multimedia Drive to enable customers to access their photos, music and videos from their TV or home theater system. For critical business information, Iomega launched the eGo Encrypt portable hard drive, a rugged ultra-secure drive with full hardware 128 bit encryption. Iomega also introduced the Iomega StorCenter ix2 Network Storage device, one of the most advanced and easy-to-use network storage appliances for the home and small business markets, enabling users to manage their ever-increasing digital world with up to two terabytes of storage, as well as advanced information management, protection and sharing across multiple devices.

        Additionally, Iomega launched numerous new designs and capacity points for its direct-attached external hard drives and began to offer a new downloadable software bundle that integrates EMC Retrospect Express backup and recovery software with Mozy online backup service, improving the convenience of securely storing, protecting and accessing important files.

    Resource Management and Backup and Recovery Software

        EMC's Resource Management software helps customers better store, protect, optimize and leverage their rapidly increasing volumes of information in complex IT environments. This line-up of products includes the EMC ControlCenter and EMC Visual families of storage resource management software; PowerPath automated, non-disruptive path management software; the EMC Smarts family of intelligent, automated IT management solutions; and Rainfinity Global File Virtualization for seamless management of multi-vendor, IP-based NAS, CAS and file servers. In 2008, EMC unveiled EMC Server Configuration Manager and EMC Configuration Analytics Manager, two new software solutions aimed at helping customers automate configuration and compliance management across their physical and virtual information infrastructures. The solutions provide customers with a unified approach for managing their IT infrastructures, including servers, networks, storage and applications, driving IT operational efficiencies, full compliance oversight, reduced business risk and continuous improvement.

        EMC's backup and recovery solutions include EMC NetWorker, EMC Avamar and EMC RecoverPoint. During 2008, EMC significantly expanded its backup, recovery and archive portfolio by leveraging the latest technologies and continuing to help lower the cost of disk-based backup versus tape. The new EMC Disk Library 3D 1500/3000 local area network ("LAN") backup-to-disk systems offer policy-based data de-duplicated backup, EMC five-9s (99.999%) storage platform and IP replication, helping customers ensure availability, reduce the amount of backup data and meet offsite protection requirements without physically transporting tapes. The updated EMC Disk Library 4000 virtual tape library expands its market leadership by offering features like data de-duplication, spin down and high-capacity, low-power disk drives to reduce power and cooling.

        Additionally, the newest versions of EMC's next-generation backup and recovery solution, EMC Avamar, provide new features including a doubling of backup capacity per system. Additional features enable customers to use less energy per terabyte backed up and reduce their total cost of ownership compared to tape. EMC NetWorker Fast Start is a new, simplified package of EMC's backup software designed for growing midsize businesses that cuts deployment time and decreases the number of installation steps.

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    Decho Corporation

        EMC formed Decho Corporation in November 2008 to help people protect, manage and enrich their "digital echo," the ever-growing quantity of personal digital information in their lives. Decho will help individuals take control of their digital echo through a set of cloud-based services that will enable easy and full utilization, organization and enrichment of important personal information.

        Decho combines the Mozy, Inc. and Pi Corporation businesses. The new company offers consumers and businesses the Mozy-branded online backup service and expects to introduce new cloud-based services over time.

Content Management and Archiving Segment

        Our content management and archiving software, which includes the EMC Documentum, EMC Captiva and EMC Document Sciences xPression families, helps customers optimize business processes and create, manage, deliver and archive information, ranging from documents and discussions to e-mail, Web pages, images, XML, reports, records, rich media and application data.

        In 2008, EMC unveiled its next-generation EMC Documentum 6.5 enterprise content management ("ECM") platform, enabling customers to experience Web 2.0. Documentum 6.5 is a family of ECM products that combines the user experience of Web 2.0 and the strength of the enterprise-class Documentum platform to deliver a balance between business agility and IT control.

        Additionally, EMC launched a strategic alliance with IBM and Microsoft for the creation of a new Web services interface specification, enabling greater interoperability between ECM systems. The jointly developed Content Management Interoperability Services ("CMIS") specification uses Web services and Web 2.0 interfaces to enable applications to interoperate with multiple ECM repositories by different vendors.

RSA Information Security Segment

        RSA, The Security Division of EMC, delivers products, packaged solutions and services designed to guard the integrity and confidentiality of information throughout its lifecycle, no matter where it moves, who accesses it or how it is used. RSA's expertise in Identity Assurance, Data Security and Security Information and Event Management technologies enables EMC's customers to discover, classify and place appropriate controls around their data; secure access to the data, both inside and outside the network, at all times; and monitor and enforce these measures to prove compliance with security policies and regulations.

        In 2008, RSA focused on helping customers discover and comprehend the risk to their most sensitive data, including intellectual property and personally identifiable information, and map their security investments and associated priorities to meet critical business objectives. The division defined its Identity Assurance strategy and associated set of core capabilities around access management, contextual authorization, strong authentication and anti-fraud intelligence to protect against identity impersonation and inappropriate account use. RSA also launched its RSA Data Security System, comprising product suites and services for comprehensive data protection, including loss prevention, encryption and key management. The emphasis on integrating RSA technologies into the wider EMC portfolio continued in 2008, as did the focus on helping customers meet their multiple compliance demands in a repeatable, framework-based and cost-efficient manner.

EMC Global Services

        EMC Global Services provides the strategic guidance and technology expertise organizations need to address their business and information infrastructure challenges and derive the maximum value from their information assets and investments. With more than 13,000 professional- and support-service experts worldwide, plus a global network of alliances and partners, EMC Global Services leverages proven methodologies, industry best practices, experience and a knowledge base derived from EMC's broad practices to help customers reduce risk, lower costs and speed time-to-value. End-to-end services capabilities address the full spectrum of customer needs across the information lifecycle: strategize, advise, architect, implement, manage and support. Among the offerings provided by EMC Global Services are consulting services, technology deployment, managed services, customer support services, training and certification, and EMC Proven Solutions.

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        In 2008, EMC formed EMC Consulting to help organizations better succeed in a knowledge economy by getting more value from their information, leverage information in new ways to navigate challenging market conditions and compete more effectively. By offering broad consulting expertise across organizations' business, applications and infrastructure architectures, as well as industry expertise in Financial Services, Life Sciences, Communications/Media/Entertainment, and Retail, EMC Consulting delivers the transformational thinking and execution required to turn the potential of information into actionable strategies and business results.

VMware Virtual Infrastructure Segment

        VMware is the leading provider of virtualization solutions from the desktop to the data center. VMware virtualization solutions represent a pioneering approach to computing that separates application software from the underlying hardware to achieve significant improvements in efficiency, availability, flexibility and manageability. Its broad and proven suite of virtualization solutions addresses a range of complex IT problems that include cost and operational inefficiencies, business continuity, software lifecycle management and desktop management.

        VMware server virtualization technology is categorized as a virtual data center operating system ("VDC-OS"). A VDC-OS decouples the entire software environment from its underlying hardware infrastructure and enables the aggregation of multiple servers, storage infrastructure and networks into shared pools of resources that can be delivered dynamically, securely and reliably to applications as needed. This approach enables organizations to build a computing infrastructure with high levels of utilization, availability, automation and flexibility using building blocks of inexpensive industry-standard servers. In addition to providing abstraction from the underlying hardware, a VDC-OS is also able to deliver services to applications running inside virtual machines, in an operating system and application agnostic manner. This not only increases operational efficiency but also allows mixed element, multi-OS applications to get standard service levels delivered by the infrastructure, broadening customer deployment choices. A VDC-OS effectively creates "internal clouds" of resources which are able to be shared by many applications, with applications moving across resources without disruption or downtime to ensure the right quality of service to every application dynamically. This enables service level guarantees from the infrastructure to applications.

        In 2008, VMware announced its vCloud initiative in order to leverage VMware's platform to allow enterprises with internal clouds to easily access external cloud capacity on demand, without the need to customize or change their applications. The objective of the vCloud initiative is to enable hosting and cloud computing vendors to deliver enterprise-class cloud computing by federating on demand compute capacity between virtual data centers and cloud service providers on a common VMware platform.

        VMware desktop virtualization technology is categorized as a universal client solution that decouples the entire desktop environment from its underlying device, enabling customers to create user-centric instead of device-centric desktop environments. There are two main approaches to desktop virtualization: Virtual Desktop Infrastructure (VDI) where the desktop virtual machine runs on a server and is accessed remotely using a display protocol and client-hosted virtual desktops where a desktop virtual machine runs locally on a computer and is able to use the local hardware and peripherals. VMware has products in both of these categories, as well as offerings that combine both approaches.

        In 2008, VMware announced its vClient initiative, which consists of both product and partnering efforts aimed at delivering universal clients – desktops that follow users to any end point – that are secure, cost effective and easy for IT to manage. VMware's vClient partnering efforts involves a network of hardware, systems, and software partners to deliver a complete universal client virtualization solution to customers.

        VMware has implemented a broad services strategy that leverages the professional services organizations of its partners. VMware has also established its own services offerings to complement its partners' services offerings and to ensure customer satisfaction, drive additional sales and promote renewals and upgrades. VMware services offerings include customized solutions and onsite support that enable VMware and its channel partners to provide a positive overall customer experience.

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Markets and Distribution Channels

Markets

        EMC provides information storage, content management and archiving, security and virtualization technologies to support customers' information infrastructures and their Information Lifecycle Management strategies. We target organizations of all sizes.

Distribution Channels

        We market our products through direct sales and through multiple distribution channels. We have a direct sales presence throughout North America, Latin America, Europe, the Middle East, South Africa and the Asia Pacific region. We also have agreements in place with many distributors, systems integrators, resellers and OEMs. These agreements, subject to certain terms and conditions, enable these companies to market and resell certain EMC systems, software and related services.

        Additionally, VMware has developed a multi-channel distribution model to expand its presence and reach various segments of the industry. VMware derives a significant majority of its revenues from its large indirect sales channel that include distributors, resellers, x86 system vendors and systems integrators.

Technology Alliances

        We have technology alliances with leading software, networking and services companies. We intend to continue to form additional alliances. Our strategy is to work closely with these and other companies to provide added value to our customers by integrating our solutions with software and networking applications that customers rely on to manage their day-to-day business operations. In 2008, EMC expanded its partner ecosystem in international markets, strengthening existing relationships and forging new ones with global and regional technology and solutions providers. VMware works closely with over 900 technology partners, including leading server, processor, storage, networking and software vendors.

Manufacturing and Quality

        Our products are assembled and tested primarily at our facilities in the United States and Ireland or at global manufacturing service suppliers. See Item 2 "Properties." We work closely with our suppliers to design, assemble and test product components in accordance with production standards and quality controls established by us. Our software products are designed, developed and tested primarily at our facilities in the United States and abroad. The products are tested to meet our quality standards.

        We have implemented a formal, documented quality management system to ensure that our products and services satisfy customer needs and expectations and to provide the framework for continual improvement of our processes and products. This system is certified to the ISO 9001 International Standard. Several additional ISO 9001 certifications are maintained for sales and service operations worldwide. We have also implemented Six Sigma, Lean Manufacturing and other quality methodologies to ensure that the quality of our designs, manufacturing, test processes and supplier relationships are continually improved. Our storage systems' manufacturing and test facilities in Massachusetts, North Carolina and Ireland are certified to the ISO 14001 International Standard for environmental management systems. We also maintain Support Center Practices certification for our primary customer support centers. These internationally recognized endorsements of ongoing quality and environmental management are among the highest levels of certifications available.

Raw Materials

        We purchase many sophisticated components and products from one or a limited number of qualified suppliers, including some of our competitors. Our products utilize industry-standard and semi-custom components and subsystems. Among the most important components that we use are disk drives, high density memory components, microcontrollers and power supplies. While such components are generally available, we have experienced delivery delays from time to time because of high industry demand or the inability of some vendors to consistently meet our quality or delivery requirements.

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Research and Development

        We continually enhance our existing products and develop new products to meet changing customer requirements. In 2008, 2007 and 2006, our research and development ("R&D") expenses totaled $1,721.3 million, $1,526.9 million and $1,254.2 million, respectively. We support our R&D efforts through state-of-the-art development labs worldwide.

Backlog

        We produce our products on the basis of our forecast of near-term demand and maintain inventory in advance of receipt of firm orders from customers. We configure to customer specifications and generally deliver products shortly after receipt of the order. Service engagements are also included in certain orders. Customers generally may reschedule or cancel orders with little or no penalty. We believe that our backlog at any particular time is not meaningful because it is not necessarily indicative of future sales levels.

Competition

        We compete with many companies in the markets we serve, including companies that offer a broad spectrum of IT products and services and others that offer specific information storage, content management, security or server virtualization products or services. We believe that most of these companies compete based on their market presence, products, service or price. Some of these companies also compete by offering information storage, content management, security or virtualization-related products or services, together with other IT products or services, at minimal or no additional cost in order to preserve or gain market share.

        We believe that we have a number of competitive advantages over these companies, including product, distribution and service. We believe the advantages in our products include quality, breadth of offerings, performance, functionality, scalability, availability, interoperability, connectivity, time-to-market enhancements and total value of ownership. We believe our advantages in distribution include the world's largest information infrastructure-focused direct sales force and a broad network of channel partners. We believe our advantages in service include our ability to provide our customers with a full range of expertise before, during and after their purchase of solutions from us or other vendors.

Seasonality

        We generally experience the lowest demand for our products and services in the first quarter of the year and the greatest demand for our products and services in the last quarter of the year, which is consistent with the seasonality of the IT industry as a whole.

Intellectual Property

        We generally rely on patent, copyright, trademark and trade secret laws and contract rights to establish and maintain our proprietary rights in our technology and products. While our intellectual property rights are important to our success, we believe that our business as a whole is not materially dependent on any particular patent, trademark, license or other intellectual property right.

        We have been granted or own by assignment approximately 2,100 patents issued by, and have approximately 1,650 patent applications pending with, the U.S. Patent and Trademark Office, as well as a corresponding number of international patents and patent applications. While the duration of our patents varies, we believe that the duration of our patents is adequate relative to the expected lives of our products.

        We have used, registered or applied to register certain trademarks and copyrights in the United States and in other countries. We also license certain technology from third parties for use in our products and processes and license some of our technologies to third parties.

Employees

        As of December 31, 2008, we had approximately 42,100 employees worldwide, of which approximately 6,700 were employed by or working on behalf of VMware. None of our domestic employees is represented by a labor union and we

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have never suffered an interruption of business as a result of a labor dispute. We consider our relations with our employees to be good.

Financial Information About Segments, Foreign and Domestic Operations and Export Sales

        EMC operates in two businesses – EMC's Information Infrastructure business and the VMware Virtual Infrastructure business. EMC's Information Infrastructure business consists of three segments – Information Storage, Content Management and Archiving and RSA Information Security.

        Sales and marketing operations outside the United States are conducted through sales subsidiaries and branches located principally in Europe, Latin America and the Asia Pacific region. We have five manufacturing facilities: two in Massachusetts, which manufacture storage products and security products for the North American markets; two in Ireland, which manufacture storage products and security products for markets outside of North America; and one in North Carolina, which manufactures storage products for worldwide markets. See Note R to the Consolidated Financial Statements for information about revenues by segment and geographic area.

Available Information

        Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), are made available free of charge on or through our website at www.emc.com as soon as reasonably practicable after such reports are filed with, or furnished to, the Securities and Exchange Commission (the "SEC"). The SEC also maintains a website, www.sec.gov, that contains reports and other information regarding issuers that file electronically with the SEC. Copies of our (i) Corporate Governance Guidelines, (ii) charters for the Audit Committee, Leadership and Compensation Committee, Corporate Governance and Nominating Committee, Mergers and Acquisitions Committee and Finance Committee and (iii) Business Conduct Guidelines (code of business conduct and ethics) are available at www.emc.com/about/governance. Copies will be provided to any shareholder upon request. Please go to www.emc.com/ir to submit an electronic request, or send a written request to EMC Investor Relations, 176 South Street, Hopkinton, MA 01748. None of the information posted on our website is incorporated by reference into this Annual Report.

CEO Certification

        An annual CEO Certification was submitted by our CEO to the New York Stock Exchange (the "NYSE") on June 3, 2008 in accordance with the NYSE's listing standards.

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ITEM 1A.    RISK FACTORS

        The risk factors that appear below could materially affect our business, financial condition and results of operations. The risks and uncertainties described below are not the only risks and uncertainties facing us. Our business is also subject to general risks and uncertainties that affect many other companies.

Our business could be materially adversely affected as a result of general economic and market conditions, including the current economic crisis.

        We are subject to the effects of general global economic and market conditions. If these conditions remain uncertain or persist, spread or deteriorate further, our business, results of operations or financial condition could be materially adversely affected. In addition, the financial crisis in the banking sector and financial markets have resulted in a tightening in the credit markets, a low level of liquidity in many financial markets, and extreme volatility in fixed income, credit and equity markets. Possible consequences from the financial crisis on our business, including insolvency of key suppliers resulting in product delays, inability of customers to obtain credit to finance purchases of our products and/or customer insolvencies, increased risk that customers may delay payments, fail to pay or default on credit extended to them, and counterparty failures negatively impacting our treasury operations, could have a material adverse effect on our results of operations or financial condition.

Our business could be materially adversely affected as a result of a lessening demand in the information technology market.

        Our revenue and profitability depend on the overall demand for our products and services. Delays or reductions in IT spending, domestically or internationally, could materially adversely affect demand for our products and services which could result in decreased revenues or earnings.

        Our customers operate in a variety of markets, including the financial services, credit and housing, automotive and construction markets. Any adverse effects to such markets could materially adversely affect demand for our products and services which could result in decreased revenues or earnings.

Competitive pricing, sales volume, mix and component costs could materially adversely affect our revenues, gross margins and earnings.

        Our gross margins are impacted by a variety of factors, including competitive pricing, component and product design costs as well as the volume and relative mixture of product and services revenues. Increased component costs, increased pricing pressures, the relative and varying rates of increases or decreases in component costs and product price, changes in product and services revenue mixture or decreased volume could have a material adverse effect on our revenues, gross margins or earnings.

        The costs of third-party components comprise a significant portion of our product costs. While we generally have been able to manage our component and product design costs, we may have difficulty managing such costs if supplies of certain components become limited or component prices increase. Any such limitation could result in an increase in our component costs. An increase in component or design costs relative to our product prices could have a material adverse effect on our gross margins and earnings. Moreover, certain competitors may have advantages due to vertical integration of their supply chain, which may include disk drives, microprocessors, memory components and servers.

        The markets in which we do business are highly competitive and we may encounter aggressive price competition for all of our products and services from numerous companies globally. There also has been and may continue to be a willingness on the part of certain competitors to reduce prices or provide information infrastructure and virtual infrastructure products or services, together with other IT products or services, at minimal or no additional cost in order to preserve or gain market share. Such price competition may result in pressure on our product and service prices, and reductions in product and service prices may have a material adverse effect on our revenues, gross margins and earnings. We currently believe that pricing pressures will continue.

If our suppliers are not able to meet our requirements, we could have decreased revenues and earnings.

        We purchase or license many sophisticated components and products from one or a limited number of qualified suppliers, including some of our competitors. These components and products include disk drives, high density memory

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components, power supplies and software developed and maintained by third parties. We have experienced delivery delays from time to time because of high industry demand or the inability of some vendors to consistently meet our quality or delivery requirements. If any of our suppliers were to cancel or materially change contracts or commitments with us or fail to meet the quality or delivery requirements needed to satisfy customer orders for our products, we could lose time-sensitive customer orders, be unable to develop or sell certain products cost-effectively or on a timely basis, if at all, and have significantly decreased quarterly revenues and earnings, which would have a material adverse effect on our business, results of operations and financial condition. Additionally, we periodically transition our product line to incorporate new technologies. The importance of transitioning our customers smoothly to new technologies, along with our historically uneven pattern of quarterly sales, intensifies the risk that the failure of a supplier to meet our quality or delivery requirements will have a material adverse impact on our revenues and earnings. The current economic crisis may also negatively affect our suppliers' solvency, which could, in turn, result in product delays or otherwise materially adversely affect our business, results of operations or financial condition.

Our financial performance may be impacted by the financial performance of VMware.

        Because we consolidate VMware's financial results in our results of operations, our financial performance will be impacted by the financial performance of VMware. VMware's financial performance may be affected by a number of factors, including, but not limited to:

    rates of customer adoption for virtualization solutions;
    fluctuations in demand, adoption, sales cycles and pricing levels for VMware's products and services;
    fluctuations in foreign currency exchange rates;
    changes in customers' budgets for information technology purchases and in the timing of their purchasing decisions;
    VMware's ability to compete with existing or new competitors;
    the timing of recognizing revenue in any given quarter which as a result of software revenue recognition policies, can be affected by a number of factors, including product announcements and beta programs;
    the sale of VMware products in the timeframes they anticipate, including the number and size of orders in each quarter;
    VMware's ability to develop, introduce and ship in a timely manner new products and product enhancements that meet customer demand, certification requirements and technical requirements;
    VMware's ability to effectively manage future growth and acquisitions;
    changes to VMware's effective tax rate;
    the increasing scale of VMware's business and its effect on VMware's ability to maintain historical rates of growth;
    the timing of the announcement or release of products or upgrades by VMware or by its competitors;
    VMware's ability to implement scalable systems of internal controls;
    VMware's ability to control costs, including its operating expenses;
    VMware's ability to attract and retain highly skilled employees, particularly those with relevant experience in software development and sales; and
    general economic conditions in VMware's domestic and international markets.

Our stock price is volatile and may be affected by the trading price of VMware Class A common stock and/or speculation about the possibility of future actions we might take in connection with our VMware stock ownership.

        Our stock price, like that of other technology companies, is subject to significant volatility because of factors such as:

    the announcement of acquisitions, new products, services or technological innovations by us or our competitors;
    quarterly variations in our operating results;
    changes in revenue or earnings estimates by the investment community; and
    speculation in the press or investment community.

        The trading price of our common stock has been and likely will continue to be affected by various factors related to VMware, including:

    the trading price for VMware Class A common stock;
    actions taken or statements made by us, VMware, or others concerning the potential separation of VMware from us, including by spin-off, split-off or sale; and
    factors impacting the financial performance of VMware, including those discussed in the prior risk factor.

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        In addition, although we own a majority of VMware and consolidate their results, our stock price may not reflect our pro rata ownership interest of VMware.

We may be unable to keep pace with rapid industry, technological and market changes.

        The markets in which we compete are characterized by rapid technological change, frequent new product introductions, evolving industry standards and changing needs of customers. There can be no assurance that our existing products will be properly positioned in the market or that we will be able to introduce new or enhanced products into the market on a timely basis, or at all. We spend a considerable amount of money on research and development and introduce new products from time to time. There can be no assurance that enhancements to existing products and solutions or new products and solutions will receive customer acceptance. As competition in the IT industry increases, it may become increasingly difficult for us to maintain a technological advantage and to leverage that advantage toward increased revenues and profits.

        Risks associated with the development and introduction of new products include delays in development and changes in data storage, networking virtualization, infrastructure management, information security and operating system technologies which could require us to modify existing products. Risks inherent in the transition to new products include:

    the difficulty in forecasting customer preferences or demand accurately;
    the inability to expand production capacity to meet demand for new products;
    the impact of customers' demand for new products on the products being replaced, thereby causing a decline in sales of existing products and an excessive, obsolete supply of inventory; and
    delays in initial shipments of new products.

        Further risks inherent in new product introductions include the uncertainty of price-performance relative to products of competitors, competitors' responses to the introductions and the desire by customers to evaluate new products for extended periods of time. Our failure to introduce new or enhanced products on a timely basis, keep pace with rapid industry, technological or market changes or effectively manage the transitions to new products or new technologies could have a material adverse effect on our business, results of operations or financial condition.

The markets we serve are highly competitive and we may be unable to compete effectively.

        We compete with many companies in the markets we serve, certain of which offer a broad spectrum of IT products and services and others which offer specific information storage, content management, security or virtualization products or services. Some of these companies (whether independently or by establishing alliances) may have substantially greater financial, marketing and technological resources, larger distribution capabilities, earlier access to customers and greater opportunity to address customers' various IT requirements than us. In addition, as the IT industry consolidates, companies may improve their competitive position and ability to compete against us. We compete on the basis of our products' features, performance and price as well as our services. Our failure to compete on any of these bases could affect demand for our products or services, which could have a material adverse effect on our business, results of operations or financial condition.

        Companies may develop new technologies or products in advance of us or establish business models or technologies disruptive to us. Our business may be materially adversely affected by the announcement or introduction of new products, including hardware and software products and services by our competitors, and the implementation of effective marketing or sales strategies by our competitors. The material adverse effect to our business could include a decrease in demand for our products and services and an increase in the length of our sales cycle due to customers taking longer to compare products and services and to complete their purchases.

We may have difficulty managing operations.

        Our future operating results will depend on our overall ability to manage operations, which includes, among other things:

    retaining and hiring, as required, the appropriate number of qualified employees;
    managing, protecting and enhancing, as appropriate, our infrastructure, including but not limited to, our information systems and internal controls;

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    accurately forecasting revenues;
    training our sales force to sell more software and services;
    successfully integrating new acquisitions;
    managing inventory levels, including minimizing excess and obsolete inventory, while maintaining sufficient inventory to meet customer demands;
    controlling expenses;
    managing our manufacturing capacity, real estate facilities and other assets; and
    executing on our plans.

        An unexpected decline in revenues without a corresponding and timely reduction in expenses or a failure to manage other aspects of our operations could have a material adverse effect on our business, results of operations or financial condition.

Our investment portfolio could experience a decline in market value which could adversely affect our financial results.

        We held $3.3 billion in short and long-term investments as of December 31, 2008. The investments are invested primarily in investment grade securities, and we limit the amount of investment with any one issuer. A further deterioration in the economy, including a continuing credit crisis, increased defaults by issuers, or significant volatility in interest rates, could cause the investments to decline in value or could impact the liquidity of the portfolio. If market conditions deteriorate significantly, our results of operations or financial condition could be materially adversely affected.

If our cost cutting measures are not successful, our business could be adversely affected.

        A variety of factors could prevent us from achieving our goal of better aligning our revenues and cost structure. We may not be able to identify and implement appropriate cost savings in a timely manner. Additionally, we may determine that the costs of implementing reductions outweigh the commensurate benefits. Should we implement certain cost reductions, there could be adverse consequences on our business which could have a material adverse effect on our results of operations or financial position.

Our business may suffer if we are unable to retain or attract key personnel.

        Our business depends to a significant extent on the continued service of senior management and other key employees, the development of additional management personnel and the hiring of new qualified employees. There can be no assurance that we will be successful in retaining existing personnel or recruiting new personnel. The loss of one or more key or other employees, our inability to attract additional qualified employees or the delay in hiring key personnel could have a material adverse effect on our business, results of operations or financial condition.

Our quarterly revenues and earnings could be materially adversely affected by uneven sales patterns and changing purchasing behaviors.

        Our quarterly sales have historically reflected an uneven pattern in which a disproportionate percentage of a quarter's total sales occur in the last month and weeks and days of each quarter. This pattern makes prediction of revenues, earnings and working capital for each financial period especially difficult and uncertain and increases the risk of unanticipated variations in quarterly results and financial condition. We believe this uneven sales pattern is a result of many factors including:

    the relative dollar amount of our product and services offerings in relation to many of our customers' budgets, resulting in long lead times for customers' budgetary approval, which tends to be given late in a quarter;
    the tendency of customers to wait until late in a quarter to commit to purchase in the hope of obtaining more favorable pricing from one or more competitors seeking their business;
    the fourth quarter influence of customers' spending their remaining capital budget authorization prior to new budget constraints in the first nine months of the following year; and
    seasonal influences.

        Our uneven sales pattern also makes it extremely difficult to predict near-term demand and adjust manufacturing capacity or our supply chain accordingly. If predicted demand is substantially greater than orders, there will be excess inventory. Alternatively, if orders substantially exceed predicted demand, the ability to assemble, test and ship orders

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received in the last weeks and days of each quarter may be limited, which could materially adversely affect quarterly revenues and earnings.

        In addition, our revenues in any quarter are substantially dependent on orders booked and shipped in that quarter and our backlog at any particular time is not necessarily indicative of future sales levels. This is because:

    we assemble our products on the basis of our forecast of near-term demand and maintain inventory in advance of receipt of firm orders from customers;
    we generally ship products shortly after receipt of the order; and
    customers may generally reschedule or cancel orders with little or no penalty.

        Loss of infrastructure, due to factors such as an information systems failure, loss of public utilities or extreme weather conditions, could impact our ability to ship products in a timely manner. Delays in product shipping or an unexpected decline in revenues without a corresponding and timely slowdown in expenses, could intensify the impact of these factors on our business, results of operations and financial condition.

        In addition, unanticipated changes in our customers' purchasing behaviors such as customers taking longer to negotiate and complete their purchases or making smaller, incremental purchases based on their current needs, also make the prediction of revenues, earnings and working capital for each financial period difficult and uncertain and increase the risk of unanticipated variations in our quarterly results and financial condition.

Risks associated with our distribution channels may materially adversely affect our financial results.

        In addition to our direct sales force, we have agreements in place with many distributors, systems integrators, resellers and original equipment manufacturers to market and sell our products and services. We may, from time to time, derive a significant percentage of our revenues from such distribution channels. For 2008, Dell Inc., one of our channel partners, accounted for 11.5% of our revenues. Our financial results could be materially adversely affected if our contracts with channel partners were terminated, if our relationship with channel partners were to deteriorate, if the financial condition of our channel partners were to weaken, if our channel partners are not able to timely and effectively implement their planned actions or if the level of demand for our channel partners' products and services decreases. In addition, as our market opportunities change, we may have an increased reliance on channel partners, which may negatively impact our gross margins. There can be no assurance that we will be successful in maintaining or expanding these channels. If we are not successful, we may lose sales opportunities, customers and market share. Furthermore, the partial reliance on channel partners may materially reduce the visibility to our management of potential customers and demand for products and services, thereby making it more difficult to accurately forecast such demand. In addition, there can be no assurance that our channel partners will not develop, market or sell products or services or acquire other companies that develop, market or sell products or services in competition with us in the future.

        In addition, as we focus on new market opportunities and additional customers through our various distribution channels, including small-to-medium sized businesses, we may be required to provide different levels of service and support than we typically provided in the past. We may have difficulty managing directly or indirectly through our channels these different service and support requirements and may be required to incur substantial costs to provide such services which may adversely affect our business, results of operations or financial condition.

Due to the international nature of our business, changes in foreign conditions or other factors could impair our international operations, future revenue or financial condition.

        A substantial portion of our revenues is derived from sales outside the United States. In addition, a substantial portion of our products is manufactured outside of the United States. Accordingly, our future results could be materially adversely affected by a variety of factors, including changes in foreign currency exchange rates, changes in a specific country's or region's political or economic conditions, trade restrictions, import or export licensing requirements, the overlap of different tax structures or changes in international tax laws, changes in regulatory requirements, compliance with a variety of foreign laws and regulations and longer payment cycles in certain countries. In addition, we hold a significant portion of our cash and investments in our international subsidiaries. Potential regulations could impact our ability to transfer the cash and investments to the United States. Additionally, should we desire to repatriate cash, we may incur a significant tax obligation.

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Undetected problems in our products could directly impair our financial results.

        If flaws in design, production, assembly or testing of our products (by us or our suppliers) were to occur, we could experience a rate of failure in our products that would result in substantial repair, replacement or service costs and potential damage to our reputation. Continued improvement in manufacturing capabilities, control of material and manufacturing quality and costs and product testing are critical factors in our future growth. There can be no assurance that our efforts to monitor, develop, modify and implement appropriate test and manufacturing processes for our products will be sufficient to permit us to avoid a rate of failure in our products that results in substantial delays in shipment, significant repair or replacement costs or potential damage to our reputation, any of which could have a material adverse effect on our business, results of operations or financial condition.

Our business could be materially adversely affected as a result of the risks associated with alliances.

        We have alliances with leading information technology companies and we plan to continue our strategy of developing key alliances in order to expand our reach into markets. There can be no assurance that we will be successful in our ongoing strategic alliances or that we will be able to find further suitable business relationships as we develop new products and strategies. Any failure to continue or expand such relationships could have a material adverse effect on our business, results of operations or financial condition.

        There can be no assurance that companies with which we have strategic alliances, certain of which have substantially greater financial, marketing or technological resources than us, will not develop or market products in competition with us in the future, discontinue their alliances with us or form alliances with our competitors.

Our business may suffer if we cannot protect our intellectual property.

        We generally rely upon patent, copyright, trademark and trade secret laws and contract rights in the United States and in other countries to establish and maintain our proprietary rights in our technology and products. However, there can be no assurance that any of our proprietary rights will not be challenged, invalidated or circumvented. In addition, the laws of certain countries do not protect our proprietary rights to the same extent as do the laws of the United States. Therefore, there can be no assurance that we will be able to adequately protect our proprietary technology against unauthorized third-party copying or use, which could adversely affect our competitive position. Further, there can be no assurance that we will be able to obtain licenses to any technology that we may require to conduct our business or that, if obtainable, such technology can be licensed at a reasonable cost.

        From time to time, we receive notices from third parties claiming infringement by our products of third-party patent or other intellectual property rights. Responding to any such claim, regardless of its merit, could be time-consuming, result in costly litigation, divert management's attention and resources and cause us to incur significant expenses. In the event there is a temporary or permanent injunction entered prohibiting us from marketing or selling certain of our products or a successful claim of infringement against us requiring us to pay royalties to a third party, and we fail to develop or license a substitute technology, our business, results of operations or financial condition could be materially adversely affected.

We may become involved in litigation that may materially adversely affect us.

        From time to time in the ordinary course of our business, we may become involved in various legal proceedings, including patent, commercial, product liability, employment, class action, whistleblower and other litigation and claims, and governmental and other regulatory investigations and proceedings. Such matters can be time-consuming, divert management's attention and resources and cause us to incur significant expenses. Furthermore, because litigation is inherently unpredictable, there can be no assurance that the results of any of these actions will not have a material adverse effect on our business, results of operations or financial condition.

We may have exposure to additional income tax liabilities.

        As a multinational corporation, we are subject to income taxes in both the United States and various foreign jurisdictions. Our domestic and international tax liabilities are subject to the allocation of revenues and expenses in different jurisdictions and the timing of recognizing revenues and expenses. Additionally, the amount of income taxes paid is subject to our interpretation of applicable tax laws in the jurisdictions in which we file. From time to time, we are subject to income tax audits. While we believe we have complied with all applicable income tax laws, there can be no assurance that

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a governing tax authority will not have a different interpretation of the law and assess us with additional taxes. Should we be assessed with additional taxes, there could be a material adverse effect on our results of operations or financial condition.

Changes in regulations could materially adversely affect us.

        Our business, results of operations or financial condition could be materially adversely affected if laws, regulations or standards relating to us or our products are newly implemented or changed. In addition, our compliance with existing regulations may have a material adverse impact on us. Under applicable federal securities laws, including the Sarbanes-Oxley Act of 2002, we are required to evaluate and determine the effectiveness of our internal control structure and procedures for financial reporting. Should we or our independent auditors determine that we have material weaknesses in our internal controls, our results of operations or financial condition may be materially adversely affected or our stock price may decline.

Changes in generally accepted accounting principles may adversely affect us.

        From time to time, the Financial Accounting Standards Board ("FASB") promulgates new accounting principles that could have a material adverse impact on our results of operations or financial condition. For example, in May 2008, the FASB voted to issue FASB Staff Position ("FSP") APB 14-1, which changes the accounting treatment for certain convertible securities which include our Notes. See Note A to our Consolidated Financial Statements.

        In addition, in 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R) "Business Combinations." The standard, which is effective commencing in our 2009 fiscal year, will result in significant changes in accounting for acquisitions. Depending upon the number of and magnitude of acquisitions which we may consummate in 2009, the standard could have a material adverse effect on our business, results of operations or financial condition.

Our business could be materially adversely affected as a result of the risks associated with acquisitions and investments.

        As part of our business strategy, we seek to acquire businesses that offer complementary products, services or technologies. These acquisitions are accompanied by the risks commonly encountered in an acquisition of a business, which may include, among other things:

    the effect of the acquisition on our financial and strategic position and reputation;
    the failure of an acquired business to further our strategies;
    the failure of the acquisition to result in expected benefits, which may include benefits relating to enhanced revenues, technology, human resources, cost savings, operating efficiencies and other synergies;
    the difficulty and cost of integrating the acquired business, including costs and delays in implementing common systems and procedures and costs and delays caused by communication difficulties or geographic distances between the two companies' sites;
    the assumption of liabilities of the acquired business, including litigation-related liability;
    the potential impairment of acquired assets;
    the lack of experience in new markets, products or technologies or the initial dependence on unfamiliar supply or distribution partners;
    the diversion of our management's attention from other business concerns;
    the impairment of relationships with customers or suppliers of the acquired business or our customers or suppliers;
    the potential loss of key employees of the acquired company; and
    the potential incompatibility of business cultures.

        These factors could have a material adverse effect on our business, results of operations or financial condition. To the extent that we issue shares of our common stock or other rights to purchase our common stock in connection with any future acquisition, existing shareholders may experience dilution. Additionally, regardless of the form of consideration issued, acquisitions could negatively impact our net income and our earnings per share.

        In addition to the risks commonly encountered in the acquisition of a business as described above, we may also experience risks relating to the challenges and costs of closing a transaction. Further, the risks described above may be exacerbated as a result of managing multiple acquisitions at the same time.

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        We also seek to invest in businesses that offer complementary products, services or technologies. These investments are accompanied by risks similar to those encountered in an acquisition of a business.

Our pension and retirement benefit plan assets are subject to market volatility.

        We have noncontributory defined benefit pension plans and a post-retirement benefit plan assumed as part of our Data General acquisition. The plans' assets are invested in common stocks, bonds and cash. The expected long-term rate of return on the plans' assets is 8.0%. For the ten years ended December 31, 2007, the actual long-term rate of return was 6.0%. In 2008, we experienced a 27.0% loss on the plans' assets. As such, the actual long-term rate of return achieved on the plans' assets for the ten years ended December 31, 2008 was 1.6%. Given current market conditions, should we not achieve the expected rate of return on our plans' assets or if our plans experience a decline in the fair value of their assets, we may be required to contribute assets to the plans which could materially adversely affect our results of operations or financial condition.

Our business could be materially adversely affected by changes in regulations or standards regarding energy use of our products.

        We continually seek ways to increase the energy efficiency of our products. Recent analyses have estimated the amount of global carbon emissions that are due to information technology products. As a result, governmental and non-governmental organizations have turned their attention to development of regulations and standards to drive technological improvements and reduce such amount of carbon emissions. There is a risk that the rush to development of these standards will not fully address the complexity of the technology developed by the IT industry or will favor certain technological approaches. Depending on the regulations or standards that are ultimately adopted, compliance could adversely affect our business, results of operations or financial condition.

Our business could be materially adversely affected as a result of war or acts of terrorism.

        Terrorist acts or acts of war may cause damage or disruption to our employees, facilities, customers, partners, suppliers, distributors and resellers, which could have a material adverse effect on our business, results of operations or financial condition. Such conflicts may also cause damage or disruption to transportation and communication systems and to our ability to manage logistics in such an environment, including receipt of components and distribution of products.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

        None.

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ITEM 2.    PROPERTIES

        As of December 31, 2008, we owned or leased the facilities described below:

Location
  Approximate Sq. Ft.*   Principal Use(s)   Principal Segment(s)

Hopkinton, MA

 
owned:
   
1,681,000
 

executive and administrative offices, R&D, customer service and sales

 

Information Storage, Content Mgmt. & Archiving

                 

Franklin, MA

 
owned:
leased:
   
922,000
96,000
 

manufacturing

 

Information Storage

                 

Bedford, MA

 
leased:
   
328,000
 

R&D, customer service, sales and administrative offices

 

RSA Information Security

                 

Apex, NC

 
owned:
   
391,000
 

manufacturing

 

Information Storage

                 

Palo Alto, CA

 
owned:
leased:
   
462,000
371,000
 

executive and administrative offices, R&D and sales

 

VMware Virtual Infrastructure

                 

Other North American Locations

 
owned:
leased:
   
854,000
3,941,000
 

executive and administrative offices, sales, customer service and R&D

 

**

                 

Asia Pacific

 
leased:
   
1,230,000
 

sales, customer service and R&D

 

**

                 

Cork, Ireland

 
owned:
leased:
   
578,000
75,000
 

manufacturing, customer service, R&D and administrative offices

 

**

                 

Europe, Middle East and Africa (excluding Cork, Ireland)

 
owned:
leased:
   
32,000
1,446,000
 

sales, manufacturing, customer service and R&D

 

**

                 

Latin American

 
leased:
   
95,000
 

sales and customer service

 

**

                 

*
Of the total square feet owned and leased, approximately 619,000 square feet was vacant and 710,000 square feet was leased or subleased to non-EMC businesses.
**
All segments of our business generally utilize these facilities.

        We also own land in Massachusetts and Ireland for possible future expansion purposes. We believe our existing facilities are suitable and adequate for our present purposes. For further information regarding our lease obligations, see Note M to our Consolidated Financial Statements.

ITEM 3.    LEGAL PROCEEDINGS

        We are a party to litigation which we consider routine and incidental to our business. Management does not expect the results of any of these actions to have a material adverse effect on our business, results of operations or financial condition.

        We have learned that the Civil Division of the United States Department of Justice (the "DoJ") is investigating allegations concerning (i) EMC's fee arrangements with systems integrators and other partners in federal government transactions, and (ii) EMC's compliance with the terms and conditions of certain agreements pursuant to which we sold products and services to the federal government, including potential violations of the False Claims Act. The subject matter of this investigation also overlaps with that of a previous audit by the U.S. General Services Administration ("GSA") concerning our recordkeeping and pricing practices under a schedule agreement we entered into with GSA in November 1999 which, following several extensions, expired in June 2007. We have cooperated with both the audit and the DoJ investigation, voluntarily providing documents and information, and have engaged in discussions aimed at resolving this matter without any admission or finding of liability on the part of EMC. We believe that we have meritorious factual and legal defenses to the allegations raised and, if the matter is not resolved and proceeds to litigation, we intend to defend vigorously. If the matter proceeds to litigation, possible sanctions include an award of damages, including treble damages, fines, penalties and other sanctions, including suspension or debarment from sales to the federal government.

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        In accordance with Statement of Financial Accounting Standards No. 5, we have estimated the loss that may result from this matter, and such amount is reflected in our consolidated financial statements. It is not possible to predict the outcome of this matter with certainty, and the actual amount of loss may prove to be larger or smaller than the amount reflected in our consolidated financial statements.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        No matter was submitted to a vote of our shareholders during the fourth quarter of 2008.


EXECUTIVE OFFICERS OF THE REGISTRANT

        Our executive officers are as follows:

Name
  Age   Position

Joseph M. Tucci

    61   Chairman, President and Chief Executive Officer

William J. Teuber, Jr. 

    57   Vice Chairman

Arthur W. Coviello, Jr. 

    55   Executive Vice President and President, RSA Security

Paul T. Dacier

    51   Executive Vice President and General Counsel

David A. Donatelli

    43   Executive Vice President and President, EMC Storage Division

Howard D. Elias

    51   Executive Vice President and President, EMC Global Services and Resource Management Software Group

David I. Goulden

    49   Executive Vice President and Chief Financial Officer

Frank M. Hauck

    49   Executive Vice President, Global Marketing and Customer Quality

Mark S. Lewis

    46   Executive Vice President and President, EMC Content Management and Archiving Division

John T. Mollen

    58   Executive Vice President, Human Resources

Harry L. You

    49   Executive Vice President, Office of the Chairman

        Joseph M. Tucci has been the Chairman of the Board of Directors since January 2006 and has been Chief Executive Officer and a Director since January 2001. He has served as President since January 2000. He also served as Chief Operating Officer from January 2000 to January 2001. Prior to joining EMC, Mr. Tucci served as Deputy Chief Executive Officer of Getronics N.V., an information technology services company, from June 1999 through December 1999 and as Chairman of the Board and Chief Executive Officer of Wang Global, an information technology services company, from December 1993 to June 1999. Mr. Tucci is the Chairman of the Board of Directors of VMware and a director of Paychex, Inc., a provider of payroll, human resources and benefits outsourcing solutions.

        William J. Teuber, Jr. has been our Vice Chairman since May 2006. In this role, Mr. Teuber assists the Chairman, President and Chief Executive Officer in the day-to-day management of EMC and leads EMC Customer Operations, our worldwide sales and distribution organization. Mr. Teuber served as our Vice Chairman and Chief Financial Officer from May 2006 to August 2006 and as Executive Vice President and Chief Financial Officer from November 2001 to May 2006. Mr. Teuber joined EMC in 1995. Prior to serving as our Chief Financial Officer, he served as our Controller. Mr. Teuber is a director of Popular, Inc., a financial holding company.

        Arthur W. Coviello, Jr. has been our Executive Vice President and President of RSA, the Security Division of EMC, since September 2006. Prior to joining EMC, Mr. Coviello served as Chief Executive Officer of RSA Security Inc. from January 2000 to September 2006 and as acting Chief Financial Officer of RSA Security from December 2005 to May 2006. He served as President of RSA Security from March 1999 to September 2006. Mr. Coviello joined RSA in 1995. Mr. Coviello is a director of EnerNOC, Inc., a provider of demand response and energy management solutions to commercial, institutional and industrial customers, as well as electric power grid operators and utilities in the United States.

        Paul T. Dacier has been our Executive Vice President and General Counsel since May 2006. Mr. Dacier served as Senior Vice President and General Counsel from February 2000 to May 2006 and joined EMC in 1993. Mr. Dacier is a director of Genesis Lease Limited, a global commercial aircraft leasing company.

        David A. Donatelli has been our President, EMC Storage Division since September 2007 and Executive Vice President since November 2001. Mr. Donatelli served as Executive Vice President, Storage Product Platforms from August 2006 to September 2007. He served as Executive Vice President, Storage Platforms Operations from November 2001 to August

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2006. He has also held a number of other executive positions since he joined EMC in 1987, including serving as Vice President, General Manager of our EDM business, Vice President of Global Alliances, and Senior Vice President, Corporate Marketing and New Business Development.

        Howard D. Elias has been our President, EMC Global Services and Resource Management Software Group since September 2007 and Executive Vice President since September 2003. Mr. Elias served as our Executive Vice President, Global Services and Resource Management Software Group from May 2006 to September 2007 and served as our Executive Vice President, Global Marketing and Corporate Development from January 2006 to May 2006. He served as Executive Vice President, Corporate Marketing, Office of Technology and New Business Development from January 2004 to January 2006. Prior to joining EMC, Mr. Elias served in various capacities at Hewlett-Packard Company, a provider of information technology products, services and solutions for enterprise customers, most recently as Senior Vice President of Business Management and Operations in the Enterprise Systems Group. Mr. Elias is a director of Gannett Company, Inc., a leading international news and information company.

        David I. Goulden has been our Executive Vice President and Chief Financial Officer since August 2006. Mr. Goulden served as our Executive Vice President, Customer Operations from April 2004 to August 2006. He served as Executive Vice President, Customer Solutions and Marketing and New Business Development from November 2003 to April 2004. Prior to joining EMC in 2002, Mr. Goulden served in various capacities at Getronics N.V., an information technology services company, most recently as a member of the Board of Management, President and Chief Operating Officer for the Americas and Asia Pacific. Mr. Goulden is a director of VMware.

        Frank M. Hauck has been our Executive Vice President, Global Marketing and Customer Quality since May 2006. Mr. Hauck served as Executive Vice President, Customer Quality and Services from April 2005 to May 2006. He served as Executive Vice President, Customer Operations from November 2001 to April 2005. Mr. Hauck has also held a number of other executive positions since he joined EMC in 1990, including Executive Vice President, Global Sales and Services, Chief Information Officer, Executive Vice President, Products and Offerings, Senior Vice President, Business Integration, and Senior Vice President, Customer Service.

        Mark S. Lewis has been our President, EMC Content Management and Archiving Division since September 2007 and Executive Vice President since July 2002. Mr. Lewis served as Executive Vice President, Chief Development Officer from May 2005 to September 2007. Mr. Lewis served as Executive Vice President, EMC Software Group from July 2004 to May 2005. Mr. Lewis served as Executive Vice President, Open Software Operations from July 2003 to July 2004, and prior to that served as Executive Vice President, New Ventures and Chief Technology Officer. Prior to joining EMC, Mr. Lewis served as Vice President of Worldwide Marketing and Solutions in the Network Storage Solutions Group at Hewlett-Packard.

        John T. Mollen has been our Executive Vice President, Human Resources since May 2006. Mr. Mollen joined EMC as Senior Vice President, Human Resources in September 1999. Prior to joining EMC, he was Vice President of Human Resources with Citigroup Inc., a financial services company.

        Harry L. You has been our Executive Vice President, Office of the Chairman since February 2008. In this role, Mr. You oversees EMC's corporate strategy and new business development. He also manages the activities of EMC's Chief Technology Office as well as certain operating functions. Prior to joining EMC, Mr. You served as Chief Executive Officer of BearingPoint, Inc., a management and technology consulting firm, from March 2005 to December 2007 and as BearingPoint's Interim Chief Financial Officer from July 2005 to October 2006. From 2004 to 2005, Mr. You was Executive Vice President and Chief Financial Officer of Oracle Corporation, a large enterprise software company, and from 2001 to 2004, he was the Chief Financial Officer of Accenture Ltd, a global management consulting, technology services and outsourcing company. Mr. You is a director of Korn/Ferry International, a global executive recruiting company.



        EMC, EMC ControlCenter, EMC Proven, Avamar, Captiva, Celerra, Celerra Replicator, Centera, CLARiiON, Connectrix, Document Sciences, Documentum, EDM, MirrorView, Mozy, NetWorker, PowerPath, Rainfinity, Retrospect, RSA, RSA Security, Smarts, SnapView, SRDF, Symmetrix, Symmetrix DMX, TimeFinder and xPression are either registered trademarks or trademarks of EMC Corporation. VMware is a registered trademark of VMware, Inc. Other trademarks are either registered trademarks or trademarks of their respective owners.

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

        Our common stock, par value $.01 per share, trades on the New York Stock Exchange under the symbol EMC.

        The following table sets forth the range of high and low sales prices of our common stock on the New York Stock Exchange for the past two years during the fiscal periods shown.

Fiscal 2008
  High   Low  

First Quarter

  $ 18.60   $ 14.01  

Second Quarter

    18.50     14.05  

Third Quarter

    15.78     11.22  

Fourth Quarter

    12.25     8.25  
Fiscal 2007
  High   Low  

First Quarter

  $ 14.89   $ 12.74  

Second Quarter

    18.16     13.85  

Third Quarter

    21.10     16.89  

Fourth Quarter

    25.47     17.36  

        We had 12,690 holders of record of our common stock as of February 26, 2009.

        We have never paid cash dividends on our common stock. While subject to periodic review, the current policy of our Board of Directors is to retain cash and investments primarily to provide funds for our future growth. Additionally, we use cash to repurchase our common stock.


ISSUER PURCHASES OF EQUITY SECURITIES IN THE FOURTH QUARTER OF 2008

Period
  Total Number
of Shares
Purchased(1)
  Average Price
Paid per Share
  Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
  Maximum Number (or
Approximate Dollar
Value) of Shares that
May Yet Be Purchased
Under the Plans or
Programs
 

October 1, 2008 –
October 31, 2008

    10,423,331   $ 11.48     10,390,204     214,726,777  

November 1, 2008 –
November 30, 2008

    26,278,016     9.60     26,055,806     188,670,971  

December 1, 2008 –
December 31, 2008

    33,286     10.43     21,369     188,649,602  
                       

Total

    36,734,633 (2) $ 10.14     36,467,379     188,649,602  
                       

    (1)
    Except as noted in note (2), all shares were purchased in open-market transactions pursuant to a previously announced authorization by our Board of Directors in April 2006 and April 2008 to repurchase a combined 500.0 million shares of our common stock. These repurchase authorizations do not have a fixed termination date.
    (2)
    Includes an aggregate of 267,254 shares withheld from employees for the payment of taxes.

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ITEM 6.   SELECTED CONSOLIDATED FINANCIAL DATA

FIVE YEAR SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share amounts)

 
  Year Ended December 31,  
 
  2008(1)   2007(2)   2006(3)   2005(4)   2004(5)  

Summary of Operations:

                               
 

Revenues

  $ 14,876,163   $ 13,230,205   $ 11,155,090   $ 9,663,955   $ 8,229,488  
 

Operating income

    1,568,936     1,739,252     1,207,758     1,480,422     1,043,993  
 

Net income

    1,345,567     1,665,668     1,227,601     1,133,165     871,189  
 

Net income per weighted average share, basic

  $ 0.66   $ 0.80   $ 0.55   $ 0.48   $ 0.36  
 

Net income per weighted average share, diluted

  $ 0.64   $ 0.77   $ 0.54   $ 0.47   $ 0.36  
 

Weighted average shares, basic

    2,048,506     2,079,542     2,248,431     2,382,977     2,402,198  
 

Weighted average shares, diluted

    2,079,853     2,157,873     2,286,304     2,432,582     2,450,570  

Balance Sheet Data:

                               
 

Working capital

  $ 5,446,593   $ 5,644,894   $ 2,858,825   $ 2,900,118   $ 1,882,226  
 

Total assets

    23,874,575     22,284,654     18,566,247     16,790,383     15,422,906  
 

Long-term obligations(6)

    3,454,314     3,454,643     3,454,665     129,994     130,844  
 

Total stockholders' equity

    13,041,963     12,521,317     10,325,707     12,065,430     11,523,287  

    (1)
    In 2008, EMC acquired all of the outstanding shares of 12 companies (see Note C to the Consolidated Financial Statements).
    (2)
    In 2007, EMC acquired all of the outstanding shares of 14 companies (see Note C to the Consolidated Financial Statements).
    (3)
    In 2006, EMC acquired all of the outstanding shares of RSA Security Inc. and seven other companies (see Note C to the Consolidated Financial Statements). In 2006, EMC adopted FAS No. 123R "Share-based Payment" which requires the expensing of stock options. As a result of adopting the new standard, Operating income decreased by $241.6 million, Net income decreased by $204.5 million, Net income per weighted average share, basic decreased by $0.10 and Net income per weighted average share, diluted decreased by $0.09.
    (4)
    In 2005, EMC acquired all of the outstanding shares of System Management Arts Incorporated and Captiva Software Corporation.
    (5)
    In 2004, EMC acquired all of the outstanding shares of VMware, Inc.
    (6)
    Includes long-term convertible debt and capital leases, excluding current portion.

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management's Discussion and Analysis ("MD&A") of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements and notes thereto which appear elsewhere in this Annual Report on Form 10-K. The following discussion contains forward-looking statements and should also be read in conjunction with the risk factors set forth in Item 1A. The forward-looking statements do not include the potential impact of any mergers, acquisitions, divestitures, securities offerings or business combinations that may be announced or closed after the date hereof.


All dollar amounts expressed numerically in this MD&A are in millions, except per share amounts.
Certain tables may not add due to rounding.

INTRODUCTION

        We manage our business in two broad categories: EMC Information Infrastructure and VMware Virtual Infrastructure.

EMC Information Infrastructure

        Our EMC Information Infrastructure business consists of three of our segments: Information Storage, Content Management and Archiving and RSA Information Security. Our objective for our EMC Information Infrastructure business is to grow faster than the markets we serve by investing in the business for sustainable advantage.

        To further improve the competitiveness and efficiency of our global business in response to a challenging global economy, in the fourth quarter of 2008, we implemented a restructuring program to further streamline the costs related to our Information Infrastructure business. We expect the program to reduce costs from our 2008 rate by approximately $350 in 2009, increasing to approximately $500 in 2010. The program's focus is to consolidate back office functions, field and campus offices, rebalance investments towards higher-growth products and markets, reduce management layers, and further reduce indirect spend on contractors, third-party services and travel. The restructuring program will reduce our global Information Infrastructure workforce by approximately 2,400 positions. The program is expected to favorably impact our cost of sales, selling, general & administrative ("SG&A") and research & development ("R&D") expenses. For 2009, we estimate that approximately a third of these reductions will be to our cost of sales and the remaining two thirds will be to our other operating expenses.

        The program's expected savings will come from both cost reductions and the transformation of several areas of our operational cost structure. As part of the program, we are undertaking several initiatives to transform the structural efficiency of our operations worldwide. These initiatives will include the consolidation and movement of various facilities and processes beginning in 2009 and to be completed by the end of 2010. As part of these transformation efforts, we expect to incur additional non-recurring costs of approximately $75 to $100 over this period. These investments are necessary to implement the new, more efficient capabilities ahead of transitioning from the existing cost structure.

        As a result of the program, we recognized a restructuring charge of $247.9 in the fourth quarter of 2008. We expect to record additional restructuring charges of approximately $100 to $125 across 2009 and 2010.

        We expect the global economic situation to have a negative impact on IT spending in 2009. Our best estimate is that 2009 global IT spending will decline as a percentage in the mid to high single digits compared with 2008. We expect the markets that we address will perform slightly better than the overall IT market. We also expect that a higher than usual percentage of the full-year IT spending will take place in the second half of the year.

VMware Virtual Infrastructure

        Our VMware Virtual Infrastructure business has achieved significant revenue growth to date by focusing on delivering new virtual infrastructure software solutions technology and products, expanding its network of technology and distribution partners, increasing product awareness, promoting the adoption of virtualization and building long-term relationships with its customers through the adoption of enterprise license agreements.

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        The current financial focus of VMware is on revenue growth to generate cash flows to fund its expansion of industry segment share and development of virtualization-based products for data centers, desktops and cloud computing. VMware expects to continue its revenue growth by broadening its virtual infrastructure software solutions technology and product portfolio.

        Although VMware is currently the leading provider of virtual infrastructure solutions, management believes the use of virtual infrastructure solutions is at early stages by customers. The business faces competitive threats to its leadership from a number of companies, some of which have significantly greater resources, which could result in increased pressure to reduce prices on its offerings. As a result, management believes it is important to continue to invest in strategic initiatives related to product research and development, market expansion and associated support functions to expand industry leadership. These investments could result in contracting operating margins as VMware invests in its future.

RESULTS OF OPERATIONS

Revenues

        The following table presents revenue by our segments:

 
   
   
   
  Percentage Change  
 
  2008   2007   2006   2008 vs 2007   2007 vs 2006  

Information Storage

  $ 11,632.3   $ 10,610.9   $ 9,608.6     9.6 %   10.4 %

Content Management and Archiving

    785.6     773.2     685.8     1.6     12.7  

RSA Information Security

    581.3     525.3     151.7     10.7     246.3  

VMware Virtual Infrastructure

    1,876.9     1,320.8     709.0     42.1     86.3  
                       
   

Total revenues

  $ 14,876.2   $ 13,230.2   $ 11,155.1     12.4 %   18.6 %
                       

        The Information Storage segment revenues include systems, software and other services revenues. Systems revenues were $6,281.6, $5,737.6 and $5,124.8 in 2008, 2007 and 2006, respectively, representing an increase of 9.5% in 2008 and 12.0% in 2007. The increases in systems revenues were due to greater demand for these products attributable to increased demand for our IT infrastructure offerings and a broadened product portfolio. Software revenues were $3,170.5, $3,078.0 and $2,941.2 in 2008, 2007 and 2006, respectively, representing an increase of 3.0% and 4.7% in 2008 and 2007, respectively. The 2008 increase of 3.0% was due to an $186.4 or 18.6% increase in software maintenance revenues, partially offset by a decrease in software license revenues of $93.9 or 4.5%. Software maintenance revenues increased due to continued demand for support from our installed base. The decline in software license revenues was due to a combination of factors, including existing systems' customers migrating to higher-end systems while continuing to utilize their existing software licenses and increased lower-end systems sales which utilize less software. The 2007 increase of 4.7% was due to a $76.3 or 8.2% increase in software maintenance revenues and a $60.5 or 3.0% increase in software license revenues. Software maintenance revenues increased due to continued demand for support from our installed base. Software license revenue increased when compared to the prior comparable period due to demand for our backup recovery software and platform based software. Total other services revenues were $2,180.2, $1,795.3 and $1,542.6 in 2008, 2007 and 2006, respectively, representing an increase of 21.4% in 2008 and 16.4% in 2007. Other services primarily consist of professional services and system maintenance. Professional services increased $278.6 or 22.7% and $208.3 or 20.5% in 2008 and 2007, respectively, and system maintenance revenues increased $89.1 or 17.7% and $36.6 or 7.8% in 2008 and 2007, respectively. The increase in professional services was partially attributable to greater demand for our professional services, largely to support and implement information lifecycle management-based solutions and to acquisitions consummated in 2007 and 2008. Acquisitions in 2008 contributed 300 basis points to the 2008 increase in revenues and acquisitions in 2007 contributed 68 basis points to the 2007 increase in revenues. System maintenance increased due to greater demand for our information storage systems. Total Information Storage revenue growth was also driven by higher sales volume from our channel partners. Our channel partners accounted for 27.2% and 57.8% of the revenue growth in 2008 and 2007, respectively.

        The Content Management and Archiving segment revenues primarily include software revenues and other services revenues. Total software revenues were $580.6, $585.0 and $542.6 in 2008, 2007 and 2006, respectively, representing a decrease of 0.8% in 2008 and an increase of 7.8% in 2007. The 0.8% decrease in 2008 software revenues was primarily due to a decrease in software license revenues of $57.0 or 17.2%, partially offset by an increase in software maintenance revenues of $52.6 or 20.8%. The decrease in software license revenues was attributable to lower demand for application software resulting from the current uncertain economic climate and resulting negative impact in our customers' IT

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purchases. Software maintenance revenues increased due to continued demand for support from our installed base. The 7.8% increase in software revenues in 2007 was due to an increase in software maintenance revenue of $33.9 or 15.5% and an increase in software license revenues of $8.5 or 2.6%. Software maintenance revenues increased due to continued demand for support from our installed base. The increase in software license revenues in 2007 was attributable to greater demand for our content management offerings. Other services revenues increased $19.1 or 10.5% and $48.2 or 35.8% in 2008 and 2007, respectively, as a result of increased demand for professional services to support and implement solutions for managing increasing volumes of customers' unstructured data.

        The RSA Information Security segment was created during the third quarter of 2006 as a result of our acquisitions of RSA and Network Intelligence Corporation in September 2006. The RSA Information Security segment revenues primarily include software revenues and other services revenues. Total software revenues were $461.6, $438.7 and $127.3 in 2008, 2007 and 2006, respectively, representing an increase of 5.2% in 2008 and 244.6% in 2007. The 5.2% increase in 2008 was primarily due to an increase in software maintenance revenues of $26.4 or 27.0%, partially offset by a decrease in software license revenues of $3.5 or 1.0%. Software maintenance revenues increased due to continued demand for support from our installed base. The decrease in software license revenues in 2008 was attributable to lower demand resulting from the current uncertain economic climate and resulting negative impact in our customers' IT purchases. Other services revenues increased $32.4 or 46.7% and $52.3 or 305.1% in 2008 and 2007, respectively, as a result of increased demand for professional services. Because this segment was formed during the third quarter of 2006, the 2007 growth rate is not representative of the actual ongoing growth rate.

        The VMware Virtual Infrastructure segment includes software license revenues and services revenues. Total revenues were $1,876.9, $1,320.8 and $709.0 in 2008, 2007 and 2006, respectively, representing an increase of 42.1% in 2008 and 86.3% in 2007. Software license revenues were $1,175.1, $903.2 and $494.6 in 2008, 2007 and 2006, respectively, representing an increase of 30.1% in 2008 and 82.6% in 2007. A significant majority of the revenue growth in 2008 and 2007 when compared to the prior comparable period is the result of greater demand for VMware's virtualization product offerings attributable to wider industry acceptance of virtualization as part of organizations' IT infrastructure, a broadened product portfolio and expansion of VMware's network of indirect channel partners. ELAs continue to be a significant component of VMware's revenue growth. Under a typical ELA, a portion of the revenue is attributed to the license and recognized immediately, but the majority is deferred and recognized as services revenue in future periods. At the end of the fourth quarter of 2008, VMware observed seasonal strength in ELAs from its enterprise accounts and comparative weakness in the transactional business especially with price-sensitive customers, such as the academic market and smaller businesses. During the second half of the year, customers began purchasing VMware solutions in smaller quantities through the channel to meet their immediate needs, forgoing larger discounts offered under ELAs. VMware expects that customers may continue smaller purchases through the channel at least through the first quarter of 2009 and perhaps longer. VMware expects the rate of revenue growth to continue to decelerate due primarily to the size and scale of its business and lengthened sales cycles attributable to challenges its customers may face in the current uncertain economic environment, such as decreases in IT budgets and difficulties in obtaining financing.

        VMware software maintenance and services revenues were $701.9, $417.6 and $214.4 in 2008, 2007 and 2006, respectively, representing an increase of 68.1% in 2008 and 94.8% in 2007. Software maintenance and services revenues primarily consist of software maintenance and professional services revenues. This growth reflects the increase in VMware's license revenues, as software maintenance services are generally purchased with licenses, the benefit from multi-year software maintenance contracts sold in previous periods and renewals of existing customer software maintenance contracts. Professional services revenue growth reflects increased demand for design and implementation services and training programs, as end-user organizations deployed virtualization across their organizations. Given the reasons cited previously, VMware expects that services revenue will compose a larger proportion of its revenue mix and revenue growth in 2009.

        Revenues by geography were as follows:

 
   
   
   
  Percentage Change  
 
  2008   2007   2006   2008 vs 2007   2007 vs 2006  

United States

  $ 7,990.8   $ 7,343.0   $ 6,319.7     8.8 %   16.2 %

Europe, Middle East and Africa

    4,555.0     3,921.1     3,232.6     16.2     21.3  

Asia Pacific

    1,640.1     1,400.0     1,126.2     17.2     24.3  

Latin America, Mexico and Canada

    690.3     566.1     476.6     21.9     18.8  

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        Revenue increased in 2008 and 2007 in all of our markets due to greater demand for our products and services. Changes in exchange rates had a favorable impact on revenue growth of 0.8% and 2.3% in 2008 and 2007, respectively. The impact of the change in rates in both periods was most significant in the European market, primarily: Germany, France, Italy and the United Kingdom; and Japan.

Costs and expenses

        The following table presents our costs and expenses, other income and net income. For segment reporting purposes, stock-based compensation and acquisition-related intangible asset amortization are considered corporate reconciling items and are not allocated among our various operating segments in preparing the segment operating performance measures utilized by our chief operating decision maker.

 
   
   
   
  Percentage Change  
 
  2008   2007   2006   2008 vs 2007   2007 vs 2006  

Cost of revenue:

                               

Information Storage

  $ 5,670.1   $ 5,237.2   $ 4,714.7     8.3 %   11.1 %

Content Management and Archiving

    305.6     271.5     225.8     12.6     20.2  

RSA Information Security

    170.6     144.4     37.7     18.1     283.0  

VMware Virtual Infrastructure

    268.7     188.6     103.1     42.5     82.9  

Corporate reconciling items

    238.7     177.2     160.6     34.7     10.3  
                       
   

Total cost of revenue

    6,653.8     6,018.9     5,241.9     10.5     14.8  

Gross margins:

                               

Information Storage

    5,962.2     5,373.6     4,893.9     11.0     9.8  

Content Management and Archiving

    480.0     501.8     460.0     (4.3 )   9.1  

RSA Information Security

    410.7     380.9     114.0     7.8     234.1  

VMware Virtual Infrastructure

    1,608.2     1,132.2     605.9     42.0     86.9  

Corporate reconciling items

    (238.7 )   (177.2 )   (160.6 )   34.7     10.3  
                       
   

Total gross margin

    8,222.4     7,211.3     5,913.2     14.0     22.0  

Operating expenses:

                               

Research and development(1)

    1,721.3     1,526.9     1,254.2     12.7     21.7  

Selling, general and administrative(2)

    4,601.6     3,912.7     3,253.3     17.6     20.3  

In-process research and development

    85.8     1.2     35.4     7,050.0     (96.6 )

Restructuring charges

    244.7     31.3     162.6     681.8     (80.8 )
                       
   

Total operating expenses

    6,653.4     5,472.1     4,705.4     21.6     16.3  
                       

Operating income

    1,568.9     1,739.3     1,207.8     (9.8 )   44.0  

Investment income, interest expense and other expenses(3)

    133.9     320.3     182.3     (58.2 )   75.7  
                       

Income before taxes, cumulative effect of a change in accounting principle and minority interest

    1,702.8     2,059.6     1,390.0     (17.3 )   48.2  

Provision for income taxes

    312.5     378.4     162.7     (17.4 )   132.6  

Minority interest

    (44.7 )   (15.5 )       188.4     NM  

Cumulative effect of a change in accounting principle

            (0.2 )       NM  
                       

Net income

  $ 1,345.6   $ 1,665.7   $ 1,227.6     (19.2 )%   35.7 %
                       

    (1)
    Amount includes corporate reconciling items of $175.4, $119.4 and $120.1 for the year ended December 31, 2008, 2007 and 2006, respectively.
    (2)
    Amount includes corporate reconciling items of $367.2, $275.6 and $271.0 for the year ended December 31, 2008, 2007 and 2006, respectively.
    (3)
    Amount includes gain of $148.6 on sale of VMware stock to Cisco in 2007.

NM — not measurable

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Gross Margins

        Overall, our gross margin percentages were 55.3%, 54.5% and 53.0% in 2008, 2007 and 2006, respectively. The improvement in the gross margin percentage in 2008 compared to 2007 was attributable to the VMware Virtual Infrastructure segment, which contributed 123 basis points and the Information Storage segment, which contributed 21 basis points. These improvements were partially offset by the margin impact of the Content Management and Archiving segment, which decreased overall gross margins by 19 basis points and the RSA Information Security segment, which decreased overall gross margins by 1 basis point. The increase in corporate reconciling items, consisting of stock-based compensation and acquisition-related intangible asset amortization decreased the consolidated gross margin percentage by 44 basis points. The improvement in the gross margin percentage in 2007 compared to 2006 was attributable to the VMware Virtual Infrastructure segment, which contributed 163 basis points, and the RSA Information Security segment, which contributed 54 basis points. These improvements were partially offset by the margin impact of the Information Storage segment, which decreased overall gross margins by 50 basis points and the Content Management and Archiving segment, which decreased overall gross margins by 4 basis points. The increase in corporate reconciling items, consisting of stock-based compensation and acquisition-related intangible asset amortization decreased the consolidated gross margin percentage by 13 basis points.

        For segment reporting purposes, stock-based compensation and acquisition-related intangible asset amortization are recognized as corporate expenses and are not allocated among our various operating segments. The increase of $61.5 in the corporate reconciling items in 2008 was attributable to a $38.6 increase in intangible asset amortization expense associated with acquisitions and a $22.9 increase in stock-based compensation expense, primarily attributable to VMware equity grants. The increase of $16.6 in the corporate reconciling items in 2007 was attributable to a $25.6 increase in intangible asset amortization expense associated with acquisitions, partially offset by a $9.0 decrease in stock-based compensation expense. The $9.0 decrease in stock-based compensation expense was due to higher valued options becoming fully vested in 2006.

        The gross margin percentages for the Information Storage segment were 51.3%, 50.6% and 50.9% in 2008, 2007 and 2006, respectively. The increase in the gross margin percentage in 2008 compared to 2007 was primarily attributable to our ability to achieve higher gross margins from our focus on selling overall solutions to our customers, partially offset by the margin impact from the acquisition of Iomega in June of 2008. The acquisition of Iomega reduced gross margins by 70 basis points for 2008. Iomega operates within the consumer and small business marketplace which historically has had lower gross margins than our traditional Information Storage segment. The decrease in gross margin percentage in 2007 was primarily attributable to the reduction in the mix of software license revenues as a percentage of total segment revenues to 19.6% in 2007 from 21.0% in 2006. Software license revenues generally provide a higher margin percentage than systems and services revenues.

        The gross margin percentages for the Content Management and Archiving segment were 61.1%, 64.9% and 67.1% in 2008, 2007 and 2006, respectively. The decreases in the gross margin percentage for both 2008 and 2007 were primarily attributable to a decline in software license revenues as a percentage of total segment revenues. Software license revenues as a percentage of total revenues decreased from 47.2% in 2006 to 42.9% in 2007 and to 35.0% in 2008. Software license revenues generally provide a higher gross margin percentage than software maintenance and other services revenues.

        The gross margin percentages for the RSA Information Security segment were 70.6%, 72.5% and 75.2% in 2008, 2007 and 2006, respectively. The decreases in the gross margin percentage in 2008 and 2007 were primarily due to a decrease in software license revenues as a percentage of total segment revenues. Software license revenues as a percentage of total revenues decreased from 68.5% in 2006 to 64.9% in 2007 and to 58.0% in 2008. Software license revenues generally provide a higher gross margin percentage than software maintenance and other services revenues.

        The gross margin percentages for the VMware Virtual Infrastructure segment were 85.7% in 2008, 85.7% in 2007 and 85.5% in 2006. The consistency in the gross margin percentage in 2008, 2007 and 2006 was primarily due to consistent software license and maintenance revenue mix as a percentage of total revenues. Software license and maintenance revenues as a percentage of total revenues decreased slightly from 93.2% in 2007 to 92.2% in 2008 and from 93.3% in 2006 to 93.2% in 2007.

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Research and Development

        As a percentage of revenues, R&D expenses were 11.6%, 11.5% and 11.2% in 2008, 2007 and 2006, respectively. R&D expenses increased $194.4 and $272.7 in 2008 and 2007, respectively, primarily due to higher personnel-related costs, including salaries, benefits, recruiting, contract labor and consulting and higher cost of facilities. Personnel-related costs increased by $218.5 and $261.6 and the cost of facilities increased by $26.4 and $21.9 in 2008 and 2007, respectively. Partially offsetting these increases was an increase in capitalized software development costs of $59.9 and $42.7 in 2008 and 2007, respectively, which reduced R&D costs. Additionally, we experienced a reduction in the cost of materials to support new product development of $13.2 and $18.4 in 2008 and 2007, respectively.

        Corporate reconciling items within R&D consist of stock-based compensation and intangible asset amortization. These costs increased $56.0 to $175.4 in 2008 and decreased $0.7 to $119.4 in 2007. In 2008, stock-based compensation expense increased $54.4 and intangible asset amortization increased $1.6. The increase in stock-based compensation expense consisted of a $35.6 increase within the VMware Virtual Infrastructure business and an $18.8 increase within EMC's Information Infrastructure business. The increase in stock-based compensation expense was primarily attributable to incremental VMware equity grants made in 2007 and 2008. In 2007, intangible asset amortization decreased $1.3 and stock-based compensation expense increased $0.6. The increase in stock-based compensation expense in 2007 consisted of a $16.5 increase within the VMware Virtual Infrastructure business offset by a $15.9 decrease within EMC's Information Infrastructure business. The increase in stock-based compensation expense within the VMware Virtual Infrastructure business was attributable to incremental equity grants made in 2007. The decrease in stock-based compensation expense within EMC's Information Infrastructure business was primarily attributable to higher valued options becoming fully vested in 2006. For segment reporting purposes, corporate reconciling items are not allocated to our various operating segments.

        R&D expenses within EMC's Information Infrastructure business, as a percentage of EMC's Information Infrastructure business revenues, were 9.3% in 2008 and 9.7% in 2007 and 2006. R&D expenses increased $51.5 and $135.3 in 2008 and 2007, respectively. In 2008, the increase was primarily due to higher personnel-related costs and increased facilities costs which increased by $74.7 and $6.2, respectively. Partially offsetting the increase was an increase in capitalized software development costs of $16.6 which reduced R&D costs and a reduction in the cost of materials to support new product development of $14.4. In 2007, the increase was primarily due to higher personnel-related costs and increased facilities cost which increased by $151.7 and $15.9, respectively. Partially offsetting the increase was an increase in capitalized software development costs of $27.6 which reduced R&D costs and a reduction in the costs of materials to support new product development of $20.3.

        R&D expenses within the VMware Virtual Infrastructure business, as a percentage of VMware's revenues, were 18.2%, 19.3% and 16.5% in 2008, 2007 and 2006, respectively. R&D expenses increased $86.9 and $138.1 in 2008 and 2007, respectively. The increase in R&D expenses was primarily attributable to incremental headcount to support the growth of the business, resulting in increased salaries and benefits expense of $91.2 and $109.3 in 2008 and 2007, respectively. Partially offsetting these increases were software capitalization costs increases of $43.3 and $15.1 in 2008 and 2007, respectively, which reduced R&D costs. We expect the amount of software development costs which are capitalized to decrease in 2009 compared to 2008.

Selling, General and Administrative

        As a percentage of revenues, SG&A expenses were 30.9%, 29.6% and 29.2% in 2008, 2007 and 2006, respectively. SG&A expenses increased by $688.9 and $659.4 in 2008 and 2007, respectively, primarily due to higher personnel-related costs, depreciation, travel costs and facilities costs to support the overall growth of the business and increased bad debt provisions. Personnel-related costs increased by $468.2 and $420.5, depreciation increased by $49.4 and $59.5, travel increased by $6.1 and $57.1 and facilities costs increased by $28.3 and $28.9 in 2008 and 2007, respectively. Bad debt provisions increased $25.8 in 2008 when compared to 2007 and decreased $1.4 in 2007 when compared to 2006.

        Corporate reconciling items within SG&A consist of stock-based compensation and intangible asset amortization. These costs increased $91.5 to $367.2 in 2008 and increased $4.6 to $275.6 in 2007. In 2008, stock-based compensation increased $56.8 and intangible asset amortization increased $34.7. The increase in stock-based compensation consisted of a $31.3 increase within the VMware Virtual Infrastructure business and a $25.5 increase within EMC's Information Infrastructure business. The increase in stock-based compensation expense was attributable to equity grants made in 2007 and 2008. In 2007, intangible asset amortization increased $27.4 and stock-based compensation decreased $22.8. The increase in intangible asset amortization in 2008 and 2007 was attributable to amortization of intangible assets associated

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with acquisitions by both EMC's Information Infrastructure business and the VMware Virtual Infrastructure business. The decrease in stock-based compensation consisted of a $43.0 decrease within EMC's Information Infrastructure business, offset by a $20.2 increase within the VMware Virtual Infrastructure business. The decrease in stock-based compensation expense within EMC's Information Infrastructure business was primarily attributable to higher valued options becoming fully vested in 2006. For segment reporting purposes, corporate reconciling items are not allocated to our various operating segments.

        SG&A expenses within EMC's Information Infrastructure business, as a percentage of EMC's Information Infrastructure business revenues, were 26.8%, 26.0% and 25.9% in 2008, 2007 and 2006, respectively. SG&A expenses increased by $393.1 and $389.8 in 2008 and 2007, respectively, primarily due to higher personnel-related costs, depreciation and facilities costs to support the overall growth of the business. Personnel-related costs increased by $265.5 and $262.7, depreciation increased by $34.9 and $51.8 and facilities increased by $20.8 and $5.5 in 2008 and 2007, respectively. Bad debt provisions increased by $24.1 in 2008 when compared to 2007 and increased $1.8 in 2007 when compared to 2006. Travel costs decreased $2.9 in 2008 when compared to 2007 due to cost savings initiatives and increased $37.5 in 2007 when compared to 2006.

        SG&A expenses within the VMware Virtual Infrastructure business, as a percentage of VMware's revenues, were 39.8%, 41.1% and 39.3% in 2008, 2007 and 2006, respectively. SG&A expenses increased $204.2 and $265.0 in 2008 and 2007, respectively. The increase in SG&A expenses in 2008 and 2007 was primarily the result of higher salaries and benefits due to increases in sales, marketing and administrative personnel costs of $153.5 and $180.5, respectively. The resources were added to support the growth of the business, including greater finance and legal personnel in response to being a public company, as well as higher commission expense resulting from increased sales volume. SG&A expenses also increased due to marketing expenses related to VMware's international market expansion and VMware's branding initiative.

In-Process Research and Development

        In-process research and development ("IPR&D") was $85.8, $1.2 and $35.4 in 2008, 2007 and 2006, respectively. During 2008, IPR&D projects relating to two of EMC's Information Infrastructure acquisitions and two VMware acquisitions were identified and written off at the time of the respective date of each acquisition because they had no alternative uses and had not reached technological feasibility. The value assigned to the IPR&D was determined utilizing the income approach by determining cash flow projections relating to the identified IPR&D projects. The stage of completion of each in-process project was estimated to determine the discount rates to be applied to the valuation of the in-process technology. Based upon the level of completion and the risk associated with the in-process technology, we applied discount rates ranging from 20% to 60% to value the IPR&D projects acquired. The increase in IPR&D in 2008 when compared to 2007 was primarily attributable to higher levels of in-process R&D of acquisitions consummated during the respective period. The decrease in IPR&D in 2007 when compared to 2006 was primarily attributable to lower levels of in-process R&D of acquisitions consummated during the respective period.

Restructuring Charges and Impairment

        In 2008, 2007 and 2006, we incurred restructuring charges of $250.3, $31.3 and $162.6, respectively.

        To further improve the competitiveness and efficiency of our global business in response to a challenging global economy, in the fourth quarter of 2008, we implemented a restructuring program to further streamline the costs related to our Information Infrastructure business. The plan includes the following components:

    A reduction in force resulting in the elimination of approximately 2,400 positions which will be substantially completed by the end of 2009 and fully completed by the third quarter of 2010.
    The consolidation of facilities and the termination of contracts. These actions are expected to be completed by 2015.
    The write-off of certain assets for which EMC has determined it will no longer derive any benefit. These actions were completed in the fourth quarter of 2008.

        In addition to this plan, we also recognized an asset impairment charge for certain assets for which the forecasted cash flows from the assets are less than the assets' net book value.

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        The total charge resulting from these actions is expected to be between $362.0 and $387.0, with $247.9 recognized in 2008, $100.0 to $125.0 to be recognized in 2009 and 2010 and the remainder to be recognized through 2015. Total cash expenditures associated with the plan are expected to be in the range of $310.7 to $335.7.

        The 2008 charge consisted of the aforementioned fourth quarter restructuring program which aggregated $247.9, a third quarter charge of $8.6 and a net reduction of $6.2 relating to restructuring programs from prior years. For purposes of presentation, $244.7 of the 2008 charge is presented as a restructuring charge, $1.3 is presented as a reduction of SG&A and $6.9, related to the impairment of strategic investments, is presented within other expense, net on the consolidated income statement.

        The fourth quarter 2008 charge consisted of $195.5 for employee termination benefits associated with a reduction in workforce, a $28.0 charge for impaired long-lived assets, a $21.8 charge associated with abandoned assets for which we will no longer derive a benefit and a $2.6 charge for contract terminations. These actions impacted substantially all of our functional organizations within our Information Storage, Content Management and Archiving and RSA Information Security segments and affected employees in each of our major geographical areas. As of December 31, 2008, we had eliminated approximately 500 of the 2,400 positions. The asset impairment charge of $28.0 consists of $21.1 of capitalized technology costs for which the forecasted cash flows from the assets are less than the assets' net book value. The impairment charge was equal to the amount by which the assets' carrying amount exceeded its fair value, measured as the present value of their estimated discounted cash flows. The impairment charge also included a $6.9 charge for strategic investments for which the decline in their fair market value below their book value was considered other than temporary.

        The third quarter 2008 charge consisted of $5.5 for employee termination benefits associated with a reduction in force of approximately 75 employees and $3.1 for the consolidation of excess facilities and other items within our Information Storage, Content Management and Archiving and RSA Information Security segments. As of December 31, 2008, all of these actions had been completed.

        The 2007 charge consisted primarily of a $21.5 charge to increase the severance expenses associated with the 2006 restructuring program and a $13.3 charge for employee termination benefits associated with a 2007 rebalancing program impacting approximately 450 positions. As of December 31, 2008, all of these actions had been completed. These actions impacted our Information Storage, Content Management and Archiving and RSA Information Security segments and affected employees in each of our major geographical areas. Partially offsetting these amounts were net adjustments of $3.2 associated with restructuring programs prior to 2006.

        The 2006 charge consisted of a $129.4 charge for employee termination benefits associated with a reduction in workforce, a $29.7 charge associated with abandoned assets for which we will no longer derive a benefit, a $10.9 charge for contract terminations and a $5.7 charge associated with vacating excess facilities. Partially offsetting these amounts were net adjustments of $13.1 associated with prior years' restructuring programs. The 2006 charge for employee termination benefits covered approximately 1,350 employees worldwide. The workforce reduction's objective was to further integrate EMC and the majority of the businesses we have acquired over the prior three years. These actions impacted substantially all of our functional organizations and affected employees in each of our major geographical areas. As of December 31, 2008, substantially all of these actions had been completed. The asset impairment charge of $29.7 consisted primarily of internal infrastructure projects that management decided to no longer pursue. The impairment charge was equal to the amount by which the assets' carrying amount exceeded its fair value, measured as the present value of their estimated discounted cash flows. The 2006 charges impacted the Information Storage and Content Management and Archiving segments.

        The activity for each charge is explained in the following sections.

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    2008 Restructuring Programs

        The activity for the 2008 restructuring programs is presented below:

2008

Category
  Initial
Provision
  Utilization
During 2008
  Ending Balance   Non-Cash
Portion of the
Provision
 

Workforce reductions

  $ 201.0   $ (14.7 ) $ 186.3   $ 1.3  

Abandoned and impaired assets

    49.8     (49.8 )       49.8  

Consolidation of excess facilities and other contractual obligations

    5.7     (3.4 )   2.4      
                   
   

Total

  $ 256.5   $ (67.9 ) $ 188.7   $ 51.1  
                   

        The remaining cash portion owed for these programs is $186.5. The cash expenditures relating to workforce reductions are expected to be substantially paid by the end of 2010. The cash expenditures relating to the contractual obligations are expected to be paid out by the end of 2009.

    2007 Restructuring Program

        The activity for the 2007 restructuring program for the years ended December 31, 2008 and 2007 is presented below:

2008

Category
  Beginning
Balance
  Adjustment to
the Provision
  Utilization   Ending Balance  

Workforce reductions

  $ 12.4   $ 3.8   $ (13.1 ) $ 3.1  
                   
   

Total

  $ 12.4   $ 3.8   $ (13.1 ) $ 3.1  
                   

 

2007

Category
  Initial
Provision
  Utilization   Ending Balance   Non-Cash
Portion of the
Provision
 

Workforce reductions

  $ 13.3   $ (0.8 ) $ 12.4   $ 0.9  
                   
   

Total

  $ 13.3   $ (0.8 ) $ 12.4   $ 0.9  
                   

    2006 Restructuring Programs

        The activity for the 2006 restructuring programs for the years ended December 31, 2008, 2007 and 2006 is presented below:

2008

Category
  Beginning
Balance
  Adjustment to
the Provision
  Utilization   Ending Balance  

Workforce reductions

  $ 83.2   $ (10.3 ) $ (63.4 ) $ 9.5  

Consolidation of excess facilities

    2.6     (0.3 )       2.3  
                   
   

Total

  $ 85.7   $ (10.5 ) $ (63.4 ) $ 11.7  
                   

 

2007

Category
  Beginning
Balance
  Adjustment to
the Provision
  Utilization   Ending Balance  

Workforce reductions

  $ 127.8   $ 21.5   $ (66.2 ) $ 83.2  

Consolidation of excess facilities

    5.5     (0.3 )   (2.7 )   2.6  

Contractual and other obligations

    4.8         (4.8 )    
                   
   

Total

  $ 138.2   $ 21.2   $ (73.7 ) $ 85.7  
                   

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2006

Category
  Initial
Provision
  Utilization   Ending Balance   Non-Cash
Portion of the
Provision
 

Workforce reductions

  $ 129.4   $ (1.5 ) $ 127.8   $ 10.7  

Asset impairment

    29.7     (29.7 )       29.7  

Consolidation of excess facilities

    5.7     (0.2 )   5.5      

Contractual and other obligations

    10.9     (6.1 )   4.8      
                   
   

Total

  $ 175.7   $ (37.5 ) $ 138.2   $ 40.4  
                   

        The adjustment to the provision in 2008 and 2007 includes changes for finalizing severance agreements, particularly in international locations and estimated changes in severance amounts for employees that had not yet been terminated.

        The remaining cash portion owed for the 2007 and 2006 restructuring programs is $10.8. The cash expenditures relating to workforce reductions are expected to be substantially paid by the end of 2009. The cash expenditures relating to consolidation of excess facilities are expected to be paid out through 2018.

    Prior Year Restructuring Programs

        Prior to 2006, we had instituted several restructuring programs. The activity for these programs for the years ended December 31, 2008, 2007 and 2006 is presented below:

2008

Category
  Beginning
Balance
  Adjustments to
the Provision
  Utilization   Ending Balance  

Workforce reduction

  $ 1.3   $ (2.1 ) $ 2.7   $ 1.8  

Consolidation of excess facilities

    25.7     2.6     (9.7 )   18.6  

Other contractual obligations

    0.8             0.9  
                   
   

Total

  $ 27.8   $ 0.5   $ (7.1 ) $ 21.2  
                   

 

2007

Category
  Beginning
Balance
  Adjustments to
the Provision
  Utilization   Ending Balance  

Workforce reduction

  $ 19.2   $   $ (17.9 ) $ 1.3  

Consolidation of excess facilities

    40.2     (3.3 )   (11.2 )   25.7  

Other contractual obligations

    1.9     0.2     (1.2 )   0.8  
                   
   

Total

  $ 61.4   $ (3.2 ) $ (30.4 ) $ 27.8  
                   

 

2006

Category
  Beginning
Balance
  Adjustments to
the Provision
  Utilization   Ending Balance  

Workforce reduction

  $ 86.8   $ (5.0 ) $ (62.6 ) $ 19.2  

Consolidation of excess facilities

    65.4     (8.4 )   (16.8 )   40.2  

Other contractual obligations

    2.4     0.3     (0.7 )   1.9  
                   
   

Total

  $ 154.6   $ (13.1 ) $ (80.2 ) $ 61.4  
                   

        The reductions to the provisions in 2007 and 2006 for excess facilities were a result of lower than expected costs associated with vacating leased facilities. These restructuring programs impacted the Information Storage and Content Management and Archiving segments. The remaining liability for the consolidation of excess facilities is expected to be paid through 2015.

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Gain on Sale of VMware Stock to Cisco

        The gain on sale of VMware stock for the year ended December 31, 2007 consists of a $148.6 gain on the sale of 6.0 million shares of Class A common stock of VMware held by EMC sold to Cisco Systems, Inc. for proceeds of approximately $150.0.

Investment Income

        Investment income was $247.0, $249.3 and $224.9 in 2008, 2007 and 2006, respectively. Investment income decreased $2.3 in 2008 compared to 2007, due to a decrease in the weighted average return on investments, partially offset by higher average outstanding cash and investment balances and improved returns on sales of investments. Investment income increased in 2007 compared to 2006 due to higher average outstanding cash and investment balances and lower realized losses on investments. The weighted-average return on investments, excluding realized gains and losses, was 3.1%, 4.3% and 4.2% in 2008, 2007 and 2006, respectively. Net realized gain (losses) were $6.6, $(10.1) and $(27.8) in 2008, 2007 and 2006, respectively. We expect investment income to decline in 2009 compared to 2008 due to lower weighted average returns, excluding realized gains and losses.

Interest Expense

        In September 2006, we borrowed $2,200.0 under a six-month unsecured credit facility to finance the acquisition of RSA. In November 2006, we completed the issuance of our $1,725.0 1.75% convertible senior notes due 2011 (the "2011 Notes") and our $1,725.0 1.75% convertible senior notes due 2013 (the "2013 Notes" and, together with the 2011 Notes, the "Notes"). A portion of the proceeds from the Notes was used to repay in full the $2,200.0 of outstanding indebtedness under the aforementioned unsecured credit facility. Interest expense was $73.8, $72.9 and $34.1 in 2008, 2007 and 2006, respectively. Interest expense consists primarily of interest on the Notes.

        Effective in 2009, we adopted FASB Staff Position No. APB 14-1, "Accounting for Convertible Debt Instruments that may be settled in Cash upon Conversion (Including Partial Cash Settlement)". The statement requires that we revise our prior period financial statements. As a result of this revision, the Notes will be recorded at a discount to their face amount which will be accreted to their face amount over the term of the Notes resulting in additional interest expense. The incremental interest expense will represent a non-cash charge. This will result in recognizing incremental non-cash interest expense of $11.5, $96.9 and $102.6 in 2006, 2007 and 2008, respectively. The incremental non-cash interest charge in 2009 will be $108.3.

Other Expense, Net

        Other expense, net was $39.4, $4.7 and $8.6 in 2008, 2007 and 2006, respectively. The increase in 2008 was primarily attributable to an increase in foreign currency transaction losses. The decrease in 2007 was primarily attributable to reductions in foreign currency transaction losses.

Provision for Income Taxes

        Our effective income tax rate was 18.4%, 18.4% and 11.7% in 2008, 2007 and 2006, respectively. The effective income tax rate is based upon the income for the year, the composition of the income in different countries, and adjustments, if any, for the potential tax consequences, benefits or resolutions of audits or other tax contingencies. Our aggregate income tax rate in foreign jurisdictions is lower than our income tax rate in the United States.

        In 2008, the lower aggregate income tax rate in foreign jurisdictions reduced our effective rate by 15.0 percentage points compared to our statutory federal tax rate of 35.0%. The resolution of income tax audits and elimination of reserves associated with the expiration of statutes of limitations for which we believe we had certain tax exposure favorably reduced our effective tax rate by an additional 2.7 percentage points. The net effect of non-deductible permanent differences, state taxes, tax credits and other items was an increase to the rate of 1.1 percentage points.

        In 2007, the lower aggregate income tax rate in foreign jurisdictions reduced our effective rate by 14.5 percentage points compared to our statutory federal tax rate of 35.0%. We had a reduction in our valuation allowance which principally arose from the utilization of capital loss carryforwards towards the capital gain on the sale of VMware stock to Cisco resulting in a benefit to our effective tax rate of 1.5 percentage points. The resolution of income tax audits and elimination

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of reserves associated with the expiration of statutes of limitations for which we believe we had certain tax exposure favorably reduced our effective tax rate by an additional 1.2 percentage points. The net effect of non-deductible permanent differences, state taxes, tax credits and other items was an increase to the rate of 0.6 percentage points.

        In 2006, the lower aggregate income tax rate in foreign jurisdictions reduced our effective rate by 13.9 percentage points compared to our statutory federal tax rate of 35.0%. The resolution of income tax audits and elimination of reserves associated with the expiration of statutes of limitations for which we believe we had certain tax exposure favorably reduced our effective tax rate by an additional 12.4 percentage points. The net effect of tax credits, state taxes, non-deductible permanent differences and changes in valuation allowances collectively had a negative impact on the rate of 3.0 percentage points, driven principally by non-deductible permanent differences.

        The effect of non-deductible permanent differences increased the tax rate by 4.6% in 2008 compared to 1.7% in 2007. The increase was principally due to increased non-deductible IPR&D and taxable earnings from foreign subsidiaries in 2008. Tax credits in 2008 reduced the effective tax rate by 4.9% compared to a 2.0% reduction in 2007. The increase was attributable to higher foreign tax credits relating to distributions from foreign subsidiaries in 2008 and higher U.S. R&D credits.

Minority Interest in VMware

        The minority interest in VMware was $44.7 and $15.5 in 2008 and 2007, respectively. The minority interest increased in 2008 compared to 2007 primarily due to an increase in VMware's net income and an increase in the weighted average minority interest percentage in 2008 compared to 2007. VMware's net income was $290.1 and $218.1 in 2008 and 2007, respectively, representing an increase of 33.0%. The weighted average minority interest was approximately 15% and 7% in 2008 and 2007, respectively.

Cash Flows and Financial Condition

        Cash provided by operating activities was $3,565.1, $3,126.6 and $2,140.4 in 2008, 2007 and 2006, respectively. Cash received from customers was $15,378.1, $13,333.5 and $11,167.2 in 2008, 2007 and 2006, respectively. The increase in cash received from customers was primarily attributable to higher sales volume. Cash paid to suppliers and employees was $11,747.0, $10,182.6 and $8,666.6 in 2008, 2007 and 2006, respectively. The increase was partially attributable to higher headcount. Total headcount was approximately 42,100, 37,700 and 31,100 at December 31, 2008, 2007 and 2006, respectively. The headcount increase was due to the growth of the business, as well as continued acquisition activity. Cash received from dividends and interest was $240.0, $254.1 and $258.6 in 2008, 2007 and 2006, respectively. In 2008, 2007 and 2006, we paid $232.3, $202.3 and $592.1, respectively, in income taxes. These payments are comprised of estimated taxes for the current year, extension payments for the prior year and refunds or payments associated with income tax filings and tax audits. Despite higher pre-tax income, cash paid for income taxes decreased from 2006 to 2007, principally due to increased deductions for stock-based compensation, increased federal R&D credits arising from a change in law and increased utilization of acquired net operating losses.

        Cash used in investing activities was $1,614.9, $1,162.9 and $2,296.7 in 2008, 2007 and 2006, respectively. Cash paid for acquisitions, net of cash acquired was $725.5, $692.0 and $2,618.4 in 2008, 2007 and 2006, respectively. Capital additions were $695.9, $699.0 and $718.1 in 2008, 2007 and 2006, respectively. Capitalized software development costs were $295.0, $232.0 and $192.9 in 2008, 2007 and 2006, respectively. The increase in capitalized software development costs was attributable to a greater level of development costs being capitalized for VMware development activities. Net sales and maturities of investments were $75.1, $322.3 and $1,253.6 in 2008, 2007 and 2006, respectively. This activity varies from period to period based upon our cash collections, cash requirements and maturity dates of our investments. During 2007, we received $150.0 in net proceeds from the sale of 6.0 million shares of our interest in VMware to Cisco.

        Cash (used in) provided by financing activities was $(534.0), $679.5 and $(392.0) in 2008, 2007 and 2006, respectively. In 2008, 2007 and 2006 we spent $1,489.5, $1,453.7 and $3,655.4 to repurchase 112.2 million, 89.4 million and 302.3 million shares of our common stock, respectively. We generated $431.2, $785.2 and $257.8 in 2008, 2007 and 2006, respectively, from the exercise of stock options. Stock options exercises from VMware's stock option grants contributed $190.1 to the $431.2 generated in cash from the exercise of options in 2008. Additionally, the exercising of stock options generated excess tax benefits of $97.7 in 2008, $91.8 in 2007 and $20.0 in 2006. In 2008, we received $412.3 in proceeds from our securities lending program. The program enables us to receive an incremental return on our investment. We spent $13.3 to purchase 500,000 shares of VMware common stock previously sold to Intel Capital Corporation. During 2007, we received proceeds

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from the sale of VMware's Class A common stock in its IPO and to Intel of $1,253.5. Proceeds from short and long-term obligations were $33.7, $19.8 and $5,654.0 in 2008, 2007 and 2006, respectively. In September 2006, we borrowed $2,200.0 under a six-month unsecured credit facility to finance the acquisition of RSA. In November 2006, we also closed the sale of the 2011 Notes and the 2013 Notes for an aggregate amount of $3,450.0. We utilized $2,200.0 of the Note proceeds to repay in full the outstanding indebtedness under our six-month unsecured credit facility which was used to finance the acquisition of RSA. In 2006, we also paid $126.1 to redeem the outstanding principal balance of the Documentum Notes.

        The Notes are senior unsecured obligations and rank equally with all other existing and future senior unsecured debt. The Notes are structurally subordinated to all liabilities of our subsidiaries and are effectively subordinated to our secured indebtedness. As of December 31, 2008, the aggregate amount of liabilities of our subsidiaries was approximately $3,900.0, excluding intercompany liabilities. Holders may convert their Notes at their option on any day prior to the close of business on the scheduled trading day immediately preceding (i) September 1, 2011, with respect to the 2011 Notes, and (ii) September 1, 2013, with respect to the 2013 Notes, in each case only under the following circumstances: (1) during the five business-day period after any five consecutive trading-day period (the "measurement period") in which the price per Note of the applicable series for each day of that measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such day or at least $20.90 per share; (2) during any calendar quarter, if the last reported sale price of our common stock for 20 or more trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds 130% of the applicable conversion price in effect on the last trading day of the immediately preceding calendar quarter or (3) upon the occurrence of certain events specified in the Notes. Additionally, the Notes will become convertible during the last three months prior to the respective maturities of the 2011 Notes and the 2013 Notes.

        Upon conversion, we will pay cash up to the principal amount of the Notes converted. With respect to any conversion value in excess of the principal amount of the Notes converted, we have the option to settle the excess with cash, shares of our common stock, or a combination of cash and shares of our common stock based on a daily conversion value, determined in accordance with the indenture, calculated on a proportionate basis for each day of the relevant 20-day observation period. The initial conversion rate for the Notes will be 62.1978 shares of our common stock per one thousand dollars of principal amount of Notes, which represents a 27.5 percent conversion premium from the date the Notes were issued and is equivalent to a conversion price of approximately $16.08 per share of our common stock. The conversion price is subject to adjustment in some events as set forth in the indenture. In addition, if a "fundamental change" (as defined in the indenture) occurs prior to the maturity date, we will in some cases increase the conversion rate for a holder of Notes that elects to convert its Notes in connection with such fundamental change.

        Subject to certain exceptions, if we undergo a "designated event" (as defined in the indenture) including a "fundamental change," holders of the Notes will have the option to require us to repurchase all or any portion of their Notes. The designated event repurchase price will be 100% of the principal amount of the Notes to be repurchased plus any accrued interest up to but excluding the relevant repurchase date. There has not been a designated event requiring us to repurchase the Notes. We will pay cash for all Notes so repurchased. We may not redeem the Notes prior to maturity.

        The Notes pay interest in cash at a rate of 1.75% semi-annually in arrears on December 1 and June 1 of each year. Aggregate debt issuance costs of approximately $58.9 are being amortized to interest expense over the respective terms of the Notes.

        In connection with the sale of the Notes, we entered into separate convertible note hedge transactions with respect to our common stock (the "Purchased Options"). The Purchased Options allow us to receive shares of our common stock and/or cash related to the excess conversion value that we would pay to holders of the Notes upon conversion. The Purchased Options will cover, subject to customary anti-dilution adjustments, approximately 215 million shares of our common stock. Half of the Purchased Options expire on December 1, 2011 and the remaining half of the Purchased Options expire on December 1, 2013. We paid an aggregate amount of $669.1 of the proceeds from the sale of the Notes for the Purchased Options.

        We also entered into separate transactions in which we sold warrants to acquire, subject to customary anti-dilution adjustments, approximately 215 million shares of our common stock (the "Sold Warrants") at an exercise price of approximately $19.55 per share of our common stock. Half of the Sold Warrants have expiration dates between February 15, 2012 and March 15, 2012 and the remaining half of the Sold Warrants have expiration dates between February 18, 2014 and March 18, 2014. We received aggregate proceeds of $391.1 from the sale of the Sold Warrants.

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        The Purchased Options and Sold Warrants will generally have the effect of increasing the conversion price of the Notes to approximately $19.55 per share of our common stock, representing an approximate 55 percent conversion premium based on the closing price of $12.61 per share of our common stock on November 13, 2006.

        The cost of the Purchased Options and net proceeds from the sale of the Sold Warrants were recorded in stockholders' equity.

        Depreciation and amortization expense was $1,057.5, $917.3 and $764.2 in 2008, 2007 and 2006, respectively. The increase in depreciation and amortization expense in each year was primarily attributable to intangible asset amortization expense which increased by $76.1 and $51.8 in 2008 and 2007, respectively, associated with increased acquisition activity. Higher amortization expense associated with an increase in capitalized software development costs contributed $33.3 and $26.4 in 2008 and 2007, respectively, to the increase. A general growth in our property, plant and equipment balances in each year also resulted in greater depreciation expense of $30.8 and $74.9 in 2008 and 2007, respectively.

        We have a credit line of $50.0 in the United States. As of December 31, 2008, we had no borrowings outstanding on the line of credit. The credit line bears interest at the bank's base rate and requires us, upon utilization of the credit line, to meet certain financial covenants with respect to limitations on losses. In the event the covenants are not met, the lender may require us to provide collateral to secure the outstanding balance, if any. At December 31, 2008, we were in compliance with the covenants.

        At December 31, 2008, our total cash, cash equivalents, and short-term and long-term investments were $9,177.5. This balance includes approximately $1,840.8 held by VMware and $3,587.5 held by EMC in overseas entities. Our investments are comprised primarily of debt securities that are classified as available for sale and recorded at their fair market values. At December 31, 2008, with the exception of our auction rate securities, the vast majority of our investments were priced by pricing vendors. These pricing vendors utilize the most recent observable market information in pricing these securities or, if specific prices are not available for these securities, use other observable inputs. In the event observable inputs are not available, we assess other factors to determine the security's market value, including broker quotes or model valuations. Each month, we perform independent price verifications of all of our holdings. In the event a price fails a pre-established tolerance check, it is researched so that we can assess the cause of the variance to determine what we believe is the appropriate fair market value.

        At December 31, 2007, our available for sale, short and long-term investments were recognized at fair value which was determined based upon quoted market prices. At December 31, 2008, auction rate securities were valued using a discounted cash flow model. The assumptions used in preparing the discounted cash flow model include an incremental discount rate for the lack of liquidity in the market ("liquidity discount margin") for an estimated period of time. The discount rate we selected was based on AA-rated banks as the majority of our portfolio is invested in student loans where EMC acts as a financier to these lenders. The liquidity discount margin represents an estimate of the additional return an investor would require for the lack of liquidity of these securities over an estimated two-year holding period. During the fourth quarter of 2008, we increased the liquidity discount margin from 3.0% to 5.0% as a result of declining market conditions.

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        The following table summarizes our total cash, cash equivalents and short-term and long-term investments along with the respective unrealized gains and losses as of December 31, 2008:

 
  December 31, 2008  
 
  Amortized
Cost Basis
  Aggregate
Fair Value
  Net
Unrealized
Gain/(Loss)
 

Total cash and cash equivalents

  $ 5,843.7   $ 5,843.7      
               

Investments:

                   

U.S. government and agency obligations

  $ 1,102.7   $ 1,130.5   $ 27.8  

U.S. corporate debt securities

    463.9     451.8     (12.1 )

Asset and mortgage-backed securities

    304.8     263.4     (41.4 )

Municipal obligations

    1,230.8     1,243.3     12.5  

Auction rate securities

    230.2     199.2     (31.0 )

Foreign debt securities

    45.9     45.6     (0.3 )
               

Total investments

    3,378.3     3,333.8     (44.5 )
               

Total cash, cash equivalents and investments

  $ 9,222.0   $ 9,177.5   $ (44.5 )
               

    Investment Losses

        As of December 31, 2008, the gross unrealized losses on our investment portfolio were $89.6. The gross unrealized gains were $45.1. Our unrealized losses were primarily caused by a major disruption to the global capital markets, including a deterioration of confidence and a severe decline in the availability of capital and demand for debt securities. The result has been to depress securities values in most types of investments.

        We considered $2.6 of unrealized losses to be other than temporary and recognized the losses as a charge to earnings. We considered $89.6 of losses to be temporary and recognized the estimated decline in value as a component of other comprehensive loss within our stockholders' equity. In making this determination, we considered the financial condition and near-term prospects of the issuers, the underlying value and performance of the collateral, the time to maturity, the length of time the investments have been in an unrealized loss position and our ability and intent to hold the investment to maturity if necessary to avoid losses. The significant components of the temporary impairments are as follows:

    Auction Rate Securities

        Our auction rate securities are predominantly rated AAA and are primarily collateralized by student loans. The underlying loans of all but two of our auction rate securities, with a market value of $17.5, have partial guarantees by the U.S. government as part of the Federal Family Education Loan Program ("FFELP") through the U.S. Department of Education. FFELP guarantees at least 95% of the loans which collateralize the auction rate securities. The two securities whose underlying loans are not guaranteed by the U.S. government have credit enhancements and are insured by third party agencies. We believe the quality of the collateral underlying all of our auction rate securities will enable us to recover our principal balance in full. As of December 31, 2007, we held $972.5 of auction rate securities at par value, which was equal to fair value as of that date. During the first quarter of 2008, we sold $684.0 of these auction rate securities at par through the normal auction process. Beginning in mid-February 2008, liquidity issues in the global credit markets resulted in the complete failure of auctions associated with our auction rate securities as the amount of securities submitted for sale in those auctions exceeded the amount of bids. For each unsuccessful auction, the interest rate moves to a maximum rate defined for each security, generally reset periodically at a level higher than defined short-term interest benchmarks. To date, we have collected all interest payable on all of our auction rate securities when due and expect to continue to do so in the future. The principal associated with failed auctions will not be accessible until successful auctions occur, a buyer is found outside of the auction process, the issuers establish a different form of financing to replace these securities, issuers repay principal over time from cash flows prior to final maturity, or final payments come due according to contractual maturities ranging from 15 to 40 years. We understand that issuers and financial markets are in the process of developing alternatives that may improve liquidity, although it is not yet clear when or to what extent such efforts will be successful. We expect that we will receive the entire principal associated with these auction rate securities through one of the means described above. None of the auction rate securities in our portfolio are mortgage-backed or collateralized debt obligations.

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    Asset and Mortgage-Backed Securities

        Our asset and mortgage-backed securities are predominantly rated AAA. The assets underlying these securities are generally residential or commercial obligations, automobile loans, credit card loans, equipment loans and home equity loans. The average maturity is 0.67 years and 2.06 years for the asset-backed and mortgage-backed securities, respectively. For these securities, 50% are mortgage-backed. The mortgage loans may have fixed rate or adjustable rate terms. The remainder of the portfolio consists of asset-backed securities. To date we have collected all interest payable on all these securities when due and expect to continue to do so in the future. For each security which has a temporary decline in value, we analyzed the collateral value, collateral statistics, including the borrowers' payment history, and our position in the capital structure. We estimated the losses in the underlying loans for these securities and compared these losses to our position in the security. For those securities where the underlying collateral is not sufficient, we have recorded other-than-temporary losses on these securities which aggregated $2.6. For the securities where the collateral is deemed to be adequate, we believe we will realize the current cost basis of these securities based on our position in the credit structure.

    U.S. Corporate Debt Securities

        Our U.S. corporate debt securities are predominantly rated A or better. The security issuers are from a cross section of industries, including banking and finance, insurance, consumer, industrial, technology and utilities. To mitigate concentration of risk, we impose sector limits at the portfolio and CUSIP level. The average maturity is 1.14 years. To date, we have collected all interest payable on all the debt securities when due and expect to continue to do so in the future. We have analyzed the issuers' credit history, current financial standing and their ability to retire the debt obligations. We expect that we will receive the entire principal associated with these securities.

        At December 31, 2008, we held $5,843.7 of cash and cash equivalents with a maturity of 90 days or less. Due to the nature of these assets, we consider it reasonable to expect that their fair market values will not be significantly impacted by a change in interest rates.

        We believe our current cash and investment position should be sufficient to meet our operating requirements in 2009.

        To date, inflation has not had a material impact on our financial results.

Off-Balance Sheet Arrangements, Contractual Obligations, Contingent Liabilities and Commitments

Contractual Obligations

        We have various contractual obligations impacting our liquidity. The following represents our contractual obligations as of December 31, 2008:

 
  Payments Due by Period  
 
  Total   Less than
1 year
  1-3 years*   3-5 years**   More than
5 years
 

Operating leases

  $ 894.4   $ 171.1   $ 304.1   $ 56.2   $ 363.0  

Long-term convertible debt

    3,450.0         1,725.0     1,725.0      

Other long-term obligations, including notes payable, current portion of long-term obligations and post retirement obligations

    180.9     70.9     2.5     1.2     2.6  

Purchase orders

    1,425.3     1,385.2     40.1          

Securities lending payable

    412.3     412.3              

Uncertain tax positions

    218.5                  
                       
 

Total

  $ 6,581.4   $ 2,039.5   $ 2,071.7   $ 1,782.4   $ 365.6  
                       

*
Includes payments from January 1, 2010 through December 31, 2012.
**
Includes payments from January 1, 2013 through December 31, 2014.

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        As of December 31, 2008, we had $218.5 of liabilities for uncertain tax positions under FASB Interpretation 48, "Accounting for Uncertainty in Income Taxes." We are not able to provide a reasonably reliable estimate of the timing of future payments relating to these obligations.

        Included in other long-term obligations are post retirement obligations of $103.7. We are not able to provide a reasonably reliable estimate of the timing of future payments relating to these obligations.

        Our operating leases are primarily for office space around the world. We believe leasing such space in most cases is more cost-effective than purchasing real estate. The long-term convertible debt pertains to the 2011 Notes and the 2013 Notes. The purchase orders are for manufacturing and non-manufacturing related goods and services. While the purchase orders are generally cancelable without penalty, certain vendor agreements provide for percentage-based cancellation fees or minimum restocking charges based on the nature of the product or service.

        We have no other off-balance sheet arrangements.

Guarantees and Indemnification Obligations

        EMC's subsidiaries have entered into arrangements with financial institutions for such institutions to provide guarantees for rent, taxes, insurance, leases, performance bonds, bid bonds and customs duties aggregating $67.7 as of December 31, 2008. The guarantees vary in length of time. In connection with these arrangements, we have agreed to guarantee substantially all of the guarantees provided by these financial institutions.

        We enter into agreements in the ordinary course of business with, among others, customers, resellers, OEMs, systems integrators and distributors. Most of these agreements require us to indemnify the other party against third-party claims alleging that an EMC product infringes a patent and/or copyright. Most of these agreements in which we license our trademarks to another party require us to indemnify the other party against third-party claims alleging that an EMC product infringes a trademark. Certain of these agreements require us to indemnify the other party against certain claims relating to property damage, personal injury or the acts or omissions of EMC, its employees, agents or representatives. In addition, from time to time, we have made certain guarantees regarding the performance of our systems to our customers.

        We have agreements with certain vendors, financial institutions, lessors and service providers pursuant to which we have agreed to indemnify the other party for specified matters, such as acts and omissions of EMC, its employees, agents or representatives.

        We have procurement or license agreements with respect to technology that is used in our products and agreements in which we obtain rights to a product from an OEM. Under some of these agreements, we have agreed to indemnify the supplier for certain claims that may be brought against such party with respect to our acts or omissions relating to the supplied products or technologies.

        We have agreed to indemnify the directors, executive officers and certain other officers of EMC and our subsidiaries, to the extent legally permissible, against all liabilities reasonably incurred in connection with any action in which such individual may be involved by reason of such individual being or having been a director or officer.

        In connection with certain acquisitions, we have agreed to indemnify the current and former directors, officers and employees of the acquired company in accordance with the acquired company's by-laws and charter in effect immediately prior to the acquisition or in accordance with indemnification or similar agreements entered into by the acquired company and such persons. In a substantial majority of instances, we have maintained the acquired company's directors' and officers' insurance, which should enable us to recover a portion of any future amounts paid. These indemnities vary in length of time.

        Based upon our historical experience and information known as of December 31, 2008, we believe our liability on the above guarantees and indemnities at December 31, 2008 are not material.

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Notes and Accounts Receivable

        We derive revenues from both selling and leasing information storage systems. We customarily sell the notes receivable resulting from our leasing activity to provide for current liquidity. Generally, we do not retain any recourse on the sale of these notes. If recourse is retained, we assess and provide for any estimated exposure.

Litigation

        We are a party to litigation which we consider routine and incidental to our business. Management does not expect the results of any of these actions to have a material adverse effect on our business, results of operations or financial condition.

        We have learned that the Civil Division of the United States Department of Justice (the "DoJ") is investigating allegations concerning (i) EMC's fee arrangements with systems integrators and other partners in federal government transactions, and (ii) EMC's compliance with the terms and conditions of certain agreements pursuant to which we sold products and services to the federal government, including potential violations of the False Claims Act. The subject matter of this investigation also overlaps with that of a previous audit by the U.S. General Services Administration ("GSA") concerning our recordkeeping and pricing practices under a schedule agreement we entered into with GSA in November 1999 which, following several extensions, expired in June 2007. We have cooperated with both the audit and the DoJ investigation, voluntarily providing documents and information, and have engaged in discussions aimed at resolving this matter without any admission or finding of liability on the part of EMC. We believe that we have meritorious factual and legal defenses to the allegations raised and, if the matter is not resolved and proceeds to litigation, we intend to defend vigorously. If the matter proceeds to litigation, possible sanctions include an award of damages, including treble damages, fines, penalties and other sanctions, including suspension or debarment from sales to the federal government.

        In accordance with Statement of Financial Accounting Standards No. 5, we have estimated the loss that may result from this matter, and such amount is reflected in our consolidated financial statements. It is not possible to predict the outcome of this matter with certainty, and the actual amount of loss may prove to be larger or smaller than the amount reflected in our consolidated financial statements.

Pension and Post-Retirement Medical and Life Insurance Plans

        We have noncontributory defined benefit pension plans which were assumed as part of the Data General acquisition, which cover substantially all former Data General employees located in the U.S. and Canada (the "Pension Plans"). The Pension Plans were frozen in 1999, resulting in employees no longer accruing pension benefits for future services. The assets for the Pension Plans are invested in common stocks, bonds and cash. The market related value of the plans' assets is based upon the assets' fair value. The expected long-term rate of return on assets for the year ended December 31, 2008 was 8.25%. This rate represents the average of the long-term rates of return for the Pension Plans weighted by the plans' assets as of December 31, 2008. For the ten years ended December 31, 2007, the actual long-term rate of return was 6.0%. In 2008, we experienced a 27.0% loss on the plans' assets. As a result, the actual long-term rate of return for the ten years ended December 31, 2008 was 1.6%. Based upon current market conditions, the expected long-term rate of return for 2009 will be decreased to 8.0%. A 25 basis point change in the expected long-term rate of return on the plans' assets would have approximately a $0.7 impact on the 2008 pension expense. As of December 31, 2008, the Pension Plans had a $218.2 accumulated actuarial loss that will be expensed over the average future working lifetime of active participants. For the year ended December 31, 2008, the discount rate to determine the benefit obligation was 6.6%. The discount rate selected was based on highly rated long-term bond indices and yield curves that match the duration of the plans' benefit obligations. The bond indices and yield curve analyses include only bonds rated AA or higher from a reputable rating agency. This rate represents the average of the discount rates for the Pension Plans weighted by plan liabilities as of December 31, 2008. A 25 basis point change in the discount rate would have approximately a $0.5 impact on the 2008 pension expense for the Pension Plans. Additionally, certain foreign subsidiaries have defined benefit pension plans. These foreign pension plans are excluded from this discussion because they do not have a material impact on our consolidated financial position or results of operations.

        We also assumed a post-retirement benefit plan as part of the Data General acquisition that provides certain medical and life insurance benefits for retired former Data General employees. The plan's assets are invested in common stocks, bonds and cash. The market related value of the plan's assets is equal to the assets' fair value. The expected long-term rate of return on the plan's assets for the year ended December 31, 2008 was 8.25%. For the ten years ended December 31, 2007, the actual long-term rate of return was 6.0%. In 2008, we experienced a 27.0% loss on the plan's assets. As a result, the

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actual long-term rate of return for the ten years ended December 31, 2008 was 1.6%. Based on capital market conditions, the expected long-term rate of return for 2009 will be decreased to 8.0%. A 25 basis point change in the expected long-term rate of return on the plan's assets has minimal impact on our benefit expense. As of December 31, 2008, the plan had $0.3 accumulated actuarial loss that will be recognized over the anticipated remaining years of service for participants. For the year ended December 31, 2008, the discount rate to determine the benefit obligation was 6.6%. The discount rate selected was based on highly rated long-term bond indices and yield curves that match the duration of the plan's benefit obligations. The bond indices and yield curve analyses include only bonds rated AA or higher from a reputable rating agency. A 25 basis point change in the discount rate has a minimal impact on the expense.

Critical Accounting Policies

        Our consolidated financial statements are based on the selection and application of generally accepted accounting principles which require us to make estimates and assumptions about future events that affect the amounts reported in our financial statements and the accompanying notes. Future events and their effects cannot be determined with certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and any such differences may be material to our financial statements. We believe that the areas set forth below may involve a higher degree of judgment and complexity in their application than our other accounting policies and represent the critical accounting policies used in the preparation of our financial statements. If different assumptions or conditions were to prevail, the results could be materially different from our reported results. Our significant accounting policies are presented within Note A to our Consolidated Financial Statements.

Revenue Recognition

        Revenue recognition is governed by various accounting principles, including SAB No. 104, "Revenue Recognition"; Emerging Issues Task Force No. 00-21, "Revenue Arrangements with Multiple Deliverables"; Statement of Position ("SOP") No. 97-2, "Software Revenue Recognition"; FAS No. 48, "Revenue Recognition When Right of Return Exists"; FAS No. 13, "Accounting for Leases"; and SOP No. 81-1, "Accounting for Performance of Construction-Type and Certain Production-Type Contracts," among others. The application of the appropriate accounting principle to our revenue is dependent upon the specific transaction and whether the sale or lease includes systems, software and services or a combination of these items. As our business evolves, the mix of products and services sold will impact the timing of when revenue and related costs are recognized. Additionally, revenue recognition involves judgments, including estimates of fair value in arrangements with multiple deliverables, assessments of expected returns and the likelihood of nonpayment. We analyze various factors, including a review of specific transactions, the credit-worthiness of our customers, our historical experience and market and economic conditions. Changes in judgments on these factors could materially impact the timing and amount of revenue and costs recognized. Should market or economic conditions deteriorate, our actual return experience could exceed our estimate.

Warranty Costs

        We accrue for systems warranty costs at the time of shipment. We estimate systems warranty costs based upon historical experience, specific identification of system requirements and projected costs to service items under warranty. While we engage in extensive product quality programs and processes, our warranty obligation is affected by product failure rates, material usage and service delivery costs. To the extent that our actual systems warranty costs differed from our estimates by 5 percent, consolidated pre-tax income would have increased/decreased by approximately $11.5 and $11.6 in 2008 and 2007, respectively.

Asset Valuation

        Asset valuation includes assessing the recorded value of certain assets, including accounts and notes receivable, investments, inventories, goodwill and other intangible assets. We use a variety of factors to assess valuation, depending upon the asset. Accounts and notes receivable are evaluated based upon the credit-worthiness of our customers, our historical experience, the age of the receivable and current market and economic conditions. Should current market and economic conditions deteriorate, our actual bad debt experience could exceed our estimate. The market value of our short and long-term investments is based primarily upon the listed price of the security. At December 31, 2008, with the exception of our auction rate securities, the vast majority of our investments were priced by pricing vendors. These pricing vendors utilize the most recent observable market information in pricing these securities or, if specific prices are not available for these securities, use other observable inputs. In the event observable inputs are not available, we assess other factors to

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determine the security's market value, including broker quotes or model valuations. Each month, we perform independent price verifications of all of our holdings. In the event a price fails a pre-established tolerance check, it is researched so that we can assess the cause of the variance to determine what we believe is the appropriate fair market value. In the event the fair market values that we determine are not accurate or we are unable to liquidate our investments in a timely manner, we may not realize the recorded value of our investments. We hold investments whose market value is below our cost. The determination of whether unrealized losses on investments are other than temporary is based upon the type of investments held, market conditions, financial condition and near-term prospects of the issuers, the underlying value and performance of the collateral, the time to maturity, length of the impairment, magnitude of the impairment and ability and intent to hold the investment to maturity. Should current market and economic conditions deteriorate, our ability to recover the cost of our investments may be impaired. The recoverability of inventories is based upon the types and our levels of inventory held, forecasted demand, pricing, competition and changes in technology. Should current market and economic conditions deteriorate, our actual recovery could be less than our estimate. Other intangible assets are evaluated based upon the expected period the asset will be utilized, forecasted cash flows, changes in technology and customer demand. Changes in judgments on any of these factors could materially impact the value of the asset. We perform an assessment of the recoverability of goodwill, at least annually, in the fourth quarter of each year. Our assessment is performed at the reporting unit level which, for certain of our segments, is one step below our segment level. For each assessment, we compare the market value of the reporting unit to its carrying value. We estimate fair value by employing different methodologies, including a comparison to comparable industry companies and several different discounted cash flow methodologies. The determination of relevant comparable industry companies impacts our assessment of fair value. Should the operating performance of our reporting units change in comparison to these companies or should the valuation of these companies change, this could impact our assessment of the fair value of the reporting units. Our discounted cash flow analyses factor in assumptions on revenue and expense growth rates. These estimates are based upon our historical experience and projections of future activity, factoring in customer demand, changes in technology and a cost structure necessary to achieve the related revenues. Additionally, these discounted cash flow analyses factor in expected amounts of working capital and weighted average cost of capital. Changes in judgments on any of these factors could materially impact the value of the reporting unit.

Restructuring Charges

        We recognized restructuring charges in 2008, 2007, 2006 and prior years. The restructuring charges include, among other items, estimated employee termination benefit costs, subletting of facilities and termination of various contracts. The amount of the actual obligations may be different than our estimates due to various factors, including market conditions, negotiations with third parties and finalization of severance agreements with employees. Should the actual amounts differ from our estimates, the amount of the restructuring charges could be materially impacted.

Accounting for Income Taxes

        As part of the process of preparing our financial statements, we are required to estimate our provision for income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax exposure, including assessing the risks associated with tax audits, together with assessing temporary differences resulting from the different treatment of items for tax and financial reporting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is more likely than not, do not establish a valuation allowance. In the event that actual results differ from these estimates, our provision for income taxes could be materially impacted.

Accounting for Stock-based Compensation

        For our share-based payment awards, we make estimates and assumptions to determine the underlying value of stock options, including volatility, expected life and forfeiture rates. Additionally, for awards which are performance based, we make estimates as to the probability of the underlying performance being achieved. Changes to these estimates and assumptions may have a significant impact on the value and timing of stock-based compensation expense recognized, which could have a material impact on our financial statements.

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New Accounting Pronouncements

        We adopted Financial Accounting Standards ("FAS") No. 157, "Fair Value Measurements" ("FAS No. 157") on January 1, 2008. FAS No. 157 defines fair value, establishes a methodology for measuring fair value and expands the required disclosure for fair value measurements. During 2008, the FASB issued the following amendments:

    FASB Staff Position No. 157-1, "Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13" ("FSP FAS No. 157-1") amends FAS No. 157 to remove certain leasing transactions from its scope. The adoption of FSP FAS No. 157-1 did not have a material impact on our financial position or results of operations.

    FASB Staff Position No. FAS 157-2, "Effective Date of FASB Statement No. 157" delays the effective date of FAS No. 157 from 2008 to 2009 for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). We are currently evaluating the potential impact of FAS No. 157 for non-financial assets and non-financial liabilities on our financial position and results of operations.

    FASB Staff Position No. 157-3, "Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active" ("FSP FAS No. 157-3") clarifies the application of FAS No. 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSP FAS No. 157-3 was effective October 2008, including prior periods for which financial statements have not been issued. The adoption of FSP FAS No. 157-3 did not have a material impact on our financial position or results of operations.

        In December 2007, the FASB issued FAS No. 141 (revised 2007), "Business Combinations" ("FAS No. 141R"). This statement establishes principles and requirements for how the acquirer in a business combination (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree, (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and (iii) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. FAS No. 141R is effective for fiscal years beginning after December 15, 2008. The impact of the standard on our financial position and results of operations will be dependent upon the number of and magnitude of the acquisitions that are consummated once the standard is effective.

        In December 2007, the FASB issued FAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements — an amendment of Accounting Research Board ("ARB") No. 51" ("FAS No. 160"). The objective of this statement is to improve the relevance, comparability and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. FAS No. 160 is effective for fiscal years beginning after December 15, 2008. We do not expect FAS No. 160 to have a material impact on our financial position or results of operations.

        In April 2008, the FASB issued FASB Staff Position ("FSP") on FAS No. 142-3, "Determination of the Useful Life of Intangible Assets" ("FSP FAS No. 142-3"). FSP FAS No. 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FAS No. 142, "Goodwill and Other Intangible Assets" ("FAS No. 142"). The intent of FSP FAS No. 142-3 is to improve the consistency between the useful life of a recognized intangible asset under FAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under FAS No. 141R and other U.S. generally accepted accounting principles. FSP FAS No. 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008. We do not expect FSP FAS No. 142-3 to have a material impact on our financial position or results of operations.

        In May 2008, the FASB issued FSP APB 14-1, which changes the accounting treatment for certain convertible securities which include our Notes. Under FSP APB 14-1, issuers are required to allocate the bond proceeds into a bond portion and a conversion option. The allocation of the bond portion is based upon determining the value of a bond based upon the issuance costs of debt with no conversion option. The residual value is allocated to the conversion option. As a result of this change, the bonds are recorded at a discount which is accreted to its face value over the term of the debt using the effective interest method resulting in additional interest expense. The separated conversion option will be recorded in equity and not marked to market provided that the requirement for equity classification is met. FSP APB 14-1 requires issuers to

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retroactively revise all periods presented. FSP APB 14-1 is effective for financial statements for fiscal years ended after December 15, 2008, and early adoption is not permitted. We adopted FSP APB 14-1 on January 1, 2009.

        For financial statements for periods after January 1, 2009, we will revise prior period financial statements by reclassifying $669.1 of our Notes to additional paid-in capital. Our interest expense will increase by $11.5 for 2006 (the year the Notes were issued), $96.9 for 2007 and $102.6 in 2008. Our diluted earnings per share will decrease by $0.0 for 2006 and $0.03 for each of 2007 and 2008.

ITEM 7A:    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

        We are exposed to market risk, primarily from changes in foreign exchange rates, interest rates and credit risk. To manage the volatility relating to foreign exchange risk, we enter into various derivative transactions pursuant to our policies to hedge against known or forecasted market exposures.

Foreign Exchange Risk Management

        As a multinational corporation, we are exposed to changes in foreign exchange rates. Any foreign currency transaction, defined as a transaction denominated in a currency other than the U.S. dollar, will be reported in U.S. dollars at the applicable exchange rate. Assets and liabilities are translated into U.S. dollars at exchange rates in effect at the balance sheet date and income and expense items are translated at average rates for the period. The primary foreign currency denominated transactions include revenue and expenses and the resultant accounts receivable and accounts payable balances reflected on our balance sheet. Therefore, the change in the value of the U.S. dollar as compared to foreign currencies will have either a positive or negative effect on our financial position and results of operations. We enter into derivative contracts with the sole objective of decreasing the volatility of the impact of currency fluctuations. These exposures may change over time and could have a material adverse impact on our financial results. Historically, our primary exposure has related to sales denominated in the Euro, the Japanese yen and the British pound. Additionally, we have exposure to emerging market economies, particularly in Latin America and Southeast Asia.

        We use foreign currency forward and option contracts to manage the risk of exchange rate fluctuations. In all cases, we use these derivative instruments to reduce our foreign exchange risk by essentially creating offsetting market exposures. The success of the hedging program depends on our forecasts of transaction activity in the various currencies. To the extent that these forecasts are overstated or understated during periods of currency volatility, we could experience unanticipated currency gains or losses. The instruments we hold are not leveraged and are not held for trading or speculative purposes.

        We employ a Monte Carlo simulation model to calculate value-at-risk for our combined foreign exchange position. This model assumes that the relationships among market rates and prices that have been observed daily over the last two years are valid for estimating risk over the next trading day. Estimates of volatility and correlations of market factors are calculated by Measurisk as of December 31, 2008. This model measures the potential loss in fair value that could arise from changes in market conditions, using a 95% confidence level and assuming a one-day holding period. The value-at-risk on the combined foreign exchange position was $1.4 million as of December 31, 2008 and $1.0 million as of December 31, 2007. The average, high and low value-at-risk amounts for 2008 and 2007 were as follows (in millions):

 
  Average   High   Low  

2008

  $ 1.3   $ 1.7   $ 0.5  

2007

  $ 0.8   $ 1.0   $ 0.6  

        The average value represents an average of the quarter-end values. The high and low valuations represent the highest and lowest values of the quarterly amounts.

Interest Rate Risk

        We maintain an investment portfolio consisting of debt securities of various types and maturities. The investments are classified as available for sale and are all denominated in U.S. dollars. These securities are recorded on the balance sheet at market value, with any unrealized gain or temporary loss recorded in other comprehensive loss. These instruments are not leveraged and are not held for trading purposes.

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        We employ a Monte Carlo simulation model to calculate value-at-risk for changes in interest rates for our combined investment portfolios. This model assumes that the relationships among market rates and prices that have been observed daily over the last two years are valid for estimating risk over the next trading day. Estimates of volatility and correlations of market factors are drawn from the Measurisk dataset as of December 31, 2008. This model measures the potential loss in fair value that could arise from changes in interest rates, using a 95% confidence level and assuming a one-day holding period. The value-at-risk on the investment portfolios was $9.4 million as of December 31, 2008 and $2.4 million as of December 31, 2007. The average, high and low value-at-risk amounts for 2008 and 2007 were as follows (in millions):

 
  Average   High   Low  

2008

  $ 6.5   $ 9.4   $ 4.1  

2007

  $ 0.7   $ 2.4   $ (0.5 )

        The average value represents an average of the quarter-end values. The high and low valuations represent the highest and lowest values of the quarterly amounts.

Credit Risk

        Financial instruments that potentially subject us to concentration of credit risk consist principally of bank deposits, money market investments, short and long-term investments, accounts and notes receivable, and foreign currency exchange contracts. Deposits held with banks in the United States may exceed the amount of FDIC insurance provided on such deposits. Deposits held with banks outside the United States generally do not benefit from FDIC insurance. The majority of our day-to-day banking operations globally are maintained with Citibank. We believe that Citibank's position as a primary clearing bank, coupled with the substantial monitoring of their daily liquidity, both by their internal processes and by the Federal Reserve and the FDIC, mitigate some of our risk.

        Our money market investments are placed with money market funds that are 2A7 qualified. We limit our investments in money market funds to those that are primarily associated with large, money center financial institutions. While some money market funds were forced to break a one dollar net asset value as a result of the financial crisis in the fourth quarter of 2008, none of the money market funds in which we were invested were affected. In the fourth quarter of 2008, the FDIC provided guarantees to investors in money market funds for balances held as of September 19, 2008. While most of our United States-domiciled money market investments benefit from this guarantee, our offshore money market investments do not benefit from this guarantee.

        Our short and long-term investments are invested primarily in investment grade securities, and we limit the amount of our investment in any single issuer. Some of our investments have been downgraded from investment grade as a result of the global financial crisis. We routinely monitor these investments and make assessments of our credit exposure as a result of these downgrades.

        We participate in securities lending agreements with financial institutions to enhance investment income. Securities are loaned to independent brokers for which we receive cash collateral equal to 102% of the fair market value of the securities. The loaned securities remain on our balance sheet as we maintain ownership while the investments are on loan. Our securities lending agent has provided us with a 100% counterparty indemnification in the event of borrower default. As of December 31, 2008, we had received $412.3 million in cash collateral which has been subsequently invested in short-term investments.

        The credit risk associated with accounts and notes receivable is low due to the large number of customers and their broad dispersion over many different industries and geographic areas. We establish an allowance for the estimated uncollectible portion of our accounts and notes receivable. The allowance was $50.6 million and $35.9 million at December 31, 2008 and 2007, respectively. We customarily sell the notes receivable we derive from our leasing activity. Generally, we do not retain any recourse on the sale of these notes.

        The counterparties to our foreign currency exchange contracts consist of a number of major financial institutions. In addition to limiting the amount of contracts we enter into with any one party, we monitor the credit quality of the counterparties on an ongoing basis.

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ITEM 8:    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

EMC CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

Note: All other financial statement schedules are omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto.

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MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

        The management of EMC is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the company's principal executive and principal financial officers and effected by the company's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

    Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;

    Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

    Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        EMC's management assessed the effectiveness of the company's internal control over financial reporting as of December 31, 2008. In making this assessment, EMC's management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework.

        In making its assessment on the changes in internal control over financial reporting as of December 31, 2008, our management excluded Iomega Corporation from its assessment of internal control over financial reporting as of December 31, 2008 because this entity was acquired by EMC in 2008. Iomega Corporation is a wholly-owned subsidiary of EMC that represents 0.9% of consolidated total assets and 1.3% of consolidated revenue as of and for the year ended December 31, 2008. See Note C to the Consolidated Financial Statements for a discussion of the acquisition.

        Based on our assessment, EMC's management determined that, as of December 31, 2008, EMC's internal control over financial reporting is effective based on those criteria.

        PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited the effectiveness of our internal control over financial reporting as stated in their report which appears on page 47 of this Annual Report on Form 10-K.

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of EMC Corporation:

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of EMC Corporation and its subsidiaries at December 31, 2008 and December 31, 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedules, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note K to the consolidated financial statements, the Company changed the manner in which it accounts for uncertain tax positions in 2007.

As discussed in Note F to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standard No. 157 in 2008.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As described in Management's Report on Internal Control over Financial Reporting, management has excluded Iomega Corporation from its assessment of internal control over financial reporting as of December 31, 2008 because this entity was acquired by the Company in a purchase business combination during 2008. We have also excluded Iomega Corporation from our audit of internal control over financial reporting. Iomega Corporation is a wholly-owned subsidiary of the Company whose total assets and total revenues represent 0.9% and 1.3%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2008.

PricewaterhouseCoopers LLP

Boston, Massachusetts
February 27, 2009

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EMC CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)

 
  December 31,  
ASSETS
  2008   2007  

Current assets:

             
 

Cash and cash equivalents

  $ 5,843,685   $ 4,482,211  
 

Short-term investments

    963,292     1,644,703  
 

Accounts and notes receivable, less allowance for doubtful accounts of $48,080 and $34,389

    2,252,640     2,307,512  
 

Inventories

    842,803     877,243  
 

Deferred income taxes

    477,101     475,544  
 

Other current assets

    285,508     265,889  
           

Total current assets

    10,665,029     10,053,102  

Long-term investments

    2,370,493     1,825,572  

Property, plant and equipment, net

    2,223,007     2,159,396  

Intangible assets, net

    795,616     940,077  

Other assets, net

    773,631     775,001  

Goodwill

    7,046,799     6,531,506  
           
           

Total assets

  $ 23,874,575   $ 22,284,654  
           

LIABILITIES AND STOCKHOLDERS' EQUITY

             

Current liabilities:

             
 

Accounts payable

  $ 757,405   $ 840,886  
 

Accrued expenses

    1,901,884     1,696,309  
 

Securities lending payable

    412,321      
 

Income taxes payable

    136,802     146,104  
 

Deferred revenue

    2,010,024     1,724,909  
           

Total current liabilities

    5,218,436     4,408,208  

Income taxes payable

    255,182     246,951  

Deferred revenue

    1,182,360     1,053,394  

Deferred income taxes

    218,210     288,175  

Long-term convertible debt

    3,450,000     3,450,000  

Other liabilities

    180,917     127,621  
           

Total liabilities

    10,505,105     9,574,349  
           

Minority interest in VMware

    327,507     188,988  
           

Commitments and contingencies (See Note M)

             

Stockholders' equity:

             
 

Preferred stock, par value $0.01; authorized 25,000 shares; none outstanding

         
 

Common stock, par value $0.01; authorized 6,000,000 shares; issued and outstanding 2,012,938 and 2,102,187 shares

    20,129     21,022  
 

Additional paid-in capital

    2,385,930     3,038,455  
 

Retained earnings

    10,815,856     9,470,289  
 

Accumulated other comprehensive loss, net

    (179,952 )   (8,449 )
           
       

Total stockholders' equity

    13,041,963     12,521,317  
           
           

Total liabilities and stockholders' equity

  $ 23,874,575   $ 22,284,654  
           

The accompanying notes are an integral part of the consolidated financial statements.

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EMC CORPORATION
CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share amounts)

 
  For the Year Ended December 31,  
 
  2008   2007   2006  

Revenues:

                   
 

Product sales

  $ 10,071,816   $ 9,411,976   $ 8,078,042  
 

Services

    4,804,347     3,818,229     3,077,048  
               

    14,876,163     13,230,205     11,155,090  

Costs and expenses:

                   
 

Cost of product sales

    4,663,667     4,359,041     3,906,771  
 

Cost of services

    1,990,127     1,659,836     1,335,120  
 

Research and development

    1,721,330     1,526,928     1,254,193  
 

Selling, general and administrative

    4,601,588     3,912,688     3,253,274  
 

In-process research and development

    85,780     1,150     35,410  
 

Restructuring and impairment charges

    244,735     31,310     162,564  
               

Operating income

    1,568,936     1,739,252     1,207,758  

Gain on sale of VMware stock to Cisco

        148,585      

Investment income

    247,049     249,264     224,949  

Interest expense

    (73,774 )   (72,855 )   (34,123 )

Other expense, net

    (39,405 )   (4,677 )   (8,566 )
               

Income before taxes, minority interest in VMware and cumulative effect of a change in accounting principle

    1,702,806     2,059,569     1,390,018  

Income tax provision

    312,514     378,446     162,664  
               

Income before minority interest in VMware and cumulative effect of a change in accounting principle

    1,390,292     1,681,123     1,227,354  

Minority interest in VMware, net of taxes

    (44,725 )   (15,455 )    
               

Income before cumulative effect of a change in accounting principle

    1,345,567     1,665,668     1,227,354  

Cumulative effect of a change in accounting principle, net of taxes of $0, $0 and $107

            247  
               

Net income

  $ 1,345,567   $ 1,665,668   $ 1,227,601  
               

Net income per weighted average share, basic:

                   

Income before cumulative effect of a change in accounting principle

  $ 0.66   $ 0.80   $ 0.55  

Cumulative effect of a change in accounting principle

             
               

Net income

  $ 0.66   $ 0.80   $ 0.55  
               

Net income per weighted average share, diluted:

                   

Income before cumulative effect of a change in accounting principle

  $ 0.64   $ 0.77   $ 0.54  

Cumulative effect of a change in accounting principle

             
               

Net income

  $ 0.64   $ 0.77   $ 0.54  
               

Weighted average shares, basic

    2,048,506     2,079,542     2,248,431  
               

Weighted average shares, diluted

    2,079,853     2,157,873     2,286,304  
               

The accompanying notes are an integral part of the consolidated financial statements.

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EMC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

 
  For the Year Ended December 31,  
 
  2008   2007   2006  

Cash flows from operating activities:

                   
 

Cash received from customers

  $ 15,378,081   $ 13,333,489   $ 11,167,249  
 

Cash paid to suppliers and employees

    (11,747,031 )   (10,182,600 )   (8,666,586 )
 

Dividends and interest received

    240,031     254,062     258,631  
 

Interest paid

    (73,695 )   (76,025 )   (26,804 )
 

Income taxes paid

    (232,298 )   (202,324 )   (592,066 )
               
       

Net cash provided by operating activities

    3,565,088     3,126,602     2,140,424  
               

Cash flows from investing activities:

                   
 

Additions to property, plant and equipment

    (695,899 )   (699,038 )   (718,095 )
 

Capitalized software development costs

    (294,973 )   (232,047 )   (192,895 )
 

Purchases of short and long-term available for sale securities

    (3,318,545 )   (6,204,762 )   (6,611,698 )
 

Sales of short and long-term available for sale securities

    3,189,547     6,177,552     7,758,144  
 

Maturities of short and long-term available for sale securities

    204,091     349,475     107,120  
 

Proceeds from the sale of portion of EMC's interest in VMware to Cisco

        150,000      
 

Business acquisitions, net of cash acquired

    (725,521 )   (692,003 )   (2,618,376 )
 

Other

    26,368     (12,074 )   (20,860 )
               
       

Net cash used in investing activities

    (1,614,932 )   (1,162,897 )   (2,296,660 )
               

Cash flows from financing activities:

                   
 

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

    241,060     782,449     257,789  
 

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

    190,107     2,760      
 

Purchase of VMware's common stock

    (13,259 )        
 

Proceeds from the sale of VMware's common stock

        1,253,533      
 

Proceeds from securities lending

    412,321          
 

Repurchase of EMC's common stock

    (1,489,501 )   (1,453,669 )   (3,655,404 )
 

Excess tax benefits from stock-based compensation

    97,705     91,782     20,025  
 

Payment of long-term and short-term obligations

    (6,151 )   (17,178 )   (2,331,587 )
 

Proceeds from long-term and short-term obligations

    33,707     19,815     5,654,004  
 

Purchase of call options

            (669,076 )
 

Sale of warrants

            391,144  
 

Debt issuance costs

            (58,863 )
               
       

Net cash (used in) provided by financing activities

    (534,011 )   679,492     (391,968 )
               

Effect of exchange rate changes on cash

    (54,671 )   10,908     53,940  
               

Net increase (decrease) in cash and cash equivalents

    1,361,474     2,654,105     (494,264 )

Cash and cash equivalents at beginning of year

    4,482,211     1,828,106     2,322,370  
               

Cash and cash equivalents at end of year

  $ 5,843,685   $ 4,482,211   $ 1,828,106  
               

Reconciliation of net income to net cash provided by operating activities:

                   
 

Net income

  $ 1,345,567   $ 1,665,668   $ 1,227,601  
 

Adjustments to reconcile net income to net cash provided by operating activities:

                   
   

Cumulative effect of a change in accounting principle

            (247 )
   

Minority interest in VMware, net of taxes

    44,725     15,455      
   

Gain on sale of VMware stock to Cisco

        (148,585 )    
   

Depreciation and amortization

    1,057,511     917,274     764,162  
   

Non-cash restructuring and other special charges

    139,193     3,778     75,889  
   

Stock-based compensation expense

    501,439     367,404     398,687  
   

Provision for doubtful accounts

    34,667     8,885     10,290  
   

Deferred income taxes, net

    36,747     (68,397 )   (131,966 )
   

Excess tax benefits from stock-based compensation

    (97,705 )   (91,782 )   (20,025 )
   

Other

    (13,471 )   3,850     27,271  
   

Changes in assets and liabilities, net of acquisitions:

                   
       

Accounts and notes receivable

    73,184     (576,422 )   (232,295 )
       

Inventories

    165,813     13,574     (69,567 )
       

Other assets

    (16,178 )   (86,022 )   (31,822 )
       

Accounts payable

    (148,821 )   155,296     59,631  
       

Accrued expenses

    8,688     35,934     133,856  
       

Income taxes payable

    44,821     243,216     (297,936 )
       

Deferred revenue

    394,067     670,820     234,164  
       

Other liabilities

    (5,159 )   (3,344 )   (7,269 )
               
       

Net cash provided by operating activities

  $ 3,565,088   $ 3,126,602   $ 2,140,424  
               

Non-cash investing and financing activity:

                   

Issuance of common stock and stock options exchanged in business acquisitions

  $ 4,057   $ 4,607   $ 41,151  

The accompanying notes are an integral part of the consolidated financial statements.

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EMC CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)

 
  Common Stock    
   
   
  Accumulated
Other
Comprehensive
Loss
   
 
 
  Additional
Paid-in
Capital
  Deferred
Compensation
  Retained
Earnings
  Stockholders'
Equity
 
 
  Shares   Par Value  

Balance, January 1, 2006

    2,384,147   $ 23,841   $ 5,867,076   $ (332,311 ) $ 6,570,511   $ (63,687 ) $ 12,065,430  
 

Stock issued through stock option and stock purchase plans

    34,787     349     257,440                 257,789  
 

Tax benefit from stock options exercised

            30,728                 30,728  
 

Restricted stock grants, cancellations and withholdings, net

    5,739     56     (20,069 )               (20,013 )
 

Repurchase of common stock

    (302,334 )   (3,023 )   (3,652,381 )               (3,655,404 )
 

Reclassification of deferred compensation to additional paid-in capital

            (332,311 )   332,311              
 

Stock options issued in business acquisitions

            41,151                 41,151  
 

Stock-based compensation

            399,949                 399,949  
 

Purchase of call options

            (669,076 )               (669,076 )
 

Tax benefit from purchase of call options

            250,903                 250,903  
 

Sale of warrants

            391,144                 391,144  
 

Impact of adoption of new accounting standard for pension and other post-retirement plans (see Note A)

                        (58,275 )   (58,275 )
 

Impact of adoption of new accounting standard for shared-based payment

            (3,619 )               (3,619 )
 

Change in market value of investments

                        22,762     22,762  
 

Change in market value of derivatives

                        (805 )   (805 )
 

Translation adjustment

                        45,442     45,442  
 

Net income

                    1,227,601         1,227,601  
                               

Balance, December 31, 2006

    2,122,339     21,223     2,560,935         7,798,112     (54,563 )   10,325,707  
 

Stock issued through stock option and stock purchase plans

    77,864     780     781,669                 782,449  
 

Tax benefit from stock options exercised

            140,441                 140,441  
 

Restricted stock grants, cancellations and withholdings, net

    (8,629 )   (87 )   (38,012 )               (38,099 )
 

Repurchase of common stock

    (89,387 )   (894 )   (1,452,775 )               (1,453,669 )
 

Stock options issued in business acquisitions

            4,607                 4,607  
 

Stock-based compensation

            378,243                 378,243  
 

Impact of adopting new standard for uncertainty in income taxes (see Note K)

                    6,509         6,509  
 

Adjustment to tax benefit on call options

            (6,045 )               (6,045 )
 

Minority interest impact of VMware

            (16,836 )               (16,836 )
 

Gain on VMware's sale of its common stock, net of tax of $411,738 (see Note B)

            686,228                 686,228  
 

Actuarial gain on pension plan, net of tax of $10,500

                        17,960     17,960  
 

Change in market value of investments

                        20,938     20,938  
 

Change in market value of derivatives

                        107     107  
 

Translation adjustment

                        7,109     7,109  
 

Net income

                    1,665,668         1,665,668  
                               

Balance, December 31, 2007

    2,102,187     21,022     3,038,455         9,470,289     (8,449 )   12,521,317  
 

Stock issued through stock option and stock purchase plans

    23,538     234     240,826                 241,060  
 

Tax benefit from stock options exercised

            109,236                 109,236  
 

Restricted stock grants, cancellations and withholdings, net

    (633 )   (6 )   (56,035 )               (56,041 )
 

Repurchase of common stock

    (112,154 )   (1,121 )   (1,488,380 )               (1,489,501 )
 

Repurchase of VMware common stock from Cisco

            (13,259 )               (13,259 )
 

Stock options issued in business acquisitions

            4,057                 4,057  
 

Stock-based compensation

            531,086                 531,086  
 

Adjustment to tax benefit on call options

            (6,906 )               (6,906 )
 

Minority interest impact of VMware

            26,850                 26,850  
 

Actuarial loss on pension plan, net of tax of $55,680

                        (94,563 )   (94,563 )
 

Change in market value of investments

                        (37,715 )   (37,715 )
 

Change in market value of derivatives

                        (1,145 )   (1,145 )
 

Translation adjustment

                        (38,080 )   (38,080 )
 

Net income

                    1,345,567         1,345,567  
                               

Balance, December 31, 2008

    2,012,938   $ 20,129   $ 2,385,930   $   $ 10,815,856   $ (179,952 ) $ 13,041,963  
                               

The accompanying notes are an integral part of the consolidated financial statements.

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EMC CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)

 
  For the Year Ended December 31,  
 
  2008   2007   2006  

Net income

  $ 1,345,567   $ 1,665,668   $ 1,227,601  

Other comprehensive income (loss), net of taxes (benefit):

                   
 

Recognition of actuarial net (loss) gain from pension and other postretirement plans, net of taxes (benefit) of $(55,680), $10,500 and $0

    (94,563 )   17,960      
 

Foreign currency translation adjustments

    (38,080 )   7,109     45,442  
 

Changes in market value of investments, including unrealized (loss) gains and reclassification adjustments to net income, net of (benefit) taxes of $(25,025), $4,934 and $3,011

    (37,715 )   20,938     22,762  
 

Changes in market value of derivatives, net of (benefit) taxes of $(127), $13 and $(90)

    (1,145 )   107     (805 )
               

Other comprehensive (loss) income

    (171,503 )   46,114     67,399  
               

Comprehensive income

  $ 1,174,064   $ 1,711,782   $ 1,295,000  
               

The accompanying notes are an integral part of the consolidated financial statements.

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EMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A.    Summary of Significant Accounting Policies

    Company

        EMC Corporation ("EMC") and its subsidiaries develop, deliver and support the Information Technology ("IT") industry's broadest range of information infrastructure technologies and solutions.

        EMC's Information Infrastructure business supports customers' information lifecycle management (ILM) strategies and helps them build information infrastructures that store, protect, optimize and leverage their vast and growing quantities of information. EMC's Information Infrastructure business consists of three segments – Information Storage, Content Management and Archiving, and RSA Information Security.

        EMC's VMware Virtual Infrastructure business, which is comprised of a majority equity stake in VMware, Inc. ("VMware"), is the leading provider of virtualization solutions from the desktop to the data center. VMware's virtual infrastructure software solutions run on industry-standard desktops and servers and support a wide range of operating system and application environments, as well as networking and storage infrastructures.

    Accounting Principles

        The financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP").

    Principles of Consolidation

        These consolidated financial statements include the accounts of EMC, its wholly owned subsidiaries and VMware, a company that is majority-owned by EMC. All intercompany transactions have been eliminated.

        As described in Note B, in August 2007, EMC and VMware completed transactions involving the sale of VMware common stock which reduced EMC's interest in VMware from 100% to approximately 85% and 84% as of December 31, 2007 and 2008, respectively. VMware's financial results have been consolidated with that of EMC for all periods presented as EMC is VMware's controlling stockholder. The portion of the results of operations of VMware allocable to its other owners is shown as Minority interest in VMware, net of taxes, on EMC's consolidated income statements. Additionally, the cumulative portion of the results of operations of VMware allocable to its other owners, along with the interest in the net assets of VMware attributable to those other owners, is shown as Minority interest in VMware on EMC's consolidated balance sheets.

    Use of Accounting Estimates

        The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses during the reporting period and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.

    Revenue Recognition

        We derive revenue from sales of information systems, software and services. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectibility is reasonably assured. This policy is applicable to all sales, including sales to resellers and end users. The following summarizes the major terms of our contractual relationships with our customers and the manner in which we account for sales transactions.

    Systems sales

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EMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

        Systems sales consist of the sale of hardware for the following systems: Symmetrix systems, CLARiiON systems, Celerra systems, Centera systems and Connectrix systems. Revenue for hardware is generally recognized upon shipment.

    Software sales

        Software sales consist of the sale of software application programs. Our software products provide customers with resource management, backup and archiving, content management, information security and server virtualization capabilities. Revenue for software is generally recognized upon shipment or electronic delivery. License revenue from royalty payments is recognized upon either receipt of final royalty reports or payments from third parties.

    Services revenue

        Services revenue consists of installation services, professional services, software maintenance, hardware maintenance and training. Generally, installation and professional services are not considered essential to the functionality of our products as these services do not alter the product capabilities, do not require specialized skills and may be performed by our customers or other vendors. Installation services revenues are recognized upon completion of the installation. Professional services revenues include information infrastructure assessments and design, integration and implementation, business continuity, data migration, residencies, managed storage services, networking storage and consulting services for business, application and infrastructure strategy, design and execution. Revenues on engagements for which reasonably dependable estimates of progress toward completion are capable of being made are recognized as earned based upon the hours incurred. Revenue on all other engagements is recognized upon completion. Where services are considered essential to the functionality of our products, revenue is deferred until the services are complete.

        Software and hardware maintenance revenues are recognized ratably over the contract period.

    Multiple element arrangements

        When more than one element such as hardware, software and services are contained in a single arrangement, we allocate revenue between the elements based on each element's relative fair value, provided that each element meets the criteria for treatment as a separate unit of accounting. An item is considered a separate unit of accounting if it has value to the customer on a standalone basis and there is objective and reliable evidence of the fair value of the undelivered items. Fair value is generally determined based upon the price charged when the element is sold separately. Fair value of software support services may also be measured by the renewal rate offered to the customer. In the absence of fair value for a delivered element, we allocate revenue first to the fair value of the undelivered elements and allocate the residual revenue to the delivered elements. In the absence of fair value for an undelivered element, the arrangement is accounted for as a single unit of accounting, resulting in a deferral of revenue recognition for the delivered elements until all undelivered elements for which fair value cannot be determined have been fulfilled.

    Shipping terms

        Our sales contracts generally provide for the customer to accept title and risk of loss when the product leaves our facilities. When shipping terms or local laws do not allow for passage of title and risk of loss at shipping point, we defer recognizing revenue until title and risk of loss transfer to the customer.

    Leases

        Revenue from sales-type leases is recognized at the net present value of future lease payments. Revenue from operating leases is recognized over the lease period.

    Other

        We accrue for the estimated costs of systems' warranty at the time of sale. We reduce revenue for estimated sales returns at the time of sale. Systems' warranty costs are estimated based upon our historical experience and specific identification of systems' requirements. Sales returns are estimated based upon our historical experience and specific

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EMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


identification of probable returns. For our Iomega business we defer revenue and cost of sales for inventory sold through the channel that exceeds the channel's four-week requirement.

    Shipping and Handling Costs

        Shipping and handling costs are classified in cost of product sales.

    Sale of Stock by a Subsidiary

        We account for the sale of stock by a subsidiary in accordance with the Securities and Exchange Commissions' Staff Accounting Bulletin No. 51 "Accounting for Sales of Stock by a Subsidiary" ("SAB 51"). SAB 51 requires that the difference between the carrying amount of the parent's investment in a subsidiary and the underlying net book value of the subsidiary after the issuance of stock by the subsidiary be reflected as either a gain or loss in the consolidated income statement or as an equity transaction increasing or decreasing additional paid-in capital. EMC has elected to record gains or losses resulting from the sale of stock by a subsidiary as an equity transaction.

    Foreign Currency Translation

        The local currency is the functional currency of the majority of our subsidiaries. Assets and liabilities are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Income and expense items are translated at average rates for the period.

        Gains and losses from foreign currency transactions are included in other expense, net, and consist of losses of $28.4 million in 2008, $3.2 million in 2007 and $5.7 million in 2006. Foreign currency translation adjustments are included in other comprehensive loss.

    Derivatives

        Effective December 31, 2008, we adopted Statement of Financial Accounting Standards ("FAS") No. 161, "Disclosures about Derivative Instruments and Hedging Activities" ("FAS No. 161"). This statement changes the disclosure requirements for derivative instruments and hedging activities and requires entities to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under FAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("FAS No. 133") and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance and cash flows.

        We use derivatives to hedge foreign currency exposures related to foreign currency denominated assets and liabilities and forecasted revenue and expense transactions.

        We hedge our exposure in foreign currency denominated monetary assets and liabilities with foreign currency forward and option contracts. Since these derivatives hedge existing exposures that are denominated in foreign currencies, the contracts do not qualify for hedge accounting. Accordingly, these outstanding non-designated derivatives are recognized on the balance sheet at fair value and the changes in fair value from these contracts are recorded in other expense, net, in the consolidated income statement. These derivative contracts mature in less than one year.

        We also use foreign currency forward and option contracts to hedge our exposure on a portion of our forecasted revenue and expense transactions. These derivatives are designated as cash flow hedges and we did not have any derivatives designated as fair value hedges as of December 31, 2008. All outstanding derivatives are recognized on the balance sheet at fair value and changes in their fair value are recorded in accumulated other comprehensive loss until the underlying forecasted transactions occur. To achieve hedge accounting, the criteria specified in FAS No. 133 must be met. These criteria include (i) ensuring at the inception of the hedge that formal documentation exists for both the hedging relationship and the entity's risk management objective and strategy for undertaking the hedge and (ii) at the inception of the hedge and on an ongoing basis, the hedging relationship is expected to be highly effective in achieving offsetting changes in fair value attributed to the hedged risk during the period that the hedge is designated. Further, an assessment of effectiveness is

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EMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


required at a minimum on a quarterly basis. Absent meeting these criteria, changes in fair value are recognized currently in other expense, net, in the consolidated income statement. Once the underlying forecasted transaction is realized, the gain or loss from the derivative designated as a hedge of the transaction is reclassified from accumulated other comprehensive loss to the consolidated income statement, in the related revenue or expense caption, as appropriate. In the event the underlying forecasted transaction does not occur, the amount recorded in accumulated other comprehensive loss will be reclassified to other expense, net, in the consolidated income statement in the then-current period. Any ineffective portion of the derivatives designated as cash flow hedges is recognized in current earnings. The ineffective portion of the derivatives includes gains or losses associated with differences between actual and forecasted amounts. Our cash flow hedges generally mature within six months or less. The notional amount of cash flow hedges outstanding as of December 31, 2008, 2007 and 2006 were $149 million, $86 million and $93 million, respectively.

        We do not engage in currency speculation. For purposes of presentation within the consolidated statement of cash flows, derivative gains and losses are presented within net cash provided by operating activities.

    Cash and Cash Equivalents

        Cash and cash equivalents include highly liquid investments with a maturity of ninety days or less at the time of purchase. Cash equivalents consist primarily of money market securities, U.S. treasury bills, U.S. agency discount notes and short-term commercial paper. Cash equivalents are stated at fair value. Total cash equivalents were $4,507.5 million and $2,290.6 million at December 31, 2008 and 2007, respectively. See Note F.

    Allowance for Doubtful Accounts

        We maintain an allowance for doubtful accounts for the estimated probable losses on uncollectible accounts and notes receivable. The allowance is based upon the creditworthiness of our customers, our historical experience, the age of the receivable and current market and economic conditions. Uncollectible amounts are charged against the allowance account. The allowance for doubtful accounts is maintained against both our current and non-current accounts and notes receivable balances. The balances in the allowance accounts at December 31, 2008 and 2007 were as follows (table in thousands):

 
  December 31,  
 
  2008   2007  

Current

  $ 48,080   $ 34,389  

Non-current (included in other assets, net)

    2,500     1,500  
           

  $ 50,580   $ 35,889  
           

    Investments

        Unrealized gains and temporary loss positions on investments classified as available for sale are included within accumulated other comprehensive loss, net of any related tax effect. Upon realization, those amounts are reclassified from accumulated other comprehensive loss to investment income. Realized gains and losses and other than temporary impairments are reflected in the consolidated income statement in investment income.

    Inventories

        Inventories are stated at the lower of cost (first-in, first-out) or market, not in excess of net realizable value.

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EMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

    Property, Plant and Equipment

        Property, plant and equipment are recorded at cost. Buildings under development are included in building construction in progress. Depreciation commences upon placing the asset in service and is recognized on a straight-line basis over the estimated useful lives of the assets, as follows:

Furniture and fixtures

  5-7 years

Equipment

  2-5 years

Improvements

  5-15 years

Buildings

  39-51 years

        Upon retirement or disposition, the asset cost and related accumulated depreciation are removed with any gain or loss recognized in the income statement. Repair and maintenance costs, including planned maintenance, are expensed as incurred.

    Research and Development and Capitalized Software Development Costs

        Research and development ("R&D") costs are expensed as incurred. R&D costs include salaries and benefits, consultants, facilities related costs, material costs, depreciation and travel. Software development costs incurred subsequent to establishing technological feasibility through the general release of the software products are capitalized. Technological feasibility is demonstrated by the completion of a detailed program design or working model, if no program design is completed. Capitalized costs are amortized over periods ranging from eighteen months to two years which represent the products' estimated useful lives. Unamortized software development costs were $435.0 million and $355.7 million at December 31, 2008 and 2007, respectively, and are included in other assets, net. Amortization expense was $230.3 million, $194.4 million and $166.9 million in 2008, 2007 and 2006, respectively. Additionally, in the fourth quarter of 2008, $16.9 million of capitalized software development costs were included in the $247.9 million restructuring program as the forecasted cash flows from the assets are less than the asset's book value. Amounts capitalized were $326.5 million, $239.8 million and $215.6 million in 2008, 2007 and 2006, respectively. The amounts capitalized include stock-based compensation which is not reflected in the consolidated statement of cash flow as it is a non-cash item.

    Long-lived Assets

        Purchased intangible assets, other than goodwill, are amortized over their estimated useful lives which range from one to fifteen years. Intangible assets include goodwill, developed technology, trademarks and tradenames, customer relationships and customer lists, software licenses, patents and other intangible assets, which include backlog, non-competition agreements and non-solicitation agreements. The intangible assets are amortized based on the pattern in which the economic benefits of the intangible assets are estimated to be realized. Goodwill is not amortized and is carried at its historical cost.

        We periodically review our long-lived assets for impairment. We initiate reviews for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the undiscounted cash flows to the recorded value of the asset. If an impairment is indicated, the asset is written down to its estimated fair value.

        We test goodwill for impairment in the fourth quarter of each year or more frequently if events or changes in circumstances indicate that the asset might be impaired.

    Advertising

        Advertising costs are expensed as incurred. Advertising expense was $19.2 million, $9.1 million and $16.1 million in 2008, 2007 and 2006, respectively.

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    Legal Costs

        Legal costs incurred in connection with loss contingencies are recognized when the costs are probable of occurrence and estimable.

    Income Taxes

        Deferred tax liabilities and assets are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax liabilities and assets are determined based on the difference between the tax basis of assets and liabilities and their reported amounts using enacted tax rates in effect for the year in which the differences are expected to reverse. Tax credits are generally recognized as reductions of income tax provisions in the year in which the credits arise. The measurement of deferred tax assets is reduced by a valuation allowance if, based upon available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

        EMC's accounting for uncertainty in income taxes recognized in the financial statements is in accordance with Financial Accounting Standards Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN No. 48"), which we adopted at the beginning of fiscal year 2007. FIN No. 48 prescribes a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed "more-likely-than-not" to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate settlement.

        We do not provide for a U.S. income tax liability on undistributed earnings of our foreign subsidiaries. The earnings of non-U.S. subsidiaries, which reflect full provision for non-U.S. income taxes, are currently indefinitely reinvested in non-U.S. operations or are expected to be remitted substantially free of additional tax.

    Sales Taxes

        Sales and other taxes collected from customers and subsequently remitted to government authorities are recorded as accounts receivable with a corresponding offset recorded to sales taxes payable. These balances are removed from the consolidated balance sheet as cash is collected from the customers and remitted to the tax authority.

    Earnings Per Share

        Basic net income per share is computed using the weighted average number of shares of our common stock outstanding during the period. Diluted net income per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Common equivalent shares consist of stock options, unvested restricted stock and restricted stock units, the $125.0 million 4.5% Senior Convertible notes due April 1, 2007 that we assumed in connection with the acquisition of Documentum (the "Documentum Notes"), our $1.725 billion 1.75% convertible senior notes due 2011 (the "2011 Notes"), our $1.725 billion 1.75% convertible senior notes due 2013 (the "2013 Notes" and, together with the 2011 Notes, the "Notes"), and the associated warrants (the "Sold Warrants"). See Note D for further information regarding the Notes and the Sold Warrants and Note N for further information regarding the calculation of diluted net income per weighted average share. Additionally, for purposes of calculating diluted net income per common share, net income is adjusted for the difference between VMware's reported diluted and basic earnings per share, if any, multiplied by the number of shares of VMware held by EMC.

    Retirement/Post Employment Benefits

        Pension cost for our domestic defined benefit pension plan is funded to the extent that current pension cost is deductible for U.S. Federal tax purposes and to comply with the Employee Retirement Income Security Act and the General Agreement on Tariff and Trade Bureau additional minimum funding requirements. Net pension cost for our international defined benefit pension plans are generally funded as accrued.

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        Post-retirement benefit cost for the domestic post-retirement benefits plan assumed as part of our acquisition of Data General Corporation is generally funded on a pay-as-you-go basis to the extent that current cost is deductible for U.S. Federal tax purposes.

        On December 31, 2006, we adopted FAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R)" ("FAS No. 158"), which requires an employer to recognize in its statement of financial position the net funded status of each of its defined benefit postretirement plans.

        Prior to the issuance of FAS No. 158, the net amount recognized as an asset or liability on our consolidated balance sheet with respect to our defined benefit pension and other post-retirement plans (the "Plans") consisted of each plan's net funded status, adjusted to exclude the effects of accumulated actuarial gains/losses and prior service credits that would be recognized in future periods. Upon adoption of FAS No. 158, we adjusted the respective asset and liability balances of the Plans to reflect only their net funded status as of December 31, 2006. Accordingly, all accumulated actuarial gains/losses and prior service credits, net of tax, were reclassified to accumulated other comprehensive loss.

    Concentrations of Risks

        Financial instruments that potentially subject us to concentration of credit risk consist principally of bank deposits, money market investments, short and long-term investments, accounts and notes receivable, and foreign currency exchange contracts. Deposits held with banks in the United States may exceed the amount of FDIC insurance provided on such deposits. Deposits held with banks outside the United States generally do not benefit from FDIC insurance. The majority of our day-to-day banking operations globally are maintained with Citibank. We believe that Citibank's position as a primary clearing bank, coupled with the substantial monitoring of their daily liquidity, both by their internal processes and by the Federal Reserve and the FDIC, mitigate some of our risk.

        Our money market investments are placed with money market funds that are 2A7 qualified. We limit our investments in money market funds to those that are primarily associated with large, money center financial institutions. While some money market funds were forced to break a one dollar net asset value as a result of the financial crisis in the fourth quarter of 2008, none of the money market funds in which we were invested were affected. In the fourth quarter of 2008, the FDIC provided guarantees to investors in money market funds for balances held as of September 19, 2008. While most of our United States-domiciled money market investments benefit from this guarantee, our offshore money market investments do not benefit from this guarantee.

        Our short- and long-term investments are invested primarily in investment grade securities, and we limit the amount of our investment in any single issuer. Some of our investments have been downgraded from investment grade as a result of the global financial crisis. We routinely monitor these investments and make assessments of our credit exposure as a result of these downgrades.

        We provide credit to customers in the normal course of business. Credit is extended to new customers based upon checks of credit references and industry reputation. Credit is extended to existing customers based on prior payment history and demonstrated financial stability. The credit risk associated with accounts and notes receivables is generally limited due to the large number of customers and their broad dispersion over many different industries and geographic areas. We establish an allowance for the estimated uncollectible portion of our accounts and notes receivable. The allowance was $50.6 million and $35.9 million at December 31, 2008 and 2007, respectively. We customarily sell the notes receivable we derive from our leasing activity. Generally, we do not retain any recourse on the sale of these notes. Our sales are generally dispersed to a large number of customers, minimizing the reliance on any particular customer or group of customers. Dell Inc., one of our channel partners, accounted for 11.5%, 14.3% and 14.5% of our revenues in 2008, 2007 and 2006, respectively.

        The counterparties to our foreign currency exchange contracts consist of a number of major financial institutions. In addition to limiting the amount of contracts we enter into with any one party, we monitor the credit quality of the counterparties on an ongoing basis.

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        We purchase or license many sophisticated components and products from one or a limited number of qualified suppliers. If any of our suppliers were to cancel or materially change contracts or commitments with us or fail to meet the quality or delivery requirements needed to satisfy customer orders for our products, we could lose customer orders. We attempt to minimize this risk by finding alternative suppliers or maintaining adequate inventory levels to meet our forecasted needs.

    Securities Lending Agreements

        We participate in securities lending agreements with financial institutions to enhance investment income. Securities are loaned to independent brokers for which we receive cash collateral equal to 102% of the fair market value of the securities. The loaned securities remain on our balance sheet as we maintain ownership while the investments are on loan. Our securities lending agent has provided us with a 100% counterparty indemnification in the event of borrower default. As of December 31, 2008, we had received $412.3 million in cash collateral which has been subsequently invested in short-term investments. The liability to repay the cash collateral is classified as securities lending payable on our consolidated balance sheet. At December 31, 2007, there were no outstanding securities lending transactions.

    Accounting for Stock-Based Compensation

        We account for stock-based compensation in accordance with FAS No. 123R, "Shared-Based Payment" ("FAS No. 123R") using the modified transition method. FAS No. 123R requires recognizing compensation costs for all shared-based payment awards made to employees and directors based upon the awards' estimated grant date fair value. FAS No. 123R covers employee stock options, restricted stock, restricted stock units and employee stock purchases related to our employee stock purchase plan.

        Under the modified prospective transition method, FAS No. 123R applies to new equity awards and to equity awards modified, repurchased or canceled after the adoption date. Additionally, compensation cost for the portion of awards granted prior to the adoption date for which the requisite service has not been rendered as of the January 1, 2006 adoption date shall be recognized as the requisite service is rendered. The compensation cost for that portion of awards shall be based on the grant-date fair value of those awards as calculated in the prior period pro forma disclosures under FAS No. 123, "Accounting for Stock-Based Compensation" ("FAS No. 123"). Changes to the grant-date fair value of equity awards granted before the effective date are precluded. The compensation cost for those earlier awards shall be attributed to periods beginning on or after the adoption date using the attribution method that was used under FAS No. 123, which was the straight-line method. Instead of recognizing forfeitures only as they occur, we now estimate an expected forfeiture rate which is factored in to determine our annual expense. Deferred compensation which related to those earlier awards has been eliminated against additional paid-in capital. FAS No. 123R also changed the reporting of tax-related amounts within the statement of cash flows. The gross amount of windfall tax benefits resulting from stock-based compensation is reported as financing inflows.

        For stock options, we have selected the Black-Scholes option-pricing model to determine the fair value of our stock option awards. For stock options, restricted stock and restricted stock units, we recognize compensation cost on a straight-line basis over the awards' vesting periods for those awards which contain only a service vesting feature. For awards with a performance condition vesting feature, when achievement of the performance condition is deemed probable we recognize compensation cost on a graded-vesting basis over the awards' expected vesting periods.

        In connection with the adoption of FAS No. 123R, we recorded a cumulative effect adjustment in the first quarter of 2006 of $0.2 million related to the application of an estimated forfeiture rate on our previously recognized expense on unvested restricted stock and restricted stock units.

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    New Accounting Pronouncements

        We adopted FAS No. 157, "Fair Value Measurements" ("FAS No. 157") on January 1, 2008. FAS No. 157 defines fair value, establishes a methodology for measuring fair value and expands the required disclosure for fair value measurements. During 2008, the FASB issued the following amendments:

    FASB Staff Position No. 157-1, "Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13" ("FSP FAS No. 157-1") amends FAS No. 157 to remove certain leasing transactions from its scope. The adoption of FSP FAS No. 157-1 did not have a material impact on our financial position or results of operations.

    FASB Staff Position No. FAS 157-2, "Effective Date of FASB Statement No. 157" delays the effective date of FAS No. 157 from 2008 to 2009 for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). We are currently evaluating the potential impact of FAS No. 157 for non-financial assets and non-financial liabilities on our financial position and results of operations.

    FASB Staff Position No. 157-3, "Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active" ("FSP FAS No. 157-3") clarifies the application of FAS No. 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSP FAS No. 157-3 was effective October 2008, including prior periods for which financial statements have not been issued. The adoption of FSP FAS No. 157-3 did not have a material impact on our financial position or results of operations.

        In December 2007, the FASB issued FAS No. 141 (revised 2007), "Business Combinations" ("FAS No. 141R"). This statement establishes principles and requirements for how the acquirer in a business combination (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree, (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and (iii) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. FAS No. 141R is effective for fiscal years beginning after December 15, 2008. The impact of the standard on our financial position and results of operations will be dependent upon the number of and magnitude of the acquisitions that are consummated once the standard is effective.

        In December 2007, the FASB issued FAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements – an amendment of Accounting Research Board ("ARB") No. 51" ("FAS No. 160"). The objective of this statement is to improve the relevance, comparability and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. FAS No. 160 is effective for fiscal years beginning after December 15, 2008. We do not expect FAS No. 160 to have a material impact on our financial position or results of operations.

        In April 2008, the FASB issued FASB Staff Position ("FSP") on FAS No. 142-3, "Determination of the Useful Life of Intangible Assets" ("FSP FAS No. 142-3"). FSP FAS No. 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FAS No. 142, "Goodwill and Other Intangible Assets" ("FAS No. 142"). The intent of FSP FAS No. 142-3 is to improve the consistency between the useful life of a recognized intangible asset under FAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under FAS No. 141R and other U.S. generally accepted accounting principles. FSP FAS No. 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008. We do not expect FSP FAS No. 142-3 to have a material impact on our financial position or results of operations.

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        In May 2008, the FASB issued FSP APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)" ("FSP APB 14-1") which changes the accounting treatment for certain convertible securities which include our Notes. Under FSP APB 14-1, issuers are required to allocate the bond proceeds into a bond portion and a conversion option. The allocation of the bond portion is based upon determining the value of a bond based upon the issuance costs of debt with no conversion option. The residual value is allocated to the conversion option. As a result of this change, the bonds are recorded at a discount which is accreted to its face value over the term of the debt using the effective interest method resulting in additional interest expense. The separated conversion option will be recorded in equity and not marked to market provided that the requirement for equity classification is met. FSP APB 14-1 requires issuers to retroactively revise all periods presented. FSP APB 14-1 is effective for financial statements for fiscal years beginning after December 15, 2008 and early adoption is not permitted. We adopted FSP APB 14-1 on January 1, 2009.

        For financial statements for periods after January 1, 2009, we will revise prior period financial statements by reclassifying $669.1 million of our Notes to additional paid-in capital. Our interest expense will increase by $11.5 million for 2006 (the year the Notes were issued), $96.9 million for 2007 and $102.6 million for 2008. Our diluted earnings per share will decrease by $0.0 for 2006 and $0.03 for each of 2007 and 2008.

B.    VMware, Inc. Transactions

        In the third quarter of 2007, VMware completed an initial public offering ("IPO") of its Class A common stock. Prior to the IPO, EMC amended VMware's certificate of incorporation to authorize shares of Class A and Class B common stock. After a conversion of existing common stock into Class A and Class B common stock, EMC held 32.5 million shares of Class A common stock and 300.0 million shares of Class B common stock. The ownership rights of Class A and Class B common stock are the same, except with respect to voting, conversion, certain actions that require the consent of holders of Class B common stock and other protective provisions. Each share of Class B common stock has ten votes, while each share of Class A common stock has one vote for all matters to be voted on by stockholders. In the IPO, VMware sold 37.95 million shares of its Class A common stock at $29.00 per share, resulting in net proceeds of approximately $1,035.2 million. The SAB 51 gain of $551.1 million, net of taxes, of $330.7 million from this transaction was recorded as an increase to additional paid-in capital which reflects the amount of EMC's share of VMware's net assets (after minority interests) in excess of EMC's carrying value prior to the IPO.

        In connection with the IPO, EMC and VMware conducted a voluntary exchange offer enabling VMware employees in the United States to exchange their existing EMC options and restricted stock awards for options to purchase VMware Class A common stock and restricted stock awards of VMware Class A common stock, respectively, at an exchange ratio based upon EMC's two-day weighted average trading price prior to the consummation of the offering and the IPO offering price of Class A common stock. See Note O.

        In August 2007, Intel Corporation, through its affiliate, Intel Capital Corporation, purchased from VMware 9.5 million newly issued shares of VMware's Class A common stock at $23.00 per share, resulting in net proceeds to VMware of approximately $218.3 million. The SAB 51 gain of $135.1 million, net of taxes, of $81.0 million from this transaction, was recorded as an increase to additional paid-in capital.

        In August 2007, Cisco Systems, Inc. purchased 6.0 million shares of VMware's Class A common stock held by EMC at $25.00 per share, resulting in net proceeds to EMC of approximately $150.0 million. This transaction resulted in a pre-tax gain of $148.6 million.

        In October 2008, we purchased 500,000 shares of VMware's Class A common stock from Intel Capital Corporation for $13.3 million.

        The minority stockholders' proportionate share of equity in VMware is reflected as Minority interest in VMware in the accompanying consolidated balance sheets and was $327.5 million and $189.0 million as of December 31, 2008 and 2007, respectively. At December 31, 2008, EMC held approximately 98% of the combined voting power of VMware's outstanding common stock and approximately 84% of the economic interest in VMware. See Note A.

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C.    Business Acquisitions, Goodwill and Intangible Assets

    2008 Acquisitions

        In the first quarter of 2008, we acquired all of the outstanding capital stock of Pi Corporation, a developer of software and online services to enable individuals to control how they find, access, share and protect their increasing volumes of digital information. This acquisition is a key element of our newly formed Cloud Infrastructure and Services Division, which is reported within our Information Storage segment. At the time of the acquisition, Pi was considered a development stage enterprise that resulted in the recognition of this purchase as an acquisition of assets rather than as a business acquisition.

        In the first quarter of 2008, we acquired all of the outstanding capital stock of Document Sciences Corporation, a provider of document output management software that facilitates highly personalized, multi-channel communications to customers, partners and suppliers. The acquisition complements and extends our Content Management and Archiving segment's position in the transactional content management marketplace.

        In the first quarter of 2008, we acquired all of the outstanding capital stock of Infra Corporation Pty Limited, a provider of IT service management software. The acquisition of Infra further enhances the software offerings we provide within our Information Storage segment.

        In the second quarter of 2008, we acquired all of the outstanding capital stock of WysDM Software Inc., a developer of Data Protection Management (DPM) solutions. The acquisition of WysDM further enhances the storage and security strategy of our Information Storage segment.

        In the second quarter of 2008, we acquired all of the outstanding capital stock of Conchango plc., a technology consulting firm specializing in the design, development and delivery of custom applications and digital experiences. The acquisition of Conchango further enhances and expands the services we provide within our Information Storage segment.

        In the second quarter of 2008, we acquired all of the outstanding capital stock of Iomega, a global leader in reliable portable data storage. Iomega solutions help consumers and home and small business customers to manage, preserve, use and share their digital content and data. Iomega serves as the core of our new consumer/small business products division within our Information Storage segment.

        During 2008, VMware acquired six companies. In connection with these acquisitions, VMware acquired technologies that are complimentary to VMware's core virtualization technology.

        For 2008, the aggregate purchase price, net of cash acquired and including transaction costs and the fair value of stock issued in exchange for the acquirees' stock options was $759.6 million. Included in the aggregate purchase price of $759.6 million is $30.0 million payable in 2010. None of these acquisitions were individually material to EMC. The fair value of our stock options was estimated assuming no expected dividends and the following weighted average assumptions:

Expected term (in years)

    2.2  

Expected volatility

    38.2 %

Risk-free interest rate

    2.4 %

        The consolidated financial statements include the results of the aforementioned companies from their respective dates of acquisition. The purchase price for each company has been allocated to the assets acquired and the liabilities assumed based on estimated fair values as of the respective acquisition dates. The purchase price allocations are preliminary and a final determination of required purchase accounting adjustments will be made upon the finalization of our integration activities. The total goodwill recognized from the aforementioned acquisitions was $485.6 million.

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        The following represents the aggregate allocation of the purchase price for the aforementioned acquisitions to other intangible assets (table in thousands):

Developed technology (weighted-average useful life of 5.5 years)

  $ 65,335  

Customer relationships (weighted-average useful life of 6.8 years)

    53,224  

Tradename and trademark (weighted-average useful life of 8.8 years)

    27,270  

Non-competition agreement (weighted-average useful life of 2.5 years)

    2,463  

Backlog (weighted-average useful life of 1.0 year)

    800  

Assembled workforce (weighted-average useful life of 4.9 years)

    5,455  

Acquired in-process research and development ("IPR&D")

    85,780  
       
 

Total intangible assets

  $ 240,327  
       

        The fair value of intangible assets was primarily based upon the income approach. The rates used to discount the net cash flows to their present values for each acquisition were based upon weighted average costs of capital that ranged from 15% – 30%. The discount rates were determined after consideration of market rates of return on debt and equity capital, the weighted average returns on invested capital and the risk associated with achieving forecasted sales related to the technology and assets acquired. The total weighted average amortization period for the intangible assets is 6.4 years. The intangible assets are being amortized based upon the pattern in which the economic benefits of the intangible assets are being utilized.

        The IPR&D was written off at the respective dates of each acquisition because the IPR&D had no alternative uses and had not reached technological feasibility. The value assigned to IPR&D was determined utilizing the income approach by determining cash flow projections relating to identified IPR&D projects. The stage of completion of each in-process project was estimated to determine the discount rates to be applied to the valuation of the in-process technology. Based upon the level of completion and the risk associated with in-process technology, we applied discount rates that ranged from 20% to 60% to value the IPR&D projects acquired.

    2007 Acquisitions

        In the first quarter of 2007, we acquired all of the outstanding capital stock of Valyd Software Private Limited, a provider of solutions for entity-wide data protection for a variety of database management systems. This acquisition further expands and strengthens our Security offerings.

        In the first quarter of 2007, we acquired all of the outstanding capital stock of Indigo Stone Limited, a provider of software for business continuity, server migration and bare metal recovery. This acquisition further expands our Information Storage solutions.

        In the second quarter of 2007, we acquired all of the outstanding capital stock of Verid, Inc., a leader in information security technology that delivers knowledge-based authentication. The technology from this acquisition provides protection, visibility and business acceleration at every point of the user verification process and further strengthens our Security solutions.

        In the second quarter of 2007, we acquired Geniant, a services provider in the area of technology strategy, enterprise architecture, application development and integration, server and desktop design and lifecycle management services. This acquisition further enhances and expands our Information Storage segment.

        In the second quarter of 2007, we acquired all of the outstanding capital stock of X-Hive Corporation B.V., a provider of XML database and Content Management solutions. This acquisition allows us to enable organizations of all sizes to transform the way they compete and create value from information.

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        In the third quarter of 2007, we acquired all of the outstanding capital stock of BusinessEdge Solutions Inc., a provider of strategy, process and technology consulting services in three distinctive vertical markets: financial services, communications, media and content, and life sciences. This acquisition expands and strengthens our services offerings within the Information Storage segment.

        In the third quarter of 2007, we acquired all of the outstanding capital stock of Tablus, Inc., a provider of data loss prevention solutions. This acquisition adds industry-leading data discovery and classification, monitoring, and data loss prevention capabilities to our data Security portfolio.

        In the fourth quarter of 2007, we acquired all of the outstanding capital stock of Voyence, Inc., a leading provider of network configuration and change management solutions. This acquisition complements and extends our position in the IT service management marketplace within the Information Storage segment.

        In the fourth quarter of 2007, we acquired all of the outstanding capital stock of Berkeley Data Systems, Inc., a leading provider of online information backup and recovery services. Berkeley Data Systems, Inc. provides Mozy – an online subscription service for the protection of data that resides on desktops, laptops and remote office servers.

        In the fourth quarter of 2007, we acquired Dokumentum Services CIS, a distribution and consulting services provider focused on providing marketing, support and maintenance, consulting, training and localization services related to our Content Management software. The acquisition fully expands our distribution and service delivery capabilities in Russia and Eastern Europe.

        In the second quarter of 2007, VMware acquired all of the outstanding capital stock of one business, a provider of solutions for the discovery and management of virtual desktop machines. This acquisition allows VMware to expand its growing virtualization capabilities.

        In the third quarter of 2007, VMware acquired all of the outstanding capital stock of a business that is a maker of host intrusions prevention products. Through this acquisition, VMware further enhanced the security of its virtualization platform.

        In the third quarter of 2007, VMware acquired all of the outstanding capital stock of one business, a provider of IT process orchestration software for virtual environments. This acquisition enables VMware customers to standardize and automate their IT management processes on VMware infrastructure.

        In the fourth quarter of 2007, VMware acquired all of the outstanding capital stock of one business, a provider of outsourced software application development services. This acquisition expands VMware's software development capabilities.

        The aggregate purchase price, net of cash acquired for all 2007 acquisitions was $696.6 million, which consisted of $689.9 million of cash, $4.6 million in fair value of our stock options issued in exchange for the acquirees' stock options and $2.1 million of transaction costs, which primarily consisted of fees incurred by us for financial advisory, legal and accounting services. None of these acquisitions were individually material to EMC. The fair value of our stock options was estimated assuming no expected dividends and the following weighted average assumptions:

Expected term (in years)

    2.6  

Expected volatility

    29.8 %

Risk-free interest rate

    4.4 %

        The consolidated financial statements include the results of the aforementioned companies from their respective dates of acquisition. The purchase price for each company has been allocated to the assets acquired and the liabilities assumed based on estimated fair values as of the respective acquisition dates. The total goodwill recognized from the aforementioned acquisitions was $537.9 million.

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        The following represents the aggregate allocation of the purchase price for the aforementioned acquisitions to intangible assets (table in thousands):

Developed technology (weighted-average useful life of 5.5 years)

  $ 48,260  

Customer relationships (weighted-average useful life of 9.3 years)

    73,800  

Tradename and trademark (weighted-average useful life of 10.4 years)

    3,860  

Non-competition agreement (weighted-average useful life of 2.4 years)

    760  

Backlog (weighted-average useful life of 0.5 years)

    3,300  

IPR&D

    1,150  
       
 

Total intangible assets

  $ 131,130  
       

        The fair value of intangible assets was primarily based upon the income approach. The rates used to discount the net cash flows to their present values for each acquisition were based upon weighted average costs of capital that ranged from 8.3% – 21.0%. The discount rates were determined after consideration of market rates of return on debt and equity capital, the weighted average returns on invested capital and the risk associated with achieving forecasted sales related to the technology and assets acquired. The total weighted average amortization period for the intangible assets is 7.6 years. The intangible assets are being amortized based upon the pattern in which the economic benefits of the intangible assets are being utilized.

    2006 Acquisitions

    Acquisition of RSA Security Inc.

        In the third quarter of 2006, we acquired all of the outstanding capital stock of RSA. RSA provides technologies to secure information no matter where it resides or travels inside or outside of an organization and throughout its lifecycle. The acquisition adds industry-leading identity and access management solutions and encryption and key management software to our product offerings.

        The purchase price, net of cash received, was approximately $2.0 billion, which consisted of $2.0 billion of cash, $27.9 million in fair value of our stock options and $11.6 million of transaction costs, which primarily consisted of fees incurred by us for financial advisory, legal and accounting services. The fair value of our stock options issued to employees of RSA was estimated using a Black-Scholes option-pricing model. The fair value of the stock options was estimated assuming no expected dividends and the following weighted-average assumptions:

Expected term (in years)

    1.6  

Expected volatility

    31.0 %

Risk-free interest rate

    5.0 %

        The consolidated financial statements include the results of RSA from the date of acquisition. The purchase price has been allocated to the assets acquired and the liabilities assumed based on estimated fair values as of the acquisition date.

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        The following represents the final allocation of the purchase price (table in thousands):

Current assets

  $ 60,860  

Property, plant and equipment

    66,991  

Other long-term assets

    20,517  

Goodwill

    1,693,149  

Intangible assets:

       
 

Developed technology (weighted-average useful life of 5.1 years)

    231,600  
 

Customer relationships (weighted-average useful life of 8.6 years)

    162,900  
 

Tradename and trademark (weighted-average useful life of 10.0 years)

    77,500  
 

Non-competition agreement (weighted-average useful life of 3.0 years)

    1,400  
 

IPR&D

    10,500  
       
   

Total intangible assets

    483,900  

Current liabilities

    (174,763 )

Deferred income taxes

    (80,274 )

Long-term liabilities

    (21,893 )
       
   

Total purchase price

  $ 2,048,487  
       

        In determining the purchase price allocation, we considered, among other factors, our intention to use the acquired assets and historical and estimated future demand of RSA products and services. The fair value of intangible assets was primarily based upon the income approach. The rate used to discount the net cash flows to their present values was based upon a weighted average cost of capital of 13.0%. The discount rate was determined after consideration of market rates of return on debt and equity capital, the weighted average return on invested capital and the risk associated with achieving forecasted sales related to the technology and assets acquired from RSA.

        The total weighted average amortization period for the intangible assets is 7.1 years. The intangible assets are being amortized based upon the pattern in which the economic benefits of the intangible assets are being utilized, which in general reflects the cash flows generated from such assets. None of the goodwill is deductible for income tax purposes. Of the total goodwill acquired from the acquisition of RSA, $1,273.4 million was allocated to our RSA Information Security segment and $419.7 million was allocated to our Information Storage segment.

        Of the $483.9 million of acquired intangible assets, $10.5 million was allocated to IPR&D which was written off at the date of acquisition because the IPR&D had no alternative uses and had not reached technological feasibility. The value assigned to IPR&D was determined utilizing the income approach by determining cash flow projections relating to the identified IPR&D projects. The stage of completion of each in-process project was estimated to determine the discount rates to be applied to the valuation of the in-process technology. Based upon the level of completion and the risk associated with in-process technology, we applied a discount rate of 18.0% to value the IPR&D projects.

    Other 2006 Acquisitions

        In the second quarter of 2006, we acquired all of the outstanding capital stock of Kashya, Inc., a provider of enterprise-class data replication and data protection software. This acquisition allows us to expand our software portfolio for replication across heterogeneous environments within our Information Storage segment.

        In the second quarter of 2006, we acquired all of the outstanding capital stock of Interlink Group, Inc., an IT professional services firm that specializes in application development, IT infrastructure, enterprise integration, enterprise content management and customer relationship management for Microsoft environments. This acquisition strengthens and expands our Microsoft Solutions Practice within our Information Storage segment.

        In the second quarter of 2006, we acquired all of the outstanding capital stock of nLayers Ltd., a leader in application discovery and mapping software. This acquisition further expands our resource management portfolio, enabling automated

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comprehensive root-cause and impact analysis across all technology domains, including networks, applications and storage within our Information Storage segment.

        In the second quarter of 2006, we acquired the assets of ProActivity Software Solutions Ltd., a provider of content management software for business process management. ProActivity Software Solutions Ltd. provides tools to monitor, analyze and optimize business processes. This acquisition further expands the EMC Documentum product suite's process modeling, process execution and process integration capabilities within the Content Management and Archiving segment.

        In the third quarter of 2006, we acquired all of the outstanding capital stock of Network Intelligence. Network Intelligence specializes in transforming enterprise-wide data into automated compliance and security information and, together with the acquisition of RSA, enables us to assist customers in securing their information throughout its lifecycle and reduce the associated cost of regulatory compliance. This acquisition further enhances and expands the offerings we provide within our RSA Information Security segment.

        In the fourth quarter of 2006, we acquired all of the outstanding capital stock of Avamar Technologies, Inc., a leading provider of enterprise data protection software that allows corporations to efficiently move, store, and leverage information for business value. This acquisition advances EMC's core strengths in information protection and recovery management, changing the way customers protect their data and accelerating the transition from tape to disk-based recovery solutions within our Information Storage segment.

        In the second quarter of 2006, our VMware subsidiary acquired all of the outstanding capital stock of one business, a developer of software that builds upon and leverages virtualization technology to improve the efficiency and effectiveness of enterprise application development operations and the IT organizations that support them. Through this acquisition, we enhanced our capabilities for virtualizing information by providing virtualization solutions to the development and test environments.

        The aggregate purchase price, net of cash received, for all 2006 acquisitions other than RSA was $624.7 million, which consisted of $598.8 million of cash, $13.3 million in fair value of our stock options issued in exchange for the acquirees' stock options and $12.6 million of transaction costs, which primarily consisted of fees incurred by us for financial advisory, legal and accounting services.

        The consolidated financial statements include the results of each of the aforementioned companies from their respective dates of acquisition. The purchase price for each company has been allocated to the assets acquired and the liabilities assumed based on estimated fair values as of the respective acquisition dates. The total goodwill recognized from the aforementioned acquisitions was $478.3 million, of which $6.3 million is deductible for income tax purposes. Of this amount, we allocated $223.1 million to our Information Storage segment, $55.5 million to our Content Management and Archiving segment, $77.3 million to our VMware Virtual Infrastructure segment and $122.4 million to our RSA Information Security segment. None of these acquisitions were individually material to EMC.

        The following represents the aggregate allocation of the purchase price for the aforementioned companies to intangible assets (table in thousands):

Developed technology (weighted-average useful life of 5.6 years)

  $ 89,147  

Customer relationships (weighted-average useful life of 7.0 years)

    16,600  

Tradenames and trademarks (weighted-average useful life of 0.5 years)

    26  

Non-competition agreement (weighted-average useful life of 3.0 years)

    200  

Backlog (weighted-average useful life of 2.0 years)

    900  

Acquired IPR&D

    24,910  
       
 

Total intangible assets

  $ 131,783  
       

        The fair value of intangible assets was primarily based upon the income approach. The rates used to discount the net cash flows to their present values for each acquisition were based upon weighted average costs of capital that ranged from 5.3% – 25.0%. The discount rates were determined after consideration of market rates of return on debt and equity capital,

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the weighted average returns on invested capital and the risk associated with achieving forecasted sales related to the technology and assets acquired. The total weighted average amortization period for the intangible assets is 5.8 years. The intangible assets are being amortized based upon the pattern in which the economic benefits of the intangible assets are being utilized.

        Of the $131.8 million of acquired intangible assets, $24.9 million was allocated to IPR&D which was written off at the respective dates of acquisition because the IPR&D had no alternative uses and had not reached technological feasibility. The value assigned to IPR&D was determined utilizing the income approach by determining cash flow projections relating to identified IPR&D projects. The stage of completion of each in-process project was estimated to determine the discount rates to be applied to the valuation of the in-process technology. Based upon the level of completion and the risk associated with in-process technology, we applied discount rates that ranged from 22.0% – 35.0% to value the IPR&D projects acquired.

        Total IPR&D for all of these acquisitions and RSA was $35.4 million in 2006.

    Pro forma Effects of the Acquisitions

        The following gives pro forma effect as if the 2008 acquisitions, 2007 acquisitions and the 2006 acquisitions had been consummated as of the beginning of the fiscal year in the year the transactions closed and the beginning of the prior fiscal year. The pro forma results are not necessarily indicative of what actually would have occurred had the acquisitions been in effect for the periods presented (table in thousands, except per share data):

 
  (unaudited)
Year Ended December 31,
 
 
  2008   2007   2006  

Revenue

  $ 15,074,509   $ 14,010,789   $ 11,655,856  

Net income

    1,315,703     1,601,632     1,049,664  

Net income per weighted average share, basic

  $ 0.64   $ 0.77   $ 0.47  

Net income per weighted average share, diluted

  $ 0.63   $ 0.74   $ 0.46  

        The pro forma impact on reported net income per weighted average share was primarily attributable to amortization of acquired intangible assets, forgone interest income and IPR&D.

    Intangible Assets

        Intangible assets, excluding goodwill, as of December 31, 2008 and 2007 consist of (tables in thousands):

 
  Year Ended December 31, 2008  
 
  Gross Carrying
Amount
  Accumulated
Amortization
  Net Book Value  

Purchased technology

  $ 913,531   $ (613,145 ) $ 300,386  

Patents

    62,170     (62,126 )   44  

Software licenses

    72,263     (45,582 )   26,681  

Trademarks and tradenames

    139,536     (44,620 )   94,916  

Customer relationships and customer lists

    607,428     (240,875 )   366,553  

Other

    21,003     (13,967 )   7,036  
               
   

Total intangible assets, excluding goodwill

  $ 1,815,931   $ (1,020,315 ) $ 795,616  
               

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  Year Ended December 31, 2007  
 
  Gross Carrying
Amount
  Accumulated
Amortization
  Net Book Value  

Purchased technology

  $ 867,478   $ (456,027 ) $ 411,451  

Patents

    62,120     (62,032 )   88  

Software licenses

    67,168     (31,512 )   35,656  

Trademarks and tradenames

    112,266     (29,968 )   82,298  

Customer relationships and customer lists

    557,545     (151,377 )   406,168  

Other

    13,894     (9,478 )   4,416  
               
   

Total intangible assets, excluding goodwill

  $ 1,680,471   $ (740,394 ) $ 940,077  
               

        Amortization expense on intangibles was $280.9 million, $204.8 million and $153.0 million in 2008, 2007 and 2006, respectively. As of December 31, 2008, amortization expense on intangible assets for the next five years is expected to be as follows (table in thousands):

2009

  $ 236,485  

2010

    191,084  

2011

    138,596  

2012

    91,190  

2013

    64,800  
       
   

Total

  $ 722,155  
       

        Changes in the carrying amount of goodwill, net, on a consolidated basis and by segment for the years ended December 31, 2008 and 2007 consist of the following (tables in thousands):

 
  Year Ended December 31, 2008  
 
  Information
Storage
  Content
Management
and Archiving
  RSA
Information
Security
  VMware
Virtual
Infrastructure
  Total  

Balance, beginning of the year

  $ 2,983,676   $ 1,342,124   $ 1,525,448   $ 680,258   $ 6,531,506  

Goodwill acquired

    289,985     69,235         126,393     485,613  

Tax deduction from exercise of stock options

    (62 )   (3,324 )   (475 )       (3,861 )

Finalization of purchase price allocations

    26,864     (4,488 )   5,836     5,329     33,541  
                       

Balance, end of the year

  $ 3,300,463   $ 1,403,547   $ 1,530,809   $ 811,980   $ 7,046,799  
                       

 

 
  Year Ended December 31, 2007  
 
  Information
Storage
  Content
Management
and Archiving
  RSA
Information
Security
  VMware
Virtual
Infrastructure
  Total  

Balance, beginning of the year

  $ 2,657,320   $ 1,365,016   $ 1,395,768   $ 599,057   $ 6,017,161  

Goodwill acquired

    316,451     3,858     146,454     71,162     537,925  

Tax deduction from exercise of stock options

    (162 )   (15,485 )   (3,590 )       (19,237 )

Finalization of purchase price allocations

    10,067     (11,265 )   (13,184 )   10,039     (4,343 )
                       

Balance, end of the year

  $ 2,983,676   $ 1,342,124   $ 1,525,448   $ 680,258   $ 6,531,506  
                       

        In the fourth quarter, we test the goodwill balances for impairment. There was no impairment in 2008, 2007 or 2006.

D.    Convertible Debt

        In November 2006, we issued our 2011 Notes and 2013 Notes for total gross proceeds of $3.45 billion. The Notes are senior unsecured obligations and rank equally with all other existing and future senior unsecured debt. Holders may convert

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their Notes at their option on any day prior to the close of business on the scheduled trading day immediately preceding (i) September 1, 2011, with respect to the 2011 Notes, and (ii) September 1, 2013, with respect to the 2013 Notes, in each case only under the following circumstances: (1) during the five business-day period after any five consecutive trading-day period (the "measurement period") in which the price per Note of the applicable series for each day of that measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such day; (2) during any calendar quarter, if the last reported sale price of our common stock for 20 or more trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds 130% of the applicable conversion price in effect on the last trading day of the immediately preceding calendar quarter; or (3) upon the occurrence of certain events specified in the Notes. Additionally, the Notes will become convertible during the last three months prior to the respective maturities of the 2011 Notes and the 2013 Notes.

        Upon conversion, we will pay cash up to the principal amount of the Notes converted. With respect to any conversion value in excess of the principal amount of the Notes converted, we have the option to settle the excess with cash, shares of our common stock, or a combination of cash and shares of our common stock based on a daily conversion value, determined in accordance with the indenture, calculated on a proportionate basis for each day of the relevant 20-day observation period. The initial conversion rate for the Notes will be 62.1978 shares of our common stock per one thousand dollars of principal amount of Notes, which represents a 27.5 percent conversion premium from the date the Notes were issued and is equivalent to a conversion price of approximately $16.08 per share of our common stock. The conversion price is subject to adjustment in some events as set forth in the indenture. In addition, if a "fundamental change" (as defined in the indenture) occurs prior to the maturity date, we will in some cases increase the conversion rate for a holder of Notes that elects to convert its Notes in connection with such fundamental change.

        Subject to certain exceptions, if we undergo a "designated event" (as defined in the indenture) including a "fundamental change," holders of the Notes will have the option to require us to repurchase all or any portion of their Notes. The designated event repurchase price will be 100% of the principal amount of the Notes to be purchased plus any accrued interest up to but excluding the relevant repurchase date. There has not been a designated event requiring us to repurchase the Notes. We will pay cash for all Notes so repurchased. We may not redeem the Notes prior to maturity.

        The Notes pay interest in cash at a rate of 1.75% semi-annually in arrears on December 1 and June 1 of each year, beginning on June 1, 2007. Aggregate debt issuance costs of approximately $58.9 million are being amortized to interest expense over the respective terms of the Notes. If the debt becomes convertible prior to the end of the term of the Notes, we will expense the remaining unamortized expense associated with the debt issue costs.

        A total of $2.2 billion of the net proceeds from the issuance of the Notes was used to repay the outstanding indebtedness under our six-month unsecured credit facility which was used to finance the acquisition of RSA. Additionally, $945.8 million of the net proceeds were used to repurchase 75.0 million shares of our common stock.

        In connection with the sale of the Notes, we entered into separate convertible note hedge transactions with respect to our common stock (the "Purchased Options"). The Purchased Options allow us to receive shares of our common stock and/or cash related to the excess conversion value that we would pay to the holders of the Notes upon conversion. The Purchased Options will cover, subject to customary anti-dilution adjustments, approximately 215 million shares of our common stock. Half of the Purchased Options expire on December 1, 2011 and the remaining half of the Purchased Options expire on December 1, 2013. We paid an aggregate amount of $669.1 million of the proceeds from the sale of the Notes for the Purchased Options.

        We also entered into separate transactions in which we sold warrants to acquire, subject to customary anti-dilution adjustments, approximately 215 million shares of our common stock (the "Sold Warrants") at an exercise price of approximately $19.55 per share of our common stock. Half of the Sold Warrants have expiration dates between February 15, 2012 and March 15, 2012 and the remaining half of the Sold Warrants have expiration dates between February 18, 2014 and March 18, 2014. We received aggregate proceeds of $391.1 million from the sale of the Sold Warrants.

        The Purchased Options and Sold Warrants will generally have the effect of increasing the conversion price of the Notes to approximately $19.55 per share of our common stock, representing an approximate 55 percent conversion premium based on the closing price of $12.61 per share of our common stock on November 13, 2006.

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        The cost of the Purchased Options and net proceeds from the sale of the Sold Warrants were recorded in stockholders' equity.

        In April 2006, we redeemed the Documentum Notes for $126.1 million, based on a contractual redemption price of 100.9%.

        The carrying amount reported in the consolidated balance sheet as of December 31, 2008 for our long-term convertible debt is $3,450.0 million. The fair value of our long-term convertible debt as of December 31, 2008 was $3,322 million based on active market prices for our debt.

E.    Derivatives

        The following table provides the major types of derivative instruments outstanding as of December 31, 2008 and 2007 (table in thousands):

 
  Fair Values of Derivative Instruments  
 
  Asset Derivatives  
 
  December 31, 2008   December 31, 2007  
 
  Balance Sheet
Location
  Fair Value   Balance Sheet
Location
  Fair Value  

Derivatives designated as hedging instruments:

                         
 

Foreign exchange contracts

    Other assets   $ 4,977     Other assets   $ 594  
                       

Total derivatives designated as hedging instruments:

        $ 4,977         $ 594  
                       

Derivatives not designated as hedging instruments:

                         
 

Foreign exchange contracts

    Other assets   $ 39,065     Other assets   $ 19,304  
                       

Total derivatives not designated as hedging instruments:

        $ 39,065         $ 19,304  
                       

Total asset derivatives

        $ 44,042         $ 19,898  
                       

 

 
  Liability Derivatives  
 
  December 31, 2008   December 31, 2007  
 
  Balance Sheet
Location
  Fair Value   Balance Sheet
Location
  Fair Value  

Derivatives designated as hedging instruments:

                         
 

Foreign exchange contracts

    Accrued expenses   $ 5,603     Accrued expenses   $ 360  
                       

Total derivatives designated as hedging instruments:

        $ 5,603         $ 360  
                       

Derivatives not designated as hedging instruments:

                         
 

Foreign exchange contracts

    Accrued expenses   $ 34,347     Accrued expenses   $ 26,925  
                       

Total derivatives not designated as hedging instruments:

        $ 34,347         $ 26,925  
                       

Total liability derivatives

        $ 39,950         $ 27,285  
                       

        See Note A for additional information on EMC's purpose for entering into derivatives contracts.

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        The following table provides the effect derivative instruments had on other comprehensive loss ("OCI") and results of operations (table in thousands):

The Effect of Derivative Instruments on the Consolidated Income Statement
For the Years Ended December 31, 2008, 2007 and 2006
 
 
   
   
   
   
   
   
   
   
  Amount of Gain or (Loss)
Recognized in Income on
Derivative (Ineffective
Portion and Amount
Excluded from
Effectiveness Testing)
   
   
   
   
 
 
   
   
   
   
   
   
   
  Location of Gain or
(Loss) Recognized in
Income on Derivative
(Ineffective Portion
and Amount Excluded
from Effectiveness)
   
   
   
   
 
Derivatives Designated
as Hedging Instruments
under Statement 133 –
Cash Flow Hedging
Relationships
  Amount of Gain or (Loss)
Recognized in Accumulated
OCI on Derivative
(Effective Portion)
  Location of Gain or
(Loss) Reclassified
from Accumulated
OCI into Income
(Effective Portion)
  Amount of Gain or (Loss)
Reclassified from
Accumulated OCI into Income
(Effective Portion)
   
   
   
   
 
  Derivatives Not
Designated as Hedging
Instruments under
Statement 133
  Amount of Gain or
(Loss) Recognized in
Other expense, net
 
  2008   2007   2006   2008