EMC = Revenue Growth

I have a tip for every public company out there. Ready? Every time investors see a headline like this:

"Acme Rocket Stock (TICKER: ZOOM) reports record revenue."

What they're thinking is:

"How bad was the miss on the bottom line?"

For data storage specialist EMC Corp. (NYSE: EMC), whose earnings release (surprise!) boasted of record revenue, the answer is ... zero, according to statistics provided by Yahoo! Finance.

But that's no cause for celebration. EMC's $0.16-per-share non-GAAP earnings excluded $79.2 million in noncash charges for in-process research and development. What this means, essentially, is that the company is expensing the estimated value of products in development that were acquired through business combinations.

GAAP rules require that EMC take this charge every time it purchases a company with products not yet released. Here, the charge suggests that the value of recently acquired technology equals at least $79 million.

Expensing it as GAAP requires results in a 13% year-over-year decline in EMC's net income, from $0.15 per share to $0.13.

Don't get me wrong; I'm not saying EMC's results were somehow conflated. I just think it's easy to gloss over one-time charges. Foolish investment analysis demands that we dig deeper.

Let's visit the cash flow statement in that spirit. Cash from operations rose 13.6% to $918 million. Free cash flow, meanwhile, was up 22.4% thanks to lower capital outlays. Sweet.

EMC had a solid quarter. Certainly double-digit revenue growth (16.6%) in a weakening economy is no small feat. And we'd be small-f foolish to underestimate the brutal competition EMC faces from Network Appliance (Nasdaq: NTAP), IBM (NYSE: IBM), and Hitachi (NYSE: HIT), among others.

Nevertheless, a 13% decline on the bottom line before charges -- charges that assume yet-to-be-had profits from acquired technology -- shouldn't be merely dismissed. Prove to us that you're still a savvy shopper, EMC.

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