EMC 2003 Annual Report Download - page 23

The adjustment to the provision for workforce reduction in 2002 was primarily attributable to the finalization of severance payments associated with
reductions in force in certain foreign jurisdictions. The adjustment to the provision for other contractual obligations in 2002 resulted from favorable
settlements.
The adjustment to the provision for the workforce reduction in 2001 primarily related to voluntary employee resignations. The adjustment to the
provision for other contractual obligations in 2001 primarily related to a favorable settlement of an estimated liability for the closure of an information storage
services business. The adjustment to the provision for the consolidation of excess facilities in 2001 primarily related to additional leased facilities being
vacated.
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2001 Inventory Provision. The amounts charged and adjusted against the 2001 established provisions for excess and obsolete inventory are set forth
below. The activity is reflected within cost of sales in our statement of operations.
Reduction in
Cost of Sales
Inventory
Scrapped and
Charged Against
the Reserve
2002
Category
Beginning
Balance
Inventory
Sold
Favorable
Vendor
Settlements
Ending
Balance
Excess and obsolete EMC owned inventory $ 226.2 $ (182.9) $ (37.0) $ – $ 6.3
Excess and obsolete purchase obligations 29.3 (4.8) (20.9) (3.6) –
Total $ 255.5 $ (187.7) $ (57.9) $ (3.6) $ 6.3
Reduction in
Cost of Sales
Inventory
Scrapped and
Charged Against
the Reserve
2001
Category
Initial
Provision
Inventory
Sold
Favorable
Vendor
Settlements
Ending
Balance
Excess and obsolete EMC owned inventory $ 280.5 $ (54.3) $ – $ – $226.2
Excess and obsolete purchase obligations 29.5 (0.2) – – 29.3
Total $ 310.0 $ (54.5) $ – $ – $255.5
Other Charges. In 2001, we recorded a pre-tax charge of $106.6 for other than temporary declines in equity investments. These investments were in
privately-held companies, primarily in the storage industry, many of which were in the start-up or development stage. These investments were carried at cost,
subject to adjustment for impairment. Due to the continued global economic slowdown in 2001, as well as the downturn in the storage industry, we
determined that the decline in these investments was other than temporary and recognized an impairment loss.
• Investment Income
Investment income was $256.2 and $265.3 in 2002 and 2001, respectively. Investment income was earned primarily from investments in cash
equivalents, short and long-term investments and sales-type leases. Investment income decreased in 2002 compared to 2001 because of lower yields on
outstanding investment balances, partially offset by greater realized gains on the sale of investments. The weighted average return on investments, excluding
realized gains, was 3.5% and 4.8% in 2002 and 2001, respectively. Realized gains were $63.0 and $45.4 in 2002 and 2001, respectively.
• Other Expense, Net
Other expenses, net were $47.4 and $133.1 in 2002 and 2001, respectively. Other expense, net in 2002 was comprised primarily of losses on asset
disposals and foreign currency exchange losses. Included in the 2001 amount was a $106.6 non-cash charge for other than temporary declines in equity
investments. These investments were carried at cost, subject to impairment. Due to the continued global economic slowdown in 2001, as well as the downturn
in the storage industry, we determined that the decline in value of these investments was other than temporary and recognized an impairment loss.
• Provision for Income Taxes
In 2002 and 2001, we reported pre-tax losses resulting in income tax benefits of $177.8 and $69.3, respectively. The rates of benefit were 60.0% in 2002
compared to 12.0% in 2001. The effective income tax rate is based upon the loss for the year, the composition of the income (loss) in different countries, and
adjustments, if any, for the potential tax consequences, benefits or resolutions of tax audits. For 2002, the effective income tax rate varied from the statutory
rate primarily as a result of the overall
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favorable resolution of international tax matters, which aggregated $67.7. Additionally, a reduction in the valuation allowance resulting from the realization of
capital loss carryforwards contributed to the favorable rate. For 2001, the effective income tax rate varied from the statutory rate due to the mix of income and
losses in foreign countries and the establishment of provisions associated with the impact of foreign tax audits, partially offset by a $133.2 tax benefit realized
from a prior acquisition. The valuation allowance decreased by $31.1 in 2002 and $25.4 in 2001.