EMC 2006 Annual Report Download - page 29

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Table of Contents
In-process Research and Development
In-process research and development ("IPR&D") was $35.4, $17.4 and $17.4 in 2006, 2005 and 2004, respectively. The increase in IPR&D in 2006
compared to 2005 was primarily attributable to an increase in both the number of acquisitions and the R&D levels of businesses acquired.
Restructuring Charges
In 2006, 2005 and 2004, we incurred restructuring charges of $162.6, $84.2 and $38.6, respectively.
The 2006 charge consisted of $129.4 for employee termination benefits associated with a reduction in workforce plans, a $29.7 charge associated with
abandoned assets for which we will no longer derive a benefit, a $5.7 charge associated with vacating excess facilities and a $10.9 charge for other contract
terminations. Partially offsetting these amounts were net adjustments of $13.1 associated with prior years' restructuring programs.
The 2005 charge consisted of $84.1 for employee termination benefits associated with workforce rebalancing and reductions in force efforts and $0.4 of
costs associated with vacating excess facilities. Partially offsetting these amounts were net adjustments of $0.3 associated with prior years' restructuring
programs.
The 2004 charge consisted of $24.5 of employee termination benefits associated with reductions in force and $2.1 associated with vacating excess
facilities. The remaining $12.0 of charges was associated with prior restructuring programs, primarily relating to additional rent expense for vacated facilities.
The additional rent expense was attributable to a revised estimate of the time needed to sublet facilities.
The activity for each charge is explained in the following sections.
2006 Restructuring Programs
The activity for the 2006 restructuring programs for the year ended December 31, 2006 is presented below:
Category
Initial
Provision
Utilization
During 2006
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 2006 restructuring programs included a workforce reduction that was finalized on December 29, 2006 and covers approximately 1,350 employees
worldwide. The workforce reduction's objective is to further integrate EMC and the majority of the businesses we have acquired over the past three years.
These actions impacted our major business functions and major geographic regions. Approximately 70% of the affected employees are or were based in North
America, excluding Mexico, and 30% are or were based in Europe, Latin America, Mexico and the Asia Pacific region. As of December 31, 2006,
approximately 100 employees have been terminated.
The asset impairment charge of $29.7 consists 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 restructuring programs impacted the Information storage and Content management and archiving segments. The workforce reductions include
$10.7 of non-cash stock-based compensation expense.
The 2006 restructuring programs are expected to be completed by the end of 2007 with the remaining cash expenditures relating to workforce reduction
expected to be substantially paid by the end of 2008. The expected cash impact of the 2006 restructuring charges is $135.3, of which $7.8 was paid in 2006.
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