EMC 2006 Annual Report Download - page 35

Table of Contents
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. We will pay cash for all Notes so repurchased. We
may not redeem the Notes prior to maturity.
In connection with the sale of the Notes, we entered into a registration rights agreement (the "Registration Rights Agreement"). Pursuant to the
Registration Rights Agreement, on February 2, 2007 we filed a shelf registration statement with the SEC covering the resale of the Notes and our common
stock issuable upon conversion of the Notes. We also have agreed to use our commercially reasonable efforts to keep the shelf registration statement effective
until the earliest of (i) the date when all securities covered by the registration statement have been sold; (ii) the expiration of the applicable holding period
with respect to the Notes and our common stock issuable upon conversion of the Notes under Rule 144(k) under the Securities Act of 1933, or any successor
provision; and (iii) the date that is two years after the effective date of the registration statement. We may suspend the use of the registration statement to
resell Notes or shares of our common stock issued upon conversion of Notes for reasons relating to pending corporate developments, public filings or other
events.
Subject to certain limitations, we will be required to pay the holders of the Notes special interest on the Notes if we fail to keep such registration
statement effective during specified time periods. 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 are being amortized to interest expense over the respective terms of
the Notes.
A total of $2,200.0 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.
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.
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.
Depreciation and amortization expense was $764.2, $640.0 and $616.4 in 2006, 2005 and 2004, respectively. The increase in depreciation and
amortization expense in each year was primarily attributable to intangible amortization expense associated with increased acquisition activity including the
acquisitions of Smarts and Captiva in 2005 and RSA in 2006. Higher amortization expense associated with an increase in capitalized software development
costs also contributed to the increase. A general growth in our property, plant and equipment balances in each year also resulted in greater depreciation
expense.
We have available for use a credit line of $50.0 in the United States. As of December 31, 2006, 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. At
December 31, 2006, we were in compliance with the covenants.
We derive revenues from both selling and leasing activity. We customarily sell the notes receivable resulting from our leasing activity. 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.
Based on our current operating and capital expenditure forecasts, we believe that the combination of funds currently available, funds to be generated
from operations and our available lines of credit will be adequate to finance our ongoing operations for at least the next twelve months.
To date, inflation has not had a material impact on our financial results.
29