EMC 2010 Annual Report Download - page 89

Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
For all equity awards granted in 2010 and 2009, volatility was based on an analysis of historical stock prices and implied volatilities of publicly-traded
companies with similar characteristics, including industry, stage of life cycle, size, financial leverage, as well as the implied volatilities of VMware's Class A
common stock. The expected term was calculated based upon an analysis of the expected term of similar grants of comparable publicly-traded companies.
For all equity awards granted in 2008, volatility was based on an analysis of historical stock prices and implied volatility of publicly-traded companies
with similar characteristics, including industry, stage of life cycle, size and financial leverage. The expected term was calculated based on the historical
experience that VMware employees have had with EMC stock option grants as well as the expected term of similar grants of comparable companies.
For all periods presented, VMware's expected dividend yield input was zero as it has not historically paid, nor expects in the future to pay, cash
dividends on its common stock. The risk-free interest rate was based on U.S. Treasury instrument whose term is consistent with the expected term of the stock
options.
P. Restructuring and Acquisition-Related Charges
In 2010, 2009 and 2008, we incurred restructuring and acquisition-related charges of $84.4 million, $107.5 million and $250.3 million, respectively. In
2010, we incurred $76.7 million of restructuring charges, of which $37.8 million related to our fourth quarter 2010 program. The remainder was primarily
related to our 2008 restructuring program and $7.7 million of costs in connection with acquisitions for financial advisory, legal and accounting services.
In the fourth quarter of 2010, we implemented a restructuring program to create further operational efficiencies which will result in a workforce
reduction of approximately 400 positions. The action will impact positions around the globe covering our Information Storage, RSA Information Security and
Information Intelligence Group segments. The actions are expected to be completed by the end of 2011.
In 2009, we incurred $88.4 million of restructuring charges, primarily related to our 2008 restructuring program and $19.1 million of costs in
connection with acquisitions for financial advisory, legal and accounting services. The restructuring charges included a provision for $55.1 million of
workforce reduction costs. Additionally, in 2009, we recognized charges for $27.1 million of lease termination costs for facilities vacated in the year in
accordance with our restructuring programs. We recognized a $6.2 million charge for abandoned assets which represent identified infrastructure determined to
no longer have benefit that were abandoned in 2009. We also recognized a $12.5 million charge to write-off a prepaid royalty associated with a contractual
obligation that included a minimum purchase commitment since we do not anticipate achieving the minimum purchase level. The charge was classified within
cost of product sales on the accompanying Consolidated Income Statements.
The 2008 charge consisted of the aforementioned fourth quarter 2008 restructuring program which aggregated $250.3 million. For purposes of
presentation, $244.7 million of the 2008 charge was presented as a restructuring charge, $1.3 million was presented as a reduction of SG&A and $6.9 million,
related to the impairment of strategic investments, was presented within other expense, net on the Consolidated Income Statements. In 2008, all charges are
only related to restructuring activities as acquisition costs were generally capitalized under prior business combination accounting rules.
The fourth quarter 2008 charge consisted of $195.5 million for employee termination benefits associated with a reduction in workforce, a $28.0 million
charge for impaired long-lived assets, a $21.8 million charge associated with abandoned assets for which we will no longer derive a benefit and a $2.6 million
charge for contract terminations. The asset impairment charge of $28.0 million consists of $21.1 million 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 million
charge for strategic investments for which the decline in their fair market value below their book value was considered other than temporary. The fair market
value relating to $4.8 million of the $6.9 million charged for strategic investments was based upon Level 2 inputs and the fair market value relating to
$2.1 million of the $6.9 million charge was based upon Level 3 inputs.
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