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Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The restructuring and other special charges have been classified within the statement of operations according to their related category. These categories
are as follows (table in thousands):
Restructuring Charge
2002 2001
Cost of sales $ (61,558) $320,066
Restructuring and other special charges 150,402 398,508
SG&A expenses 2,300 —
Other expense, net 8,920 106,560
Total $100,064 $825,134
The detail on each of the charges and activity for 2002 and 2001 is explained in the following sections.
2002 Restructuring Program
In the fourth quarter of 2002, EMC implemented a restructuring program to further reduce its cost structure. As a result of the program, EMC incurred
restructuring and other special charges of $140.9 million. The restructuring charges consisted of $44.5 million for employee termination benefits, $58.0
million to consolidate excess facilities, $21.5 million related to the impairment of long-lived assets and $16.9 million for contractual and other obligations for
which EMC will no longer derive an economic benefit. The 2002 restructuring program impacted all of EMC's segments.
Worldwide Reduction in Force
The 2002 restructuring program includes a reduction in force of approximately 1,500 employees across all business functions and geographic regions.
Approximately 64% of such employees are or were based in North America and the remainder are or were based in Europe, Latin America and the Asia
Pacific region. The workforce reduction resulted in a pre-tax charge of $44.5 million for termination benefits. As a result of labor laws in certain foreign
countries in which EMC operates, the amount of termination benefits for employees in such countries was not determinable as of December 31, 2002. As
these amounts are finalized, which is expected to be in the first quarter of 2003, EMC will recognize additional charges. As of December 31, 2002,
approximately 1,000 employees had been terminated.
Consolidation of Excess Facilities
The 2002 restructuring program includes a pre-tax charge of $58.0 million for the consolidation of space within EMC's corporate facilities and the
elimination of excess field office space worldwide. Included in the charge are $52.9 million for estimated losses on subleases and $5.1 million impairment
charge for non-recoverable leasehold improvements. Certain facilities were vacated in the fourth quarter of 2002 with the remainder to be vacated in the first
half of 2003.
Impairment of Long-Lived Assets
In the fourth quarter of 2002, EMC implemented a program to consolidate the locations of and made other modifications to its Internet hosting business.
As a result, EMC recognized a pre-tax charge of $17.9 million relating to the impairment of long-lived assets. The impairment charge is equal to the amount
by which the assets' carrying amount exceeded the present value of their estimated discounted cash flows. Additionally, in the fourth quarter of 2002, EMC
placed for sale certain assets associated with a portion of its Data General services
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