EMC 2003 Annual Report Download - page 17

in the provision in 2003 compared to 2002 was due to the improvement in our collection experience and expected collection rate of our outstanding accounts
and notes receivable balance. Our quarterly average days sales outstanding decreased from 63 days in 2002 to 47 days in 2003. We expect the overall level of
SG&A spending to be higher in 2004 compared to 2003, primarily due to the increased salary and related costs associated with LEGATO, Documentum and
VMware. For 2004, we expect SG&A expenses, as a percentage of revenue, to be in the mid 20% range. This percentage may vary, however, depending
primarily on our 2004 revenues.
Restructuring and Other Special Charges
During 2003, we recorded restructuring and other special charges, primarily related to the acquisitions of LEGATO and Documentum. In 2002, we
implemented a restructuring program to reduce our cost structure and focus our resources on the highest potential growth areas of our business. The
restructuring and other special charges were $66.3 and $100.0 in 2003 and 2002, respectively. The 2003 charge consisted of $61.1, associated primarily with
the acquisitions consummated in the year and $35.0 of additional restructuring costs associated with the 2002 restructuring program. Partially offsetting these
costs in 2003 was a $29.8 reduction in accruals from prior restructuring programs. The reductions resulted from management's decision to utilize a facility for
Documentum, LEGATO and certain of our other operations that we had previously vacated. Additionally, we favorably resolved a previously recognized
contractual obligation.
The 2002 charges consisted of $149.8 associated with the 2002 restructuring program and $11.8 of additional restructuring costs associated with our
2001 restructuring program. Offsetting these costs in 2002 was a $61.6 benefit resulting primarily from the sale of previously identified obsolete inventory for
which a reserve was established in 2001.
The restructuring and other special charges have been classified within our statement of operations according to their related category. These categories
are as follows:
2003 2002
Cost of sales $ – $ (61.6)
Restructuring and other special charges 66.3 150.4
SG&A expenses – 2.3
Other expense, net – 8.9
Total $66.3 $100.0
The detail on each of the charges and activity for 2003 and 2002 is explained in the following sections.
2003 Restructuring Program
In 2003, we recognized restructuring and other special charges of $61.1, primarily relating to the acquisitions of LEGATO and Documentum. Included in
the charges are employee termination benefits, write-off of a duplicative software project and consolidation of excess facilities, which aggregated $31.9. The
2003 restructuring program impacted our information storage products and information storage services segments. The expected cash impact of the charge is
$20.8, of which $3.9 was paid in 2003. The restructuring and other special charges also included in-process R&D ("IPR&D") charges of $19.6 and $9.5
associated with the acquisitions of LEGATO and Documentum, respectively.
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The amounts charged against the provision established in 2003 are as follows:
2003
Category
Initial
Provision
Utilization
During 2003
Ending
Balance
Non-Cash
Portion of the
Provision
Workforce reduction $ 18.6 $ (3.9) $ 14.7 $ –
Asset impairment 10.5 (10.5) – 10.5
Elimination of excess facilities 2.8 (0.5) 2.3 0.6
Total $ 31.9 $ (14.9) $ 17.0 $ 11.1
Worldwide Reduction in Force. The 2003 restructuring program included a reduction in force of approximately 200 employees across our major
business functions and all major geographic regions. Approximately 48% of such employees were based in North America and the remainder are or were
based in Europe, Latin America and the Asia Pacific region. As of December 31, 2003, approximately 125 employees had been terminated.
Asset impairment. As a result of the LEGATO acquisition, we recognized an impairment charge of $10.5 for a duplicative EMC software project. The
impairment charge was equal to the amount by which the assets' carrying amount exceeded the present value of its estimated discounted cash flows. The
impaired asset is classified within our information storage products segment.
Elimination of excess facilities. The 2003 restructuring program included a charge of $2.8 for the elimination of excess office space in the United
Kingdom.
2002 Restructuring Program
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