EMC 2005 Annual Report Download - page 32

Download and view the complete annual report

Please find page 32 of the 2005 EMC annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 121

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121

Table of Contents
2003
Category
Beginning
Balance
Adjustments
to the
Provision
During 2003
Utilization
During 2003
Ending
Balance
Workforce reduction $ 22.1 $ 24.1 $ (39.6) $ 6.6
Consolidation of excess facilities 52.6 6.1 (21.5) 37.2
Contractual and other obligations 15.3 1.3 (11.7) 4.9
Total $ 90.0 $ 31.5 $ (72.8) $ 48.7
The $24.1 addition to the provision for workforce reduction in 2003 was primarily attributable to finalizing severance packages for employees in
foreign jurisdictions. The $6.1 addition to the provision for the consolidation of excess facilities in 2003 represents the charges for facilities being vacated,
offset by the reversal of reserves related to the reactivation of facilities that had previously been vacated.
In addition to these restructuring programs, we have remaining liabilities aggregating $53.3 associated with restructuring programs prior to 2002. The
remaining balance relates primarily to consolidation of facilities. All restructuring programs, with the exception of the 2005 restructuring programs, are
substantially complete, although our ability to sublet facilities is subject to appropriate market conditions. The total remaining liability for all of our
restructuring programs was $154.6 as of December 31, 2005. The remaining balance relates primarily to consolidation of facilities and employee termination
benefits. These amounts are expected to be paid out through 2015.
As of December 31, 2005, we had a goodwill balance of $3,883.5. At least annually we evaluate goodwill for impairment at the reporting unit level. As
of December 31, 2005, none of the reporting units had any indication that goodwill was likely to be impaired.
As we continue to refine our business model, we will reassess our cost structure and asset deployment to assess whether additional changes are
necessary. Should we determine that additional changes will benefit our business, we may incur additional restructuring and other special charges. If customer
demand for products change or we acquire complementary products, we may be required to write down the value of assets. Additionally, changes in our
business model or market conditions could cause goodwill or other assets to be impaired.
Investment Income
Investment income was $190.4, $156.7 and $187.8 in 2005, 2004 and 2003, respectively. Investment income was earned primarily from investments in
cash and cash equivalents, short and long-term investments and sales-type leases. Investment income increased in 2005 due to higher outstanding cash and
investment balances and greater yields on investments and was partially offset by increased realized losses on investments. Investment income decreased in
2004 from 2003 due to lower yields on outstanding investment balances and reduced realized gains from the sale of investments. The weighted average return
on investments, excluding realized gains, was 3.4%, 2.6% and 2.7% in 2005, 2004 and 2003, respectively. Realized (losses) gains were $(58.9), $(11.7) and
$30.5 in 2005, 2004 and 2003, respectively.
Other Expenses, Net
Other expenses, net were $10.6, $8.2 and $14.9 in 2005, 2004 and 2003, respectively. The increase in 2005 compared to 2004 was primarily due to
increased foreign currency losses. The decrease in 2004 compared to 2003 was primarily due to gains from selling strategic investments, partially offset by
increased foreign currency losses.
Provision for Income Taxes
Our effective income tax rate was 31.4%, 26.5% and 13.1% in 2005, 2004 and 2003, respectively. The effective income tax rate is based upon the
income for the year, the composition of the income in different countries, and adjustments, if any, for the potential tax consequences, benefits or resolutions of
tax audits. For 2005, 2004 and 2003 the effective tax rate varied from the statutory rate as a result of the mix of income attributable to foreign versus domestic
jurisdictions. Our aggregate income tax rate in foreign jurisdictions is lower than our income tax rate in the United States. Additionally, in 2005, we
recognized an income tax benefit of $163.9 from the favorable resolution of certain income tax audits and expiration of statutes of limitations. These favorable
reductions in our effective tax rate were partially offset by several factors. In 2005, we repatriated approximately $3,000.0 under the American Jobs Creation
Act of 2004. The repatriation resulted in an incremental income tax expense of $180.2. Also in 2005, we incurred $17.4 of non-deductible IPR&D charges
from acquisitions. We did not derive a tax benefit from these charges. For 2004, as a result of tax audits, we recognized a $20.0 reduction in our estimated
income tax exposure pertaining to
26