EMC 2002 Annual Report Download - page 21

Table of Contents
expected to be slightly lower in 2003 compared to 2002 as we gain further efficiencies in our operating cost structure.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses were $1,680.8, $2,214.2 and $2,103.0 in 2002, 2001 and 2000, respectively. SG&A expenses
decreased 24% in 2002 compared to 2001 and increased 5% in 2001 compared to 2000. As a percentage of revenues, SG&A expenses were 30.9%, 31.2%
and 23.7% in 2002, 2001 and 2000, respectively. The decrease in SG&A in 2002 compared to 2001 was due to measures we took to reduce costs, which were
initiated in the second half of 2001 and continued in 2002, enabling us to begin to achieve a cost structure commensurate with reduced revenue levels.
Additionally, lower commission expense due to lower revenues reduced SG&A expenses. The increase in spending in 2001 compared to 2000 was primarily
due to efforts to expand sales and build an infrastructure to support an expected increased revenue base, partially offset by reductions implemented in the
second half of 2001 to achieve a lower cost structure.
The provision for bad debts was $35.2 in 2002, $32.7 in 2001 and $27.5 in 2000. We maintain an allowance for doubtful accounts to provide for the
estimated amount of accounts and notes receivable that will not be collected. The allowance is based upon the credit-worthiness of our customers, our
historical experience, the age of our receivables and current market and economic conditions. The increases in the provision in 2002 compared to 2001 and
2001 compared to 2000 were each due to the general economic declines experienced worldwide.
Restructuring and Other Special Charges
Due to the declines in revenues experienced in 2002 and 2001, in each of those years, we implemented a restructuring program to reduce our cost
structure and focus our resources on the highest potential growth areas of our business. In 2002 and 2001, we recognized restructuring and other special
charges of $100.0 and $825.2, respectively. The 2002 charges consisted of $140.9 associated with the 2002 restructuring program, an $8.9 loss on assets
disposed of within the fourth quarter of 2002 associated with the 2002 restructuring program and $11.8 of additional restructuring costs associated with the
2001 restructuring program. Offsetting these costs in 2002 was a $61.6 reduction in the third quarter 2001 provision for excess and obsolete inventory.
The 2001 charge consisted of a $310.0 provision for excess and obsolete inventory, $408.6 for restructuring activities and $106.6 for other than
temporary declines in equity investments.
The restructuring and other special charges have been classified within our statement of operations according to their related category. These categories
are as follows:
Restructuring Charge
2002 2001
Cost of sales $ (61.6) $ 320.1
Restructuring and other special charges 150.4 398.5
SG&A expenses 2.3 —
Other expense, net 8.9 106.6
Total $ 100.0 $ 825.2
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, we implemented a restructuring program to further reduce our cost structure. As a result of the program, we incurred
restructuring and other special charges of $140.9. The restructuring charges consisted of $44.5 for employee termination benefits, $58.0 to consolidate excess
facilities, $21.5 related to the impairment of long-lived assets and $16.9 for contractual and other obligations for which we will no longer derive an economic
benefit. The 2002 restructuring program impacted all of our segments.
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