Note 5. Restructuring and Other Charges
Below is a comparison of the restructuring and other charges for the years ended December 31, 2005, 2004, and 2003:
In November 2003, VeriSign announced a restructuring initiative related to the sale of its Network Solutions business and the realignment of other business units. The restructuring plan resulted in reductions in workforce, abandonment of excess facilities, disposals of property and equipment and other charges. To date VeriSign has recorded $57.2 million in restructuring charges under its 2003 plan.
Net restructuring and other charges recorded during the year ended December 31, 2005 and 2004 relating to the 2003 restructuring plan are as follows:
Workforce reduction. VeriSign recorded restructuring charges related to workforce reduction in accordance with SFAS No. 112, “ Employers’ Accounting for Postemployment Benefits an amendment of FASB Statements No. 5 and 43 ” since benefits were provided pursuant to a formal severance plan which used a standard formula of paying benefits based upon tenure with the Company. The accounting for these restructuring charges has met the four requirements of SFAS No. 112 which are: (i) the Company’s obligation relating to employees’ rights to receive compensation for future absences is attributable to employees’ services already rendered; (ii) the obligation relates to rights that vest or accumulate; (iii) payment of the compensation is probable; and (iv) the amount can be reasonably estimated. VeriSign recorded workforce reduction charges of $1.1 million in connection with workforce reduction of approximately 35 employees during 2004. During 2005, VeriSign adjusted the workforce reduction charges relating primarily to severance and fringe benefits, resulting in net reversals of approximately $0.8 million.
Excess facilities. Excess facilities restructuring charges take into account the fair value of lease obligations of the abandoned space, including the potential for sublease income. Estimating the amount of sublease income
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
DECEMBER 31, 2005, 2004 AND 2003
requires management to make estimates for the space that will be rented, the rate per square foot that might be received and the vacancy period of each property. These estimates could differ materially from actual amounts due to changes in the real estate markets in which the properties are located, such as the supply of office space and prevailing lease rates. Changing market conditions by location and considerable work with third-party leasing companies require VeriSign to periodically review each lease and change its estimates on a prospective basis. During 2005, VeriSign recorded reversals to its excess facilities primarily in connection with a decision to utilize and build a facility that VeriSign had treated as abandoned under its 2003 restructuring plan and for which it had previously recorded a restructuring charge.
Exit costs. VeriSign recorded other exit costs primarily relating to the realignment of its Communications Services Group segment.
Other charges. During 2005, 2004 and 2003, VeriSign recorded other charges under the 2003 restructuring plan related to obsolete telecommunications computer software and other equipment that was written off.
As of December 31, 2005, the accrued liability associated with the 2003 restructuring plan was $12.2 million and consisted of the following:
In April 2002, VeriSign announced plans to restructure its operations to rationalize, integrate and align resources. This restructuring plan included workforce reductions, abandonment of excess facilities, write-off of abandoned property and equipment and other charges. To date, VeriSign has recorded $110.2 million in restructuring charges under its 2002 restructuring plan.
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DECEMBER 31, 2005, 2004 AND 2003
Net restructuring and other charges, net of adjustments, recorded during the years ended December 31, 2005, 2004 and 2003 associated with the 2002 restructuring plan are as follows:
Workforce reduction. VeriSign’s 2002 restructuring plan resulted in a workforce reduction of approximately 400 employees across certain business functions, operating units, and geographic regions.
Excess facilities. Excess facilities restructuring charges take into account the fair value of lease obligations of the abandoned space, including the potential for sublease income. Estimating the amount of sublease income requires management to make estimates for the space that will be rented, the rate per square foot that might be received and the vacancy period of each property. These estimates could differ materially from actual amounts due to changes in the real estate markets in which the properties are located, such as the supply of office space and prevailing lease rates. Changing market conditions by location and considerable work with third-party leasing companies require VeriSign to periodically review each lease and change its estimates on a prospective basis. VeriSign recorded charges relating to excess facilities that were either abandoned or downsized due to lease terminations and non-cancelable lease costs.
Exit costs. VeriSign recorded other exit costs consisting of the write-off of prepaid license fees associated with products that were originally intended to be incorporated into VeriSign’s product offerings but were subsequently abandoned as a result of the decision to restructure.
Other charges. Property and equipment that was disposed of or abandoned resulted in a net charge during 2003 and consisted primarily of computer software, leasehold improvements, and computer equipment.
Year Ended December 31,
2005
2004
2003
(In thousands)
Workforce reduction $ — $ (7 ) $ 1,545
Excess facilities 1,363 212 8,694
Exit costs and other charges — (470 ) 1,014
Subtotal 1,363 (265 ) 11,253
Other charges — — 9,228
Total restructuring and other charges $ 1,363 $ (265 ) $ 20,481
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DECEMBER 31, 2005, 2004 AND 2003
As of December 31, 2005, the accrued liability associated with the 2002 restructuring plans was $6.1 million and consisted of the following:
Cash payments totaling approximately $39.6 million related to the abandonment of excess facilities under both restructuring plans will be paid over the respective lease terms, the longest of which extends through June 2014. The present value of future cash payments related to lease terminations due to the abandonment of excess facilities is expected to be as follows:
Included in current portion of accrued
restructuring costs $ 2,985 $ 2,861
During 2005, VeriSign recorded other charges of approximately $21.6 million, relating to the abandonment of the development efforts related to an internally developed software project. During 2004, VeriSign recorded other charges of approximately $20.1 million relating to certain asset write-offs.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
DECEMBER 31, 2005, 2004 AND 2003