EMC 2006 Annual Report Download - page 82

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Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
We have federal and foreign net operating loss carryforwards of $357.1 million and $95.3 million, respectively. Portions of these carryforwards are
subject to annual limitations, including Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), for U.S. tax purposes and similar
provisions under other countries' tax laws. Certain net operating losses will begin to expire in 2008, while others have an unlimited carryforward period. The
increase in net operating loss carryforwards from 2005 to 2006 is attributable to acquired net operating loss carryforwards for acquisitions consummated in
2006.
The valuation allowance decreased from $63.8 million at December 31, 2005 to $55.5 million at December 31, 2006. The decrease was primarily
attributable to utilization of net operating loss carryforwards and changes in our assessment of the realizability of certain net operating loss carryforwards to
be more likely than not. The valuation allowance at December 31, 2006 relates to foreign subsidiaries' deferred tax assets, capital loss carryforwards and
domestic tax credit carryforwards.
Deferred income taxes have not been provided on basis differences related to investments in foreign subsidiaries. These basis differences were
approximately $1.9 billion and $1.1 billion at December 31, 2006 and 2005, respectively, and consisted of undistributed earnings permanently invested in
these entities. The change in the basis difference between 2005 and 2006 was mainly attributable to income earned in the current year. The unrecognized
deferred tax liability associated with these unremitted earnings is approximately $552.0 million and $280.0 million as of December 31, 2006 and 2005,
respectively. Income before income taxes from foreign operations for 2006, 2005 and 2004 was $835.9 million, $781.4 million and $632.0 million,
respectively.
L. Retirement Plans and Retiree Medical Benefits
401(k) Plan
We have established a deferred compensation program for certain employees that is qualified under Section 401(k) of the Code. EMC will match pre-
tax employee contributions up to 6% of eligible compensation during each pay period (subject to the $750 maximum match each quarter). Matching
contributions are immediately 100% vested. Our contributions amounted to $48.6 million in 2006, $36.8 million in 2005 and $30.5 million in 2004.
Employees may elect to invest their contributions in a variety of funds, including an EMC stock fund. The deferred compensation program limits an
employee's maximum investment allocation in the EMC stock fund to 30% of their total contribution. Our matching contribution mirrors the investment
allocation of the employee's contribution.
Defined Benefit Pension Plan
We have noncontributory defined benefit pension plans which were assumed as part of the Data General acquisition, which cover substantially all
former Data General employees located in the U.S. and Canada. In addition, certain of the former Data General foreign subsidiaries also have retirement plans
covering substantially all of their employees. All of these plans were frozen in 1999, resulting in employees no longer accruing pension benefits for future
services. One of our foreign subsidiaries in Japan also has a defined benefit pension plan.
Benefits under these plans are generally based on either career average or final average salaries and creditable years of service as defined in the plans.
The annual cost for these plans is determined using the projected unit credit actuarial cost method that includes actuarial assumptions and estimates which are
subject to change. The measurement date for the plans is December 31.
Our investment policy provides that no security, except issues of the U.S. Government, shall comprise more than 5% of total plan assets, measured at
market. At December 31, 2006, the Data General U.S. pension plan held $0.4 million of our common stock.
The Data General U.S. pension plan and Canada pension plan (the "Pension Plans") are summarized in the following tables. The pension plans
associated with the Data General and Japan foreign subsidiaries are not presented below because they do not have a material impact on our consolidated
financial position or results of operations.
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