EMC 2002 Annual Report Download - page 52

Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Capitalized Software Development Costs
Research and development ("R&D") costs are expensed as incurred. Software development costs incurred subsequent to establishing technological
feasibility through the general release of the software products are capitalized. Technological feasibility is demonstrated by the completion of a working
model. Capitalized costs are amortized on a straight-line basis over two years. Unamortized software development costs were $143.7 million and $145.3
million at December 31, 2002 and 2001, respectively, and are included in intangible and other assets, net. Amortization expense was $128.3 million, $106.5
million and $84.6 million in 2002, 2001 and 2000, respectively. Amounts capitalized were $126.7 million, $120.7 million and $102.8 million in 2002, 2001
and 2000, respectively.
Intangible Assets
Intangible assets include goodwill, purchased technology, trademarks and customer lists, patents and contracts. Goodwill is carried at its historical cost.
All other intangible assets are amortized over their useful lives, ranging from two to five years.
Impairment of Long-Lived Assets
EMC reviews long-lived assets, including goodwill and other intangible assets, for impairment at least annually or whenever events or changes in
business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer
appropriate. Each impairment test is based on a comparison of the undiscounted cash flows to the recorded value of the asset. If an impairment is indicated,
the asset is written down to its estimated fair value.
Income Taxes
Deferred tax liabilities and assets are recognized for the expected future tax consequences of events that have been included in the financial statements
or tax returns. Deferred tax liabilities and assets are determined based on the difference between the tax bases of assets and liabilities and their reported
amounts using enacted tax rates in effect for the year in which the differences are expected to reverse. Tax credits are generally recognized as reductions of
income tax provisions in the year in which the credits arise. The measurement of deferred tax assets is reduced by a valuation allowance if, based upon
available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
EMC does not provide for a U.S. income tax liability on undistributed earnings of its foreign subsidiaries. The earnings of non-U.S. subsidiaries, which
reflect full provision for non-U.S. income taxes, are indefinitely reinvested in non-U.S. operations or will be remitted substantially free of additional tax.
Earnings (Loss) Per Share
Basic net income (loss) per share is computed using the weighted average number of shares of common stock, par value $.01 per share ("Common
Stock"), of EMC outstanding during the period. Diluted net income (loss) per share is computed using the weighted average number of common and dilutive
common equivalent shares outstanding during the period. Dilutive common equivalent shares consist of stock options and, for a portion of 2000, convertible
debt.
Retirement/Post Employment Benefits
Net pension cost for EMC's domestic defined benefit pension plan is funded to the extent that current pension cost is deductible for U.S. Federal tax
purposes and to comply with ERISA and the General Agreement
48