EMC 2003 Annual Report Download - page 42

Inventories
Inventories are stated at the lower of cost (first in, first out) or market, not in excess of net realizable value.
60
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Assets under development are included in construction in progress. Depreciation commences upon
placing the asset in service on a straight-line basis over the estimated useful lives of the assets, as follows:
Furniture and fixtures 5-7 years
Equipment 1-10 years
Improvements 5-25 years
Buildings 25-311/2 years
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 which is the estimated useful life of the software product. Unamortized software
development costs were $166.2 million and $143.7 million at December 31, 2003 and 2002, respectively, and are included in other assets, net. Amortization
expense was $90.9 million, $128.3 million and $106.5 million in 2003, 2002 and 2001, respectively. Amounts capitalized were $113.4 million, $126.7 million
and $120.7 million in 2003, 2002 and 2001, respectively.
Long-lived Assets
In July 2001, the Financial Accounting Standards Board (the "FASB") issued FAS No. 142, "Goodwill and Other Intangible Assets." FAS No. 142
requires that goodwill no longer be amortized but tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate
that the asset might be impaired. FAS No. 142 also requires purchased intangible assets other than goodwill to continue to be amortized over their estimated
useful lives. Intangible assets include goodwill, purchased technology, trademarks and tradenames, customer relationships 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 twelve years.
We periodically review our long-lived assets and certain other intangibles, excluding goodwill, for impairment in accordance with FAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." We initiate reviews for impairment 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.
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EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
We do not provide for a U.S. income tax liability on undistributed earnings of our 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 our common stock, par value $.01 per share ("Common
Stock"), 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, unvested restricted stock under the treasury
stock method and when dilutive, conversion of the convertible debt.
Retirement/Post Employment Benefits
Pension cost for our 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 on Tariff and Trade Bureau (GATT) additional minimum funding requirements. Net pension cost for
our international defined benefit pension plans are generally funded as accrued.