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Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
other-than-temporary impairments on debt and equity investments. In September 2004, the FASB delayed until further notice the effective date of the
measurement and recognition guidance contained in EITF 03-01, however the disclosure requirements of EITF 03-01 are currently effective. The adoption of
EITF 03-01 is not expected to have a material impact on our financial position or results of operations.
In November 2004, the FASB issued FAS No. 151, "Inventory Costs, an Amendment of ARB No. 43, Chapter 4." This statement amends Accounting
Research Bulletin No. 43, Chapter 4, to clarify that abnormal amounts of idle facility, freight, handling costs and wasted materials (spoilage) should be
recognized as current period charges. In addition, this statement requires that allocation of fixed production overheads to the costs of conversion be based on
the normal capacity of the production facilities. This statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005.
Earlier application is permitted for inventory costs incurred during fiscal years beginning after November 23, 2004. The provisions of Statement No. 151
should be applied prospectively. The adoption of FAS No. 151 is not expected to have a material impact on our financial position or results of operations.
In December 2004, the FASB issued FAS No. 123R, "Share-Based Payment." The statement replaces FAS No. 123, "Accounting for Stock-Based
Compensation" and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees."
This statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. The
adoption of the statement will result in the expensing of the fair value of stock options granted to employees in the basic financial statements. Previously, we
elected to only disclose the impact of expensing the fair value of stock options in the notes to the financial statements. See "Accounting for Stock-Based
Compensation" in Note A. The statement is effective for the quarters commencing after June 15, 2005.
The statement applies to new equity awards and to equity awards modified, repurchased, or canceled after the effective date. Additionally, compensation
cost for the portion of awards for which the requisite service has not been rendered that are outstanding as of the effective date shall be recognized as the
requisite service is rendered on or after the effective date. The compensation cost for that portion of awards shall be based on the grant-date fair value of those
awards as calculated from the pro forma disclosures under Statement No. 123. Changes to the grant-date fair value of equity awards granted before the
effective date of this statement are precluded. The compensation cost for those earlier awards shall be attributed to periods beginning on or after the effective
date of this statement using the attribution method that was used under Statement No. 123, except that the method of recognizing forfeitures only as they
occur shall not be continued. Any unearned or deferred compensation (contra-equity accounts) related to those earlier awards shall be eliminated against the
appropriate equity accounts. Additionally, common stock purchased pursuant to stock options granted under our employee stock purchase plan will be
expensed based upon the fair market value of the stock option.
The statement also allows for a modified version of retrospective application to periods before the effective date. Modified retrospective application may
be applied either (a) to all prior years for which Statement No. 123 was effective or (b) only to prior interim periods in the year of initial adoption. An entity
that chooses to apply the modified retrospective method to all prior years for which Statement No. 123 was effective shall adjust financial statements for prior
periods to give effect to the fair-value-based method of accounting for awards granted, modified, or settled in cash in fiscal years beginning after
December 15, 1994, on a basis consistent with the pro forma disclosures required for those periods by Statement No. 123. Accordingly, compensation cost
and the related tax effects will be recognized in those financial statements as though they had been accounted for under Statement No. 123. Changes to
amounts as originally measured on a pro forma basis are precluded.
The adoption of FAS No. 123R will have a material impact on our results of operations. The future results will be impacted by the number and value of
additional stock option grants as well as the value of 60