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Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We also hold strategic equity investments. Strategic equity investments in publicly traded companies are classified as available for sale when there are
no restrictions on our ability to liquidate such securities. These investments are also carried at their market value. Strategic equity investments in privately-
held companies are carried at the lower of cost or net realizable value due to their illiquid nature. We review these investments to ascertain whether unrealized
losses are other than temporary.
Unrealized gains and temporary losses on investments classified as available for sale are included as a separate component of stockholders' equity, net
of any related tax effect. Realized gains and losses and other than temporary impairments on non-strategic investments are reflected in the income statement
in investment income. Realized gains and losses and other than temporary impairments on strategic investments are reflected in the income statement in other
expense, net. Investment activity is accounted for primarily using the first-in, first-out method.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market, not in excess of net realizable value.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Buildings under development are included in building construction in progress. Depreciation
commences upon placing the asset in service and is recognized 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 25-31 1/2 years
Upon retirement or disposition, the asset cost and related accumulated depreciation are removed with any gain or loss recognized in the income
statement. Repair and maintenance costs, including planned maintenance, are expensed as incurred.
Capitalized Software Development Costs
R&D costs are expensed as incurred. R&D costs include salaries and benefits, consultants, facilities related costs, material costs, depreciation and
travel. 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 detailed program design or working model. Capitalized costs are amortized on a
straight-line basis over periods ranging from eighteen months to two years which represent the products' estimated useful lives. The expense associated with
the straight-line method exceeds the amount of expense computed using the ratio of current period gross product revenues to total anticipated gross product
revenues. Unamortized software development costs were $261.6 million and $219.0 million at December 31, 2005 and 2004, respectively, and are included in
other assets, net. Amortization expense was $124.5 million, $113.5 million and $90.9 million in 2005, 2004 and 2003, respectively. Amounts capitalized were
$167.1 million, $166.3 million and $113.4 million in 2005, 2004 and 2003, respectively.
Long-lived Assets
Purchased intangible assets, other than goodwill, are amortized over their estimated useful lives which range from one to twelve years. Intangible assets
include goodwill, purchased technology, trademarks and tradenames, customer relationships and customer lists, software licenses, patents and contracts.
Goodwill is carried at its historical cost.
We periodically review our long-lived assets and certain other intangibles, excluding goodwill, for impairment. 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.
We test goodwill for impairment in the fourth quarter of each year or more frequently if events or changes in circumstances indicate that the asset might
be impaired.
Advertising
Advertising production costs are expensed as incurred. Advertising expense was $14.7 million, $11.7 million and $14.4 million in 2005, 2004 and
2003, respectively.
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