EMC 2005 Annual Report Download - page 78

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Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We have federal and foreign net operating loss carryforwards of $126.7 million and $107.9 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 2006, while others have an unlimited carryforward period.
The valuation allowance increased from $62.0 million at December 31, 2004 to $63.8 million at December 31, 2005. The net increase was principally
attributable to an increase in capital loss carryforwards and a decrease in credit carryforwards of domestic subsidiaries and net operating losses and other
deferred tax assets of foreign subsidiaries. The valuation allowance at December 31, 2005 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 $1.1 billion and $3.2 billion at December 31, 2005 and 2004, respectively, and consisted of undistributed earnings permanently invested in
these entities. The change in the basis difference between 2004 and 2005 was attributable to the approximate $3.0 billion in foreign earnings repatriated under
the AJCA, partially offset by $781.4 million of income earned in the current year. The unrecognized deferred tax liability associated with these unremitted
earnings is approximately $280.0 million and $780.0 million as of December 31, 2005 and 2004, respectively. Income before income taxes from foreign
operations for 2005, 2004 and 2003 was $781.4 million, $632.0 million and $343.9 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 contribution amounted to $36.8 million in 2005, $30.5 million in 2004 and $26.0 million in 2003.
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 Plans
We have a noncontributory defined benefit pension plan which was assumed as part of the Data General acquisition, which covers substantially all
former Data General employees located in the U.S. 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.
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. Prior service cost is amortized over the average remaining service period of employees expected to receive benefits under the plan. 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, 2005, the Data General U.S. pension plan held $0.4 million of our common stock.
The Data General U.S. pension plan and certain foreign retirement plans (the "Pension Plans") are summarized in the following tables.
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