EMC 2006 Annual Report Download - page 55

Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 values. 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 within accumulated other comprehensive loss, 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. Gains or losses are calculated 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.
Research and Development and Capitalized Software Development Costs
Research and development ("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 over periods ranging from eighteen months to two years which represent the products' estimated useful lives. Unamortized software
development costs were $310.3 million and $261.6 million at December 31, 2006 and 2005, respectively, and are included in other assets, net. Amortization
expense was $166.9 million, $124.5 million and $113.5 million in 2006, 2005 and 2004, respectively. Amounts capitalized were $215.6 million, $167.1
million and $166.3 million in 2006, 2005 and 2004, 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, developed technology, trademarks and tradenames, customer relationships and customer lists, software licenses, patents and other intangible
assets, which include backlog, non-competition agreements and non-solicitation agreements. Goodwill is not amortized and is carried at its historical cost.
We periodically review our long-lived assets 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.
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