EMC 2006 Annual Report Download - page 56

Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Advertising
Advertising costs are expensed as incurred. Advertising expense was $16.1 million, $14.7 million and $11.7 million in 2006, 2005 and 2004,
respectively.
Legal Costs
Legal costs incurred in connection with loss contingencies are recognized when the costs are probable of occurrence and estimable.
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 basis 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 currently indefinitely reinvested in non-U.S. operations or will be remitted substantially free of additional
tax.
Sales Taxes
Sales and other taxes collected from customers and subsequently remitted to government authorities are recorded as accounts receivable with a
corresponding offset recorded to sales taxes payable. These balances are removed from the consolidated balance sheet as cash is collected from the customers
and remitted to the tax authority.
Earnings Per Share
Basic net income per share is computed using the weighted average number of shares of our common stock outstanding during the period. Diluted net
income per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Common
equivalent shares consist of stock options, unvested restricted stock, the $125.0 million 4.5% Senior Convertible notes due April 1, 2007 that we assumed in
connection with the acquisition of Documentum (the "Documentum notes"), our $1.725 billion 1.75% convertible senior notes due 2011 (the "2011 Notes"),
our $1.725 billion 1.75% convertible senior notes due 2013 (the "2013 Notes" and, together with the 2011 Notes, the "Notes"), and the associated warrants
(the "Sold Warrants"). See Note D for further information regarding the Notes and the Sold Warrants and Note N for further information regarding the
calculation of diluted net income per weighted average share.
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 the Employee Retirement Income Security Act and the General Agreement on Tariff and Trade Bureau additional minimum funding
requirements. Net pension cost for our international defined benefit pension plans are generally funded as accrued.
Post-retirement benefit cost for the domestic post-retirement benefits plan assumed as part of our acquisition of Data General Corporation is generally
funded on a pay-as-you-go basis to the extent that current cost is deductible for U.S. Federal tax purposes.
On December 31, 2006 we adopted FAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment
of FASB Statements No. 87, 88, 106 and 132(R)" ("FAS No. 158"), which requires an employer to recognize in its statement of financial position the net
funded status of each of its defined benefit postretirement plans.
Prior to the issuance of FAS No. 158, the net amount recognized as an asset or liability on our consolidated balance sheet with respect to our defined
benefit pension and other post-retirement plans (the "Plans") consisted of each plan's net funded status,
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