EMC 2007 Annual Report Download - page 85

EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
result of implementing FIN No. 48, we recognized a cumulative effect adjustment of $6.5 million to increase the January 1, 2007 retained earnings balance
and decrease our accrued tax liabilities. Prior to the adoption of FIN No. 48, our policy was to classify accruals for uncertain positions as a current liability
unless it was highly probable that there would not be a payment or settlement for such identified risks for a period of at least a year. With the adoption of FIN
No. 48, we reclassified $219.3 million of income tax liabilities from current to non-current liabilities because a cash settlement of these liabilities was not
anticipated within one year of the balance sheet date.
The following is a rollforward of our gross consolidated liability for unrecognized income tax benefits for the year ended December 31, 2007:
Balance as of January 1, 2007 $ 175.1
Tax positions related to current year:
Additions 54.2
Reductions —
Tax positions related to prior years:
Additions 8.8
Reductions (10.0)
Settlements (4.4)
Lapses in statutes of limitations (17.0)
Balance as of December 31, 2007 $ 206.7
As of January 1, 2007, we had $175.1 million of remaining unrecognized tax benefits. If recognized, $143.9 million would have been recognized as a
reduction of income tax expense impacting the effective income tax rate. The remainder would have been an adjustment to goodwill of $17.9 million and to
stockholders' equity of $13.3 million.
As of December 31, 2007, we had $206.7 million of unrecognized tax benefits. If recognized, $156.4 million would be recognized as a reduction of
income tax expense impacting the effective income tax rate. The remainder would be an adjustment to goodwill of $31.3 million and to stockholders' equity of
$19.0 million.
We have substantially concluded all U.S. federal income tax matters for years through 2004. The U.S. federal income tax audit for 2005 and 2006
commenced in the second half of 2007. We have income tax audits in process in numerous state, local and international jurisdictions in which we operate. In
our international jurisdictions that comprise a significant portion of our operations, the years that may be examined vary, with the earliest year being 2001.
Based on the outcome of examinations of EMC, the result of the expiration of statutes of limitations for specific jurisdictions or the result of ruling requests
from taxing authorities, it is reasonably possible that the related unrecognized tax benefits could change from those recorded in our statement of financial
position. We anticipate that several of these audits may be finalized within the next 12 months. However, based on the status of these examinations, and the
protocol of finalizing such audits, it is not possible to estimate the impact of any amount of such changes, if any, to our previously recorded uncertain tax
positions.
We recognize interest expense and penalties related to income tax matters in income tax expense. For 2007, $3.4 million in interest expense was
recognized. There were no penalties recorded. In addition to the unrecognized tax benefits noted above, the amounts of accrued interest at January 1, 2007 and
December 31, 2007 were $32.0 million and $35.1 million, respectively.
M. 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 a $750 maximum match each quarter). Matching contributions
are immediately 100% vested. Our contributions amounted to $52.8 million in 2007.
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