EMC 2010 Annual Report Download - page 55

Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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, if no
program design is completed. GAAP requires that annual amortization expense of the capitalized software development costs be the greater of the amounts
computed using the ratio of gross revenue to a products' total current and anticipated revenues, or the straight-line method over the products' remaining
estimated economic life. Capitalized costs are amortized over periods ranging from eighteen months to two years which represents the products' estimated
economic life. Unamortized software development costs were $566.0 million and $481.1 million at December 31, 2010 and 2009, respectively, and are
included in other assets, net. Amortization expense was $314.6 million, $283.0 million and $230.3 million in 2010, 2009 and 2008, respectively. Amounts
capitalized were $399.5 million, $329.1 million and $326.5 million in 2010, 2009 and 2008, respectively. The amounts capitalized include stock-based
compensation which is not reflected in the consolidated statement of cash flow as it is a non-cash item.
Long-lived Assets
Purchased intangible assets, other than goodwill, are amortized over their estimated useful lives which range from one to seventeen years. Intangible
assets include goodwill, developed technology, trademarks and tradenames, customer relationships and customer lists, software licenses, patents, in-process
research and development ("IPR&D") and other intangible assets, which include backlog, non-competition agreements and non-solicitation agreements. The
intangible assets are amortized based on the pattern in which the economic benefits of the intangible assets are estimated to be realized. 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, other than goodwill, 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. The test is based on a comparison of the reporting unit's book value to its estimated fair market value.
Investments in Joint Ventures
Investments in joint ventures are accounted for under the equity method. Our portion of the gains and losses are recognized in the Other Income
(Expense) line in the Consolidated Income Statements.
Advertising
Advertising costs are expensed as incurred. Advertising expense was $40.1 million, $23.5 million and $19.2 million in 2010, 2009 and 2008,
respectively.
Legal Costs
Legal costs incurred in connection with loss contingencies are recognized when the costs are probable of occurrence and can be reasonably estimated.
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
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