EMC 2003 Annual Report Download - page 26

We have agreed to indemnify the directors and executive officers of EMC Corporation and our subsidiaries to the extent legally permissible, against all
liabilities reasonably incurred in connection with any action in which such individual may be involved by reason of such individual being or having been a
director or officer.
In connection with certain acquisitions, we have agreed to indemnify the current and former directors, officers and employees of the acquired company
in accordance with the acquired company's by-laws and charter in effect immediately prior to the acquisition or in accordance with indemnification or similar
agreements entered into by the acquired company and such persons. In a substantial majority of instances, we have maintained the acquired company's
directors' and officers' insurance, which should enable us to recover a portion of any future amounts paid. In connection with certain dispositions, we have
agreed to indemnify the buyer for certain matters, such as breaches of representations and warranties. These indemnities vary in length of time.
Based upon our historical experience and information known as of December 31, 2003, we believe our liability on the above guarantees and indemnities
at December 31, 2003 is not material.
• Notes and Accounts Receivable
We derive revenues from both selling and leasing information storage systems. We customarily sell the notes receivable resulting from our leasing
activity to provide for current liquidity. Generally, we do not retain any recourse on the sale of these notes. From time to time, we may also sell accounts
receivable when it is economically beneficial.
• Litigation
On September 30, 2002, Hewlett-Packard Company ("HP") filed a complaint against us in the United States Federal District Court for the Northern
District of California alleging that certain of our products infringe seven HP patents. HP seeks a permanent injunction as well as unspecified monetary
damages for patent infringement. We believe that HP's claims are without merit. On July 21, 2003, we answered the complaint and filed counterclaims
alleging that certain HP products infringe six EMC patents. EMC seeks a permanent injunction as well as unspecified monetary damages for patent
infringement.
On September 30, 2002, EMC filed a complaint against HP in the United States Federal District Court in Worcester, Massachusetts. The complaint
alleged that certain HP products infringe six EMC patents. The suit sought a permanent injunction as well as unspecified monetary damages for patent
infringement. On June 20, 2003, the parties filed a joint motion to dismiss the suit without prejudice, and thereafter, the suit was dismissed by the court.
We are a party (either as plaintiff or defendant) to various other patent litigation matters, including certain matters which we assumed in connection with
our acquisitions of LEGATO and VMware.
We are a party to other litigation which we consider routine and incidental to our business. Management does not expect the results of any of these
actions to have a material adverse effect on our business, results of operations or financial condition.
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Pension and Post-Retirement Medical and Life Insurance Plans
We have a noncontributory defined benefit pension plan that was assumed as part of the Data General acquisition, which covers substantially all former
Data General employees located in the United States. Certain of the former Data General foreign subsidiaries also have foreign retirement plans covering
substantially all of their employees. All of these plans have been frozen resulting in employees no longer accruing pension benefits for future services. The
assets for these defined benefit plans are invested primarily in common stock, bonds and cash equivalent securities. The market related value of the plans'
assets is based upon the assets' fair value. The expected long-term rate of return on assets for the year ended December 31, 2003 was 8.2%. This rate
represents the average of the long-term rates of return for all defined benefit plans (international and U.S.) weighted by the plans' assets as of December 31,
2003. The actual long-term rate of return for the ten years ended December 31, 2003 was 8.5%. Based upon current market conditions, the expected long-term
rate of return for 2004 will be 8.3%. A 25 basis point change in the expected long-term rate of return on the plans' assets would have approximately an $0.8
impact on the 2004 pension expense. As of December 31, 2003, the pension plans had a $106.1 unrecognized actuarial loss that will be expensed over the
average future working lifetime of active participants. For the year ended December 31, 2003, the discount rate was 6.5%. This rate represents the average of
the discount rates for all defined benefit plans (international and U.S.) weighted by plan liabilities as of December 31, 2003. The discount rate reflects the rate
at which the pension benefits could be effectively settled. For the U.S. plan, this rate is based on Moody's AA Corporate Bond Index. For international plans,
the rate is based upon comparable high quality corporate bond yields. A 25 basis point change in the discount rate would have approximately a $0.8 impact on
the 2004 pension expense for all plans (international and U.S.).
We also assumed a post-retirement benefit plan as part of the Data General acquisition that provides certain medical and life insurance benefits for retired
former Data General employees. The plan's assets are invested primarily in common stock, bonds and cash equivalent securities. The market related value of
the plan's assets is equal to the assets' fair value. The expected long-term rate of return on the plan's assets for the year ended December 31, 2003 was 8.3%.
Based on current capital market conditions, the expected long-term rate of return for 2004 will remain at 8.3%. A 25 basis point change in the expected long-
term rate of return on the plan's assets has minimal impact on our benefit expense. As of December 31, 2003, the plan had a $1.2 unrecognized actuarial gain
that will be recognized over anticipated remaining years of service for participants. For the year ended December 31, 2003, the discount rate was 6.5%. The
discount rate is based on Moody's AA Corporate Bond Index. A 25 basis point change in the discount rate has a minimal impact on the expense.
Critical Accounting Policies
Our consolidated financial statements are based on the selection and application of generally accepted accounting principles which require us to make
estimates and assumptions about future events that affect the amounts reported in our financial statements and the accompanying notes. Future events and
their effects cannot be determined with certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from
those estimates, and any such differences may be material to our financial statements. We believe that the policies set forth below may involve a higher degree