EMC 2006 Annual Report Download - page 53

Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
• Services revenue
Services revenue consists of installation services, professional services, software maintenance, hardware maintenance and training.
Installation and professional services are not considered essential to the functionality of our products as these services do not alter the product
capabilities, do not require specialized skills and may be performed by our customers or other vendors. Installation services revenues are recognized upon
completion of installation. Professional services revenues include information infrastructure assessments and design, integration and implementation, business
continuity, data migration, residencies, networking storage and project management. Revenues on engagements for which reasonably dependable estimates of
progress toward completion are capable of being made are recognized as earned based upon the hours incurred. Revenue on all other engagements is
recognized upon completion.
Software and hardware maintenance revenues are recognized ratably over the contract period.
Training revenues are recognized upon completion of the training.
• Multiple element arrangements
When more than one element such as hardware, software and services are contained in a single arrangement, we allocate revenue between the elements
based on each element's relative fair value, provided that each element meets the criteria for treatment as a separate unit of accounting. An item is considered
a separate unit of accounting if it has value to the customer on a standalone basis and there is objective and reliable evidence of the fair value of the
undelivered items. Fair value is generally determined based upon the price charged when the element is sold separately. Fair value of software support
services may also be measured by the renewal rate offered to the customer. In the absence of fair value for a delivered element, we allocate revenue first to the
fair value of the undelivered elements and allocate the residual revenue to the delivered elements. In the absence of fair value for an undelivered element, the
arrangement is accounted for as a single unit of accounting, resulting in a deferral of revenue recognition for the delivered elements until all undelivered
elements have been fulfilled.
• Shipping terms
Our sales contracts generally provide for the customer to accept title and risk of loss when the product leaves our facilities. When shipping terms or
local laws do not allow for passage of title and risk of loss at shipping point, we defer recognizing revenue until title and risk of loss transfer to the customer.
• Leases
Revenue from sales-type leases is recognized at the net present value of future lease payments. Revenue from operating leases is recognized over the
lease period.
• Other
We accrue for the estimated costs of systems' warranty at the time of sale. We reduce revenue for estimated sales returns at the time of sale. Systems'
warranty costs are estimated based upon our historical experience and specific identification of systems' requirements. Sales returns are estimated based upon
our historical experience and specific identification of probable returns.
Shipping and Handling Costs
Shipping and handling costs are classified in cost of product sales.
Foreign Currency Translation
The local currency is the functional currency of the majority of our subsidiaries. Assets and liabilities are translated into U.S. dollars at exchange rates
in effect at the balance sheet date. Income and expense items are translated at average rates for the period.
Gains and losses from foreign currency transactions are included in other expense, net, and consist of losses of $5.7 million in 2006, $17.9 million in
2005 and $13.4 million in 2004.
Derivatives
We use derivatives to hedge foreign currency exposures related to foreign currency denominated assets and liabilities and forecasted revenue and
expense transactions.
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