EMC 2002 Annual Report Download - page 29

Table of Contents
Pension and Post-Retirement Medical and Life Insurance Plans
EMC has 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. Substantially 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, 2002 was 8.4%. 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,
2002. The actual long-term rate of return for the ten years ended December 31, 2002 was 7.9%. In order to reflect current capital market projections, the
expected long-term rate of return for the 2003 plans' expense has been reduced to 7.8%. 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 2003 pension expense. As of December 31, 2002, the pension plans had a $146.0
unrecognized actuarial loss that will be expensed over the average future working lifetime of active participants. At December 31, 2002, the discount rate was
6.4%. 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, 2002. 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 $0.7 impact on the 2003 pension expense for all plans (international and U.S.).
EMC 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, 2002 was
9.0%. In order to reflect current capital market assumptions, the expected long-term rate of return for 2003 has been reduced to 8.25%. 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, 2002, the plan had a $0.2
unrecognized actuarial gain that will be recognized over anticipated remaining years of service for participants. At December 31, 2002, 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.
As a result of the changes in the expected long-term rates of return and discount rate, our pension and post-retirement medical and life insurance
obligation increased from $77.2 at December 31, 2001 to $151.9 at December 31, 2002. In January 2003, we funded an additional $107.4 into the U.S.
pension plan.
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
of judgment and complexity in their application than our other accounting policies and represent the critical accounting policies used in the preparation of our
financial statements. If different assumptions or conditions were to prevail, the results could be materially different from our reported results. EMC's
significant accounting policies are presented within Note A to our Consolidated Financial Statements.
Revenue Recognition
Revenue recognition is governed by various accounting principles, including the SEC's Staff Accounting Bulletin, No. 101, "Revenue Recognition in
Financial Statements"; Statement of Position No. 97-2, "Software
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