EMC 2002 Annual Report Download - page 30

Table of Contents
Revenue Recognition"; FAS No. 48, "Revenue Recognition When Right of Return Exists"; FAS No. 13, "Accounting for Leases"; and SOP No. 81-1,
"Accounting for Performance of Construction-Type and Certain Production-Type Contracts," among others. The application of the appropriate accounting
principle to our revenue is dependent upon the specific transaction and whether the sale or lease includes systems, software and services or a combination of
these items. As our business evolves, the mix of products and services sold will impact the timing of when revenue and related costs are recognized.
Additionally, revenue recognition involves judgments, including assessments of expected returns and the likelihood of nonpayment. We analyze various
factors, including a review of specific transactions, the credit-worthiness of our customers, our historical experience and current market and economic
conditions. Changes in judgments on these factors could materially impact the timing and amount of revenue and costs recognized.
Warranty Costs
We accrue for systems warranty costs at the time of shipment. While we engage in extensive product quality programs and processes, our warranty
obligation is affected by product failure rates, material usage and service delivery costs. Should actual product failure rates, material usage or service delivery
costs differ from our estimates, the amount of actual warranty costs could materially differ from our estimates.
Asset Valuation
Asset valuation includes assessing the recorded value of certain assets, including accounts and notes receivable, inventories and intangible assets. We
use a variety of factors to assess valuation, depending upon the asset. Accounts and notes receivable are evaluated based upon the credit-worthiness of our
customers, our historical experience, the age of the receivable and current market and economic conditions. The recoverability of inventories is based upon
the types and levels of inventory held, forecasted demand, pricing, competition and changes in technology. Intangible assets are evaluated based upon the
expected period the asset will be utilized, forecasted cash flows, changes in technology and customer demand. Changes in judgments on any of these factors
could materially impact the value of the asset.
Restructuring Charges
We have recognized restructuring charges in 2002 and 2001. The restructuring charges include, among other items, estimated losses on the sale of real
estate, subletting of facilities and termination of various contracts. The amount of the actual obligations may be different than our estimates due to various
factors, including market conditions and negotiations with third parties. Should the actual amounts differ from our estimates, the amount of the restructuring
charges could be materially impacted.
Accounting for Income Taxes
As part of the process of preparing our financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we
operate. This process involves estimating our actual current tax exposure, including assessing the risks associated with tax audits, together with assessing
temporary differences resulting from different treatment of items for tax and accounting purposes. These differences result in deferred tax assets and
liabilities, which are included within our balance sheet. We assess the likelihood that our deferred tax assets will be recovered from future taxable income and
to the extent we believe that recovery is more likely than not, do not establish a valuation allowance. In the event that actual results differ from these
estimates, our provision for income taxes could be materially impacted.
New Accounting Pronouncements
In June 2002, the Financial Accounting Standards Board (the "FASB") issued FAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities." FAS No. 146 provides guidance on the accounting for
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