EMC 2002 Annual Report Download - page 49

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Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Software warranty and maintenance and hardware maintenance revenues are recognized ratably over the contract period.
Training revenues are recognized upon completion of the training.
Professional services revenues, which include information infrastructure design, integration and implementation, business continuity, data migration,
networking storage and project management, are recognized as milestones are met. The milestones reflect the percentage of costs incurred on the project to
total estimated costs.
• Multiple element arrangements
EMC considers sales contracts that include a combination of systems, software or services to be multiple element arrangements. An item is considered a
separate element if it involves a separate earnings process. If an arrangement includes undelivered elements that are not essential to the functionality of the
delivered elements, EMC defers the fair value of the undelivered elements with the residual revenue allocated to the delivered elements. Discounts are
allocated only to the delivered elements. Fair value is determined based upon the price charged when the element is sold separately. Undelivered elements
typically include installation, training, software warranty and maintenance, hardware maintenance and professional services.
• Shipping terms
EMC sales contracts generally provide for the customer to accept title and risk of loss when the product leaves EMC's facility. When shipping terms or
local laws do not allow for passage of title and risk of loss at shipping point, EMC defers 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
EMC accrues for systems' warranty costs and reduces revenue for estimated sales returns at the time of shipment. Systems' warranty costs are estimated
based upon EMC's historical experience and specific identification of systems' requirements. Sales returns are estimated based upon EMC's historical
experience and specific identification of probable returns.
Advertising Costs
Advertising costs are expensed as incurred.
Shipping and Handling Costs
EMC classifies shipping and handling costs in cost of sales.
Foreign Currency Translation
The local currency is the functional currency of the majority of EMC's subsidiaries. Assets and liabilities are translated into U.S. dollars at exchange
rates in effect at the balance sheet date, and income and expense items are translated at average rates for the period. Consolidated foreign currency transaction
results included in other expense, net, were losses of $3.5 million and $3.6 million in 2002 and 2001, respectively, compared to a gain of $5.8 million in 2000.
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