EMC 2003 Annual Report Download - page 40

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Software sales consist of the sale of software application programs, including EMC platform-based software, multi-platform software, LEGATO
software and Documentum software. Our software products provide customers with information management, content management, sharing and protection
capabilities. Revenue for software is generally recognized upon shipment or electronic delivery. License revenue from royalty payments is recognized upon
receipt of royalty reports from third party original equipment manufacturers ("OEMs").
57
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Services revenue
Services revenue consists of the sale of installation services, software warranty and maintenance, hardware maintenance, training and professional
services.
Installation is 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 the customers or other vendors. Installation services revenues are recognized upon completion of installation.
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
When hardware, software and services are contained in a single arrangement, we allocate revenue between the elements based on their 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 delay 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.
58
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Advertising Costs
Advertising costs are expensed as incurred.
Shipping and Handling Costs
We classify shipping and handling costs in cost of sales.
Foreign Currency Translation
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