EMC 2007 Annual Report Download - page 42

In December 2007, we settled the liability associated with the retiree life insurance plan by transferring the liability to a third-party. The impact of this
settlement on our results of operations was not material.
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. Our significant
accounting policies are presented within Note A to our Consolidated Financial Statements.
Revenue Recognition
Revenue recognition is governed by various accounting principles, including SAB No. 104, "Revenue Recognition"; Emerging Issues Task Force
No. 00-21, "Revenue Arrangements with Multiple Deliverables"; Statement of Position ("SOP") No. 97-2, "Software 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 market and economic conditions. Changes in judgments on these factors
could materially impact the timing and amount of revenue and costs recognized. Should market or economic conditions deteriorate, our actual return
experience could exceed our estimate.
Warranty Costs
We accrue for systems warranty costs at the time of shipment. We estimate systems warranty costs based upon historical experience and specific
identification of system requirements. 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. To the extent that our actual systems warranty costs differed from our estimates by 5 percent,
consolidated pre-tax income would have increased/decreased by approximately $11.6 in 2007.
Asset Valuation
Asset valuation includes assessing the recorded value of certain assets, including accounts and notes receivable, investments, inventories, goodwill and
other 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. Should current market
and economic conditions deteriorate, our actual bad debt experience could exceed our estimate. The market value of our short and long-term investments is
based upon the listed price of the security. In the event the security is not listed, our investment advisors assess a variety of factors to determine the market
value, including market values from recent transactions at which the security traded, the value of similar securities and pricing models. We perform
independent verifications of all of our holdings throughout the year. In the event this value differs significantly from the value determined by our investment
advisors, we assess the cause of the variance to determine what we believe is the appropriate fair market value. In the event the fair market values that we
determine are not accurate or we are unable to liquidate our investments in a timely manner, we may not realize the recorded value of our investments. We
may hold investments whose market value is below our cost. The determination of whether unrealized losses on investments are other than temporary is based
upon the type of investments held, market conditions, length of the impairment, magnitude of the impairment and ability and intent to hold the investment to
maturity. Should current market and economic conditions deteriorate, our ability to recover the cost of our investments may be impaired. The recoverability of
inventories is based upon the types and levels of inventory held, forecasted demand, pricing, competition and changes in technology. Should current market
and economic conditions deteriorate, our actual recovery could be less than our estimate. Other 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
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