EMC 2008 Annual Report Download - page 43

Table of Contents
Notes and Accounts Receivable
We derive revenues from both selling and leasing information storage systems. We customarily sell the notes receivable resulting from our leasing
activity to provide for current liquidity. Generally, we do not retain any recourse on the sale of these notes. If recourse is retained, we assess and provide for
any estimated exposure.
Litigation
We are a party to litigation which we consider routine and incidental to our business. Management does not expect the results of any of these actions to
have a material adverse effect on our business, results of operations or financial condition.
We have learned that the Civil Division of the United States Department of Justice (the "DoJ") is investigating allegations concerning (i) EMC's fee
arrangements with systems integrators and other partners in federal government transactions, and (ii) EMC's compliance with the terms and conditions of
certain agreements pursuant to which we sold products and services to the federal government, including potential violations of the False Claims Act. The
subject matter of this investigation also overlaps with that of a previous audit by the U.S. General Services Administration ("GSA") concerning our
recordkeeping and pricing practices under a schedule agreement we entered into with GSA in November 1999 which, following several extensions, expired in
June 2007. We have cooperated with both the audit and the DoJ investigation, voluntarily providing documents and information, and have engaged in
discussions aimed at resolving this matter without any admission or finding of liability on the part of EMC. We believe that we have meritorious factual and
legal defenses to the allegations raised and, if the matter is not resolved and proceeds to litigation, we intend to defend vigorously. If the matter proceeds to
litigation, possible sanctions include an award of damages, including treble damages, fines, penalties and other sanctions, including suspension or debarment
from sales to the federal government.
In accordance with Statement of Financial Accounting Standards No. 5, we have estimated the loss that may result from this matter, and such amount is
reflected in our consolidated financial statements. It is not possible to predict the outcome of this matter with certainty, and the actual amount of loss may
prove to be larger or smaller than the amount reflected in our consolidated financial statements.
Pension and Post-Retirement Medical and Life Insurance Plans
We have noncontributory defined benefit pension plans which were assumed as part of the Data General acquisition, which cover substantially all former
Data General employees located in the U.S. and Canada (the "Pension Plans"). The Pension Plans were frozen in 1999, resulting in employees no longer
accruing pension benefits for future services. The assets for the Pension Plans are invested in common stocks, bonds and cash. 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, 2008 was 8.25%. This rate
represents the average of the long-term rates of return for the Pension Plans weighted by the plans' assets as of December 31, 2008. For the ten years ended
December 31, 2007, the actual long-term rate of return was 6.0%. In 2008, we experienced a 27.0% loss on the plans' assets. As a result, the actual long-term
rate of return for the ten years ended December 31, 2008 was 1.6%. Based upon current market conditions, the expected long-term rate of return for 2009 will
be decreased to 8.0%. A 25 basis point change in the expected long-term rate of return on the plans' assets would have approximately a $0.7 impact on the
2008 pension expense. As of December 31, 2008, the Pension Plans had a $218.2 accumulated actuarial loss that will be expensed over the average future
working lifetime of active participants. For the year ended December 31, 2008, the discount rate to determine the benefit obligation was 6.6%. The discount
rate selected was based on highly rated long-term bond indices and yield curves that match the duration of the plans' benefit obligations. The bond indices and
yield curve analyses include only bonds rated AA or higher from a reputable rating agency. This rate represents the average of the discount rates for the
Pension Plans weighted by plan liabilities as of December 31, 2008. A 25 basis point change in the discount rate would have approximately a $0.5 impact on
the 2008 pension expense for the Pension Plans. Additionally, certain foreign subsidiaries have defined benefit pension plans. These foreign pension plans are
excluded from this discussion because they do not have a material impact on our consolidated financial position or results of operations.
We 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 in common stocks, bonds and cash. 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, 2008 was 8.25%. For the ten years ended
December 31, 2007, the actual long-term rate of return was 6.0%. In 2008, we experienced a 27.0% loss on the plan's assets. As a result, the
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