EMC 2008 Annual Report Download - page 44

Table of Contents
actual long-term rate of return for the ten years ended December 31, 2008 was 1.6%. Based on capital 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 plan's assets has minimal impact on our benefit
expense. As of December 31, 2008, the plan had $0.3 accumulated actuarial loss that will be recognized over the anticipated remaining years of service for
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 plan's benefit obligations. The bond indices and yield curve analyses
include only bonds rated AA or higher from a reputable rating agency. A 25 basis point change in the discount rate has a minimal impact on the expense.
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 areas 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 estimates of fair value in arrangements with multiple deliverables, 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, specific
identification of system requirements and projected costs to service items under warranty. 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 $11.5 and $11.6 in
2008 and 2007, respectively.
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 primarily upon the listed price of the security. At December 31, 2008, with the exception of our auction rate securities, the vast majority of our
investments were priced by pricing vendors. These pricing vendors utilize the most recent observable market information in pricing these securities or, if
specific prices are not available for these securities, use other observable inputs. In the event observable inputs are not available, we assess other factors to
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