EMC 2006 Annual Report Download - page 54

Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
We hedge our exposure in foreign currency denominated monetary assets and liabilities with foreign currency forward and option contracts. Since these
derivatives hedge existing exposures that are denominated in foreign currencies, the contracts do not qualify for hedge accounting. Accordingly, all
outstanding derivatives are recognized on the balance sheet at fair value and the changes in fair value from these contracts are recorded in other expense, net,
in the income statement. These derivative contracts mature in less than one year.
We use foreign currency forward and option contracts to hedge our exposure on a portion of our forecasted revenue and expense transactions. These
derivatives are designated as cash flow hedges. All outstanding derivatives are recognized on the balance sheet at fair value and changes in their fair value are
recorded in accumulated other comprehensive loss until the underlying forecasted transactions occur. To achieve hedge accounting, the criteria specified in
Financial Accounting Standard ("FAS") No. 133, "Accounting for Derivative Instrument and Hedging Activities" ("FAS No. 133") must be met. These
criteria include (i) ensuring at the inception of the hedge that formal documentation exists for both the hedging relationship and the entity's risk management
objective and strategy for undertaking the hedge and (ii) at the inception of the hedge and on an ongoing basis, the hedging relationship is expected to be
highly effective in achieving offsetting changes in fair value attributed to the hedged risk during the period that the hedge is designated. Further, an
assessment of effectiveness is required at a minimum on a quarterly basis. Absent meeting these criteria, changes in fair value are recognized currently in
other expense, net, in the income statement. Once the underlying forecasted transaction is realized, the gain or loss from the derivative designated as a hedge
of the transaction is reclassified from accumulated other comprehensive loss to the income statement, in the related revenue or expense caption, as
appropriate. In the event the underlying forecasted transaction does not occur, the amount recorded in accumulated other comprehensive loss will be
reclassified to other expense, net, in the income statement in the then-current period. Any ineffective portion of the derivatives designated as cash flow hedges
is recognized in current earnings, which did not represent a material amount for the fiscal years presented. The ineffective portion of the derivatives consists
of gains or losses associated with differences between actual and forecasted amounts. Our cash flow hedges generally mature within six months or less. Total
cash flow hedges outstanding as of December 31, 2006, 2005 and 2004 were $93 million, $107 million and $60 million, respectively.
We do not engage in currency speculation. For purposes of presentation within the statement of cash flows, derivative gains and losses are presented
within net cash provided by operating activities.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with a maturity of ninety days or less at the time of purchase. Cash equivalents consist
primarily of money market securities, U.S. treasury bills, U.S. agency discount notes and commercial paper. Cash equivalents are stated at amortized cost plus
accrued interest, which approximates market. Total cash equivalents were $775.9 million and $1,659.4 million at December 31, 2006 and 2005, respectively.
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts for the estimated probable losses on uncollectible accounts and notes receivable. The allowance is
based upon the creditworthiness of our customers, our historical experience, the age of the receivable and current market and economic conditions.
Uncollectible amounts are charged against the allowance account. The allowance for doubtful accounts is maintained against both our current and non-current
accounts and notes receivable balances. The balances in the allowance accounts at December 31, 2006 and 2005 were as follows (table in thousands):
December 31,
2006 2005
Current $ 39,509 $ 38,126
Non-current (included in other assets, net) 2,000 1,800
$ 41,509 $ 39,926
Investments
Our investments are comprised primarily of debt securities that are classified as available for sale and recorded at their fair market values. Investments
with remaining maturities of twelve months or less from the balance sheet date are classified as short-term investments. Investments with remaining maturities
of more than twelve months from the balance sheet date are classified as long-term investments.
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