EMC 2008 Annual Report Download - page 61

Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
identification of probable returns. For our Iomega business we defer revenue and cost of sales for inventory sold through the channel that exceeds the
channel's four-week requirement.
Shipping and Handling Costs
Shipping and handling costs are classified in cost of product sales.
Sale of Stock by a Subsidiary
We account for the sale of stock by a subsidiary in accordance with the Securities and Exchange Commissions' Staff Accounting Bulletin No. 51
"Accounting for Sales of Stock by a Subsidiary" ("SAB 51"). SAB 51 requires that the difference between the carrying amount of the parent's investment in a
subsidiary and the underlying net book value of the subsidiary after the issuance of stock by the subsidiary be reflected as either a gain or loss in the
consolidated income statement or as an equity transaction increasing or decreasing additional paid-in capital. EMC has elected to record gains or losses
resulting from the sale of stock by a subsidiary as an equity transaction.
Foreign Currency Translation
The local currency is the functional currency of the majority of our subsidiaries. Assets and liabilities are translated into U.S. dollars at exchange rates in
effect at the balance sheet date. Income and expense items are translated at average rates for the period.
Gains and losses from foreign currency transactions are included in other expense, net, and consist of losses of $28.4 million in 2008, $3.2 million in
2007 and $5.7 million in 2006. Foreign currency translation adjustments are included in other comprehensive loss.
Derivatives
Effective December 31, 2008, we adopted Statement of Financial Accounting Standards ("FAS") No. 161, "Disclosures about Derivative Instruments and
Hedging Activities" ("FAS No. 161"). This statement changes the disclosure requirements for derivative instruments and hedging activities and requires
entities to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items
are accounted for under FAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("FAS No. 133") and its related interpretations, and
(c) how derivative instruments and related hedged items affect an entity's financial position, financial performance and cash flows.
We use derivatives to hedge foreign currency exposures related to foreign currency denominated assets and liabilities and forecasted revenue and
expense transactions.
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, these
outstanding non-designated 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 consolidated income statement. These derivative contracts mature in less than one year.
We also 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 and we did not have any derivatives designated as fair value hedges as of December 31, 2008. 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 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
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