EMC 2010 Annual Report Download - page 56

Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
expected to reverse. Tax credits are generally recognized as reductions of income tax provisions in the year in which the credits arise. The measurement of
deferred tax assets is reduced by a valuation allowance if, based upon available evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized.
Accounting for uncertainty in income taxes recognized in the financial statements is in accordance with Financial Accounting Standards Board
("FASB") authoritative guidance, which prescribes a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be
evaluated to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed "more-likely-than-not" to be sustained,
the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized
is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate settlement.
We do not provide for a U.S. income tax liability on undistributed earnings of our foreign subsidiaries. The earnings of non-U.S. subsidiaries, which
reflect full provision for non-U.S. income taxes, are currently indefinitely reinvested in non-U.S. operations or are expected to be remitted substantially free of
additional tax.
Sales Taxes
Sales and other taxes collected from customers and subsequently remitted to government authorities are recorded as cash or accounts receivable with a
corresponding offset recorded to sales taxes payable. These balances are removed from the consolidated balance sheet as cash is collected from the customers
and remitted to the tax authority.
Earnings Per Share
Basic net income per share is computed using the weighted average number of shares of our common stock outstanding during the period. Diluted net
income per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Common
equivalent shares consist of stock options, unvested restricted stock and restricted stock units, the shares issuable under our $1.725 billion 1.75% convertible
senior notes due 2011 (the "2011 Notes"), our $1.725 billion 1.75% convertible senior notes due 2013 (the "2013 Notes" and, together with the 2011 Notes,
the "Notes"), and the associated warrants. See Note E for further information regarding the Notes and the associated warrants and Note N for further
information regarding the calculation of diluted net income per weighted average share. Additionally, for purposes of calculating diluted net income per
common share, net income is adjusted for the difference between VMware's reported diluted and basic earnings per share, if any, multiplied by the number of
shares of VMware held by EMC.
Retirement Benefits
Pension cost for our domestic defined benefit pension plan is funded to the extent that current pension cost is deductible for U.S. Federal tax purposes
and to comply with the Employee Retirement Income Security Act and the General Agreement on Tariff and Trade Bureau additional minimum funding
requirements. Net pension cost for our international defined benefit pension plans are generally funded as accrued.
Concentrations of Risks
Financial instruments that potentially subject us to concentration of credit risk consist principally of bank deposits, money market investments, short-
and long-term investments, accounts and notes receivable, and foreign currency exchange contracts. Deposits held with banks in the United States may exceed
the amount of FDIC insurance provided on such deposits. Deposits held with banks outside the United States generally do not benefit from FDIC insurance.
The majority of our day-to-day banking operations globally are maintained with Citibank. We believe that Citibank's position as a primary clearing bank,
coupled with the substantial monitoring of their daily liquidity, both by their internal processes and by the Federal Reserve and the FDIC, mitigate some of
our risk.
Our money market investments are placed with money market funds that are 2a-7 qualified. Rule 2a-7, adopted by the SEC under the Investment
Company Act of 1940, establishes strict standards for quality, diversity and maturity, the objective of which is to maintain a constant net asset value of a
dollar. We limit our investments in money market funds to those that are primarily associated with large, money center financial institutions. Our short- and
long-term investments are invested primarily in investment grade securities, and we limit the amount of our investment in any single issuer.
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