EMC 2010 Annual Report Download - page 57

Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
We provide credit to customers in the normal course of business. Credit is extended to new customers based upon checks of credit references, credit
scores and industry reputation. Credit is extended to existing customers based on prior payment history and demonstrated financial stability. The credit risk
associated with accounts and notes receivables is generally limited due to the large number of customers and their broad dispersion over many different
industries and geographic areas. We establish an allowance for the estimated uncollectible portion of our accounts and notes receivable. The allowance was
$60.5 million and $51.1 million at December 31, 2010 and 2009, respectively. We customarily sell the notes receivable we derive from our leasing activity.
Generally, we do not retain any recourse on the sale of these notes. Our sales are generally dispersed among a large number of customers, minimizing the
reliance on any particular customer or group of customers. Dell Inc., one of our channel partners, accounted for 11.5% of our revenues in 2008.
The counterparties to our foreign currency exchange contracts consist of a number of major financial institutions. In addition to limiting the amount of
contracts we enter into with any one party, we monitor the credit quality of the counterparties on an ongoing basis.
We purchase or license many sophisticated components and products from one or a limited number of qualified suppliers. If any of our suppliers were
to cancel or materially change contracts or commitments with us or fail to meet the quality or delivery requirements needed to satisfy customer orders for our
products, we could lose customer orders. We attempt to minimize this risk by finding alternative suppliers or maintaining adequate inventory levels to meet
our forecasted needs.
Accounting for Stock-Based Compensation
We have selected the Black-Scholes option-pricing model to determine the fair value of our stock option awards. For stock options, restricted stock and
restricted stock units, we recognize compensation cost on a straight-line basis over the awards' vesting periods for those awards which contain only a service
vesting feature. For awards with a performance condition vesting feature, when achievement of the performance condition is deemed probable, we recognize
compensation cost on a graded-vesting basis over the awards' expected vesting periods.
New Accounting Guidance Recently Adopted
In September 2009, the FASB amended the accounting standards for revenue recognition to exclude tangible products containing software components
and non-software components that function together to deliver the product's essential functionality from the scope of industry specific software revenue
recognition guidance. Additionally, the FASB also amended the accounting standards for multiple deliverable revenue arrangements to provide for how the
deliverables in an arrangement should be separated and how the consideration should be allocated using the relative selling price method. This guidance
requires an entity to allocate revenue in an arrangement using ESP of deliverables if a vendor does not have VSOE or TPE and effectively eliminates use of
the residual method in such cases.
We elected to early adopt this accounting guidance at the beginning of our first quarter of 2010 on a prospective basis for applicable transactions
originating or materially modified after January 1, 2010.
For the year ended December 31, 2009, pursuant to the previous guidance of revenue arrangements with multiple deliverables, we allocated revenue to
each undelivered element based upon their fair values and then allocated the residual revenue to the delivered elements. Where the fair value for an
undelivered element could not be determined, we deferred revenue for the delivered elements until the undelivered elements were delivered or the fair value
was determinable for the remaining undelivered elements. We limited the amount of revenue recognition for delivered elements to the amount that was not
contingent on the future delivery of products or services.
The new accounting guidance did not have a material impact on our financial position or results of operations for the year ended December 31, 2010
and did not change the units of accounting for our revenue transactions. Specifically, for our product sales that contain software components and non-software
components that function together to deliver the product's essential functionality, the difference of applying the relative selling price method to such
transactions under the new guidance, as compared to the residual method under the previous guidance, was insignificant. Our undelivered elements are
typically software-related services which we account for utilizing VSOE to determine fair value. Our assessment considered that the amounts recorded as
revenue for delivered elements are limited to the amounts not contingent on the future delivery of products or services.
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