EMC 2004 Annual Report Download - page 58

Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
occur. To achieve hedge accounting, the criteria specified in Statement of Financial Accounting Standards ("FAS") No. 133, "Accounting for Derivative
Instrument and Hedging Activities" 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 whenever financial statements or earnings are reported. Absent meeting
these criteria, changes in fair value are recognized currently in other expense, net in the statement of operations. 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 income (loss) to
the statement of operations, 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 income (loss) will be reclassified to the other expense, net, in the statement of operations in the then-
current period. Amounts reclassified due to transactions that did not occur were not material for 2004, 2003 or 2002. Our cash flow hedges generally mature
within six months or less. There were $60 million of cash flow hedges outstanding as of December 31, 2004 and no cash flow hedges were outstanding as of
December 31, 2003.
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 option premiums, discounts or premiums on forward contracts and gains or
losses associated with differences between actual and forecasted amounts.
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 all 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 $734.9 million and $1,157.4 million at December 31, 2004 and 2003, 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 credit worthiness 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, 2004 and 2003 were as follows (table in thousands):
December 31,
2004 2003
Current $ 39,901 $ 39,482
Non-current (included in other assets, net) 1,800 2,500
$ 41,701 $ 41,982
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