EMC 2004 Annual Report Download - page 61

Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
minimum funding requirements. Net pension cost for our international defined benefit pension plans are generally funded as accrued.
Post-retirement benefit cost for the domestic post-retirement benefits plan assumed as part of our acquisition of Data General Corporation ("Data
General") is generally funded on a pay-as-you-go basis to the extent that current cost is deductible for U.S. Federal tax purposes.
Concentrations of Risks
Financial instruments which potentially subject us to concentrations of credit risk consist principally of temporary cash investments, short and long-term
investments, accounts and notes receivable and foreign currency exchange contracts. Deposits held with banks may exceed the amount of insurance provided
on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions of reputable credit and therefore
bear minimal credit risk. We place our temporary cash investments and short and long-term investments primarily in investment grade instruments and limit
the amount of investment with any one issuer. We purchased bank loans with credit ratings below investment grade. The bank loans have a senior position to
other debt and have floating-rate coupons, which significantly reduces interest rate risk. As of December 31, 2004, bank loans represented 7% of our cash and
cash equivalents and short and long-term investments. We believe this investment strategy more effectively manages our exposure to interest rate risk and
diversifies our investment portfolio. We have entered into various agreements to loan fixed income securities generally on an overnight basis. Under these
securities lending agreements, the value of the collateral is equal to 102% of the fair market value of the loaned securities. The collateral is generally cash,
U.S. government-backed securities or letters of credit. At December 31, 2004, there were no outstanding securities lending transactions. We provide credit to
customers in the normal course of business. Credit is extended to new customers based upon industry reputation or a check of credit references. 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 limited due to the large number of customers and their broad dispersion over many different industries and geographic areas. The counterparties
to our foreign currency exchange contracts consist of a number of major financial institutions. In addition to limiting the amount of the contracts we enter into
with any one party, we monitor the credit quality of the counterparties.
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
FAS No. 123, "Accounting for Stock-Based Compensation" defined a fair value method of accounting for stock options and other equity instruments.
Under the fair value method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period,
which is usually the vesting period. As provided for in FAS No. 123, we elected to apply Accounting Principles Board ("APB") Opinion No. 25 and related
interpretations in accounting for our stock-based compensation plans. Compensation expense is recognized on a straight-line basis over the vesting period for
restricted stock grants and stock options granted where the exercise price is below the market price on the date of the grant.
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