EMC 2009 Annual Report Download - page 52

Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Shipping and Handling Costs
Shipping and handling costs are classified in cost of product sales.
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 net losses of $21.2 million in 2009, $28.4 million
in 2008 and $3.2 million in 2007. Foreign currency translation adjustments are included in other comprehensive income (loss).
Derivatives
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, 2009. 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 the guidance 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 at a minimum on a quarterly basis. Absent meeting these criteria, changes in fair value are recognized currently in other expense, net, in the
consolidated income statement. 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 loss to the consolidated income statement, 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 loss will be
reclassified to other expense, net, in the consolidated income statement in the then-current period. Any ineffective portion of the derivatives designated as
cash flow hedges is recognized in current earnings. The ineffective portion of the derivatives includes gains or losses associated with differences between
actual and forecasted amounts. Our cash flow hedges generally mature within six months or less. The notional amount of cash flow hedges outstanding as of
December 31, 2009, 2008 and 2007 were $108 million, $149 million and $86 million, respectively.
We do not engage in currency speculation. For purposes of presentation within the consolidated statement of cash flows, derivative gains and losses are
presented within net cash provided by operating activities.
Our derivatives and their related activities are not material to our Consolidated Balance Sheet or Consolidated Income Statement.
Cash and Cash Equivalents
Cash and cash equivalents include 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 short-term commercial paper. Cash equivalents are stated at fair
value. Total cash equivalents were $5,244.2 million and $4,507.5 million at December 31, 2009 and 2008, respectively. See Note G.
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