EMC 2009 Annual Report Download - page 55

Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 $125.0 million 4.5% Senior Convertible notes due April 1,
2007 that we assumed in connection with the acquisition of Documentum (the "Documentum Notes"), 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 (the "Sold Warrants"). See Note F for further information regarding the Notes and the Sold Warrants and Note O 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. While some
money market funds were forced to break a one dollar net asset value as a result of the financial crisis in the fourth quarter of 2008, none of the money market
funds in which we were invested were affected.
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. Some of our investments have been downgraded from investment grade as a result of the global financial crisis. We routinely monitor these
investments and make assessments of our credit exposure as a result of these downgrades.
We provide credit to customers in the normal course of business. Credit is extended to new customers based upon checks of credit references 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 $51.1 million
and $50.6 million at December 31, 2009 and 2008, 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% and 14.3% of our revenues in 2008 and 2007,
respectively.
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.
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