EMC 2011 Annual Report Download - page 56

Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
and changes in their fair value are recorded in accumulated other comprehensive loss until the underlying forecasted transactions occur. To achieve hedge
accounting, certain criteria must be met, which includes (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 income (expense), net, in the consolidated income statements. Once the underlying forecasted transaction occurs, 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
statements, 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 income (expense), net, in the consolidated income statements 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, 2011, 2010 and 2009 were $194 million, $152 million and $108 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.
In 2010, EMC entered into interest rate swap contracts with an aggregate notional amount of approximately $900 million. These swaps were designated
as cash flow hedges of the forecasted issuance of debt in 2011 when our 2011 Notes were scheduled to become due. As such, the loss on these hedges was
recognized in other comprehensive loss until the underlying exposure was realized. In November 2011, we settled these swaps and replaced them with new
interest rate swap contracts for the forecasted issuance of debt in 2012. The notional amount and other terms match the underlying hedged item and both the
original and the new swaps were deemed as effective hedges. As such, the gain or loss on these new hedges was recorded in other comprehensive loss. The
realized loss on the replaced interest rate swap contracts was $141.0 million at the time of settlement. Since we intend to issue debt in 2012, this loss will be
realized over the life of the new debt issued under the related interest rate swap contracts and recognized as a component of interest expense in the
consolidated income statements. For the purposes of presentation in the consolidated statement of cash flows, the interest rate swap contracts are presented
within net cash used in financing activities.
Our derivatives and their related activities are not material to our consolidated balance sheets or consolidated income statements.
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 $1,434.8 million and $2,584.4 million at December 31, 2011 and 2010, respectively. See Note F.
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 creditworthiness 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, 2011 and 2010 were as follows (table in thousands):
December 31,
2011 2010
Current $ 61,804 $ 57,385
Non-current (included in other assets, net) 2,850 3,150
$ 64,654 $ 60,535
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