EMC 2011 Annual Report Download - page 59

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 shares issuable under our 2011 Notes, 2013 Notes and the
associated warrants. See Note E for further information regarding the Notes and the associated 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. 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.
We provide credit to customers in the normal course of business. Credit is extended to new customers based upon checks of credit references, credit
scores 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. 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.
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.
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
We have selected the Black-Scholes option-pricing model to determine the fair value of our stock option awards. For stock options, restricted stock and
restricted stock units, we recognize compensation cost on a straight-line basis over the awards' vesting periods for those awards which contain only a service
vesting feature. For awards with a performance condition vesting feature, when achievement of the performance condition is deemed probable, we recognize
compensation cost on a graded-vesting basis over the awards' expected vesting periods.
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