EMC 2011 Annual Report Download - page 55

Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
We offer rebates to certain channel partners. We generally recognize the amount of the rebates as a reduction of revenues when the underlying revenue
is recognized. We also offer marketing development funds to certain channel partners. We generally record the amount of the marketing development funds,
based on the maximum potential liability, as a marketing expense as the funds are earned by the channel partners.
• Shipping terms
Our sales contracts generally provide for the customer to accept risk of loss when the product leaves our facilities. When shipping terms or local laws
do not allow for passage of risk of loss at shipping point, we defer recognizing revenue until risk of loss transfers to the customer.
• Leases
Revenue from sales-type leases is recognized at the net present value of future lease payments. Revenue from operating leases is recognized over the
lease period.
• Other
We accrue for the estimated costs of systems' warranty at the time of sale. We reduce revenue for estimated sales returns at the time of sale. Systems'
warranty costs are estimated based upon our historical experience and specific identification of systems' requirements. Sales returns are estimated based upon
our historical experience and specific identification of probable returns. For our Iomega business, we defer revenue and cost of sales for inventory sold
through the channel that exceeds the channel's requirements.
Deferred Revenue
Our deferred revenue consists primarily of deferred hardware and software maintenance, recognized ratably over the contract term and deferred
professional services, including education and training, which are recognized as delivered.
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 $12.8 million in 2011, $4.5 million
in 2010 and $21.2 million in 2009. 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 consolidated balance sheet at fair value and the changes in fair value from these contracts are
recorded in other expense, net, in the consolidated income statements. 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, 2011. All
outstanding derivatives are recognized on the consolidated balance sheet at fair value
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