EMC 2011 Annual Report Download - page 74

Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
losses that could be potentially significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to
the variable interest entity. Since the power to direct the activities of VCE which most significantly impact its economic performance are determined by its
board of directors, which is comprised of equal representation of EMC and Cisco, and all significant decisions require the approval of the minority
shareholders, we have determined we are not the primary beneficiary, and as such we account for the investment under the equity method.
Our portion of VCE's gains and losses is recognized in other income (expense), net in the consolidated income statements. Our consolidated share of
VCE's losses, based upon our portion of the overall funding, was approximately 63.2% for the year ended December 31, 2011, and was 58.0% for both years
ended December 31, 2010 and 2009. As of December 31, 2011, we have recorded net accumulated losses from VCE of $253.8 million since inception, of
which $209.2 million, $43.0 million and $1.6 million were recorded in 2011, 2010 and 2009, respectively.
We recognized $133.9 million in revenue from sales of product and services to VCE during the year ended December 31, 2011. We did not recognize
any revenue related to VCE in 2010 or 2009. We perform certain administrative services, pursuant to an administrative services agreement, on behalf of VCE
and we pay certain operating expenses on behalf of VCE. Accordingly, we have a receivable from VCE of $27.0 million and $19.9 million as of
December 31, 2011 and 2010, respectively, which is included in other current assets in the consolidated balance sheets.
K. Accrued Expenses
Accrued expenses consist of (table in thousands):
December 31,
2011
December 31,
2010
Salaries and benefits $ 961,587 $ 884,243
Product warranties 254,554 236,131
Partner rebates 167,813 122,739
Restructuring, current (See Note Q) 61,541 61,933
Derivatives 50,963 36,879
Other 858,521 748,110
$ 2,354,979 $ 2,090,035
Product Warranties
Systems sales include a standard product warranty. At the time of the sale, we accrue for systems' warranty costs. The initial systems' warranty accrual
is based upon our historical experience, expected future costs and specific identification of systems' requirements. Upon sale or expiration of the initial
warranty, we may sell additional maintenance contracts to our customers. Revenue from these additional maintenance contracts is included in deferred
revenue and recognized ratably over the service period. The following represents the activity in our warranty accrual for our standard product warranty (table
in thousands):
Year Ended December 31,
2011 2010 2009
Balance, beginning of the year $ 236,131 $ 271,594 $ 269,218
Provision 174,850 120,296 145,517
Amounts charged to the accrual (156,427) (155,759) (143,141)
Balance, end of the year $ 254,554 $ 236,131 $ 271,594
The provision includes amounts accrued for systems at the time of shipment, adjustments for changes in estimated costs for warranties on systems
shipped in the period and changes in estimated costs for warranties on systems shipped in prior periods. It is not practicable to determine the amounts
applicable to each of the components.
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