Accounting Policies
Stock Split
Accounting Changes
Unearned Revenue
Cash and Short-Term Investments
Inventories
Property and Equipment
Equity and Other Investments
Goodwill
Intangible Assets
Derivatives
Investment Income/(Loss)
Income Taxes
Stockholders' Equity
Other Comprehensive Income
Employee Stock and Savings Plans
Earnings Per Share
Acquisitions
Commitments and Guarantees
Contingencies
Segment Information
Note 19-Commitments and Guarantees
We have operating leases for most U.S. and
international sales and support offices and certain equipment. Rental expense
for operating leases was $281 million, $318 million, and $290 million in 2001,
2002, and 2003. Future minimum rental commitments under noncancellable leases,
in millions of dollars, are: 2004, $218; 2005, $202; 2006, $172; 2007, $134;
2008, $116; and thereafter, $429. We have committed $117 million for constructing
new buildings.
In November 2002, the FASB issued
Interpretation 45, Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN
45). FIN 45 elaborates on previously existing disclosure requirements
for most guarantees, including loan guarantees such as standby letters of
credit. It also clarifies that at the time a company issues a guarantee, the
company must recognize an initial liability for the fair value, or market
value, of the obligations it assumes under the guarantee and must disclose that
information in its interim and annual financial statements. The provisions
related to recognizing a liability at inception of the guarantee for the fair
value of the guarantor's obligations does not apply to product warranties or to
guarantees accounted for as derivatives. The initial recognition and initial
measurement provisions apply on a prospective basis to guarantees issued or
modified after December
31, 2002.
We have unconditionally guaranteed
the repayment of certain Japanese yen denominated bank loans and related
interest and fees of Jupiter Telecommunication, Ltd., a Japanese cable company
(Jupiter). These guarantees arose on February 1, 2003 in conjunction with the
expiration of prior financing arrangements, including previous guarantees by
us. The financing arrangements were entered into by Jupiter as part of
financing its operations. As part of Jupiter's new financing agreement, we
agreed to guarantee repayment by Jupiter of the loans of approximately $51
million. The estimated fair value and the carrying value of the guarantees was
$10.5 million and did not result in a charge to operations. The guarantees are
in effect until the earlier of repayment of the loans, including accrued
interest and fees, or February
1, 2009. The maximum amount of the guarantees is limited to the sum
of the total due and unpaid principal amounts, accrued and unpaid interest, and
any other related expenses. Additionally, the maximum amount of the guarantees,
denominated in Japanese yen, will vary based on fluctuations in foreign
exchange rates. If we were required to make payments under the guarantees, we
may recover all or a portion of those payments upon liquidation of the
Jupiter's assets. The proceeds from such liquidation cannot be accurately
estimated due to the multitude of factors that would affect the valuation and
realization of the proceeds in the event of liquidation.
In connection with various operating
leases, we issued residual value guarantees, which provide that if we do not
purchase the leased property from the lessor at the end of the lease term, then
we are liable to the lessor for an amount equal to the shortage (if any)
between the proceeds from the sale of the property and an agreed value. As of June 30, 2003,
the maximum amount of the residual value guarantees was approximately $271
million. We believe that proceeds from the sale of properties under operating
leases would exceed the payment obligation and therefore no liability to us
currently exists.
We provide indemnifications of
varying scope and size to certain customers against claims of intellectual
property infringement made by third parties arising from the use of our
products. We evaluate estimated losses for such indemnifications under SFAS 5, Accounting
for Contingencies, as interpreted by FIN 45. We consider such factors as
the degree of probability of an unfavorable outcome and the ability to make a
reasonable estimate of the amount of loss. To date, we have not encountered
material costs as a result of such obligations and have not accrued any
liabilities related to such indemnifications in our financial statements.
Our product warranty accrual reflects
management's best estimate of probable liability under its product warranties
(primarily relating to the Xbox console). We determine the warranty accrual
based on known product failures (if any), historical experience, and other
currently available evidence. Changes in the product warranty accrual for the
fiscal year ended June
30, 2003 were as follows (in millions):
(In millions) |
|
|
Year Ended June 30 |
2003 |
|
|
|
|
Balance, beginning of period |
$
8 |
Payments made |
- |
Change in liability for warranties issued during the period |
29 |
Change in liability for preexisting warranties |
(25) |
Balance, end of period |
$
12 |
|