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In 2003, we did not make any significant payments under any of these indemnifications or guarantees. In certain cases, due to the nature of the
agreement, we have not been able to estimate our maximum potential loss or the maximum potential loss has not been specified. For additional
information, see “Guarantees” in note 13 of the accompanying consolidated financial statements.
Application of critical accounting estimates
Our accompanying consolidated financial statements are based on the selection and application of accounting policies, generally accepted in
the U.S., which require us to make significant estimates and assumptions. We believe that the following accounting estimates may involve a
higher degree of judgment and complexity in their application and represent our critical accounting estimates. The application of these
estimates requires us to make subjective and objective judgments.
In general, any changes in estimates or assumptions relating to revenue recognition, provisions for doubtful accounts, provisions for inventory
and other contingencies (excluding legal contingencies) are directly reflected in the results of our reportable operating segments. Changes in
estimates or assumptions pertaining to our tax asset valuations, our pension and post-retirement benefits and our legal contingencies are
generally not reflected in our reportable operating segments, but are reflected on a consolidated basis.
We have discussed the application of these critical accounting estimates with the Audit Committee of our Board of Directors.
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evenue recognition
Our material revenue streams are the result of a wide range of activities, from custom design and installation over a period of time to a single
delivery of equipment to a customer. Our networking solutions also cover a broad range of technologies and are offered on a global basis. As a
result, our revenue recognition policies can differ depending on the level of customization within the solution and the contractual terms with
the customer. Newer technologies within one of our reporting segments may also have different revenue recognition policies, depending on,
among other factors, the specific performance and acceptance criteria within the applicable contract. Therefore, management must use
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udgment in determining how to apply the current accounting standards and interpretations, not only based on the networking solution, but also
within networking solutions based on reviewing the level of customization and contractual terms with the customer. As a result, our revenues
may fluctuate from period to period based on the mix of solutions sold and the geographic region in which they are sold.
When a sale involves multiple deliverables where the deliverables are governed by more than one authoritative standard, we evaluate all
deliverables to determine whether they represent separate units of accounting based on the following criteria:
Our determination of whether deliverables within a multiple element arrangement can be treated separately for revenue recognition purposes
involves significant estimates and judgment, such as whether fair value can be established on undelivered obligations and/or whether delivered
elements have standalone value to the customer. Changes to our assessment of the accounting units in an arrangement and/or our ability to
establish fair values could significantly change the timing of revenue recognition.
If objective and reliable evidence of fair value exists for all units of accounting in the contract, revenue is allocated to each unit of accounting
or element based on relative fair values. In situations where there is objective and reliable evidence of fair value for all undelivered elements,
but not for delivered elements, the residual method is used to allocate the contract consideration. Under the residual method, the amount of
revenue allocated to delivered elements equals the total arrangement consideration less the aggregate fair value of any undelivered elements.
Each unit of accounting is then accounted for under the applicable revenue recognition guidance. If fair value does not exist for any
undelivered element,
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• lease agreements;
• third party debt agreements;
• indemnification of banks and agents under our credit and support facilities and security agreements; and
• other indemnification agreements.
• whether the delivered item has value to the customer on a stand-alone basis;
• whether there is objective and reliable evidence of the fair value of the undelivered item(s); and
• if the contract includes a general right of return relative to the delivered item, delivery or performance of the undelivered item(s) is
considered probable and is substantially in our control.