Microsoft 2007 Annual Report Download - page 29

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Contractual Obligations
The following table summarizes our outstanding contractual obligations as of June 30, 2007:
(In millions)(1)
Payments due by period
Fiscal Years 2008 2009-2011
2012-
2014 2015 and thereafte
r
Total
Long-term debt $ – $
–
$ – $ – $ –
Construction commitments(2)(4) 821
–
– – 821
Lease obligations:
Capital leases –
–
– ––
Operating leases(3) 349 618 258 116 1,341
Purchase commitments(4) 1,824 19 – – 1,843
Other long-term liabilities(5) 1 519 – – 520
Total contractual obligations $2,995 $1,156 $258 $116 $4,525
(1) We have excluded the $768 million long-term contingent liability related to the antitrust and unfair
competition class action lawsuits referred to in Note 17 – Contingencies of the Notes to Financial
Statements as the timing and amount to be resolved in cash versus vouchers is subject to uncertainty.
(2) We have certain commitments for the construction of buildings. We expect to fund these commitments with
existing cash and cash flows from operations.
(3) Our future minimum rental commitments under noncancellable leases comprise the majority of the operating
lease obligations presented above. We expect to fund these commitments with existing cash and cash flows
from operations.
(4) The amount presented above as purchase and construction commitments includes all known open purchase
orders and all known contracts that are take-or-pay contracts. We expect to fund these commitments with
existing cash and our cash flows from operations.
(5) We have excluded other obligations of $5.86 billion from other long-term liabilities presented above as the
amount that will be settled in cash is not known. We have also excluded non-cash items of $71 million and
unearned revenue of $1.87 billion.
In May 2007, we entered into an Agreement and Plan of Merger with aQuantive, Inc. to acquire the company
for approximately $6 billion in cash. As part of the Agreement and Plan of Merger, we are required to pay $500
million if certain events occur that result in the merger not being completed. Due to the nature of this obligation,
this amount has not been accrued for or included in the above schedule. The acquisition is expected to be
completed in August 2007.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2006, the FASB issued Interpretation No. 48 (“FIN No. 48”), Accounting for Uncertainty in Income Taxes –
an interpretation of FASB Statement No. 109, which clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for
Income Taxes. The Interpretation provides a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Under FIN
No. 48, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not
that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of
the position. The tax benefits recognized in the financial statements from such a position should be measured
based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. FIN
No. 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. FIN No. 48 is effective for us beginning July 1, 2007. Based on our current
assessment, the adoption of FIN No. 48 is expected to decrease beginning retained earnings by $200 million to
$400 million upon adoption.
In June 2006, the FASB ratified the Emerging Issues Task Force (“EITF”) consensus on EITF Issue No. 06-2,
“Accounting for Sabbatical Leave and Other Similar Benefits Pursuant to FASB Statement No. 43.” EITF Issue