Microsoft 2008 Annual Report Download - page 57

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PAGE 56
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 COMMITMENTS AND GUARANTEES
We have committed $1.2 billion for constructing new buildings as of June 30, 2008.
We have operating leases for most U.S. and international sales and support offices and certain equipment.
Rental expense for operating leases was $398 million, $325 million, and $271 million, in fiscal years 2008, 2007,
and 2006, respectively. Future minimum rental commitments under noncancellable leases are as follows:
(In millions)
Y
ear Ended June 30, Amount
2009 $440
2010 323
2011 272
2012 236
2013 and thereafter 937
$
2
,208
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. In addition, we also provide
indemnification against credit risk in several geographical locations to our volume license resellers in case the
resellers fail to collect from the end user. Due to the nature of the indemnification provided to our resellers, we
cannot estimate the fair value, nor determine the total nominal amount, of the indemnification. We evaluate
estimated losses for these indemnifications under SFAS No. 5, Accounting for Contingencies, as interpreted by
FIN No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees
of Indebtedness of Others. 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 these obligations and have not accrued any liabilities related to these indemnifications in our
financial statements.
Product Warranty
In July 2007, we announced the expansion of our global Xbox 360 warranty coverage to three years from the date
of purchase for a general hardware failure indicated by three flashing red lights. The basic Xbox 360 console
warranty remains in place with a warranty period of one year from the date of purchase in most geographies.
The changes in our aggregate product warranty liabilities, which are included in other current liabilities and
other long term-liabilities on our balance sheets, were as follows:
(In millions)
Y
ear Ended June 30, 2008 2007
Balance, beginning of year
$
850
$
10
Accruals for warranties issued 365 974
Adjustments to pre-existing warranties 36 92
Settlements of warranty claims
(
559) (226)
Balance, end of year $ 692
$
850
Accruals for warranties issued during fiscal year 2007 included charges incurred as a result of the expansion of
our Xbox 360 warranty coverage as discussed above.