Microsoft 2009 Annual Report Download - page 64

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PAGE 64
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The aggregate changes in the balance of unrecognized tax benefits were as follows:
(In millions)
Y
ear Ended June 30, 2009 2008
Balance, beginning of year $ 3,195 $7,076
Decreases related to settlements (82)
(
4,787)
Increases for tax positions related to the current year
2
,203 934
Increases for tax positions related to prior years 239 66
Decreases for tax positions related to prior years (132) (80)
Reductions due to lapsed statute of limitations (20) (14)
Balance, end of year $ 5,403 $3,195
During fiscal year 2008, we reached a settlement with the Internal Revenue Service (“IRS”) on its 2000-2003
examination. As a result, we reduced our unrecognized tax benefits by $4.8 billion and recognized a tax provision
reduction of $1.2 billion. As a result of the 2000-2003 settlement and the related impact on subsequent years, we
paid the IRS approximately $4.1 billion during fiscal year 2009.
We are under audit by the IRS for the tax years 2004-2006. We do not believe it is reasonably possible that the
total amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months as we do
not believe the examination will be concluded within the next 12 months.
We are subject to income tax in many jurisdictions outside the United States, none of which are individually
material to our financial position, cash flows, or results of operations.
NOTE 14 UNEARNED REVENUE
Unearned revenue is comprised of the following items:
VOLUME LICENSING PROGRAMS
Represents customer billings for multi-year licensing arrangements, paid either upfront or annually at the beginning
of each billing coverage period, which are accounted for as subscriptions with revenue recognized ratably over the
billing coverage period.
UNDELIVERED ELEMENTS
Represents the right to receive unspecified upgrades/enhancements of Microsoft Internet Explorer on a when-and-if-
available basis and free post-delivery telephone support. This revenue deferral is applicable for Windows XP and
prior versions shipped as retail packaged products, products licensed to OEMs, and perpetual licenses for current
products under our Open and Select volume licensing programs. The amount recorded as unearned is based on the
sales price of those elements when sold separately and is recognized ratably on a straight-line basis over the related
product’s life cycle. Product life cycles are currently estimated at three and one-half years for Windows operating
systems. Undelivered elements include $276 million of deferred revenue related to the Windows 7 Upgrade Option
program.
OTHER
Represents payments for post-delivery support and consulting services to be performed in the future, online
advertising for which the advertisement has yet to be displayed, Microsoft Dynamics business solutions products,
Xbox Live subscriptions, Mediaroom, and other offerings for which we have been paid upfront and earn the revenue
when we provide the service or software, or otherwise meet the revenue recognition criteria.