Microsoft 2011 Annual Report Download - page 66

Download and view the complete annual report

Please find page 66 of the 2011 Microsoft annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 83

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83

66
Uncertain Tax Positions
As of June 30, 2011, we had $6.9 billion of unrecognized tax benefits of which $5.9 billion, if recognized, would
affect our effective tax rate. As of June 30, 2010, we had $6.5 billion of unrecognized tax benefits of which $5.6
billion, if recognized, would have affected our effective tax rate.
Interest on unrecognized tax benefits was $38 million, $193 million, and $230 million in fiscal years 2011, 2010,
and 2009, respectively. As of June 30, 2011, 2010, and 2009, we had accrued interest related to uncertain tax
positions of $785 million, $747 million, and $554 million, respectively, net of federal income tax benefits.
The aggregate changes in the balance of unrecognized tax benefits were as follows:
(In millions)
Y
ear Ended June 30, 2011 2010 2009
Balance, beginning of year $ 6,542 $ 5,403 $ 3,195
Decreases related to settlements (632) (57) (82)
Increases for tax positions related to the current year 739 1,012 2,203
Increases for tax positions related to prior years 405
364 239
Decreases for tax positions related to prior years (119) (166) (132)
Decreases due to lapsed statute of limitations 0 (14) (20)
Balance, end of year $ 6,935 $ 6,542 $ 5,403
During the third quarter of fiscal year 2011, we reached a partial settlement agreement with the I.R.S. on tax
years 2004 to 2006 and recorded a $461 million income tax provision benefit. During the fourth quarter of fiscal
year 2011, the I.R.S. completed its examination and issued a Revenue Agent’s Report (“RAR”) for the remaining
unresolved items. We do not agree with the adjustments in the RAR, and we have filed a protest to initiate the
administrative appeals process. The proposed adjustments are primarily related to transfer pricing and could have
a significant impact on our financial statements if not resolved favorably. 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 appeals process will be concluded within the next 12 months. We also
continue to be subject to examination by the I.R.S. for tax years 2007 to 2010.
We are subject to income tax in many jurisdictions outside the U.S., and certain jurisdictions remain subject to
examination and are currently under audit by local tax authorities. The resolutions of these audits are not
expected to be material to our financial statements.
NOTE 14 — UNEARNED REVENUE
Unearned revenue comprises mainly unearned revenue from volume licensing programs, as well as payments for
offerings for which we have been paid in advance and we earn the revenue when we provide the service or
software or otherwise meet the revenue recognition criteria.
Volume Licensing Programs
Unearned revenue from volume licensing programs represents customer billings for multi-year licensing
arrangements paid either at inception of the agreement or annually at the beginning of each billing coverage
period and accounted for as subscriptions with revenue recognized ratably over the billing coverage period.
Other
Also included in unearned revenue are payments for post-delivery support and consulting services to be
performed in the future; Xbox LIVE subscriptions and prepaid points; Microsoft Dynamics business solutions
products; technology guarantee programs; OEM minimum commitments; unspecified upgrades or enhancements
of Microsoft Internet Explorer on a when-and-if-available basis for Windows XP; and other offerings for which we
have been paid in advance and earn the revenue when we provide the service or software or otherwise meet the
revenue recognition criteria.