Commitments & Guarantees
NOTE 16 — COMMITMENTS AND GUARANTEES
Construction and Operating Leases
We have committed $263 million for constructing new buildings, building improvements and leasehold improvements as of June 30, 2011.
We have operating leases for most U.S. and international sales and support offices and certain equipment. Rental expense for facilities operating leases was $525 million, $530 million, and $475 million, in fiscal years 2011, 2010, and 2009, respectively. Future minimum rental commitments under noncancellable facilities operating leases in place as of June 30, 2011 are as follows:
| (In millions) | |
| Year Ending June 30, | |
| 2012 | $ 481 |
| 2013 | 396 |
| 2014 | 319 |
| 2015 | 249 |
| 2016 | 163 |
| 2017 and thereafter | 344 |
| Total | $ 1,952 |
Indemnifications
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 and certain other matters. We evaluate estimated losses for these indemnifications, and 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 significant costs as a result of these obligations and have not accrued any liabilities related to these indemnifications in our financial statements.
Yahoo! Commercial Agreement
On December 4, 2009, we entered into a definitive agreement with Yahoo! whereby Microsoft will provide the exclusive algorithmic and paid search platform for Yahoo! Web sites. The term of the agreement is 10 years subject to termination provisions after five years based on performance.
Microsoft provided Yahoo! with revenue per search guarantees for a period of 18 months after implementation of the Microsoft search ads platform in each country. These guarantees are calculated, paid and trued-up periodically based on the cumulative reduction in revenue per search, if any, during the 18-month period from pre-implementation levels, except in the case of the U.S. and Canada where performance during each of the first two calendar quarters after implementation is independent and not cumulative. This is a rate guarantee and not a guarantee of search volume. We estimate the total cost of the revenue per search guarantees during the guarantee period could range up to $150 million.
Microsoft also agreed to reimburse Yahoo! for certain transition expenses incurred both before and after the effective date of the agreement.
Finally, Microsoft also agreed to reimburse Yahoo! for certain costs of running algorithmic and paid search services prior to migration to Microsoft's platform.
Product Warranty
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) | |||
| Year Ended June 30, | 2011 | 2010 | |
| Balance, beginning of year | $ 240 | $ 342 | |
| Accruals for warranties issued | 55 | 144 | |
| Adjustments to pre-existing warranties | 0 | (2) | |
| Settlements of warranty claims | (123) | (244) | |
| Balance, end of year | $ 172 | $ 240 |
