Microsoft 2011 Annual Report Download - page 68

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68
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)
Y
ear 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
NOTE 17 — CONTINGENCIES
Government Competition Law Matters
Since 2001, we have been subject to a Consent Decree and Final Judgment (“Final Judgments”) that resolved
lawsuits brought by the U.S. Department of Justice, 18 states, and the District of Columbia in two separate
actions. The Final Judgments imposed various constraints on our Windows operating system businesses. The
Final Judgments expired in May 2011.
In other ongoing investigations, various foreign governments and several state attorneys general have requested
information from us concerning competition, privacy, and security issues.