NOTES TO FINANCIAL STATEMENTS
NOTE 12 UNEARNED REVENUE
Unearned revenue is composed 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 free post-delivery telephone support and the right to receive unspecified upgrades/enhancements of Microsoft Internet Explorer on a when-and-if-available basis. 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. The percentage of revenue recorded as unearned due to undelivered elements ranges from approximately 15% to 25% of the sales price for Windows XP Home and approximately 5% to 15% of the sales price for Windows XP Professional, depending on the terms and conditions of the license and prices of the elements. Product life cycles are currently estimated at three and one-half years for Windows operating systems.
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.
The components of unearned revenue were as follows:
| (In millions) | ||
|---|---|---|
| June 30, | 2008 | 2007 |
| Volume licensing programs | $12,232 | $ 9,334 |
| Undelivered elements | 1,396 | 1,839 |
| Other | 1,669 | 1,473 |
| Unearned revenue | $15,297 | $12,646 |
Unearned revenue by segment was as follows:
| (In millions) | ||
|---|---|---|
| June 30, | 2008 | 2007 |
| Client | $ 2,738 | $ 2,875 |
| Server and Tools | 5,007 | 3,652 |
| Microsoft Business Division | 7,101 | 5,771 |
| Other segments | 451 | 348 |
| Unearned revenue | $15,297 | $12,646 |