NOTES TO FINANCIAL STATEMENTS
NOTE 14 COMMITMENTS AND GUARANTEES
We have committed $1.2 billion for constructing new buildings as of June 30, 2008.
We have operating leases for most U.S. and international sales and support offices and certain equipment. Rental expense for operating leases was $398 million, $325 million, and $271 million, in fiscal years 2008, 2007, and 2006, respectively. Future minimum rental commitments under noncancellable leases are as follows:
| (In millions) | |
|---|---|
| Year Ended June 30, | Amount |
| 2009 | $ )440 |
| 2010 | 323 |
| 2011 | 272 |
| 2012 | 236 |
| 2013 and thereafter | 937 |
| $2,208 | |
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. In addition, we also provide indemnification against credit risk in several geographical locations to our volume license resellers in case the resellers fail to collect from the end user. Due to the nature of the indemnification provided to our resellers, we cannot estimate the fair value, nor determine the total nominal amount, of the indemnification. We evaluate estimated losses for these indemnifications under SFAS No. 5, Accounting for Contingencies, as interpreted by FIN No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others. 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 material costs as a result of these obligations and have not accrued any liabilities related to these indemnifications in our financial statements.
Product Warranty
In July 2007, we announced the expansion of our global Xbox 360 warranty coverage to three years from the date of purchase for a general hardware failure indicated by three flashing red lights. The basic Xbox 360 console warranty remains in place with a warranty period of one year from the date of purchase in most geographies.
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) | ||
|---|---|---|
| June 30, | 2008 | 2007 |
| Balance, beginning of year | $850 | $)10 |
| Accruals for warranties issued | 365 | 974 |
| Adjustments to pre-existing warranties | 36 | 92 |
| Settlements of warranty claims | (559) | (226) |
| Balance, end of year | $692 | $850 |
Accruals for warranties issued during fiscal year 2007 included charges incurred as a result of the expansion of our Xbox 360 warranty coverage as discussed above.