Microsoft 2003 Annual Report Download - page 50

Part II, Item 8
MSFT 2003 FORM 10-K
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policies, and business practices interfered with Be’s relationships with computer manufacturers and discouraged them from adopting Be’s own operating system
for their products. We believe the total cost to resolve this case will not be material to our financial position or results of operations.
On March 8, 2002, Sun Microsystems, Inc. filed suit against us alleging violations of Federal and state antitrust and unfair competition laws as well as claims
under the Federal Copyright Act. Sun seeks injunctive relief and unspecified treble damages along with its fees and costs. We deny these allegations and will
vigorously defend this action. The case has been transferred for pretrial purposes to the U.S. District Court in Baltimore, Maryland and is being coordinated with
the antitrust and unfair competition class actions described above. On January 21, 2003, the Court granted Sun’s motion for a preliminary injunction and entered
an injunction requiring us to distribute certain Sun Java software with Microsoft Windows XP and certain other products. The injunction also prohibits us from
distributing our version of Java software in a variety of ways. The U.S. Court of Appeals for the Fourth Circuit granted our request for a stay of the preliminary
injunction order. On June 26, 2003, a three judge panel of the Fourth Circuit issued a unanimous opinion vacating the preliminary injunction requiring us to
distribute Sun Java software and upheld the preliminary injunction prohibiting us from distributing our version of Java software in certain ways.
We are the defendant in more than 30 patent infringement cases. Several of these cases are approaching trial. In the case of Eolas Technologies, Inc. and
University of California v. Microsoft, filed in the U.S. District Court for the Northern District of Illinois on February 2, 1999, the plaintiffs accused the browser
functionality of Windows of infringement. On August 11, 2003, the jury awarded the plaintiffs approximately $520 million in damages for infringement from the date
the plaintiffs’ patent issued through September 2001. The plaintiffs are seeking an equitable accounting for damages from September 2001 to the present. We will
appeal the jury award and any award on the equitable accounting issue upon conclusion of those aspects of the case that remain to be completed before the trial
court. While it is not currently possible to estimate the range of possible loss, we believe the total cost to resolve this case will not be material to our financial
position or results of operations. However, the actual costs are dependent upon many unknown factors such as the outcome of issues remaining to be decided by
the trial court, success on appeal, and the events of a retrial of the case should the case be remanded to trial following appeal. The trial of InterTrust v. Microsoft,
filed in the U.S. District Court for Northern California on April 26, 2001, is anticipated in 2005. The plaintiff in this case has accused a large number of products,
including Windows and Office, of infringement. In each of Eolas and InterTrust, injunctive relief also may be awarded that could adversely impact distribution of
Windows or Office. Adverse outcomes in some or all of the pending cases may result in significant monetary damages or injunctive relief against us.
We are also subject to a variety of other claims and suits that arise from time to time in the ordinary course of our business.
While management currently believes that resolving all of these matters, individually or in aggregate, will not have a material adverse impact on our financial
position or our results of operations, the litigation and other claims noted above are subject to inherent uncertainties and management’s view of these matters may
change in the future. Were an unfavorable final outcome to occur, there exists the possibility of a material adverse impact on our financial position and the results
of operations for the period in which the effect becomes reasonably estimable.
Note 21—Segment Information
(In millions)
Year Ended June 30 2002 2003
Revenue
Client $ 9,350 $ 10,286
Server and Tools 5,632 6,519
Information Worker 8,328 9,718
Microsoft Business Solutions 308 577
MSN 1,924 2,363
Mobile and Embedded Devices 124 153
Home and Entertainment 2,411 2,779
Reconciling Amounts 288 (208)
Consolidated Revenue $ 28,365 $ 32,187
Operating Income/(Loss)
Client $ 7,529 $ 8,281
Server and Tools 1,409 1,848
Information Worker 6,440 7,393
Microsoft Business Solutions (196) (308)
MSN (746) (394)
Mobile and Embedded Devices (240) (175)
Home and Entertainment (866) (940)
Reconciling Amounts (1,420) (2,488)
Consolidated Operating Income/(Loss) $ 11,910 $ 13,217
Segment information is presented in accordance with SFAS 131, Disclosures about Segments of an Enterprise and Related Information. This standard is based on
a management approach, which requires segmentation based upon our internal organization and reporting of revenue and operating income based upon internal
accounting methods. Our financial reporting systems present various data for management to run the business, including internal profit and loss statements (P&Ls)
prepared on a basis not consistent with U.S. GAAP. Assets are not allocated to segments for internal reporting presentations. A portion of amortization and
depreciation is included with various other costs in an overhead allocation to each segment and it is