Microsoft 2006 Annual Report Download - page 65

PAGE 64
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
the Central District of California on March 7, 2003, the plaintiff has accused the link table functionality available in Microsoft
Access when used with Microsoft Excel. After a jury trial, we were found to infringe one claim of the patent and damages of $8.9
million were awarded. The judge later found for us on our defense of laches, which reduced the damages award to $5.9 million.
The court also imposed an injunction against further distribution of the accused feature as part of Microsoft Access, but stayed
the injunction pending resolution of all appeals. The Court of Appeals for the Federal Circuit affirmed the judgment on appeal
and Microsoft intends to seek review by the U.S. Supreme Court of one issue. In Z4 Technologies, Inc. v. Microsoft, the plaintiff
alleged that Microsoft Windows and Office product activation functionality violates its patent rights. In April 2006, the jury
rendered a $115 million verdict against us. In August 2006, the trial court increased damages by $25 million pursuant to the
jury’s finding of willful infringement. We intend to appeal the verdict. In Veritas Operating Corporation v. Microsoft, filed in the
U.S. District Court for the Western District of Washington on May 18, 2006, a subsidiary of Symantec has filed an action
asserting claims of trade secret misappropriation, breach of contract, and patent infringement relating to certain storage
technologies. Adverse outcomes in some or all of the matters described in this paragraph may result in significant monetary
damages or injunctive relief against us, adversely affecting distribution of our operating system or application products. The
risks associated with an adverse decision may result in material settlements.
Other. 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 claims against us, individually or in aggregate, will not have a
material adverse impact on our financial position, our results of operations, or our cash flows, these matters are subject to
inherent uncertainties and management’s view of these matters may change in the future.
As of June 30, 2006, we had accrued aggregate liabilities totaling $1.0 billion in other current liabilities and $1.0 billion in
other long-term liabilities for all of the contingent matters described in this note. While we intend to vigorously defend these
matters, there exists the possibility of adverse outcomes which we estimate could be up to $1.0 billion in aggregate beyond
recorded amounts. Were an unfavorable final outcome to occur, there exists the possibility of a material adverse impact on the
Company’s financial position and on the results of operations for the period in which the effect becomes reasonably estimable.
NOTE 18 SEGMENT INFORMATION
Segment revenue and operating income/(loss) was as follows:
(In millions)
Y
ear Ended June 30 2006
2005
2004
Revenue
Clien
t
$13,00
1
$11,972
$11,293
Server and Tools 10,542
9,197
8,031
Information Worker 12,380
11,702
10,990
Microsoft Business Solutions 906
776
735
MSN 2,488
2,486
2,498
Mobile and Embedded Devices 365
259
185
Home and Entertainment 4,292
3,110
2,731
Reconciling amounts 308
286
372
Consolidated $44,282
$39,788
$36,835
Y
ear Ended June 30 2006
2005
2004
Operating Income/(Loss)
Clien
t
$10,043
$9,418
$9,061
Server and Tools 3,525
2,922
2,357
Information Worker 8,982
8,726
8,160
Microsoft Business Solutions 14
(134)
(91)
MSN
11
1
477
393
Mobile and Embedded Devices (1
1
) (37) (116)
Home and Entertainment
(1,283) (451) (1,011)
Reconciling amounts
(4,909) (6,360) (9,719)
Consolidated $16,472
$14,561
$9,034