Microsoft 2007 Annual Report Download - page 22

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to 5.0 million consoles during fiscal year 2006. Xbox and PC game revenue increased $650 million or 19% as a
result of increased Xbox 360 platform sales, partially offset by decreased sales of the first generation Xbox
console and related accessories and video games. Zune, which was launched in November 2006, consumer
hardware and software, and TV platforms revenue increased $539 million or 65%. Mobile and Embedded Devices
revenue increased $138 million or 28% driven by sales growth in Windows Mobile software and Windows
Embedded operating systems.
EDD operating loss increased primarily due to the $1.06 billion Xbox 360 charge recognized in the fourth
quarter of fiscal year 2007 and Zune launch-related expenses. The increase in operating loss was partially offset
by increased Xbox 360 platform sales and decreased Xbox 360 console manufacturing costs. Headcount-related
costs increased 15%, driven by a 9% increase in headcount and an increase in salaries and benefits for existing
headcount, partially offset by a decrease in stock-based compensation expense.
Fiscal year 2006 compared to fiscal year 2005
EDD revenue increased primarily due to the launch of the Xbox 360 console in November 2005, partially offset by
a decline in first party Xbox game sales primarily resulting from the significant impact of Halo 2 in fiscal year 2005.
The revenue growth was also attributable to $140 million or 15% growth from our other product lines, primarily as
a result of an increase in PC games sales due to significant new game releases, especially “Age of Empires III”,
and an increase in TV platform revenue due to deployments in fiscal year 2006. Mobile and Embedded Devices
revenue increased $115 million or 44% driven by unit volume increases in major product lines, especially
Windows Mobile software sales and Windows Embedded operating systems.
EDD operating loss increased primarily as a result of a $1.64 billion increase in cost of revenue resulting from
the number of Xbox 360 consoles sold and higher Xbox 360 unit costs, partially offset by the revenue growth. The
significant impact of Halo 2 in fiscal year 2005 also contributed to the increase in fiscal year 2006 operating loss.
Headcount-related costs increased 8%, driven by a 21% increase in headcount and an increase in salaries and
benefits for existing headcount, partially offset by a decrease in stock-based compensation expense.
Corporate-Level Activity
(In millions, except percentages) 2007 2006 2005
Percent
Change 2007
versus 2006
Percent
Change 2006
versus 2005
Corporate-level activity $(5,193) $(5,122) $(5,932) (1)% 14%
Certain corporate-level results are not allocated to our segments. Those results include expenses related to
corporate operations associated with broad-based sales and marketing, product support services, human
resources, legal, finance, information technology, corporate development and procurement activities, research
and development and other costs, and legal settlements and contingencies.
Fiscal year 2007 compared to fiscal year 2006
Corporate-level expenses increased primarily driven by increased headcount-related costs offset by decreased
costs for legal settlements and legal contingencies. Headcount-related costs increased 25%, driven by a 19%
increase in headcount and an increase in salaries and benefits for existing headcount. We incurred $511 million in
legal charges during the twelve months ended June 30, 2007, primarily related to antitrust and unfair competition
consumer class actions, intellectual property claims, and an extension payment to Sun Microsystems, Inc. under
our Limited Patent Covenant and Standstill Agreement. We incurred $1.32 billion in legal charges during fiscal
year 2006 which included settlement expense of $361 million related to our settlement with RealNetworks, Inc. as
well as other intellectual property and antitrust matters, a € 281 million ($351 million) fine imposed by the
European Commission in July 2006 related to its 2004 decision in its competition law investigation of Microsoft,
and an extension payment to Sun Microsystems, Inc.
Fiscal year 2006 compared to fiscal year 2005
Corporate-level expenses decreased primarily reflecting decreased costs for legal settlements and legal
contingencies partially offset by increased headcount-related costs. We incurred $1.32 billion in legal charges
during fiscal year 2006 as compared to $2.31 billion in legal charges incurred during fiscal year 2005 primarily