Microsoft 2009 Annual Report Download - page 76

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PAGE 76
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes standards for
reporting information about operating segments. This standard requires segmentation based on our internal
organization and reporting of revenue and operating income (loss) based upon internal accounting methods. Our
financial reporting systems present various data for management to operate the business, including internal profit
and loss statements prepared on a basis not consistent with U.S. GAAP. The segments are designed to allocate
resources internally and provide a framework to determine management responsibility. Amounts for prior periods
have been recast to conform to the current management view. Operating segments are defined as components of
an enterprise about which separate financial information is available that is evaluated regularly by the chief operating
decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. Our
chief operating decision maker is our Chief Executive Officer. Our five segments are Client; Server and Tools; Online
Services Business; Microsoft Business Division; and Entertainment and Devices Division.
The types of products and services provided by each segment are summarized below:
Client – Windows Vista, including Home Basic, Home Premium, Ultimate, Business, Enterprise and Starter Edition;
Windows XP, including Professional, Home, Media Center, and Tablet PC Edition; and other standard Windows
operating systems.
Server and Tools – Windows Server operating system; Microsoft SQL Server; Visual Studio; Silverlight; System
Center products; Forefront security products; Biz Talk Server; Microsoft Consulting Services; Premier product
support services; and other products and services.
Online Services Business – Bing; Microsoft adCenter/adExpert; Microsoft Media Network (MMN); MSN portals,
channels, and mobile services; Windows Live suite of applications and mobile services; Atlas online tools for
advertisers and publishers; MSN Premium Web Services (consisting of MSN Internet Software Subscription, MSN
Hotmail Plus, and MSN Software Services); and Razorfish media agency services.
Microsoft Business Division – Microsoft Office; Microsoft Office Project; Microsoft Office Visio; Microsoft Office
SharePoint Server; FAST ESP; Microsoft Exchange Server; Microsoft Exchange Hosted Services; Microsoft Office
Live Meeting; Microsoft Office Communications Server; Microsoft Office Communicator; Microsoft Tellme Service;
Microsoft Dynamics ERP products including AX, NAV, GP, SL, Retail Management System, and Point of Sale;
Microsoft Dynamics CRM; and Microsoft Dynamics CRM Online.
Entertainment and Devices Division – Xbox 360 console and games; Xbox Live; Zune; Mediaroom; numerous
consumer software and hardware products (such as mice and keyboards); Windows Mobile software and services
platform; Windows Embedded device operating system; Windows Automotive; and the Microsoft Surface computing
platform.
Because of our integrated business structure, operating costs included in one segment may benefit other
segments, and therefore these segments are not designed to measure operating income or loss directly related to
the products included in each segment. Inter-segment cost commissions are estimated by management and used to
compensate or charge each segment for such shared costs and to incent shared efforts. Management will
continually evaluate the alignment of product development organizations, sales organizations, and inter-segment
commissions for segment reporting purposes, which may result in changes to segment allocations in future periods.
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 impracticable for
us to separately identify the amount of amortization and depreciation by segment that is included in the measure of
segment profit or loss.
Reconciling amounts include adjustments to conform with U.S. GAAP and corporate-level activity not specifically
attributed to a segment. Significant internal accounting policies that differ from U.S. GAAP relate to revenue
recognition, income statement classification, and accelerated amortization for depreciation, stock awards, and
performance-based stock awards. In addition, certain revenue and expenses are excluded from segments or
included in corporate-level activity including certain legal settlements and accruals for legal contingencies.