NOTE 18    SEGMENT INFORMATION

Segment revenue and operating income/(loss) is as follows:

(In millions)
Year Ended June 30	2003)		2004)		2005)
Revenue
Client	$10,304)		$11,283)		$12,048)
Server and Tools	6,786)		8,007)		9,143)
Information Worker	9,636)		10,895)		11,523)
Microsoft Business Solutions	641)		753)		793)
MSN	2,396)		2,444)		2,411)
Mobile and Embedded Devices	153)		239)		334)
Home and Entertainment	2,779)		2,870)		3,211)
Reconciling amounts	(508)		344)		325)
Consolidated	$32,187)		$36,835)		$39,788)
Operating income/(loss)
Client	$  8,306)		$08,975)		$09,396)
Server and Tools	1,879)		2,302)		2,888)
Information Worker	7,500)		8,112)		8,616)
Microsoft Business Solutions	(143)		(115)		(163)
MSN	(384)		383)		469)
Mobile and Embedded Devices	(162)		(98)		(19)
Home and Entertainment	(938)		(894)		(359)
Reconciling amounts	(6,513)		(9,631)		(6,267)
Consolidated	$  9,545)		$09,034)		$14,561)

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 based upon internal accounting methods. Our financial reporting systems present various data for management to run 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. 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. The types of products and services provided by each segment are summarized below:

Client – Windows XP Professional and Home, Media Center Edition, Tablet PC Edition, and other standard Windows operating systems.

Server and Tools – Server software licenses and client access licenses (CALs) for Windows Server, Microsoft SQL Server, Exchange Server, and other server products. Also includes developer tools, training, certification, Microsoft Press, Premier and Professional product support services, and Microsoft Consulting Services.

Information Worker – Microsoft Office, Microsoft Project, Microsoft Visio, SharePoint Portal Server CALs, other information worker products including Microsoft LiveMeeting and OneNote, an allocation for Server CALs, and professional product support services.

Microsoft Business Solutions – Microsoft Great Plains, Microsoft Navision, Microsoft Axapta, Microsoft Solomon, Microsoft CRM, Microsoft Retail Management System, Microsoft Point of Sale and other business applications and services including the Microsoft Partner Program. Microsoft Business Solutions also develops Microsoft Office Small Business Accounting and Business Contact Manager for Outlook, which are marketed by Information Worker.

MSN – Personal communication services, such as e-mail and instant messaging, and online information offerings, such as MSN Search and the MSN portals and channels, and online paid services including MSN Internet Access, MSN Premium Web Services, and MSN Mobile service.

Mobile and Embedded Devices – Windows Mobile software, Windows Embedded operating systems, MapPoint, and Windows Automotive.

Home and Entertainment – Microsoft Xbox video game console system, PC games, mice, keyboards, Mac Office, and TV platform products.

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, quarter end cut off timing, 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.

Significant reconciling items are as follows:

(In millions)
Year Ended June 30	2003)		2004)		2005)
Operating income reconciling amounts:
Legal settlements and contingent liabilities	$(1,079)		$(2,832)		$(2,312)
Stock-based compensation expense	(3,749)		(4,516)		(1,042)
Revenue reconciling amounts	(508)		344)		325)
Corporate-level expenses (1)	(1,980)		(3,037)		(3,405)
Other	803)		410)		167)
Total	$(6,513)		$(9,631)		$(6,267)

Sales to Dell and its subsidiaries in the aggregate accounted for approximately 10% of total fiscal year 2004 and 2005 revenue. These sales were made primarily through our OEM and volume licensing channels and were included in all operating segments. No single customer accounted for more than 10% of revenue in 2003.

Revenue, classified by the major geographic areas in which we operate, is as follows:

(In millions)
Year Ended June 30	2003		2004		2005
United States (1)	$22,077		$25,046		$26,949
Other countries	10,110		11,789		12,839
Total	$32,187		$36,835		$39,788

Long-lived assets, classified by the geographic location of the controlling statutory company in which that company operates, are as follows:

(In millions)
Year Ended June 30	2004		2005
United States	$5,365		$5,506
Other countries	645		648
Total	$6,010		$6,154