and the communities where we do business. Looking to the future, a few developments are noteworthy.



Antitrust Lawsuit

In November 2001, Microsoft and the Department of Justice announced a settlement of the three-year-old antitrust dispute. Nine state attorneys general joined in the settlement, while nine others decided to continue with the case. The settlement requires significant changes in how we do business, and Microsoft is fully committed to carrying out these responsibilities. The consent decree is a tough but reasonable compromise that is good for the industry, good for consumers, and good for the economy.



Trustworthy Computing

In January 2002, we outlined for employees what we believe is the highest priority for the company and for our industry over the next decade: building a computing environment for customers that is as reliable as the electricity that lights our homes. As a first step in achieving higher levels of reliability, security, privacy, and business integrity, Microsoft made many changes in our operational and business practices. Thousands of our engineers received special training in writing secure software. And we conducted intensive security analyses of every line of source code for Windows and other products.



These efforts are starting to show results. Security updates of Microsoft Outlook, for instance, were followed by a dramatic drop in the number of e-mail virus incidents. But given the complexity of computing and the fast pace of technological change, achieving truly Trustworthy Computing will take many years.



An Agile Business System

To streamline internal decision making, enhance entrepreneurship within Microsoft’s key businesses, and increase collaboration across groups, we instituted a number of changes to internal business systems. One of the most significant changes was giving the leaders of our key businesses the tools, resources, and responsibility for making the important decisions around product development, sales, marketing, and financial performance.



Business Integrity

During the past year, a number of major corporations were rocked by financial scandals that damaged shareholder wealth and confidence. At Microsoft, we take our responsibilities to shareholders, customers, partners, and employees very seriously. We aim to be open and candid about the condition of our business and the risks we face. We seek to properly assess assets so they are never overvalued, and we look hard for any costs or liabilities that should be reflected in our financial results. Consistent with the values of honesty and integrity that we strive to live by, we have long disclosed complete details of the diluting effect of employee stock options on Microsoft’s earnings.



Stock options are an important way that Microsoft attracts and encourages great employees. For the two of us, the vast majority of our individual net worth is invested in stock ownership of the business. Since Microsoft went public in 1986, we have never taken stock options, and we never will. We hope this provides further assurance that our personal interests are directly aligned with the long-term interests of all