Many organizations that license our products and services transact directly with us through Enterprise Agreements and Enterprise Services contracts, with sales support from system integrators, independent software vendors, web agencies, and partners that advise organizations on licensing our products and services (Enterprise Agreement Software Advisors or ESA). No instances of impairment were identified in our May 1, 2021, May 1, 2020, or May 1, 2019 tests. Sinai Health System in New York and Kyabirwa Surgical Centre in Uganda have together, Anheuser-Busch InBevthe worlds largest brewerused Azure Digital Twins. $63.36B. With Azure Mixed Reality Services, digital information can be represented within the context of the three-dimensional world we live in. Refer to Note 11 Debt of the Notes to Financial Statements for further discussion. PSP Partners, Emma N. Walmsley 2,4 Xbox revenue is mainly affected by subscriptions and sales of first- and third-party content, as well as advertising. In fiscal year 2020, Microsoft reduced its carbon emissions by 587,000 metric tons and purchased the removal of 1.3 million metric tons of carbon. We continued to pay hourly service providers such as cleaning and reception staff who may have otherwise been furloughed. Billionaires like Microsoft Corp. co-founder Bill Gates likely saw an opportunity through . We are committed to designing and marketing first-party devices to help drive innovation, create new device categories, and stimulate demand in the Windows ecosystem. All repurchases were made using cash resources. Many of our shareholders are increasingly focused on the importance of the effective engagement and action on ESG topics. Windows 10 serves the enterprise as the most secure and productive operating system. We have paid transition tax of $4.7 billion, which included $1.5 billion for fiscal year 2021. Employer-funded retirement benefits for all plans were $1.2 billion, $1.0 billion, and $877 million in fiscal years 2021, 2020, and 2019, respectively, and were expensed as contributed. We measure the fair value of PSUs using a Monte Carlo valuation model. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year, and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entitys financial statements or tax returns. (All figures in USD millions, except percentages) The company generates revenue by licensing and supporting an array of software products; offering a diverse portfolio of cloud-based solutions and other services to people and business organizations; designing, manufacturing, and selling devices; and . As of June 30, 2021, $8.7 billion remained of this $40.0 billion share repurchase program. With Xbox Game Pass, we are transforming how people discover, connect, and engage with games. As part of our effort to promote a One Microsoft and inclusive culture, we expanded stock eligibility to all Microsoft employees as part of our annual rewards process. Virtual Shareholder Meeting: www.virtualshareholdermeeting.com/MSFT21. We have audited the internal control over financial reporting of Microsoft Corporation and subsidiaries (the Company) as of June 30, 2021, based on criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Windows OEM revenue is impacted significantly by the number of Windows operating system licenses purchased by OEMs, which they pre-install on the devices they sell. We disclose metrics to enable investors to evaluate progress against our ambitions, provide transparency into performance trends, and reflect the continued evolution of our products and services. In the Gaming segment, Microsoft's Xbox shares a 20-year rivalry with Sony's PlayStation. The Company remains under IRS audit, or subject to IRS audit, for tax years subsequent to 2003. Growth depends on our ability to reach new users, add value to our core product set, and continue to expand our product and service offerings into new markets. In March 2021, the India Supreme Court ruled favorably in the case of Engineering Analysis Centre of Excellence Private Limited vs The Commissioner of Income Tax for companies in 86 separate appeals, some dating back to 2012, holding that software sales are not subject to India withholding taxes. Certain of our counterparty agreements for derivative instruments contain provisions that require our issued and outstanding long-term unsecured debt to maintain an investment grade credit rating and require us to maintain minimum liquidity of $1.0 billion. Our international operations provide a significant portion of our total revenue and expenses. Changes in inventory levels in the OEM channel. Gains and losses representing hedge components excluded from the assessment of effectiveness are recognized in other income (expense), net. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Companys internal control over financial reporting as of June 30, 2021, based on criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated July 29, 2021, expressed an unqualified opinion on the Companys internal control over financial reporting. Server products revenue increased 6% driven by hybrid and premium solutions, on a strong prior year comparable that benefited from demand related to SQL Server 2008 and Windows Server 2008 end of support. Land is not depreciated. Differences in device market demand between developed markets and growth markets. Gross margin percentage increased with the change in estimated useful lives of our server and network equipment. Microsoft annual revenue for 2021 was $168.088B, a 17.53% increase from 2020. To address this, we provide a complete chain of software development tools across every cloud and client platform. Principal currency exposures include the Euro, Japanese yen, British pound, Canadian dollar, and Australian dollar. The purchase price included $768 million of cash and cash equivalents acquired. Based on the information currently available, we do not anticipate a significant increase or decrease to our tax contingencies for these issues within the next 12 months. Assets and liabilities measured at fair value on a recurring basis using unobservable inputs are an immaterial portion of our portfolio. Vertically integrated computer manufacturers such as Hewlett-Packard, IBM, and Oracle offer their own versions of the Unix operating system preinstalled on server hardware. We provide for the estimated costs of fulfilling our obligations under hardware and software warranties at the time the related revenue is recognized. We have savings plans in the U.S. that qualify under Section 401(k) of the Internal Revenue Code, and a number of savings plans in international locations. This pricing methodology applies to our Level 1 investments, such as U.S. government securities, common and preferred stock, and mutual funds. In fiscal year 2020, our U.S. income before income taxes was $24.1 billion and our foreign income before income taxes was $28.9 billion. Our broker-priced investments are generally classified as Level 2 investments because the broker prices these investments based on similar assets without applying significant adjustments. Interest and dividends income decreased due to lower yields on fixed-income securities. We provide indemnifications of varying scope and size to certain customers against claims of intellectual property infringement made by third parties arising from the use of our products and certain other matters. We support multiple highly active Employee Resource Groups for women, families, racial and ethnic minorities, military, people with disabilities, or who identify as LGBTQI+, where employees can go for support, networking, and community-building. As of June 30, 2021, 2020, and 2019, we had accrued interest expense related to uncertain tax positions of $4.3 billion, $4.0 billion, and $3.4 billion, respectively, net of income tax benefits. Additionally, we have seen growth in our Black- and African American-owned supplier base and in Black- and African American-owned technology partners in the Microsoft Partner Network, and we launched the Black Channel Partner Alliance community to support partners onboarding to the Microsoft Cloud and to unlock partner benefits for co-selling with Microsoft. Unearned revenue comprises mainly unearned revenue related to volume licensing programs, which may include Software Assurance (SA) and cloud services. Great content drives Game Pass growth, and our acquisition this year of ZeniMax Media adds some of the worlds most iconic franchises to the service. In addition to LinkedIns free services, LinkedIn offers monetized solutions: Talent Solutions, Marketing Solutions, Premium Subscriptions, Sales Solutions, and Learning Solutions. Microsoft is committed to supporting our employees well-being and safety while they are at work and in their personal lives. Activity in the allowance for doubtful accounts was as follows: Allowance for doubtful accounts included in our consolidated balance sheets: We record financing receivables when we offer certain of our customers the option to acquire our software products and services offerings through a financing program in a limited number of countries. The global pandemic has accelerated our capabilities and culture with respect to flexible work. In addition to these channels, we use social media to communicate to the public. Enterprise Services, including Premier Support Services and Microsoft Consulting Services. A paid subscription is required for full access. In these cases, the hardware and software license are accounted for as a single performance obligation and revenue is recognized at the point in time when ownership is transferred to resellers or directly to end customers through retail stores and online marketplaces. Windows 11 builds on the strengths of productivity, versatility, and security on Windows 10 today and adds in new experiences that include powerful task switching tools like new snap layouts, snap groups, and desktops; new ways to stay connected through chat; the information you want at your fingertips; and more. This year, we expanded our hybrid capabilities to enable organizations to build, manage, and deploy applications anywhere. These manufacturers, many of which are also current or potential partners and customers, include Apple and our Windows OEMs. See Note 12 Income Taxes of the Notes to Financial Statements for further discussion. Office Consumer revenue is mainly affected by the percentage of customers that buy Office with their new devices and the continued shift from Office licensed on-premises to Microsoft 365 Consumer subscriptions. General and administrative expenses include payroll, employee benefits, stock-based compensation expense, severance expense, and other headcount-related expenses associated with finance, legal, facilities, certain human resources and other administrative personnel, certain taxes, and legal and other administrative fees. We hire a mix of university and industry talent worldwide. Microsoft 365 brings together Office 365, Windows, and Enterprise Mobility + Security to help organizations empower their employees with AI-backed tools that unlock creativity, increase teamwork, and fuel innovation, all the while enabling compliance coverage and data protection. Although we were not a party to the appeals, our software sales in India were determined to be not subject to withholding taxes. Office Commercial products revenue declined 23% driven by continued customer shift to cloud offerings and transactional weakness. We also fund research and development activities at the operating segment level. Our responsibility is to express an opinion on the Companys financial statements based on our audits. The resolution of each of these audits is not expected to be material to our consolidated financial statements. Customized manager learning to build people manager capabilities and similar learning solutions to build leadership skills for all employees including differentiated leadership development programs. In the same way that Office revolutionized productivity for knowledge workers, Power Platformwhich has over 16 million monthly usersis transforming application development so that anyone can automate workflows, create apps, build virtual agents, and analyze data. We work to ensure that technology is inclusive, trusted, and increases sustainability. Over the last year, we have collaborated with partners and worked within neighborhoods and communities to launch and scale a number of projects and programs including: expanding our existing justice reform work with a five-year, $50 million sustained effort, expanding access to affordable broadband and devices for Black and African American communities and key institutions that support them in major urban centers, expanding access to skills and education to support Black and African American students and adults to succeed in the digital economy, and increasing technology support for nonprofits that provide critical services to Black and African American communities. Office Consumer products and cloud services revenue increased 10% and Microsoft 365 Consumer subscribers increased to 51.9 million. Their revenue came in at 25,007 Million USD, which missed the expected amount by around 5% but represented a 13% increase YoY. We have operating and finance leases for datacenters, corporate offices, research and development facilities, Microsoft Experience Centers, and certain equipment. For more about Microsofts CSR commitments and performance, please visit: www.microsoft.com/transparency. Segment Revenue and Operating Income (In millions) (Unaudited) Three Months Ended September 30, 2022 2021; ElementName We built on this pledge by adding commitments to be water positive by 2030, zero waste by 2030, and to protect ecosystems by developing a Planetary Computer. We determine if an arrangement is a lease at inception. Once technological feasibility is reached, such costs are capitalized and amortized to cost of revenue over the estimated lives of the products. To help people and organizations everywhere achieve more, we are focused on four interconnected pillars. Marketing Solutions competes with online and offline outlets that generate revenue from advertisers and marketers, and Sales Solutions competes with online and offline outlets for companies with lead generation and customer intelligence and insights. The Zacks Consensus Estimate for revenues is pegged at $50.32 billion, implying growth of 16.82 . As of June 30, 2021, we employed approximately 181,000 people on a full-time basis, 103,000 in the U.S. and 78,000 internationally. Adjustments to reconcile net income to net cash from operations: Net recognized gains on investments and derivatives. We have a network of field sales representatives and field support personnel that solicit orders from distributors and resellers, and provide product training and sales support. Management does not believe any remaining unrealized losses represent impairments based on our evaluation of available evidence. Debt investments are classified as available-for-sale and realized gains and losses are recorded using the specific identification method. Xbox hardware revenue increased 92% driven by higher price of consoles sold due to the Xbox Series X|S launches. Clayton, Dubilier & Rice, John W. Thompson 3,4 By combining the Internet of Things, AI, and mixed reality, this platform layer enables the creation of rich digital twin simulations of real-world processes, places, and things so organizations can monitor complex systems in real time, interact within them using mixed reality, and run simulations to model, analyze, and predict performance. This pricing methodology applies to our Level 2 investments, such as commercial paper, certificates of deposit, U.S. agency securities, foreign government bonds, mortgage- and asset-backed securities, corporate notes and bonds, and municipal securities. Our commercial and other business metrics are fundamentally connected based on how customers use our products and services. The competitive position of Linux has also benefited from the large number of compatible applications now produced by many commercial and non-commercial software developers. SA is included. Our consolidated financial statements and accompanying notes are prepared in accordance with GAAP. Although we were not a party to the appeals, our software sales in India were determined to be not subject to withholding taxes. It also provides support, tools, training, and other licensing benefits to help customers deploy and use software efficiently. Our success is based on our ability to create new and compelling products, services, and experiences for our users, to initiate and embrace disruptive technology trends, to enter new geographic and product markets, and to drive broad adoption of our products and services. Source:Microsoft. 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