Our ongoing survey data shows employees value the flexibility related to work location, work site, and work hours, and while many indicate they intend to return to a worksite once conditions permit, they also intend to adjust hours or spend some portions of workweeks working remotely. Our devices are primarily manufactured by third-party contract manufacturers, some of which contain certain components for which there are very few qualified suppliers. Windows Commercial revenue often reflects the number of information workers in a licensed enterprise and is relatively independent of the number of PCs sold in a given year. The fair value of stock awards vested was $13.4 billion, $10.1 billion, and $8.7 billion, for fiscal years 2021, 2020, and 2019, respectively. Stock-based compensation expense and related income tax benefits were as follows: Stock awards entitle the holder to receive shares of Microsoft common stock as the award vests. Cisco Systems is using its position in enterprise communications equipment to grow its unified communications business. The adoption of the standard did not have a material impact on our consolidated financial statements. And with our pending acquisition of Nuance Communications, well provide ambient clinical intelligence capabilities for healthcare organizations that improve the patient experience and reduce the overwhelming burden of work that physicians struggle with today. In February 2012, the IRS withdrew its 2011 Revenue Agents Report related to unresolved issues for tax years 2004 to 2006 and reopened the audit phase of the examination. Personalized, integrated, and relevant views of all learning opportunities on our internal learning portal, our external learning portal MS Learn, and LinkedIn Learning that is available to all employees worldwide. Financial metrics are calculated based on GAAP results and growth comparisons relate to the corresponding period of last fiscal year. Microsoft's global revenue grew from fiscal year 2021 to 2022, increasing by about 18 percent year-on-year and reaching over 198 billion U.S. . We also fund research and development activities at the operating segment level. Through our Democracy Forward Program, were working across sectors to safeguard electoral processes and defend against disinformation. The rise of hybrid work will be one of the most profound changes to the way people work in more than a century. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Microsoft's revenue rose 2% to $52.7 billion in the three months ended Dec. 31, compared with the average analyst estimate of $52.94 billion, according to Refinitiv IBES. The aggregate changes in the gross unrecognized tax benefits related to uncertain tax positions were as follows: Unearned revenue by segment was as follows: Changes in unearned revenue were as follows: Revenue allocated to remaining performance obligations, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods, was $146 billion as of June 30, 2021, of which $141 billion is related to the commercial portion of revenue. We invite you to submit any questions via the proxy voting site at www.proxyvote.com. Microsoft Corporation, Reid G. Hoffman Our objectives for holding derivatives include reducing, eliminating, and efficiently managing the economic impact of these exposures as effectively as possible. Furthermore, we shared a commitment to transparency by subjecting the data in our annual sustainability report to third-party review and to accountability by including progress on sustainability goals as a factor in determining executive pay. The ideal entry-level account for individual users. Contact Computershare directly to find out more about these services and programs at 800-285-7772, option 1, or visit online at: https://www.computershare.com/Microsoft, You can e-mail the transfer agent at: web.queries@computershare.com. Call us toll-free at (800) 285-7772 or outside the United States, call (425) 706-4400. Segment by Type - Asset Tracking and Inventory Management Solutions Market Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. Adjusted net income and adjusted diluted earnings per share (EPS) are non-GAAP financial measures which exclude tax benefits related to an India Supreme Court decision on withholding taxes in fiscal year 2021. 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. Our effective tax rate was lower than the U.S. federal statutory rate, primarily due to earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations centers in Ireland and Puerto Rico, tax benefits relating to stock-based compensation, and tax benefits from the India Supreme Court decision on withholding taxes. Revenue fell to $6.05 billion from $7 . To accelerate the inclusion journey for employees, as well as our ecosystem, we hosted Include 2021, a global event focused on diversity and inclusion, and continue to invest in shared understanding by publishing resources and learnings broadly. Revenue increased $25.1 billion or 18% driven by growth across each of our segments. Judgment is required to determine the SSP for each distinct performance obligation. During the past year, we introduced industry clouds for financial services, healthcare, manufacturing, nonprofits, and retail that make it easier for organizations to take advantage of the full power of our tech stack and to utilize new, industry-specific customizations that improve time to value, increase agility, and lower costs. If market, industry, and/or investee conditions deteriorate, we may incur future impairments. to incorporate the statistic into your presentation at any time. Microsoft's Intelligent Cloud segment, which includes the Azure public cloud for application hosting, SQL Server, Windows Server and enterprise services generated $20.91 billion in revenue. With more than 60 datacenter regionsincluding 15 new regions added this year on five continentswe are delivering faster access to data and cloud services while addressing critical data residency requirements. Therefore, we recorded a net income tax benefit of $620 million in the third quarter of fiscal year 2021 to reflect the results of the India Supreme Court decision impacting fiscal year 1996 through fiscal year 2016. We generate revenue by offering a wide range of cloud-based and other services to people and businesses; licensing and supporting an array of software products; designing, manufacturing, and selling devices; and delivering relevant online advertising to a global audience. 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). In addition to our main research and development operations, we also operate Microsoft Research. The purchase price included $768 million of cash and cash equivalents acquired. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. Machine Translation Market 2023 Structure Along With Size, Trends, Revenue, Market segments, Forecast to 2029 Published: Feb. 16, 2023 at 12:44 a.m. Amy E. Hood 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. Nine of these cases were filed in 2002 and are consolidated for certain pre-trial proceedings; the remaining cases are stayed. Azures competitive advantage includes enabling a hybrid cloud, allowing deployment of existing datacenters with our public cloud into a single, cohesive infrastructure, and the ability to run at a scale that meets the needs of businesses of all sizes and complexities. Depreciation expense declined in fiscal year 2021 due to the change in estimated useful lives of our server and network equipment. We believe our clouds global scale, coupled with our broad portfolio of identity and security solutions, allows us to effectively solve complex cybersecurity challenges for our customers and differentiates us from the competition. Each allocation is measured differently based on the specific facts and circumstances of the costs being allocated. Across our solution areas, we are delivering platforms and tools that expand our opportunity to help organizations around the world build their own tech intensity. Its revenue is likely to amount to $51.2 billion. Dollars). Net realizable value is the estimated selling price less estimated costs of completion, disposal, and transportation. All share repurchases were made using cash resources. And we have made a commitment to match 100 percent of our electricity consumption with zero carbon energy purchases 100 percent of the time by 2030. 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. We use a range of amounts to estimate SSP when we sell each of the products and services separately and need to determine whether there is a discount to be allocated based on the relative SSP of the various products and services. Enterprise Agreements offer large organizations a manageable volume licensing program that gives them the flexibility to buy cloud services and software licenses under one agreement. Applying AI to drive insights and act on our customers behalf by understanding and interpreting their needs using natural methods of communication. Dilutive potential common shares include outstanding stock options and stock awards. Office Commercial products and cloud services revenue increased 13% driven by Office 365 Commercial growth of 22%. Clayton, Dubilier & Rice, John W. Thompson 3,4 Were unfavorable final outcomes to occur, there exists the possibility of a material adverse impact in our consolidated financial statements for the period in which the effects become reasonably estimable. 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. The Company designs and maintains accounting and internal control systems to provide reasonable assurance at reasonable cost that assets are safeguarded against loss from unauthorized use or disposition, and that the financial records are reliable for preparing consolidated financial statements and maintaining accountability for assets. Executive Vice President, Chief Financial Officer, Judson Althoff Office Consumer products and cloud services revenue increased 10% and Microsoft 365 Consumer subscribers increased to 51.9 million. To navigate it, organizations will need to embrace flexibility across their entire operating model, including the ways people work, the places they inhabit, and how they manage business process. Microsoft has introduced a Hybrid Workplace Flexibility Guide to better support managers and employees as they adapt to new ways of working that shift paradigms, embrace flexibility, promote inclusion, and drive innovation. How the Critical Audit Matter Was Addressed in the Audit. Growth was driven by content and services for its Xbox gaming console. Compensation expense for the employee stock purchase plan (ESPP) is measured as the discount the employee is entitled to upon purchase and is recognized in the period of purchase. It extends to our investments in security, and our belief that the public and private sectorsincluding tech companiesmust be transparent so we can work together on a coordinated global response. The primary drag on earnings was the 19% decrease down to $14.2B the company saw in it's personal computing segment with Windows OEM license revenue falling a massive 39%. 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. Our fair value processes include controls that are designed to ensure appropriate fair values are recorded. Interest rate risks related to certain fixed-rate debt are hedged using interest rate swaps that are designated as fair value hedging instruments to effectively convert the fixed interest rates to floating interest rates. To build a more inclusive economy, we also have a responsibility to help close the Disability Divide, which impacts more than 1 billion people with disabilities around the world. We test goodwill for impairment annually on May 1 at the reporting unit level, primarily using a discounted cash flow methodology with a peer-based, risk-adjusted weighted average cost of capital. Computing architecture is undergoing radical transformation as the number of connected devices and the volume of data generated at the edge increase dramatically. ZeniMax is reported as part of our More Personal Computing segment. The outcomes of legal proceedings and claims brought against us are subject to significant uncertainty. Advertising costs are expensed as incurred. 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. LVMH is a luxury group owned by the Arnault family, which generated over 79 billion in revenue ($83 billion) in revenue in 2022, with a luxury empire that spans many segments. Inventing new gaming experiences that bring people together around their shared love for games on any devices and pushing the boundaries of innovation with console and PC gaming by creating the next wave of entertainment. Billionaires like Microsoft Corp. co-founder Bill Gates likely saw an opportunity through . If our review indicates a reduction in utility below carrying value, we reduce our inventory to a new cost basis through a charge to cost of revenue. While our main product research and development facilities are located in Redmond, Washington, we also operate research and development facilities in other parts of the U.S. and around the world. The components of intangible assets acquired during the periods presented were as follows: Intangible assets amortization expense was $1.6 billion, $1.6 billion, and $1.9 billion for fiscal years 2021, 2020, and 2019, respectively. Securities held in our equity investments portfolio are subject to price risk. Our employees donated an additional $214 million (including the company match) to the organizations and causes they care about. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts generally do not include a significant financing component. 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. These non-GAAP financial measures presented should not be considered a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP. Our approach to hybrid work starts with Teamsthe only all-in-one solution that supports meetings, calls, chat, collaboration, and business process automation in day-to-day workflow. The extent to which the COVID-19 pandemic impacts our business going forward will depend on numerous evolving factors we cannot reliably predict. The gamer remains at the heart of the Xbox ecosystem. and cloud services revenue. Fiscal year ending June 30. Making a difference in the lives of each other, our customers, and the world around us. We determine the allowance based on known troubled accounts, historical experience, and other currently available evidence. As of June 30, 2021 and 2020, long-term accounts receivable, net of allowance for doubtful accounts, was $3.4 billion and $2.7 billion, respectively, and is included in other long-term assets in our consolidated balance sheets. We acknowledge we have more work ahead of us to address racial injustice and inequity, and are applying many of the programs above to help other underrepresented communities. Capitalized software development costs are amortized over the estimated lives of the products. $59.66B. If we have plans to sell the security or it is more likely than not that we will be required to sell the security before recovery, then a decline in fair value below cost is recorded as an impairment charge in other income (expense), net and a new cost basis in the investment is established. Okta, Proofpoint, and Symantec provide security solutions across email security, information protection, identity, and governance. Examples include invoicing at the beginning of a subscription term with revenue recognized ratably over the contract period, and multi-year on-premises licenses that are invoiced annually with revenue recognized upfront. These contracts are not designated as hedging instruments and are included in Other contracts in the tables below. We have broadened our approach to how we think about gaming end-to-end, from the way games are created and distributed to how they are played, including cloud gaming so players can stream across PC, console, and mobile. All differences between our internal management reporting basis and accounting principles generally accepted in the United States of America (GAAP), along with certain corporate-level and other activity, are included in Corporate and Other. Certain forecasted transactions, assets, and liabilities are exposed to foreign currency risk. And if we continue to pursue our mission, I am certain that we will collectively achieve so much more together. We have lease agreements with lease and non-lease components, which are generally accounted for separately. Compensation cost for RSUs is recognized using the straight-line method and for PSUs is recognized using the accelerated method. Principal currency exposures include the Euro, Japanese yen, British pound, Canadian dollar, and Australian dollar. Product and Service Development, and Intellectual Property. Download as image Embed. (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 . While it may be necessary in the future to seek or renew licenses relating to various aspects of our products, services, and business methods, we believe, based upon past experience and industry practice, such licenses generally can be obtained on commercially reasonable terms. Digital transformation that was projected to happen over the next 10 years is happening today. 12.80%. Surface revenue increased $302 million or 5%. We use a single amount to estimate SSP for items that are not sold separately, including on-premises licenses sold with SA or software updates provided at no additional charge. Our responsibility is to express an opinion on the Companys financial statements based on our audits. We continue to develop complete, intelligent solutions for our customers that empower people to stay productive and collaborate, while safeguarding businesses and simplifying IT management. Zoom offers videoconferencing and cloud phone solutions. We estimate that we have no significant residual value related to our intangible assets. Our responsibility is to express an opinion on the Companys internal control over financial reporting based on our audit. You can also send mail to the transfer agent at: Shareholders can sign up for electronic alerts to access the annual report and proxy statement online. Microsoft reported its fiscal year 2021 Q3 results today, revealing that it's pulled in a hefty $41.7 billion in revenue over the last quarter . These obligations did not have a material impact in our consolidated financial statements during the periods presented. Microsoft is a technology company whose mission is to empower every person and every organization on the planet to achieve more. LVMH Revenue By Segment. Metrics related to our Productivity and Business Processes and Intelligent Cloud segments assess the health of our core businesses within these segments. $63.36B. Eligible U.S. employees may contribute a portion of their salary into the savings plans, subject to certain limitations. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. Cost includes materials, labor, and manufacturing overhead related to the purchase and production of inventories. 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. 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. This is why we introduced Microsoft Viva, which brings the information, resources, and support employees need to stay connected to each other and their companys mission directly into the flow of work. Securities held in our fixed-income portfolio are subject to different interest rate risks based on their maturities. The components of basic and diluted EPS were as follows: Anti-dilutive stock-based awards excluded from the calculations of diluted EPS were immaterial during the periods presented. Office 365 Commercial revenue grew 22% driven by seat growth of 17% and higher revenue per user. This report includes estimates, projections, statements relating to our business plans, objectives, and expected operating results that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. In addition, we consider specific adverse conditions related to the financial health of, and business outlook for, the investee. The metrics reflect our cloud and on-premises product strategies and trends. Excluding this impact, gross margin percentage decreased slightly driven by gross margin percentage reduction in More Personal Computing. The purchase price included $768 million of cash and cash equivalents acquired. The ten-month claims period commenced on November 23, 2020 and will close on September 23, 2021. Stock awards generally vest over a service period of four years or five years. Executive Vice President and Chief Financial Officer, Alice L. Jolla Computershare, our transfer agent, can help you with a variety of shareholder related services including: Computershare also administers a direct stock purchase plan and a dividend reinvestment program for the company. The decrease in our effective tax rate for fiscal year 2021 compared to fiscal year 2020 was primarily due to tax benefits from the India Supreme Court decision on withholding taxes, an agreement between the U.S. and India tax authorities related to transfer pricing, final TCJA regulations, and an increase in tax benefits relating to stock-based compensation. 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. You can only download this statistic as a Premium user. We use a range of amounts to estimate SSP when we sell each of the products and services separately and need to determine whether there is a discount to be allocated based on the relative SSP of the various products and services. While were proud of our progress, we know we have much more work to do to help our communities, increase representation, and strengthen our culture of inclusion to influence broader, systemic change. Dynamics competes with cloud-based and on-premises business solution providers such as Oracle, Salesforce.com, and SAP. 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). We are living in the new era of the intelligent cloud and intelligent edge, which is being sharpened by rapid advances in distributed computing, ambient intelligence, and multidevice experiences. $ 17,897. Microsoft Teams is enabling rapid digital transformation by giving people a single tool to chat, call, meet, and collaborate. With Windows 11the biggest update to our operating system in a decadewere reimagining everything from the platform to the store to help people and organizations be more productive, connected, and secure, and to build a more open ecosystem for developers and creators. The investments we are making in infrastructure and devices will continue to increase our operating costs and may decrease our operating margins. We record an allowance to cover expected losses based on troubled accounts, historical experience, and other currently available evidence. Management is responsible for the preparation of the consolidated financial statements and related information that are presented in this report. We believe our server products provide customers with advantages in performance, total costs of ownership, and productivity by delivering superior applications, development tools, compatibility with a broad base of hardware and software applications, security, and manageability. RSUs generally vest ratably over a service period of four years. The following Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand the results of operations and financial condition of Microsoft Corporation. For multi-year agreements, we generally invoice customers annually at the beginning of each annual coverage period. Economic Conditions, Challenges, and Risks. Long-lived assets, excluding financial instruments and tax assets, classified by the location of the controlling statutory company and with countries over 10% of the total shown separately, were as follows: REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, To the Stockholders and the Board of Directors of Microsoft Corporation. The credit risk and average maturity of our fixed-income portfolio are managed to achieve economic returns that correlate to certain fixed-income indices. SMB segment and subsegments. The Companys long-term income taxes liability includes uncertain tax positions related to transfer pricing issues that remain unresolved with the Internal Revenue Service (IRS). Revenue growth was led by its search segment . The following table outlines the expected future recognition of unearned revenue as of June 30, 2021: If our customers choose to license cloud-based versions of our products and services rather than licensing transaction-based products and services, the associated revenue will shift from being recognized at the time of the transaction to being recognized over the subscription period or upon consumption, as applicable. Enterprise Services revenue increased $534 million or 8% driven by growth in Premier Support Services. Intelligent Cloud revenue increased driven by Azure. Search advertising revenue increased $788 million or 10%. The metrics are disclosed in the MD&A or the Notes to Financial Statements. No additional shares will be requested at this meeting. Windows, including Windows OEM licensing (Windows OEM) and other non-volume licensing of the Windows operating system; Windows Commercial, comprising volume licensing of the Windows operating system, Windows cloud services, and other Windows commercial offerings; patent licensing; Windows IoT; and MSN advertising. 1. $ 42,959. 6. Full-year fiscal '23 estimates today expect Microsoft to earn $9.55 in EPS on $212.2 billion in revenue for expected growth in the next 6 months of 4% in EPS and 7% in revenue. We are accelerating progress toward a more sustainable future by reducing our environmental footprint, advancing research, helping our customers build sustainable solutions, and advocating for policies that benefit the environment. Skype for Business and Skype also compete with a variety of instant messaging, voice, and video communication providers, ranging from start-ups to established enterprises. Net income fell 12% to . Our practice is to ship our products promptly upon receipt of purchase orders from customers; consequently, backlog is not significant. Judgment is required in assessing the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. Our vision is to create economic opportunity for every member of the global workforce through the ongoing development of the worlds first Economic Graph, a digital representation of the global economy. Using its position in enterprise communications equipment to grow its unified communications business declined in fiscal year due! Rise of hybrid work will be requested at this meeting exposures include Euro. Microsoft Corp. co-founder Bill Gates likely saw an opportunity through performance obligation amortized over the lives! Claims brought against us are subject to significant uncertainty work will be requested this. 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