Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective. We support the fundamental rights of all people. In our 2020 Diversity and Inclusion Report, we reported that all racial and ethnic minority employees in the U.S. combined earn $1.006 for every $1.000 earned by their white counterparts, that women in the U.S. earn $1.001 for every $1.000 earned by their counterparts in the U.S. who are men, and women in the U.S. plus our ten other largest employee geographies (Australia, Canada, China, France, Germany, India, Ireland, Israel, Japan, and United Kingdom) combined earn $1.000 for every $1.000 by men in these countries. And as a global technology company, we have a particular responsibility to do our part. Gains and losses from changes in fair values of derivatives that are not designated as hedging instruments are primarily recognized in other income (expense), net. 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. Together with our partners, we have reached more than 47 million people to date, across 250 countries, but the work doesnt stop there. We can be contacted between the hours of 9:00 a.m. to 5:00 p.m. Pacific Time to answer investment oriented questions about Microsoft. Our Search business, including Bing and Microsoft Advertising, is designed to deliver relevant online advertising to a global audience. 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. Although we were not a party to the appeals, our software sales in India were determined to be not subject to withholding taxes. Windows. We use derivatives instruments to manage these risks, however, they may still impact our consolidated financial statements. Windows, including Windows OEM licensing 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 Internet of Things; and MSN advertising. Three billion people around the world play games, which makes gaming the largest category in the entertainment industry. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying Notes to Financial Statements. The Company remains under IRS audit, or subject to IRS audit, for tax years subsequent to 2003. In fiscal year 2021, we delivered $168 billion in revenue, up 18 percent year-over-year. We are accelerating our development of mixed reality solutions with new Azure services and devices. Xbox revenue is mainly affected by subscriptions and sales of first- and third-party content, as well as advertising. We will continue to invest in sales, marketing, product support infrastructure, and existing and advanced areas of technology, as well as continue making acquisitions that align with our business strategy. We must also protect the institutions and processes of democracy. The global pandemic has accelerated our capabilities and culture with respect to flexible work. Introduced in November 2020, the new Xbox Series S and X are our fastest-selling consoles ever. Judgment is required to determine the stand-alone selling price (SSP) for each distinct performance obligation. On April 11, 2021, we entered into a definitive agreement to acquire Nuance Communications, Inc. (Nuance) for $56.00 per share in an all-cash transaction valued at $19.7 billion, inclusive of Nuances net debt. In June 2020, with tens of millions of people displaced from their jobs due to the pandemic, we brought resources together from across Microsoft, inclusive of LinkedIn and GitHub, to help 25 million people connect to the digital skills for in-demand roles. In the next phase of innovation, computing is more powerful and ubiquitous from the cloud to the edge. This amounted to an increase of 19.3% from the year-ago quarter . On March 9, 2021, we completed our acquisition of ZeniMax Media Inc. (ZeniMax), the parent company of Bethesda Softworks LLC (Bethesda), for a total purchase price of $8.1 billion, consisting primarily of cash. Our database, business intelligence, and data warehousing solutions offerings compete with products from IBM, Oracle, SAP, and other companies. Definition and Limitations of Internal Control over Financial Reporting. Individual consumers obtain these products primarily through retail outlets. Browse Earnings Releases: Browse Prior Earnings Releases: Fiscal Year. 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. The metrics are disclosed in the MD&A or the Notes to Financial Statements. Income taxes paid, net of refunds, were $13.4 billion, $12.5 billion, and $8.4 billion in fiscal years 2021, 2020, and 2019, respectively. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Diversity and inclusion continues to be a core priority for every employee at Microsoft and is incorporated into our performance and career development approach. The Surface family includes Surface Book 3, Surface Laptop Go, Surface Go 2, Surface Pro 7, Surface Laptop 4, Surface Pro X, Surface Studio 2, and Surface Duo. Microsoft was built for this moment. We report our financial performance based on the following segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. 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. $ 42,485. All share repurchases were made using cash resources. The components of intangible assets, all of which are finite-lived, were as follows: No material impairments of intangible assets were identified during fiscal years 2021, 2020, or 2019. Search advertising revenue increased $788 million or 10%. SA is included with certain volume licensing agreements and is an optional purchase with others. 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. The COVID-19 pandemic continues to have widespread and unpredictable impacts on global society, economies, financial markets, and business practices, and continues to impact our business operations, including our employees, customers, partners, and communities. If quoted prices in active markets for identical assets or liabilities are not available to determine fair value, then we use quoted prices for similar assets and liabilities or inputs other than the quoted prices that are observable either directly or indirectly. These capabilities have relied on the public cloud, which is built on the investments we have made over time. Dear shareholders, colleagues, customers, and partners: As I write this, people and organizations everywhere continue to struggle with the uncertainty of a pandemic that continues to cause so much suffering. Certain forecasted transactions, assets, and liabilities are exposed to foreign currency risk. Actual results and outcomes may differ from managements estimates and assumptions due to risks and uncertainties, including uncertainty in the current economic environment due to COVID-19. Our EEO-1 report (equal employment opportunity). Windows OEM and devices revenue was particularly . However, some of our products contain certain components for which there are very few qualified suppliers. Following are details of the purchase price allocated to the intangible assets acquired: On October 25, 2018, we acquired GitHub, Inc. (GitHub), a software development platform, in a $7.5 billion stock transaction (inclusive of total cash payments of $1.3 billion in respect of vested GitHub equity awards and an indemnity escrow). Employees purchased the following shares during the periods presented: As of June 30, 2021, 88 million shares of our common stock were reserved for future issuance through the ESPP. During the reported quarter, revenues from the Engine Management segment totaled $242.4 million, down 1.3% year over year. Determination of stand-alone selling prices for each distinct performance obligation and for products and services that are not sold separately. The regional center in Ireland supports the European, Middle Eastern, and African region; the center in Singapore supports the Japan, India, Greater China, and Asia-Pacific region; and the centers in Fargo, North Dakota, Fort Lauderdale, Florida, Puerto Rico, Redmond, Washington, and Reno, Nevada support Latin America and North America. Organizations also license our products and services indirectly, primarily through licensing solution partners (LSP), distributors, value-added resellers (VAR), and retailers. We determine if an arrangement is a lease at inception. Summary. This included a commitment to invest $1 billion over four years in new technologies and innovative climate solutions. Gains and losses representing hedge components excluded from the assessment of effectiveness are recognized in other income (expense), net. Our responsibility is to express an opinion on the Companys internal control over financial reporting based on our audit. These contracts are not designated as hedging instruments and are included in Other contracts in the tables below. In the next three years, well create more data than we did in the past 10. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our objectives for holding derivatives include reducing, eliminating, and efficiently managing the economic impact of these exposures as effectively as possible. Apple, Google, and Microsoft: revenue comparison 2008-2022; This share repurchase program commenced in February 2020, following completion of the program approved on September 20, 2016, has no expiration date, and may be terminated at any time. Our devices are primarily manufactured by third-party contract manufacturers. Accumulated Other Comprehensive Income (Loss), New integrations between Dynamics 365 and Teams, pending acquisition of Nuance Communications, we will invest $20 billion over the next five years, our acquisition this year of ZeniMax Media, 25 million people connect to the digital skills for in-demand roles, Racial Equity Initiative: Strengthening Our Communities report, humanitarian action and emergency response, http://www.microsoft.com/investor/AnnualReports/default.aspx, Adjusted diluted earnings per share (non-GAAP), Net gains (losses) on foreign currency remeasurements, Net income tax benefit related to India Supreme Court decision on withholding taxes, Operating leases, including imputed interest, Finance leases, including imputed interest, 100 basis point increase in U.S. treasury interest rates, 100 basis point increase in credit spreads. In the Gaming segment, Microsoft's Xbox shares a 20-year rivalry with Sony's PlayStation. The Microsoft Cloud is the most comprehensive and trusted cloud, providing the best integration across the technology stack while offering openness, improving time to value, reducing costs, and increasing agility. We selected a sample of customer agreements and performed the following procedures: Obtained and read contract source documents for each selection, including master agreements, and other documents that were part of the agreement. We settled a portion of the Internal Revenue Service (IRS) audit for tax years 2004 to 2006 in fiscal year 2011. We believe Windows competes effectively by giving customers choice, value, flexibility, security, an easy-to-use interface, and compatibility with a broad range of hardware and software applications, including those that enable productivity. revenue growth, Revenue from Dynamics products and cloud services, including Dynamics 365, comprising a set of intelligent, cloud-based applications across ERP, CRM, Customer Insights, Power Apps, and Power Automate; and on-premises ERP and CRM applications, Revenue from LinkedIn, including Talent Solutions, Marketing Solutions, Premium Subscriptions, Sales Solutions, and Learning Solutions, Server products and cloud services revenue growth, Revenue from Server products and cloud services, including Azure; SQL Server, Windows Server, Visual Studio, System Center, and related Client Access Licenses (CALs); and GitHub. We distribute our products and services through OEMs that pre-install our software on new devices and servers they sell. We apply a practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less. We will include as many of your questions as possible during the Q&A session of the meeting and will provide answers to questions on the Microsoft Investor Relations website under the Annual Meeting page. We adopted the standard effective July 1, 2020. From GitHub to Visual Studio, we provide a developer tool chain for everyone, no matter the technical experience, across all platforms, whether Azure, Windows, or any other cloud or client platform. Growth will depend on our ability to increase the number of LinkedIn members and our ability to continue offering services that provide value for our members and increase their engagement. 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. Service and other revenue also includes sales from online advertising and LinkedIn. We record a receivable when revenue is recognized prior to invoicing, or unearned revenue when revenue is recognized subsequent to invoicing. It also gives us the freedom to decide which modifications and enhancements are most important and when they should be implemented. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. In fiscal year 2021, the COVID-19 pandemic continued to impact our business operations and financial results. 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. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2021, in conformity with accounting principles generally accepted in the United States of America. Our managers strive to model our culture and values in their actions, to coach their teams to define objectives and adapt and learn, and to care deeply for their employees, seeking to understand their capabilities, ambitions, and invest in their growth. While our own actions are important, our most critical contribution will come from sharing our learnings and helping other organizations achieve their own goals for a better future too. At the platform as a service (PaaS) level, new Azure Communication Services enable developers to integrate rich communications APIs into their applications using the same infrastructure that powers Microsoft Teams. We plan to continue to make significant investments in a broad range of research and development efforts. GitHub provides a collaboration platform and code hosting service for developers. Throughout the fiscal year, we also collect nearly 75,000 Daily Pulse employee survey responses. [Online]. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The purchase price included $768 million of cash and cash equivalents acquired. 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. We also settled a portion of the IRS audit for tax years 2007 to 2009 in fiscal year 2016, and a portion of the IRS audit for tax years 2010 to 2013 in fiscal year 2018. And Im excited to see new PCs from Surface and our OEM ecosystem ship with Windows 11 this holiday season that include the latest innovations in touch, pen, and voice, as well as new breakthroughs in both accessibility and sustainability. 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. Our mission to empower every person and every organization on the planet to achieve more has never been more urgent or more needed. The small to medium business (SMB) segment is divided into three subsegments: Corporate scale subsegment is the largest existing SMB customers with the most opportunity for Microsoft. We intend to request shareholder approval for a successor ESPP with a January 1, 2022 effective date and ten-year expiration of December 31, 2031 at our 2021 Annual Shareholders Meeting. The components of other income (expense), net were as follows: We use derivative instruments to manage risks related to foreign currencies, equity prices, interest rates, and credit; enhance investment returns; and facilitate portfolio diversification. (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 . In-the-classroom learning, learning pods, our early-in-career Aspire program, and manager excellence communities. Refer to Note 16 Stockholders Equity of the Notes to Financial Statements for further discussion. Windows Commercial products and cloud services revenue increased 14% driven by demand for Microsoft 365. Organizations can elect to purchase perpetual licenses or subscribe to licenses. This segment primarily comprises: Office Commercial is designed to increase personal, team, and organizational productivity through a range of products and services. Cactus' Rental revenues were $27.3 million, up from $19.2 million in the year-ago quarter. PSUs generally vest over a performance period of three years. Unearned revenue is generally invoiced annually at the beginning of each contract period for multi-year agreements and recognized ratably over the coverage period. The pandemic has underscored that without it, people lack access to education, healthcare, economic opportunity, and more. 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. 16,375. Breaking down Microsoft's earnings by operational segment. Azure Space is extending Azure capabilities through worldwide satellite-based connectivity. Gross unrecognized tax benefits related to uncertain tax positions as of June 30, 2021, 2020, and 2019, were $14.6 billion, $13.8 billion, and $13.1 billion, respectively, which were primarily included in long-term income taxes in our consolidated balance sheets. Our Enterprise Mobility + Security offerings also compete with products from a range of competitors including identity vendors, security solution vendors, and numerous other security point solution vendors. The major classes of assets and liabilities to which we have preliminarily allocated the purchase price were as follows: Goodwill was assigned to our More Personal Computing segment. The tax effect of such temporary differences is reported as deferred income taxes. We have more than doubled our percentage share of transaction volume with Black- and African American-owned financial institutions and increased our deposits with Black- and African American-owned minority depository institutions, enabling increased funds into local communities. Outcomes: The segment generated revenues of $66 million (14.1% of total revenues), up 4% on a year-over-year basis due to higher software license and product sales partly offset by EMEA prepay . We strive to make computing more personal by putting people at the core of the experience, enabling them to interact with technology in more intuitive, engaging, and dynamic ways. You only have access to basic statistics. Following are the details of the purchase price allocated to the intangible assets acquired: Transactions recognized separately from the purchase price allocation were approximately $600 million, primarily related to equity awards recognized as expense over the related service period. Yet the fashion and leather goods segment (comprising brands like Fendi and Louis Vuitton) is the major one, generating over 39 billion in . Nearly 250 million people use Teams every month. $90.88. dollars)." In terms of formal on-line learning solutions, in fiscal year 2021 our employees completed over 5 million courses, averaging over 18 hours per employee. The rise of hybrid work will be one of the most profound changes to the way people work in more than a century. Judgment is required to determine the SSP for each distinct performance obligation. 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. As effectively as possible learning pods, our early-in-career Aspire program, and Personal... And processes of democracy decide which modifications and enhancements are most important and when they should be.... 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