We determine if an arrangement is a lease at inception. Devices, including Surface and PC accessories. July 26, 2022. Our principal audit procedures related to the Companys revenue recognition for these customer agreements included the following: Income Taxes Uncertain Tax Positions Refer to Note 12 to the financial statements. Product Revenue and Service and Other Revenue. Microsoft Research is one of the worlds largest corporate research organizations and works in close collaboration with top universities around the world to advance the state-of-the-art in computer science and a broad range of other disciplines, providing us a unique perspective on future trends and contributing to our innovation. We market and distribute our products and services through the following channels: OEMs, direct, and distributors and resellers. LinkedIn faces competition from online professional networks, recruiting companies, talent management companies, and larger companies that are focusing on talent management and human resource services; job boards; traditional recruiting firms; and companies that provide learning and development products and services. The markets for software, devices, and cloud-based services are dynamic and highly competitive. We issue debt to take advantage of favorable pricing and liquidity in the debt markets, reflecting our credit rating and the low interest rate environment. The devices and form factors customers prefer evolve rapidly, and influence how users access services in the cloud, and in some cases, the users choice of which suite of cloud-based services to use. All deferred income taxes are classified as long-term in our consolidated balance sheets. Assets are not allocated to segments for internal reporting presentations. The Company offers customers the ability to acquire multiple licenses of software products and services, including cloud-based services, in its customer agreements through its volume licensing programs. Reality Labs' total loss for 2022 came in . We believe these non-GAAP measures aid investors by providing additional insight into our operational performance and help clarify trends affecting our business. The Company recognizes revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. You can contact Microsoft Investor Relations at any time to order financial documents such as annual reports and Form 10-Ks free of charge. Microsoft Product and Services Agreements are designed for medium and large organizations that want to license cloud services and on-premises software as needed, with no organization-wide commitment, under a single, non-expiring agreement. We want our customers and partners to build their own digital capability and become independent with us, not dependent on us. We tested the effectiveness of controls related to the identification of distinct performance obligations, the determination of the timing of revenue recognition, and the estimation of variable consideration. We have operations centers that support operations in their regions, including customer contract and order processing, credit and collections, information processing, and vendor management and logistics. To serve the needs of customers around the world and to improve the quality and usability of products in international markets, we localize many of our products to reflect local languages and conventions. Diversity and inclusion continues to be a core priority for every employee at Microsoft and is incorporated into our performance and career development approach. Nuance is a cloud and artificial intelligence (AI) software provider with healthcare and enterprise AI experience, and the acquisition will build on our industry-specific cloud offerings. Total. 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. As of June 30, 2021 and 2020, our financing receivables, net were $4.4 billion and $5.2 billion, respectively, for short-term and long-term financing receivables, which are included in other current assets and other long-term assets in our consolidated balance sheets. Assessed the terms in the customer agreement and evaluated the appropriateness of managements application of their accounting policies, along with their use of estimates, in the determination of revenue recognition conclusions. The mix of income before income taxes between the U.S. and foreign countries impacted our effective tax rate as a result of the geographic distribution of, and customer demand for, our products and services. Advertising expense was $1.5 billion, $1.6 billion, and $1.6 billion in fiscal years 2021, 2020, and 2019, respectively. A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Operating Partner, The Microsoft Services Provider License Agreement allows hosting service providers and independent software vendors who want to license eligible Microsoft software products to provide software services and hosted applications to their end customers. Were seeing our family of products play key roles in the ways the world is continuing to work, learn, and connect. There were 63 patent infringement cases pending against Microsoft as of June 30, 2021, none of which are material individually or in aggregate. We continue to invest in new gaming studios and content to expand our IP roadmap and leverage new content creators. The federal and state net operating loss carryforwards will expire in various years from fiscal 2022 through 2041, if not utilized. Operating expenses increased $1.9 billion or 12% driven by investments in Azure. Refer to Note 13 Unearned Revenue for further information, including unearned revenue by segment and changes in unearned revenue during the period. 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. In the first fiscal quarter of 2023, revenue in the Microsoft Intelligent Cloud segment, which includes the Azure public cloud, Windows Server, SQL Server, Nuance, and Enterprise Services, was $20 . We design and sell devices, including Surface and PC accessories. Gains and losses representing hedge components excluded from the assessment of effectiveness are recognized in other income (expense), net. We expect to recognize approximately 50% of this revenue over the next 12 months and the remainder thereafter. We review debt investments quarterly for credit losses and impairment. No instances of impairment were identified in our May 1, 2021, May 1, 2020, or May 1, 2019 tests. We continue to open new opportunities for gamers to engage both on- and off-console with both the launch of Xbox Cloud Gaming, our game streaming service, and continued investment in gaming hardware. Our strategy requires continued investment in datacenters and other hybrid and edge infrastructure to support our services. Cloud services, which allow customers to use hosted software over the contract period without taking possession of the software, are provided on either a subscription or consumption basis. RSUs generally vest ratably over a service period of four years. Stock awards generally vest over a service period of four years or five years. We contribute fifty cents for each dollar a participant contributes into the plans, with a maximum employer contribution of 50% of the IRS contribution limit for the calendar year. The fair value of stock awards was estimated on the date of grant using the following assumptions: During fiscal year 2021, the following activity occurred under our stock plans: As of June 30, 2021, there was approximately $12.0 billion of total unrecognized compensation costs related to stock awards. 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. Source:Microsoft. ", Microsoft, Microsoft's revenue from 2012 to 2022 financial years, by segment (in billion U.S. dollars) Statista, https://www.statista.com/statistics/273482/segment-revenue-of-microsoft/ (last visited March 01, 2023), Microsoft's revenue from 2012 to 2022 financial years, by segment (in billion U.S. dollars) [Graph], Microsoft, July 26, 2022. They consist predominantly of highly liquid investment-grade fixed-income securities, diversified among industries and individual issuers. Additionally, for certain equipment leases, we apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities. Our cloud business benefits from three economies of scale: datacenters that deploy computational resources at significantly lower cost per unit than smaller ones; datacenters that coordinate and aggregate diverse customer, geographic, and application demand patterns, improving the utilization of computing, storage, and network resources; and multi-tenancy locations that lower application maintenance labor costs. Microsoft Key . Our objectives for holding derivatives include reducing, eliminating, and efficiently managing the economic impact of these exposures as effectively as possible. We believe learning can be more than formal instruction, and our learning philosophy focuses on providing the right learning, at the right time, in the right way. General and administrative expenses were relatively unchanged, driven by prior year charges associated with the closing of our Microsoft Store physical locations, offset in part by an increase in certain employee-related expenses and business taxes. Visual Studio has more than 25 million monthly users, and GitHub is home to over 65 million developers who use it to build, ship, and maintain their software. Microsoft's revenue from 2012 to 2022 financial years, by segment (in billion U.S. dollars) [Graph]. We have historically paid India withholding taxes on software sales through distributor withholding and tax audit assessments in India. 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. . Get full access to all features within our Business Solutions. Continuing . Meanwhile, the company is plowing billions of dollars into its Reality Labs (metaverse) segment despite it generating a mere pittance in terms of revenue. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date they are made. Cost of revenue is allocated in certain cases based on a relative revenue methodology. $63.364 billion of Microsoft's $198.270 billion in fiscal year 2022 revenue came from the Productivity and Business Processes segment. 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. $75.25B. 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. These obligations did not have a material impact in our consolidated financial statements during the periods presented. For hardware warranties, we estimate the costs based on historical and projected product failure rates, historical and projected repair costs, and knowledge of specific product failures (if any). These operating and finance leases will commence between fiscal year 2022 and fiscal year 2026 with lease terms of 1 year to 15 years. The financial results of GitHub have been included in our consolidated financial statements since the date of the acquisition. 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. With significant input from employees and leaders who are members of the Black and African American community, our senior leadership team and board of directors announced in June 2020 that we had developed a set of actions to help improve the lived experience at Microsoft and drive change in the communities in which we live and work. us-gaap:OperatingIncomeLoss. While we intend to defend these matters vigorously, adverse outcomes that we estimate could reach approximately $500 million in aggregate beyond recorded amounts are reasonably possible. In a time of great disruption and uncertainty, customers are looking to us to accelerate their own digital transformations as software and cloud computing play a huge role across every industry and around the world. We repurchased the following shares of common stock under the share repurchase programs: Shares repurchased during fiscal year 2021 and the fourth quarter of fiscal year 2020 were under the share repurchase program approved on September 18, 2019. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital. If market, industry, and/or investee conditions deteriorate, we may incur future impairments. Net income fell 12% to . Its also why were making direct investments through our $1 billion Climate Innovation Fund to help organizations accelerate the development of solutions for carbon reduction and removal technology. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We have recast certain prior period amounts to conform to the way we internally manage and monitor our business. These costs include our internal sales force compensation program and certain partner sales incentive programs as we have determined annual compensation is commensurate with annual sales activities. At Microsoft we have an inherently inclusive mission: to empower every person and every organization on the planet to achieve more. 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. We license software to organizations under volume licensing agreements to allow the customer to acquire multiple licenses of products and services instead of having to acquire separate licenses through retail channels. 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