The major classes of assets and liabilities to which we allocated the purchase price were as follows: Following are the details of the purchase price allocated to the intangible assets acquired: Our consolidated income statement includes the following revenue and operating loss attributable to LinkedIn since the date of acquisition: Following are the supplemental consolidated financial results of Microsoft Corporation on an unaudited pro forma basis, as if the acquisition had been consummated on July 1, 2015: These pro forma results were based on estimates and assumptions, which we believe are reasonable. Using HoloLens, they built an entirely new and immersive way to teach and learn human anatomy. For software elements, we follow the industry specific software guidance which only allows for the use of VSOE in establishing fair value. Revenue and costs are generally directly attributed to our segments. Diluted EPS was negatively impacted by impairment, integration, and restructuring expenses, which resulted in a decrease to diluted EPS of $1.15. Open Licensing agreements are designed for small and medium organizations that want to license cloud services and on-premises software over a one- to three-year period. Cancel 0 Cart 0 items in shopping cart. 03/16/15: 2014 Annual Report: Add Files. For software warranties, we estimate the costs to provide bug fixes, such as security patches, over the estimated life of the software. Significant internal accounting policies that differ from U.S. GAAP relate to Windows 10 revenue recognition. Cost of revenue increased $985 million or 25%, primarily due to an increased mix of cloud offerings. While we employ much of our internally developed intellectual property exclusively in our products and services, we also engage in outbound and inbound licensing of specific patented technologies that are incorporated into licensees’ or Microsoft’s products. Executive Vice President, Business Additionally, our effective tax rate in fiscal year 2017 reflects the realization of tax benefits attributable to previous phone business losses. The implied fair value of the goodwill was then compared to the recorded goodwill to determine the amount of the impairment. Our common stock is traded on the NASDAQ Stock Market under the symbol MSFT. ESAs are also typically authorized as LSPs and operate as resellers for our other volume licensing programs. Azure includes a flexible platform that helps developers build, deploy, and manage enterprise, mobile, web, and IoT applications, for any platform or device without having to worry about the underlying infrastructure. More than 100 million people use Office 365 commercial. Securities held in our fixed-income portfolio are subject to different interest rate risks based on their maturities. The fiscal year 2016 effective tax rate included the impact of nondeductible phone charges and valuation allowances. Co-Chair and Trustee, Intelligent Cloud operating income decreased $488 million or 5%, primarily due to higher operating expenses, offset in part by higher gross margin. Office Consumer revenue increased $425 million or 14%, driven by higher revenue from Office 365 consumer, mainly due to growth in subscribers. At times, we make select intellectual property broadly available at no or low cost to achieve a strategic objective, such as promoting industry standards, advancing interoperability, or attracting and enabling our external development community. Beyond being a trusted, global, hyper-scale cloud, what makes Azure unique is our hybrid consistency, developer productivity and SaaS application integration. Software Assurance conveys rights to new software and upgrades for perpetual licenses released over the contract period. 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. Executive Vice President and President, Microsoft We have audited the internal control over financial reporting of Microsoft Corporation and subsidiaries (the “Company”) as of June 30, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. LinkedIn offers services that can be used by customers to transform the way they hire, market, sell, and learn. Shareholders may opt for the convenience of electronic shareholder materials. Judgment is required in assessing the future tax consequences of events that have been recognized on our consolidated financial statements or tax returns. We broadened our offerings to reach new audiences, such as bringing Office 365 to firstline workers from retail and hospitality to manufacturing. Announcements of investor conferences, speeches, and events at which our executives talk about our product, service, and competitive strategies. Commercial cloud annualized revenue run rate** exceeded $18.9 billion. The specific hardware warranty terms and conditions vary depending upon the product sold and the country in which we do business, but generally include parts and labor over a period generally ranging from 90 days to three years. Consulting services revenue is recognized as services are rendered, generally based on the negotiated hourly rate in the consulting arrangement and the number of hours worked during the period. We determine the allowance based on known troubled accounts, historical experience, and other currently available evidence. A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel 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. Gross margin included an unfavorable foreign currency impact of approximately 6%. Cost of revenue includes: manufacturing and distribution costs for products sold and programs licensed; operating costs related to product support service centers and product distribution centers; costs incurred to include software on PCs sold by OEMs, to drive traffic to our websites, and to acquire online advertising space; costs incurred to support and maintain Internet-based products and services, including datacenter costs and royalties; warranty costs; inventory valuation adjustments; costs associated with the delivery of consulting services; and the amortization of capitalized software development costs. We use a hierarchy to determine the fair value to be used for allocating revenue to elements: (i) vendor-specific objective evidence of fair value (“VSOE”), (ii) third-party evidence, and (iii) best estimate of selling price (“ESP”). We strive to create local opportunity, growth, and impact in every country around the world. Dividends and interest income increased due to higher portfolio balances and slightly higher yields on fixed-income securities. The number of shares the PSU holder receives is based on the extent to which the corresponding performance goals have been achieved. Assumptions used in measuring the value of these assets and liabilities included the discount rates and royalty rates used in valuing the intangible assets, and consideration of the market environment in valuing the tangible assets. Net revenue deferrals related to sales of Windows 10 negatively impacted our fiscal year 2016 U.S. loss by $6.0 billion and foreign income before income taxes by $588 million. Windows original equipment manufacturer licensing (“Windows OEM”) revenue increased 3%. Chief Executive Officer, The acquisition is expected to accelerate the growth of LinkedIn, Office 365, and Dynamics 365. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially. New scenarios – like those enabled by Microsoft Teams – will redefine how work gets done and help foster employee engagement and culture. Securities held in our equity and other investments portfolio are subject to market price risk. Search advertising revenue increased $1.7 billion or 46%. We are exposed to economic risk from foreign exchange rates, interest rates, credit risk, equity prices, and commodity prices. Contents NNIT in brief ... provider of Microsoft Dynamics 365 services: While seamlessly delivering high-quality cloud solutions and ser- ... 58% in 2017 to 63% in 2018, further re-ducing our dependency on the Novo Nordisk Group. Azure compute usage more than doubled year-over-year. Enterprise Services, including Premier Support Services and Microsoft Consulting Services. Critical accounting policies for us include revenue recognition, impairment of investment securities, goodwill, research and development costs, contingencies, income taxes, and inventories. The high and low common stock sales prices per share were as follows: On September 16, 2013, our Board of Directors approved a share repurchase program authorizing up to $40.0 billion in share repurchases. We allocate goodwill to reporting units based on the reporting unit expected to benefit from the business combination. We will be required to use a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. It is possible that the information we post on social media could be deemed to be material to investors. 2019 ANNUAL REPORT. 2018 ANNUAL REPORT. Our equity portfolio consists of global, developed, and emerging market securities that are subject to market price risk. Effective May 1, 2017, we prospectively adopted accounting guidance that simplifies our goodwill impairment testing by eliminating the requirement to calculate the implied fair value of goodwill (formerly “Step 2”) in the event that an impairment is identified. We continued to invest in innovation and expand our market opportunities, while maintaining our commitment to shareholder return, which included total cash return of $22.3 billion this year. Group Worldwide Chairman, DOWNLOAD NOW. Microsoft annual revenue for 2020 was $143.015B, a 13.65% increase from 2019. VIEW ONLINE. LinkedIn faces competition from online 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. Schneider Electric has built a smart farming platform using Azure IoT to enable farmers to more efficiently manage water use. Fiscal year 2017 compared with fiscal year 2016. Revenue included an unfavorable foreign currency impact of approximately 6%. The fair value of stock awards was estimated on the date of grant using the following assumptions: During fiscal year 2017, the following activity occurred under our stock plans: As of June 30, 2017, there was approximately $6.5 billion of total unrecognized compensation costs related to stock awards. Investments through which we are not able to exercise significant influence over the investee and which do not have readily determinable fair values are accounted for under the cost method. We distribute our retail packaged products primarily through independent non-exclusive distributors, authorized replicators, resellers, and retail outlets. Patent licensing revenue decreased 27%, due to a decline in license revenue per unit and licensed units. Some volume licensing arrangements include time-based subscriptions for cloud-based services and software offerings that are accounted for as subscriptions. Search advertising revenue included an unfavorable foreign currency impact of approximately 2%. And it’s not a mission we can achieve alone. Windows revenue decreased $958 million or 5%, mainly due to lower revenue from patent licensing, Windows OEM, and Windows Phone licensing. Corporation, Hugh F. Johnston 1 Productivity and Business Processes revenue increased slightly, primarily due to an increase in Office and Dynamics revenue. Our fair value processes include controls that are designed to ensure appropriate fair values are recorded. Executive Vice President, Chief We use derivative instruments to manage risks related to foreign currencies, equity prices, interest rates, and credit; to enhance investment returns; and to facilitate portfolio diversification. We generally have the ability to use other manufacturers if a current vendor becomes unavailable or unable to meet our requirements. Land is not depreciated. The fair values of these investments are determined based on valuation techniques using the best information available, and may include quoted market prices, market comparables, and discounted cash flow projections. Management is responsible for the preparation of the consolidated financial statements and related information that are presented in this report. Intelligent Cloud revenue increased, primarily due to higher revenue from server products and cloud services. Deloitte & Touche LLP and the internal auditors each have full and free access to the Audit Committee. As these updates and upgrades will not be sold on a stand-alone basis, we are unable to establish VSOE. A portion of amortization and depreciation is included with various other costs in an overhead allocation to each segment; it is impracticable for us to separately identify the amount of amortization and depreciation by segment that is included in the measure of segment profit or loss. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective method). Revenue is allocated between the existing product and the new product, and revenue allocated to the new product is deferred until that version is delivered. More Personal Computing revenue decreased, mainly due to lower revenue from Devices, offset in part by higher revenue from Windows and Search advertising. Microsoft Corp. We distribute our devices through third-party retailers. The components of intangible assets, all of which are finite-lived, were as follows: No material impairments of intangible assets were identified during fiscal year 2017. All notional amounts presented below are measured in U.S. dollar equivalents. Microsoft Corporation does not currently have any hardcopy reports on AnnualReports.com. These amounts are shown in the table below, with the exception of gains (losses) on derivatives presented in income statement line items other than other income (expense), net, which were immaterial for the periods presented. Intercompany transactions and balances have been eliminated. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. Salesforce.com’s cloud CRM offerings compete with our Dynamics CRM on-premises and Dynamics 365 offerings. During fiscal year 2017, 2016, and 2015, we repurchased 170 million shares, 294 million shares, and 295 million shares of our common stock for $10.3 billion, $14.8 billion, and $13.2 billion, respectively, through our share repurchase programs. 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. Adoption of the standard will be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date. Windows 10 is more personal and productive with functionality such as Cortana, Windows Hello, Windows Ink, Microsoft Edge, and universal applications. Financial Instruments – Recognition, Measurement, Presentation, and Disclosure. Operating expenses that are allocated primarily include those relating to marketing of products and services from which multiple segments benefit, and are generally allocated based on relative gross margin. We earn a significant amount of our operating income outside the U.S., which is deemed to be permanently reinvested in foreign jurisdictions. Server products and cloud services revenue grew 13%, driven by Microsoft Azure revenue growth of 99%. Gaming revenue increased $75 million or 1%, primarily due to higher revenue from Xbox Live and video games, offset in part by lower Xbox hardware revenue. The most significant impact of the standard relates to our accounting for software license revenue. Because our annual test indicated that Phone Hardware’s carrying value exceeded its estimated fair value, Step 2 of the goodwill impairment test was performed specific to Phone Hardware. Customers purchasing a Windows 10 license will receive unspecified updates and upgrades over the life of their Windows 10 device at no additional cost. Customers purchasing a Windows 10 license will receive unspecified updates and upgrades over the life of their Windows 10 device at no additional cost. As of June 30, 2017 and 2016, the total notional amounts of these foreign exchange contracts sold were $8.9 billion and $8.4 billion, respectively. Operating income included an unfavorable foreign currency impact of 4%. Other than those derivatives entered into for investment purposes, such as commodity contracts, the gains (losses) are generally economically offset by unrealized gains (losses) in the underlying available-for-sale securities, which are recorded as a component of OCI until the securities are sold or other-than-temporarily impaired, at which time the amounts are reclassified from accumulated other comprehensive income (“AOCI”) into other income (expense), net. We have galvanized the company’s efforts around AI both to power each of our product categories with breakthrough capabilities and make the same capabilities available to our customers through Azure. We invest in a range of emerging technology trends and breakthroughs that we believe offer significant opportunities to deliver value to our customers and growth for the company. We work actively in the U.S. and internationally to ensure the enforcement of copyright, trademark, trade secret, and other protections that apply to our software and hardware products, services, business plans, and branding. Business, and Chief Marketing Officer, Margaret (Peggy) L. Johnson Xbox Live enables people to connect and share online gaming experiences and is accessible on Xbox consoles, Windows-enabled devices, and other devices. The fiscal year 2016 effective tax rate included the impact of nondeductible phone charges and valuation allowances. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. Our segments provide management with a comprehensive financial view of our key businesses. 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. Satya Nadella Once technological feasibility is reached, such costs are capitalized and amortized to cost of revenue over the estimated lives of the products. Microsoft Cloud Solution Provider is our main partner program for reselling cloud services. We measure the fair value of PSUs using a Monte Carlo valuation model. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We offer our services across platforms and devices outside our own. Microsoft competes for talented individuals globally by offering an exceptional working environment, broad customer reach, scale in resources, the ability to grow one’s career across many different products and businesses, and competitive compensation and benefits. VIEW ONLINE. However, due to the integrated structure of our business, certain revenue recognized and costs incurred by one segment may benefit other segments. Accounting literature also provides guidance on derecognition of income tax assets and liabilities, classification of deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures. Former Chairman of the Board Revenue included an unfavorable foreign currency impact of approximately 5%. Find the latest Financials data for Microsoft Corporation Common Stock (MSFT) at Nasdaq.com. We also purchase or license technology that we incorporate into our products and services. Additionally, we have agreed to cover damages resulting from breaches of certain security and privacy commitments in our cloud business. We regularly review inventory quantities on hand, future purchase commitments with our suppliers, and the estimated utility of our inventory. As a multinational corporation, we have both a substantial opportunity and a high responsibility to ensure that technology’s benefits reach people more broadly across our global society and economy. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. Dear Shareholder, We invite you to attend the Annual Shareholders Meeting of Microsoft Corporation ("Annual Meeting"), which will be held at Meydenbauer Center, 11100 NE 6th Street, Bellevue, Washington 98004, on November 28, 2018 at 8:00 a.m. â¦ CALs provide access rights to certain server products, including SQL Server and Windows Server, and revenue is reported along with the associated server product. Matching contributions for all plans were $734 million, $549 million, and $454 million in fiscal years 2017, 2016, and 2015, respectively, and were expensed as contributed. Seattle, Washington Windows 10 is designed to foster innovation – from us, our partners, and developers – through rich and consistent experiences across the range of existing devices and entirely new device categories. We have operating leases for most U.S. and international sales and support offices, datacenters, research and development facilities, manufacturing facilities, retail stores, and certain equipment. We reached a settlement of the Austrian case in August 2016. Gross margin included an unfavorable foreign currency impact of approximately 5%. In February 2012, the IRS withdrew its 2011 Revenue Agents Report for tax years 2004 to 2006 and reopened the audit phase of the examination. In 2013, defendants in the consolidated cases moved to exclude plaintiffs’ expert evidence of general causation on the basis of flawed scientific methodologies. We also continue to be subject to examination by the IRS for tax years 2010 to 2016. In June 2015, we entered into agreements with AOL and AppNexus to outsource our display sales responsibility. In addition to these channels, we use social media to communicate to the public. Revenue recognition related to our hardware, cloud offerings such as Office 365, LinkedIn, and professional services will remain substantially unchanged. As of June 30, 2017, an aggregate of 127 million shares were authorized for future grant under our stock plans. As of June 30, 2017, our long-term unsecured debt rating was AAA, and cash investments were in excess of $1.0 billion. The actions associated with these restructuring plans were completed as of June 30, 2017. Common and preferred stock and other investments that are restricted for more than one year or are not publicly traded are recorded at cost or using the equity method. Actual results and outcomes may differ from management’s estimates and assumptions. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our Intelligent Cloud segment consists of our public, private, and hybrid server products and cloud services that can power modern business. Financial Officer, Christopher C. Capossela The resolutions of these audits are not expected to be material to our consolidated financial statements. During fiscal year 2017 and 2016, we did not record any material other-than-temporary impairments on financial assets required to be measured at fair value on a nonrecurring basis. Accordingly, revenue from licenses of Windows 10 is recognized ratably over the estimated life of the related device, which ranges between two to four years. An estimated loss from a loss contingency such as a legal proceeding or claim is accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. Azure is the cloud with the richest set of ML tools, bot framework and cognitive services, enabling developers to add AI capabilities into their applications. Revenue increased $2.4 billion or 10%, primarily due to higher revenue from server products and cloud services. Sign in. 2017 Annual Report Letâs put smart to work. The strength of our results across our reporting segments reflects our accelerating innovation as well as increased customer usage and engagement across our businesses. Revenue for retail packaged products, products licensed to original equipment manufacturers (“OEMs”), and perpetual licenses under certain volume licensing programs generally is recognized as products are shipped or made available. 2015 ANNUAL REPORT. Operating income included an unfavorable foreign currency impact of 3%. Revenue, classified by the major geographic areas in which our customers are located, was as follows: Revenue from external customers, classified by significant product and service offerings, were as follows: Our total commercial cloud revenue, which primarily comprises Office 365 commercial, Azure, Dynamics 365, and other cloud properties, was $14.9 billion, $9.5 billion, and $5.8 billion in fiscal years 2017, 2016, and 2015, respectively. In addition to our main research and development operations, we also operate Microsoft Research. Employees purchased the following shares during the periods presented: As of June 30, 2017, 129 million shares of our common stock were reserved for future issuance through the ESPP. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Microsoft Corporation and subsidiaries as of June 30, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2017, in conformity with accounting principles generally accepted in the United States of America. We have recast certain previously reported amounts to conform to the way we internally manage and monitor segment performance. Our server products face competition from a wide variety of server operating systems and applications offered by companies with a range of market approaches. Software updates are evaluated on a case-by-case basis to determine whether they meet the definition of an upgrade, which may require revenue to be deferred and recognized when the upgrade is delivered. Operating income included an operating loss of $948 million related to the acquisition of LinkedIn, including $866 million of amortization of intangible assets. Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. DOWNLOAD NOW. Weâve advanced our mission to empower every person and every organization on the â¦ View Online | â¦ Net losses on derivatives increased due to higher losses on equity derivatives, offset in part by lower losses on commodity and foreign currency derivatives.