microsoft annual report 2017
The takeaway from todayâs report â¦ With Visual Studio and Azure Services, we provide the toolchain and application platform for modern DevOps that helps organizations with their agility and productivity — and enable them to use the best of the Windows ecosystem and the best of the Linux ecosystem together. However, because all elements are accounted for as subscriptions and have the same coverage period and delivery pattern, they have the same revenue recognition timing. The fiscal year 2016 effective tax rate included the impact of nondeductible phone charges and valuation allowances. A number of companies, such as Red Hat, supply versions of Linux. 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. 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. Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis (May 1 for us) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. We believe our server products and cloud services, which include Microsoft SQL Server, Windows Server, Visual Studio, System Center, and Microsoft Azure, make us the only company with a public, private, and hybrid cloud platform that can power modern business. Intercompany transactions and balances have been eliminated. Any change in the goodwill amounts resulting from foreign currency translations and purchase accounting adjustments are presented as “Other” in the above table. Unearned revenue as of June 30, 2017 was comprised mainly of unearned revenue from volume licensing programs. The Ontario and Quebec cases are inactive. We have a savings plan in the U.S. that qualifies under Section 401(k) of the Internal Revenue Code, and a number of savings plans in international locations. For derivative instruments that are not designated as hedges, gains (losses) from changes in fair values are primarily recognized in other income (expense), net. Our video games competitors include Electronic Arts and Activision Blizzard. To sign up for this free service, visit the Annual Report site on the Investor Relations website at: http://www.microsoft.com/investor/AnnualReports/default.aspx. The fair value of each reporting unit is estimated primarily through the use of a discounted cash flow methodology. Operating income included an unfavorable foreign currency impact of 3%. Where elements are delivered over different periods of time, and when allowed under U.S. GAAP, revenue is allocated to the respective elements based on their relative selling prices at the inception of the arrangement, and revenue is recognized as each element is delivered. Premium Subscriptions also includes Sales Solutions, which helps sales professionals find, qualify, and create sales opportunities and accelerate social selling capabilities. Research and development expenses increased $1.0 billion or 9%, primarily due to LinkedIn expenses and increased investments in cloud engineering, offset in part by a reduction in phone expenses. Archives of these events are also available. Changes in the carrying amount of goodwill were as follows: The measurement periods for the valuation of assets acquired and liabilities assumed end as soon as information on the facts and circumstances that existed as of the acquisition dates becomes available, but do not exceed 12 months. The Microsoft Cloud is a secure solution that can listen, learn, and predict; turning data into actionable insight that enhances business opportunities. Windows OEM revenue decreased 1%. This segment primarily comprises: Office Commercial is designed to increase personal, team, and organizational productivity through a range of products and services. The competitive position of Linux has also benefited from the large number of compatible applications now produced by many commercial and non-commercial software developers. Phone Hardware goodwill is included in the Devices reporting unit within More Personal Computing under our current segment structure. Our securities lending payable balance was $97 million as of June 30, 2017. Effective July 1, 2016, we retrospectively adopted accounting guidance that requires debt issuance costs to be recorded as a deduction from the carrying amount of the debt liability, consistent with debt discounts. VIEW ONLINE. The estimated fair value of this commercial paper approximates its carrying value. We are working to enhance the customer’s return on investment by enabling enterprises to combine their existing datacenters and our public cloud into a single cohesive infrastructure. In the market that provides solutions for small and mid-sized businesses, our Dynamics products compete with vendors such as Infor, The Sage Group, and NetSuite. 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). Boeing is using Microsoft HoloLens for 3-D visualization to transform employee training, and it is using Cortana Intelligence, Azure and Azure IoT to harness a wealth of aircraft data. The plaintiffs allege that their handsets either operated outside the FCC Guidelines or were manufactured before the FCC Guidelines went into effect. LinkedIn connects the world’s professionals to make them more productive and successful, and is the world’s largest professional network on the Internet. of Management, BMW AG, William H. Gates III 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. Azure Stack is an extension of Azure that enables developers to build and deploy applications the same way whether they run on the intelligent cloud or the intelligent edge. Management does not believe any remaining unrealized losses represent other-than-temporary impairments based on our evaluation of available evidence. We evaluate the recoverability of intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired. Search advertising, including Bing and Bing Ads, is designed to deliver relevant online advertising to a global audience. Operating expenses increased $989 million or 12%, mainly due to higher research and development expenses and sales and marketing expenses. Adoption of the standard will result in the recognition of additional ROU assets and lease liabilities for operating leases of $6.6 billion and $5.2 billion as of June 30, 2017 and 2016, respectively. Amortization of capitalized software was $55 million, $69 million, and $79 million for fiscal years 2017, 2016, and 2015, respectively. To serve the needs of our customers well into the future, we must continually transform while remaining steadfast to our timeless values. We repurchased the following shares of common stock under the share repurchase programs: Shares repurchased during the third and fourth quarter of fiscal year 2017 were under the share repurchase program approved September 20, 2016. We are working to create a broad developer opportunity by unifying the Windows installed base on Windows 10, and by enabling universal Windows applications to run across all device targets. Cash used in investing increased $22.8 billion to $46.8 billion, mainly due to a $24.6 billion increase in cash used for acquisitions of companies, net of cash acquired, and purchases of intangibles and other assets, offset in part by a $1.9 billion decrease in cash used for net investment purchases, sales, and maturities. The Notice of Internet Availability of Proxy Materials, Legal proxy provided by your bank, broker, or nominee, If you received your proxy materials by email, a printout of the email, Brokerage statement or letter from a bank or broker indicating ownership on September 29, 2017. The VSOE of fair value for upcoming new products are based on the price determined by management having the relevant authority when the element is not yet sold separately, but is expected to be sold in the near future at the price set by management. Enterprise Agreements are designed for medium or large organizations that want to license cloud services and on-premises software organization-wide over a three-year period. However, Microsoft may need to grow its pace of innovation since the challenge from competition has grown a lot. Operating income decreased $177 million or 2%, primarily due to higher operating expenses, offset in part by higher gross margin. Office Commercial, including Office 365 subscriptions and Office licensed on-premises, comprising Office, Exchange, SharePoint, Skype for Business, and Microsoft Teams, and related Client Access Licenses (“CALs”). More than 27 million consumers use Office 365 Home & Personal across devices. Vertically integrated computer manufacturers such as Hewlett-Packard, IBM, and Oracle offer their own versions of the Unix operating system preinstalled on server hardware. When I reflect on the past year, I’m proud of our progress — both in our own continued transformation and in how we are empowering customers to digitally transform. Antitrust and unfair competition class action lawsuits were filed against us in British Columbia, Ontario, and Quebec, Canada. The implied fair value of the goodwill was then compared to the recorded goodwill to determine the amount of the impairment. Income tax expense includes U.S. and international income taxes, the provision for U.S. taxes on undistributed earnings of international subsidiaries not deemed to be permanently reinvested, and interest and penalties on uncertain tax positions. Certain forecasted transactions, assets, and liabilities are exposed to foreign currency risk. 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. Now let me share more about what we delivered in fiscal 2017 for our shareholders, our customers and partners, and for the communities in which we operate throughout the world. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Service and other revenue includes sales from cloud-based solutions that provide customers with software, services, platforms, and content such as Microsoft Office 365, Microsoft Azure, Microsoft Dynamics 365, and Xbox Live; solution support; and consulting services. 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. 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. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. We monitor our foreign currency exposures daily to maximize the economic effectiveness of our foreign currency hedge positions. Group Worldwide Chairman, Windows 10 offers a foundation for the secure, modern workplace. Gross margin increased $1.8 billion or 9%, primarily due to our acquisition of LinkedIn. In November 2016, we completed the sale of our feature phone business for $350 million. Revenue related to licensing for games published by third parties for use on the Xbox consoles is recognized when games are manufactured by the game publishers. IDT’s appeal of this decision was heard by the U.S. Court of Appeals for the Federal Circuit on April 7, 2017 and the Delaware case was stayed pending final completion of the inter partes review (including appeals and any subsequent proceedings in the Patent Office). Third, computing will be more distributed than ever before with compute power at the edge, whether it’s the connected car, the connected factory floor or any connected device. Dear shareholders, customers, partners, and employees: Thank you for your support and investment in Microsoft. Azure faces diverse competition from companies such as Amazon, Google, IBM, Oracle, Salesforce.com, VMware, and open source offerings. 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. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. Deferred tax assets are reported net of a valuation allowance when it is more likely than not that a tax benefit will not be realized. The consolidated financial statements, which include amounts based on management’s estimates and judgments, have been prepared in conformity with accounting principles generally accepted in the United States of America. Print versions of current and past annual reports, proxy statements, and Form 10Ks are available. We will continue to invest in the highest growth opportunities, innovate boldly, and empower people and organizations by creating the platforms and tools that enable others to grow and thrive, now and well into the future. It is my honor to be writing my sixth annual letter to you as shareholders and stakeholders of this great company. These estimates and assumptions are affected by management’s application of accounting policies. Customers purchasing a Windows 10 license will receive unspecified updates and upgrades over the life of their Windows 10 device at no additional cost. To find out more about these services and programs you may contact AST directly at 800-285-7772, option 1 between the hours of 5:00 a.m. and 5:00 p.m. Pacific Time, Monday through Fridays, or visit AST online at: http://www.astfinancial.com/, You can e-mail the transfer agent at: email@example.com. Gross margin included an unfavorable foreign currency impact of 2%. RSUs generally vest ratably over a four-year service period. 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. Software Assurance is included. Service and other revenue also includes sales from online advertising and LinkedIn. 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. Revenue and costs are generally directly attributed to our segments. We manage the securities relative to certain global and domestic indices and expect their economic risk and return to correlate with these indices. Office Consumer is designed to increase personal productivity through a range of products and services. Judgment is also required to assess whether future releases of certain software represent new products or upgrades and enhancements to existing products. Based on our assessment of key technology trends, we maintain our long-term commitment to research and development across a wide spectrum of technologies, tools, and platforms spanning digital work and life experiences, cloud computing, AI, and hardware operating systems.