As of June 30, 2022, we accrued aggregate legal liabilities of $364 million. In addition, all our broker- priced investments have a sufficient level of trading volume to demonstrate that the fair values used are appropriate for these investments. We also deliver relevant online advertising to a global audience. As of June 30, 2022, we employed approximately 221,000 people on a full-time basis, 122,000 in the U.S. and 99,000 internationally. Xbox content and services revenue increased 3% driven by growth in Xbox Game Pass subscriptions and first- party content, offset in part by a decline in third-party content. Server products and cloud services revenue increased 28% driven by Azure and other cloud services growth of 45%. We have operating and finance leases for datacenters, corporate offices, research and development facilities, Microsoft Experience Centers, and certain equipment. Our most significant expenses are related to compensating employees; designing, manufacturing, marketing, and selling our products and services; datacenter costs in support of our cloud-based services; and income taxes. Refer to Note 16 Stockholders Equity of the Notes to Financial Statements in our fiscal year 2022 Form 10-K for further discussion. Unearned revenue comprises mainly unearned revenue related to volume licensing programs, which may include SA and cloud services. In March 2022, we completed our acquisition of Nuance Communications, Inc. (Nuance). The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. Localizing a product may require modifying the user interface, altering dialog boxes, and translating text. The fair value of stock awards is based on the quoted price of our common stock on the grant date less the present value of expected dividends not received during the vesting period. In March 2021, the India Supreme Court ruled favorably in the case of Engineering Analysis Centre of Excellence Private Limited vs The Commissioner of Income Tax for companies in 86 separate appeals, some dating back to 2012, holding that software sales are not subject to India withholding taxes. We monitor our foreign currency exposures daily to maximize the economic effectiveness of our foreign currency hedge positions. Founder, President and Chief Executive Officer, Fable Group Inc. Satya Nadella The remaining transition tax of $12.0 billion is payable over the next four years, with $1.3 billion payable within 12 months. DIRECTORS AND EXECUTIVE OFFICERS OF MICROSOFT CORPORATION, Satya Nadella CALs provide access rights to certain server products, including SQL Server and Windows Server, and revenue is reported along with the associated server product. Certain of our counterparty agreements for derivative instruments contain provisions that require our issued and outstanding long-term unsecured debt to maintain an investment grade credit rating and require us to maintain minimum liquidity of $1.0 billion. We have the opportunity to redefine what customers and partners can expect and are working to deliver new solutions that reflect the best of Microsoft. Microsoft Products 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. Windows original equipment manufacturer licensing (Windows OEM) revenue increased 11%. This pricing methodology applies to our Level 1 investments, such as U.S. government securities, common and preferred stock, and mutual funds. With our new Microsoft Intelligent Data Platform, we are helping customers focus on creating value instead of integrating a fragmented data estate. Making a difference in the lives of each other, our customers, and the world around us. Refer to the Non-GAAP Financial Measures section below for a reconciliation of our financial results reported in accordance with GAAP to non-GAAP financial results. We allocate goodwill to reporting units based on the reporting unit expected to benefit from the business combination. In general, and where applicable, we use quoted prices in active markets for identical assets or liabilities to determine the fair value of our financial instruments. Based on this evaluation, management concluded that the Companys internal control over financial reporting was effective as of June 30, 2022. These are our building blocks, united by our shared purpose of economic empowerment. Gross margin increased $9.4 billion or 22% driven by growth in Azure and other cloud services. We design and sell devices, including Surface and PC accessories. Under Open Value agreements, organizations can elect to purchase perpetual licenses or subscribe to licenses and SA is included. 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. Certain forecasted transactions, assets, and liabilities are exposed to foreign currency risk. We are building a distributed computing fabric across cloud and the edge to help every organization build, run, and manage mission-critical workloads anywhere. Zoom offers videoconferencing and cloud phone solutions. Once technological feasibility is established, software costs are capitalized until the product is available for general release to customers. ASX:SQ2 (63.5B) Year. Nuance is reported as part of our Intelligent Cloud segment. TIDAL is a global platform for musicians and their fans that uses unique content, experiences, and services to bring fans closer to the artists they love and give artists the tools to succeed as entrepreneurs. And, along with partner companies, we launched the Neurodiversity Career Connector, a jobs marketplace for neurodivergent job seekers. Customers may purchase perpetual licenses or subscribe to licenses, which provide customers with the same functionality and differ mainly in the duration over which the customer benefits from the software. Refer to Note 19 Segment Information and Geographic Data for further information, including revenue by significant product and service offering. 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. Every day this past fiscal year I have had the privilege to witness our customers use our platforms and tools to connect what technology can do with what the world needs it to do. For access to additional financial information, visit the Investor Relations website online at: www.microsoft.com/investor. We joined the First Movers Coalition as an early leader and expert partner in the carbon dioxide removal sector, with a commitment of $200 million toward carbon removal by 2030. "Now we're at 3.75% . Dilutive potential common shares include outstanding stock options and stock awards. To drive positive impact and growth with technology, people need to be able to trust the technologies they use and the companies behind them. To that end, we are making curriculum available free of charge to all of the nations public community colleges, providing training for new and existing faculty at 150 community colleges, and providing scholarships and supplemental resources to 25,000 students. Announcements of investor conferences, speeches, and events at which our executives talk about our product, service, and competitive strategies. As we make meaningful progress, we continue our commitment to meet the increasing expectations for driving innovation, welcoming diverse perspectives, and leading global change. In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine the SSP using information that may include market conditions and other observable inputs. We put our commitment into practice, not only within Microsoft but by empowering our customers and partners to do the same and by advocating for policy change. If the cost of an investment exceeds its fair value, we evaluate, among other factors, general market conditions, credit quality of debt instrument issuers, and the extent to which the fair value is less than cost. Business, and Chief Marketing Officer, Christopher D. Young The tax effect of such temporary differences is reported as deferred income taxes. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise. This includes the annual Standards of Business Conduct training. Fiscal year 2021 was a year of both successes and challenges. Azure SQL Database makes it possible for customers to take SQL Server from their on-premises datacenter to a fully managed instance in the cloud to utilize built-in AI. 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. Revenue, classified by the major geographic areas in which our customers were located, was as follows: Revenue, classified by significant product and service offerings, was as follows: We have recast certain previously reported amounts in the table above to conform to the way we internally manage and monitor our business. GB - Annual Reports - Website Appendix link. On June 6, 2022, we acquired Xandr, Inc., a technology platform with tools to accelerate the delivery of our digital advertising solutions. Certain volume licensing programs, including Enterprise Agreements, include on-premises licenses combined with Software Assurance (SA). This share repurchase program commenced in November 2021, following completion of the program approved on September 18, 2019, has no expiration date, and may be terminated at any time. The Independent Software Vendor Royalty program enables partners to integrate Microsoft products into other applications and then license the unified business solution to their end users. Microsoft Edge is our fast and secure browser that helps protect your data, with built-in shopping tools designed to save you time and money. Advertising costs are expensed as incurred. But its easy to talk about what were doing well. There are billions of people who want to achieve more, but have a different set of circumstances, abilities, and backgrounds that often limit access to opportunity and achievement. Growth in Devices is dependent on total PC shipments, the ability to attract new customers, our product roadmap, and expanding into new categories. Our responsibility is to express an opinion on the Companys internal control over financial reporting based on our audit. We are focused on building capabilities to support a variety of workstyles where individuals, teams, and our business can deliver success. We hire a mix of university and industry talent worldwide. Azure enables customers to devote more resources to development and use of applications that benefit their organizations, rather than managing on-premises hardware and software. Judgment is required in determining when technological feasibility of a product is established. Our consolidated financial statements and accompanying notes are prepared in accordance with GAAP. Our skills initiative brings together learning resources, certification opportunities, and job-seeker tools from LinkedIn, GitHub, and Microsoft Learn, and is built on data insights drawn from LinkedIns Economic Graph. 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. Microsoft Cloud Solution Provider is our main partner program for reselling cloud services. 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. Download Acrobat Reader free of charge. 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. Changes to our estimated variable consideration were not material for the periods presented. One area of digital skills has become especially critical: cybersecurity. The consolidated financial statements include the accounts of Microsoft Corporation and its subsidiaries. Size. Virtual Shareholder Meeting: www.virtualshareholdermeeting.com/MSFT22. We market and distribute our products and services through the following channels: OEMs, direct, and distributors and resellers. Together, Microsoft and Nuance will enable organizations across industries to accelerate their business goals with security-focused, cloud- based solutions infused with powerful, vertically optimized AI. A majority of our investments are priced by pricing vendors and are generally Level 1 or Level 2 investments as these vendors either provide a quoted market price in an active market or use observable inputs for their pricing without applying significant adjustments. We account for certain assets and liabilities at fair value. Examples of estimates and assumptions include: for revenue recognition, determining the nature and timing of satisfaction of performance obligations, and determining the standalone selling price (SSP) of performance obligations, variable consideration, and other obligations such as product returns and refunds; loss contingencies; product warranties; the fair value of and/or potential impairment of goodwill and intangible assets for our reporting units; product life cycles; useful lives of our tangible and intangible assets; allowances for doubtful accounts; the market value of, and demand for, our inventory; stock-based compensation forfeiture rates; when technological feasibility is achieved for our products; the potential outcome of uncertain tax positions that have been recognized in our consolidated financial statements or tax returns; and determining the timing and amount of impairments for investments. Once an investment is determined to be impaired, an impairment charge is recorded in other income (expense), net. Founded in 1975, we develop and support software, services, devices, and solutions that deliver new value for customers and help people and businesses realize their full potential. 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. Refer to Note 16 Stockholders Equity of the Notes to Financial Statements in our fiscal year 2022 Form 10-K for further discussion. We are 90 percent of the way to our 2025 commitment to double the number of Black and African American people managers, senior individual contributors, and senior leaders in the U.S., and 50 percent of the way for Hispanic and Latinx people managers, senior individual contributors, and senior leaders in the U.S. We exceeded our goal on increasing the percentage of transaction volumes 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. Sales and marketing expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with sales and marketing personnel, and the costs of advertising, promotions, trade shows, seminars, and other programs. Our work to help preserve, protect, and advance democracy by promoting a healthy information ecosystem and safeguarding electoral processes is as salient as ever in todays geopolitical climate. 2022 Proxy Statement (4/14/2022) 2021 Annual Report (12/31/2021) Annual Report (Interactive) (12/31/2021) Proxy Statement (4/16/2021) Annual Meeting of Shareholders Transcript 2020 Annual Report (12/31/2020) Annual Report (Interactive) (12/31/2020) As a corporation, our purpose and actions must be aligned with addressing the worlds problems, not creating new ones. Our growth depends on securely delivering continuous innovation and advancing our leading productivity and collaboration tools and services, including Office 365, Dynamics 365, and LinkedIn. Our gaming platform competes with console platforms from Nintendo and Sony, both of which have a large, established base of customers. 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