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. Advertising expense was $1.5 billion, $1.6 billion, and $1.6 billion in fiscal years 2021, 2020, and 2019, respectively. Azure revenue grew 50% due to growth in our consumption-based services. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Revenue from Office 365 is recognized ratably over the period in which the cloud services are provided. 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. In that division, server products and cloud services revenue increased 20 percent from a year ago, boosted by a 31 percent rise . We have distribution agreements covering one or more of our products with virtually all the multinational OEMs, including Dell, Hewlett-Packard, Lenovo, and with many regional and local OEMs. But the most notable thing is what will happen to the other 90 percent. Vertically integrated computer manufacturers such as Hewlett-Packard, IBM, and Oracle offer their own versions of the Unix operating system preinstalled on server hardware. 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. We also know that solving the carbon problem will require new technology and partnerships. Nearly all computer manufacturers offer server hardware for the Linux operating system and many contribute to Linux operating system development. 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. Our employees donated an additional $214 million (including the company match) to the organizations and causes they care about. And with Azure for Operators, we provide telecom operators and enterprises with the ultra-low latency cloud computing power at the edge needed for breakthrough scenarios like precision inventory tracking at ports and production lines that automatically adjust to changing demand. Commercial cloud revenue was up 33% over last year. For more about Microsofts CSR commitments and performance, please visit: www.microsoft.com/transparency. ET. These contracts are not designated as hedging instruments and are included in Other contracts in the tables below. Microsoft. Our products include operating systems, cross-device productivity applications, server applications, business solution applications, desktop and server management tools, software development tools, and video games. Press releases on quarterly earnings, product and service announcements, legal developments, and international news. At the end of the quarter, it had a remaining share-repurchase authorization of $7.23 billion through December 2023 . Breaking down Microsoft's earnings by operational segment. Principal currencies hedged included the Euro, Japanese yen, British pound, Canadian dollar, and Australian dollar. Enterprise Agreements offer large organizations a manageable volume licensing program that gives them the flexibility to buy cloud services and software licenses under one agreement. In March 2021, the India Supreme Court ruled favorably for companies in 86 separate appeals, some dating back to 2012, holding that software sales are not subject to India withholding taxes. Following a mediation, the parties agreed to a global settlement of all three Canadian actions and submitted the proposed settlement agreement to the courts in all three jurisdictions for approval. 35.40%. us-gaap:OperatingIncomeLoss. Cloud usage and demand benefited as customers accelerate their digital transformation priorities. 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. Finally, we continue to stand up for human rights, which includes taking action to prevent modern slavery and human trafficking in our business and supply chain and supporting humanitarian action and emergency response. Access to this and all other statistics on 80,000 topics from, Show sources information AI is technologys most important priority, and healthcare is its most urgent application. 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. Our consumer businesses also benefited from the remote environment, with continued demand for PCs and productivity tools, as well as strong engagement across our Gaming platform. These metrics provide strategic product insights which allow us to assess the performance across our commercial and consumer businesses. 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. 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. To address this, we provide a complete chain of software development tools across every cloud and client platform. Definition and Limitations of Internal Control over Financial Reporting. Dynamics 365 for Talent with LinkedIn Recruiter and Learning gives human resource professionals a complete solution to compete for talent. Microsoft was built for this moment. Partners license software over a three-year period and are billed monthly based on consumption. 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 Companys 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. Each allocation is measured differently based on the specific facts and circumstances of the costs being allocated. Gross margin increased $18.9 billion or 20% driven by growth across each of our segments and the change in estimated useful lives of our server and network equipment. Antitrust, Unfair Competition, and Overcharge Class Actions. Growth depends on our ability to attract new users, understand intent, and match intent with relevant content and advertiser offerings. 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. In the five years since Microsoft acquired LinkedIn, revenue has nearly tripled and growth has accelerated. Together with our partners, we have reached more than 47 million people to date, across 250 countries, but the work doesnt stop there. Lead Independent Director, Refer to Note 13 Unearned Revenue for further information, including unearned revenue by segment and changes in unearned revenue during the period. Our short-term investments are primarily intended to facilitate liquidity and capital preservation. It also provides support, tools, training, and other licensing benefits to help customers deploy and use software efficiently. Throughout the fiscal year, we also collect nearly 75,000 Daily Pulse employee survey responses. Using Windows to fuel our cloud business, grow our share of the PC market, and drive increased engagement with our services like Microsoft 365 Consumer, Teams, Edge, Bing, Xbox Game Pass, and more. We test goodwill for impairment annually on May 1 at the reporting unit level, primarily using a discounted cash flow methodology with a peer-based, risk-adjusted weighted average cost of capital. We are committed to designing and marketing first-party devices to help drive innovation, create new device categories, and stimulate demand in the Windows ecosystem. Excluding this impact, gross margin percentage was relatively unchanged driven by gross margin percentage improvement in Azure, offset in part by sales mix shift to Azure. Its revenue is likely to amount to $51.2 billion. Principal currency exposures include the Euro, Japanese yen, British pound, Canadian dollar, and Australian dollar. Although we were not a party to the appeals, our software sales in India were determined to be not subject to withholding taxes. Under Open Value agreements, organizations can elect to purchase perpetual licenses or subscribe to licenses and SA is included. Xbox Cloud Gaming is now available on PCs, as well as phones and tablets, and later this year will come to the console. Translation adjustments resulting from this process are recorded to other comprehensive income. STATEMENT OF MANAGEMENTS RESPONSIBILITY FOR FINANCIAL STATEMENTS. Our exclusive game content is created through Xbox Game Studios, a collection of first-party studios creating iconic and differentiated gaming experiences. Being a global-scale cloud, Azure uniquely offers hybrid consistency, developer productivity, AI capabilities, and trusted security and compliance. Our server products are designed to make IT professionals, developers, and their systems more productive and efficient. We evaluated managements significant accounting policies related to these customer agreements for reasonableness. Amid rapid change weve witnessed technology empower telehealth, remote manufacturing, and new ways of working from home and serving customers. The metrics are disclosed in the MD&A or the Notes to Financial Statements. The better we represent that diversity inside Microsoft, the more effectively we can innovate for those we seek to empower. Although we were not a party to the appeals, our software sales in India were determined to be not subject to withholding taxes. 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. Serves as a specific grouping used for budgeting and forecasting purposes. 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. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Many organizations that license our products and services transact directly with us through Enterprise Agreements and Enterprise Services contracts, with sales support from system integrators, independent software vendors, web agencies, and partners that advise organizations on licensing our products and services (Enterprise Agreement Software Advisors or ESA). Microsoft Teams is enabling rapid digital transformation by giving people a single tool to chat, call, meet, and collaborate. For these components, we have limited near-term flexibility to use other manufacturers if a current vendor becomes unavailable or is unable to meet our requirements. Managers evaluate and recommend rewards based on, for example, how well we leverage the work of others and contribute to the success of our colleagues. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective. For all the disruption and suffering that the pandemic has wrought on our lives and our communities, it has also been the catalyst for an unprecedented digital transformation that is driving massive technological and societal shifts that are creating important new opportunities for our customers and for Microsoft. We are continuing our efforts to extend broadband access to millions of people in rural and underserved communities in the United States and around the globe. Slack provides teamwork and collaboration software. Archives of these events are also available. 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. Research and development expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with product development. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each reporting unit. The plaintiffs allege that their handsets either operated outside the FCC Guidelines or were manufactured before the FCC Guidelines went into effect. Intelligent cloud. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements. The company's Intelligent Cloud segment continued to lead revenue growth, up 25.5% compared to the year-ago quarter. 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