And with Surface, we are reimagining every layer of the stack—from how we infuse AI from the silicon up, to device form factors, to the role of operating systems—investing across form and function to create new device categories. I’ve been inspired by the ingenuity and creativity of so many people and organizations in every industry around the world applying tech intensity to address big challenges, including those created by COVID-19: We are living in the era of the intelligent cloud and intelligent edge, which is being shaped by rapid advances in distributed computing, ambient intelligence, and multisense, multidevice experiences. 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. We design, manufacture, and sell devices, including Surface and PC accessories. Compensation cost for RSUs is recognized using the straight-line method and for PSUs is recognized using the accelerated method. It also provides support, tools, training, and other licensing benefits to help customers deploy and use software efficiently. Revenue from certain contracts is allocated among the segments based on the relative value of the underlying products and services, which can include allocation based on actual prices charged, prices when sold separately, or estimated costs plus a profit margin. Net recognized gains (losses) on debt investments were as follows: Net recognized gains (losses) on equity investments were as follows: The components of investments were as follows: Equity investments presented as “Other” in the tables above include investments without readily determinable fair values measured using the equity method or measured at cost with adjustments for observable changes in price or impairments, and investments measured at fair value using net asset value as a practical expedient which are not categorized in the fair value hierarchy. Intelligent Cloud revenue increased, driven by server products and cloud services. We have an ESPP for all eligible employees. These contracts are not designated as hedging instruments and are included in “Other contracts” in the tables below. Take the Next Step to Invest. In evaluating estimated losses on these obligations, we consider factors such as the degree of probability of an unfavorable outcome and our ability to make a reasonable estimate of the amount of loss. Revenue allocated to SA is generally recognized ratably over the contract period as customers simultaneously consume and receive benefits, given that SA comprises distinct performance obligations that are satisfied over time. Research and development expenses also include third-party development and programming costs, localization costs incurred to translate software for international markets, and the amortization of purchased software code and services content. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. We set an ambitious goal to reduce and ultimately remove Microsoft’s carbon footprint. Our increasing engagement with open source software will also cause us to license our intellectual property rights broadly in certain situations. 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. We also evaluate whether we have plans to sell the security or it is more likely than not that we will be required to sell the security before recovery. We provide indemnifications of varying scope and size to certain customers against claims of intellectual property infringement made by third parties arising from the use of our products and certain other matters. We protect our intellectual property investments in a variety of ways. We settled a portion of the Internal Revenue Service (“IRS”) audit for tax years 2004 to 2006 in fiscal year 2011. During fiscal year 2020, we recorded an impairment charge of $161 million to operating lease right-of-use assets due to the closing of our Microsoft Store physical locations. These new Surface products join Surface Pro 7, Surface Laptop 3, and Surface Pro X. Our hybrid infrastructure consistency spans identity, data, compute, management, and security, helping to support the real-world needs and evolving regulatory requirements of commercial customers and enterprises. In this next phase of innovation, computing is more powerful and ubiquitous from the cloud to the edge. Our Internet address is www.microsoft.com. Azure Arc enables organizations to deploy Azure services anywhere and extend Azure management to any infrastructure. Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases. Citi strives to create the best outcomes for our clients and customers with financial solutions that are simple, creative and responsible. Dynamics products and cloud services revenue increased 15%, driven by Dynamics 365 growth. Certain forecasted transactions, assets, and liabilities are exposed to foreign currency risk. Nov 14, 2018  Founder, Chief Executive The acquisition is expected to empower developers to achieve more at every stage of the development lifecycle, accelerate enterprise use of GitHub, and bring Microsoft’s developer tools and services to new audiences. Gross margin increased $4.1 billion or 13%, driven by growth in Office Commercial and LinkedIn. The agreement allows customers to acquire monthly or annual subscriptions for cloud-based services. 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 to align our credit loss methodology with the new standard. Office Consumer products and cloud services revenue increased $286 million or 7%, driven by Microsoft 365 Consumer, due to recurring subscription revenue and transactional strength in Japan. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable after we electronically file that material with or furnish it to the Securities and Exchange Commission (“SEC”) at www.sec.gov. Cash used in financing increased $3.3 billion to $36.9 billion for fiscal year 2019, mainly due to an $8.8 billion increase in common stock repurchases and a $1.1 billion increase in dividends paid, offset in part by a $6.2 billion decrease in repayments of debt, net of proceeds from issuance of debt. Identification and treatment of contract terms that may impact the timing and amount of revenue recognized (e.g., variable consideration, optional purchases, and free services). Annual Reports. We’re continuing to push ourselves to engage in developing the pipeline, while also challenging our assumptions on where and how best to identify talented employees. In particular, among the responsibilities of the Board’s Regulatory and Public Policy Committee is to review and provide guidance to the Board and management about the Company’s policies and programs that relate to CSR. Surface revenue increased $457 million or 8%, driven by increased demand from remote work and learn scenarios. Our customers see this urgent need and are looking to us—in partnership with them—to take action. Our effective tax rate for fiscal years 2020 and 2019 was 17% and 10%, respectively. The components of the deferred income tax assets and liabilities were as follows: Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when the taxes are paid or recovered. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date they are made. In these instances, we may use information such as the size of the customer and geographic region in determining the SSP. The way people interact with businesses is fundamentally shifting, and there is no going back. Our commercial metrics allow management and investors to assess the overall health of our commercial business and include leading indicators of future performance. And from Dynamics 365 Customer Insights for personalized customer experiences and Dynamics 365 Commerce for omnichannel retail, Dynamics 365 is the only AI-powered business cloud that gives customers a 360-degree view of their business to unify data and unlock insights. We also have an ESPP for all eligible employees. Equity investments without readily determinable fair values are written down to fair value if a qualitative assessment indicates that the investment is impaired and the fair value of the investment is less than carrying value. With the world’s most popular code editing tools—Visual Studio and VS Code—developers are more productive than ever. Segment revenue and operating income were as follows during the periods presented: No sales to an individual customer or country other than the United States accounted for more than 10% of revenue for fiscal years 2020, 2019, or 2018. Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Operating expenses decreased $172 million or 1%. In his annual shareholder letter, Satya Nadella, addresses our business and social impacts and sets the stage for both the 2018 CSR and Financial annual reports. "2018 Annual Report." Returns and credits are estimated at contract inception and updated at the end of each reporting period if additional information becomes available. For certain equipment leases, such as vehicles, we account for the lease and non-lease components as a single lease component. In August 2017, the Financial Accounting Standards Board (“FASB”) issued new guidance related to accounting for hedging activities. Virtual Shareholder Meeting: www.virtualshareholdermeeting.com/MSFT20. Identity, security, management, and compliance underlie our entire tech stack. Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. Our commercial and other business metrics are fundamentally connected based on how customers use our products and services. Windows original equipment manufacturer licensing (“Windows OEM”) revenue increased 9%. We recorded a provisional net charge of $13.7 billion related to the enactment of the TCJA in fiscal year 2018, and adjusted the provisional net charge by recording additional tax expense of $157 million in fiscal year 2019 pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. In the Productivity and Business Processes and Intelligent Cloud segments, cloud usage and demand increased as customers shifted to work and learn from home. It complements Azure Sentinel, which analyzes security signals across the entire organization, using AI to detect, investigate, and automatically remediate threats. DIRECTORS AND EXECUTIVE OFFICERS OF MICROSOFT CORPORATION, John W. Thompson 3,4 Sales and marketing expenses included a favorable foreign currency impact of 2%. View all MSFT assets, cash, debt, liabilities, shareholder equity and investments. The components of lease expense were as follows: Supplemental cash flow information related to leases was as follows: Supplemental balance sheet information related to leases was as follows: Maturities of lease liabilities were as follows: As of June 30, 2020, we have additional operating and finance leases, primarily for datacenters, that have not yet commenced of $3.4 billion and $3.5 billion, respectively. We’ve acted as digital first responders to the world’s first responders, supporting those on the front lines, from healthcare, to education, to public sector, to critical manufacturing, grocery, and retail. Officer, Marriott International, Inc. Reid G. Hoffman Microsoft - Annual Report 2018. Dynamics 365 for Talent with LinkedIn Recruiter and Learning gives human resource professionals a complete solution to compete for talent. Our goal is to lead the industry in several distinct areas of technology over the long-term, which we expect will translate to sustained growth. Annual Reports. Our Productivity and Business Processes segment consists of products and services in our portfolio of productivity, communication, and information services, spanning a variety of devices and platforms. Teri L. List-Stoll 1,3 We distribute our retail packaged products primarily through independent non-exclusive distributors, authorized replicators, resellers, and retail outlets. Our search business competes with Google and a wide array of websites, social platforms like Facebook, and portals that provide content and online offerings to end users. Windows OEM non-Pro revenue declined 7%, below the consumer PC market, driven by continued pressure in the entry level category. Windows OEM revenue increased 4%. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. Broadening our Aperture: Finding Talent in New Ways. The guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries. With a continued focus on digital transformation, Microsoft is making efforts to help ensure that no one is left behind, particularly as economies start to recover from the COVID-19 pandemic. We expect to recognize approximately 50% of this revenue over the next 12 months and the remainder thereafter. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. We can be contacted between the hours of 9:00 a.m. to 5:00 p.m. Pacific Time to answer investment oriented questions about Microsoft. The gamer remains at the heart of the Xbox ecosystem. This share repurchase program commenced in December 2016 and was completed in February 2020. It is at the root of every decision we make. There are two broad categories of OEMs. As of June 30, 2020, the primary unresolved issues for the IRS audits relate to transfer pricing, which could have a material impact in our consolidated financial statements when the matters are resolved. These entities have been included in our consolidated results of operations since their respective acquisition dates. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Based on the carrying amount of server and network equipment included in “Property and equipment, net” as of June 30, 2020, it is estimated this change will increase our fiscal year 2021 operating income by $2.7 billion. In fiscal year 2019, in response to the TCJA and recently issued regulations, we transferred certain intangible properties held by our foreign subsidiaries to the U.S. and Ireland. They enable people, organizations, and entire industries to not only thrive but reimagine the world. In fiscal year 2020, our foreign regional operating centers in Ireland and Puerto Rico, which are taxed at rates lower than the U.S. rate, generated 86% of our foreign income before tax. The transfers of intangible properties resulted in a $2.6 billion net income tax benefit recorded in the fourth quarter of fiscal year 2019, as the value of future tax deductions exceeded the current tax liability from foreign jurisdictions and U.S. global intangible low-taxed income (“GILTI”) tax. The consolidated financial statements include the accounts of Microsoft Corporation and its subsidiaries. Commercial remaining performance obligation, Commercial portion of revenue allocated to remaining performance obligations, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods, Revenue from our commercial cloud business, which includes Office 365 Commercial, Azure, the commercial portion of LinkedIn, Dynamics 365, and other commercial cloud properties, Gross margin percentage for our commercial cloud business, Productivity and Business Processes and Intelligent Cloud. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. And for that, I am optimistic. For software warranties, we estimate the costs to provide bug fixes, such as security patches, over the estimated life of the software. Xbox content and services revenue increased $943 million or 11% on a strong prior year comparable, driven by growth in Minecraft, third-party titles, and subscriptions, accelerated by higher engagement during stay-at-home guidelines. The components of other income (expense), net were as follows: We use derivative instruments to: manage risks related to foreign currencies, equity prices, interest rates, and credit; enhance investment returns; and facilitate portfolio diversification. Our web application platform software competes with open source software such as Apache, Linux, MySQL, and PHP. Consistent with last year’s disclosure, today we are sharing not only Microsoft’s numbers in a stand-alone fashion, but we are also providing a snapshot of Microsoft and LinkedIn’s representation in two key categories: women globally; and racial and ethnic minorities in the U.S. Microsoft & LinkedIn 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. Azure Machine Learning helps organizations build and deploy models faster, while ensuring they can do so responsibly and safely. Using Windows to fuel our cloud business and Microsoft 365 strategy, and to develop new categories of devices – both our own and third-party – on the intelligent edge.