As a result, information that our chief operating decision maker regularly reviews for purposes of allocating resources and assessing performance changed. Cash and/or security interests are received as collateral for the loaned securities with the amount determined based upon the underlying security lent and the creditworthiness of the borrower. No sales to an individual customer accounted for more than 10% of fiscal year 2014, 2013, or 2012 revenue. Novell appealed this decision to the U.S. Court of Appeals for the Tenth Circuit, which affirmed the trial court’s decision in September 2013. ACCOUNTING AND FINANCIAL DISCLOSURE. maturities ranging from 86 days to 91 days. distribution channel investments for several years, if at all. components is generally recognized when ownership is transferred to the resellers or to end customers when selling directly through Microsoft retail stores and online marketplaces. Microsoft Dynamics CRM's online offerings primarily compete with Salesforce.com's on-demand CRM offerings. Integration and restructuring We generate revenue by A company’s 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 company’s assets that could have a material effect on the financial statements. Under the Executive Incentive Plan (“EIP”), the Compensation Committee awards performance-based compensation comprising both cash and SAs to executive officers and certain senior executives. We strive to obtain information as early as possible about changing usage patterns and hardware advances that may affect software design. In December 2011, Microsoft filed an action against Motorola in the High Court pre-empted by federal law. The most significant cases against Nokia are pending in Germany and Austria, due to both high volume of sales and high levy amounts sought in these countries. require significant resources and are multi-year in nature. Commercial revenue increased $3.6 billion or 9%, due mainly to growth in revenue from our Computing We believe the combination of Azure and Windows Server makes us the only company with a public, private, and hybrid cloud platform that can power modern business. Interest expense on unrecognized tax benefits was $235 million, $400 million, and $154 In addition to these cases, there are Commercial competitors for our server applications for PC-based distributed client/server environments include CA Technologies, IBM, and Oracle. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. As of June 30, 2014, $35.1 billion remained of the $40.0 billion share repurchase program. You can e-mail the transfer agent at:  msft@amstock.com  In a separate 2009 decision, the Court of Appeals for the District of Columbia held that adverse health effect claims arising from the use of cellular handsets that operate within the U.S. Federal Communications Commission radio frequency emission guidelines (“FCC Guidelines”) are pre-empted by federal law. In In addition, we expect existing foreign cash, cash equivalents, short-term If our review indicates a reduction in utility below Financial Statement January 1 — December 31, 2014 We generate revenue by developing, licensing, and supporting a wide range of software products and services, by designing, manufacturing, and selling devices, and by delivering relevant online advertising to a global customer audience. Xbox Platform revenue increased $1.7 billion or 34%, due mainly to sales of Xbox One, which was released in November 2013, offset in part by a decrease in sales of Xbox 360. flows, and the trading price of our common stock. Commercial Licensing revenue increased $2.3 billion or 6%, due primarily to increased revenue from our server products, as well as higher revenue from Windows Commercial and Office Commercial. Nokia, along with other handset manufacturers and network operators, is a defendant in a 2013 class action lawsuit filed in the Supreme Court of British Columbia by a purported class of Canadians who have used cellular phones for at least 1600 hours, including a subclass of users with brain tumors. Generally, we also create product documentation internally. Commercial Licensing gross margin For executive Acquisition costs and other non-recurring charges incurred are included in the earliest period presented. The strategic importance of developing and maintaining a As a result, information that our chief operating decision maker regularly reviews for purposes of allocating resources and assessing performance changed. This goodwill impairment charge of $6.2 billion also represented our markets that are not active, and model-based valuation techniques (e.g. It is possible that the information we post on social media could be deemed to be material to investors. ordered us to create new versions of Windows that do not include certain multimedia technologies and to provide our competitors with specifications for how to implement certain proprietary Windows communications protocols in their own products. over-the-counter derivatives. Land is not depreciated. The motion was heard in In February 2012, We report the financial performance of the acquired business in our new Phone Hardware segment. shipped or made available. professionals and developers and their systems more productive and efficient. the value of the expense only accrues to that segment group. Emerging markets are a significant This pricing methodology applies to our Level 1 investments, such as exchange-traded mutual funds, domestic and international equities, and U.S. government securities. We adopted this new guidance beginning July 1, 2013. NDS has been included in our We earn a significant amount of our operating income outside the U.S., which is deemed to be permanently reinvested in foreign jurisdictions. services, and software solutions. Enterprise Services revenue grew $380 million or 9%, due mainly to growth in Premier Support Services. In 2014, Microsoft oversaw its revenue rise from $77.849 billion, which was recorded in 2013, to $86.83 billion in 2014 (2014 Annual Report n.p). The offer provided Securities held in our equity and other investments portfolio are subject to market price risk. smaller reporting company), Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Our mission is to enable people and organizations throughout the world to do more and achieve more by creating technology that transforms the way people learn, work, play, and communicate. If a significant portion of our source code leaks, we might lose future trade secret protection for that source code. Sales and marketing expenses increased $1.4 billion or 10%, reflecting advertising of Windows 8 and Surface. time-consuming. businesses and consumers under this model. determination of market value and the estimated volume of demand used in the lower of cost or market analysis require significant judgment. Management's Discussion and Analysis of Financial Condition and Results of Operations, Quantitative and Qualitative Disclosures about Market Risk, Financial Statements and Supplementary Data, Changes in and Disagreements with Accountants on Accounting and Financial Disclosure, Report of Management on Internal Control over Financial Reporting, Report of Independent Registered Public Accounting Firm, Directors, Executive Officers and Corporate Governance, Certain Relationships and Related Transactions, and Director Independence. Security of Microsoft's information technology. Read more. We distribute software through OEMs that pre-install our software on new PCs, tablets, servers, smartphones, and other intelligent devices that they sell to end customers. Windows PC operating system revenue decreased $655 million in fiscal year 2014, while Microsoft Office system and server products and tools revenue increased $1.3 billion and $1.6 billion, respectively, during this same period. Microsoft was served with the complaint in June 2014. Key changes in operating expenses were: Research and development expenses increased $970 million or 9%, due mainly to increased investment in new products and services in our Devices engineering Therefore, we have recast certain prior period amounts to conform to the way we internally managed and monitored segment performance during fiscal year 2014. This change impacted Note 10 – Goodwill, Note 14 – Unearned Revenue, With the creation of the new Phone Hardware Includes a charge related to a fine imposed by the European Commission in March 2013 which decreased operating income and net income by $733 million the allocated discount for undelivered Windows 8 was deferred until it was delivered or the redemption period expired. investments primarily include U.S. government securities, domestic and international equities, and actively traded mutual funds. ANNUAL REPORTANNUAL REPORTANNUAL REPORT 201420142014 Introduction Once again it is my pleasure to present the Annual School Report for Mundijong Primary School. Our international operations subject us to potential liability under anti-corruption, trade protection, and other laws and regulations. Although we license portions of our application and operating system source code to several licensees, we take significant measures to protect the secrecy of large portions of our source For example, regulators may take the position that our offerings such as Skype are covered by laws regulating telecommunications services. In May 2014, as part of its ongoing efforts to assist in the convergence of U.S. GAAP and International Financial Reporting Standards, We operate manufacturing facilities in Brazil, China, Hungary, Mexico, and Vietnam for the production of phones. 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. Certain forecasted transactions, assets, and liabilities are exposed to Microsoft IT Annual Report on Behance. ITEM 7. Microsoft was responsible for delivering Windows 8 Pro to the end customer. As a result, allowances for doubtful accounts and write-offs of This clarity of purpose and boldness of our aspiration inspires me and all of us at Microsoft. Under the settlements, generally class members can obtain vouchers that entitle them to be reimbursed for purchases of a wide variety of platform-neutral computer hardware and software. Windows PC operating system revenue increased $209 million in fiscal year 2013, while Microsoft Office system and server products and tools revenue increased $696 million and $1.2 billion, respectively, during this same period. We have audited the internal Additions to property and equipment will continue, including new facilities, data centers, and computer systems for research and development, sales and marketing, support, and administrative staff. In determining whether a loss should be accrued we evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. We review investments quarterly for indicators of other-than-temporary impairment. line items. We plan to continue to make significant investments in a broad range of research and development efforts. We ended fiscal year 2014 with over five million subscribers. We also fund research and Average headcount, excluding NDS, grew Translation adjustments resulting from this process are recorded to other comprehensive income ("OCI"). In fiscal year 2014, our Board of Directors declared the following dividends: The dividend declared on June 10, 2014 will be paid after the filing date of this Form 10-K and was included Microsoft was responsible for delivering Windows 8 Pro to the end customer. this Form 10-K) is also presented on this basis. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Individual consumers obtain these products primarily through retail outlets, such as Wal-Mart, Dixons, and Microsoft retail stores. 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. We are subject to income tax in many jurisdictions outside the U.S. Our operations in certain jurisdictions remain subject to examination for tax ensure the reliability of our services and the protection of their data. The SAs vest Gains (losses) on derivatives representing either hedge components excluded from the assessment of effectiveness or hedge ineffectiveness are recognized in earnings. financial position of Microsoft Corporation and subsidiaries as of June 30, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2014, in conformity with D&C Other gross margin increased $48 million or 2%, due to increased revenue offset in part by a $367 million or 9% increase in cost of revenue. fund significant discretionary activities, such as business acquisitions and share repurchases, we could elect to repatriate future earnings from foreign jurisdictions or raise capital in the U.S. through debt or equity issuances. 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 December 3, 2014 at 8:00 a.m. Pacific Time. 2012 ANNUAL REPORT. We will design applications as dual use with the intelligence to partition data between work and life while respecting each person's privacy choices. Examples of estimates include: loss contingencies; product warranties; the fair value of, and/or potential goodwill impairment for, our reporting units; product life cycles; useful lives of our tangible Advertising costs are expensed as incurred. 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. Platform"); Surface devices and accessories; and Microsoft PC accessories. hours worked during the period. Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be Also includes a charge for Surface RT inventory adjustments recorded in the fourth quarter of fiscal year 2013, which decreased net income by $596 million and diluted earnings per share by $0.07. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. We differentiate our offerings by providing a broad selection of content that helps users make faster, informed decisions, and take action more quickly by providing in the fair value of our portfolio due to adverse market movements over a defined time horizon. Consulting services revenue is recognized as services are rendered, generally based on the negotiated hourly rate in the consulting arrangement and the number of Our fixed-income investments are exposed to interest rate risk and credit risk. We will empower every person and every organization on the planet to do more and achieve more. 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. Stock-based compensation expense and related income tax benefits were as follows: Stock awards (“SAs”) are grants that entitle the holder to shares of Microsoft common stock as the award vests. Skype competes with a variety of instant messaging, voice, and video communication providers, ranging from start-ups to established enterprises. are primarily comprised of transaction fees and direct acquisition costs, including legal, finance, consulting, and other professional fees. 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. Upon closing of the acquisition, Nokia repurchased these notes at their principal amount plus accrued interest. Commercial Other revenue increased $1.9 billion or 33%, due to higher Commercial Cloud revenue and Enterprise Services revenue. signed on its behalf by the undersigned; thereunto duly authorized, in the City of Redmond, State of Washington, on July 31, 2014. Cash flows from operations decreased $2.8 billion during the current fiscal year to $28.8 billion, due mainly to changes in working capital, including increases in inventory and other current assets. Under the new standard, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. 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 The principal products and services provided by the Commercial Licensing segment are: server products, including Windows Server, Microsoft SQL Server, Visual Studio, System Center, and related Client Access Licenses (“CAL”); Windows Embedded; volume licensing of the Windows operating system, excluding academic (“Windows Commercial”); Microsoft Office for business, including Office, Exchange, SharePoint, Lync, and related CAL (“Office Commercial”); Skype; and Microsoft Dynamics business solutions, excluding Dynamics CRM Online. As of June 30, 2013, the total notional amounts of use derivatives on commodities as they can be low-cost alternatives to the purchase and storage of a variety of commodities, including, but not limited to, precious metals, energy, and grain. As of June 30, 2014 and June 30, 2013, the total notional amounts of these foreign exchange contracts sold were $4.9 billion and $5.1 billion, respectively. Our devices operating system and hardware. Motorola and Microsoft both seek damages as well as injunctive relief. raise the debt ceiling, and other budgetary decisions limiting or delaying federal government spending, could reduce government IT spending on our products and services and adversely affect our revenues. Tax contingencies and other tax liabilities were $9.4 billion and $7.6 billion as of June 30, 2013 and 2012, respectively, and are included in other long-term liabilities. We continue to contest the validity or infringement of the patents remaining in dispute. The valuation allowance disclosed in the table above relates to the foreign net operating loss carryforwards and other net deferred tax assets that may not be realized. In the transferred cases, Motorola asserts 15 patents are infringed by a range of Microsoft products including mobile and PC operating system, productivity, revenue from the arrangement is deferred and recognized over the implied PCS term when the VSOE of fair value does not exist.