MICROSOFT CORP | 2013 | FY | 3


NOTE 21 — SEGMENT INFORMATION AND GEOGRAPHIC DATA

In its operation of the business, management, including our chief operating decision maker, the company’s Chief Executive Officer, reviews certain financial information, including segmented internal profit and loss statements prepared on a basis not consistent with U.S. GAAP. The segment information within this note is reported on that basis. During the periods presented, our five segments were Windows Division, Server and Tools, Online Services Division, Microsoft Business Division, and Entertainment and Devices Division. During the three months ended December 31, 2012, we changed the name of our Windows & Windows Live Division to Windows Division.

Due to the integrated structure of our business, certain revenue earned and costs incurred by one segment may benefit other segments. Revenue on certain contracts may be allocated among the segments based on the relative value of the underlying products and services. Costs that are identifiable are allocated to the segments that benefit to incent cross-collaboration among our segments so that one segment is not solely burdened by the cost of a mutually beneficial activity. Allocated costs may include those relating to development and marketing of products and services from which multiple segments benefit, or those costs relating to services performed by one segment on behalf of other segments. Each allocation is measured differently based on the specific facts and circumstances of the costs being allocated.

 

In addition, certain costs incurred at a corporate level that are identifiable and that benefit our segments are allocated to them. These allocated costs include costs of: field selling; employee benefits; shared facilities services; and customer service and support. Each allocation is measured differently based on the specific facts and circumstances of the costs being allocated. Certain other corporate-level activity is not allocated to our segments, including costs of: broad-based sales and marketing; product support services; human resources; legal; finance; information technology; corporate development and procurement activities; research and development; legal settlements and contingencies; and employee severance.

We have recast certain prior period amounts within this note to conform to the way we internally managed and monitored segment performance during the current fiscal year, reflecting immaterial movements of business activities between segments and changes in cost allocations. In July 2013, we announced a change in organizational structure as part of our transformation to a devices and services company. As we evolve how we allocate resources and analyze performance in the new structure, it is possible that our segments may change.

The principal products and services provided by each segment are summarized below:

Windows Division – Windows Division offerings consist of the Windows operating system, Surface, and PC accessories.

Server and Tools – Server and Tools product and service offerings include Windows Server, Windows Azure, Microsoft SQL Server, Windows Intune, Windows Embedded, Visual Studio, System Center products, and Enterprise Services. Enterprise Services comprise Premier product support services and Microsoft Consulting Services.

Online Services Division – Online Services Division offerings include Bing, Bing Ads, and MSN.

Microsoft Business Division – Microsoft Business Division offerings include Microsoft Office, Exchange, SharePoint, Lync, Yammer, Microsoft Dynamics business solutions, and Office 365.

Entertainment and Devices Division – Entertainment and Devices Division offerings include the Xbox 360 gaming and entertainment console, Kinect for Xbox 360, Xbox 360 video games, Xbox 360 accessories, Xbox LIVE, Skype, and Windows Phone.

Segment revenue and operating income (loss) were as follows during the periods presented:

 

(In millions)                   


Year Ended June 30,    2013     2012     2011  
Revenue                   

Windows Division

   $   18,680      $   18,844      $   18,815   

Server and Tools

     20,295        18,544        16,571   

Online Services Division

     3,284        2,935        2,680   

Microsoft Business Division

     24,738        24,082        22,407   

Entertainment and Devices Division

     10,213        9,590        8,896   

Corporate and other

     639        (272     574   


 


 


Consolidated

   $ 77,849      $ 73,723      $ 69,943   
    


 


 


 

(In millions)                   


Year Ended June 30,    2013     2012     2011  
Operating Income (Loss)                   

Windows Division

   $ 8,943      $ 12,005      $ 12,040   

Server and Tools

     8,152        7,256        6,132   

Online Services Division

     (1,298     (8,117     (2,649

Microsoft Business Division

     16,189        15,803        14,467   

Entertainment and Devices Division

     888        381        1,299   

Corporate and other

     (6,110     (5,565     (4,128


 


 


Consolidated

   $   26,764      $   21,763      $   27,161   
    


 


 


Reconciling amounts in the tables above and below include adjustments to conform our internal accounting policies to U.S. GAAP and corporate-level activity not specifically attributed to a segment. Significant internal accounting policies that differ from U.S. GAAP relate to revenue recognition, income statement classification, and depreciation.

Significant reconciling items were as follows:

 

(In millions)                   


Year Ended June 30,    2013     2012     2011  

Corporate-level activity (a)

   $ (6,665   $ (5,114   $ (4,506

Revenue reconciling amounts (b)

     400        (484     380   

Other

     155        33        (2


 


 


Total

   $   (6,110)      $   (5,565)      $   (4,128)   
    


 


 


 

(a)

Corporate-level activity excludes revenue reconciling amounts presented separately in that line item.

(b)

Revenue reconciling amounts for fiscal year 2012 and 2013 include the deferral and subsequent recognition, respectively, of $540 million of revenue related to the Windows Upgrade Offer.

No sales to an individual customer or country other than the United States accounted for more than 10% of fiscal year 2013, 2012, or 2011 revenue. Revenue, classified by the major geographic areas in which our customers are located, was as follows:

 

(In millions)                   


Year Ended June 30,    2013     2012     2011  

United States (a)

   $   41,344      $ 38,846      $   38,008   

Other countries

     36,505        34,877        31,935   


 


 


Total

   $ 77,849      $   73,723      $ 69,943   
    


 


 


 

(a)

Includes billings to OEMs and certain multinational organizations because of the nature of these businesses and the impracticability of determining the geographic source of the revenue.

Revenue from external customers, classified by significant product and service offerings were as follows:

 

(In millions)                   


Year Ended June 30,    2013     2012     2011  

Microsoft Office system

   $   22,995      $   22,299      $   20,730   

Windows operating systems for computing devices

     17,529        17,320        17,825   

Server products and tools

     15,408        14,232        13,251   

Xbox 360 platform

     7,100        8,045        8,103   

Consulting and product support services

     4,372        3,976        3,372   

Advertising

     3,387        3,181        2,913   

Other

     7,058        4,670        3,749   


 


 


Total

   $ 77,849      $ 73,723      $ 69,943   
    


 


 


 

Assets are not allocated to segments for internal reporting presentations. A portion of amortization and depreciation is included with various other costs in an overhead allocation to each segment, and it is impracticable for us to separately identify the amount of amortization and depreciation by segment that is included in the measure of segment profit or loss.

Long-lived assets, excluding financial instruments and tax assets, classified by the location of the controlling statutory company and with countries over 10% of the total shown separately, were as follows:

 

(In millions)                   


June 30,    2013     2012     2011  

United States

   $   16,615      $   14,081      $   18,498   

Luxembourg

     6,943        6,975        0   

Other countries

     4,171        3,835        2,989   


 


 


Total

   $ 27,729      $ 24,891      $ 21,487   
    


 


 



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