Microsoft Corporation 2012 Annual Report

Segment Information & Geo 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. Our five segments are Windows & Windows Live Division; Server and Tools; Online Services Division; Microsoft Business Division; and Entertainment and Devices 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, including moving Forefront Protection for Office, an anti-malware solution, from Server and Tools to the Microsoft Business Division, as well as conforming management reporting and U.S. GAAP reporting for stock-based compensation.

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

Windows & Windows Live Division – Windows & Windows Live Division offerings consist of the Windows 7 operating system, software and services through Windows Live, and PC hardware products.

Server and Tools – Server and Tools product and service offerings include Windows Server, Windows Azure, Microsoft SQL Server, Windows Embedded device platforms, and Enterprise Services. Enterprise Services comprise Premier product support services and Microsoft Consulting Services.

Online Services Division – Online Services Division offerings include Bing, MSN, and advertiser tools.

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

Entertainment and Devices Division – Entertainment and Devices Division offerings include the Xbox 360 entertainment platform, including Kinect for Xbox 360, Skype, and Windows Phone.

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

(In millions)          
Year Ended June 30, 2012   2011   2010
Windows & Windows Live Division $ 18,818   $ 18,787   $ 18,789
Server and Tools 18,696   16,691   15,121
Online Services Division 2,934   2,680   2,345
Microsoft Business Division 23,963   22,314   19,525
Entertainment and Devices Division 9,585   8,896   6,135
Unallocated and other (273)   575   569
Consolidated $ 73,723   $ 69,943   $ 62,484

(In millions)
Year Ended June 30, 2012   2011   2010
Operating Income (Loss)          
Windows & Windows Live Division $ 11,908   $ 11,971   $ 12,193
Server and Tools 7,459   6,332   5,378
Online Services Division (8,122)   (2,649)   (2,395)
Microsoft Business Division 15,688   14,453   12,109
Entertainment and Devices Division 365   1,294   525
Reconciling amounts (5,535)   (4,240)   (3,712)
Consolidated $ 21,763   $ 27,161   $ 24,098

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, 2012   2011   2010
Corporate-level activity (a) $ (5,090)   $ (4,597)   $ (4,136)
Revenue reconciling amounts (486)   381   314
Other 41   (24)   110
Total $ (5,535)   $ (4,240)   $ (3,712)

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

No sales to an individual customer or country other than the United States accounted for more than 10% of fiscal year 2012, 2011, or 2010 revenue. Revenue, classified by the major geographic areas in which our customers are located, was as follows:

(In millions)          
Year Ended June 30, 2012   2011   2010
United States (a) $ 38,846   $ 38,008   $ 36,173
Other countries 34,877   31,935   26,311
Total $ 73,723   $ 69,943   $ 62,484

(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, 2012   2011   2010
Microsoft Office system $ 22,299   $ 20,730   $ 17,754
Windows PC operating systems 17,320   17,825   18,225
Server products and tools 14,232   13,251   12,007
Xbox 360 platform 8,045   8,103   5,456
Consulting and product support services 3,976   3,372   3,036
Advertising 3,181   2,913   2,528
Other 4,670   3,749   3,478
Total $ 73,723   $ 69,943   $ 62,484

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, 2012   2011   2010
United States $ 14,081   $ 18,498   $ 18,716
Luxembourg 6,975   0   0
Other countries 3,835   2,989   2,466
Total $ 24,891   $ 21,487   $ 21,182