Annual Report

Note 21 - 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. 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
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