Segment Information

6 Months Ended

Dec. 31, 2012

Segment Information

NOTE 17    SEGMENT INFORMATION

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 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.

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

(In millions)	Three Months Ended December 31,						Six Months Ended December 31,
	2012			2011			2012			2011
Revenue
Windows Division	$	5,253		$	4,714		$	9,654		$	9,552
Server and Tools		5,191			4,740			9,746			8,957
Online Services Division		893			798			1,606			1,456
Microsoft Business Division		6,491			6,296			12,174			11,914
Entertainment and Devices Division		4,149			4,238			6,088			6,207
Unallocated and other		(521	)		99			(1,804	)		171
Consolidated	$	21,456		$	20,885		$	37,464		$	38,257
Operating income (loss)
Windows Division	$	2,671		$	2,854		$	5,484		$	6,100
Server and Tools		2,129			1,956			3,872			3,516
Online Services Division		(283	)		(456	)		(642	)		(969	)
Microsoft Business Division		4,367			4,172			8,198			7,875
Entertainment and Devices Division		937			520			954			874
Reconciling amounts		(2,050	)		(1,052	)		(4,787	)		(2,199	)
Consolidated	$	7,771		$	7,994		$	13,079		$	15,197

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)	Three Months Ended December 31,						Six Months Ended December 31,
	2012			2011			2012			2011
Corporate-level activity (a)	$	(1,524	)	$	(1,082	)	$	(2,915	)	$	(2,260	)
Revenue reconciling amounts (b)		(578	)		24			(1,927	)		52
Other		52			6			55			9
Total	$	(2,050	)	$	(1,052	)	$	(4,787	)	$	(2,199	)

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

(b) Revenue reconciling amounts for the three months ended December 31, 2012 includes: the recognition of $783 million of previously deferred revenue related to pre-sales of Windows 8 to OEMs and retailers before general availability (“Windows 8 Pre-Sales”); a net $161 million of revenue deferred related to the Windows Upgrade Offer; a net $788 million of revenue deferred related to the Office Deferral; and $380 million of revenue deferred related to the Video Game Deferral.

Revenue reconciling amounts for the six months ended December 31, 2012 includes: a net $545 million of revenue deferred related to the Windows Upgrade Offer; $977 million of revenue deferred related to the Office Deferral; and $380 million of revenue deferred related to the Video Game Deferral.

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.