Dear shareholders, colleagues, customers, and partners:
We are living through a period of historic economic, societal, and geopolitical change. The world in 2022 looks nothing like
the world in 2019. As I write this, inflation is at a 40-year high, supply chains are stretched, and the war in Ukraine is
ongoing. At the same time, we are entering a technological era with the potential to power awesome advancements
across every sector of our economy and society. As the world’s largest software company, this places us at a historic
intersection of opportunity and responsibility to the world around us.
Our mission to empower every person and every organization on the planet to achieve more has never been more
urgent or more necessary. For all the uncertainty in the world, one thing is clear: People and organizations in every
industry are increasingly looking to digital technology to overcome today’s challenges and emerge stronger. And no
company is better positioned to help them than Microsoft.
Every day this past fiscal year I have had the privilege to witness our customers use our platforms and tools to connect
what technology can do with what the world needs it to do.
Here are just a few examples:
• Ferrovial, which builds and manages some of the world’s busiest airports and highways, is using our cloud
infrastructure to build safer roads as it prepares for a future of autonomous transportation.
• Peace Parks Foundation, a nonprofit helping protect natural ecosystems in Southern Africa, is using Microsoft
Dynamics 365 and Power BI to secure essential funding, as well as our Azure AI and IoT solutions to help
rangers scale their park maintenance and wildlife crime prevention work.
• One of the world’s largest robotics companies, Kawasaki Heavy Industries, is using the breadth of our tools—
from Azure IoT and HoloLens—to create an industrial metaverse solution that brings its distributed workforce
together with its network of connected equipment to improve productivity and keep employees safe.
• Globo, the biggest media and TV company in Brazil, is using Power Platform to empower its employees to
build their own solutions for everything from booking sets to setting schedules.
• And Ørsted, which produces a quarter of the world’s wind energy, is using the Microsoft Intelligent Data
Platform to turn data from its offshore turbines into insights for predictive maintenance.
Amid this dynamic environment, we delivered record results in fiscal year 2022: We reported $198 billion in revenue and
$83 billion in operating income. And the Microsoft Cloud surpassed $100 billion in annualized revenue for the first time.
OUR RESPONSIBILITY
As a corporation, our purpose and actions must be aligned with addressing the world’s problems, not creating new ones.
At our very core, we need to deliver innovation that helps drive broad economic growth. We, as a company, will do well
when the world around us does well.
That’s what I believe will lead to widespread human progress and ultimately improve the lives of everyone. There is no
more powerful input than digital technology to drive the world’s economic output. This is the core thesis for our being as a
company, but it’s not enough. As we drive global economic growth, we must also commit to creating a more inclusive,
equitable, sustainable, and trusted future.
Support inclusive economic growth
We must ensure the growth we drive reaches every person, organization, community, and country. This starts with
increasing access to digital skills. This year alone, more than 23 million people accessed digital skills training as part of
our global skills initiative.
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But skills alone aren’t enough—we need to help people better prepare for and connect to jobs. That’s why we’ve
committed to equip 10 million people from underserved communities with skills for jobs in the digital economy by 2025.
One area of digital skills has become especially critical: cybersecurity. Cybersecurity is a significant threat for
governments, businesses, and individuals around the world, yet there simply aren’t enough people with cybersecurity
skills to fill open jobs.
To help address this, we’ve committed to skill and recruit 250,000 people into the US cybersecurity workforce by 2025—
especially those underrepresented in the field. And we’re helping an additional 24 countries with substantial cybersecurity
workforce shortages close their gaps too.
We also continue to deliver affordable, relevant cloud technology and industry-specific solutions to nonprofit organizations
addressing the world’s most pressing issues. This year, we provided $3.2 billion in donated and discounted technology to
302,000 nonprofits serving over 1.2 billion people globally. And earlier this month, we announced that Microsoft will
double the number of nonprofits we reach worldwide over the next five years.
Protect fundamental rights
We unequivocally support the fundamental rights of people, from defending democracy, to protecting human rights, to
addressing racial injustice and inequity. And, as people’s access to education, healthcare, jobs, and other critical services
becomes increasingly dependent on technology, it’s clear that access to broadband and accessible technology is also
fundamental to building a more equitable future.
Since 2017, we’ve helped more than 50 million people in unserved rural communities globally gain access to affordable
broadband coverage. Building on our work in eight US cities, we’re now partnering with five US states with significant
broadband adoption gaps to increase access, adoption, and equity. And—given the importance of current data to
broadband planning—the new Microsoft Digital Equity Dashboard will help US policymakers and communities identify
neighborhoods where funding and programmatic investment can achieve measurable impact.
This year, we continued our journey to address racial injustice and inequity by increasing representation within Microsoft,
engaging our ecosystem, and strengthening our communities.
Across our ecosystem, we are more than 90% of the way toward our commitment to spend an incremental $500 million
with Black- and African American-owned suppliers. We’ve coordinated over 80 justice reform partnerships to help 145
communities expand access to data-driven insights that advance a more equitable system of justice and public safety.
And we’ve expanded our Technology Education and Learning Support (TEALS) program to 290 high schools in cities with
large Black and African American communities—to promote more equitable access to computer science education.
Our work to help preserve, protect, and advance democracy by promoting a healthy information ecosystem and
safeguarding electoral processes is as salient as ever in today’s geopolitical climate. Our AccountGuard nation-state
threat notification service protects more than 4 million accounts of election officials, human rights organizations,
journalists, and other organizations. Our efforts to preserve and protect journalism in the United States and Mexico have
been extended globally through new partnerships with the Thomson Reuters Foundation, Report for the World, and
others.
This year, we responded to six humanitarian emergencies in five countries through donations, technology, services, and
employee giving. As of July 2022, we’ve committed $257 million in financial and technology assistance to the global
response to the war in Ukraine, including support for government, businesses, nonprofits, and humanitarian assistance for
refugees. And, through our AI for Humanitarian Action initiative, we’re helping organizations harness the power of AI to
improve their disaster preparedness, response, and recovery.
Finally, we continued working toward our five-year commitment to bridge the disability divide for the more than 1 billion
people around the world with disabilities, seeking to expand accessibility in technology, the workforce, and
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workplace. As just one example of this work, use of our Office Accessibility Checker—our ―spell check‖ for accessibility—
has grown by 9x over the past year. And, along with partner companies, we launched the Neurodiversity Career
Connector, a jobs marketplace for neurodivergent job seekers.
Create a sustainable future
We must ensure that economic growth does not come at the expense of our planet. Addressing climate change requires
swift, collective action and technical innovation. We’re continuing our pursuit of our own ambitious commitments and
helping others achieve their climate goals, aided by technology.
In March, we released our second annual sustainability report, sharing our progress, challenges, and learnings as we
pursue our commitments to become carbon negative, water positive, and zero waste. Although we continued to make
progress on several of our goals with an overall reduction in Scope 1 and Scope 2 emissions, our Scope 3 emissions
increased, due in large part to significant global datacenter expansions and the growth in Xbox sales and usage. Despite
these increases, we remain dedicated to achieving a net-zero future. We recognize that progress won’t always be linear,
and the rate at which we can implement emissions reductions is dependent on many factors that can fluctuate over time.
On the path to becoming water positive, we invested in 21 water replenishment projects that are expected to generate
over 1.3 million cubic meters of volumetric benefits in nine water basins around the world. Progress toward our zero waste
commitment included diverting more than 15,200 metric tons of solid waste otherwise headed to landfills and incinerators,
as well as launching new Circular Centers to increase reuse and reduce e-waste at our datacenters.
We contracted to protect over 17,000 acres of land (50% more than the land we use to operate), thus achieving our
commitment to protect more land than we use by 2025.
And with Microsoft Cloud for Sustainability, we’re expanding our work to help customers meet their ambitious
sustainability goals by enabling them to better collect, track, and analyze the metrics of their sustainability strategy.
Earn trust
To drive positive impact and growth with technology, people need to be able to trust the technologies they use and the
companies behind them. We are committed to earning trust—both trust in business model alignment with our customers
and partners, and trust in technology, spanning privacy, security, digital safety, the responsible use of AI, and
transparency.
We’re dedicated to preserving our customers’ privacy and their ability to control their own data. We advocate for strong
privacy laws that require companies, including ours, to be accountable and responsible in their collection and use of
personal data. That’s why we supported the new Trans-Atlantic Data Privacy Framework and committed to meet or
exceed all the requirements it outlines. And through the Microsoft privacy dashboard, millions of people each year can
make meaningful choices about how their data is used.
Security and digital safety are foundational to trust in today’s complex threat landscape. We analyze 43 trillion security
signals daily and use the insights to inform increased protections. This year, we blocked 34.7 billion identity threats and
37 billion email threats. Over the past four years, we’ve sent over 67,000 nation-state-related threat notifications to
customers to help them protect themselves from digital threats.
This comprehensive capability has been critical during recent world events, including the war in Ukraine. Our efforts have
involved both defending key infrastructure in the country—including assisting with the detection and disruption of
cyberattacks and cyberinfluence operations and evacuating data to the cloud—as well as supporting people,
communities, and organizations on the ground as part of our humanitarian and disaster response.
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Our commitment to responsibly develop and use technologies like AI is core to who we are. We put our commitment into
practice, not only within Microsoft but by empowering our customers and partners to do the same and by advocating for
policy change. We released our Responsible AI Standard, which outlines 17 goals aligned to our six AI principles and
includes tools and practices to support them. And we share our open-source tools, including the new Responsible AI
Dashboard, to help developers building AI technologies identify and mitigate issues before deployment.
Finally, we provide clear reporting and information on how we run our business and how we work with customers and
partners, delivering the transparency that is central to trust. Our annual Impact Summary shares more about our progress
and learnings across these four commitments, and our Reports Hub provides detailed reports on our environmental data,
our political activities, our workforce demographics, our human rights work, and more.
We should all be proud of this work—and I am. But it’s easy to talk about what we’re doing well. As we look to the next
year and beyond, we’ll continue to reflect on where the world needs us to do better.
OUR OPPORTUNITY
Now, let me turn to how we are positioned to capture the massive opportunities ahead. Over the past few years, I’ve
written extensively about digital transformation, but now we need to go beyond that to deliver on what I call the ―digital
imperative.‖
Technology is a deflationary force in an inflationary economy. Every organization in every industry will need to infuse
technology into every business process and function so they can do more with less. It’s what I believe will make the
difference between organizations that thrive and those that get left behind.
In the coming years, technology as a percentage of GDP will double from 5% to 10% and beyond, as technology moves
from a back-office cost center to a defining feature of every product and service. But even more important will be
technology’s influence on the other 90% of the world’s economy. From communications and commerce, to logistics,
financial services, energy, healthcare, and entertainment, digital technology will power the entire global economy as every
company becomes a software company in its own right.
Across our customer solution areas, we are delivering powerful platforms, tools, and services that expand our opportunity
to help every organization in every industry deliver on the digital imperative—with a business model that is trusted and
always aligned with their success.
Apps and infrastructure
We are building Azure as the world’s computer, with more than 60 datacenter regions—more than any other provider—
delivering faster access to cloud services while addressing critical data residency requirements. With Azure Arc, we’re
bringing Azure anywhere, meeting customers where they are and enabling them to run apps across on-premises, edge, or
multicloud environments. And we’re extending our infrastructure to the 5G network edge with Azure for Operators,
introducing new solutions to help telecom operators deliver ultra-low-latency services closer to end users.
As the digital and physical worlds come together, we’re also leading in the industrial metaverse. From smart factories, to
smart buildings, to smart cities, we’re helping organizations use Azure IoT, Azure Digital Twins, and Microsoft Mesh to
digitize people, places, and things, in order to visualize, simulate, and analyze any business process.
Data and AI
From best-in-class databases and analytics to data governance, we have the most comprehensive data stack to help
every organization turn its data into predictive and analytical power. With our new Microsoft Intelligent Data
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Platform, we are helping customers focus on creating value instead of integrating a fragmented data estate. Cosmos DB
is the go-to database powering the world’s most demanding, mission-critical workloads, at any scale. With Azure
Synapse, we’re removing traditional barriers between enterprise data warehousing and big data analytics so anyone can
collaborate, build, and manage analytics solutions. And we’re creating an entirely new market category with Microsoft
Purview, as we help organizations govern, protect, and manage their data estate across platforms and clouds.
When it comes to AI, we’re seeing a paradigm shift as the world’s large AI models become platforms themselves. And we
are helping organizations apply the world’s most advanced coding and language models to a variety of use cases, such
as writing assistance, code generation, and reasoning over data with our new Azure OpenAI Service.
Digital and app innovation
We have the most popular developer tools for any cloud and any platform to help organizations modernize existing apps
and build new ones. GitHub is the most complete developer platform to build, scale, and deliver secure software. This
year, we introduced GitHub Copilot, a first-of-its-kind AI pair programmer, to help developers write better code faster. And
organizations are increasingly turning to both Visual Studio and our Azure PaaS services to streamline development and
create modern, more resilient cloud-native applications.
Low-code/no-code tools are rapidly becoming a priority for every organization’s digital capability. With Power Platform, we
are helping domain experts rapidly drive productivity gains when it’s never been more important. We have nearly
25 million monthly active users. And we’re innovating to make it even easier for teams of professional and citizen
developers to automate workflows, create apps, build virtual agents, and analyze data.
Business applications
With our expanding portfolio of business applications, we are helping every business become a hyperconnected
business—unifying data, process, and teams across the organization. New Dynamics 365 Connected Spaces helps
organizations across diverse industries—from real estate and retail, to factories and construction—manage their physical
operations. And with new integrations between Dynamics 365 and Teams, we are creating a new category of
collaborative applications that helps businesses surface data and insights right in the flow of work.
Our industry clouds bring together capabilities across the Microsoft Cloud with industry-specific customizations to help
organizations improve time to value, increase agility, and lower costs. We completed our acquisition of Nuance
Communications this year, adding new cloud and enterprise AI capabilities for healthcare, as well as other industries. And
as sustainability becomes an existential priority not just for our society but for every organization, our new Microsoft Cloud
for Sustainability, which I mentioned earlier, is helping our customers record, report, and ultimately reduce their
environmental impact.
Modern work
Hybrid work is now just work. Every organization is looking to reconnect and reengage the workforce at home, in the
office, and everywhere in between. Microsoft Teams is the most used and most advanced platform for work, surpassing
270 million monthly active users this year. It’s the only solution with meetings, calls, chat, collaboration, and business
process automation in one place.
Teams Rooms is bringing Teams to a growing ecosystem of devices to help organizations rethink their approach to space
and help employees participate fully in meetings from anywhere. And with Microsoft Viva, we’re building an employee
experience platform that brings together communications, knowledge, learning, resources, and insights in the flow of work
to empower employees and strengthen their connection to their company’s mission and culture.
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Modern life
The PC has never been more relevant to work, life, and play. This year, we launched Windows 11, the biggest update to
our operating system in a decade. It reimagines everything from the user experience to the store to help people and
organizations be more productive, connected, and secure, and to build a more open ecosystem for developers and
creators. There are now more than 1.4 billion monthly active devices running Windows 10 or Windows 11. We launched
new Surface devices to support every person and work style. And we have nearly 60 million Microsoft 365 consumer
subscriptions as we help people create, connect, and share wherever they go.
Security
Cybersecurity is the number one threat facing every business today. To keep our customers secure, we build security by
design into every product we sell, and we deliver end-to-end solutions spanning security, compliance, identity, device
management, and privacy across clouds and platforms. We are the only cloud provider with multicloud protection for the
industry’s top three cloud platforms. Our new Entra product family includes tools for permissions management, identity
governance, and identity verification. And we now offer managed threat detection and response with Microsoft Security
Experts.
LinkedIn
LinkedIn has become mission critical to connect creators with their communities, job seekers with jobs, learners with
skills, and marketers with buyers. LinkedIn now has more than 850 million members, and our Sales, Talent, Marketing,
and Premium Subscriptions lines of business have all surpassed $1 billion in annual revenue over the past 12 months.
Search, advertising, and news
When it comes to advertising, we are creating a new monetization engine for the web—an alternative that offers
marketers and publishers more long-term viable ad solutions—while upholding consumer privacy and strong data
governance. We’re focused on increasing our share and engagement across our browser Microsoft Edge, our search
engine Microsoft Bing, and our personalized content feed Microsoft Start.
And with our acquisition of Xandr, we now power one of the largest marketplaces for premium advertising. Netflix chose
us this summer as its exclusive technology and sales partner for its first ad-supported subscription offering, a validation of
the differentiated value we provide to publishers looking for a flexible partner to build and innovate with them. I couldn’t be
more excited about our expansive opportunity ahead in this space.
Gaming
The big bets we have made across content, community, and cloud over the past few years continue to pay off. We’ve sold
more Xbox Series S and Series X consoles life-to-date than any previous generation of Xbox, and with Xbox Cloud
Gaming, we’re bringing games to entirely new endpoints. In the past year, we’ve made many of our most popular titles
accessible on phones, tablets, TVs, and low-spec PCs for the first time. Our Xbox Game Pass subscription service now
includes access to hundreds of games. And with our planned acquisition of Activision Blizzard, we aim to give players
more choice to play great games wherever, whenever, and however they want. Choice is equally important to developers,
who we want to support with a diversity of distribution and business models for their games. We believe the acquisition
will unlock opportunities for innovation and enable the industry to grow.
OUR CULTURE
Our culture is the foundation on which our mission and strategy stand, and cultivating it is our greatest priority. We’re
always working to close the gap between our espoused culture and the lived experience of the more than
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220,000 people who work at Microsoft. Essential to this is our commitment to continually exercise our growth mindset and
confront our fixed mindset with humility, curiosity, compassion, and the recognition that, while none of us will ever be
perfect, we can always be better than we are today.
This growth mindset served us well through the historic changes of the past few years. It sustains our everyday practice of
customer obsession. It helps us care for our colleagues and collaborate more effectively across the company. And it
deeply informs our longstanding commitment to diversity and inclusion.
If we want to serve the world, we need to represent the world. Each year we strive to increase representation, and 2022
was no exception. We saw the strongest progress in years across several demographic groups, as you can see in our
latest Diversity & Inclusion Report. We are one of the most transparent companies of our size when it comes to the data
we share, and we continually challenge ourselves to increase visibility into where we’re succeeding and where we need to
address gaps. We’ve added new data, such as military status, gender representation by geography, employee exits, and
additional pay data, to reflect our workforce more broadly. As we make meaningful progress, we continue our commitment
to meet the increasing expectations for driving innovation, welcoming diverse perspectives, and leading global change.
Giving is also core to our culture at Microsoft. In 2022, our employees gave $255 million (with company match) to over
32,000 nonprofits. And more than 29,000 employees volunteered over 720,000 hours to causes they care about.
I’m constantly in awe of how our employees bring their passion to work each day—for each other, for our customers, and
for their communities.
***
I want to close by thanking you for your continued investment in Microsoft. Our growth and impact this past year would not
have been possible without your commitment to the company and belief in its mission.
The opportunity to apply technology to make a real difference for every customer, community, and country has never
been greater. And I truly believe if we continue to live our mission, embrace our responsibility, and grasp that opportunity,
there is no limit to what we can achieve for the world in the year ahead and beyond.
Satya Nadella
Chairman and Chief Executive Officer
October 24, 2022
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FINANCIAL REVIEW
ISSUER PURCHASES OF EQUITY SECURITIES, DIVIDENDS, AND STOCK PERFORMANCE
MARKET AND STOCKHOLDERS
Our common stock is traded on the NASDAQ Stock Market under the symbol MSFT. On July 25, 2022, there were 86,465
registered holders of record of our common stock.
Share Repurchases
SHARE REPURCHASES AND DIVIDENDS
On September 20, 2016, our Board of Directors approved a share repurchase program authorizing up to $40.0 billion in
share repurchases. This share repurchase program commenced in December 2016 and was completed in February 2020.
On September 18, 2019, our Board of Directors approved a share repurchase program authorizing up to $40.0 billion in
share repurchases. This share repurchase program commenced in February 2020 and was completed in November 2021.
On September 14, 2021, our Board of Directors approved a share repurchase program authorizing up to $60.0 billion in
share repurchases. This share repurchase program commenced in November 2021, following completion of the program
approved on September 18, 2019, has no expiration date, and may be terminated at any time. As of June 30, 2022,
$40.7 billion remained of this $60.0 billion share repurchase program.
We repurchased the following shares of common stock under the share repurchase programs:
(In millions)
Year Ended June 30,
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total
Shares
Amount
Shares
Amount
Shares
Amount
2022
$ 6,200
6,233
7,800
7,800
2021
$ 5,270
5,750
5,750
6,200
25
27
25
24
2020
$ 4,000
4,600
6,000
5,088
29
32
37
28
$ 28,033
101
$ 22,970
126
$ 19,688
21
20
26
28
95
All repurchases were made using cash resources. Shares repurchased during the fourth and third quarters of fiscal year
2022 were under the share repurchase program approved on September 14, 2021. Shares repurchased during the
second quarter of fiscal year 2022 were under the share repurchase programs approved on both September 14, 2021 and
September 18, 2019. Shares repurchased during the first quarter of fiscal year 2022, fiscal year 2021, and the fourth
quarter of fiscal year 2020 were under the share repurchase program approved on September 18, 2019. Shares
repurchased during the third quarter of fiscal year 2020 were under the share repurchase programs approved on both
September 20, 2016 and September 18, 2019. All other shares repurchased were under the share repurchase program
approved on September 20, 2016. The above table excludes shares repurchased to settle employee tax withholding
related to the vesting of stock awards of $4.7 billion, $4.4 billion, and $3.3 billion for fiscal years 2022, 2021, and 2020,
respectively.
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Dividends
Our Board of Directors declared the following dividends:
Declaration Date
Fiscal Year 2022
September 14, 2021
December 7, 2021
March 14, 2022
June 14, 2022
Total
Fiscal Year 2021
September 15, 2020
December 2, 2020
March 16, 2021
June 16, 2021
Total
Record Date
Payment Date
Dividend
Per Share
November 18, 2021 December 9, 2021
March 10, 2022
June 9, 2022
August 18, 2022 September 8, 2022
February 17, 2022
May 19, 2022
$ 0.62
0.62
0.62
0.62
Amount
(In millions)
$
4,652
4,645
4,632
4,627
$ 2.48
$ 18,556
November 19, 2020 December 10, 2020
March 11, 2021
June 10, 2021
August 19, 2021 September 9, 2021
February 18, 2021
May 20, 2021
$ 0.56
0.56
0.56
0.56
$
4,230
4,221
4,214
4,206
$ 2.24
$ 16,871
The dividend declared on June 14, 2022 was included in other current liabilities as of June 30, 2022.
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STOCK PERFORMANCE
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Microsoft Corporation, the S&P 500 Index
and the NASDAQ Computer Index
Microsoft Corporation
S&P 500
NASDAQ Computer
6/17
6/18
6/19
6/20
6/21
100.00
100.00
100.00
145.84
114.37
131.27
201.36
126.29
139.29
309.69
135.77
196.40
416.25
191.15
288.13
6/22
397.90
170.86
228.71
* $100 invested on 6/30/17 in stock or index, including reinvestment of dividends. Fiscal year ending June 30.
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Note About Forward-Looking Statements
This report includes estimates, projections, statements relating to our business plans, objectives, and expected operating
results that are ―forward-looking statements‖ within the meaning of the Private Securities Litigation Reform Act of 1995,
Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Forward-looking
statements may appear throughout this report, including the following sections: ―Business‖ in our fiscal year 2022 Form
10-K and ―Management’s Discussion and Analysis of Financial Condition and Results of Operations‖ in our fiscal year
2022 Form 10-K. These forward-looking statements generally are identified by the words ―believe,‖ ―project,‖ ―expect,‖
―anticipate,‖ ―estimate,‖ ―intend,‖ ―strategy,‖ ―future,‖ ―opportunity,‖ ―plan,‖ ―may,‖ ―should,‖ ―will,‖ ―would,‖ ―will be,‖ ―will
continue,‖ ―will likely result,‖ and similar expressions. Forward-looking statements are based on current expectations and
assumptions that are subject to risks and uncertainties that may cause actual results to differ materially. We describe risks
and uncertainties that could cause actual results and events to differ materially in ―Risk Factors,‖ ―Management’s
Discussion and Analysis of Financial Condition and Results of Operations,‖ and ―Quantitative and Qualitative Disclosures
about Market Risk" in our fiscal year 2022 Form 10-K. Readers are cautioned not to place undue reliance on forward-
looking statements, which speak only as of the date they are made. We undertake no obligation to update or revise
publicly any forward-looking statements, whether because of new information, future events, or otherwise.
BUSINESS
GENERAL
Embracing Our Future
Microsoft is a technology company whose mission is to empower every person and every organization on the planet to
achieve more. We strive to create local opportunity, growth, and impact in every country around the world. Our platforms
and tools help drive small business productivity, large business competitiveness, and public-sector efficiency. We are
creating the tools and platforms that deliver better, faster, and more effective solutions to support new startups, improve
educational and health outcomes, and empower human ingenuity.
Microsoft is innovating and expanding our entire portfolio to help people and organizations overcome today’s challenges
and emerge stronger. We bring technology and products together into experiences and solutions that unlock value for our
customers.
In a dynamic environment, digital technology is the key input that powers the world’s economic output. Our ecosystem of
customers and partners have learned that while hybrid work is complex, embracing flexibility, different work styles, and a
culture of trust can help navigate the challenges the world faces today. Organizations of all sizes have digitized business-
critical functions, redefining what they can expect from their business applications. Customers are looking to unlock value
while simplifying security and management. From infrastructure and data, to business applications and collaboration, we
provide unique, differentiated value to customers.
We are building a distributed computing fabric – across cloud and the edge – to help every organization build, run, and
manage mission-critical workloads anywhere. In the next phase of innovation, artificial intelligence (―AI‖) capabilities are
rapidly advancing, fueled by data and knowledge of the world. We are enabling metaverse experiences at all layers of our
stack, so customers can more effectively model, automate, simulate, and predict changes within their industrial
environments, feel a greater sense of presence in the new world of hybrid work, and create custom immersive worlds to
enable new opportunities for connection and experimentation.
What We Offer
Founded in 1975, we develop and support software, services, devices, and solutions that deliver new value for customers
and help people and businesses realize their full potential.
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We offer an array of services, including cloud-based solutions that provide customers with software, services, platforms,
and content, and we provide solution support and consulting services. We also deliver relevant online advertising to a
global audience.
Our products include operating systems, cross-device productivity and collaboration applications, server applications,
business solution applications, desktop and server management tools, software development tools, and video games. We
also design and sell devices, including PCs, tablets, gaming and entertainment consoles, other intelligent devices, and
related accessories.
The Ambitions That Drive Us
To achieve our vision, our research and development efforts focus on three interconnected ambitions:
• Reinvent productivity and business processes.
• Build the intelligent cloud and intelligent edge platform.
• Create more personal computing.
Reinvent Productivity and Business Processes
At Microsoft, we provide technology and resources to help our customers create a secure hybrid work environment. Our
family of products plays a key role in the ways the world works, learns, and connects.
Our growth depends on securely delivering continuous innovation and advancing our leading productivity and
collaboration tools and services, including Office 365, Dynamics 365, and LinkedIn. Microsoft 365 brings together Office
365, Windows, and Enterprise Mobility + Security to help organizations empower their employees with AI-backed tools
that unlock creativity, increase collaboration, and fuel innovation, all the while enabling compliance coverage and data
protection. Microsoft Teams is a comprehensive platform for work, with meetings, calls, chat, collaboration, and business
process automation. Microsoft Viva is an employee experience platform that brings together communications, knowledge,
learning, resources, and insights powered by Microsoft 365. Together with the Microsoft Cloud, Dynamics 365, Microsoft
Teams, and Azure Synapse bring a new era of collaborative applications that transform every business function and
process. Microsoft Power Platform is helping domain experts drive productivity gains with low-code/no-code tools, robotic
process automation, virtual agents, and business intelligence. In a dynamic labor market, LinkedIn is helping
professionals use the platform to connect, learn, grow, and get hired.
Build the Intelligent Cloud and Intelligent Edge Platform
As digital transformation accelerates, organizations in every sector across the globe can address challenges that will have
a fundamental impact on their success. For enterprises, digital technology empowers employees, optimizes operations,
engages customers, and in some cases, changes the very core of products and services. Microsoft has a proven track
record of delivering high value to our customers across many diverse and durable growth markets.
We continue to invest in high performance and sustainable computing to meet the growing demand for fast access to
Microsoft services provided by our network of cloud computing infrastructure and datacenters. Azure is a trusted cloud
with comprehensive compliance coverage and AI-based security built in.
Our cloud business benefits from three economies of scale: datacenters that deploy computational resources at
significantly lower cost per unit than smaller ones; datacenters that coordinate and aggregate diverse customer,
geographic, and application demand patterns, improving the utilization of computing, storage, and network resources; and
multi-tenancy locations that lower application maintenance labor costs.
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The Microsoft Cloud is the most comprehensive and trusted cloud, providing the best integration across the technology
stack while offering openness, improving time to value, reducing costs, and increasing agility. Being a global-scale cloud,
Azure uniquely offers hybrid consistency, developer productivity, AI capabilities, and trusted security and compliance. We
see more emerging use cases and needs for compute and security at the edge and are accelerating our innovation across
the spectrum of intelligent edge devices, from Internet of Things (―IoT‖) sensors to gateway devices and edge hardware to
build, manage, and secure edge workloads. With Azure Stack, organizations can extend Azure into their own datacenters
to create a consistent stack across the public cloud and the intelligent edge.
Our hybrid infrastructure consistency spans security, compliance, identity, and management, helping to support the real-
world needs and evolving regulatory requirements of commercial customers and enterprises. Our industry clouds bring
together capabilities across the entire Microsoft Cloud, along with industry-specific customizations, to improve time to
value, increase agility, and lower costs. Azure Arc simplifies governance and management by delivering a consistent
multi-cloud and on-premises management platform. Security, compliance, identity, and management underlie our entire
tech stack. We offer integrated, end-to-end capabilities to protect people and organizations.
In March 2022, we completed our acquisition of Nuance Communications, Inc. (―Nuance‖). Together, Microsoft and
Nuance will enable organizations across industries to accelerate their business goals with security-focused, cloud-based
solutions infused with powerful, vertically optimized AI.
We are accelerating our development of mixed reality solutions with new Azure services and devices. Microsoft Mesh
enables presence and shared experiences from anywhere through mixed reality applications. The opportunity to merge
the physical and digital worlds, when combined with the power of Azure cloud services, unlocks new workloads and
experiences to create common understanding and drive more informed decisions.
The ability to convert data into AI drives our competitive advantage. Azure SQL Database makes it possible for customers
to take SQL Server from their on-premises datacenter to a fully managed instance in the cloud to utilize built-in AI. Azure
Synapse brings together data integration, enterprise data warehousing, and big data analytics in a comprehensive
solution. We are accelerating adoption of AI innovations from research to products. Our innovation helps every developer
be an AI developer, with approachable new tools from Azure Machine Learning Studio for creating simple machine
learning models, to the powerful Azure Machine Learning Workbench for the most advanced AI modeling and data
science. From GitHub to Visual Studio, we provide a developer tool chain for everyone, no matter the technical
experience, across all platforms, whether Azure, Windows, or any other cloud or client platform.
Additionally, we are extending our infrastructure beyond the planet, bringing cloud computing to space. Azure Orbital is a
fully managed ground station as a service for fast downlinking of data.
Create More Personal Computing
We strive to make computing more personal by putting people at the core of the experience, enabling them to interact with
technology in more intuitive, engaging, and dynamic ways. Microsoft 365 is empowering people and organizations to be
productive and secure as they adapt to more fluid ways of working, learning, and playing. Windows also plays a critical
role in fueling our cloud business with Windows 365, a desktop operating system that’s also a cloud service. From another
internet-connected device, including Android or macOS devices, you can run Windows 365, just like a virtual machine.
With Windows 11, we have simplified the design and experience to empower productivity and inspire creativity. Windows
11 offers innovations focused on enhancing productivity and is designed to support hybrid work. It adds new experiences
that include powerful task switching tools like new snap layouts, snap groups, and desktops; new ways to stay connected
through Microsoft Teams chat; the information you want at your fingertips; and more. Windows 11 security and privacy
features include operating system security, application security, and user and identity security.
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Tools like search, news, and maps have given us immediate access to the world’s information. Today, through our
Search, News, Mapping, and Browse services, Microsoft delivers unique trust, privacy, and safety features. Microsoft
Edge is our fast and secure browser that helps protect your data, with built-in shopping tools designed to save you time
and money. Organizational tools such as Collections, Vertical Tabs, and Immersive Reader help make the most of your
time while browsing, streaming, searching, and sharing.
We are committed to designing and marketing first-party devices to help drive innovation, create new device categories,
and stimulate demand in the Windows ecosystem. The Surface family includes Surface Laptop Studio, Surface Laptop 4,
Surface Laptop Go 2, Surface Laptop Pro 8, Surface Pro X, Surface Go 3, Surface Studio 2, and Surface Duo 2.
With three billion people actively playing games today, and a new generation steeped in interactive entertainment,
Microsoft continues to invest in content, community, and cloud services. We have broadened our approach to how we
think about gaming end-to-end, from the way games are created and distributed to how they are played, including cloud
gaming so players can stream across PC, console, and mobile. We have a strong position with our large and growing
highly engaged community of gamers, including the acquisition of ZeniMax Media Inc., the parent company of Bethesda
Softworks LLC. In January 2022, we announced plans to acquire Activision Blizzard, Inc., a leader in game development
and an interactive entertainment content publisher. Xbox Game Pass is a community with access to a curated library of
over 100 first- and third-party console and PC titles. Xbox Cloud Gaming is Microsoft’s game streaming technology that is
complementary to our console hardware and gives fans the ultimate choice to play the games they want, with the people
they want, on the devices they want.
Our Future Opportunity
The case for digital transformation has never been more urgent. Customers are looking to us to help improve productivity
and the affordability of their products and services. We continue to develop complete, intelligent solutions for our
customers that empower people to stay productive and collaborate, while safeguarding businesses and simplifying IT
management. Our goal is to lead the industry in several distinct areas of technology over the long term, which we expect
will translate to sustained growth. We are investing significant resources in:
• Transforming the workplace to deliver new modern, modular business applications, drive deeper insights, and
improve how people communicate, collaborate, learn, work, play, and interact with one another.
• Building and running cloud-based services in ways that unleash new experiences and opportunities for
businesses and individuals.
• Applying AI to drive insights and act on our customer’s behalf by understanding and interpreting their needs
using natural methods of communication.
• Tackling security from all angles with our integrated, end-to-end solutions spanning security, compliance,
identity, and management, across all clouds and platforms.
•
Inventing new gaming experiences that bring people together around their shared love for games on any
devices and pushing the boundaries of innovation with console and PC gaming by creating the next wave of
entertainment.
• Using Windows to fuel our cloud business, grow our share of the PC market, and drive increased
engagement with our services like Microsoft 365 Consumer, Teams, Edge, Bing, Xbox Game Pass, and
more.
Our future growth depends on our ability to transcend current product category definitions, business models, and sales
motions. We have the opportunity to redefine what customers and partners can expect and are working to deliver new
solutions that reflect the best of Microsoft.
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Corporate Social Responsibility
Commitment to Sustainability
We work to ensure that technology is inclusive, trusted, and increases sustainability. We are accelerating progress toward
a more sustainable future by reducing our environmental footprint, advancing research, helping our customers build
sustainable solutions, and advocating for policies that benefit the environment. In January 2020, we announced a bold
commitment and detailed plan to be carbon negative by 2030, and to remove from the environment by 2050 all the carbon
we have emitted since our founding in 1975. This included a commitment to invest $1 billion over four years in new
technologies and innovative climate solutions. We built on this pledge by adding commitments to be water positive by
2030, zero waste by 2030, and to protect ecosystems by developing a Planetary Computer. We also help our suppliers
and customers around the world use Microsoft technology to reduce their own carbon footprint.
Fiscal year 2021 was a year of both successes and challenges. While we continued to make progress on several of our
goals, with an overall reduction in our combined Scope 1 and Scope 2 emissions, our Scope 3 emissions increased, due
in substantial part to significant global datacenter expansions and growth in Xbox sales and usage as a result of the
COVID-19 pandemic. Despite these Scope 3 increases, we will continue to build the foundations and do the work to
deliver on our commitments, and help our customers and partners achieve theirs. We have learned the impact of our work
will not all be felt immediately, and our experience highlights how progress won’t always be linear.
While fiscal year 2021 presented us with some new learnings, we also made some great progress. A few examples that
illuminate the diversity of our work include:
• We purchased the removal of 1.4 million metrics tons of carbon.
• Four of our datacenters received new or renewed Zero Waste certifications.
• We granted $100 million to Breakthrough Energy Catalyst to accelerate the development of climate solutions
the world needs to reach net-zero across four key areas: direct air capture, green hydrogen, long duration
energy storage, and sustainable aviation fuel.
• We joined the First Movers Coalition as an early leader and expert partner in the carbon dioxide removal
sector, with a commitment of $200 million toward carbon removal by 2030.
Sustainability is an existential priority for our society and businesses today. This led us to create our Microsoft Cloud for
Sustainability, an entirely new business process category to help organizations monitor their carbon footprint across their
operations. We also joined with leading organizations to launch the Carbon Call – an initiative to mobilize collective action
to solve carbon emissions and removal accounting challenges for a net zero future.
The investments we make in sustainability carry through to our products, services, and devices. We design our devices,
from Surface to Xbox, to minimize their impact on the environment. Our cloud and AI services and datacenters help
businesses cut energy consumption, reduce physical footprints, and design sustainable products.
Addressing Racial Injustice and Inequity
We are committed to addressing racial injustice and inequity in the United States for Black and African American
communities and helping improve lived experiences at Microsoft, in employees’ communities, and beyond. Our Racial
Equity Initiative focuses on three multi-year pillars, each containing actions and progress we expect to make or exceed by
2025.
• Strengthening our communities: using data, technology, and partnerships to help improve the lives of Black
and African American people in the United States, including our employees and their communities.
• Evolving our ecosystem: using our balance sheet and relationships with suppliers and partners to foster
societal change and create new opportunities.
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•
Increasing representation and strengthening inclusion: build on our momentum, adding a $150 million
investment to strengthen inclusion and double the number of Black, African American, Hispanic, and Latinx
leaders in the United States by 2025.
Over the last year, we collaborated with partners and worked within neighborhoods and communities to launch and scale
a number of projects and programs, including: working with 70 organizations in 145 communities on the Justice Reform
Initiative, expanding access to affordable broadband and devices for Black and African American communities and key
institutions that support them in major urban centers, expanding access to skills and education to support Black and
African American students and adults to succeed in the digital economy, and increasing technology support for nonprofits
that provide critical services to Black and African American communities.
We have made meaningful progress on representation and inclusion at Microsoft. We are 90 percent of the way to our
2025 commitment to double the number of Black and African American people managers, senior individual contributors,
and senior leaders in the U.S., and 50 percent of the way for Hispanic and Latinx people managers, senior individual
contributors, and senior leaders in the U.S.
We exceeded our goal on increasing the percentage of transaction volumes with Black- and African American-owned
financial institutions and increased our deposits with Black- and African American-owned minority depository institutions,
enabling increased funds into local communities. Additionally, we enriched our supplier pipeline, reaching more than
90 percent of our goal to spend $500 million with double the number of Black and African American-owned suppliers. We
also increased the number of identified partners in the Black Partner Growth Initiative and continue to invest in the partner
community through the Black Channel Partner Alliance by supporting events focused on business growth, accelerators,
and mentorship.
Progress does not undo the egregious injustices of the past or diminish those who continue to live with inequity. We are
committed to leveraging our resources to help accelerate diversity and inclusion across our ecosystem and to hold
ourselves accountable to accelerate change – for Microsoft, and beyond.
Investing in Digital Skills
The COVID-19 pandemic led to record unemployment, disrupting livelihoods of people around the world. After helping
over 30 million people in 249 countries and territories with our global skills initiative, we introduced a new initiative to
support a more skills-based labor market, with greater flexibility and accessible learning paths to develop the right skills
needed for the most in-demand jobs. Our skills initiative brings together learning resources, certification opportunities, and
job-seeker tools from LinkedIn, GitHub, and Microsoft Learn, and is built on data insights drawn from LinkedIn’s Economic
Graph. We previously invested $20 million in key non-profit partnerships through Microsoft Philanthropies to help people
from underserved communities that are often excluded by the digital economy.
We also launched a national campaign with U.S. community colleges to help skill and recruit into the cybersecurity
workforce 250,000 people by 2025, representing half of the country’s workforce shortage. To that end, we are making
curriculum available free of charge to all of the nation’s public community colleges, providing training for new and existing
faculty at 150 community colleges, and providing scholarships and supplemental resources to 25,000 students.
Overview
HUMAN CAPITAL RESOURCES
Microsoft aims to recruit, develop, and retain world-changing talent from a diversity of backgrounds. To foster their and
our success, we seek to create an environment where people can thrive, where they can do their best work, where they
can proudly be their authentic selves, guided by our values, and where they know their needs can be met. We strive to
maximize the potential of our human capital resources by creating a respectful, rewarding, and inclusive work
environment that enables our global employees to create products and services that further our mission to empower every
person and every organization on the planet to achieve more.
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As of June 30, 2022, we employed approximately 221,000 people on a full-time basis, 122,000 in the U.S. and 99,000
internationally. Of the total employed people, 85,000 were in operations, including manufacturing, distribution, product
support, and consulting services; 73,000 were in product research and development; 47,000 were in sales and marketing;
and 16,000 were in general and administration. Certain employees are subject to collective bargaining agreements.
Our Culture
Microsoft’s culture is grounded in the growth mindset. This means everyone is on a continuous journey to learn and grow.
We believe potential can be nurtured and is not pre-determined, and we should always be learning and curious – trying
new things without fear of failure. We identified four attributes that allow growth mindset to flourish:
• Obsessing over what matters to our customers.
• Becoming more diverse and inclusive in everything we do.
• Operating as one company, One Microsoft, instead of multiple siloed businesses.
• Making a difference in the lives of each other, our customers, and the world around us.
Our employee listening systems enable us to gather feedback directly from our workforce to inform our programs and
employee needs globally. Seventy percent of employees globally participated in our fiscal year 2022 Employee Signals
survey, which covers a variety of topics such as thriving, inclusion, team culture, wellbeing, and learning and
development. Throughout the fiscal year, we collect over 75,000 Daily Pulse employee survey responses. During fiscal
year 2022, our Daily Pulse surveys gave us invaluable insights into ways we could support employees through the
COVID-19 pandemic, addressing racial injustice, the war in Ukraine, and their general wellbeing. In addition to Employee
Signals and Daily Pulse surveys, we gain insights through onboarding, internal mobility, leadership, performance and
development, exit surveys, internal Yammer channels, employee Q&A sessions, and AskHR Service support.
Diversity and Inclusion
At Microsoft we have an inherently inclusive mission: to empower every person and every organization on the planet to
achieve more. We think of diversity and inclusion as core to our business model, informing our actions to impact
economies and people around the world. There are billions of people who want to achieve more, but have a different set
of circumstances, abilities, and backgrounds that often limit access to opportunity and achievement. The better we
represent that diversity inside Microsoft, the more effectively we can innovate for those we seek to empower.
We strive to include others by holding ourselves accountable for diversity, driving global systemic change in our workplace
and workforce, and creating an inclusive work environment. Through this commitment we can allow everyone the chance
to be their authentic selves and do their best work every day. We support multiple highly active Employee Resource
Groups for women, families, racial and ethnic minorities, military, people with disabilities, and employees who identify as
LGBTQIA+, where employees can go for support, networking, and community-building. As described in our 2021 Proxy
Statement, annual performance and compensation reviews of our senior leadership team include an evaluation of their
contributions to employee culture and diversity. To ensure accountability over time, we publicly disclose our progress on a
multitude of workforce metrics including:
• Detailed breakdowns of gender, racial, and ethnic minority representation in our employee population, with
data by job types, levels, and segments of our business.
• Our EEO-1 report (equal employment opportunity).
• Disability representation.
• Pay equity (see details below).
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Total Rewards
We develop dynamic, sustainable, market-driven, and strategic programs with the goal of providing a highly differentiated
portfolio to attract, reward, and retain top talent and enable our employees to thrive. These programs reinforce our culture
and values such as collaboration and growth mindset. Managers evaluate and recommend rewards based on, for
example, how well we leverage the work of others and contribute to the success of our colleagues. We monitor pay equity
and career progress across multiple dimensions.
As part of our effort to promote a One Microsoft and inclusive culture, in fiscal year 2021 we expanded stock eligibility to
all Microsoft employees as part of our annual rewards process. This includes all non-exempt and exempt employees and
equivalents across the globe including business support professionals and datacenter and retail employees. In response
to the Great Reshuffle, in fiscal year 2022 we announced a sizable investment in annual merit and annual stock award
opportunity for all employees below senior executive levels. We also invested in base salary adjustments for our
datacenter and retail hourly employees and hourly equivalents outside the U.S. These investments have supported
retention and help to ensure that Microsoft remains an employer of choice.
Pay Equity
In our 2021 Diversity and Inclusion Report, we reported that all racial and ethnic minority employees in the U.S. combined
earn $1.006 for every $1.000 earned by their white counterparts, that women in the U.S. earn $1.002 for every $1.000
earned by their counterparts in the U.S. who are men, and women in the U.S. plus our twelve other largest employee
geographies representing 86.6% of our global population (Australia, Canada, China, France, Germany, India, Ireland,
Israel, Japan, Romania, Singapore, and the United Kingdom) combined earn $1.001 for every $1.000 by men in these
countries. Our intended result is a global performance and development approach that fosters our culture, and competitive
compensation that ensures equitable pay by role while supporting pay for performance.
Wellness and Safety
Microsoft is committed to supporting our employees’ well-being and safety while they are at work and in their personal
lives.
We took a wide variety of measures to protect the health and well-being of our employees, suppliers, and customers
during the COVID-19 pandemic and are now supporting employees in shifting to return to office and/or hybrid
arrangements. We developed hybrid guidelines for managers and employees to support the transition and continue to
identify ways we can support hybrid work scenarios through our employee listening systems.
We have invested significantly in holistic wellbeing, and offer a differentiated benefits package which includes many
physical, emotional, and financial wellness programs including counseling through the Microsoft CARES Employee
Assistance Program, mental wellbeing support, flexible fitness benefits, savings and investment tools, adoption
assistance, and back-up care for children and elders. Finally, our Occupational Health and Safety program helps ensure
employees can stay safe while they are working.
We continue to strive to support our Ukrainian employees and their dependents during the Ukraine crisis with emergency
relocation assistance, emergency leave, and other benefits.
Learning and Development
Our growth mindset culture begins with valuing learning over knowing – seeking out new ideas, driving innovation,
embracing challenges, learning from failure, and improving over time. To support this culture, we offer a wide range of
learning and development opportunities. We believe learning can be more than formal instruction, and our learning
philosophy focuses on providing the right learning, at the right time, in the right way. Opportunities include:
• Personalized, integrated, and relevant views of all learning opportunities on both our internal learning portal
Learning (Viva Learning + LinkedIn Learning) and our external learning portal MS Learn are available to all
employees worldwide.
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•
In-the-classroom learning, learning cohorts, our early-in-career Aspire program, and manager excellence
communities.
• Required learning for all employees and managers on topics such as compliance, regulation, company
culture, leadership, and management. This includes the annual Standards of Business Conduct training.
• On-the-job ―stretch‖ and advancement opportunities.
• Managers holding conversations about employees’ career and development plans, coaching on career
opportunities, and programs like mentoring and sponsorship.
• Customized manager learning to build people manager capabilities and similar learning solutions to build
leadership skills for all employees including differentiated leadership development programs.
• New employee orientation covering a range of topics including company values, and culture, as well as
ongoing onboarding programs.
• New tools to assist managers and employees in learning how to operate, be productive, and connect in the
new flexible hybrid world of work. These include quick guides for teams to use, such as Creating Team
Agreements, Reconnecting as a Team, and Running Effective Hybrid Meetings.
Our employees embrace the growth mindset and take advantage of the formal learning opportunities as well as thousands
of informal and on-the-job learning opportunities. In terms of formal on-line learning solutions, in fiscal year 2022 our
employees completed over 4.7 million courses, averaging over 14 hours per employee. Given our focus on understanding
core company beliefs and compliance topics, all employees complete required learning programs like Standards of
Business Conduct, Privacy, Unconscious Bias, and preventing harassment courses. Our corporate learning portal has
over 100,000 average monthly active users. We have over 27,000 people managers, all of whom must complete between
20-33 hours of required manager capability and excellence training and are assigned ongoing required training each year.
In addition, all employees complete skills training based on the profession they are in each year.
New Ways of Working
The COVID-19 pandemic accelerated our capabilities and culture with respect to flexible work. We introduced a Hybrid
Workplace Flexibility Guide to better support managers and employees as they adapt to new ways of working that shift
paradigms, embrace flexibility, promote inclusion, and drive innovation. Our ongoing survey data shows employees value
the flexibility related to work location, work site, and work hours, and while many have begun returning to worksites as
conditions have permitted, they also continue to adjust hours and/or spend some of workweeks working at home, another
site, or remotely. We are focused on building capabilities to support a variety of workstyles where individuals, teams, and
our business can deliver success.
OPERATING SEGMENTS
We operate our business and report our financial performance using three segments: Productivity and Business
Processes, Intelligent Cloud, and More Personal Computing. Our segments provide management with a comprehensive
financial view of our key businesses. The segments enable the alignment of strategies and objectives across the
development, sales, marketing, and services organizations, and they provide a framework for timely and rational
allocation of resources within businesses.
Additional information on our operating segments and geographic and product information is contained in Note 19 –
Segment Information and Geographic Data of the Notes to Financial Statements in our fiscal year 2022 Form 10-K.
Our reportable segments are described below.
19
Productivity and Business Processes
Our Productivity and Business Processes segment consists of products and services in our portfolio of productivity,
communication, and information services, spanning a variety of devices and platforms. This segment primarily comprises:
• Office Commercial (Office 365 subscriptions, the Office 365 portion of Microsoft 365 Commercial
subscriptions, and Office licensed on-premises), comprising Office, Exchange, SharePoint, Microsoft Teams,
Office 365 Security and Compliance, and Microsoft Viva.
• Office Consumer, including Microsoft 365 Consumer subscriptions, Office licensed on-premises, and other
Office services.
•
LinkedIn, including Talent Solutions, Marketing Solutions, Premium Subscriptions, and Sales Solutions.
• Dynamics business solutions, including Dynamics 365, comprising a set of intelligent, cloud-based
applications across ERP, CRM, Customer Insights, Power Apps, and Power Automate; and on-premises ERP
and CRM applications.
Office Commercial
Office Commercial is designed to increase personal, team, and organizational productivity through a range of products
and services. Growth depends on our ability to reach new users in new markets such as frontline workers, small and
medium businesses, and growth markets, as well as add value to our core product and service offerings to span
productivity categories such as communication, collaboration, analytics, security, and compliance. Office Commercial
revenue is mainly affected by a combination of continued installed base growth and average revenue per user expansion,
as well as the continued shift from Office licensed on-premises to Office 365.
Office Consumer
Office Consumer is designed to increase personal productivity through a range of products and services. Growth depends
on our ability to reach new users, add value to our core product set, and continue to expand our product and service
offerings into new markets. Office Consumer revenue is mainly affected by the percentage of customers that buy Office
with their new devices and the continued shift from Office licensed on-premises to Microsoft 365 Consumer subscriptions.
Office Consumer Services revenue is mainly affected by the demand for communication and storage through Skype,
Outlook.com, and OneDrive, which is largely driven by subscriptions, advertising, and the sale of minutes.
LinkedIn
LinkedIn connects the world’s professionals to make them more productive and successful and transforms the way
companies hire, market, sell, and learn. Our vision is to create economic opportunity for every member of the global
workforce through the ongoing development of the world’s first Economic Graph, a digital representation of the global
economy. In addition to LinkedIn’s free services, LinkedIn offers monetized solutions: Talent Solutions, Marketing
Solutions, Premium Subscriptions, and Sales Solutions. Talent Solutions provide insights for workforce planning and tools
to hire, nurture, and develop talent. Talent Solutions also includes Learning Solutions, which help businesses close critical
skills gaps in times where companies are having to do more with existing talent. Marketing Solutions help companies
reach, engage, and convert their audiences at scale. Premium Subscriptions enables professionals to manage their
professional identity, grow their network, and connect with talent through additional services like premium search. Sales
Solutions help companies strengthen customer relationships, empower teams with digital selling tools, and acquire new
opportunities. LinkedIn has over 850 million members and has offices around the globe. Growth will depend on our ability
to increase the number of LinkedIn members and our ability to continue offering services that provide value for our
members and increase their engagement. LinkedIn revenue is mainly affected by demand from enterprises and
professional organizations for subscriptions to Talent Solutions, Sales Solutions, and Premium Subscriptions offerings, as
well as member engagement and the quality of the sponsored content delivered to those members to drive Marketing
Solutions.
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Dynamics
Dynamics provides cloud-based and on-premises business solutions for financial management, enterprise resource
planning (―ERP‖), customer relationship management (―CRM‖), supply chain management, and other application
development platforms for small and medium businesses, large organizations, and divisions of global enterprises.
Dynamics revenue is driven by the number of users licensed and applications consumed, expansion of average revenue
per user, and the continued shift to Dynamics 365, a unified set of cloud-based intelligent business applications, including
Power Apps and Power Automate.
Competition
Competitors to Office include software and global application vendors, such as Apple, Cisco Systems, Meta, Google, IBM,
Okta, Proofpoint, Slack, Symantec, Zoom, and numerous web-based and mobile application competitors as well as local
application developers. Apple distributes versions of its pre-installed application software, such as email and calendar
products, through its PCs, tablets, and phones. Cisco Systems is using its position in enterprise communications
equipment to grow its unified communications business. Google provides a hosted messaging and productivity suite.
Slack provides teamwork and collaboration software. Zoom offers videoconferencing and cloud phone solutions. Okta,
Proofpoint, and Symantec provide security solutions across email security, information protection, identity, and
governance. Web-based offerings competing with individual applications have also positioned themselves as alternatives
to our products and services. We compete by providing powerful, flexible, secure, integrated industry-specific, and easy-
to-use productivity and collaboration tools and services that create comprehensive solutions and work well with
technologies our customers already have both on-premises or in the cloud.
LinkedIn faces competition from online professional networks, recruiting companies, talent management companies, and
larger companies that are focusing on talent management and human resource services; job boards; traditional recruiting
firms; and companies that provide learning and development products and services. Marketing Solutions competes with
online and offline outlets that generate revenue from advertisers and marketers, and Sales Solutions competes with online
and offline outlets for companies with lead generation and customer intelligence and insights.
Dynamics competes with cloud-based and on-premises business solution providers such as Oracle, Salesforce, and SAP.
Intelligent Cloud
Our Intelligent Cloud segment consists of our public, private, and hybrid server products and cloud services that can
power modern business and developers. This segment primarily comprises:
• Server products and cloud services, including Azure and other cloud services; SQL Server, Windows Server,
Visual Studio, System Center, and related Client Access Licenses (―CALs‖); and Nuance and GitHub.
• Enterprise Services, including Enterprise Support Services, Microsoft Consulting Services, and Nuance
professional services.
Server Products and Cloud Services
Azure is a comprehensive set of cloud services that offer developers, IT professionals, and enterprises freedom to build,
deploy, and manage applications on any platform or device. Customers can use Azure through our global network of
datacenters for computing, networking, storage, mobile and web application services, AI, IoT, cognitive services, and
machine learning. Azure enables customers to devote more resources to development and use of applications that benefit
their organizations, rather than managing on-premises hardware and software. Azure revenue is mainly affected by
infrastructure-as-a-service and platform-as-a-service consumption-based services, and per user-based services such as
Enterprise Mobility + Security.
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Our server products are designed to make IT professionals, developers, and their systems more productive and efficient.
Server software is integrated server infrastructure and middleware designed to support software applications built on the
Windows Server operating system. This includes the server platform, database, business intelligence, storage,
management and operations, virtualization, service-oriented architecture platform, security, and identity software. We also
license standalone and software development lifecycle tools for software architects, developers, testers, and project
managers. GitHub provides a collaboration platform and code hosting service for developers. Server products revenue is
mainly affected by purchases through volume licensing programs, licenses sold to original equipment manufacturers
(―OEM‖), and retail packaged products. CALs provide access rights to certain server products, including SQL Server and
Windows Server, and revenue is reported along with the associated server product.
Nuance and GitHub include both cloud and on-premises offerings. Nuance provides healthcare and enterprise AI
solutions. GitHub provides a collaboration platform and code hosting service for developers.
Enterprise Services
Enterprise Services, including Enterprise Support Services, Microsoft Consulting Services, and Nuance Professional
Services, assist customers in developing, deploying, and managing Microsoft server solutions, Microsoft desktop
solutions, and Nuance conversational AI and ambient intelligent solutions, along with providing training and certification to
developers and IT professionals on various Microsoft products.
Competition
Azure faces diverse competition from companies such as Amazon, Google, IBM, Oracle, VMware, and open source
offerings. Our Enterprise Mobility + Security offerings also compete with products from a range of competitors including
identity vendors, security solution vendors, and numerous other security point solution vendors. Azure’s competitive
advantage includes enabling a hybrid cloud, allowing deployment of existing datacenters with our public cloud into a
single, cohesive infrastructure, and the ability to run at a scale that meets the needs of businesses of all sizes and
complexities. We believe our cloud’s global scale, coupled with our broad portfolio of identity and security solutions, allows
us to effectively solve complex cybersecurity challenges for our customers and differentiates us from the competition.
Our server products face competition from a wide variety of server operating systems and applications offered by
companies with a range of market approaches. Vertically integrated computer manufacturers such as Hewlett-Packard,
IBM, and Oracle offer their own versions of the Unix operating system preinstalled on server hardware. Nearly all
computer manufacturers offer server hardware for the Linux operating system and many contribute to Linux operating
system development. The competitive position of Linux has also benefited from the large number of compatible
applications now produced by many commercial and non-commercial software developers. A number of companies, such
as Red Hat, supply versions of Linux.
We compete to provide enterprise-wide computing solutions and point solutions with numerous commercial software
vendors that offer solutions and middleware technology platforms, software applications for connectivity (both Internet and
intranet), security, hosting, database, and e-business servers. IBM and Oracle lead a group of companies focused on the
Java Platform Enterprise Edition that competes with our enterprise-wide computing solutions. Commercial competitors for
our server applications for PC-based distributed client-server environments include CA Technologies, IBM, and Oracle.
Our web application platform software competes with open source software such as Apache, Linux, MySQL, and PHP. In
middleware, we compete against Java vendors.
Our database, business intelligence, and data warehousing solutions offerings compete with products from IBM, Oracle,
SAP, Snowflake, and other companies. Our system management solutions compete with server management and server
virtualization platform providers, such as BMC, CA Technologies, Hewlett-Packard, IBM, and VMware. Our products for
software developers compete against offerings from Adobe, IBM, Oracle, and other companies, and also against open-
source projects, including Eclipse (sponsored by CA Technologies, IBM, Oracle, and SAP), PHP, and Ruby on Rails.
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We believe our server products provide customers with advantages in performance, total costs of ownership, and
productivity by delivering superior applications, development tools, compatibility with a broad base of hardware and
software applications, security, and manageability.
Our Enterprise Services business competes with a wide range of companies that provide strategy and business planning,
application development, and infrastructure services, including multinational consulting firms and small niche businesses
focused on specific technologies.
More Personal Computing
Our More Personal Computing segment consists of products and services that put customers at the center of the
experience with our technology. This segment primarily comprises:
• Windows, including Windows OEM licensing (―Windows OEM‖) and other non-volume licensing of the
Windows operating system; Windows Commercial, comprising volume licensing of the Windows operating
system, Windows cloud services, and other Windows commercial offerings; patent licensing; and Windows
Internet of Things.
• Devices, including Surface and PC accessories.
• Gaming, including Xbox hardware and Xbox content and services, comprising first- and third-party content
(including games and in-game content), Xbox Game Pass and other subscriptions, Xbox Cloud Gaming,
third-party disc royalties, advertising, and other cloud services.
• Search and news advertising.
Windows
The Windows operating system is designed to deliver a more personal computing experience for users by enabling
consistency of experience, applications, and information across their devices. Windows OEM revenue is impacted
significantly by the number of Windows operating system licenses purchased by OEMs, which they pre-install on the
devices they sell. In addition to computing device market volume, Windows OEM revenue is impacted by:
• The mix of computing devices based on form factor and screen size.
• Differences in device market demand between developed markets and growth markets.
• Attachment of Windows to devices shipped.
• Customer mix between consumer, small and medium businesses, and large enterprises.
• Changes in inventory levels in the OEM channel.
• Pricing changes and promotions, pricing variation that occurs when the mix of devices manufactured shifts
from local and regional system builders to large multinational OEMs, and different pricing of Windows
versions licensed.
• Constraints in the supply chain of device components.
• Piracy.
Windows Commercial revenue, which includes volume licensing of the Windows operating system and Windows cloud
services such as Microsoft Defender for Endpoint, is affected mainly by the demand from commercial customers for
volume licensing and Software Assurance (―SA‖), as well as advanced security offerings. Windows Commercial revenue
often reflects the number of information workers in a licensed enterprise and is relatively independent of the number of
PCs sold in a given year.
Patent licensing includes our programs to license patents we own for use across a broad array of technology areas,
including mobile devices and cloud offerings.
Windows IoT extends the power of Windows and the cloud to intelligent systems by delivering specialized operating
systems, tools, and services for use in embedded devices.
23
Devices
We design and sell devices, including Surface and PC accessories. Our devices are designed to enable people and
organizations to connect to the people and content that matter most using Windows and integrated Microsoft products and
services. Surface is designed to help organizations, students, and consumers be more productive. Growth in Devices is
dependent on total PC shipments, the ability to attract new customers, our product roadmap, and expanding into new
categories.
Gaming
Our gaming platform is designed to provide a variety of entertainment through a unique combination of content,
community, and cloud. Our exclusive game content is created through Xbox Game Studios, a collection of first-party
studios creating iconic and differentiated gaming experiences. We continue to invest in new gaming studios and content to
expand our IP roadmap and leverage new content creators. These unique gaming experiences are the cornerstone of
Xbox Game Pass, a subscription service and gaming community with access to a curated library of over 100 first- and
third-party console and PC titles.
The gamer remains at the heart of the Xbox ecosystem. We continue to open new opportunities for gamers to engage
both on- and off-console with both the launch of Xbox Cloud Gaming, our game streaming service, and continued
investment in gaming hardware. Xbox Cloud Gaming utilizes Microsoft’s Azure cloud technology to allow direct and on-
demand streaming of games to PCs, consoles, and mobile devices, enabling gamers to take their favorite games with
them and play on the device most convenient to them.
Xbox enables people to connect and share online gaming experiences that are accessible on Xbox consoles, Windows-
enabled devices, and other devices. Xbox is designed to benefit users by providing access to a network of certified
applications and services and to benefit our developer and partner ecosystems by providing access to a large customer
base. Xbox revenue is mainly affected by subscriptions and sales of first- and third-party content, as well as advertising.
Growth of our Gaming business is determined by the overall active user base through Xbox enabled content, availability
of games, providing exclusive game content that gamers seek, the computational power and reliability of the devices used
to access our content and services, and the ability to create new experiences through first-party content creators.
Search and News Advertising
Our Search and news advertising business is designed to deliver relevant search, native, and display advertising to a
global audience. We have several partnerships with other companies, including Yahoo, through which we provide and
monetize search queries. Growth depends on our ability to attract new users, understand intent, and match intent with
relevant content and advertiser offerings.
On June 6, 2022, we acquired Xandr, Inc., a technology platform with tools to accelerate the delivery of our digital
advertising solutions.
Competition
Windows faces competition from various software products and from alternative platforms and devices, mainly from Apple
and Google. We believe Windows competes effectively by giving customers choice, value, flexibility, security, an easy-to-
use interface, and compatibility with a broad range of hardware and software applications, including those that enable
productivity.
Devices face competition from various computer, tablet, and hardware manufacturers who offer a unique combination of
high-quality industrial design and innovative technologies across various price points. These manufacturers, many of
which are also current or potential partners and customers, include Apple and our Windows OEMs.
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Xbox and our cloud gaming services face competition from various online gaming ecosystems and game streaming
services, including those operated by Amazon, Apple, Meta, Google, and Tencent. We also compete with other providers
of entertainment services such as video streaming platforms. Our gaming platform competes with console platforms from
Nintendo and Sony, both of which have a large, established base of customers. We believe our gaming platform is
effectively positioned against, and uniquely differentiated from, competitive products and services based on significant
innovation in hardware architecture, user interface, developer tools, online gaming and entertainment services, and
continued strong exclusive content from our own first-party game franchises as well as other digital content offerings.
Our Search and news advertising business competes with Google and a wide array of websites, social platforms like
Meta, and portals that provide content and online offerings to end users.
OPERATIONS
We have operations centers that support operations in their regions, including customer contract and order processing,
credit and collections, information processing, and vendor management and logistics. The regional center in Ireland
supports the European, Middle Eastern, and African region; the center in Singapore supports the Japan, India, Greater
China, and Asia-Pacific region; and the centers in Fargo, North Dakota, Fort Lauderdale, Florida, Puerto Rico, Redmond,
Washington, and Reno, Nevada support Latin America and North America. In addition to the operations centers, we also
operate datacenters throughout the Americas, Europe, Australia, and Asia, as well as in the Middle East and Africa.
To serve the needs of customers around the world and to improve the quality and usability of products in international
markets, we localize many of our products to reflect local languages and conventions. Localizing a product may require
modifying the user interface, altering dialog boxes, and translating text.
Our devices are primarily manufactured by third-party contract manufacturers. For the majority of our products, we have
the ability to use other manufacturers if a current vendor becomes unavailable or unable to meet our requirements.
However, some of our products contain certain components for which there are very few qualified suppliers. For these
components, we have limited near-term flexibility to use other manufacturers if a current vendor becomes unavailable or is
unable to meet our requirements. Extended disruptions at these suppliers and/or manufacturers could lead to a similar
disruption in our ability to manufacture devices on time to meet consumer demand.
Product and Service Development, and Intellectual Property
RESEARCH AND DEVELOPMENT
We develop most of our products and services internally through the following engineering groups.
• Cloud and AI, focuses on making IT professionals, developers, and their systems more productive and
efficient through development of cloud infrastructure, server, database, CRM, ERP, software development
tools and services (including GitHub), AI cognitive services, and other business process applications and
services for enterprises.
• Experiences and Devices, focuses on instilling a unifying product ethos across our end-user experiences and
devices, including Office, Windows, Teams, consumer web experiences (including search and news
advertising), and the Surface line of devices.
• Security, Compliance, Identity, and Management, focuses on cloud platform and application security, identity
and network access, enterprise mobility, information protection, and managed services.
• Technology and Research, focuses on our AI innovations and other forward-looking research and
development efforts spanning infrastructure, services, and applications.
•
LinkedIn, focuses on our services that transform the way customers hire, market, sell, and learn.
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• Gaming, focuses on developing hardware, content, and services across a large range of platforms to help
grow our user base through game experiences and social interaction.
Internal development allows us to maintain competitive advantages that come from product differentiation and closer
technical control over our products and services. It also gives us the freedom to decide which modifications and
enhancements are most important and when they should be implemented. We strive to obtain information as early as
possible about changing usage patterns and hardware advances that may affect software and hardware design. Before
releasing new software platforms, and as we make significant modifications to existing platforms, we provide application
vendors with a range of resources and guidelines for development, training, and testing. Generally, we also create product
documentation internally.
We protect our intellectual property investments in a variety of ways. We work actively in the U.S. and internationally to
ensure the enforcement of copyright, trademark, trade secret, and other protections that apply to our software and
hardware products, services, business plans, and branding. We are a leader among technology companies in pursuing
patents and currently have a portfolio of over 69,000 U.S. and international patents issued and over 19,000 pending
worldwide. While we employ much of our internally-developed intellectual property exclusively in our products and
services, we also engage in outbound licensing of specific patented technologies that are incorporated into licensees’
products. From time to time, we enter into broader cross-license agreements with other technology companies covering
entire groups of patents. We may also purchase or license technology that we incorporate into our products and services.
At times, we make select intellectual property broadly available at no or low cost to achieve a strategic objective, such as
promoting industry standards, advancing interoperability, supporting societal and/or environmental efforts, or attracting
and enabling our external development community. Our increasing engagement with open source software will also cause
us to license our intellectual property rights broadly in certain situations.
While it may be necessary in the future to seek or renew licenses relating to various aspects of our products, services,
and business methods, we believe, based upon past experience and industry practice, such licenses generally can be
obtained on commercially reasonable terms. We believe our continuing research and product development are not
materially dependent on any single license or other agreement with a third party relating to the development of our
products.
Investing in the Future
Our success is based on our ability to create new and compelling products, services, and experiences for our users, to
initiate and embrace disruptive technology trends, to enter new geographic and product markets, and to drive broad
adoption of our products and services. We invest in a range of emerging technology trends and breakthroughs that we
believe offer significant opportunities to deliver value to our customers and growth for the Company. Based on our
assessment of key technology trends, we maintain our long-term commitment to research and development across a wide
spectrum of technologies, tools, and platforms spanning digital work and life experiences, cloud computing, AI, devices,
and operating systems.
While our main product research and development facilities are located in Redmond, Washington, we also operate
research and development facilities in other parts of the U.S. and around the world. This global approach helps us remain
competitive in local markets and enables us to continue to attract top talent from across the world.
We plan to continue to make significant investments in a broad range of product research and development activities, and
as appropriate we will coordinate our research and development across operating segments and leverage the results
across the Company.
In addition to our main research and development operations, we also operate Microsoft Research. Microsoft Research is
one of the world’s largest corporate research organizations and works in close collaboration with top universities around
the world to advance the state-of-the-art in computer science and a broad range of other disciplines, providing us a unique
perspective on future trends and contributing to our innovation.
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DISTRIBUTION, SALES, AND MARKETING
We market and distribute our products and services through the following channels: OEMs, direct, and distributors and
resellers. Our sales force performs a variety of functions, including working directly with commercial enterprises and
public-sector organizations worldwide to identify and meet their technology and digital transformation requirements;
managing OEM relationships; and supporting system integrators, independent software vendors, and other partners who
engage directly with our customers to perform sales, consulting, and fulfillment functions for our products and services.
OEMs
We distribute our products and services through OEMs that pre-install our software on new devices and servers they sell.
The largest component of the OEM business is the Windows operating system pre-installed on devices. OEMs also sell
devices pre-installed with other Microsoft products and services, including applications such as Office and the capability to
subscribe to Office 365.
There are two broad categories of OEMs. The largest category of OEMs are direct OEMs as our relationship with them is
managed through a direct agreement between Microsoft and the OEM. We have distribution agreements covering one or
more of our products with virtually all the multinational OEMs, including Dell, Hewlett-Packard, Lenovo, and with many
regional and local OEMs. The second broad category of OEMs are system builders consisting of lower-volume PC
manufacturers, which source Microsoft software for pre-installation and local redistribution primarily through the Microsoft
distributor channel rather than through a direct agreement or relationship with Microsoft.
Direct
Many organizations that license our products and services transact directly with us through Enterprise Agreements and
Enterprise Services contracts, with sales support from system integrators, independent software vendors, web agencies,
and partners that advise organizations on licensing our products and services (―Enterprise Agreement Software Advisors‖
or ―ESA‖). Microsoft offers direct sales programs targeted to reach small, medium, and corporate customers, in addition to
those offered through the reseller channel. A large network of partner advisors support many of these sales.
We also sell commercial and consumer products and services directly to customers, such as cloud services, search, and
gaming, through our digital marketplaces and online stores. In fiscal year 2021, we closed our Microsoft Store physical
locations and opened our Microsoft Experience Centers. Microsoft Experience Centers are designed to facilitate deeper
engagement with our partners and customers across industries.
Distributors and Resellers
Organizations also license our products and services indirectly, primarily through licensing solution partners (―LSP‖),
distributors, value-added resellers (―VAR‖), and retailers. Although each type of reselling partner may reach organizations
of all sizes, LSPs are primarily engaged with large organizations, distributors resell primarily to VARs, and VARs typically
reach small and medium organizations. ESAs are also typically authorized as LSPs and operate as resellers for our other
volume licensing programs. Microsoft Cloud Solution Provider is our main partner program for reselling cloud services.
We distribute our retail packaged products primarily through independent non-exclusive distributors, authorized
replicators, resellers, and retail outlets. Individual consumers obtain these products primarily through retail outlets. We
distribute our devices through third-party retailers. We have a network of field sales representatives and field support
personnel that solicit orders from distributors and resellers and provide product training and sales support.
Our Dynamics business solutions are also licensed to enterprises through a global network of channel partners providing
vertical solutions and specialized services.
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LICENSING OPTIONS
We offer options for organizations that want to purchase our cloud services, on-premises software, and SA. We license
software to organizations under volume licensing agreements to allow the customer to acquire multiple licenses of
products and services instead of having to acquire separate licenses through retail channels. We use different programs
designed to provide flexibility for organizations of various sizes. While these programs may differ in various parts of the
world, generally they include those discussed below.
SA conveys rights to new software and upgrades for perpetual licenses released over the contract period. It also provides
support, tools, training, and other licensing benefits to help customers deploy and use software efficiently. SA is included
with certain volume licensing agreements and is an optional purchase with others.
Volume Licensing Programs
Enterprise Agreement
Enterprise Agreements offer large organizations a manageable volume licensing program that gives them the flexibility to
buy cloud services and software licenses under one agreement. Enterprise Agreements are designed for medium or large
organizations that want to license cloud services and on-premises software organization-wide over a three-year period.
Organizations can elect to purchase perpetual licenses or subscribe to licenses. SA is included.
Microsoft Customer Agreement
A Microsoft Customer Agreement is a simplified purchase agreement presented, accepted, and stored through a digital
experience. A Microsoft Customer Agreement is a non-expiring agreement that is designed to support all customers over
time, whether purchasing through a partner or directly from Microsoft.
Microsoft Online Subscription Agreement
A Microsoft Online Subscription Agreement is designed for small and medium organizations that want to subscribe to,
activate, provision, and maintain cloud services seamlessly and directly via the web. The agreement allows customers to
acquire monthly or annual subscriptions for cloud-based services.
Microsoft Products and Services Agreement
Microsoft Products and Services Agreements are designed for medium and large organizations that want to license cloud
services and on-premises software as needed, with no organization-wide commitment, under a single, non-expiring
agreement. Organizations purchase perpetual licenses or subscribe to licenses. SA is optional for customers that
purchase perpetual licenses.
Open Value
Open Value agreements are a simple, cost-effective way to acquire the latest Microsoft technology. These agreements
are designed for small and medium organizations that want to license cloud services and on-premises software over a
three-year period. Under Open Value agreements, organizations can elect to purchase perpetual licenses or subscribe to
licenses and SA is included.
Select Plus
A Select Plus agreement is designed for government and academic organizations to acquire on-premises licenses at any
affiliate or department level, while realizing advantages as one organization. Organizations purchase perpetual licenses
and SA is optional.
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Partner Programs
The Microsoft Cloud Solution Provider program offers customers an easy way to license the cloud services they need in
combination with the value-added services offered by their systems integrator, managed services provider, or cloud
reseller partner. Partners in this program can easily package their own products and services to directly provision,
manage, and support their customer subscriptions.
The Microsoft Services Provider License Agreement allows hosting service providers and independent software vendors
who want to license eligible Microsoft software products to provide software services and hosted applications to their end
customers. Partners license software over a three-year period and are billed monthly based on consumption.
The Independent Software Vendor Royalty program enables partners to integrate Microsoft products into other
applications and then license the unified business solution to their end users.
CUSTOMERS
Our customers include individual consumers, small and medium organizations, large global enterprises, public-sector
institutions, Internet service providers, application developers, and OEMs. Our practice is to ship our products promptly
upon receipt of purchase orders from customers; consequently, backlog is not significant.
AVAILABLE INFORMATION
Our Internet address is www.microsoft.com. At our Investor Relations website, www.microsoft.com/investor, we make
available free of charge a variety of information for investors. Our goal is to maintain the Investor Relations website as a
portal through which investors can easily find or navigate to pertinent information about us, including:
• Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any
amendments to those reports, as soon as reasonably practicable after we electronically file that material with
or furnish it to the Securities and Exchange Commission (―SEC‖) at www.sec.gov.
•
Information on our business strategies, financial results, and metrics for investors.
• Announcements of investor conferences, speeches, and events at which our executives talk about our
product, service, and competitive strategies. Archives of these events are also available.
• Press releases on quarterly earnings, product and service announcements, legal developments, and
international news.
• Corporate governance information including our articles of incorporation, bylaws, governance guidelines,
committee charters, codes of conduct and ethics, global corporate social responsibility initiatives, and other
governance-related policies.
• Other news and announcements that we may post from time to time that investors might find useful or
interesting.
• Opportunities to sign up for email alerts to have information pushed in real time.
We publish a variety of reports and resources related to our Corporate Social Responsibility programs and progress on
our Reports Hub website, www.microsoft.com/corporate-responsibility/reports-hub, including reports on sustainability,
responsible sourcing, accessibility, digital trust, and public policy engagement.
The information found on these websites is not part of, or incorporated by reference into, this or any other report we file
with, or furnish to, the SEC. In addition to these channels, we use social media to communicate to the public. It is possible
that the information we post on social media could be deemed to be material to investors. We encourage investors, the
media, and others interested in Microsoft to review the information we post on the social media channels listed on our
Investor Relations website.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (―MD&A‖) is
intended to help the reader understand the results of operations and financial condition of Microsoft Corporation. MD&A is
provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the
accompanying Notes to Financial Statements in our fiscal year 2022 Form 10-K. This section generally discusses the
results of our operations for the year ended June 30, 2022 compared to the year ended June 30, 2021. For a discussion
of the year ended June 30, 2021 compared to the year ended June 30, 2020, please refer to in our fiscal year 2022 Form
10-K, ―Management’s Discussion and Analysis of Financial Condition and Results of Operations‖ in our Annual Report on
Form 10-K for the year ended June 30, 2021.
OVERVIEW
Microsoft is a technology company whose mission is to empower every person and every organization on the planet to
achieve more. We strive to create local opportunity, growth, and impact in every country around the world. Our platforms
and tools help drive small business productivity, large business competitiveness, and public-sector efficiency. They also
support new startups, improve educational and health outcomes, and empower human ingenuity.
We generate revenue by offering a wide range of cloud-based and other services to people and businesses; licensing and
supporting an array of software products; designing, manufacturing, and selling devices; and delivering relevant online
advertising to a global audience. 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.
Highlights from fiscal year 2022 compared with fiscal year 2021 included:
• Microsoft Cloud (formerly commercial cloud) revenue increased 32% to $91.2 billion.
• Office Commercial products and cloud services revenue increased 13% driven by Office 365 Commercial
growth of 18%.
• Office Consumer products and cloud services revenue increased 11% and Microsoft 365 Consumer
subscribers grew to 59.7 million.
•
LinkedIn revenue increased 34%.
• Dynamics products and cloud services revenue increased 25% driven by Dynamics 365 growth of 39%.
• Server products and cloud services revenue increased 28% driven by Azure and other cloud services growth
of 45%.
• Windows original equipment manufacturer licensing (―Windows OEM‖) revenue increased 11%.
• Windows Commercial products and cloud services revenue increased 11%.
• Xbox content and services revenue increased 3%.
• Search and news advertising revenue excluding traffic acquisition costs increased 27%.
• Surface revenue increased 3%.
On March 4, 2022, we completed our acquisition of Nuance Communications, Inc. (―Nuance‖) for a total purchase price of
$18.8 billion, consisting primarily of cash. Nuance is a cloud and artificial intelligence (―AI‖) software provider with
healthcare and enterprise AI experience, and the acquisition will build on our industry-specific cloud offerings. The
financial results of Nuance have been included in our consolidated financial statements since the date of the acquisition.
Nuance is reported as part of our Intelligent Cloud segment. Refer to Note 8 – Business Combinations of the Notes to
Financial Statements in our fiscal year 2022 Form 10-K for further discussion.
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Industry Trends
Our industry is dynamic and highly competitive, with frequent changes in both technologies and business models. Each
industry shift is an opportunity to conceive new products, new technologies, or new ideas that can further transform the
industry and our business. At Microsoft, we push the boundaries of what is possible through a broad range of research
and development activities that seek to identify and address the changing demands of customers and users, industry
trends, and competitive forces.
Economic Conditions, Challenges, and Risks
The markets for software, devices, and cloud-based services are dynamic and highly competitive. Our competitors are
developing new software and devices, while also deploying competing cloud-based services for consumers and
businesses. The devices and form factors customers prefer evolve rapidly, and influence how users access services in
the cloud, and in some cases, the user’s choice of which suite of cloud-based services to use. We must continue to evolve
and adapt over an extended time in pace with this changing environment. The investments we are making in infrastructure
and devices will continue to increase our operating costs and may decrease our operating margins.
Our success is highly dependent on our ability to attract and retain qualified employees. We hire a mix of university and
industry talent worldwide. We compete for talented individuals globally by offering an exceptional working environment,
broad customer reach, scale in resources, the ability to grow one’s career across many different products and businesses,
and competitive compensation and benefits. Aggregate demand for our software, services, and devices is correlated to
global macroeconomic and geopolitical factors, which remain dynamic.
Our devices are primarily manufactured by third-party contract manufacturers, some of which contain certain components
for which there are very few qualified suppliers. For these components, we have limited near-term flexibility to use other
manufacturers if a current vendor becomes unavailable or is unable to meet our requirements. Extended disruptions at
these suppliers and/or manufacturers could lead to a similar disruption in our ability to manufacture devices on time to
meet consumer demand.
Our international operations provide a significant portion of our total revenue and expenses. Many of these revenue and
expenses are denominated in currencies other than the U.S. dollar. As a result, changes in foreign exchange rates may
significantly affect revenue and expenses. Fluctuations in the U.S. dollar relative to certain foreign currencies did not have
a material impact on reported revenue or expenses from our international operations in fiscal year 2022.
Refer to Risk Factors in our fiscal year 2022 Form 10-K for a discussion of these factors and other risks.
Seasonality
Our revenue fluctuates quarterly and is generally higher in the second and fourth quarters of our fiscal year. Second
quarter revenue is driven by corporate year-end spending trends in our major markets and holiday season spending by
consumers, and fourth quarter revenue is driven by the volume of multi-year on-premises contracts executed during the
period.
Reportable Segments
We report our financial performance based on the following segments: Productivity and Business Processes, Intelligent
Cloud, and More Personal Computing. The segment amounts included in MD&A are presented on a basis consistent with
our internal management reporting. Additional information on our reportable segments is contained in Note 19 – Segment
Information and Geographic Data of the Notes to Financial Statements in our fiscal year 2022 Form 10-K.
Metrics
We use metrics in assessing the performance of our business and to make informed decisions regarding the allocation of
resources. We disclose metrics to enable investors to evaluate progress against our ambitions, provide transparency into
performance trends, and reflect the continued evolution of our products and services. Our commercial and other business
metrics are fundamentally connected based on how customers use our products and
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services. The metrics are disclosed in the MD&A or the Notes to Financial Statements in our fiscal year 2022 Form 10-K.
Financial metrics are calculated based on financial results prepared in accordance with accounting principles generally
accepted in the United States of America (―GAAP‖), and growth comparisons relate to the corresponding period of last
fiscal year.
In the first quarter of fiscal year 2022, we made updates to the presentation and method of calculation for certain metrics,
most notably changes to incorporate all current and anticipated revenue streams within our Office Consumer and Server
products and cloud services metrics and changes to align with how we manage our Windows OEM and Search and news
advertising businesses. None of these changes had a material impact on previously reported amounts in our MD&A.
In the third quarter of fiscal year 2022, we completed our acquisition of Nuance. Nuance is included in all commercial
metrics and our Server products and cloud services revenue growth metric. Azure and other cloud services revenue
includes Nuance cloud services, and Server products revenue includes Nuance on-premises offerings.
Commercial
Our commercial business primarily consists of Server products and cloud services, Office Commercial, Windows
Commercial, the commercial portion of LinkedIn, Enterprise Services, and Dynamics. Our commercial metrics allow
management and investors to assess the overall health of our commercial business and include leading indicators of
future performance.
Commercial remaining performance obligation
Microsoft Cloud revenue
Commercial portion of revenue allocated to remaining
performance obligations, which
includes unearned
revenue and amounts that will be invoiced and recognized
as revenue in future periods
Revenue from Azure and other cloud services, Office 365
Commercial,
the commercial portion of LinkedIn,
Dynamics 365, and other commercial cloud properties
Microsoft Cloud gross margin percentage
Gross margin percentage for our Microsoft Cloud business
Productivity and Business Processes and Intelligent Cloud
Metrics related to our Productivity and Business Processes and Intelligent Cloud segments assess the health of our core
businesses within these segments. The metrics reflect our cloud and on-premises product strategies and trends.
Office Commercial products and cloud services revenue
growth
Office Consumer products and cloud services revenue
growth
Office 365 Commercial seat growth
Microsoft 365 Consumer subscribers
Revenue from Office Commercial products and cloud
services (Office 365 subscriptions, the Office 365 portion
of Microsoft 365 Commercial subscriptions, and Office
licensed on-premises), comprising Office, Exchange,
SharePoint, Microsoft Teams, Office 365 Security and
Compliance, and Microsoft Viva
Revenue from Office Consumer products and cloud
services, including Microsoft 365 Consumer subscriptions,
Office licensed on-premises, and other Office services
The number of Office 365 Commercial seats at end of
period where seats are paid users covered by an Office
365 Commercial subscription
The number of Microsoft 365 Consumer subscribers at
end of period
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Dynamics products and cloud services revenue growth
LinkedIn revenue growth
Server products and cloud services revenue growth
Revenue from Dynamics products and cloud services,
including Dynamics 365, comprising a set of intelligent,
cloud-based applications across ERP, CRM, Customer
Insights, Power Apps, and Power Automate; and on-
premises ERP and CRM applications
from LinkedIn,
Revenue
including Talent Solutions,
Marketing Solutions, Premium Subscriptions, and Sales
Solutions
Revenue
from Server products and cloud services,
including Azure and other cloud services; SQL Server,
Windows Server, Visual Studio, System Center, and
related Client Access Licenses (―CALs‖); and Nuance and
GitHub
More Personal Computing
Metrics related to our More Personal Computing segment assess the performance of key lines of business within this
segment. These metrics provide strategic product insights which allow us to assess the performance across our
commercial and consumer businesses. As we have diversity of target audiences and sales motions within the Windows
business, we monitor metrics that are reflective of those varying motions.
Windows OEM revenue growth
Windows Commercial products and cloud
services revenue growth
Revenue from sales of Windows Pro and non-Pro licenses sold
through the OEM channel
Revenue from Windows Commercial products and cloud services,
comprising volume licensing of the Windows operating system,
Windows cloud services, and other Windows commercial offerings
Surface revenue growth
Revenue from Surface devices and accessories
Xbox content and services revenue growth
Search and news advertising revenue,
excluding TAC, growth
Revenue from Xbox content and services, comprising first- and third-
party content (including games and in-game content), Xbox Game
Pass and other subscriptions, Xbox Cloud Gaming, third-party disc
royalties, advertising, and other cloud services
from search and news advertising excluding
Revenue
traffic
acquisition costs (―TAC‖) paid to Bing Ads network publishers and
news partners
SUMMARY RESULTS OF OPERATIONS
(In millions, except percentages and per share amounts)
Revenue
Gross margin
Operating income
Net income
Diluted earnings per share
Adjusted net income (non-GAAP)
Adjusted diluted earnings per share (non-GAAP)
2022
2021
Percentage
Change
$ 198,270
135,620
83,383
72,738
9.65
$ 168,088
115,856
69,916
61,271
8.05
69,447
9.21
60,651
7.97
18%
17%
19%
19%
20%
15%
16%
Adjusted net income and adjusted diluted earnings per share (―EPS‖) are non-GAAP financial measures which exclude
the net income tax benefit related to transfer of intangible properties in the first quarter of fiscal year 2022 and the
33
net income tax benefit related to an India Supreme Court decision on withholding taxes in the third quarter of fiscal year
2021. Refer to the Non-GAAP Financial Measures section below for a reconciliation of our financial results reported in
accordance with GAAP to non-GAAP financial results. See Note 12 – Income Taxes of the Notes to Financial Statements
in our fiscal year 2022 Form 10-K for further discussion.
Fiscal Year 2022 Compared with Fiscal Year 2021
Revenue increased $30.2 billion or 18% driven by growth across each of our segments. Intelligent Cloud revenue
increased driven by Azure and other cloud services. Productivity and Business Processes revenue increased driven by
Office 365 Commercial and LinkedIn. More Personal Computing revenue increased driven by Search and news
advertising and Windows.
Cost of revenue increased $10.4 billion or 20% driven by growth in Microsoft Cloud.
Gross margin increased $19.8 billion or 17% driven by growth across each of our segments.
• Gross margin percentage decreased slightly. Excluding the impact of the fiscal year 2021 change in
accounting estimate for the useful lives of our server and network equipment, gross margin percentage
increased 1 point driven by improvement in Productivity and Business Processes.
• Microsoft Cloud gross margin percentage decreased slightly to 70%. Excluding the impact of the change in
accounting estimate, Microsoft Cloud gross margin percentage increased 3 points driven by improvement
across our cloud services, offset in part by sales mix shift to Azure and other cloud services.
Operating expenses increased $6.3 billion or 14% driven by investments in cloud engineering, LinkedIn, Gaming, and
commercial sales.
Key changes in operating expenses were:
• Research and development expenses increased $3.8 billion or 18% driven by investments in cloud
engineering, Gaming, and LinkedIn.
• Sales and marketing expenses increased $1.7 billion or 8% driven by investments in commercial sales and
LinkedIn. Sales and marketing included a favorable foreign currency impact of 2%.
• General and administrative expenses increased $793 million or 16% driven by investments in corporate
functions.
Operating income increased $13.5 billion or 19% driven by growth across each of our segments.
Current year net income and diluted EPS were positively impacted by the net tax benefit related to the transfer of
intangible properties, which resulted in an increase to net income and diluted EPS of $3.3 billion and $0.44, respectively.
Prior year net income and diluted EPS were positively impacted by the net tax benefit related to the India Supreme Court
decision on withholding taxes, which resulted in an increase to net income and diluted EPS of $620 million and $0.08,
respectively.
Gross margin and operating income both included an unfavorable foreign currency impact of 2%.
SEGMENT RESULTS OF OPERATIONS
(In millions, except percentages)
Revenue
Productivity and Business Processes
Intelligent Cloud
More Personal Computing
Total
Operating Income
Productivity and Business Processes
Intelligent Cloud
More Personal Computing
Total
34
2022
2021
Percentage
Change
$
63,364 $ 53,915
75,251
60,080
59,655
54,093
$ 198,270 $ 168,088
$
29,687 $ 24,351
32,721
26,126
20,975
19,439
$
83,383 $ 69,916
18%
25%
10%
18%
22%
25%
8%
19%
Reportable Segments
Fiscal Year 2022 Compared with Fiscal Year 2021
Productivity and Business Processes
Revenue increased $9.4 billion or 18%.
• Office Commercial products and cloud services revenue increased $4.4 billion or 13%. Office 365
Commercial revenue grew 18% driven by seat growth of 14%, with continued momentum in small and
medium business and frontline worker offerings, as well as growth in revenue per user. Office Commercial
products revenue declined 22% driven by continued customer shift to cloud offerings.
• Office Consumer products and cloud services revenue increased $641 million or 11% driven by Microsoft 365
Consumer subscription revenue. Microsoft 365 Consumer subscribers grew 15% to 59.7 million.
•
LinkedIn revenue increased $3.5 billion or 34% driven by a strong job market in our Talent Solutions business
and advertising demand in our Marketing Solutions business.
• Dynamics products and cloud services revenue increased 25% driven by Dynamics 365 growth of 39%.
Operating income increased $5.3 billion or 22%.
• Gross margin increased $7.3 billion or 17% driven by growth in Office 365 Commercial and LinkedIn. Gross
margin percentage was relatively unchanged. Excluding the impact of the change in accounting estimate,
gross margin percentage increased 2 points driven by improvement across all cloud services.
• Operating expenses increased $2.0 billion or 11% driven by investments in LinkedIn and cloud engineering.
Gross margin and operating income both included an unfavorable foreign currency impact of 2%.
Intelligent Cloud
Revenue increased $15.2 billion or 25%.
• Server products and cloud services revenue increased $14.7 billion or 28% driven by Azure and other cloud
services. Azure and other cloud services revenue grew 45% driven by growth in our consumption-based
services. Server products revenue increased 5% driven by hybrid solutions, including Windows Server and
SQL Server running in multi-cloud environments.
• Enterprise Services revenue increased $464 million or 7% driven by growth in Enterprise Support Services.
Operating income increased $6.6 billion or 25%.
• Gross margin increased $9.4 billion or 22% driven by growth in Azure and other cloud services. Gross margin
percentage decreased. Excluding the impact of the change in accounting estimate, gross margin percentage
was relatively unchanged driven by improvement in Azure and other cloud services, offset in part by sales
mix shift to Azure and other cloud services.
• Operating expenses increased $2.8 billion or 16% driven by investments in Azure and other cloud services.
Revenue and operating income included an unfavorable foreign currency impact of 2% and 3%, respectively.
More Personal Computing
Revenue increased $5.6 billion or 10%.
• Windows revenue increased $2.3 billion or 10% driven by growth in Windows OEM and Windows
Commercial. Windows OEM revenue increased 11% driven by continued strength in the commercial PC
market, which has higher revenue per license. Windows Commercial products and cloud services revenue
increased 11% driven by demand for Microsoft 365.
35
• Search and news advertising revenue increased $2.3 billion or 25%. Search and news advertising revenue
excluding traffic acquisition costs increased 27% driven by higher revenue per search and search volume.
• Gaming revenue increased $860 million or 6% on a strong prior year comparable that benefited from Xbox
Series X|S launches and stay-at-home scenarios, driven by growth in Xbox hardware and Xbox content and
services. Xbox hardware revenue increased 16% due to continued demand for Xbox Series X|S. Xbox
content and services revenue increased 3% driven by growth in Xbox Game Pass subscriptions and first-
party content, offset in part by a decline in third-party content.
• Surface revenue increased $226 million or 3%.
Operating income increased $1.5 billion or 8%.
• Gross margin increased $3.1 billion or 10% driven by growth in Windows and Search and news advertising.
Gross margin percentage was relatively unchanged.
• Operating expenses increased $1.5 billion or 14% driven by investments in Gaming, Search and news
advertising, and Windows marketing.
OPERATING EXPENSES
Research and Development
(In millions, except percentages)
Research and development
As a percent of revenue
2022
2021
Percentage
Change
$ 24,512
12%
$ 20,716
12%
18%
0ppt
Research and development expenses include payroll, employee benefits, stock-based compensation expense, and other
headcount-related expenses associated with product development. 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 and services content.
Research and development expenses increased $3.8 billion or 18% driven by investments in cloud engineering, Gaming,
and LinkedIn.
Sales and Marketing
(In millions, except percentages)
Sales and marketing
As a percent of revenue
2022
2021
Percentage
Change
$ 21,825
11%
$ 20,117
12%
8%
(1)ppt
Sales and marketing expenses include payroll, employee benefits, stock-based compensation expense, and other
headcount-related expenses associated with sales and marketing personnel, and the costs of advertising, promotions,
trade shows, seminars, and other programs.
Sales and marketing expenses increased $1.7 billion or 8% driven by investments in commercial sales and LinkedIn.
Sales and marketing included a favorable foreign currency impact of 2%.
General and Administrative
(In millions, except percentages)
General and administrative
As a percent of revenue
36
2022
2021
Percentage
Change
$ 5,900
3%
$ 5,107
3%
16%
0ppt
General and administrative expenses include payroll, employee benefits, stock-based compensation expense, and other
headcount-related expenses associated with finance, legal, facilities, certain human resources and other administrative
personnel, certain taxes, and legal and other administrative fees.
General and administrative expenses increased $793 million or 16% driven by investments in corporate functions.
The components of other income (expense), net were as follows:
OTHER INCOME (EXPENSE), NET
(In millions)
Year Ended June 30,
Interest and dividends income
Interest expense
Net recognized gains on investments
Net gains (losses) on derivatives
Net gains (losses) on foreign currency remeasurements
Other, net
Total
2022
2021
$ 2,094 $ 2,131
(2,346)
1,232
17
54
98
(2,063)
461
(52)
(75)
(32)
$
333 $ 1,186
We use derivative instruments to manage risks related to foreign currencies, equity prices, interest rates, and credit;
enhance investment returns; and facilitate portfolio diversification. Gains and losses from changes in fair values of
derivatives that are not designated as hedging instruments are primarily recognized in other income (expense), net.
Interest and dividends income decreased due to lower portfolio balances. Interest expense decreased due to a decrease
in outstanding long-term debt due to debt maturities. Net recognized gains on investments decreased primarily due to
lower gains on equity securities.
Effective Tax Rate
INCOME TAXES
Our effective tax rate for fiscal years 2022 and 2021 was 13% and 14%, respectively. The decrease in our effective tax
rate was primarily due to a $3.3 billion net income tax benefit in the first quarter of fiscal year 2022 related to the transfer
of intangible properties, offset in part by changes in the mix of our income before income taxes between the U.S. and
foreign countries, as well as tax benefits in the prior year from the India Supreme Court decision on withholding taxes in
the case of Engineering Analysis Centre of Excellent Private Limited vs The Commissioner of Income Tax, an agreement
between the U.S. and India tax authorities related to transfer pricing, and final Tax Cuts and Jobs Act (―TCJA‖)
regulations.
In the first quarter of fiscal year 2022, we transferred certain intangible properties from our Puerto Rico subsidiary to the
U.S. The transfer of intangible properties resulted in a $3.3 billion net income tax benefit in the first quarter of fiscal year
2022, as the value of future U.S. tax deductions exceeds the current tax liability from the U.S. global intangible low-taxed
income tax.
We have historically paid India withholding taxes on software sales through distributor withholding and tax audit
assessments in India. In March 2021, the India Supreme Court ruled favorably for companies in 86 separate appeals,
some dating back to 2012, holding that software sales are not subject to India withholding taxes. Although we were not a
party to the appeals, our software sales in India were determined to be not subject to withholding taxes. Therefore, we
recorded a net income tax benefit of $620 million in the third quarter of fiscal year 2021 to reflect the results of the India
Supreme Court decision impacting fiscal year 1996 through fiscal year 2016.
Our effective tax rate was lower than the U.S. federal statutory rate, primarily due to the net income tax benefit related to
the transfer of intangible properties, earnings taxed at lower rates in foreign jurisdictions resulting from producing and
distributing our products and services through our foreign regional operations center in Ireland, and tax benefits relating to
stock-based compensation.
37
The mix of income before income taxes between the U.S. and foreign countries impacted our effective tax rate as a result
of the geographic distribution of, and customer demand for, our products and services. In fiscal year 2022, our U.S.
income before income taxes was $47.8 billion and our foreign income before income taxes was $35.9 billion. In fiscal year
2021, our U.S. income before income taxes was $35.0 billion and our foreign income before income taxes was
$36.1 billion.
Uncertain Tax Positions
We settled a portion of the Internal Revenue Service (―IRS‖) audit for tax years 2004 to 2006 in fiscal year 2011. In
February 2012, the IRS withdrew its 2011 Revenue Agents Report related to unresolved issues for tax years 2004 to 2006
and reopened the audit phase of the examination. We also settled a portion of the IRS audit for tax years 2007 to 2009 in
fiscal year 2016, and a portion of the IRS audit for tax years 2010 to 2013 in fiscal year 2018. In the second quarter of
fiscal year 2021, we settled an additional portion of the IRS audits for tax years 2004 to 2013 and made a payment of
$1.7 billion, including tax and interest. We remain under audit for tax years 2004 to 2017.
As of June 30, 2022, the primary unresolved issues for the IRS audits relate to transfer pricing, which could have a
material impact in our consolidated financial statements when the matters are resolved. We believe our allowances for
income tax contingencies are adequate. We have not received a proposed assessment for the unresolved key transfer
pricing issues and do not expect a final resolution of these issues in the next 12 months. Based on the information
currently available, we do not anticipate a significant increase or decrease to our tax contingencies for these issues within
the next 12 months.
We are subject to income tax in many jurisdictions outside the U.S. Our operations in certain jurisdictions remain subject
to examination for tax years 1996 to 2021, some of which are currently under audit by local tax authorities. The resolution
of each of these audits is not expected to be material to our consolidated financial statements.
NON-GAAP FINANCIAL MEASURES
Adjusted net income and adjusted diluted EPS are non-GAAP financial measures which exclude the net tax benefit
related to the transfer of intangible properties in the first quarter of fiscal year 2022 and the net income tax benefit related
to an India Supreme Court decision on withholding taxes in the third quarter of fiscal year 2021. We believe these non-
GAAP measures aid investors by providing additional insight into our operational performance and help clarify trends
affecting our business. For comparability of reporting, management considers non-GAAP measures in conjunction with
GAAP financial results in evaluating business performance. These non-GAAP financial measures presented should not be
considered a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.
The following table reconciles our financial results reported in accordance with GAAP to non-GAAP financial results:
(In millions, except percentages and per share amounts)
Net income
Net income tax benefit related to transfer of intangible properties
Net income tax benefit related to India Supreme Court decision on withholding taxes
2022
2021
$ 72,738 $ 61,271
0
(620)
(3,291)
0
Adjusted net income (non-GAAP)
$ 69,447 $ 60,651
Diluted earnings per share
Net income tax benefit related to transfer of intangible properties
Net income tax benefit related to India Supreme Court decision on withholding taxes
$
9.65 $
(0.44)
0
8.05
0
(0.08)
Adjusted diluted earnings per share (non-GAAP)
$
9.21 $
7.97
*
Not meaningful.
38
Percentage
Change
19%
*
*
15%
20%
*
*
16%
LIQUIDITY AND CAPITAL RESOURCES
We expect existing cash, cash equivalents, short-term investments, cash flows from operations, and access to capital
markets to continue to be sufficient to fund our operating activities and cash commitments for investing and financing
activities, such as dividends, share repurchases, debt maturities, material capital expenditures, and the transition tax
related to the TCJA, for at least the next 12 months and thereafter for the foreseeable future.
Cash, Cash Equivalents, and Investments
Cash, cash equivalents, and short-term investments totaled $104.8 billion and $130.3 billion as of June 30, 2022 and
2021, respectively. Equity investments were $6.9 billion and $6.0 billion as of June 30, 2022 and 2021, respectively. Our
short-term investments are primarily intended to facilitate liquidity and capital preservation. They consist predominantly of
highly liquid investment-grade fixed-income securities, diversified among industries and individual issuers. The
investments are predominantly U.S. dollar-denominated securities, but also include foreign currency-denominated
securities to diversify risk. Our fixed-income investments are exposed to interest rate risk and credit risk. The credit risk
and average maturity of our fixed-income portfolio are managed to achieve economic returns that correlate to certain
fixed-income indices. The settlement risk related to these investments is insignificant given that the short-term
investments held are primarily highly liquid investment-grade fixed-income securities.
Valuation
In general, and where applicable, we use quoted prices in active markets for identical assets or liabilities to determine the
fair value of our financial instruments. This pricing methodology applies to our Level 1 investments, such as U.S.
government securities, common and preferred stock, and mutual funds. If quoted prices in active markets for identical
assets or liabilities are not available to determine fair value, then we use quoted prices for similar assets and liabilities or
inputs other than the quoted prices that are observable either directly or indirectly. This pricing methodology applies to our
Level 2 investments, such as commercial paper, certificates of deposit, U.S. agency securities, foreign government bonds,
mortgage- and asset-backed securities, corporate notes and bonds, and municipal securities. Level 3 investments are
valued using internally-developed models with unobservable inputs. Assets and liabilities measured at fair value on a
recurring basis using unobservable inputs are an immaterial portion of our portfolio.
A majority of our investments are priced by pricing vendors and are generally Level 1 or Level 2 investments as these
vendors either provide a quoted market price in an active market or use observable inputs for their pricing without
applying significant adjustments. Broker pricing is used mainly when a quoted price is not available, the investment is not
priced by our pricing vendors, or when a broker price is more reflective of fair values in the market in which the investment
trades. Our broker-priced investments are generally classified as Level 2 investments because the broker prices these
investments based on similar assets without applying significant adjustments. In addition, all our broker-priced
investments have a sufficient level of trading volume to demonstrate that the fair values used are appropriate for these
investments. Our fair value processes include controls that are designed to ensure appropriate fair values are recorded.
These controls include model validation, review of key model inputs, analysis of period-over-period fluctuations, and
independent recalculation of prices where appropriate.
Cash Flows
Cash from operations increased $12.3 billion to $89.0 billion for fiscal year 2022, mainly due to an increase in cash
received from customers, offset in part by an increase in cash paid to suppliers and employees. Cash used in financing
increased $10.4 billion to $58.9 billion for fiscal year 2022, mainly due to a $5.3 billion increase in common stock
repurchases and a $5.3 billion increase in repayments of debt. Cash used in investing increased $2.7 billion to
$30.3 billion for fiscal year 2022, mainly due to a $13.1 billion increase in cash used for acquisitions of companies, net of
cash acquired, and purchases of intangible and other assets, and a $3.3 billion increase in additions to property and
equipment, offset in part by a $15.6 billion increase in cash from net investment purchases, sales, and maturities.
39
Debt Proceeds
We issue debt to take advantage of favorable pricing and liquidity in the debt markets, reflecting our credit rating and the
low interest rate environment. The proceeds of these issuances were or will be used for general corporate purposes,
which may include, among other things, funding for working capital, capital expenditures, repurchases of capital stock,
acquisitions, and repayment of existing debt. In March 2021 and June 2020, we exchanged a portion of our existing debt
at a premium for cash and new debt with longer maturities to take advantage of favorable financing rates in the debt
markets, reflecting our credit rating and the low interest rate environment. Refer to Note 11 – Debt of the Notes to
Financial Statements in our fiscal year 2022 Form 10-K for further discussion.
Unearned Revenue
Unearned revenue comprises mainly unearned revenue related to volume licensing programs, which may include
Software Assurance (―SA‖) and cloud services. Unearned revenue is generally invoiced annually at the beginning of each
contract period for multi-year agreements and recognized ratably over the coverage period. Unearned revenue also
includes payments for other offerings for which we have been paid in advance and earn the revenue when we transfer
control of the product or service. Refer to Note 1 – Accounting Policies of the Notes to Financial Statements in our fiscal
year 2022 Form 10-K for further discussion.
The following table outlines the expected future recognition of unearned revenue as of June 30, 2022:
(In millions)
Three Months Ending
September 30, 2022
December 31, 2022
March 31, 2023
June 30, 2023
Thereafter
Total
$ 17,691
13,923
9,491
4,433
2,870
$ 48,408
If our customers choose to license cloud-based versions of our products and services rather than licensing transaction-
based products and services, the associated revenue will shift from being recognized at the time of the transaction to
being recognized over the subscription period or upon consumption, as applicable.
Material Cash Requirements and Other Obligations
Contractual Obligations
The following table summarizes the payments due by fiscal year for our outstanding contractual obligations as of June 30,
2022:
(In millions)
Long-term debt: (a)
Principal payments
Interest payments
Construction commitments (b)
Operating and finance leases, including imputed interest (c)
Purchase commitments (d)
Total
2023
Thereafter
Total
$ 2,750
1,468
7,942
4,609
42,669
$ 52,761
21,139
576
44,045
2,985
$ 55,511
22,607
8,518
48,654
45,654
$ 59,438
$ 121,506
$ 180,944
40
(a) Refer to Note 11 – Debt of the Notes to Financial Statements in our fiscal year 2022 Form 10-K.
(b) Refer to Note 7 – Property and Equipment of the Notes to Financial Statements in our fiscal year 2022 Form 10-K.
(c) Refer to Note 14 – Leases of the Notes to Financial Statements in our fiscal year 2022 Form 10-K.
(d) Purchase commitments primarily relate to datacenters and include open purchase orders and take-or-pay contracts
that are not presented as construction commitments above.
Income Taxes
As a result of the TCJA, we are required to pay a one-time transition tax on deferred foreign income not previously subject
to U.S. income tax. Under the TCJA, the transition tax is payable in interest-free installments over eight years, with 8%
due in each of the first five years, 15% in year six, 20% in year seven, and 25% in year eight. We have paid transition tax
of $6.2 billion, which included $1.5 billion for fiscal year 2022. The remaining transition tax of $12.0 billion is payable over
the next four years, with $1.3 billion payable within 12 months.
Provisions enacted in the TCJA related to the capitalization for tax purposes of research and experimental expenditures
became effective on July 1, 2022. These provisions require us to capitalize research and experimental expenditures and
amortize them on the U.S. tax return over five or fifteen years, depending on where research is conducted. The final
foreign tax credit regulations, also effective on July 1, 2022, introduced significant changes to foreign tax credit
calculations in the U.S. tax return. While these provisions are not expected to have a material impact on our fiscal year
2023 effective tax rate on a net basis, our cash paid for taxes would increase unless these provisions are postponed or
modified through legislative processes.
Share Repurchases
During fiscal years 2022 and 2021, we repurchased 95 million shares and 101 million shares of our common stock for
$28.0 billion and $23.0 billion, respectively, through our share repurchase programs. All repurchases were made using
cash resources. As of June 30, 2022, $40.7 billion remained of our $60 billion share repurchase program. Refer to Note
16 – Stockholders’ Equity of the Notes to Financial Statements in our fiscal year 2022 Form 10-K for further discussion.
Dividends
During fiscal year 2022, our Board of Directors declared quarterly dividends of $0.62 per share. We intend to continue
returning capital to shareholders in the form of dividends, subject to declaration by our Board of Directors. Refer to Note
16 – Stockholders’ Equity of the Notes to Financial Statements in our fiscal year 2022 Form 10-K for further discussion.
Other Planned Uses of Capital
On January 18, 2022, we entered into a definitive agreement to acquire Activision Blizzard, Inc. (―Activision Blizzard‖) for
$95.00 per share in an all-cash transaction valued at $68.7 billion, inclusive of Activision Blizzard’s net cash. The
acquisition has been approved by Activision Blizzard’s shareholders, and we expect it to close in fiscal year 2023, subject
to the satisfaction of certain regulatory approvals and other customary closing conditions.
We will continue to invest in sales, marketing, product support infrastructure, and existing and advanced areas of
technology, as well as continue making acquisitions that align with our business strategy. Additions to property and
equipment will continue, including new facilities, datacenters, and computer systems for research and development, sales
and marketing, support, and administrative staff. We expect capital expenditures to increase in coming years to support
growth in our cloud offerings. We have operating and finance leases for datacenters, corporate offices, research and
development facilities, Microsoft Experience Centers, and certain equipment. We have not engaged in any related party
transactions or arrangements with unconsolidated entities or other persons that are reasonably likely to materially affect
liquidity or the availability of capital resources.
41
RECENT ACCOUNTING GUIDANCE
Refer to Note 1 – Accounting Policies of the Notes to Financial Statements in our fiscal year 2022 Form 10-K for further
discussion.
CRITICAL ACCOUNTING ESTIMATES
Our consolidated financial statements and accompanying notes are prepared in accordance with GAAP. Preparing
consolidated financial statements requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenue, and expenses. Critical accounting estimates are those estimates that involve a
significant level of estimation uncertainty and could have a material impact on our financial condition or results of
operations. We have critical accounting estimates in the areas of revenue recognition, impairment of investment
securities, goodwill, research and development costs, legal and other contingencies, income taxes, and inventories.
Revenue Recognition
Our contracts with customers often include promises to transfer multiple products and services to a customer.
Determining whether products and services are considered distinct performance obligations that should be accounted for
separately versus together may require significant judgment. When a cloud-based service includes both on-premises
software licenses and cloud services, judgment is required to determine whether the software license is considered
distinct and accounted for separately, or not distinct and accounted for together with the cloud service and recognized
over time. Certain cloud services, primarily Office 365, depend on a significant level of integration, interdependency, and
interrelation between the desktop applications and cloud services, and are accounted for together as one performance
obligation. Revenue from Office 365 is recognized ratably over the period in which the cloud services are provided.
Judgment is required to determine the stand-alone selling price (―SSP‖) for each distinct performance obligation. We use
a single amount to estimate SSP for items that are not sold separately, including on-premises licenses sold with SA or
software updates provided at no additional charge. We use a range of amounts to estimate SSP when we sell each of the
products and services separately and need to determine whether there is a discount to be allocated based on the relative
SSP of the various products and services.
In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we
determine the SSP using information that may include market conditions and other observable inputs. We typically have
more than one SSP for individual products and services due to the stratification of those products and services by
customers and circumstances. In these instances, we may use information such as the size of the customer and
geographic region in determining the SSP.
Due to the various benefits from and the nature of our SA program, judgment is required to assess the pattern of delivery,
including the exercise pattern of certain benefits across our portfolio of customers.
Our products are generally sold with a right of return, we may provide other credits or incentives, and in certain instances
we estimate customer usage of our products and services, which are accounted for as variable consideration when
determining the amount of revenue to recognize. Returns and credits are estimated at contract inception and updated at
the end of each reporting period if additional information becomes available. Changes to our estimated variable
consideration were not material for the periods presented.
Impairment of Investment Securities
We review debt investments quarterly for credit losses and impairment. If the cost of an investment exceeds its fair value,
we evaluate, among other factors, general market conditions, credit quality of debt instrument issuers, and the extent to
which the fair value is less than cost. This determination requires significant judgment. In making this
42
judgment, we employ a systematic methodology that considers available quantitative and qualitative evidence in
evaluating potential impairment of our investments. In addition, we consider specific adverse conditions related to the
financial health of, and business outlook for, the investee. If we have plans to sell the security or it is more likely than not
that we will be required to sell the security before recovery, then a decline in fair value below cost is recorded as an
impairment charge in other income (expense), net and a new cost basis in the investment is established. If market,
industry, and/or investee conditions deteriorate, we may incur future impairments.
Equity investments without readily determinable fair values are written down to fair value if a qualitative assessment
indicates that the investment is impaired and the fair value of the investment is less than carrying value. We perform a
qualitative assessment on a periodic basis. We are required to estimate the fair value of the investment to determine the
amount of the impairment loss. Once an investment is determined to be impaired, an impairment charge is recorded in
other income (expense), net.
Goodwill
We allocate goodwill to reporting units based on the reporting unit expected to benefit from the business combination. We
evaluate our reporting units on an annual basis and, if necessary, reassign goodwill using a relative fair value allocation
approach. 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. These events or
circumstances could include a significant change in the business climate, legal factors, operating performance indicators,
competition, or sale or disposition of a significant portion of a reporting unit.
Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of
assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of
each reporting unit. The fair value of each reporting unit is estimated primarily through the use of a discounted cash flow
methodology. This analysis requires significant judgments, including estimation of future cash flows, which is dependent
on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which
cash flows will occur, and determination of our weighted average cost of capital.
The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results,
market conditions, and other factors. Changes in these estimates and assumptions could materially affect the
determination of fair value and goodwill impairment for each reporting unit.
Research and Development Costs
Costs incurred internally in researching and developing a computer software product are charged to expense until
technological feasibility has been established for the product. Once technological feasibility is established, software costs
are capitalized until the product is available for general release to customers. Judgment is required in determining when
technological feasibility of a product is established. We have determined that technological feasibility for our software
products is reached after all high-risk development issues have been resolved through coding and testing. Generally, this
occurs shortly before the products are released to production. The amortization of these costs is included in cost of
revenue over the estimated life of the products.
Legal and Other Contingencies
The outcomes of legal proceedings and claims brought against us are subject to significant uncertainty. An estimated loss
from a loss contingency such as a legal proceeding or claim is accrued by a charge to income if it is probable that an
asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. 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. Changes in these factors could
materially impact our consolidated financial statements.
43
Income Taxes
The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current
year, and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an
entity’s financial statements or tax returns. We recognize the tax benefit from an uncertain tax position only if it is more
likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical
merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on
the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Accounting literature
also provides guidance on derecognition of income tax assets and liabilities, classification of deferred income tax assets
and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures. Judgment is
required in assessing the future tax consequences of events that have been recognized in our consolidated financial
statements or tax returns. Variations in the actual outcome of these future tax consequences could materially impact our
consolidated financial statements.
Inventories
Inventories are stated at average cost, subject to the lower of cost or net realizable value. Cost includes materials, labor,
and manufacturing overhead related to the purchase and production of inventories. Net realizable value is the estimated
selling price less estimated costs of completion, disposal, and transportation. We regularly review inventory quantities on
hand, future purchase commitments with our suppliers, and the estimated utility of our inventory. These reviews include
analysis of demand forecasts, product life cycle status, product development plans, current sales levels, pricing strategy,
and component cost trends. If our review indicates a reduction in utility below carrying value, we reduce our inventory to a
new cost basis through a charge to cost of revenue.
CHANGE IN ACCOUNTING ESTIMATE
In July 2022, we completed an assessment of the useful lives of our server and network equipment. Due to investments in
software that increased efficiencies in how we operate our server and network equipment, as well as advances in
technology, we determined we should increase the estimated useful lives of both server and network equipment from four
years to six years. This change in accounting estimate will be effective beginning fiscal year 2023. Based on the carrying
amount of server and network equipment included in property and equipment, net as of June 30, 2022, it is estimated this
change will increase our fiscal year 2023 operating income by $3.7 billion. We had previously increased the estimated
useful lives of both server and network equipment in July 2020.
44
STATEMENT OF MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is responsible for the preparation of the consolidated financial statements and related information that are
presented in this report. 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.
The Company designs and maintains accounting and internal control systems to provide reasonable assurance at
reasonable cost that assets are safeguarded against loss from unauthorized use or disposition, and that the financial
records are reliable for preparing consolidated financial statements and maintaining accountability for assets. These
systems are augmented by written policies, an organizational structure providing division of responsibilities, careful
selection and training of qualified personnel, and a program of internal audits.
The Company engaged Deloitte & Touche LLP, an independent registered public accounting firm, to audit and render an
opinion on the consolidated financial statements and internal control over financial reporting in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
The Board of Directors, through its Audit Committee, consisting solely of independent directors of the Company, meets
periodically with management, internal auditors, and our independent registered public accounting firm to ensure that
each is meeting its responsibilities and to discuss matters concerning internal controls and financial reporting. Deloitte &
Touche LLP and the internal auditors each have full and free access to the Audit Committee.
Satya Nadella
Chief Executive Officer
Amy E. Hood
Executive Vice President and Chief Financial Officer
Alice L. Jolla
Corporate Vice President and Chief Accounting Officer
45
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
RISKS
We are exposed to economic risk from foreign exchange rates, interest rates, credit risk, and equity prices. We use
derivatives instruments to manage these risks, however, they may still impact our consolidated financial statements.
Foreign Currencies
Certain forecasted transactions, assets, and liabilities are exposed to foreign currency risk. We monitor our foreign
currency exposures daily to maximize the economic effectiveness of our foreign currency positions, including hedges.
Principal currency exposures include the Euro, Japanese yen, British pound, Canadian dollar, and Australian dollar.
Interest Rate
Securities held in our fixed-income portfolio are subject to different interest rate risks based on their maturities. We
manage the average maturity of the fixed-income portfolio to achieve economic returns that correlate to certain global
fixed-income indices.
Credit
Our fixed-income portfolio is diversified and consists primarily of investment-grade securities. We manage credit
exposures relative to broad-based indices and to facilitate portfolio diversification.
Equity
Securities held in our equity investments portfolio are subject to price risk.
SENSITIVITY ANALYSIS
The following table sets forth the potential loss in future earnings or fair values, including associated derivatives, resulting
from hypothetical changes in relevant market rates or prices:
(In millions)
Risk Categories
Foreign currency – Revenue
Foreign currency – Investments
Interest rate
Credit
Equity
Hypothetical Change
10% decrease in foreign exchange rates
10% decrease in foreign exchange rates
100 basis point increase in U.S. treasury
interest rates
100 basis point increase in credit spreads
10% decrease in equity market prices
June 30,
2022
Impact
$ (6,822) Earnings
(94) Fair Value
(2,536) Fair Value
(350) Fair Value
(637) Earnings
46
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INCOME STATEMENTS
(In millions, except per share amounts)
Year Ended June 30,
Revenue:
Product
Service and other
Total revenue
Cost of revenue:
Product
Service and other
Total cost of revenue
Gross margin
Research and development
Sales and marketing
General and administrative
Operating income
Other income, net
Income before income taxes
Provision for income taxes
Net income
Earnings per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
Refer to accompanying notes.
2022
2021
2020
$ 72,732
125,538
$ 71,074
97,014
$ 68,041
74,974
198,270
168,088
143,015
19,064
43,586
62,650
18,219
34,013
52,232
135,620
24,512
21,825
5,900
115,856
20,716
20,117
5,107
83,383
333
83,716
10,978
69,916
1,186
71,102
9,831
16,017
30,061
46,078
96,937
19,269
19,598
5,111
52,959
77
53,036
8,755
$ 72,738
$ 61,271
$ 44,281
$
$
9.70
9.65
$
$
8.12
8.05
$
$
5.82
5.76
7,496
7,540
7,547
7,608
7,610
7,683
47
COMPREHENSIVE INCOME STATEMENTS
(In millions)
Year Ended June 30,
Net income
Other comprehensive income (loss), net of tax:
Net change related to derivatives
Net change related to investments
Translation adjustments and other
Other comprehensive income (loss)
Comprehensive income
Refer to accompanying notes.
2022
2021
2020
$ 72,738 $ 61,271 $ 44,281
6
(5,360)
(1,146)
(6,500)
19
(2,266)
873
(1,374)
(38)
3,990
(426)
3,526
$ 66,238 $ 59,897 $ 47,807
48
BALANCE SHEETS
(In millions)
June 30,
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Total cash, cash equivalents, and short-term investments
Accounts receivable, net of allowance for doubtful accounts of $633 and $751
Inventories
Other current assets
Total current assets
Property and equipment, net of accumulated depreciation of $59,660 and $51,351
Operating lease right-of-use assets
Equity investments
Goodwill
Intangible assets, net
Other long-term assets
Total assets
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
Current portion of long-term debt
Accrued compensation
Short-term income taxes
Short-term unearned revenue
Other current liabilities
Total current liabilities
Long-term debt
Long-term income taxes
Long-term unearned revenue
Deferred income taxes
Operating lease liabilities
Other long-term liabilities
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Common stock and paid-in capital – shares authorized 24,000; outstanding 7,464 and 7,519
Retained earnings
Accumulated other comprehensive income (loss)
Total stockholders’ equity
Total liabilities and stockholders’ equity
Refer to accompanying notes.
2022
2021
$
13,931 $ 14,224
116,110
90,826
104,757
44,261
3,742
16,924
169,684
74,398
13,148
6,891
67,524
11,298
21,897
130,334
38,043
2,636
13,393
184,406
59,715
11,088
5,984
49,711
7,800
15,075
$ 364,840 $ 333,779
$
19,000 $ 15,163
8,072
10,057
2,174
41,525
11,666
2,749
10,661
4,067
45,538
13,067
95,082
47,032
26,069
2,870
230
11,489
15,526
88,657
50,074
27,190
2,616
198
9,629
13,427
198,298
191,791
86,939
84,281
(4,678)
83,111
57,055
1,822
166,542
141,988
$ 364,840 $ 333,779
49
CASH FLOWS STATEMENTS
(In millions)
Year Ended June 30,
Operations
Net income
Adjustments to reconcile net income to net cash from operations:
Depreciation, amortization, and other
Stock-based compensation expense
Net recognized gains on investments and derivatives
Deferred income taxes
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Other current assets
Other long-term assets
Accounts payable
Unearned revenue
Income taxes
Other current liabilities
Other long-term liabilities
Net cash from operations
Financing
Cash premium on debt exchange
Repayments of debt
Common stock issued
Common stock repurchased
Common stock cash dividends paid
Other, net
Net cash used in financing
Investing
Additions to property and equipment
Acquisition of companies, net of cash acquired, and purchases of
intangible and other assets
Purchases of investments
Maturities of investments
Sales of investments
Other, net
Net cash used in investing
Effect of foreign exchange rates on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Refer to accompanying notes.
2022
2021
2020
$ 72,738 $ 61,271 $ 44,281
14,460
7,502
(409 )
(5,702 )
11,686
6,118
(1,249)
(150)
12,796
5,289
(219 )
11
(6,834 )
(1,123 )
(709 )
(2,805 )
2,943
5,109
696
2,344
825
(6,481)
(737)
(932)
(3,459)
2,798
4,633
(2,309)
4,149
1,402
(2,577 )
168
(2,330 )
(1,037 )
3,018
2,212
(3,631 )
1,346
1,348
89,035
76,740
60,675
0
(9,023 )
1,841
(32,696 )
(18,135 )
(863 )
(1,754)
(3,750)
1,693
(27,385)
(16,521)
(769)
(3,417 )
(5,518 )
1,343
(22,968 )
(15,137 )
(334 )
(58,876 )
(48,486)
(46,031 )
(23,886 )
(20,622)
(15,441 )
(22,038 )
(26,456 )
16,451
28,443
(2,825 )
(8,909)
(62,924)
51,792
14,008
(922)
(2,521 )
(77,190 )
66,449
17,721
(1,241 )
(30,311 )
(27,577)
(12,223 )
(141 )
(29)
(201 )
(293 )
14,224
648
13,576
2,220
11,356
$ 13,931 $ 14,224 $ 13,576
50
STOCKHOLDERS’ EQUITY STATEMENTS
(In millions, except per share amounts)
Year Ended June 30,
Common stock and paid-in capital
Balance, beginning of period
Common stock issued
Common stock repurchased
Stock-based compensation expense
Other, net
Balance, end of period
Retained earnings
Balance, beginning of period
Net income
Common stock cash dividends
Common stock repurchased
Cumulative effect of accounting changes
Balance, end of period
Accumulated other comprehensive income (loss)
Balance, beginning of period
Other comprehensive income (loss)
Cumulative effect of accounting changes
Balance, end of period
Total stockholders’ equity
2022
2021
2020
$ 83,111 $ 80,552 $ 78,520
1,343
(4,599)
5,289
(1)
1,841
(5,688)
7,502
173
1,963
(5,539)
6,118
17
86,939
83,111
80,552
57,055
72,738
(18,552)
(26,960)
0
34,566
61,271
(16,871)
(21,879)
(32)
24,150
44,281
(15,483)
(18,382)
0
84,281
57,055
34,566
1,822
(6,500)
0
(4,678)
3,186
(1,374)
10
1,822
(340)
3,526
0
3,186
$ 166,542 $ 141,988 $ 118,304
Cash dividends declared per common share
$
2.48 $
2.24 $
2.04
Refer to accompanying notes.
51
NOTES TO FINANCIAL STATEMENTS
NOTE 1 — ACCOUNTING POLICIES
Accounting Principles
Our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles
generally accepted in the United States of America (―GAAP‖).
We have recast certain prior period amounts to conform to the current period presentation. The recast of these prior
period amounts had no impact on our consolidated balance sheets, consolidated income statements, or consolidated
cash flows statements.
Principles of Consolidation
The consolidated financial statements include the accounts of Microsoft Corporation and its subsidiaries. Intercompany
transactions and balances have been eliminated.
Estimates and Assumptions
Preparing financial statements requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenue, and expenses. Examples of estimates and assumptions include: for revenue
recognition, determining the nature and timing of satisfaction of performance obligations, and determining the standalone
selling price (―SSP‖) of performance obligations, variable consideration, and other obligations such as product returns and
refunds; loss contingencies; product warranties; the fair value of and/or potential impairment of goodwill and intangible
assets for our reporting units; product life cycles; useful lives of our tangible and intangible assets; allowances for doubtful
accounts; the market value of, and demand for, our inventory; stock-based compensation forfeiture rates; when
technological feasibility is achieved for our products; the potential outcome of uncertain tax positions that have been
recognized in our consolidated financial statements or tax returns; and determining the timing and amount of impairments
for investments. Actual results and outcomes may differ from management’s estimates and assumptions due to risks and
uncertainties.
In July 2022, we completed an assessment of the useful lives of our server and network equipment. Due to investments in
software that increased efficiencies in how we operate our server and network equipment, as well as advances in
technology, we determined we should increase the estimated useful lives of both server and network equipment from four
years to six years. This change in accounting estimate will be effective beginning fiscal year 2023. We had previously
increased the estimated useful lives of both server and network equipment in July 2020.
Foreign Currencies
Assets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date.
Revenue and expenses are translated at average rates of exchange prevailing during the year. Translation adjustments
resulting from this process are recorded to other comprehensive income.
Revenue
Product Revenue and Service and Other Revenue
Product revenue includes sales from operating systems, cross-device productivity applications, server applications,
business solution applications, desktop and server management tools, software development tools, video games, and
hardware such as PCs, tablets, gaming and entertainment consoles, other intelligent devices, and related accessories.
52
Service and other revenue includes sales from cloud-based solutions that provide customers with software, services,
platforms, and content such as Office 365, Azure, Dynamics 365, and Xbox; solution support; and consulting services.
Service and other revenue also includes sales from online advertising and LinkedIn.
Revenue Recognition
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects
the consideration we expect to receive in exchange for those products or services. We enter into contracts that can
include various combinations of products and services, which are generally capable of being distinct and accounted for as
separate performance obligations. Revenue is recognized net of allowances for returns and any taxes collected from
customers, which are subsequently remitted to governmental authorities.
Nature of Products and Services
Licenses for on-premises software provide the customer with a right to use the software as it exists when made available
to the customer. Customers may purchase perpetual licenses or subscribe to licenses, which provide customers with the
same functionality and differ mainly in the duration over which the customer benefits from the software. Revenue from
distinct on-premises licenses is recognized upfront at the point in time when the software is made available to the
customer. In cases where we allocate revenue to software updates, primarily because the updates are provided at no
additional charge, revenue is recognized as the updates are provided, which is generally ratably over the estimated life of
the related device or license.
Certain volume licensing programs, including Enterprise Agreements, include on-premises licenses combined with
Software Assurance (―SA‖). SA conveys rights to new software and upgrades released over the contract period and
provides support, tools, and training to help customers deploy and use products more efficiently. On-premises licenses
are considered distinct performance obligations when sold with SA. Revenue allocated to SA is generally recognized
ratably over the contract period as customers simultaneously consume and receive benefits, given that SA comprises
distinct performance obligations that are satisfied over time.
Cloud services, which allow customers to use hosted software over the contract period without taking possession of the
software, are provided on either a subscription or consumption basis. Revenue related to cloud services provided on a
subscription basis is recognized ratably over the contract period. Revenue related to cloud services provided on a
consumption basis, such as the amount of storage used in a period, is recognized based on the customer utilization of
such resources. When cloud services require a significant level of integration and interdependency with software and the
individual components are not considered distinct, all revenue is recognized over the period in which the cloud services
are provided.
Revenue from search advertising is recognized when the advertisement appears in the search results or when the action
necessary to earn the revenue has been completed. Revenue from consulting services is recognized as services are
provided.
Our hardware is generally highly dependent on, and interrelated with, the underlying operating system and cannot
function without the operating system. In these cases, the hardware and software license are accounted for as a single
performance obligation and revenue is recognized at the point in time when ownership is transferred to resellers or
directly to end customers through retail stores and online marketplaces.
Refer to Note 19 – Segment Information and Geographic Data for further information, including revenue by significant
product and service offering.
Significant Judgments
Our contracts with customers often include promises to transfer multiple products and services to a customer.
Determining whether products and services are considered distinct performance obligations that should be
53
accounted for separately versus together may require significant judgment. When a cloud-based service includes both on-
premises software licenses and cloud services, judgment is required to determine whether the software license is
considered distinct and accounted for separately, or not distinct and accounted for together with the cloud service and
recognized over time. Certain cloud services, primarily Office 365, depend on a significant level of integration,
interdependency, and interrelation between the desktop applications and cloud services, and are accounted for together
as one performance obligation. Revenue from Office 365 is recognized ratably over the period in which the cloud services
are provided.
Judgment is required to determine the SSP for each distinct performance obligation. We use a single amount to estimate
SSP for items that are not sold separately, including on-premises licenses sold with SA or software updates provided at
no additional charge. We use a range of amounts to estimate SSP when we sell each of the products and services
separately and need to determine whether there is a discount to be allocated based on the relative SSP of the various
products and services.
In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we
determine the SSP using information that may include market conditions and other observable inputs. We typically have
more than one SSP for individual products and services due to the stratification of those products and services by
customers and circumstances. In these instances, we may use information such as the size of the customer and
geographic region in determining the SSP.
Due to the various benefits from and the nature of our SA program, judgment is required to assess the pattern of delivery,
including the exercise pattern of certain benefits across our portfolio of customers.
Our products are generally sold with a right of return, we may provide other credits or incentives, and in certain instances
we estimate customer usage of our products and services, which are accounted for as variable consideration when
determining the amount of revenue to recognize. Returns and credits are estimated at contract inception and updated at
the end of each reporting period if additional information becomes available. Changes to our estimated variable
consideration were not material for the periods presented.
Contract Balances and Other Receivables
Timing of revenue recognition may differ from the timing of invoicing to customers. We record a receivable when revenue
is recognized prior to invoicing, or unearned revenue when revenue is recognized subsequent to invoicing. For multi-year
agreements, we generally invoice customers annually at the beginning of each annual coverage period. We record a
receivable related to revenue recognized for multi-year on-premises licenses as we have an unconditional right to invoice
and receive payment in the future related to those licenses.
Unearned revenue comprises mainly unearned revenue related to volume licensing programs, which may include SA and
cloud services. Unearned revenue is generally invoiced annually at the beginning of each contract period for multi-year
agreements and recognized ratably over the coverage period. Unearned revenue also includes payments for consulting
services to be performed in the future, LinkedIn subscriptions, Office 365 subscriptions, Xbox subscriptions, Windows
post-delivery support, Dynamics business solutions, and other offerings for which we have been paid in advance and earn
the revenue when we transfer control of the product or service.
Refer to Note 13 – Unearned Revenue for further information, including unearned revenue by segment and changes in
unearned revenue during the period.
Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30
to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined
our contracts generally do not include a significant financing component. The primary purpose of our invoicing terms is to
provide customers with simplified and predictable ways of purchasing our products and services, not to receive financing
from our customers or to provide customers with financing. Examples include invoicing at the beginning of a subscription
term with revenue recognized ratably over the contract period, and multi-year on-premises licenses that are invoiced
annually with revenue recognized upfront.
54
As of June 30, 2022 and 2021, other receivables due from suppliers were $1.0 billion and $965 million, respectively, and
are included in accounts receivable, net in our consolidated balance sheets.
As of June 30, 2022 and 2021, long-term accounts receivable, net of allowance for doubtful accounts, was $3.8 billion and
$3.4 billion, respectively, and is included in other long-term assets in our consolidated balance sheets.
The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable
balance. We determine the allowance based on known troubled accounts, historical experience, and other currently
available evidence.
Activity in the allowance for doubtful accounts was as follows:
(In millions)
Year Ended June 30,
Balance, beginning of period
Charged to costs and other
Write-offs
Balance, end of period
Allowance for doubtful accounts included in our consolidated balance sheets:
(In millions)
June 30,
Accounts receivable, net of allowance for doubtful accounts
Other long-term assets
Total
2022
2021
2020
$ 798 $ 816 $ 434
560
234
(252) (178 )
157
(245 )
$ 710 $ 798 $ 816
2022
2021
2020
$ 633
77
$ 751
47
$ 788
28
$ 710
$ 798
$ 816
We record financing receivables when we offer certain of our customers the option to acquire our software products and
services offerings through a financing program in a limited number of countries. As of June 30, 2022 and 2021, our
financing receivables, net were $4.1 billion and $4.4 billion, respectively, for short-term and long-term financing
receivables, which are included in other current assets and other long-term assets in our consolidated balance sheets. We
record an allowance to cover expected losses based on troubled accounts, historical experience, and other currently
available evidence.
Assets Recognized from Costs to Obtain a Contract with a Customer
We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those
costs to be longer than one year. We have determined that certain sales incentive programs meet the requirements to be
capitalized. Total capitalized costs to obtain a contract were immaterial during the periods presented and are included in
other current and long-term assets in our consolidated balance sheets.
We apply a practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the
amortization period would have been one year or less. These costs include our internal sales force compensation
program and certain partner sales incentive programs as we have determined annual compensation is commensurate
with annual sales activities.
Cost of Revenue
Cost of revenue includes: manufacturing and distribution costs for products sold and programs licensed; operating costs
related to product support service centers and product distribution centers; costs incurred to include software on PCs sold
by original equipment manufacturers (―OEM‖), to drive traffic to our websites, and to acquire online
55
advertising space; costs incurred to support and maintain online products and services, including datacenter costs and
royalties; warranty costs; inventory valuation adjustments; costs associated with the delivery of consulting services; and
the amortization of capitalized software development costs. Capitalized software development costs are amortized over
the estimated lives of the products.
Product Warranty
We provide for the estimated costs of fulfilling our obligations under hardware and software warranties at the time the
related revenue is recognized. For hardware warranties, we estimate the costs based on historical and projected product
failure rates, historical and projected repair costs, and knowledge of specific product failures (if any). The specific
hardware warranty terms and conditions vary depending upon the product sold and the country in which we do business,
but generally include parts and labor over a period generally ranging from 90 days to three years. For software warranties,
we estimate the costs to provide bug fixes, such as security patches, over the estimated life of the software. We regularly
reevaluate our estimates to assess the adequacy of the recorded warranty liabilities and adjust the amounts as
necessary.
Research and Development
Research and development expenses include payroll, employee benefits, stock-based compensation expense, and other
headcount-related expenses associated with product development. 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 and services content. Such costs related to software development are
included in research and development expense until the point that technological feasibility is reached, which for our
software products, is generally shortly before the products are released to production. Once technological feasibility is
reached, such costs are capitalized and amortized to cost of revenue over the estimated lives of the products.
Sales and Marketing
Sales and marketing expenses include payroll, employee benefits, stock-based compensation expense, and other
headcount-related expenses associated with sales and marketing personnel, and the costs of advertising, promotions,
trade shows, seminars, and other programs. Advertising costs are expensed as incurred. Advertising expense was
$1.5 billion, $1.5 billion, and $1.6 billion in fiscal years 2022, 2021, and 2020, respectively.
Stock-Based Compensation
Compensation cost for stock awards, which include restricted stock units (―RSUs‖) and performance stock units (―PSUs‖),
is measured at the fair value on the grant date and recognized as expense, net of estimated forfeitures, over the related
service or performance period. The fair value of stock awards is based on the quoted price of our common stock on the
grant date less the present value of expected dividends not received during the vesting period. We measure the fair value
of PSUs using a Monte Carlo valuation model. Compensation cost for RSUs is recognized using the straight-line method
and for PSUs is recognized using the accelerated method.
Compensation expense for the employee stock purchase plan (―ESPP‖) is measured as the discount the employee is
entitled to upon purchase and is recognized in the period of purchase.
Income Taxes
Income tax expense includes U.S. and international income taxes, and interest and penalties on uncertain tax positions.
Certain income and expenses are not reported in tax returns and financial statements in the same year. The tax effect of
such temporary differences is reported as deferred income taxes. Deferred tax assets are reported net of a valuation
allowance when it is more likely than not that a tax benefit will not be realized. All deferred income taxes are classified as
long-term in our consolidated balance sheets.
56
Financial Instruments
Investments
We consider all highly liquid interest-earning investments with a maturity of three months or less at the date of purchase to
be cash equivalents. The fair values of these investments approximate their carrying values. In general, investments with
original maturities of greater than three months and remaining maturities of less than one year are classified as short-term
investments. Investments with maturities beyond one year may be classified as short-term based on their highly liquid
nature and because such marketable securities represent the investment of cash that is available for current operations.
Debt investments are classified as available-for-sale and realized gains and losses are recorded using the specific
identification method. Changes in fair value, excluding credit losses and impairments, are recorded in other
comprehensive income. Fair value is calculated based on publicly available market information or other estimates
determined by management. If the cost of an investment exceeds its fair value, we evaluate, among other factors, general
market conditions, credit quality of debt instrument issuers, and the extent to which the fair value is less than cost. To
determine credit losses, we employ a systematic methodology that considers available quantitative and qualitative
evidence. In addition, we consider specific adverse conditions related to the financial health of, and business outlook for,
the investee. If we have plans to sell the security or it is more likely than not that we will be required to sell the security
before recovery, then a decline in fair value below cost is recorded as an impairment charge in other income (expense),
net and a new cost basis in the investment is established. If market, industry, and/or investee conditions deteriorate, we
may incur future impairments.
Equity investments with readily determinable fair values are measured at fair value. Equity investments without readily
determinable fair values are measured using the equity method or measured at cost with adjustments for observable
changes in price or impairments (referred to as the measurement alternative). We perform a qualitative assessment on a
periodic basis and recognize an impairment if there are sufficient indicators that the fair value of the investment is less
than carrying value. Changes in value are recorded in other income (expense), net.
Derivatives
Derivative instruments are recognized as either assets or liabilities and measured at fair value. The accounting for
changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation.
For derivative instruments designated as fair value hedges, gains and losses are recognized in other income (expense),
net with offsetting gains and losses on the hedged items. Gains and losses representing hedge components excluded
from the assessment of effectiveness are recognized in other income (expense), net.
For derivative instruments designated as cash flow hedges, gains and losses are initially reported as a component of
other comprehensive income and subsequently recognized in other income (expense), net with the corresponding hedged
item. Gains and losses representing hedge components excluded from the assessment of effectiveness are recognized in
other income (expense), net.
For derivative instruments that are not designated as hedges, gains and losses from changes in fair values are primarily
recognized in other income (expense), net.
Fair Value Measurements
We account for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the
extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value
measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement
in its entirety. These levels are:
•
Level 1 – inputs are based upon unadjusted quoted prices for identical instruments in active markets. Our
Level 1 investments include U.S. government securities, common and preferred stock, and mutual funds. Our
Level 1 derivative assets and liabilities include those actively traded on exchanges.
57
•
•
Level 2 – inputs are based upon quoted prices for similar instruments in active markets, quoted prices for
identical or similar instruments in markets that are not active, and model-based valuation techniques (e.g. the
Black-Scholes model) for which all significant inputs are observable in the market or can be corroborated by
observable market data for substantially the full term of the assets or liabilities. Where applicable, these
models project future cash flows and discount the future amounts to a present value using market-based
observable inputs including interest rate curves, credit spreads, foreign exchange rates, and forward and spot
prices for currencies. Our Level 2 investments include commercial paper, certificates of deposit, U.S. agency
securities, foreign government bonds, mortgage- and asset-backed securities, corporate notes and bonds,
and municipal securities. Our Level 2 derivative assets and liabilities include certain over-the-counter forward,
option, and swap contracts.
Level 3 – inputs are generally unobservable and typically reflect management’s estimates of assumptions that
market participants would use in pricing the asset or liability. The fair values are therefore determined using
model-based techniques, including option pricing models and discounted cash flow models. Our Level 3
assets and liabilities include investments in corporate notes and bonds, municipal securities, and goodwill
and intangible assets, when they are recorded at fair value due to an impairment charge. Unobservable
inputs used in the models are significant to the fair values of the assets and liabilities.
We measure equity investments without readily determinable fair values on a nonrecurring basis. The fair values of these
investments are determined based on valuation techniques using the best information available, and may include quoted
market prices, market comparables, and discounted cash flow projections.
Inventories
Inventories are stated at average cost, subject to the lower of cost or net realizable value. Cost includes materials, labor,
and manufacturing overhead related to the purchase and production of inventories. Net realizable value is the estimated
selling price less estimated costs of completion, disposal, and transportation. We regularly review inventory quantities on
hand, future purchase commitments with our suppliers, and the estimated utility of our inventory. If our review indicates a
reduction in utility below carrying value, we reduce our inventory to a new cost basis through a charge to cost of revenue.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation, and depreciated using the straight-line method
over the shorter of the estimated useful life of the asset or the lease term. The estimated useful lives of our property and
equipment are generally as follows: computer software developed or acquired for internal use, three to seven years;
computer equipment, two to four years; buildings and improvements, five to 15 years; leasehold improvements, three to
20 years; and furniture and equipment, one to 10 years. Land is not depreciated.
Leases
We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use
(―ROU‖) assets, other current liabilities, and operating lease liabilities in our consolidated balance sheets. Finance leases
are included in property and equipment, other current liabilities, and other long-term liabilities in our consolidated balance
sheets.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation
to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at
commencement date based on the present value of lease payments over the lease term. As most of our leases do not
provide an implicit rate, we generally use our incremental borrowing rate based on the estimated rate of interest for
collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU
asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to
extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease
payments is recognized on a straight-line basis over the lease term.
58
We have lease agreements with lease and non-lease components, which are generally accounted for separately. For
certain equipment leases, such as vehicles, we account for the lease and non-lease components as a single lease
component. Additionally, for certain equipment leases, we apply a portfolio approach to effectively account for the
operating lease ROU assets and liabilities.
Goodwill
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.
Intangible Assets
Our intangible assets are subject to amortization and are amortized using the straight-line method over their estimated
period of benefit, ranging from one to 20 years. We evaluate the recoverability of intangible assets periodically by taking
into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be
impaired.
Recent Accounting Guidance
Accounting for Income Taxes
In December 2019, the Financial Accounting Standards Board issued a new standard to simplify the accounting for
income taxes. The guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the
methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside
basis differences related to changes in ownership of equity method investments and foreign subsidiaries. The guidance
also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the
accounting for transactions that result in a step-up in the tax basis of goodwill. We adopted the standard effective July 1,
2021. Adoption of the standard did not have a material impact on our consolidated financial statements.
NOTE 2 — EARNINGS PER SHARE
Basic earnings per share (―EPS‖) is computed based on the weighted average number of shares of common stock
outstanding during the period. Diluted EPS is computed based on the weighted average number of shares of common
stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method.
Dilutive potential common shares include outstanding stock options and stock awards.
The components of basic and diluted EPS were as follows:
(In millions, except earnings per share)
Year Ended June 30,
Net income available for common shareholders (A)
Weighted average outstanding shares of common stock (B)
Dilutive effect of stock-based awards
Common stock and common stock equivalents (C)
Earnings Per Share
Basic (A/B)
Diluted (A/C)
2022
2021
2020
$ 72,738
$ 61,271
$ 44,281
7,496
44
7,547
61
7,540
7,608
7,610
73
7,683
$
$
9.70
9.65
$ 8.12
$ 8.05
$
$
5.82
5.76
Anti-dilutive stock-based awards excluded from the calculations of diluted EPS were immaterial during the periods
presented.
59
The components of other income (expense), net were as follows:
NOTE 3 — OTHER INCOME (EXPENSE), NET
(In millions)
Year Ended June 30,
Interest and dividends income
Interest expense
Net recognized gains on investments
Net gains (losses) on derivatives
Net gains (losses) on foreign currency remeasurements
Other, net
2022
2021
2020
$ 2,094 $ 2,131 $ 2,680
(2,591)
32
187
(191)
(40)
(2,346 )
1,232
17
54
98
(2,063)
461
(52)
(75)
(32)
Total
$
333 $ 1,186 $
77
2022
2021
2020
$ 162 $ 105 $ 50
(37 )
(17 )
(138)
(81)
(40)
(2)
$
(57) $
63 $
(4 )
2022
2021
2020
$ 29 $ 123 $ 83
69
1,057
(116)
509
(20)
(11)
$ 518 $ 1,169 $
36
Net Recognized Gains (Losses) on Investments
Net recognized gains (losses) on debt investments were as follows:
(In millions)
Year Ended June 30,
Realized gains from sales of available-for-sale securities
Realized losses from sales of available-for-sale securities
Impairments and allowance for credit losses
Total
Net recognized gains (losses) on equity investments were as follows:
(In millions)
Year Ended June 30,
Net realized gains on investments sold
Net unrealized gains on investments still held
Impairments of investments
Total
60
NOTE 4 — INVESTMENTS
Investment Components
The components of investments were as follows:
(In millions)
June 30, 2022
Changes in Fair Value Recorded
in Other Comprehensive
Income
Commercial paper
Certificates of deposit
U.S. government securities
U.S. agency securities
Foreign government bonds
Mortgage- and asset-backed
securities
Corporate notes and bonds
Corporate notes and bonds
Municipal securities
Municipal securities
Fair Value
Level
Adjusted
Cost Basis
Unrealized
Gains
Unrealized
Losses
Recorded
Basis
Cash
and Cash
Equivalents
Short-term
Investments
Equity
Investments
Level 2 $ 2,500
2,071
Level 2
79,696
Level 1
419
Level 2
506
Level 2
$
0
0
29
0
0
$
0 $ 2,500
2,071
0
77,547
(2,178)
410
(9)
482
(24)
$ 2,498
2,032
9
0
0
$
2
39
77,538
410
482
$
Level 2
Level 2
Level 3
Level 2
Level 3
727
11,661
67
368
103
1
4
0
19
0
(30)
(554)
0
(13)
(6)
698
11,111
67
374
97
0
0
0
0
0
698
11,111
67
374
97
0
0
0
0
0
0
0
0
0
0
Total debt investments
$ 98,118
$ 53
$ (2,814) $ 95,357
$ 4,539
$ 90,818
$ 0
Changes in Fair Value Recorded
in Net Income
Equity investments
Equity investments
Level 1
Other
Total equity investments
Cash
Derivatives, net (a)
Total
$ 1,590
6,435
$ 1,134
0
$ 8,025
$ 1,134
$ 8,258
8
$ 8,258
0
$
$
$
0
0
0
0
8
$
456
6,435
$ 6,891
$
0
0
$ 111,648
$ 13,931
$ 90,826
$ 6,891
Fair Value
Level
Adjusted
Cost Basis
Unrealized
Gains
Unrealized
Losses
Recorded
Basis
Cash
and Cash
Equivalents
Short-term
Investments
Equity
Investments
(In millions)
June 30, 2021
Changes in Fair Value Recorded
in Other Comprehensive
Income
Commercial paper
Certificates of deposit
U.S. government securities
U.S. agency securities
Foreign government bonds
Level 2
Level 2
Level 1
Level 2
Level 2
$
4,316 $
3,615
90,664
807
6,213
0 $
0
3,832
2
9
0
0
(111)
0
(2)
$ 4,316
3,615
94,385
809
6,220
$
$ 1,331
2,920
1,500
0
225
2,985
695
92,885
809
5,995
$ 0
0
0
0
0
61
(In millions)
Fair Value
Level
Adjusted
Cost Basis
Unrealized
Gains
Unrealized
Losses
Recorded
Basis
Cash
and Cash
Equivalents
Short-term
Investments
Equity
Investments
June 30, 2021
Mortgage- and asset-
backed securities
Level 2
Corporate notes and bonds Level 2
Corporate notes and bonds Level 3
Municipal securities
Level 2
Municipal securities
Level 3
3,442
8,443
63
308
95
22
249
0
63
0
(6)
(9)
0
0
(7)
3,458
8,683
63
371
88
0
0
0
0
0
3,458
8,683
63
371
88
0
0
0
0
0
Total debt investments
$ 117,966 $ 4,177 $ (135) $ 122,008 $ 5,976
$ 116,032 $ 0
Changes in Fair Value Recorded
in Net Income
Equity investments
Equity investments
Level 1
Other
Total equity investments
Cash
Derivatives, net (a)
Total
$ 1,582 $
5,378
$ 6,960 $
976
0
976
$ 7,272 $ 7,272
0
78
$
$
$
0 $
0
606
5,378
0 $ 5,984
0 $
78
0
0
$ 136,318 $ 14,224
$ 116,110 $ 5,984
(a) Refer to Note 5 – Derivatives for further information on the fair value of our derivative instruments.
Equity investments presented as ―Other‖ in the tables above include investments without readily determinable fair values
measured using the equity method or measured at cost with adjustments for observable changes in price or impairments,
and investments measured at fair value using net asset value as a practical expedient which are not categorized in the fair
value hierarchy. As of June 30, 2022 and 2021, equity investments without readily determinable fair values measured at
cost with adjustments for observable changes in price or impairments were $3.8 billion and $3.3 billion, respectively.
Unrealized Losses on Debt Investments
Debt investments with continuous unrealized losses for less than 12 months and 12 months or greater and their related
fair values were as follows:
(In millions)
June 30, 2022
U.S. government and agency
securities
Foreign government bonds
Mortgage- and asset-backed
securities
Corporate notes and bonds
Municipal securities
Less than 12 Months
12 Months or Greater
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Total
Fair Value
Total
Unrealized
Losses
$ 59,092
418
$
(1,835) $
(18)
$
2,210
27
(352) $ 61,302
445
(6)
$(2,187)
(24)
510
9,443
178
(26)
(477)
(12)
41
786
74
(4)
(77)
(7)
551
10,229
252
(30)
(554)
(19)
Total
$ 69,641
$ (2,368) $ 3,138
$ (446) $ 72,779 $ (2,814)
62
(In millions)
June 30, 2021
Less than 12 Months
12 Months or Greater
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Total
Fair Value
Total
Unrealized
Losses
U.S. government and agency securities
Foreign government bonds
Mortgage- and asset-backed securities
Corporate notes and bonds
Municipal securities
$ 5,294
3,148
1,211
1,678
58
$ (111) $
(1)
(5)
(8)
(7)
$
0
5
87
34
1
0 $
(1 )
(1 )
(1 )
0
5,294 $ (111)
(2 )
3,153
(6 )
1,298
(9 )
1,712
(7 )
59
Total
$ 11,389
$ (132) $
127
$ (3 ) $ 11,516 $ (135)
Unrealized losses from fixed-income securities are primarily attributable to changes in interest rates. Management does
not believe any remaining unrealized losses represent impairments based on our evaluation of available evidence.
Debt Investment Maturities
(In millions)
June 30, 2022
Due in one year or less
Due after one year through five years
Due after five years through 10 years
Due after 10 years
Total
Adjusted
Cost Basis
Estimated
Fair Value
$ 26,480
52,006
18,274
1,358
$ 26,470
50,748
16,880
1,259
$ 98,118
$ 95,357
NOTE 5 — DERIVATIVES
We use derivative instruments to manage risks related to foreign currencies, interest rates, equity prices, and credit; to
enhance investment returns; and to facilitate portfolio diversification. Our objectives for holding derivatives include
reducing, eliminating, and efficiently managing the economic impact of these exposures as effectively as possible. Our
derivative programs include strategies that both qualify and do not qualify for hedge accounting treatment.
Foreign Currencies
Certain forecasted transactions, assets, and liabilities are exposed to foreign currency risk. We monitor our foreign
currency exposures daily to maximize the economic effectiveness of our foreign currency hedge positions.
Foreign currency risks related to certain non-U.S. dollar-denominated investments are hedged using foreign exchange
forward contracts that are designated as fair value hedging instruments. Foreign currency risks related to certain Euro-
denominated debt are hedged using foreign exchange forward contracts that are designated as cash flow hedging
instruments.
Certain options and forwards not designated as hedging instruments are also used to manage the variability in foreign
exchange rates on certain balance sheet amounts and to manage other foreign currency exposures.
Interest Rate
Interest rate risks related to certain fixed-rate debt are hedged using interest rate swaps that are designated as fair value
hedging instruments to effectively convert the fixed interest rates to floating interest rates.
63
Securities held in our fixed-income portfolio are subject to different interest rate risks based on their maturities. We
manage the average maturity of our fixed-income portfolio to achieve economic returns that correlate to certain broad-
based fixed-income indices using exchange-traded option and futures contracts and over-the-counter swap and option
contracts. These contracts are not designated as hedging instruments and are included in ―Other contracts‖ in the tables
below.
Equity
Securities held in our equity investments portfolio are subject to market price risk. At times, we may hold options, futures,
and swap contracts. These contracts are not designated as hedging instruments and are included in ―Other contracts‖ in
the tables below.
Credit
Our fixed-income portfolio is diversified and consists primarily of investment-grade securities. We use credit default swap
contracts to manage credit exposures relative to broad-based indices and to facilitate portfolio diversification. These
contracts are not designated as hedging instruments and are included in ―Other contracts‖ in the tables below.
Credit-Risk-Related Contingent Features
Certain of our counterparty agreements for derivative instruments contain provisions that require our issued and
outstanding long-term unsecured debt to maintain an investment grade credit rating and require us to maintain minimum
liquidity of $1.0 billion. To the extent we fail to meet these requirements, we will be required to post collateral, similar to
the standard convention related to over-the-counter derivatives. As of June 30, 2022, our long-term unsecured debt rating
was AAA, and cash investments were in excess of $1.0 billion. As a result, no collateral was required to be posted.
The following table presents the notional amounts of our outstanding derivative instruments measured in U.S. dollar
equivalents:
(In millions)
Designated as Hedging Instruments
Foreign exchange contracts purchased
Foreign exchange contracts sold
Interest rate contracts purchased
Not Designated as Hedging Instruments
Foreign exchange contracts purchased
Foreign exchange contracts sold
Other contracts purchased
Other contracts sold
Fair Values of Derivative Instruments
The following table presents our derivative instruments:
(In millions)
Designated as Hedging Instruments
Foreign exchange contracts
64
June 30,
2022
June 30,
2021
$
$
635
0
1,139
635
6,081
1,247
10,322
21,606
2,773
544
14,223
23,391
2,456
763
Derivative
Assets
Derivative
Liabilities
Derivative
Assets
Derivative
Liabilities
June 30,
2022
June 30,
2021
$ 0
$ (77) $
76
$ (8)
(In millions)
Interest rate contracts
Not Designated as Hedging Instruments
Foreign exchange contracts
Other contracts
Gross amounts of derivatives
Gross amounts of derivatives offset in the balance sheet
Cash collateral received
Net amounts of derivatives
Reported as
Short-term investments
Other current assets
Other long-term assets
Other current liabilities
Other long-term liabilities
Total
Derivative
Assets
Derivative
Liabilities
Derivative
Assets
Derivative
Liabilities
June 30,
2022
0
3
June 30,
2021
0
40
333
20
356
(130)
0
(362)
(112)
(551)
133
(75)
227
56
399
(141)
0
(291)
(36)
(335)
142
(42)
$ 226
$ (493)
$ 258
$ (235)
$
8
218
0
0
0
$
0
0
0
(298)
(195)
$ 78
137
43
0
0
$
0
0
0
(182)
(53)
$ 226
$ (493)
$ 258
$ (235)
Gross derivative assets and liabilities subject to legally enforceable master netting agreements for which we have elected
to offset were $343 million and $550 million, respectively, as of June 30, 2022, and $395 million and $335 million,
respectively, as of June 30, 2021.
The following table presents the fair value of our derivatives instruments on a gross basis:
(In millions)
June 30, 2022
Derivative assets
Derivative liabilities
June 30, 2021
Derivative assets
Derivative liabilities
Level 1
Level 2
Level 3
Total
$ 1
0
$ 349 $ 6
0
(551)
$ 356
(551 )
0
0
396
(335)
3
0
399
(335 )
Gains (losses) on derivative instruments recognized in other income (expense), net were as follows:
(In millions)
Year Ended June 30,
Designated as Fair Value Hedging Instruments
Foreign exchange contracts
Derivatives
Hedged items
Excluded from effectiveness assessment
Interest rate contracts
Derivatives
Hedged items
Designated as Cash Flow Hedging Instruments
Foreign exchange contracts
2022
2021
2020
$ 49
$ 193
(50 ) (188 )
4 30
$
1
3
139
(92 )
(37 )
108 53
93
(93)
Amount reclassified from accumulated other comprehensive income
(79 ) 17
0
Not Designated as Hedging Instruments
Foreign exchange contracts
Other contracts
383 27
(72 )
9
(123)
50
65
Gains (losses), net of tax, on derivative instruments recognized in our consolidated comprehensive income statements
were as follows:
(In millions)
Year Ended June 30,
Designated as Cash Flow Hedging Instruments
Foreign exchange contracts
Included in effectiveness assessment
The components of inventories were as follows:
NOTE 6 — INVENTORIES
(In millions)
June 30,
Raw materials
Work in process
Finished goods
Total
The components of property and equipment were as follows:
NOTE 7 — PROPERTY AND EQUIPMENT
2022
2021
2020
$ (57)
$ 34 $ (38)
2022
$ 1,144
82
2,516
2021
$ 1,190
79
1,367
$ 3,742
$ 2,636
(In millions)
June 30,
Land
Buildings and improvements
Leasehold improvements
Computer equipment and software
Furniture and equipment
Total, at cost
Accumulated depreciation
Total, net
$
2022
2021
4,734 $ 3,660
43,928
6,884
51,250
5,344
55,014
7,819
60,631
5,860
134,058
111,066
(59,660) (51,351)
$ 74,398 $ 59,715
During fiscal years 2022, 2021, and 2020, depreciation expense was $12.6 billion, $9.3 billion, and $10.7 billion,
respectively. We have committed $8.5 billion, primarily related to datacenters, for the construction of new buildings,
building improvements, and leasehold improvements as of June 30, 2022.
Nuance Communications, Inc.
NOTE 8 — BUSINESS COMBINATIONS
On March 4, 2022, we completed our acquisition of Nuance Communications, Inc. (―Nuance‖) for a total purchase price of
$18.8 billion, consisting primarily of cash. Nuance is a cloud and artificial intelligence (―AI‖) software provider with
healthcare and enterprise AI experience, and the acquisition will build on our industry-specific cloud offerings. The
financial results of Nuance have been included in our consolidated financial statements since the date of the acquisition.
Nuance is reported as part of our Intelligent Cloud segment.
The purchase price allocation as of the date of acquisition was based on a preliminary valuation and is subject to revision
as more detailed analyses are completed and additional information about the fair value of assets acquired and liabilities
assumed becomes available.
66
The major classes of assets and liabilities to which we have preliminarily allocated the purchase price were as follows:
(In millions)
Goodwill (a)
Intangible assets
Other assets
Other liabilities (b)
Total
$ 16,308
4,365
59
(1,971)
$ 18,761
(a) Goodwill was assigned to our Intelligent Cloud segment and was primarily attributed to increased synergies that are
expected to be achieved from the integration of Nuance. None of the goodwill is expected to be deductible for
income tax purposes.
Includes $986 million of convertible senior notes issued by Nuance in 2015 and 2017, of which $985 million was
redeemed prior to June 30, 2022. The remaining $1 million of notes are redeemable through their respective
maturity dates and are included in other current liabilities on our consolidated balance sheets as of June 30, 2022.
(b)
Following are the details of the purchase price allocated to the intangible assets acquired:
(In millions, except average life)
Customer-related
Technology-based
Marketing-related
Total
ZeniMax Media Inc.
Amount
$2,610
1,540
215
$4,365
Weighted
Average Life
9 years
5 years
4 years
7 years
On March 9, 2021, we completed our acquisition of ZeniMax Media Inc. (―ZeniMax‖), the parent company of Bethesda
Softworks LLC (―Bethesda‖), for a total purchase price of $8.1 billion, consisting primarily of cash. The purchase price
included $766 million of cash and cash equivalents acquired. Bethesda is one of the largest, privately held game
developers and publishers in the world, and brings a broad portfolio of games, technology, and talent to Xbox. The
financial results of ZeniMax have been included in our consolidated financial statements since the date of the acquisition.
ZeniMax is reported as part of our More Personal Computing segment.
The allocation of the purchase price to goodwill was completed as of December 31, 2021. The major classes of assets
and liabilities to which we have allocated the purchase price were as follows:
(In millions)
Cash and cash equivalents
Goodwill
Intangible assets
Other assets
Other liabilities
Total
$
766
5,510
1,968
121
(244 )
$ 8,121
Goodwill was assigned to our More Personal Computing segment. The goodwill was primarily attributed to increased
synergies that are expected to be achieved from the integration of ZeniMax. None of the goodwill is expected to be
deductible for income tax purposes.
Following are details of the purchase price allocated to the intangible assets acquired:
(In millions, except average life)
Technology-based
Marketing-related
Total
Amount
$ 1,341
627
$ 1,968
Weighted
Average Life
4 years
11 years
6 years
67
Activision Blizzard, Inc.
On January 18, 2022, we entered into a definitive agreement to acquire Activision Blizzard, Inc. (―Activision Blizzard‖) for
$95.00 per share in an all-cash transaction valued at $68.7 billion, inclusive of Activision Blizzard’s net cash. Activision
Blizzard is a leader in game development and an interactive entertainment content publisher. The acquisition will
accelerate the growth in our gaming business across mobile, PC, console, and cloud and will provide building blocks for
the metaverse. The acquisition has been approved by Activision Blizzard’s shareholders, and we expect it to close in
fiscal year 2023, subject to the satisfaction of certain regulatory approvals and other customary closing conditions.
Changes in the carrying amount of goodwill were as follows:
NOTE 9 — GOODWILL
(In millions)
Productivity and Business
Processes
Intelligent Cloud
More Personal Computing
June 30,
June 30,
2020 Acquisitions
Other
2021 Acquisitions
Other
June 30,
2022
$ 24,190
12,697
6,464
$
0 $ 127
54
118 (a)
$ 24,317
13,256
12,138
505
5,556 (a)
599
$
16,879 (b)
648
$
(105)
47 (b)
(255)
$ 24,811
30,182
12,531
Total
$ 43,351
$ 6,061 $ 299
$ 49,711
$ 18,126
$ (313)
$ 67,524
(a)
(b)
Includes goodwill of $5.5 billion related to ZeniMax. See Note 8 – Business Combinations for further information.
Includes goodwill of $16.3 billion related to Nuance. See Note 8 – Business Combinations for further information.
The measurement periods for the valuation of assets acquired and liabilities assumed end as soon as information on the
facts and circumstances that existed as of the acquisition dates becomes available, but do not exceed 12 months.
Adjustments in purchase price allocations may require a change in the amounts allocated to goodwill during the periods in
which the adjustments are determined.
Any change in the goodwill amounts resulting from foreign currency translations and purchase accounting adjustments
are presented as ―Other‖ in the table above. Also included in ―Other‖ are business dispositions and transfers between
segments due to reorganizations, as applicable.
Goodwill Impairment
We test goodwill for impairment annually on May 1 at the reporting unit level, primarily using a discounted cash flow
methodology with a peer-based, risk-adjusted weighted average cost of capital. We believe use of a discounted cash flow
approach is the most reliable indicator of the fair values of the businesses.
No instances of impairment were identified in our May 1, 2022, May 1, 2021, or May 1, 2020 tests. As of June 30, 2022
and 2021, accumulated goodwill impairment was $11.3 billion.
The components of intangible assets, all of which are finite-lived, were as follows:
NOTE 10 — INTANGIBLE ASSETS
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
$ 11,277 $
7,342
4,942
16
2022
(6,958) $ 4,319
4,171
(3,171)
2,799
(2,143)
9
(7)
$ 9,779
4,958
4,792
446
$
(7,007) $
(2,859)
(1,878)
(431)
2021
2,772
2,099
2,914
15
$ 23,577 (a) $ (12,279) $ 11,298
$ 19,975 (b) $ (12,175) $
7,800
(In millions)
June 30,
Technology-based
Customer-related
Marketing-related
Contract-based
Total
68
(a)
(b)
Includes intangible assets of $4.4 billion related to Nuance. See Note 8 – Business Combinations for further
information.
Includes intangible assets of $2.0 billion related to ZeniMax. See Note 8 – Business Combinations for further
information.
No material impairments of intangible assets were identified during fiscal years 2022, 2021, or 2020. We estimate that we
have no significant residual value related to our intangible assets.
The components of intangible assets acquired during the periods presented were as follows:
(In millions)
Year Ended June 30,
Technology-based
Customer-related
Marketing-related
Contract-based
Total
Weighted
Average Life
Amount
2022
$ 2,611 4 years
9 years
4 years
0 years
$ 5,681 7 years
2,837
233
0
Amount
2021
$ 1,628
96
625
10
$ 2,359
Weighted
Average Life
4 years
4 years
6 years
3 years
5 years
Intangible assets amortization expense was $2.0 billion, $1.6 billion, and $1.6 billion for fiscal years 2022, 2021, and
2020, respectively.
The following table outlines the estimated future amortization expense related to intangible assets held as of June 30,
2022:
(In millions)
Year Ending June 30,
2023
2024
2025
2026
2027
Thereafter
Total
The components of debt were as follows:
NOTE 11 — DEBT
$ 2,654
2,385
1,631
1,227
809
2,592
$ 11,298
(In millions, issuance by calendar year)
2009 issuance of $3.8 billion (a)
2010 issuance of $4.8 billion (a)
2011 issuance of $2.3 billion (a)
2012 issuance of $2.3 billion (a)
2013 issuance of $5.2 billion (a)
2013 issuance of €4.1 billion
2015 issuance of $23.8 billion (a)
2016 issuance of $19.8 billion (a)
2017 issuance of $17.0 billion (a)
2020 issuance of $10.0 billion (a)
2021 issuance of $8.2 billion (a)
Total face value
Maturities
(calendar year)
Stated Interest
Rate
Effective Interest
Rate
June 30,
2022
June 30,
2021
2039
2040
2041
2022–2042
2023–2043
2028–2033
2022–2055
2023–2056
2024–2057
2050–2060
2052–2062
5.20%
4.50%
5.30%
520 $
5.24% $
486
4.57%
718
5.36%
1,204
2.13%–3.50% 2.24%–3.57%
2,814
2.38%–4.88% 2.47%–4.92%
2.63%–3.13% 2.69%–3.22%
2,404
2.65%–4.75% 2.72%–4.78% 10,805
9,430
2.00%–3.95% 2.10%–4.03%
2.88%–4.50% 3.04%–4.53%
8,945
2.53%–2.68% 2.53%–2.68% 10,000
8,185
2.92%–3.04% 2.92%–3.04%
520
486
718
1,204
2,814
4,803
12,305
12,180
10,695
10,000
8,185
55,511
63,910
69
(In millions, issuance by calendar year)
Unamortized discount and issuance costs
Hedge fair value adjustments (b)
Premium on debt exchange (a)
Total debt
Current portion of long-term debt
Long-term debt
Maturities
(calendar year)
Stated Interest
Rate
Effective Interest
Rate
June 30,
2022
June 30,
2021
(471)
(68)
(5,191)
(511)
40
(5,293)
49,781
(2,749)
58,146
(8,072)
$ 47,032 $ 50,074
(a)
In March 2021 and June 2020, we exchanged a portion of our existing debt at a premium for cash and new debt with
longer maturities. The premiums are amortized over the terms of the new debt.
(b) Refer to Note 5 – Derivatives for further information on the interest rate swaps related to fixed-rate debt.
As of June 30, 2022 and 2021, the estimated fair value of long-term debt, including the current portion, was $50.9 billion
and $70.0 billion, respectively. The estimated fair values are based on Level 2 inputs.
Debt in the table above is comprised of senior unsecured obligations and ranks equally with our other outstanding
obligations. Interest is paid semi-annually, except for the Euro-denominated debt, which is paid annually. Cash paid for
interest on our debt for fiscal years 2022, 2021, and 2020 was $1.9 billion, $2.0 billion, and $2.4 billion, respectively.
The following table outlines maturities of our long-term debt, including the current portion, as of June 30, 2022:
(In millions)
Year Ending June 30,
2023
2024
2025
2026
2027
Thereafter
Total
NOTE 12 — INCOME TAXES
Provision for Income Taxes
The components of the provision for income taxes were as follows:
(In millions)
Year Ended June 30,
Current Taxes
U.S. federal
U.S. state and local
Foreign
Current taxes
Deferred Taxes
U.S. federal
U.S. state and local
Foreign
Deferred taxes
Provision for income taxes
70
$ 2,750
5,250
2,250
3,000
8,000
34,261
$ 55,511
2022
2021
2020
$
8,329 $ 3,285 $ 3,537
1,679
1,229
763
6,672
4,444
5,467
$ 16,680 $ 9,981 $ 8,744
$
(4,815) $
(1,062)
175
25 $
(204)
29
$
(5,702) $
(150) $
58
(6)
(41)
11
$ 10,978 $ 9,831 $ 8,755
U.S. and foreign components of income before income taxes were as follows:
(In millions)
Year Ended June 30,
U.S.
Foreign
Income before income taxes
Effective Tax Rate
2022
2021
2020
$ 47,837
35,879
$ 34,972
36,130
$ 24,116
28,920
$ 83,716
$ 71,102
$ 53,036
The items accounting for the difference between income taxes computed at the U.S. federal statutory rate and our
effective rate were as follows:
Year Ended June 30,
Federal statutory rate
Effect of:
Foreign earnings taxed at lower rates
Impact of intangible property transfers
Foreign-derived intangible income deduction
State income taxes, net of federal benefit
Research and development credit
Excess tax benefits relating to stock-based compensation
Interest, net
Other reconciling items, net
Effective rate
2022
2021
2020
21.0%
21.0%
21.0%
(1.3)%
(3.9)%
(1.1)%
1.4%
(0.9)%
(1.9)%
0.5%
(0.7)%
(2.7)%
0%
(1.3)%
1.4%
(0.9)%
(2.4)%
0.5%
(1.8)%
(3.7)%
0%
(1.1)%
1.3%
(1.1)%
(2.2)%
1.0%
1.3%
13.1%
13.8%
16.5%
In the first quarter of fiscal year 2022, we transferred certain intangible properties from our Puerto Rico subsidiary to the
U.S. The transfer of intangible properties resulted in a $3.3 billion net income tax benefit in the first quarter of fiscal year
2022, as the value of future U.S. tax deductions exceeds the current tax liability from the U.S. global intangible low-taxed
income (―GILTI‖) tax.
We have historically paid India withholding taxes on software sales through distributor withholding and tax audit
assessments in India. In March 2021, the India Supreme Court ruled favorably in the case of Engineering Analysis Centre
of Excellence Private Limited vs The Commissioner of Income Tax for companies in 86 separate appeals, some dating
back to 2012, holding that software sales are not subject to India withholding taxes. Although we were not a party to the
appeals, our software sales in India were determined to be not subject to withholding taxes. Therefore, we recorded a net
income tax benefit of $620 million in the third quarter of fiscal year 2021 to reflect the results of the India Supreme Court
decision impacting fiscal year 1996 through fiscal year 2016.
The decrease from the federal statutory rate in fiscal year 2022 is primarily due to the net income tax benefit related to the
transfer of intangible properties, earnings taxed at lower rates in foreign jurisdictions resulting from producing and
distributing our products and services through our foreign regional operations center in Ireland, and tax benefits relating to
stock-based compensation. The decrease from the federal statutory rate in fiscal year 2021 is primarily due to earnings
taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our
foreign regional operations centers in Ireland and Puerto Rico, tax benefits relating to stock-based compensation, and tax
benefits from the India Supreme Court decision on withholding taxes. The decrease from the federal statutory rate in fiscal
year 2020 is primarily due to earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing
our products and services through our foreign regional operations centers in Ireland and Puerto Rico, and tax benefits
relating to stock-based compensation. In fiscal years 2022, 2021, and 2020, our foreign regional operating centers in
Ireland and Puerto Rico, which are taxed at rates lower than the U.S. rate, generated 71%, 82%, and 86% of our foreign
income before tax. Other reconciling items, net
71
consists primarily of tax credits and GILTI tax, and in fiscal year 2021, includes tax benefits from the India Supreme Court
decision on withholding taxes. In fiscal years 2022, 2021, and 2020, there were no individually significant other reconciling
items.
The decrease in our effective tax rate for fiscal year 2022 compared to fiscal year 2021 was primarily due to a $3.3 billion
net income tax benefit in the first quarter of fiscal year 2022 related to the transfer of intangible properties, offset in part by
changes in the mix of our income before income taxes between the U.S. and foreign countries, as well as tax benefits in
the prior year from the India Supreme Court decision on withholding taxes, an agreement between the U.S. and India tax
authorities related to transfer pricing, and final Tax Cuts and Jobs Act (―TCJA‖) regulations. The decrease in our effective
tax rate for fiscal year 2021 compared to fiscal year 2020 was primarily due to tax benefits from the India Supreme Court
decision on withholding taxes, an agreement between the U.S. and India tax authorities related to transfer pricing, final
TCJA regulations, and an increase in tax benefits relating to stock-based compensation.
The components of the deferred income tax assets and liabilities were as follows:
(In millions)
June 30,
Deferred Income Tax Assets
Stock-based compensation expense
Accruals, reserves, and other expenses
Loss and credit carryforwards
Amortization
Leasing liabilities
Unearned revenue
Other
Deferred income tax assets
Less valuation allowance
2022
2021
$
601 $
2,874
1,546
10,656
4,557
2,876
461
23,571
(1,012)
502
2,960
1,090
6,346
4,060
2,659
319
17,936
(769)
Deferred income tax assets, net of valuation allowance
$ 22,559 $ 17,167
Deferred Income Tax Liabilities
Book/tax basis differences in investments and debt
Leasing assets
Depreciation
Deferred tax on foreign earnings
Other
Deferred income tax liabilities
Net deferred income tax assets
Reported As
Other long-term assets
Long-term deferred income tax liabilities
Net deferred income tax assets
$
(174) $
(4,291)
(1,602)
(3,104)
(103)
(2,381)
(3,834)
(1,010)
(2,815)
(144)
$
(9,274) $ (10,184)
$ 13,285 $
6,983
$ 13,515 $
(230)
7,181
(198)
$ 13,285 $
6,983
Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and
liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when the taxes are paid or
recovered.
As of June 30, 2022, we had federal, state, and foreign net operating loss carryforwards of $318 million, $1.3 billion, and
$2.1 billion, respectively. The federal and state net operating loss carryforwards will expire in various years from fiscal
2023 through 2042, if not utilized. The majority of our foreign net operating loss carryforwards do not expire. Certain
acquired net operating loss carryforwards are subject to an annual limitation but are expected to be realized
72
with the exception of those which have a valuation allowance. As of June 30, 2022, we had $1.3 billion federal capital loss
carryforwards for U.S. tax purposes from our acquisition of Nuance. The federal capital loss carryforwards are subject to
an annual limitation and will expire in various years from fiscal 2023 through 2025.
The valuation allowance disclosed in the table above relates to the foreign net operating loss carryforwards, federal
capital loss carryforwards, and other net deferred tax assets that may not be realized.
Income taxes paid, net of refunds, were $16.0 billion, $13.4 billion, and $12.5 billion in fiscal years 2022, 2021, and 2020,
respectively.
Uncertain Tax Positions
Gross unrecognized tax benefits related to uncertain tax positions as of June 30, 2022, 2021, and 2020, were
$15.6 billion, $14.6 billion, and $13.8 billion, respectively, which were primarily included in long-term income taxes in our
consolidated balance sheets. If recognized, the resulting tax benefit would affect our effective tax rates for fiscal years
2022, 2021, and 2020 by $13.3 billion, $12.5 billion, and $12.1 billion, respectively.
As of June 30, 2022, 2021, and 2020, we had accrued interest expense related to uncertain tax positions of $4.3 billion,
$4.3 billion, and $4.0 billion, respectively, net of income tax benefits. The provision for income taxes for fiscal years 2022,
2021, and 2020 included interest expense related to uncertain tax positions of $36 million, $274 million, and $579 million,
respectively, net of income tax benefits.
The aggregate changes in the gross unrecognized tax benefits related to uncertain tax positions were as follows:
(In millions)
Year Ended June 30,
Beginning unrecognized tax benefits
Decreases related to settlements
Increases for tax positions related to the current year
Increases for tax positions related to prior years
Decreases for tax positions related to prior years
Decreases due to lapsed statutes of limitations
Ending unrecognized tax benefits
2022
2021
2020
$ 14,550 $ 13,792 $ 13,146
(31)
647
366
(331)
(5)
(317)
1,145
461
(246)
0
(195)
790
461
(297)
(1)
$ 15,593 $ 14,550 $ 13,792
We settled a portion of the Internal Revenue Service (―IRS‖) audit for tax years 2004 to 2006 in fiscal year 2011. In
February 2012, the IRS withdrew its 2011 Revenue Agents Report related to unresolved issues for tax years 2004 to 2006
and reopened the audit phase of the examination. We also settled a portion of the IRS audit for tax years 2007 to 2009 in
fiscal year 2016, and a portion of the IRS audit for tax years 2010 to 2013 in fiscal year 2018. In the second quarter of
fiscal year 2021, we settled an additional portion of the IRS audits for tax years 2004 to 2013 and made a payment of
$1.7 billion, including tax and interest. We remain under audit for tax years 2004 to 2017.
As of June 30, 2022, the primary unresolved issues for the IRS audits relate to transfer pricing, which could have a
material impact in our consolidated financial statements when the matters are resolved. We believe our allowances for
income tax contingencies are adequate. We have not received a proposed assessment for the unresolved key transfer
pricing issues and do not expect a final resolution of these issues in the next 12 months. Based on the information
currently available, we do not anticipate a significant increase or decrease to our tax contingencies for these issues within
the next 12 months.
We are subject to income tax in many jurisdictions outside the U.S. Our operations in certain jurisdictions remain subject
to examination for tax years 1996 to 2021, some of which are currently under audit by local tax authorities. The resolution
of each of these audits is not expected to be material to our consolidated financial statements.
73
NOTE 13 — UNEARNED REVENUE
Unearned revenue by segment was as follows:
(In millions)
June 30,
Productivity and Business Processes
Intelligent Cloud
More Personal Computing
Total
Changes in unearned revenue were as follows:
(In millions)
Year Ended June 30, 2022
Balance, beginning of period
Deferral of revenue
Recognition of unearned revenue
Balance, end of period
2022
2021
$ 24,558
19,371
4,479
$ 22,120
17,710
4,311
$ 48,408
$ 44,141
$ 44,141
110,455
(106,188)
$ 48,408
Revenue allocated to remaining performance obligations, which includes unearned revenue and amounts that will be
invoiced and recognized as revenue in future periods, was $193 billion as of June 30, 2022, of which $189 billion is
related to the commercial portion of revenue. We expect to recognize approximately 45% of this revenue over the next 12
months and the remainder thereafter.
NOTE 14 — LEASES
We have operating and finance leases for datacenters, corporate offices, research and development facilities, Microsoft
Experience Centers, and certain equipment. Our leases have remaining lease terms of 1 year to 19 years, some of which
include options to extend the leases for up to 5 years, and some of which include options to terminate the leases within 1
year.
The components of lease expense were as follows:
(In millions)
Year Ended June 30,
Operating lease cost
Finance lease cost:
Amortization of right-of-use assets
Interest on lease liabilities
Total finance lease cost
2022
2021
2020
$ 2,461
$ 2,127
$ 2,043
$
$
980
429
$
921
386
$ 1,409
$ 1,307
$
611
336
947
74
Supplemental cash flow information related to leases was as follows:
(In millions)
Year Ended June 30,
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
Finance leases
Supplemental balance sheet information related to leases was as follows:
(In millions, except lease term and discount rate)
June 30,
Operating Leases
Operating lease right-of-use assets
Other current liabilities
Operating lease liabilities
Total operating lease liabilities
Finance Leases
Property and equipment, at cost
Accumulated depreciation
Property and equipment, net
Other current liabilities
Other long-term liabilities
Total finance lease liabilities
Weighted Average Remaining Lease Term
Operating leases
Finance leases
Weighted Average Discount Rate
Operating leases
Finance leases
The following table outlines maturities of our lease liabilities as of June 30, 2022:
(In millions)
Year Ending June 30,
2023
2024
2025
2026
2027
Thereafter
Total lease payments
Less imputed interest
Total
2022
2021
2020
$ 2,368
429
896
$ 2,052
386
648
$ 1,829
336
409
5,268
4,234
4,380
3,290
3,677
3,467
2022
2021
$ 13,148 $ 11,088
$
2,228 $
11,489
1,962
9,629
$ 13,717 $ 11,591
$ 17,388 $ 14,107
(2,306)
(3,285)
$ 14,103 $ 11,801
$
1,060 $
13,842
791
11,750
$ 14,902 $ 12,541
8 years
12 years
8 years
12 years
2.1%
3.1%
2.2%
3.4%
$
Operating
Leases
2,456 $
2,278
1,985
1,625
1,328
5,332
15,004
(1,287 )
Finance
Leases
1,477
1,487
1,801
1,483
1,489
9,931
17,668
(2,766)
$ 13,717 $ 14,902
75
As of June 30, 2022, we have additional operating and finance leases, primarily for datacenters, that have not yet
commenced of $7.2 billion and $8.8 billion, respectively. These operating and finance leases will commence between
fiscal year 2023 and fiscal year 2028 with lease terms of 1 year to 18 years.
Antitrust Litigation and Claims
China State Administration for Market Regulation Investigation
NOTE 15 — CONTINGENCIES
In 2014, Microsoft was informed that China’s State Agency for Market Regulation (―SAMR‖) (formerly State Administration
for Industry and Commerce) had begun a formal investigation relating to China’s Anti-Monopoly Law, and the SAMR
conducted onsite inspections of Microsoft offices in Beijing, Shanghai, Guangzhou, and Chengdu. In 2019, the SAMR
presented preliminary views as to certain possible violations of China’s Anti-Monopoly Law.
Product-Related Litigation
U.S. Cell Phone Litigation
Microsoft Mobile Oy, a subsidiary of Microsoft, along with other handset manufacturers and network operators, is a
defendant in 46 lawsuits, including 45 lawsuits filed in the Superior Court for the District of Columbia by individual plaintiffs
who allege that radio emissions from cellular handsets caused their brain tumors and other adverse health effects. We
assumed responsibility for these claims in our agreement to acquire Nokia’s Devices and Services business and have
been substituted for the Nokia defendants. Nine of these cases were filed in 2002 and are consolidated for certain pre-trial
proceedings; the remaining cases are stayed. 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. The plaintiffs allege that their handsets either operated outside the FCC Guidelines or were manufactured before the
FCC Guidelines went into effect. The lawsuits also allege an industry-wide conspiracy to manipulate the science and
testing around emission guidelines.
In 2013, the defendants in the consolidated cases moved to exclude the plaintiffs’ expert evidence of general causation on
the basis of flawed scientific methodologies. In 2014, the trial court granted in part and denied in part the defendants’
motion to exclude the plaintiffs’ general causation experts. The defendants filed an interlocutory appeal to the District of
Columbia Court of Appeals challenging the standard for evaluating expert scientific evidence. In October 2016, the Court
of Appeals issued its decision adopting the standard advocated by the defendants and remanding the cases to the trial
court for further proceedings under that standard. The plaintiffs have filed supplemental expert evidence, portions of which
the defendants have moved to strike. In August 2018, the trial court issued an order striking portions of the plaintiffs’
expert reports. A hearing on general causation is scheduled for September of 2022.
Other Contingencies
We also are subject to a variety of other claims and suits that arise from time to time in the ordinary course of our
business. Although management currently believes that resolving claims against us, individually or in aggregate, will not
have a material adverse impact in our consolidated financial statements, these matters are subject to inherent
uncertainties and management’s view of these matters may change in the future.
As of June 30, 2022, we accrued aggregate legal liabilities of $364 million. While we intend to defend these matters
vigorously, adverse outcomes that we estimate could reach approximately $600 million in aggregate beyond recorded
amounts are reasonably possible. Were unfavorable final outcomes to occur, there exists the possibility of a material
adverse impact in our consolidated financial statements for the period in which the effects become reasonably estimable.
76
NOTE 16 — STOCKHOLDERS’ EQUITY
Shares Outstanding
Shares of common stock outstanding were as follows:
(In millions)
Year Ended June 30,
Balance, beginning of year
Issued
Repurchased
Balance, end of year
Share Repurchases
2022
2021
2020
7,519
40
(95)
7,571
49
(101)
7,643
54
(126)
7,464
7,519
7,571
On September 20, 2016, our Board of Directors approved a share repurchase program authorizing up to $40.0 billion in
share repurchases. This share repurchase program commenced in December 2016 and was completed in February 2020.
On September 18, 2019, our Board of Directors approved a share repurchase program authorizing up to $40.0 billion in
share repurchases. This share repurchase program commenced in February 2020 and was completed in November 2021.
On September 14, 2021, our Board of Directors approved a share repurchase program authorizing up to $60.0 billion in
share repurchases. This share repurchase program commenced in November 2021, following completion of the program
approved on September 18, 2019, has no expiration date, and may be terminated at any time. As of June 30, 2022,
$40.7 billion remained of this $60.0 billion share repurchase program.
We repurchased the following shares of common stock under the share repurchase programs:
(In millions)
Year Ended June 30,
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total
Shares
Amount Shares
Amount Shares
Amount
2022
21 $ 6,200
20 6,233
26 7,800
28 7,800
2021
$ 5,270
5,750
5,750
6,200
25
27
25
24
2020
29
32
37
28
$ 4,000
4,600
6,000
5,088
95 $ 28,033
101
$ 22,970
126
$19,688
All repurchases were made using cash resources. Shares repurchased during the fourth and third quarters of fiscal year
2022 were under the share repurchase program approved on September 14, 2021. Shares repurchased during the
second quarter of fiscal year 2022 were under the share repurchase programs approved on both September 14, 2021 and
September 18, 2019. Shares repurchased during the first quarter of fiscal year 2022, fiscal year 2021, and the fourth
quarter of fiscal year 2020 were under the share repurchase program approved on September 18, 2019. Shares
repurchased during the third quarter of fiscal year 2020 were under the share repurchase programs approved on both
September 20, 2016 and September 18, 2019. All other shares repurchased were under the share repurchase program
approved on September 20, 2016. The above table excludes shares repurchased to settle employee tax withholding
related to the vesting of stock awards of $4.7 billion, $4.4 billion, and $3.3 billion for fiscal years 2022, 2021, and 2020,
respectively.
77
Dividends
Our Board of Directors declared the following dividends:
Declaration Date
Fiscal Year 2022
September 14, 2021
December 7, 2021
March 14, 2022
June 14, 2022
Total
Fiscal Year 2021
September 15, 2020
December 2, 2020
March 16, 2021
June 16, 2021
Total
Record Date
Payment Date
Dividend
Per Share
November 18, 2021 December 9, 2021
March 10, 2022
June 9, 2022
August 18, 2022 September 8, 2022
February 17, 2022
May 19, 2022
$ 0.62
0.62
0.62
0.62
Amount
(In millions)
$ 4,652
4,645
4,632
4,627
$ 2.48
$ 18,556
November 19, 2020 December 10, 2020
March 11, 2021
June 10, 2021
August 19, 2021 September 9, 2021
February 18, 2021
May 20, 2021
$ 0.56
0.56
0.56
0.56
$ 4,230
4,221
4,214
4,206
$ 2.24
$ 16,871
The dividend declared on June 14, 2022 was included in other current liabilities as of June 30, 2022.
NOTE 17 — ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table summarizes the changes in accumulated other comprehensive income (loss) by component:
(In millions)
Year Ended June 30,
Derivatives
Balance, beginning of period
Unrealized gains (losses), net of tax of $(15), $9, and $(10)
Reclassification adjustments for (gains) losses included in other income (expense), net
Tax expense (benefit) included in provision for income taxes
$
Amounts reclassified from accumulated other comprehensive income (loss)
Net change related to derivatives, net of tax of $1, $7, and $(10)
2022
2021
2020
(19) $
(57)
79
(16)
(38) $
34
(17)
2
63
6
(15)
19
0
(38)
0
0
0
(38)
Balance, end of period
Investments
Balance, beginning of period
Unrealized gains (losses), net of tax of $(1,440), $(589), and $1,057
Reclassification adjustments for (gains) losses included in other income (expense), net
Tax expense (benefit) included in provision for income taxes
Amounts reclassified from accumulated other comprehensive income (loss)
Net change related to investments, net of tax of $(1,428), $(602), and $1,058
Cumulative effect of accounting changes
Balance, end of period
$
(13) $
(19) $
(38)
$ 3,222 $ 5,478 $ 1,488
(5,405)
3,987
(2,216)
57
4
(63)
(12)
(1)
13
45
(50)
3
(5,360)
0
(2,266)
10
3,990
0
$ (2,138) $ 3,222 $ 5,478
78
(In millions)
Year Ended June 30,
Translation Adjustments and Other
Balance, beginning of period
Translation adjustments and other, net of tax of $0, $(9), and $1
Balance, end of period
Accumulated other comprehensive income (loss), end of period
2022
2021
2020
$ (1,381) $(2,254) $(1,828)
(1,146)
(426)
873
$ (2,527) $(1,381) $(2,254)
$ (4,678) $ 1,822 $ 3,186
NOTE 18 — EMPLOYEE STOCK AND SAVINGS PLANS
We grant stock-based compensation to employees and directors. Awards that expire or are canceled without delivery of
shares generally become available for issuance under the plans. We issue new shares of Microsoft common stock to
satisfy vesting of awards granted under our stock plans. We also have an ESPP for all eligible employees.
Stock-based compensation expense and related income tax benefits were as follows:
(In millions)
Year Ended June 30,
Stock-based compensation expense
Income tax benefits related to stock-based compensation
Stock Plans
2022
2021
2020
$7,502
1,293
$ 6,118
1,065
$ 5,289
938
Stock awards entitle the holder to receive shares of Microsoft common stock as the award vests. Stock awards generally
vest over a service period of four years or five years.
Executive Incentive Plan
Under the Executive Incentive Plan, the Compensation Committee approves stock awards to executive officers and
certain senior executives. RSUs generally vest ratably over a service period of four years. PSUs generally vest over a
performance period of three years. The number of shares the PSU holder receives is based on the extent to which the
corresponding performance goals have been achieved.
Activity for All Stock Plans
The fair value of stock awards was estimated on the date of grant using the following assumptions:
Year ended June 30,
Dividends per share (quarterly amounts)
Interest rates
2022
2021
2020
$ 0.56 – 0.62
0.03% – 3.6%
$ 0.51 – 0.56
0.01% – 1.5%
$ 0.46 – 0.51
0.1% – 2.2%
79
During fiscal year 2022, the following activity occurred under our stock plans:
Stock Awards
Nonvested balance, beginning of year
Granted (a)
Vested
Forfeited
Nonvested balance, end of year
Weighted
Average
Grant-Date
Fair Value
Shares
(In millions)
100 $ 152.51
291.22
50
143.10
(47)
189.88
(10)
93 $ 227.59
(a)
Includes 1 million, 2 million, and 2 million of PSUs granted at target and performance adjustments above target
levels for fiscal years 2022, 2021, and 2020, respectively.
As of June 30, 2022, there was approximately $16.7 billion of total unrecognized compensation costs related to stock
awards. These costs are expected to be recognized over a weighted average period of three years. The weighted
average grant-date fair value of stock awards granted was $291.22, $221.13, and $140.49 for fiscal years 2022, 2021,
and 2020, respectively. The fair value of stock awards vested was $14.1 billion, $13.4 billion, and $10.1 billion, for fiscal
years 2022, 2021, and 2020, respectively. As of June 30, 2022, an aggregate of 211 million shares were authorized for
future grant under our stock plans.
Employee Stock Purchase Plan
We have an ESPP for all eligible employees. Shares of our common stock may be purchased by employees at three-
month intervals at 90% of the fair market value on the last trading day of each three-month period. Employees may
purchase shares having a value not exceeding 15% of their gross compensation during an offering period. Under the
terms of the ESPP that were approved in 2012, the plan was set to terminate on December 31, 2022. At our 2021 Annual
Shareholders Meeting, our shareholders approved a successor ESPP with a January 1, 2022 effective date and ten-year
expiration of December 31, 2031. No additional shares were requested at this meeting.
Employees purchased the following shares during the periods presented:
(Shares in millions)
Year Ended June 30,
Shares purchased
Average price per share
2022
2021
2020
7
$ 259.55
8
$ 207.88
9
$ 142.22
As of June 30, 2022, 81 million shares of our common stock were reserved for future issuance through the ESPP.
Savings Plans
We have savings plans in the U.S. that qualify under Section 401(k) of the Internal Revenue Code, and a number of
savings plans in international locations. Eligible U.S. employees may contribute a portion of their salary into the savings
plans, subject to certain limitations. We match a portion of each dollar a participant contributes into the plans. Employer-
funded retirement benefits for all plans were $1.4 billion, $1.2 billion, and $1.0 billion in fiscal years 2022, 2021, and 2020,
respectively, and were expensed as contributed.
80
NOTE 19 — SEGMENT INFORMATION AND GEOGRAPHIC DATA
In its operation of the business, management, including our chief operating decision maker, who is also our Chief
Executive Officer, reviews certain financial information, including segmented internal profit and loss statements prepared
on a basis not consistent with GAAP. During the periods presented, we reported our financial performance based on the
following segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing.
Our reportable segments are described below.
Productivity and Business Processes
Our Productivity and Business Processes segment consists of products and services in our portfolio of productivity,
communication, and information services, spanning a variety of devices and platforms. This segment primarily comprises:
• Office Commercial (Office 365 subscriptions, the Office 365 portion of Microsoft 365 Commercial
subscriptions, and Office licensed on-premises), comprising Office, Exchange, SharePoint, Microsoft Teams,
Office 365 Security and Compliance, and Microsoft Viva.
• Office Consumer, including Microsoft 365 Consumer subscriptions, Office licensed on-premises, and other
Office services.
•
LinkedIn, including Talent Solutions, Marketing Solutions, Premium Subscriptions, and Sales Solutions.
• Dynamics business solutions, including Dynamics 365, comprising a set of intelligent, cloud-based
applications across ERP, CRM, Customer Insights, Power Apps, and Power Automate; and on-premises ERP
and CRM applications.
Intelligent Cloud
Our Intelligent Cloud segment consists of our public, private, and hybrid server products and cloud services that can
power modern business and developers. This segment primarily comprises:
• Server products and cloud services, including Azure and other cloud services; SQL Server, Windows Server,
Visual Studio, System Center, and related Client Access Licenses (―CALs‖); and Nuance and GitHub.
• Enterprise Services, including Enterprise Support Services, Microsoft Consulting Services, and Nuance
professional services.
More Personal Computing
Our More Personal Computing segment consists of products and services that put customers at the center of the
experience with our technology. This segment primarily comprises:
• Windows, including Windows OEM licensing and other non-volume licensing of the Windows operating
system; Windows Commercial, comprising volume licensing of the Windows operating system, Windows
cloud services, and other Windows commercial offerings; patent licensing; and Windows Internet of Things.
• Devices, including Surface and PC accessories.
• Gaming, including Xbox hardware and Xbox content and services, comprising first- and third-party content
(including games and in-game content), Xbox Game Pass and other subscriptions, Xbox Cloud Gaming,
third-party disc royalties, advertising, and other cloud services.
• Search and news advertising.
Revenue and costs are generally directly attributed to our segments. However, due to the integrated structure of our
business, certain revenue recognized and costs incurred by one segment may benefit other segments. Revenue from
certain contracts is allocated among the segments based on the relative value of the underlying products and services,
which can include allocation based on actual prices charged, prices when sold separately, or estimated costs plus a profit
margin. Cost of revenue is allocated in certain cases based on a relative revenue methodology. Operating expenses that
are allocated primarily include those relating to marketing of products and services from which multiple segments benefit
and are generally allocated based on relative gross margin.
81
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 legal, including settlements and fines, information technology, human resources,
finance, excise taxes, field selling, 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.
Segment revenue and operating income were as follows during the periods presented:
(In millions)
Year Ended June 30,
Revenue
Productivity and Business Processes
Intelligent Cloud
More Personal Computing
Total
Operating Income
Productivity and Business Processes
Intelligent Cloud
More Personal Computing
Total
2022
2021
2020
$
$ 63,364
75,251
59,655
$
53,915
60,080
54,093
46,398
48,366
48,251
$ 198,270
$ 168,088
$ 143,015
$
$ 29,687
32,721
20,975
$
24,351
26,126
19,439
18,724
18,324
15,911
$ 83,383
$
69,916
$
52,959
No sales to an individual customer or country other than the United States accounted for more than 10% of revenue for
fiscal years 2022, 2021, or 2020. Revenue, classified by the major geographic areas in which our customers were located,
was as follows:
(In millions)
Year Ended June 30,
United States (a)
Other countries
Total
2022
2021
2020
$ 100,218
98,052
$ 83,953
84,135
$ 73,160
69,855
$ 198,270
$ 168,088
$ 143,015
(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, classified by significant product and service offerings, was as follows:
(In millions)
Year Ended June 30,
Server products and cloud services
Office products and cloud services
Windows
Gaming
LinkedIn
Search and news advertising
Enterprise Services
Devices
Other
Total
2022
2021
2020
$ 67,321
44,862
24,761
16,230
13,816
11,591
7,407
6,991
5,291
$ 52,589
39,872
22,488
15,370
10,289
9,267
6,943
6,791
4,479
$ 41,379
35,316
21,510
11,575
8,077
8,524
6,409
6,457
3,768
$ 198,270
$ 168,088
$ 143,015
We have recast certain previously reported amounts in the table above to conform to the way we internally manage and
monitor our business.
82
Our Microsoft Cloud (formerly commercial cloud) revenue, which includes Azure and other cloud services, Office 365
Commercial, the commercial portion of LinkedIn, Dynamics 365, and other commercial cloud properties, was $91.2 billion,
$69.1 billion and $51.7 billion in fiscal years 2022, 2021, and 2020, respectively. These amounts are primarily included in
Server products and cloud services, Office products and cloud services, and LinkedIn in the table above.
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. 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,
United States
Ireland
Other countries
Total
2022
2021
2020
$ 106,430
15,505
44,433
$ 76,153
13,303
38,858
$ 60,789
12,734
29,770
$ 166,368
$ 128,314
$ 103,293
83
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Microsoft Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Microsoft Corporation and subsidiaries (the
―Company‖) as of June 30, 2022 and 2021, the related consolidated statements of income, comprehensive income, cash
flows, and stockholders’ equity, for each of the three years in the period ended June 30, 2022, and the related notes
(collectively referred to as the ―financial statements‖). In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of June 30, 2022 and 2021, and the results of its operations and its
cash flows for each of the three years in the period ended June 30, 2022, in conformity with accounting principles
generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company’s internal control over financial reporting as of June 30, 2022, based on criteria
established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated July 28, 2022, expressed an unqualified opinion on the Company’s
internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements
that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex
judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements,
taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the
critical audit matters or on the accounts or disclosures to which they relate.
84
Revenue Recognition – Refer to Note 1 to the financial statements
Critical Audit Matter Description
The Company recognizes revenue upon transfer of control of promised products or services to customers in an amount
that reflects the consideration the Company expects to receive in exchange for those products or services. The Company
offers customers the ability to acquire multiple licenses of software products and services, including cloud-based services,
in its customer agreements through its volume licensing programs.
Significant judgment is exercised by the Company in determining revenue recognition for these customer agreements,
and includes the following:
• Determination of whether products and services are considered distinct performance obligations that should be
accounted for separately versus together, such as software licenses and related services that are sold with cloud-
based services.
• The pattern of delivery (i.e., timing of when revenue is recognized) for each distinct performance obligation.
•
Identification and treatment of contract terms that may impact the timing and amount of revenue recognized (e.g.,
variable consideration, optional purchases, and free services).
• Determination of stand-alone selling prices for each distinct performance obligation and for products and services that
are not sold separately.
Given these factors and due to the volume of transactions, the related audit effort in evaluating management’s judgments
in determining revenue recognition for these customer agreements was extensive and required a high degree of auditor
judgment.
How the Critical Audit Matter Was Addressed in the Audit
Our principal audit procedures related to the Company’s revenue recognition for these customer agreements included the
following:
• We tested the effectiveness of controls related to the identification of distinct performance obligations, the
determination of the timing of revenue recognition, and the estimation of variable consideration.
• We evaluated management’s significant accounting policies related
to
these customer agreements
for
reasonableness.
• We selected a sample of customer agreements and performed the following procedures:
- Obtained and read contract source documents for each selection, including master agreements, and other documents
that were part of the agreement.
-
Tested management’s identification and treatment of contract terms.
- Assessed the terms in the customer agreement and evaluated the appropriateness of management’s application of
their accounting policies, along with their use of estimates, in the determination of revenue recognition conclusions.
• We evaluated the reasonableness of management’s estimate of stand-alone selling prices for products and services
that are not sold separately.
• We tested the mathematical accuracy of management’s calculations of revenue and the associated timing of revenue
recognized in the financial statements.
85
Income Taxes — Uncertain Tax Positions — Refer to Note 12 to the financial statements
Critical Audit Matter Description
The Company’s long-term income taxes liability includes uncertain tax positions related to transfer pricing issues that
remain unresolved with the Internal Revenue Service (―IRS‖). The Company remains under IRS audit, or subject to IRS
audit, for tax years subsequent to 2003. While the Company has settled a portion of the IRS audits, resolution of the
remaining matters could have a material impact on the Company’s financial statements.
Conclusions on recognizing and measuring uncertain tax positions involve significant estimates and management
judgment and include complex considerations of the Internal Revenue Code, related regulations, tax case laws, and prior-
year audit settlements. Given the complexity and the subjective nature of the transfer pricing issues that remain
unresolved with the IRS, evaluating management’s estimates relating to their determination of uncertain tax positions
required extensive audit effort and a high degree of auditor judgment, including involvement of our tax specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our principal audit procedures to evaluate management’s estimates of uncertain tax positions related to unresolved
transfer pricing issues included the following:
• We evaluated the appropriateness and consistency of management’s methods and assumptions used in the
identification, recognition, measurement, and disclosure of uncertain tax positions, which included testing the
effectiveness of the related internal controls.
• We read and evaluated management’s documentation, including relevant accounting policies and information
obtained by management from outside tax specialists, that detailed the basis of the uncertain tax positions.
• We tested the reasonableness of management’s judgments regarding the future resolution of the uncertain tax
positions, including an evaluation of the technical merits of the uncertain tax positions.
• For those uncertain tax positions that had not been effectively settled, we evaluated whether management had
appropriately considered new information that could significantly change the recognition, measurement or disclosure
of the uncertain tax positions.
• We evaluated the reasonableness of management’s estimates by considering how tax law, including statutes,
regulations and case law, impacted management’s judgments.
/S/ DELOITTE & TOUCHE LLP
Seattle, Washington
July 28, 2022
We have served as the Company’s auditor since 1983.
86
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief
Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange
Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the
Company. Internal control 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. Internal control over financial reporting includes maintaining records that in reasonable detail
accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary
for preparation of our consolidated financial statements; providing reasonable assurance that receipts and expenditures of
company assets are made in accordance with management authorization; and providing reasonable assurance that
unauthorized acquisition, use, or disposition of company assets that could have a material effect on our consolidated
financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control
over financial reporting is not intended to provide absolute assurance that a misstatement of our consolidated financial
statements would be prevented or detected.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the
framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over
financial reporting was effective as of June 30, 2022. There were no changes in our internal control over financial
reporting during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting. Deloitte & Touche LLP has audited our internal control over financial
reporting as of June 30, 2022; their report follows.
87
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Microsoft Corporation
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Microsoft Corporation and subsidiaries (the ―Company‖) as
of June 30, 2022, based on criteria established in Internal Control—Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of June 30, 2022, based on criteria established
in Internal Control—Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated financial statements as of and for the year ended June 30, 2022, of the Company and
our report dated July 28, 2022, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of
Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. 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. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. 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.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/S/ DELOITTE & TOUCHE LLP
Seattle, Washington
July 28, 2022
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DIRECTORS AND EXECUTIVE OFFICERS OF MICROSOFT CORPORATION
DIRECTORS
Satya Nadella
Chairman and Chief Executive Officer,
Microsoft Corporation
Sandra E. Peterson 2,3
Operating Partner,
Clayton, Dubilier & Rice, LLC
John W. Stanton 1,4
Founder and Chairman, Trilogy
Partnerships
Reid G. Hoffman 4
General Partner, Greylock Partners
Penny S. Pritzker 4
Founder and Chairman,
PSP Partners, LLC
John W. Thompson 3,4
Lead Independent Director,
Microsoft Corporation
Hugh F. Johnston 1
Vice Chairman and Executive Vice
President and Chief Financial Officer,
PepsiCo, Inc.
Carlos A. Rodriguez 1
Chief Executive Officer, ADP, Inc.
Emma N. Walmsley 2,4
Chief Executive Officer, GSK, plc
Teri L. List 1,3
Former Executive Vice President and
Chief Financial Officer, Gap, Inc.
Charles W. Scharf 2,3
Chief Executive Officer and President,
Wells Fargo & Company
Padmasree Warrior 2
Founder, President and Chief Executive
Officer, Fable Group Inc.
Audit Committee
Board Committees
1.
2. Compensation Committee
3. Governance and Nominating Committee
4.
Environmental, Social, and Public Policy Committee
EXECUTIVE OFFICERS
Satya Nadella
Chairman and Chief Executive Officer
Amy E. Hood
Executive Vice President and Chief Financial
Officer
Judson Althoff
Executive Vice President and Chief Commercial Officer
Bradford L. Smith
Vice Chair and President
Christopher C. Capossela
Executive Vice President, Marketing and Consumer
Business, and Chief Marketing Officer
Christopher D. Young
Executive Vice President, Business Development,
Strategy, and Ventures
Kathleen T. Hogan
Executive Vice President and Chief Human Resources Officer
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INVESTOR RELATIONS
Investor Relations
Registered Shareholder Services
You can contact Microsoft Investor Relations at any time to
order financial documents such as annual reports and Form
10-Ks free of charge.
Call us toll-free at (800) 285-7772 or outside the United
States, call (425) 706-4400. We can be contacted between
the hours of 9:00 a.m. to 5:00 p.m. Pacific Time to answer
investment oriented questions about Microsoft.
For access to additional financial information, visit the
Investor Relations website online at:
www.microsoft.com/investor
Computershare, our transfer agent, can help you with a
variety of shareholder related services including:
• Change of address
• Lost stock certificates
• Transfer of stock to another person
• Additional administrative services
Computershare also administers a direct stock purchase plan
and a dividend reinvestment program for the company.
Contact Computershare directly to find out more about these
services and programs at 800-285-7772, option 1, or visit
online at: https://www.computershare.com/Microsoft
Our e-mail is msft@microsoft.com
Our mailing address is:
Investor Relations
Microsoft Corporation
One Microsoft Way
Redmond, Washington 98052-6399
Attending the Annual Meeting
The 2022 Annual Shareholders Meeting will be held as a
virtual-only meeting. Any shareholder can join the Annual
Meeting, while shareholders of record as of October 12,
2022, will be able to vote and submit questions during the
meeting.
Date: Tuesday, December 13, 2022
Time: 8:30 a.m. Pacific Time
Virtual Shareholder Meeting:
www.virtualshareholdermeeting.com/MSFT22
Submit Your Question
We invite you to submit any questions via the proxy voting
site at www.proxyvote.com. We will include as many of your
questions as possible during the Q&A session of the meeting
and will provide answers to questions on the Microsoft
Investor Relations website under the Annual Meeting page.
You can e-mail the transfer agent at:
web.queries@computershare.com
You can also send mail to the transfer agent at:
Computershare
P.O. Box 43006
Providence RI 02940-3078
Shareholders can sign up for electronic alerts to access the
annual report and proxy statement online. The service gets
you the information you need faster and also gives you the
power and convenience of online proxy voting. To sign up for
this free service, visit the Annual Report site on the Investor
Relations website at:
http://www.microsoft.com/investor/AnnualReports/default.asp
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Environmental, Social, and Governance (ESG)/Corporate
Social Responsibility
Many of our shareholders are increasingly focused on the
importance of the effective engagement and action on
environmental, social, and governance topics. To meet the
expectations of our stakeholders and to and maintain their
trust, we are committed to conducting our business in ways
that are principled, transparent, and accountable and we
have made a broad range of environmental and social
commitments. From our CEO and Senior Leadership Team
and throughout our organization, people at Microsoft are
working to conduct our business in principled ways that make
a significant positive impact on important global issues.
Microsoft’s Board of Directors provides insight, feedback, and
oversight across a broad range of environmental and social
matters. In particular, among the responsibilities of the
Board’s Environmental, Social, and Public Policy Committee
is to review and provide guidance to the Board and
management about the Company’s policies and programs
that relate to corporate social responsibility.
For more about Microsoft’s CSR commitments and
performance, please visit:
www.microsoft.com/transparency.
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