Dear shareholders, colleagues, customers, and partners,
We are living through a time of historic challenge and opportunity. As I write this, the world faces ongoing economic, social,
and geopolitical volatility. At the same time, we have entered a new age of AI that will fundamentally transform productivity
for every individual, organization, and industry on earth, and help us address some of our most pressing challenges.
This next generation of AI will reshape every software category and every business, including our own. Forty-eight years
after its founding, Microsoft remains a consequential company because time and time again—from PC/Server, to
Web/Internet, to Cloud/Mobile—we have adapted to technological paradigm shifts. Today, we are doing so once again, as
we lead this new era.
Amid this transformation, our mission to empower every person and every organization on the planet to achieve
more remains constant. As a company, we believe we can be the democratizing force for this new generation of technology
and the opportunity it will help unlock for every country, community, and individual, while mitigating its risks.
Here are just a few examples of how we are already doing this:
•
Leading electronic health records vendor Epic is addressing some of the biggest challenges facing the
healthcare industry today—including physician burnout—by deploying a wide range of copilot solutions built on
Azure OpenAI Service and Dragon Ambient eXperience Copilot.
• Mercado Libre is reducing the time its developers spend writing code by more than 50 percent with GitHub
Copilot, as the company works to democratize e-commerce across Latin America.
• Mercedes-Benz is making its in-car voice assistant more intuitive for hundreds of thousands of drivers using
ChatGPT via the Azure OpenAI Service.
•
Lumen Technologies is helping its employees be more productive, enabling them to focus on higher value-
added activities, by deploying Microsoft 365 Copilot.
• Nonprofit The Contingent is matching foster families with children in need using Dynamics 365, Power BI, and
Azure, with an eye on using AI to amplify its work across the US.
• And, Taiwan’s Ministry of Education has built an online platform to help elementary and high school students
learn English using Azure AI.
To build on this progress, we remain convicted on three things: First, we will maintain our lead as the top commercial cloud
while innovating in consumer categories, from gaming to professional social networks. Second, because we know that
maximum enterprise value gets created during platform shifts like this one, we will invest to accelerate our lead in AI by
infusing this technology across every layer of the tech stack. And, finally, we will continue to drive operating leverage,
aligning our cost structure with our revenue growth.
As we make progress on these priorities, we delivered strong results in fiscal year 2023, including a record $211 billion in
revenue and over $88 billion in operating income.
A NEW ERA OF AI
There are two breakthroughs coming together to define this new era of AI. The first is the most universal interface: natural
language. The long arc of computing has, in many ways, been shaped by the pursuit of increasingly intuitive human-
computer interfaces—keyboards, mice, touch screens. We believe we have now arrived at the next big step forward—
natural language—and will quickly go beyond, to see, hear, interpret, and make sense of our intent and the world around
us.
The second is the emergence of a powerful new reasoning engine. For years, we’ve digitized daily life, places, and things
and organized them into databases. But in a world rich with data, what has been most scarce is our ability to reason over
it. This generation of AI helps us interact with data in powerful new ways—from completing or summarizing text, to detecting
anomalies and recognizing images—to help us identify patterns and surface insights faster than ever.
Together, these two breakthroughs will unlock massive new opportunity. And, in fact, just last month we announced our
vision for Copilot, an everyday AI companion. We are building Copilot into all our most used products and experiences and
allowing people to summon its power as a standalone app as well. Just like you boot up an OS to access applications or
use a browser to visit websites today, our belief is that you will invoke a Copilot to do all those activities and more: to shop,
to code, to analyze, to learn, to create.
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As a company, any time we approach a transition like this, we do so responsibly. We believe AI should be as empowering
across communities as it is powerful, and we’re committed to ensuring it is responsibly built and designed, with safety in
mind from the outset.
OUR OPPORTUNITY
Every customer solution area and every layer of our tech stack will be reimagined for the AI era. And that’s exactly what
we’ve already begun to do:
Infrastructure
Four years ago, we first invested in our AI supercomputer, with a goal of building the best cloud for training and inference.
Today, it’s being used by our partner OpenAI to power its best-in-class foundation models and services, including one of
the fastest-growing consumer apps ever—ChatGPT. NVIDIA, as well as leading AI startups like Adept and Inflection, is also
using our infrastructure to build its own breakthrough models.
More broadly, organizations continue to choose our ubiquitous computing fabric—from cloud to edge—to run their mission-
critical applications. We continued to see more cloud migrations to Azure this past fiscal year, as it remains early when it
comes to the long-term cloud opportunity. And we also continue to lead in hybrid computing with Azure Arc, which now has
18,000 customers.
Data and AI
Every AI app starts with data, and having a comprehensive data and analytics platform is more important than ever. Our
Intelligent Data Platform brings together operational databases, analytics, and governance so organizations can spend
more time creating value and less time integrating their data estate. We also introduced Microsoft Fabric this year, which
unifies compute, storage, and governance with a disruptive business model.
With Azure AI, we are making foundation models available as platforms to our customers. We offer the best selection of
industry-leading frontier and open models. In January, we made the Azure OpenAI Service broadly available, bringing
together advanced models, including ChatGPT and GPT-4, with the enterprise capabilities of Azure. More than 11,000
organizations across industries are already using it for advanced scenarios like content and code generation. Meta chose
us this summer as its preferred cloud to commercialize its Llama family of models. And, with Azure AI Studio, we provide a
full lifecycle toolchain customers can use to ground these models on their own data, create prompt workflows, and help
ensure they are deployed and used safely.
Digital and app innovation
GitHub Copilot is fundamentally transforming developer productivity, helping developers complete coding tasks 55 percent
faster. More than 27,000 organizations have chosen GitHub Copilot for Business, and to date more than 1 million people
have used GitHub Copilot to code faster. We also announced our vision for the future of software development with GitHub
Copilot X, which will bring the power of AI throughout the entire software development lifecycle. All up, GitHub surpassed
$1 billion in annual recurring revenue for the first time this fiscal year.
We’re also applying AI across our low-code/no-code toolchain to help domain experts across an organization automate
workflows, create apps and webpages, build virtual agents, or analyze data, using just natural language with copilots in
Power Platform. More than 63,000 organizations have used AI-powered capabilities in Power Platform to date.
Business applications
We are bringing the next generation of AI to employees across every job function and every line of business with Dynamics
365 Copilot, which works across CRM and ERP systems to reduce burdensome tasks like manual data entry, content
generation, and notetaking. In fact, our own support agents are using Copilot in Dynamics 365 Customer Service to resolve
more cases faster and without having to call on peers to help. With our Supply Chain Platform, we’re helping customers
apply AI to predict and mitigate disruptions. And, with our new Microsoft Sales Copilot, sellers can infuse their customer
interactions with data from CRM systems—including both Salesforce and Dynamics—to close more deals.
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All up, Dynamics surpassed $5 billion in revenue over the past fiscal year, with our customer experience, service, and
finance and supply chain businesses each surpassing $1 billion in annual sales.
Industry
Across industries, we are rapidly becoming the partner of choice for any organization looking to generate real value from
AI. In healthcare, for example, we introduced the world’s first fully automated clinical documentation application, DAX
Copilot. The application helps physicians reduce documentation time by half, freeing them to spend more time face to face
with patients. And Epic will integrate it directly into its electronic health records system.
And, in retail, we introduced new tools to help companies manage their day-to-day operations and digitize their physical
stores.
Modern work
We are rapidly evolving Microsoft 365 into an AI-first platform that enables every individual to amplify their creativity and
productivity, with both our established applications like Office and Teams, as well as new apps like Designer, Stream, and
Loop. Microsoft 365 is designed for today’s digitally connected, distributed workforce.
This year, we also introduced a new pillar of customer value with Microsoft 365 Copilot, which combines next-generation AI
with business data in the Microsoft Graph and Microsoft 365 applications to help people be more productive and unleash
their creativity at work. Just last month, I was excited to announce that we will make Microsoft 365 Copilot generally available
to our commercial customers later this year.
We continue to build momentum in Microsoft Teams across collaboration, chat, meetings, and calls. We introduced a new
version of Teams that delivers up to two times faster performance, while using 50 percent less memory. We also introduced
Teams Premium to meet enterprise demand for AI-powered features like intelligent meeting recaps. All up, Teams usage
surpassed 300 million monthly active users this year.
With Microsoft Viva, we have created a new category for employee experience. Copilot in Viva offers leaders a new way to
build high-performance teams by prioritizing both productivity and employee engagement. This year, Viva surpassed
35 million monthly active users.
Security
As the rate and pace of cyberthreats continue to accelerate, security is a top priority for every organization. Our
comprehensive, AI-powered solutions give defenders the advantage. With Security Copilot, we’re combining large language
models with a domain-specific model informed by our threat intelligence and 65 trillion daily security signals, to transform
every aspect of security operations center productivity.
All up, more than 1 million organizations now count on our comprehensive, AI-powered solutions to protect their digital
estates, and our security business surpassed $20 billion in annual revenue, as we help protect customers across clouds
and endpoint platforms.
Search, advertising, and news
We are reshaping daily search and web habits with our new Bing and Microsoft Edge browser, which brings together search,
browsing, chat, and AI into one unified experience to deliver better search, more complete answers, a new chat experience,
and the ability to generate content. We think of these tools as an AI copilot for the web.
We are also bringing these breakthrough capabilities to businesses, with Bing Chat Enterprise, which offers commercial
data protection, providing an easy on-ramp for any organization looking to get the benefit of next-generation AI today.
Although it’s early in our journey, Bing users engaged in more than 1 billion chats and created more than 750 million images
over the past year as they apply these new tools to get things done. And Edge has taken share for nine consecutive quarters.
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More broadly, we continue to expand our opportunity in advertising. This year, Netflix chose us as its exclusive technology
and sales partner for its first ad-supported subscription offering, a validation of the differentiated value we provide to any
publisher looking for a flexible partner to build and innovate with them.
LinkedIn
The excitement around AI is creating new opportunities across every function—from marketing, sales, service, and finance,
to software development and security. And LinkedIn is increasingly where people are going to learn, discuss, and uplevel
their skills. We are using AI to help our members and customers connect to opportunities and tap into the experiences of
experts on the platform. In fact, our AI-powered articles are already the fastest-growing traffic driver to the network.
All up, LinkedIn’s revenue surpassed $15 billion for the first time this fiscal year, a testament to how mission critical the
platform has become to help more than 950 million members connect, learn, sell, and get hired.
Gaming
In gaming, we are rapidly executing on our ambition to be the first choice for people to play great games whenever,
wherever, and however they want. With Xbox Game Pass, we are redefining how games are distributed, played, and viewed.
Content is the flywheel behind the service’s growth, and our pipeline has never been stronger. It was especially energizing
to release Starfield this fall to broad acclaim, with more than 10 million players in the first month post-launch alone.
Earlier this month, we were thrilled to close our acquisition of Activision Blizzard, and we look forward to sharing more in
the coming months about how, together, we will bring the joy of gaming to more people around the world.
Devices and creativity
Finally, we’re turning Windows into a powerful new AI canvas with Copilot, which rolled out as part of a Windows 11 update
last month. It uniquely incorporates the context and intelligence of the web, your work data, and what you are doing in the
moment on your PC to provide better assistance, while keeping your privacy and security at the forefront. Overall, the
number of devices running Windows 11 more than doubled in the past year. And we are also transforming how Windows is
experienced and managed with Azure Virtual Desktop and Windows 365, which together surpassed $1 billion in annual
revenue for the first time.
OUR RESPONSIBILITY
As we pursue our opportunity, we are also working to ensure technology helps us solve problems—not create new ones.
To do this, we focus on four enduring commitments that are central to our mission and that take on even greater importance
in this new era. For us, these commitments are more than just words. They’re a guide to help us make decisions across
everything we do—as we design and develop products, shape business processes and policies, help our customers thrive,
build partnerships, and more—always asking ourselves critical questions to ensure our actions are aligned with them.
How can we expand opportunity?
First, we believe access to economic growth and opportunity should reach every person, organization, community, and
country. And although AI can serve as a catalyst for opportunity and growth, we must first ensure everyone has access to
the technologies, data, and skills they need to benefit.
To achieve this, we are focused on getting technology into the hands of nonprofits, social entrepreneurs, and other civil
society organizations to help them digitally transform, so they can help address some of society’s biggest challenges. This
year, we provided nonprofits with over $3.8 billion in discounted and donated technology. Nearly 325,000 nonprofits used
our cloud. And to help them tap the potential of AI, we’re building new AI capabilities for fundraising, marketing, and program
delivery.
AI will displace some jobs, but it will also create new ones. That’s why we aim to train and certify 10 million people by 2025
with the skills for jobs and livelihoods in an increasingly digital economy. Since July 2020, we’ve helped 8.5 million people,
including 2.7 million this year. We’ve also focused on skilling women and underrepresented communities in cybersecurity,
working across 28 countries and with nearly 400 US community colleges to scale our efforts.
Finally, to help people learn more about AI, we launched the first online Professional Certificate on Generative AI in
partnership with LinkedIn Learning, created AI tools for educators, and held our first AI Community Learning event in the
US. These events will be replicated around the world and localized in 10 languages over the next year. We also partnered
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to launch a Generative AI Skills Grant Challenge to explore how nonprofit, social enterprise, and research or academic
institutions can empower the workforce to use this new generation of AI.
How can we earn trust?
To create positive impact with technology, people need to be able to trust the technologies they use and the companies
behind them. For us, earning trust spans the responsible use of AI, protecting privacy, and advancing digital safety and
cybersecurity.
Our commitment to responsible AI is not new. Since 2017, we’ve worked to develop our responsible AI practice, recognizing
that trust is never given but earned through action.
We have translated our AI principles into a core set of implementation processes, as well as tools, training, and practices
to support compliance. But internal programs aren’t enough. We also enable our customers and partners to develop and
deploy AI safely, including through our AI customer commitments and services like Azure AI Studio, with its content safety
tooling and access to our Responsible AI dashboard.
Building AI responsibly requires that we work with other industry leaders, civil society, and governments to advocate for AI
regulations and governance globally. This year, we released our Governing AI Blueprint, which outlines concrete legal and
policy recommendations for AI guardrails. We are signatories to the eight voluntary commitments developed with the US
White House, and proud of the six additional commitments we’ve made to further strengthen and operationalize the
principles of safety, security, and trust.
The era of AI heightens the importance of cybersecurity, and we deepened our work across the private and public sectors
to improve cyber-resilience. We’ve continued to support Ukraine in defending critical infrastructure, detecting and disrupting
cyberattacks and cyberinfluence operations, and providing intelligence related to these attacks. Our Microsoft Threat
Analysis Center team produced more than 500 intelligence reports to help keep customers and the public informed. And we
published our third annual Microsoft Digital Defense Report, sharing our learnings and security recommendations.
We also remain committed to creating safe experiences online and protecting customers from illegal and harmful content
and conduct, while respecting human rights. We supported the Christchurch Call Initiative on Algorithmic Outcomes to
address terrorist and violent and extremist content online. And through the World Economic Forum’s Global Coalition for
Digital Safety, we co-led the development of new global principles for digital safety.
Protecting customers’ privacy and giving them control of their data is more important than ever. We’ve begun our phased
rollout of the EU Data Boundary, supporting our commercial and public sector customers’ need for data sovereignty. And
each month, more than 3 million people exercise their data protection rights through our privacy dashboard, making
meaningful choices about how their data is used.
How can we protect fundamental rights?
In an increasingly digital world, we have a responsibility to promote and protect people’s fundamental rights and address
the challenges technology creates. For us, this means upholding responsible business practices, expanding connectivity
and accessibility, advancing fair and inclusive societies, and empowering communities.
In 2023, we worked diligently to anticipate harmful uses of our technology and put guardrails on the use of technologies that
are consequential to people’s lives or legal status, create risk of harm, or threaten human rights. We will continue to assess
the impact of our technologies, engage our stakeholders, and model and adopt responsible practices and respect for human
rights—including across our global supply chain.
Today, our lives are more connected than ever. Access to education, employment, healthcare, and other critical services is
increasingly dependent on technology. That’s why we’ve expanded our commitment to bring access to affordable high-
speed internet to a quarter of a billion people around the world, including 100 million people in Africa, by the end of 2025.
Since 2017, we’ve helped bring internet access to 63 million people, a key first step to ensuring communities will have
access to AI and other digital technologies.
This year, we also continued working toward our five-year commitment to bridge the disability divide with a focus on helping
close the accessibility knowledge gap. Seven hundred and fifty-thousand learners enriched their understanding of disability
and accessibility in partnership with LinkedIn Learning, Teach Access, and the Microsoft disability community.
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In addition, we’re stepping up efforts to combat online disinformation through new media content provenance technologies—
enabling users to verify if an image or video was generated by AI. We continued our efforts to promote racial equity across
Microsoft, our ecosystem, and our communities, including our work to advance justice reform through data-driven insights.
And we provided support in response to eight humanitarian disasters, including committing $540 million of support to those
who have been impacted by the War in Ukraine.
Finally, recognizing AI’s potential to advance human rights and humanitarian action, we worked on several AI for
Humanitarian Action projects. Together with our partners, we’re building the capabilities to identify at-risk communities,
estimate seasonal hunger, predict malnutrition, and assist in disease identification.
How can we advance sustainability?
Climate change is the defining issue of our generation, and addressing it requires swift, collective action and technological
innovation. We are committed to meeting our own goals while enabling others to do the same. That means taking
responsibility for our operational footprint and accelerating progress through technology.
We continue to see extreme weather impacting communities globally. To meet the urgent need, this must be a decade of
innovation and decisive action—for Microsoft, our customers, and the world.
In our latest Environmental Sustainability Report, we shared our progress toward our 2030 sustainability targets across
carbon, water, waste, and ecosystems. In 2022, our overall carbon emissions declined by 0.5 percent while our business
grew. Addressing scope 3 emissions, which account for the vast majority of our emissions, is arguably our ultimate
challenge—one we’ll continue to tackle through our supply chain, policy advances, and industry-wide knowledge-sharing.
We’ve provided just under 1 million people with access to clean water and sanitation, one of five pillars on our path to
becoming water positive. And in our pursuit to be zero waste, we achieved a reuse and recycle rate of 82 percent for all our
cloud hardware and diverted over 12,000 metric tons of solid operational waste from landfills and incinerators.
We also continue to take responsibility for the impacts of our direct operations on Earth’s ecosystems. We’ve contracted to
protect 17,268 acres of land, over 50 percent more than the land we use to operate. Of that, 12,270 acres—the equivalent
of approximately 7,000 soccer fields—were designated as permanently protected.
Technology is a powerful lever to help us avoid the most severe impacts of climate change. That’s why we’re accelerating
our investment in more efficient datacenters, clean energy, enhancements to the Microsoft Cloud for Sustainability and
Planetary Computer, and green software practices. To date, through our Climate Innovation Fund, we’ve allocated more
than $700 million to a global portfolio of 50+ investments spanning sustainable solutions in energy, industrial, and natural
systems.
Finally, we believe AI can be a powerful accelerant in addressing the climate crisis. We expanded our AI for Good Lab in
Egypt and Kenya to improve climate resilience for the continent. And, together with our partners, we launched Global
Renewables Watch, a first-of-its-kind living atlas that aims to map and measure utility-scale solar and wind installations,
allowing users to evaluate progress toward a clean energy transition.
Although this new era promises great opportunity, it demands even greater responsibility from companies like ours. As we
pursue our four commitments, we focus on transparency—providing clear reporting on how we run our business and how
we work with customers and partners. Our annual Impact Summary shares more about our progress and learnings this
year, and our Reports Hub provides detailed reports on our environmental data, political activities, workforce demographics,
human rights work, and more.
OUR CULTURE
There’s never been a more important time to live our culture. The way we work and the speed at which we work are
changing.
In an economy where yesterday’s exceptional is today’s expected, all of us at Microsoft will need to embrace a growth
mindset and, more importantly, confront our fixed mindsets as our culture evolves. It will take everyday courage to
reformulate what innovation, business models, and sales motions look like in this new era. As a high-performance
organization, we aspire to help our employees maximize their economic opportunity, while simultaneously helping them
6
learn and grow professionally and connect their own passion and purpose with their everyday work and the company’s
mission.
To be successful, we need to be grounded in what our customers and the world need. We need to innovate and collaborate
as One Microsoft. And we need to actively seek diversity and embrace inclusion to best serve our customers and create a
culture where everyone can do their best work. To empower the world, we need to represent the world. To that end, we
remain focused on increasing representation and strengthening our culture of inclusion. Even as we navigated challenges
this year, our company continued to be the most globally diverse it’s ever been.
Giving also remains core to our culture. This year, more than 105,000 employees gave $242 million (including company
match) to over 35,000 nonprofits in 116 countries. And our employees volunteered over 930,000 hours to causes they care
about.
I am deeply grateful to our employees for their commitment to the company and their communities, and how they are living
our mission and culture every day in a changing company and world.
**
In closing, this is Microsoft’s moment. We have an incredible opportunity to use this new era of AI to deliver meaningful
benefits for every person and every organization on the planet.
On New Year’s Day, I saw a tweet from Andrej Karpathy, Tesla’s former director of AI who now works at OpenAI, about
how GitHub Copilot was writing about 80 percent of his code, with 80 percent accuracy. Two days later, I saw a stunning
example of work we’ve done with the government of India’s Ministry of Electronics and IT, which is applying an AI model so
farmers in rural areas can interact with government resources in their native languages.
Think about that: A foundation model that was developed on the West Coast of the United States is already transforming
the lives of both elite developers and rural farmers on the other side of the globe. We’ve not seen this speed of diffusion
and breadth of impact in the tech industry before.
As a company, this is our moment to show up and responsibly build solutions that drive economic growth and benefit every
community, country, industry, and person. If we do it well, the world will do well, and Microsoft will do well too. I’ve never
been more confident that we will deliver on this promise together in the days, months, and years to come.
Satya Nadella
Chairman and Chief Executive Officer
October 16, 2023
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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 24, 2023, there were 83,883
registered holders of record of our common stock.
Share Repurchases
SHARE REPURCHASES AND DIVIDENDS
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, 2023,
$22.3 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
2023
17 $
20
18
14
4,600
4,600
4,600
4,600
2022
21 $
20
26
28
6,200
6,233
7,800
7,800
2021
25 $
27
25
24
5,270
5,750
5,750
6,200
69 $
18,400
95 $
28,033
101 $
22,970
All repurchases were made using cash resources. Shares repurchased during fiscal year 2023 and 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. All other shares repurchased were under the share repurchase program
approved on September 18, 2019. The above table excludes shares repurchased to settle employee tax withholding related
to the vesting of stock awards of $3.8 billion, $4.7 billion, and $4.4 billion for fiscal years 2023, 2022, and 2021, respectively.
Dividends
Our Board of Directors declared the following dividends:
Declaration Date
Fiscal Year 2023
September 20, 2022
November 29, 2022
March 14, 2023
June 13, 2023
Total
Fiscal Year 2022
September 14, 2021
December 7, 2021
March 14, 2022
June 14, 2022
Total
Record Date
Payment Date
November 17, 2022
February 16, 2023
May 18, 2023
August 17, 2023
December 8, 2022
March 9, 2023
June 8, 2023
September 14, 2023
November 18, 2021
February 17, 2022
May 19, 2022
August 18, 2022
December 9, 2021
March 10, 2022
June 9, 2022
September 8, 2022
$
$
$
Dividend
Per Share
Amount
0.68 $
0.68
0.68
0.68
(In millions)
5,066
5,059
5,054
5,054
2.72 $
20,233
0.62 $
0.62
0.62
0.62
4,652
4,645
4,632
4,621
$
2.48 $ 18,550
The dividend declared on June 13, 2023 was included in other current liabilities as of June 30, 2023.
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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
6/18
6/19
6/20
6/21
6/22
$ 100.00 $ 138.07 $ 212.34 $ 285.40 $ 272.82 $
100.00
100.00
110.42
106.10
118.70
156.93
167.13
236.08
149.39
184.53
6/23
365.24
178.66
242.82
* $100 invested on 6/30/18 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” and “Management’s Discussion
and Analysis of Financial Condition and Results of Operations”. 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 2023 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. We are creating
the platforms and tools, powered by artificial intelligence (“AI”), that deliver better, faster, and more effective solutions to
support small and large business competitiveness, improve educational and health outcomes, grow public-sector efficiency,
and empower human ingenuity. From infrastructure and data, to business applications and collaboration, we provide unique,
differentiated value to customers.
In a world of increasing economic complexity, AI has the power to revolutionize many types of work. Microsoft is now
innovating and expanding our portfolio with AI capabilities to help people and organizations overcome today’s challenges
and emerge stronger. Customers are looking to unlock value from their digital spend and innovate for this next generation
of AI, while simplifying security and management. Those leveraging the Microsoft Cloud are best positioned to take
advantage of technological advancements and drive innovation. Our investment in AI spans the entire company, from
Microsoft Teams and Outlook, to Bing and Xbox, and we are infusing generative AI capability into our consumer and
commercial offerings to deliver copilot capability for all services across the Microsoft Cloud.
We’re committed to making the promise of AI real – and doing it responsibly. Our work is guided by a core set of principles:
fairness, reliability and safety, privacy and security, inclusiveness, transparency, and accountability.
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.
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.
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• 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, productive 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. Microsoft 365 Copilot combines next-generation AI with business data in the Microsoft Graph and Microsoft 365
applications.
Together with the Microsoft Cloud, Dynamics 365, Microsoft Teams, and our AI offerings bring a new era of collaborative
applications that optimize business functions, processes, and applications to better serve customers and employees while
creating more business value. 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 and adoption of AI accelerates and revolutionizes more business workstreams, 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. 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.
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.
The Microsoft Cloud provides 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.
Our AI platform, Azure AI, is helping organizations transform, bringing intelligence and insights to the hands of their
employees and customers to solve their most pressing challenges. Organizations large and small are deploying Azure AI
solutions to achieve more at scale, more easily, with the proper enterprise-level and responsible AI protections.
We have a long-term partnership with OpenAI, a leading AI research and deployment company. We deploy OpenAI’s
models across our consumer and enterprise products. As OpenAI’s exclusive cloud provider, Azure powers all of OpenAI’s
workloads. We have also increased our investments in the development and deployment of specialized supercomputing
systems to accelerate OpenAI’s research.
Our hybrid infrastructure offers integrated, end-to-end security, compliance, identity, and management capabilities 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. Azure Arc
simplifies governance and management by delivering a consistent multi-cloud and on-premises management platform.
Nuance, a leader in conversational AI and ambient intelligence across industries including healthcare, financial services,
retail, and telecommunications, joined Microsoft in 2022. Microsoft and Nuance enable organizations to accelerate their
business goals with security-focused, cloud-based solutions infused with AI.
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We are accelerating our development of mixed reality solutions with new Azure services and devices. Microsoft Mesh
enables organizations to create custom, immersive experiences for the workplace to help bring remote and hybrid workers
and teams together.
The ability to convert data into AI drives our competitive advantage. The Microsoft Intelligent Data Platform is a leading
cloud data platform that fully integrates databases, analytics, and governance. The platform empowers organizations to
invest more time creating value rather than integrating and managing their data. Microsoft Fabric is an end-to-end, unified
analytics platform that brings together all the data and analytics tools that organizations need.
GitHub Copilot is at the forefront of AI-powered software development, giving developers a new tool to write code easier
and faster so they can focus on more creative problem-solving. 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.
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, users can run Windows
365, just like a virtual machine.
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, enabling users to interact with technology in more intuitive, engaging, and
dynamic ways.
Windows 11 offers innovations focused on enhancing productivity, including Windows Copilot with centralized AI assistance
and Dev Home to help developers become more productive. Windows 11 security and privacy features include operating
system security, application security, and user and identity security.
Through our Search, News, Mapping, and Browser services, Microsoft delivers unique trust, privacy, and safety features.
In February 2023, we launched an all new, AI-powered Microsoft Edge browser and Bing search engine with Bing Chat to
deliver better search, more complete answers, and the ability to generate content. Microsoft Edge is our fast and secure
browser that helps protect users’ data. Quick access to AI-powered tools, apps, and more within Microsoft Edge’s sidebar
enhance browsing capabilities.
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 Pro, Surface Laptop, and other
Surface products.
Microsoft continues to invest in gaming 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
subscription services like Xbox Game Pass and new devices from third-party manufacturers so players can engage across
PC, console, and mobile. In January 2022, we announced plans to acquire Activision Blizzard, Inc., a leader in game
development and an interactive entertainment content publisher.
Our Future Opportunity
We are focused on helping customers use the breadth and depth of the Microsoft Cloud to get the most value out of their
digital spend while leading the new AI wave across our solution areas. We continue to develop complete, intelligent solutions
for our customers that empower people to be 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, and interact with one another.
• Building and running cloud-based services in ways that utilize ubiquitous computing to unleash new
experiences and opportunities for businesses and individuals.
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• Applying AI and ambient intelligence to drive insights, revolutionize many types of work, and provide substantive
productivity gains 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.
• 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, Microsoft Teams, Microsoft 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.
Corporate Social Responsibility
Commitment to Sustainability
Microsoft’s approach to addressing climate change starts with the sustainability of our own business. In 2020, we committed
to being a carbon negative, water positive, and zero waste company by 2030.
In May 2023, we released our Environmental Sustainability Report which looked back at our progress during fiscal year
2022. We continued to make progress on our goals, with our overall emissions declining by 0.5 percent. While our Scope 1
and Scope 2 emissions continued to decline, Scope 3 emissions increased by 0.5 percent. Scope 3 represented 96 percent
of our total emissions, resulting primarily from the operations of our suppliers and the use of our products across our
customers.
A few examples of our continued progress include:
• Signed new power purchase agreements, bringing our total portfolio of carbon-free energy to over 13.5
gigawatts.
• Contracted for water replenishment projects that are estimated to provide more than 15.6 million cubic meters
in volumetric water benefit over the lifetime of these projects.
• Diverted 12,159 metric tons of solid waste from landfills and incinerators across our direct operational footprint.
• Protected 12,270 acres of land in Belize – more than the 11,206 acres of land that we use around the world.
Microsoft has a role to play in developing and advancing new climate solutions, but we recognize that no solution can be
offered by any single company, organization, or government. Our approach helps to support the sustainability needs of our
customers and the global community. Our Microsoft Cloud for Sustainability, an environmental sustainability management
platform that includes Microsoft Sustainability Manager, enables organizations to record, report, and reduce their Scope 1,
2, and 3 emissions. These digital tools can interoperate with business systems and unify data intelligence for organizations.
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.
• Engaging our ecosystem: using our balance sheet and relationships with suppliers and partners to foster
societal change and create new opportunities.
•
Increasing representation and strengthening inclusion: building on our momentum by 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.
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In fiscal year 2023, we collaborated with partners and worked within neighborhoods and communities to launch and scale
a number of projects and programs, including:
• Working with 103 unique organizations in 165 cities and counties on our Justice Reform Initiative to empower
communities and advance racial equity and fairness in the justice system.
•
Increasing access to affordable broadband, devices, and digital literacy training across 14 geographies,
including 11 cities and three states in the Black Rural south.
• Growing our Nonprofit Tech Acceleration for Black and African American Communities program, which uses
data, technology, and partnerships to help more than 2,000 local organizations to modernize and streamline
operations.
• Expanding our Technology Education and Learning Support (“TEALS”) program to reach nearly 400 high
schools in 21 communities to increase computer science opportunities for Black and African American students.
We exceeded our 2020 goal to double the percentage of our transaction volumes with Black- and African American-owned
financial institutions by 2023. We are also increasing investment activity with Black- and African American-owned asset
managers, which now represent 45 percent of our external manager group, enabling increased funds into local communities.
We also met our goal of creating a $100 million program focused on mission-driven banks. We enriched our supplier
pipeline, achieving 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 by more than 250 percent,
surpassing our initial goal.
We have made meaningful progress on representation and inclusion at Microsoft. As of June 2023, we are 93 percent of
the way to our 2025 commitment to double the number of Black and African American people managers in the U.S. (below
director level), and 107 percent of the way for Black and African American directors (people managers and individual
contributors). We are 28 percent of the way for Hispanic and Latinx people managers (below director level) and 74 percent
of the way for Hispanic and Latinx directors.
Investing in Digital Skills
After helping over 80 million jobseekers around the world access digital skilling resources, we introduced a new Skills for
Jobs 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 for Jobs 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 also launched a national campaign to help skill and recruit 250,000 people into the cybersecurity workforce 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 higher education institutions, providing training for new and existing faculty, and providing scholarships and
supplemental resources to 25,000 students. We have expanded the cyber skills initiative to 27 additional countries that
show elevated cyberthreat risks coupled with significant gaps in their cybersecurity workforces, partnering with nonprofits
and other educational institutions to train the next generation of cybersecurity workers.
Generative AI is creating unparalleled opportunities to empower workers globally, but only if everyone has the skills to use
it. To address this, in June 2023 we launched a new AI Skills Initiative to help everyone learn how to harness the power of
AI. This includes a new LinkedIn learning pathway offering new coursework on learning the foundations of generative AI.
We also launched a new global grant challenge to uncover new ways of training workers on generative AI and are providing
greater access to digital learning events and resources for everyone to improve their AI fluency.
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 and do their best work. 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.
As of June 30, 2023, we employed approximately 221,000 people on a full-time basis, 120,000 in the U.S. and 101,000
internationally. Of the total employed people, 89,000 were in operations, including manufacturing, distribution, product
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support, and consulting services; 72,000 were in product research and development; 45,000 were in sales and marketing;
and 15,000 were in general and administration. Certain employees are subject to collective bargaining agreements.
Our Culture
Microsoft’s culture is grounded in growth mindset. This means everyone is on a continuous journey to learn and grow,
operating as one company instead of multiple siloed businesses.
Our employee listening systems enable us to gather feedback directly from our workforce to inform our programs and
employee needs globally. Employees participate in our Employee Signals surveys, which cover a variety of topics such as
thriving, inclusion, team culture, wellbeing, and learning and development. We also collect Daily Signals employee survey
responses, giving us real-time insights into ways we can support our employees. In addition to Employee Signals and Daily
Signals surveys, we gain insights through onboarding, exit surveys, internal Viva Engage channels, employee Q&A
sessions, and our internal AskHR Service support.
Diversity and inclusion are core to our business model, and we hold ourselves accountable for driving global systemic
change in our workforce and creating an inclusive work environment. 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 2022 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).
Total Rewards and Pay Equity
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. Our total compensation opportunity is highly differentiated and is market competitive.
In order to manage our costs in a dynamic, competitive environment, in fiscal year 2023 we announced that base salaries
of salaried employees would remain at fiscal year 2022 levels. Pay increases continue to be available for rewards-eligible
hourly and equivalent employees. We will continue our practice of investing in stock for all rewards-eligible employees,
salaried and hourly, and investing in bonuses for all eligible employees.
Since 2016, we have reported on pay equity as part of our annual Diversity and Inclusion report. In 2022, we reported that
all racial and ethnic minority employees in the U.S. combined earn $1.008 for every $1.000 earned by their white
counterparts, that women in the U.S. earn $1.007 for every $1.000 earned by their counterparts who are men, and that
women outside the U.S. earn $1.002 for every $1.000 earned by their counterparts outside the U.S. who are men. In this
year’s report, we again expanded our pay equity data beyond the U.S. to report on 61 additional countries (up from 12 last
year), representing 99.8% of our global Microsoft workforce.
In addition, we began reporting on unadjusted median pay in our annual report, comparing total pay amounts for all
employees regardless of factors such as job title, level, or tenure. For employees who are eligible for rewards, the analysis
showed that total pay for women is 89.6% of total pay for men in the U.S. and 86.2% outside of the U.S., and total pay for
racial and ethnic minorities in the U.S. is 89.9% of total pay for white employees. As we continue to increase representation
for women and racial and ethnic minorities at more senior levels, and continue to ensure pay equity for all, the gap between
the medians will reduce.
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.
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Wellbeing and Hybrid Work
Microsoft is committed to supporting our employees’ wellbeing while they are at work and in their personal lives. We have
invested significantly in 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, disability accommodations, 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 introduced Hybrid Workplace Flexibility Guidance to better support leaders, managers, and employees in hybrid work
scenarios. Our ongoing survey data shows that 93% of employees value the flexibility related to work location, work site,
and work hours, and 78% are satisfied with the quality of connection with co-workers. There is no one-size-fits-all approach
to flexible work at Microsoft. As a company, we will continue to leverage data and research to inform decision making,
balancing the needs of business, team, and individual.
Learning and Development
We offer a range of learning opportunities, including personalized opportunities on our internal and external learning portals,
in-classroom learning, required learning on compliance and company culture, on-the-job advancement opportunities, and
manager coaching. We also provide customized manager learning, new employee orientation, and tools for operating in a
flexible hybrid work environment.
All Microsoft employees globally access our single Viva Learning tool for both required and personal choice learning. This
includes courses focused on our core principles and compliance matters, such as Business Conduct, Privacy, Security
Foundations, and Harassment Prevention. We also deliver skills training for employees based on their profession and role
discipline.
We have over 27,000 people managers, all of whom must complete between 20-33 hours of compulsory training on
leadership and management and are assigned additional targeted training on an ongoing basis related to people
management, compliance, and culture.
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.
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, Microsoft Viva, and Microsoft 365 Copilot.
• 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.
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• Dynamics business solutions, including Dynamics 365, comprising a set of intelligent, cloud-based applications
across ERP, CRM (including 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 and creativity 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 enable professionals to manage their professional
identity, grow their network, find jobs, 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 950 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.
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, 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. Meta offers communication tools to enable productivity and engagement within
organizations. 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
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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, Industry Solutions (formerly 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.
Azure AI offerings provide a competitive advantage as companies seek ways to optimize and scale their business with
machine learning. Azure’s purpose-built, AI-optimized infrastructure allows advanced models, including GPT-4 services
designed for developers and data scientists, to do more with less. Customers can integrate large language models and
develop the next generation of AI apps and services.
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. 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, Industry Solutions, 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.
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Competition
Azure faces diverse competition from companies such as Amazon, Google, IBM, Oracle, VMware, and open source
offerings. 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. Our AI offerings compete with AI products from hyperscalers such as Amazon Bedrock,
Amazon CodeWhisperer, and Google AI, as well as products from other emerging competitors, many of which are also
current or potential partners, including Meta’s LLaMA2 and other open source solutions. 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. 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.
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 IoT.
• Devices, including Surface, HoloLens, 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,
advertising, third-party disc royalties, and other cloud services.
• Search and news advertising, comprising Bing (including Bing Chat), Microsoft News, Microsoft Edge, and
third-party affiliates.
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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.
Devices
We design and sell devices, including Surface, HoloLens, 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 services. 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 intellectual property 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 400 first- and
third-party console and PC titles.
The gamer remains at the heart of the Xbox ecosystem. We are identifying new opportunities to attract gamers across a
variety of different end points through our first- and third-party content and business diversification across subscriptions,
ads, and digital stores. We’ve seen new devices from third-party manufacturers along with key PC and mobile end points
that help us empower gamers to play in a way that is most convenient to them. We are focused on growing the platform
and expanding to new ecosystems to engage as many gamers as possible.
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
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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. Our Microsoft Edge browser and Bing Chat capabilities are key tools to enable user acquisition and engagement,
while our technology platform enables accelerated delivery of digital advertising solutions. In addition to first-party tools, we
have several partnerships with companies, such as Yahoo, through which we provide and monetize search offerings.
Growth depends on our ability to attract new users, understand intent, and match intent with relevant content on advertising
offerings.
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.
Xbox and our cloud gaming services face competition from various online gaming ecosystems and game streaming
services, including those operated by Amazon, Apple, Meta, 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 regional operations service centers that support our operations, including customer contract and order processing,
billing, credit and collections, information processing, and vendor management and logistics. The center in Ireland supports
the African, Asia-Pacific, European, and Middle East regions; and the centers in Arlington, Virginia, Atlanta, Georgia,
Charlotte, North Carolina, Fargo, North Dakota, Fort Lauderdale, Florida, Redmond, Washington, Reno, Nevada, and
Puerto Rico support the American regions.
In addition to our operations centers, we also operate datacenters throughout each of these regions. We continue to identify
and evaluate opportunities to expand our datacenter locations and increase our server capacity to meet the evolving needs
of our customers, particularly given the growing demand for AI services. Our datacenters depend on the availability of
permitted and buildable land, predictable energy, networking supplies, and servers, including graphics processing units
(“GPUs”) and other components.
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. Extended disruptions at
these suppliers could impact our ability to manufacture devices on time to meet consumer demand.
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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, partners, independent software vendors, and
their systems more productive and efficient through development of Azure AI platform and 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.
• Strategic Missions and Technologies – focuses on incubating technical products and support solutions with
transformative potential for the future of cloud computing and continued company growth across quantum
computing, Azure Space & Missions Engineering, telecommunications, and Microsoft Federal Sales and
Delivery.
• Experiences and Devices – focuses on delivering high value end-user experiences across our products,
services, and devices, including Microsoft 365, Windows, Microsoft Teams, Search (including Microsoft Edge
and Bing Chat) and other advertising-based services, and the Surface line of devices.
• Microsoft Security – focuses on delivering a comprehensive portfolio of services that protect our customers’
digital infrastructure through cloud platform and application security, data protection and governance, identity
and network access, and device management.
• Technology and Research – focuses on fundamental research, product and business incubations, and forward-
looking AI innovations that span infrastructure, services, and applications.
•
LinkedIn – focuses on our services that transform the way professionals grow their network and find jobs and
the way businesses hire, market, sell, and learn.
• 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 70,000 U.S. and international patents issued and over 19,000 pending worldwide. While
we employ much of our internally-developed intellectual property 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 and services,
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
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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, often working in close collaboration with top universities around
the world, and is focused on advancing the state-of-the-art in computer science and a broad range of other disciplines. Our
investment in fundamental research provides us a unique perspective on future trends and contributes to our innovation.
DISTRIBUTION, SALES, AND MARKETING
We market and distribute our products and services through the following channels: OEMs, direct, and distributors and
resellers. Our sales organization 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. Additionally, our 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
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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.
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.
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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.
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. This section generally discusses the results of our operations for the year
ended June 30, 2023 compared to the year ended June 30, 2022. For a discussion of the year ended June 30, 2022
compared to the year ended June 30, 2021, please refer to, “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, 2022.
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. We are creating
the platforms and tools, powered by artificial intelligence (“AI”), that deliver better, faster, and more effective solutions to
support small and large business competitiveness, improve educational and health outcomes, grow public-sector efficiency,
and empower human ingenuity.
We generate revenue by offering a wide range of cloud-based solutions, content, and other services to people and
businesses; licensing and supporting an array of software products; delivering relevant online advertising to a global
audience; and designing and selling devices. Our most significant expenses are related to compensating employees;
supporting and investing in our cloud-based services, including datacenter operations; designing, manufacturing, marketing,
and selling our other products and services; and income taxes.
Highlights from fiscal year 2023 compared with fiscal year 2022 included:
• Microsoft Cloud revenue increased 22% to $111.6 billion.
• Office Commercial products and cloud services revenue increased 10% driven by Office 365 Commercial
growth of 13%.
• Office Consumer products and cloud services revenue increased 2% and Microsoft 365 Consumer subscribers
increased to 67.0 million.
•
LinkedIn revenue increased 10%.
• Dynamics products and cloud services revenue increased 16% driven by Dynamics 365 growth of 24%.
• Server products and cloud services revenue increased 19% driven by Azure and other cloud services growth
of 29%.
• Windows original equipment manufacturer licensing (“Windows OEM”) revenue decreased 25%.
• Devices revenue decreased 24%.
• Windows Commercial products and cloud services revenue increased 5%.
• Xbox content and services revenue decreased 3%.
• Search and news advertising revenue excluding traffic acquisition costs increased 11%.
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.
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The devices and form factors customers prefer evolve rapidly, influencing how users access services in the cloud and, in
some cases, the user’s choice of which suite of cloud-based services to use. Aggregate demand for our software, services,
and devices is also correlated to global macroeconomic and geopolitical factors, which remain dynamic. We must continue
to evolve and adapt over an extended time in pace with this changing environment.
The investments we are making in cloud and AI infrastructure and devices will continue to increase our operating costs and
may decrease our operating margins. We continue to identify and evaluate opportunities to expand our datacenter locations
and increase our server capacity to meet the evolving needs of our customers, particularly given the growing demand for
AI services. Our datacenters depend on the availability of permitted and buildable land, predictable energy, networking
supplies, and servers, including graphics processing units (“GPUs”) and other components. 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. Extended disruptions at these suppliers could
impact our ability to manufacture devices on time to meet consumer demand.
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.
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 reduced
reported revenue and expenses from our international operations in fiscal year 2023.
On January 18, 2023, we announced decisions we made to align our cost structure with our revenue and customer demand,
prioritize our investments in strategic areas, and consolidate office space. As a result, we recorded a $1.2 billion charge in
the second quarter of fiscal year 2023 (“Q2 charge”), which included employee severance expenses of $800 million,
impairment charges resulting from changes to our hardware portfolio, and costs related to lease consolidation activities.
First, we reduced our overall workforce by approximately 10,000 jobs through the third quarter of fiscal year 2023 related to
the Q2 charge, which represents less than 5% of our total employee base. While we eliminated roles in some areas, we will
continue to hire in key strategic areas. Second, we are allocating both our capital and talent to areas of secular growth and
long-term competitiveness, while divesting in other areas. Third, we are consolidating our leases to create higher density
across our workspaces, which impacted our financial results through the remainder of fiscal year 2023, and we may make
similar decisions in future periods as we continue to evaluate our real estate needs.
Refer to Risk Factors in our fiscal year 2023 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.
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 was 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, the effect of this
change in estimate for fiscal year 2023 was an increase in operating income of $3.7 billion and net income of $3.0 billion,
or $0.40 per both basic and diluted share.
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. We have recast certain prior period amounts to conform to the way we internally manage
and monitor our business.
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Additional information on our reportable segments is contained in Note 19 – Segment Information and Geographic Data of
the Notes to Financial Statements.
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 services. The metrics are disclosed in
the MD&A or the Notes to Financial Statements. 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 2023, we made updates to the presentation and method of calculation for certain metrics,
most notably expanding our Surface metric into a broader Devices metric to incorporate additional revenue streams, along
with other minor changes to align with how we manage our businesses.
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
Dynamics products and cloud services revenue growth
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, Microsoft Viva, and Microsoft 365 Copilot
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
Revenue from Dynamics products and cloud services,
including Dynamics 365, comprising a set of intelligent,
cloud-based applications across ERP, CRM (including
Customer Insights), Power Apps, and Power Automate;
and on-premises ERP and CRM applications
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LinkedIn revenue growth
Server products and cloud services revenue growth
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
Devices revenue growth
Xbox content and services revenue growth
Search and news advertising revenue (ex TAC) 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
Revenue from Devices, including Surface, HoloLens, and
PC accessories
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, advertising, third-party disc royalties, and
other cloud services
Revenue from search and news advertising excluding 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 gross margin (non-GAAP)
Adjusted operating income (non-GAAP)
Adjusted net income (non-GAAP)
Adjusted diluted earnings per share (non-GAAP)
2023
2022
Percentage
Change
$
211,915 $
146,052
88,523
72,361
9.68
198,270
135,620
83,383
72,738
9.65
146,204
89,694
73,307
9.81
135,620
83,383
69,447
9.21
7%
8%
6%
(1)%
0%
8%
8%
6%
7%
Adjusted gross margin, operating income, net income, and diluted earnings per share (“EPS”) are non-GAAP financial
measures. Current year non-GAAP financial measures exclude the impact of the Q2 charge, which includes employee
severance expenses, impairment charges resulting from changes to our hardware portfolio, and costs related to lease
consolidation activities. Prior year non-GAAP financial measures exclude the net income tax benefit related to transfer of
intangible properties in the first quarter of fiscal year 2022. Refer to Note 12 – Income Taxes of the Notes to Financial
Statements for further discussion. 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.
30
Fiscal Year 2023 Compared with Fiscal Year 2022
Revenue increased $13.6 billion or 7% driven by growth in Intelligent Cloud and Productivity and Business Processes, offset
in part by a decline in More Personal Computing. 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 decreased driven by Windows and Devices.
Cost of revenue increased $3.2 billion or 5% driven by growth in Microsoft Cloud, offset in part by the change in accounting
estimate.
Gross margin increased $10.4 billion or 8% driven by growth in Intelligent Cloud and Productivity and Business Processes
and the change in accounting estimate, offset in part by a decline in More Personal Computing.
• Gross margin percentage increased slightly. Excluding the impact of the change in accounting estimate, gross
margin percentage decreased 1 point driven by declines in Intelligent Cloud and More Personal Computing,
offset in part by sales mix shift between our segments.
• Microsoft Cloud gross margin percentage increased 2 points to 72%. Excluding the impact of the change in
accounting estimate, Microsoft Cloud gross margin percentage decreased slightly driven by a decline in Azure
and other cloud services and sales mix shift to Azure and other cloud services, offset in part by improvement
in Office 365 Commercial.
Operating expenses increased $5.3 billion or 10% driven by employee severance expenses, 2 points of growth from the
Nuance and Xandr acquisitions, investments in cloud engineering, and LinkedIn.
Operating income increased $5.1 billion or 6% driven by growth in Productivity and Business Processes and Intelligent
Cloud and the change in accounting estimate, offset in part by a decline in More Personal Computing.
Revenue, gross margin, and operating income included an unfavorable foreign currency impact of 4%, 4%, and 6%,
respectively. Cost of revenue and operating expenses both included a favorable foreign currency impact of 2%.
Current year gross margin, operating income, net income, and diluted EPS were negatively impacted by the Q2 charge,
which resulted in decreases of $152 million, $1.2 billion, $946 million, and $0.13, respectively. Prior 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.
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
Reportable Segments
Fiscal Year 2023 Compared with Fiscal Year 2022
Productivity and Business Processes
Revenue increased $5.9 billion or 9%.
2023
2022
Percentage
Change
$
69,274 $
87,907
54,734
63,364
74,965
59,941
$
211,915 $
198,270
$
$
34,189 $
37,884
16,450
88,523 $
29,690
33,203
20,490
83,383
9%
17%
(9)%
7%
15%
14%
(20)%
6%
• Office Commercial products and cloud services revenue increased $3.7 billion or 10%. Office 365 Commercial
revenue grew 13% with seat growth of 11%, driven by small and medium business and frontline worker
offerings, as well as growth in revenue per user. Office Commercial products revenue declined 21% driven by
continued customer shift to cloud offerings.
31
• Office Consumer products and cloud services revenue increased $140 million or 2%. Microsoft 365 Consumer
subscribers grew 12% to 67.0 million.
•
LinkedIn revenue increased $1.3 billion or 10% driven by Talent Solutions.
• Dynamics products and cloud services revenue increased $750 million or 16% driven by Dynamics 365 growth
of 24%.
Operating income increased $4.5 billion or 15%.
• Gross margin increased $5.8 billion or 12% driven by growth in Office 365 Commercial and LinkedIn, as well
as the change in accounting estimate. Gross margin percentage increased. Excluding the impact of the change
in accounting estimate, gross margin percentage increased slightly driven by improvement in Office 365
Commercial, offset in part by sales mix shift to cloud offerings.
• Operating expenses increased $1.3 billion or 7% driven by investment in LinkedIn and employee severance
expenses.
Revenue, gross margin, and operating income included an unfavorable foreign currency impact of 5%, 5%, and 8%,
respectively.
Intelligent Cloud
Revenue increased $12.9 billion or 17%.
• Server products and cloud services revenue increased $12.6 billion or 19% driven by Azure and other cloud
services. Azure and other cloud services revenue grew 29% driven by growth in our consumption-based
services. Server products revenue decreased 1%.
• Enterprise Services revenue increased $315 million or 4% driven by growth in Enterprise Support Services,
offset in part by a decline in Industry Solutions (formerly Microsoft Consulting Services).
Operating income increased $4.7 billion or 14%.
• Gross margin increased $8.9 billion or 17% driven by growth in Azure and other cloud services and the change
in accounting estimate. Gross margin percentage decreased slightly. Excluding the impact of the change in
accounting estimate, gross margin percentage decreased 3 points driven by sales mix shift to Azure and other
cloud services and a decline in Azure and other cloud services.
• Operating expenses increased $4.2 billion or 21% driven by investments in Azure, 4 points of growth from the
Nuance acquisition, and employee severance expenses.
Revenue, gross margin, and operating income included an unfavorable foreign currency impact of 4%, 4%, and 6%,
respectively. Operating expenses included a favorable foreign currency impact of 2%.
More Personal Computing
Revenue decreased $5.2 billion or 9%.
• Windows revenue decreased $3.2 billion or 13% driven by a decrease in Windows OEM. Windows OEM
revenue decreased 25% as elevated channel inventory levels continued to drive additional weakness beyond
declining PC demand. Windows Commercial products and cloud services revenue increased 5% driven by
demand for Microsoft 365.
• Devices revenue decreased $1.8 billion or 24% as elevated channel inventory levels continued to drive
additional weakness beyond declining PC demand.
• Gaming revenue decreased $764 million or 5% driven by declines in Xbox hardware and Xbox content and
services. Xbox hardware revenue decreased 11% driven by lower volume and price of consoles sold. Xbox
content and services revenue decreased 3% driven by a decline in first-party content, offset in part by growth
in Xbox Game Pass.
• Search and news advertising revenue increased $617 million or 5%. Search and news advertising revenue
excluding traffic acquisition costs increased 11% driven by higher search volume and the Xandr acquisition.
32
Operating income decreased $4.0 billion or 20%.
• Gross margin decreased $4.2 billion or 13% driven by declines in Windows and Devices. Gross margin
percentage decreased driven by a decline in Devices.
• Operating expenses decreased $195 million or 2% driven by a decline in Devices, offset in part by investments
in Search and news advertising, including 2 points of growth from the Xandr acquisition.
Revenue, gross margin, and operating income included an unfavorable foreign currency impact of 3%, 4%, and 6%,
respectively. Operating expenses included a favorable foreign currency impact of 2%.
OPERATING EXPENSES
Research and Development
(In millions, except percentages)
Research and development
As a percent of revenue
2023
2022
Percentage
Change
$
27,195 $ 24,512
12%
13%
11%
1ppt
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 and the amortization of purchased software code and services content.
Fiscal Year 2023 Compared with Fiscal Year 2022
Research and development expenses increased $2.7 billion or 11% driven by investments in cloud engineering and
LinkedIn.
Sales and Marketing
(In millions, except percentages)
Sales and marketing
As a percent of revenue
2023
2022
Percentage
Change
$
22,759 $ 21,825
11%
11%
4%
0ppt
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.
Fiscal Year 2023 Compared with Fiscal Year 2022
Sales and marketing expenses increased $934 million or 4% driven by 3 points of growth from the Nuance and Xandr
acquisitions and investments in commercial sales, offset in part by a decline in Windows advertising. 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
2023
2022
Percentage
Change
$
7,575 $
4%
5,900
3%
28%
1ppt
General and administrative expenses include payroll, employee benefits, stock-based compensation expense, employee
severance expense incurred as part of a corporate program, 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.
33
Fiscal Year 2023 Compared with Fiscal Year 2022
General and administrative expenses increased $1.7 billion or 28% driven by employee severance expenses and a charge
related to a non-public preliminary draft decision provided by the Irish Data Protection Commission. General and
administrative included a favorable foreign currency impact of 2%.
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 losses on derivatives
Net gains (losses) on foreign currency remeasurements
Other, net
Total
$
2023
2,994 $
(1,968)
260
(456)
181
(223)
2022
2,094
(2,063)
461
(52)
(75)
(32)
$
788 $
333
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.
Fiscal Year 2023 Compared with Fiscal Year 2022
Interest and dividends income increased due to higher yields, offset in part by 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 due to lower gains on equity securities and higher losses on fixed income securities. Net losses on derivatives
increased due to losses related to managing strategic investments.
Effective Tax Rate
INCOME TAXES
Our effective tax rate for fiscal years 2023 and 2022 was 19% and 13%, respectively. The increase 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 and a decrease in tax benefits relating to stock-based compensation.
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 exceeded the current tax liability from the U.S. global intangible low-taxed
income tax.
Our effective tax rate was lower than the U.S. federal statutory rate, 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
center in Ireland.
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 2023, our U.S. income
before income taxes was $52.9 billion and our foreign income before income taxes was $36.4 billion. 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.
34
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, 2023, 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.
We 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 2022, 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 gross margin, operating income, net income, and diluted EPS are non-GAAP financial measures. Current year
non-GAAP financial measures exclude the impact of the Q2 charge, which includes employee severance expenses,
impairment charges resulting from changes to our hardware portfolio, and costs related to lease consolidation activities.
Prior year non-GAAP financial measures exclude the net income tax benefit related to transfer of intangible properties in
the first quarter of fiscal year 2022. 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)
Gross margin
Severance, hardware-related impairment, and lease consolidation costs
Adjusted gross margin (non-GAAP)
Operating income
Severance, hardware-related impairment, and lease consolidation costs
Adjusted operating income (non-GAAP)
Net income
Severance, hardware-related impairment, and lease consolidation costs
Net income tax benefit related to transfer of intangible properties
Adjusted net income (non-GAAP)
Diluted earnings per share
Severance, hardware-related impairment, and lease consolidation costs
Net income tax benefit related to transfer of intangible properties
Adjusted diluted earnings per share (non-GAAP)
*
Not meaningful.
2023
146,052 $
152
2022
135,620
0
146,204 $ 135,620
88,523 $
1,171
89,694 $
72,361 $
946
0
83,383
0
83,383
72,738
0
(3,291)
73,307 $
69,447
9.68 $
0.13
0
9.81 $
9.65
0
(0.44)
9.21
$
$
$
$
$
$
$
$
Percentage
Change
8%
*
8%
6%
*
8%
(1)%
*
*
6%
0%
*
*
7%
35
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 Tax Cuts and Jobs Act (“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 $111.3 billion and $104.8 billion as of June 30, 2023 and 2022,
respectively. Equity investments were $9.9 billion and $6.9 billion as of June 30, 2023 and 2022, 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 decreased $1.5 billion to $87.6 billion for fiscal year 2023, mainly due to an increase in cash paid to
employees and suppliers and cash used to pay income taxes, offset in part by an increase in cash received from customers.
Cash used in financing decreased $14.9 billion to $43.9 billion for fiscal year 2023, mainly due to a $10.5 billion decrease
in common stock repurchases and a $6.3 billion decrease in repayments of debt, offset in part by a $1.7 billion increase in
dividends paid. Cash used in investing decreased $7.6 billion to $22.7 billion for fiscal year 2023, due to a $20.4 billion
decrease in cash used for acquisitions of companies, net of cash acquired, and purchases of intangible and other assets,
offset in part by a $8.2 billion decrease in cash from net investment purchases, sales, and maturities, and a $4.2 billion
increase in additions to property and equipment.
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. Refer to Note 11 – Debt of the Notes to Financial Statements for further
discussion.
36
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 for further discussion.
The following table outlines the expected future recognition of unearned revenue as of June 30, 2023:
(In millions)
Three Months Ending
September 30, 2023
December 31, 2023
March 31, 2024
June 30, 2024
Thereafter
Total
$
19,673
15,600
10,801
4,827
2,912
$
53,813
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. Refer to Note 13 – Unearned Revenue of the
Notes to Financial Statements for further discussion.
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,
2023:
(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
2024
Thereafter
Total
$
5,250 $
1,379
12,237
5,988
64,703
47,616 $
19,746
1,218
73,852
3,115
52,866
21,125
13,455
79,840
67,818
$
89,557 $
145,547 $
235,104
(a) Refer to Note 11 – Debt of the Notes to Financial Statements.
(b) Refer to Note 7 – Property and Equipment of the Notes to Financial Statements.
(c) Refer to Note 14 – Leases of the Notes to Financial Statements.
(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
$7.7 billion, which included $1.5 billion for fiscal year 2023. The remaining transition tax of $10.5 billion is payable over the
next three years, with $2.7 billion payable within 12 months.
In fiscal year 2023, we paid cash tax of $4.8 billion due to the mandatory capitalization for tax purposes of research and
development expenditures enacted by the TCJA and effective on July 1, 2022.
37
Share Repurchases
During fiscal years 2023 and 2022, we repurchased 69 million shares and 95 million shares of our common stock for
$18.4 billion and $28.0 billion, respectively, through our share repurchase programs. All repurchases were made using cash
resources. As of June 30, 2023, $22.3 billion remained of our $60 billion share repurchase program. Refer to Note 16 –
Stockholders’ Equity of the Notes to Financial Statements for further discussion.
Dividends
During fiscal year 2023 and 2022, our Board of Directors declared quarterly dividends of $0.68 per share and $0.62 per
share, totaling $20.2 billion and $18.6 billion, respectively. 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 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. We continue to work toward closing the transaction subject to
obtaining required regulatory approvals and satisfaction of other customary closing conditions. Microsoft and Activision
Blizzard have jointly agreed to extend the merger agreement through October 18, 2023 to allow for additional time to resolve
remaining regulatory concerns.
We will continue to invest in sales, marketing, product support infrastructure, and existing and advanced areas of
technology, as well as 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
and our investments in AI infrastructure. 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.
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
38
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 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) 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
39
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.
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.
40
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
41
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 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
Hypothetical Change
Foreign currency – Revenue
Foreign currency – Investments
Interest rate
Credit
Equity
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,
2023
Impact
(8,122) Earnings
(29) Fair Value
(1,832) Fair Value
(354) Fair Value
(705) Earnings
42
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.
2023
2022
2021
$
64,699 $ 72,732 $ 71,074
147,216 125,538
97,014
211,915 198,270 168,088
17,804
48,059
65,863
19,064
43,586
18,219
34,013
62,650
52,232
146,052 135,620 115,856
20,716
24,512
20,117
21,825
5,107
5,900
27,195
22,759
7,575
69,916
1,186
83,383
333
88,523
788
89,311
71,102
83,716
16,950
9,831
10,978
72,361 $ 72,738 $ 61,271
9.72 $
9.68 $
9.70 $
9.65 $
8.12
8.05
7,446
7,472
7,496
7,540
7,547
7,608
$
$
$
43
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 loss
Comprehensive income
Refer to accompanying notes.
2023
72,361 $
$
2022
2021
72,738 $
61,271
(14)
(1,444)
(207)
(1,665)
6
(5,360)
(1,146)
(6,500)
19
(2,266)
873
(1,374)
$
70,696 $
66,238 $
59,897
44
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 $650 and $633
Inventories
Other current assets
Total current assets
Property and equipment, net of accumulated depreciation of $68,251 and $59,660
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 7,432
and 7,464
Retained earnings
Accumulated other comprehensive loss
Total stockholders’ equity
2023
2022
$
34,704 $
76,558
111,262
48,688
2,500
21,807
184,257
95,641
14,346
9,879
67,886
9,366
30,601
13,931
90,826
104,757
44,261
3,742
16,924
169,684
74,398
13,148
6,891
67,524
11,298
21,897
$
411,976 $ 364,840
$
18,095 $
5,247
11,009
4,152
50,901
14,745
104,149
41,990
25,560
2,912
433
12,728
17,981
205,753
19,000
2,749
10,661
4,067
45,538
13,067
95,082
47,032
26,069
2,870
230
11,489
15,526
198,298
93,718
118,848
(6,343)
86,939
84,281
(4,678)
206,223
166,542
Total liabilities and stockholders’ equity
$
411,976 $
364,840
Refer to accompanying notes.
45
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 losses (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.
2023
2022
2021
$
72,361 $
72,738 $
61,271
13,861
9,611
196
(6,059)
(4,087)
1,242
(1,991)
(2,833)
(2,721)
5,535
(358)
2,272
553
14,460
7,502
(409)
(5,702)
(6,834)
(1,123)
(709)
(2,805)
2,943
5,109
696
2,344
825
11,686
6,118
(1,249)
(150)
(6,481)
(737)
(932)
(3,459)
2,798
4,633
(2,309)
4,149
1,402
87,582
89,035
76,740
0
(2,750)
1,866
(22,245)
(19,800)
(1,006)
(43,935)
0
(9,023)
1,841
(32,696)
(18,135)
(863)
(1,754)
(3,750)
1,693
(27,385)
(16,521)
(769)
(58,876)
(48,486)
(28,107)
(23,886)
(20,622)
(1,670)
(37,651)
33,510
14,354
(3,116)
(22,680)
(194)
20,773
13,931
(22,038)
(26,456)
16,451
28,443
(2,825)
(8,909)
(62,924)
51,792
14,008
(922)
(30,311)
(27,577)
(141)
(293)
14,224
(29)
648
13,576
$
34,704 $
13,931 $
14,224
46
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 loss
Cumulative effect of accounting changes
Balance, end of period
Total stockholders’ equity
Cash dividends declared per common share
Refer to accompanying notes.
2023
2022
2021
$
86,939 $
83,111 $
1,866
(4,696)
9,611
(2)
93,718
84,281
72,361
(20,226)
(17,568)
0
118,848
(4,678)
(1,665)
0
1,841
(5,688)
7,502
173
86,939
57,055
72,738
(18,552)
(26,960)
0
84,281
1,822
(6,500)
0
80,552
1,963
(5,539)
6,118
17
83,111
34,566
61,271
(16,871)
(21,879)
(32)
57,055
3,186
(1,374)
10
(6,343)
1,822
206,223 $ 166,542 $ 141,988
(4,678)
2.72 $
2.48 $
2.24
$
$
47
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 was 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, the effect of this
change in estimate for fiscal year 2023 was an increase in operating income of $3.7 billion and net income of $3.0 billion,
or $0.40 per both basic and diluted share.
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 and collaboration 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.
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.
48
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 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.
49
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.
As of June 30, 2023 and 2022, long-term accounts receivable, net of allowance for doubtful accounts, was $4.5 billion and
$3.8 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
2023
2022
2021
$
710 $
258
(252)
798 $
157
(245)
816
234
(252)
$
716 $
710 $
798
50
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
2023
650 $
751
66 77 47
633 $
716 $
710 $
798
As of June 30, 2023 and 2022, other receivables related to activities to facilitate the purchase of server components were
$9.2 billion and $6.1 billion, respectively, and are included in other current assets in our consolidated balance sheets.
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, 2023 and 2022, our financing
receivables, net were $5.3 billion and $4.1 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 organization 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 advertising space; costs
incurred to support and maintain cloud-based and other 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 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.
51
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 $904 million,
$1.5 billion, and $1.5 billion in fiscal years 2023, 2022, and 2021, 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.
Employee Severance
On January 18, 2023, we announced a decision to reduce our overall workforce by approximately 10,000 jobs through the
third quarter of fiscal year 2023. During the three months ended December 31, 2022, we recorded $800 million of employee
severance expenses related to these job eliminations as part of an ongoing employee benefit plan. These employee
severance expenses were incurred as part of a corporate program, and were included in general and administrative
expenses in our consolidated income statements and allocated to our segments based on relative gross margin. Refer to
Note 19 – Segment Information and Geographic Data for further information.
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.
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
52
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.
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 cleared swap contracts and 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.
Our other current financial assets and current financial liabilities have fair values that approximate their carrying values.
53
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 years; computer
equipment, two to six 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.
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) 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.
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.
54
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)
2023
2021
$ 72,361 $ 72,738 $ 61,271
2022
7,446
26
7,472
7,496
44
7,540
7,547
61
7,608
$
$
9.72 $
9.68 $
9.70 $
9.65 $
8.12
8.05
Anti-dilutive stock-based awards excluded from the calculations of diluted EPS were immaterial during the periods
presented.
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
2023
2022
2021
$ 2,994 $ 2,094 $ 2,131
(2,346)
1,232
17
54
98
(1,968)
260
(456)
181
(223)
(2,063)
461
(52)
(75)
(32)
Total
$
788 $
333 $ 1,186
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
$
2023
2022
2021
36 $ 162 $ 105
(40)
(138)
(2)
(81)
(124)
(10)
Total
$
(98) $
(57) $
63
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
$
2023
2022
2021
75 $ 29 $ 123
1,057
509
(11)
(20)
303
(20)
$
358 $
518 $
1,169
55
Investment Components
The components of investments were as follows:
NOTE 4 — INVESTMENTS
(In millions)
June 30, 2023
Fair Value
Level
Adjusted
Cost Basis
Unrealized
Gains
Unrealized
Losses
Recorded
Basis
Cash and
Cash
Equivalents
Short-term
Investments
Equity
Investments
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
Level 2 $ 16,589 $
Level 2
Level 1
Level 2
Level 2
2,701
65,237
2,703
498
0 $
0
2
0
1
0 $ 16,589 $ 12,231 $
0
(3,870)
0
(24)
2,701
61,369
2,703
475
2,657
2,991
894
0
4,358 $
44
58,378
1,809
475
Level 2
Level 2
Level 3
Level 2
Level 3
824
10,809
120
285
103
1
8
0
1
0
13 $
(39)
(583)
0
(18)
(16)
786
10,234
120
268
87
0
0
0
7
0
786
10,234
120
261
87
(4,550) $ 95,332 $ 18,780 $ 76,552 $
0
0
0
0
0
0
0
0
0
0
0
Total debt investments
$ 99,869 $
Changes in Fair Value Recorded in
Net Income
Equity investments
Equity investments
Total equity investments
Level 1
Other
$ 10,138 $
7,446 $
7,187
0
$ 17,325 $
7,446 $
$
8,478 $
8,478 $
6
0
0 $
0
0 $
0 $
6
$ 121,141 $ 34,704 $ 76,558 $
2,692
7,187
9,879
0
0
9,879
Fair Value
Level
Adjusted
Cost Basis
Unrealized
Gains
Unrealized
Losses
Recorded
Basis
Cash and
Cash
Equivalents
Short-term
Investments
Equity
Investments
Level 2 $
Level 2
Level 1
Level 2
Level 2
2,500 $
2,071
79,696
419
506
0 $
0
29
0
0
0 $
0
(2,178)
(9)
(24)
2,500 $
2,071
77,547
410
482
2,498 $
2,032
9
0
0
Level 2
Level 2
Level 3
Level 2
Level 3
727
11,661
67
368
103
1
4
0
19
0
53 $
(30)
(554)
0
(13)
(6)
698
11,111
67
374
97
0
0
0
0
0
(2,814) $ 95,357 $ 4,539 $ 90,818 $
2 $
39
77,538
410
482
698
11,111
67
374
97
0
0
0
0
0
0
0
0
0
0
0
Total debt investments
$ 98,118 $
Changes in Fair Value Recorded in
Net Income
Equity investments
Equity investments
Total equity investments
Level 1
Other
Cash
Derivatives, net (a)
Total
$
$
$
1,590 $
6,435
8,025 $
1,134 $
0
1,134 $
8,258 $
8,258 $
8
0
0 $
0
0 $
0 $
8
$ 111,648 $ 13,931 $ 90,826 $
456
6,435
6,891
0
0
6,891
(a) Refer to Note 5 – Derivatives for further information on the fair value of our derivative instruments.
56
Cash
Derivatives, net (a)
Total
(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
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, 2023 and 2022, equity investments without readily determinable fair values measured at
cost with adjustments for observable changes in price or impairments were $4.2 billion and $3.8 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, 2023
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
$
7,950 $
77
257
2,326
111
(336 ) $
(5 )
(5 )
(49 )
(3 )
45,273 $
391
412
7,336
186
(3,534 ) $
(19 )
(34 )
(534 )
(31 )
53,223 $
468
669
9,662
297
(3,870)
(24)
(39)
(583)
(34)
Total
$ 10,721 $
(398 ) $ 53,598 $
(4,152 ) $ 64,319 $
(4,550)
(In millions)
June 30, 2022
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
$
59,092 $
418
510
9,443
178
(1,835 ) $
(18 )
(26 )
(477 )
(12 )
2,210 $
27
41
786
74
(352 ) $
(6 )
(4 )
(77 )
(7 )
61,302 $
445
551
10,229
252
(2,187)
(24)
(30)
(554)
(19)
Total
$ 69,641 $
(2,368 ) $
3,138 $
(446 ) $ 72,779 $
(2,814)
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, 2023
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
$
38,182 $
47,127
13,262
1,298
38,048
44,490
11,628
1,166
$
99,869 $
95,332
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.
57
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.
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 option, futures, and swap 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.
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, 2023, 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
Interest rate contracts purchased
Not Designated as Hedging Instruments
Foreign exchange contracts purchased
Foreign exchange contracts sold
Equity contracts purchased
Equity contracts sold
Other contracts purchased
Other contracts sold
58
June 30,
2023
June 30,
2022
$
1,492 $
1,078
635
1,139
7,874
25,159
3,867
2,154
1,224
581
10,322
21,606
1,131
0
1,642
544
Fair Values of Derivative Instruments
The following table presents our derivative instruments:
(In millions)
Designated as Hedging Instruments
Foreign exchange contracts
Interest rate contracts
Not Designated as Hedging Instruments
Foreign exchange contracts
Equity 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
June 30,
2023
Derivative
Liabilities
June 30,
2022
$
34 $
16
(67) $
0
0 $
3
249
165
5
469
(202)
0
(332)
(400)
(6)
(805)
206
(125)
333
5
15
356
(130)
0
267 $
(724) $
226 $
6 $
245
16
0
0
0 $
0
0
(341)
(383)
8 $
218
0
0
0
$
$
$
267 $
(724) $
226 $
(77)
0
(362)
(95)
(17)
(551)
133
(75)
(493)
0
0
0
(298)
(195)
(493)
Gross derivative assets and liabilities subject to legally enforceable master netting agreements for which we have elected
to offset were $442 million and $804 million, respectively, as of June 30, 2023, and $343 million and $550 million,
respectively, as of June 30, 2022.
The following table presents the fair value of our derivatives instruments on a gross basis:
(In millions)
June 30, 2023
Derivative assets
Derivative liabilities
June 30, 2022
Derivative assets
Derivative liabilities
Level 1
Level 2
Level 3
Total
$
0 $
0
462 $
(805)
7 $
0
1
0
349
(551)
6
0
469
(805)
356
(551)
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
59
2023
2022
2021
$
0 $
0
0
49 $
(50)
4
(65)
38
(92)
108
193
(188)
30
(37)
53
(In millions)
Designated as Cash Flow Hedging Instruments
Foreign exchange contracts
Amount reclassified from accumulated other comprehensive income
61
(79)
17
Not Designated as Hedging Instruments
Foreign exchange contracts
Equity contracts
Other contracts
(73)
(420)
(41)
383
13
(85)
27
(6)
15
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
2023
2022
2021
$
34
$
(57) $
34
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
(In millions)
June 30,
Land
Buildings and improvements
Leasehold improvements
Computer equipment and software
Furniture and equipment
Total, at cost
Accumulated depreciation
Total, net
$
2023
709 $
23
1,768
2022
1,144
82
2,516
$ 2,500 $ 3,742
2023
5,683 $
$
68,465
8,537
74,961
6,246
163,892
(68,251)
2022
4,734
55,014
7,819
60,631
5,860
134,058
(59,660)
$
95,641 $
74,398
During fiscal years 2023, 2022, and 2021, depreciation expense was $11.0 billion, $12.6 billion, and $9.3 billion,
respectively. Depreciation expense declined in fiscal year 2023 due to the change in estimated useful lives of our server
and network equipment.
As of June 30, 2023, we have committed $13.5 billion for the construction of new buildings, building improvements, and
leasehold improvements, primarily related to datacenters.
60
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 allocation of the purchase price to goodwill was completed as of December 31, 2022. The major classes of assets and
liabilities to which we have allocated the purchase price were as follows:
(In millions)
Goodwill (a)
Intangible assets
Other assets
Other liabilities (b)
Total
$
16,326
4,365
42
(1,972)
$
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, substantially all of which have
been redeemed.
(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
Weighted
Average Life
$
2,610
1,540
215
$
4,365
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
61
$
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
Activision Blizzard, Inc.
$
Amount
Weighted
Average Life
1,341
627
4 years
11 years
$
1,968
6 years
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 gaming. The acquisition has been approved by
Activision Blizzard’s shareholders. We continue to work toward closing the transaction subject to obtaining required
regulatory approvals and satisfaction of other customary closing conditions. Microsoft and Activision Blizzard have jointly
agreed to extend the merger agreement through October 18, 2023 to allow for additional time to resolve remaining
regulatory concerns.
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,
2021 Acquisitions
Other
2022 Acquisitions
Other
June 30,
2023
$ 24,317 $
599 $
13,256
12,138
16,879
648
(105) $
47
(255)
24,811 $
30,182
12,531
11 $
223
0
(47 ) $ 24,775
30,469
64
12,642
111
Total
$ 49,711 $ 18,126 $ (313) $ 67,524 $ 234 $ 128 $ 67,886
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, 2023, May 1, 2022, or May 1, 2021 tests. As of June 30, 2023 and
2022, accumulated goodwill impairment was $11.3 billion.
62
The components of intangible assets, all of which are finite-lived, were as follows:
NOTE 10 — INTANGIBLE ASSETS
(In millions)
June 30,
Technology-based
Customer-related
Marketing-related
Contract-based
Total
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
$
11,245 $
7,281
4,935
29
(7,589) $
(4,047)
(2,473)
(15)
2023
3,656 $
3,234
2,462
14
11,277 $
7,342
4,942
16
(6,958) $
(3,171)
(2,143)
(7)
Net
Carrying
Amount
2022
4,319
4,171
2,799
9
$
23,490 $
(14,124) $
9,366 $
23,577 $
(12,279) $
11,298
No material impairments of intangible assets were identified during fiscal years 2023, 2022, or 2021. 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
Amount
Weighted
Average Life
2023
522
0
7
12
541
$
$
7 years $
0 years
5 years
3 years
6 years $
Amount
2022
2,611
2,837
233
0
5,681
Weighted
Average Life
4 years
9 years
4 years
0 years
7 years
Intangible assets amortization expense was $2.5 billion, $2.0 billion, and $1.6 billion for fiscal years 2023, 2022, and 2021,
respectively.
The following table outlines the estimated future amortization expense related to intangible assets held as of June 30, 2023:
(In millions)
Year Ending June 30,
2024
2025
2026
2027
2028
Thereafter
Total
$
2,363
1,881
1,381
929
652
2,160
$
9,366
The components of debt were as follows:
NOTE 11 — DEBT
(In millions, issuance by calendar year)
Maturities
(calendar year)
Stated Interest
Rate
2009 issuance of $3.8 billion
2010 issuance of $4.8 billion
2011 issuance of $2.3 billion
2012 issuance of $2.3 billion
2039
2040
2041
2042
5.20%
4.50%
5.30%
3.50%
63
Effective
Interest
Rate
5.24% $
4.57%
5.36%
3.57%
June 30,
2023
520 $
486
718
454
June 30,
2022
520
486
718
1,204
(In millions, issuance by calendar year)
2013 issuance of $5.2 billion
2013 issuance of €4.1 billion
2015 issuance of $23.8 billion
2016 issuance of $19.8 billion
2017 issuance of $17.0 billion
2020 issuance of $10.0 billion
2021 issuance of $8.2 billion
Total face value
Unamortized discount and
issuance costs
Hedge fair value adjustments (a)
Premium on debt exchange
Total debt
Current portion of long-term debt
Long-term debt
Maturities
(calendar year)
Stated Interest
Rate
Effective
Interest
Rate
2023–2043 3.63%–4.88% 3.73%–4.92%
2028–2033 2.63%–3.13% 2.69%–3.22%
2025–2055 2.70%–4.75% 2.77%–4.78%
2023–2056 2.00%–3.95% 2.10%–4.03%
2024–2057 2.88%–4.50% 3.04%–4.53%
2050–2060 2.53%–2.68% 2.53%–2.68%
2052–2062 2.92%–3.04% 2.92%–3.04%
June 30,
2023
1,814
2,509
9,805
9,430
8,945
10,000
8,185
52,866
(438)
(106)
(5,085)
47,237
(5,247)
June 30,
2022
2,814
2,404
10,805
9,430
8,945
10,000
8,185
55,511
(471)
(68)
(5,191)
49,781
(2,749)
$
41,990 $
47,032
(a) Refer to Note 5 – Derivatives for further information on the interest rate swaps related to fixed-rate debt.
As of June 30, 2023 and 2022, the estimated fair value of long-term debt, including the current portion, was $46.2 billion
and $50.9 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 2023, 2022, and 2021 was $1.7 billion, $1.9 billion, and $2.0 billion, respectively.
The following table outlines maturities of our long-term debt, including the current portion, as of June 30, 2023:
(In millions)
Year Ending June 30,
2024
2025
2026
2027
2028
Thereafter
Total
$
$
5,250
2,250
3,000
8,000
0
34,366
52,866
Provision for Income Taxes
The components of the provision for income taxes were as follows:
NOTE 12 — INCOME TAXES
(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
2023
2022
2021
$
14,009 $
2,322
6,678
8,329 $
1,679
6,672
3,285
1,229
5,467
$
23,009 $
16,680 $
9,981
$
(6,146) $
(477)
(4,815) $
(1,062)
25
(204)
64
(In millions)
Foreign
Deferred taxes
Provision for income taxes
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
564
175
29
$
$
(6,059) $
(5,702) $
(150)
16,950 $
10,978 $
9,831
2023
52,917 $
36,394
89,311 $
$
$
2022
2021
47,837 $
35,879
34,972
36,130
83,716 $
71,102
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
2023
21.0%
2022
2021
21.0%
21.0%
(1.8)%
0%
(1.3)%
1.6%
(1.1)%
(0.7)%
0.8%
0.5%
(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)%
19.0%
13.1%
13.8%
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 exceeded 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 2023 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
center in Ireland. 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. In fiscal year 2023, our foreign
regional operating center in Ireland, which is taxed at a rate lower than the U.S. rate, generated 81% of our foreign income
65
before tax. In fiscal years 2022 and 2021, our foreign regional operating centers in Ireland and Puerto Rico, which are taxed
at rates lower than the U.S. rate, generated 71% and 82% of our foreign income before tax. Other reconciling items, net
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 2023, 2022, and 2021, there were no individually significant other reconciling
items.
The increase in our effective tax rate for fiscal year 2023 compared to fiscal year 2022 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 and a decrease
in tax benefits relating to stock-based compensation. 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 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 (a)
Leasing liabilities
Unearned revenue
Book/tax basis differences in investments and debt
Capitalized research and development (a)
Other
Deferred income tax assets
Less valuation allowance
Deferred income tax assets, net of valuation allowance
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
2023
2022
$
681 $
3,131
1,441
9,440
5,041
3,296
373
6,958
489
30,850
(939)
29,911 $
0 $
(4,680)
(2,674)
(2,738)
(89)
(10,181) $
601
2,874
1,546
10,183
4,557
2,876
0
473
461
23,571
(1,012)
22,559
(174)
(4,291)
(1,602)
(3,104)
(103)
(9,274)
19,730 $
13,285
20,163 $
(433)
13,515
(230)
19,730 $
13,285
$
$
$
$
$
$
(a) Provisions enacted in the TCJA related to the capitalization for tax purposes of research and development
expenditures became effective on July 1, 2022. These provisions require us to capitalize research and development
expenditures and amortize them on our U.S. tax return over five or fifteen years, depending on where research is
conducted.
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.
66
As of June 30, 2023, we had federal, state, and foreign net operating loss carryforwards of $509 million, $1.2 billion, and
$2.3 billion, respectively. The federal and state net operating loss carryforwards have varying expiration dates ranging from
fiscal year 2024 to 2043 or indefinite carryforward periods, 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 with the exception of those which have a valuation allowance. As of June 30, 2023, we had
$456 million 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 fiscal year 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 $23.1 billion, $16.0 billion, and $13.4 billion in fiscal years 2023, 2022, and 2021,
respectively.
Uncertain Tax Positions
Gross unrecognized tax benefits related to uncertain tax positions as of June 30, 2023, 2022, and 2021, were $17.1 billion,
$15.6 billion, and $14.6 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 2023, 2022, and
2021 by $14.4 billion, $13.3 billion, and $12.5 billion, respectively.
As of June 30, 2023, 2022, and 2021, we had accrued interest expense related to uncertain tax positions of $5.2 billion,
$4.3 billion, and $4.3 billion, respectively, net of income tax benefits. The provision for income taxes for fiscal years 2023,
2022, and 2021 included interest expense related to uncertain tax positions of $918 million, $36 million, and $274 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
$
2023
15,593 $
(329)
1,051
870
(60)
(5)
2022
14,550 $
(317)
1,145
461
(246)
0
2021
13,792
(195)
790
461
(297)
(1)
$
17,120 $
15,593 $
14,550
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, 2023, 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.
We 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 2022, 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.
67
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, 2023
Balance, beginning of period
Deferral of revenue
Recognition of unearned revenue
Balance, end of period
$
2023
27,572 $
21,563
4,678
2022
24,558
19,371
4,479
$
53,813 $
48,408
$
48,408
123,935
(118,530)
$
53,813
Revenue allocated to remaining performance obligations, which includes unearned revenue and amounts that will be
invoiced and recognized as revenue in future periods, was $229 billion as of June 30, 2023, of which $224 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 less than 1 year to 18 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
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
68
2023
2,875 $
2022
2021
2,461 $
2,127
1,352 $
501
980 $
429
921
386
1,853 $
1,409 $
1,307
$
$
$
2023
2022
2021
$
2,706 $
501
1,056
2,368 $
429
896
2,052
386
648
3,514
3,128
5,268
4,234
4,380
3,290
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, 2023:
(In millions)
Year Ending June 30,
2024
2025
2026
2027
2028
Thereafter
Total lease payments
Less imputed interest
Total
$
$
$
$
$
$
$
2023
2022
14,346 $
13,148
2,409 $
12,728
2,228
11,489
15,137 $
13,717
20,538 $
(4,647)
17,388
(3,285)
15,891 $
14,103
1,197 $
15,870
1,060
13,842
17,067 $
14,902
8 years
11 years
8 years
12 years
2.9%
3.4%
2.1%
3.1%
$
Operating
Leases
2,784 $
2,508
2,142
1,757
1,582
6,327
17,100
(1,963)
Finance
Leases
1,747
2,087
1,771
1,780
1,787
11,462
20,634
(3,567)
$
15,137 $
17,067
As of June 30, 2023, we have additional operating and finance leases, primarily for datacenters, that have not yet
commenced of $7.7 billion and $34.4 billion, respectively. These operating and finance leases will commence between fiscal
year 2024 and fiscal year 2030 with lease terms of 1 year to 18 years.
U.S. Cell Phone Litigation
NOTE 15 — CONTINGENCIES
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
69
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 were stricken by
the court. A hearing on general causation took place in September of 2022. In April of 2023, the court granted defendants’
motion to strike the testimony of plaintiffs’ experts that cell phones cause brain cancer and entered an order excluding all of
plaintiffs’ experts from testifying.
Irish Data Protection Commission Matter
In 2018, the Irish Data Protection Commission (“IDPC”) began investigating a complaint against LinkedIn as to whether
LinkedIn’s targeted advertising practices violated the recently implemented European Union General Data Protection
Regulation (“GDPR”). Microsoft cooperated throughout the period of inquiry. In April 2023, the IDPC provided LinkedIn with
a non-public preliminary draft decision alleging GDPR violations and proposing a fine. Microsoft intends to challenge the
preliminary draft decision. There is no set timeline for the IDPC to issue a final decision.
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, 2023, we accrued aggregate legal liabilities of $617 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.
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
2023
7,464
37
(69)
2022
7,519
40
(95)
2021
7,571
49
(101)
7,432
7,464
7,519
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.
70
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, 2023,
$22.3 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
17 $
20
18
14
2023
4,600
4,600
4,600
4,600
21 $
20
26
28
2022
6,200
6,233
7,800
7,800
25 $
27
25
24
2021
5,270
5,750
5,750
6,200
69 $
18,400
95 $
28,033
101 $
22,970
All repurchases were made using cash resources. Shares repurchased during fiscal year 2023 and 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. All other shares repurchased were under the share repurchase program
approved on September 18, 2019. The above table excludes shares repurchased to settle employee tax withholding related
to the vesting of stock awards of $3.8 billion, $4.7 billion, and $4.4 billion for fiscal years 2023, 2022, and 2021, respectively.
Dividends
Our Board of Directors declared the following dividends:
Declaration Date
Fiscal Year 2023
September 20, 2022
November 29, 2022
March 14, 2023
June 13, 2023
Total
Fiscal Year 2022
September 14, 2021
December 7, 2021
March 14, 2022
June 14, 2022
Total
Record Date
Payment Date
November 17, 2022
February 16, 2023
May 18, 2023
August 17, 2023
December 8, 2022
March 9, 2023
June 8, 2023
September 14, 2023
November 18, 2021
February 17, 2022
May 19, 2022
August 18, 2022
December 9, 2021
March 10, 2022
June 9, 2022
September 8, 2022
Dividend
Per Share
$
0.68 $
0.68
0.68
0.68
Amount
(In millions)
5,066
5,059
5,054
5,054
$
2.72 $
20,233
$
0.62 $
0.62
0.62
0.62
4,652
4,645
4,632
4,621
$
2.48 $
18,550
The dividend declared on June 13, 2023 was included in other current liabilities as of June 30, 2023.
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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 $9, $(15), and $9
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 $(4), $1, and $7
Balance, end of period
Investments
Balance, beginning of period
Unrealized losses, net of tax of $(393), $(1,440), and $(589)
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 $(373), $(1,428), and
$(602)
Cumulative effect of accounting changes
Balance, end of period
Translation Adjustments and Other
Balance, beginning of period
Translation adjustments and other, net of tax of $0, $0, and $(9)
Balance, end of period
Accumulated other comprehensive income (loss), end of period
$
$
$
$
$
$
$
2023
2022
2021
(13) $
34
(19) $
(57)
(38)
34
(61)
13
(48)
(14)
79
(16)
63
6
(27) $
(13) $
(17)
2
(15)
19
(19)
(2,138) $
(1,523)
3,222 $
(5,405)
5,478
(2,216)
99
(20)
79
57
(12)
45
(63)
13
(50)
(1,444)
0
(5,360)
0
(2,266)
10
(3,582) $
(2,138) $
3,222
(2,527) $
(207)
(2,734) $
(6,343) $
(1,381) $
(1,146)
(2,254)
873
(2,527) $
(1,381)
(4,678) $
1,822
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
$
2023
9,611 $
1,651
2022
2021
7,502 $
1,293
6,118
1,065
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.
72
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
2023
2022
2021
$
0.62 – 0.68 $
2.0% – 5.4%
0.56 – 0.62 $
0.03% – 3.6%
0.51 – 0.56
0.01% – 1.5%
During fiscal year 2023, 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)
93 $
56
(44)
(9)
96 $
227.59
252.59
206.90
239.93
250.37
(a)
Includes 1 million, 1 million, and 2 million of PSUs granted at target and performance adjustments above target levels
for fiscal years 2023, 2022, and 2021, respectively.
As of June 30, 2023, total unrecognized compensation costs related to stock awards were $18.6 billion. 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 $252.59, $291.22, and $221.13 for fiscal years 2023, 2022, and 2021, respectively. The fair value
of stock awards vested was $11.9 billion, $14.1 billion, and $13.4 billion, for fiscal years 2023, 2022, and 2021, respectively.
As of June 30, 2023, an aggregate of 164 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.
Employees purchased the following shares during the periods presented:
(Shares in millions)
Year Ended June 30,
Shares purchased
Average price per share
2023
7
2022
7
$
245.59 $
259.55 $
2021
8
207.88
As of June 30, 2023, 74 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,
73
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 $1.6 billion, $1.4 billion, and $1.2 billion in fiscal years 2023, 2022, and 2021,
respectively, and were expensed as contributed.
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.
We have recast certain prior period amounts to conform to the way we internally manage and monitor our business.
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, Microsoft Viva, and Microsoft 365 Copilot.
• 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 (including 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, Industry Solutions (formerly 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, HoloLens, 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,
advertising, third-party disc royalties, and other cloud services.
• Search and news advertising, comprising Bing (including Bing Chat), Microsoft News, Microsoft Edge, and
third-party affiliates.
74
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.
In addition, certain costs are incurred at a corporate level and allocated to our segments. These allocated costs generally
include legal, including settlements and fines, information technology, human resources, finance, excise taxes, field selling,
shared facilities services, customer service and support, and severance incurred as part of a corporate program. Each
allocation is measured differently based on the specific facts and circumstances of the costs being allocated and is generally
based on relative gross margin or relative headcount.
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
2023
2022
2021
$
69,274 $
87,907
54,734
63,364 $
74,965
59,941
53,915
59,728
54,445
$
211,915 $
198,270 $
168,088
$
34,189 $
37,884
16,450
29,690 $
33,203
20,490
24,351
26,471
19,094
$
88,523 $
83,383 $
69,916
No sales to an individual customer or country other than the United States accounted for more than 10% of revenue for
fiscal years 2023, 2022, or 2021. 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
$
2023
106,744 $
105,171
2022
100,218 $
98,052
2021
83,953
84,135
$
211,915 $
198,270 $
168,088
(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
$
2023
79,970 $
48,728
21,507
15,466
15,145
12,208
7,722
5,521
2022
67,350 $
44,862
24,732
16,230
13,816
11,591
7,407
7,306
2021
52,589
39,872
22,488
15,370
10,289
9,267
6,943
7,143
75
(In millions)
Dynamics
Other
Total
5,437
211
4,687
289
3,754
373
$
211,915 $
198,270 $
168,088
Our Microsoft 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 $111.6 billion, $91.4 billion, and $69.1 billion
in fiscal years 2023, 2022, and 2021, respectively. These amounts are primarily included in Server products and cloud
services, Office products and cloud services, LinkedIn, and Dynamics 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
2023
114,380 $
16,359
56,500
187,239 $
2022
106,430 $
15,505
44,433
2021
76,153
13,303
38,858
166,368 $
128,314
$
$
76
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, 2023 and 2022, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each
of the three years in the period ended June 30, 2023, 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, 2023, 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 27, 2023, 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.
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.
77
• 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.
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.
78
• 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 27, 2023
We have served as the Company’s auditor since 1983.
79
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, 2023. There were no changes in our internal control over financial reporting during
the quarter ended June 30, 2023 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,
2023; their report follows.
80
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, 2023, 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, 2023, 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, 2023, of the Company and our report
dated July 27, 2023, 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 27, 2023
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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
Lead Independent Director,
Microsoft Corporation
John W. Stanton 1,4
Founder and Chairman, Trilogy
Partnerships
Reid G. Hoffman 4
Partner, Greylock Partners
Penny S. Pritzker 4
Founder and Chairman, PSP Partners,
LLC
John W. Thompson 3,4
Partner, Lightspeed Venture Partners
Hugh F. Johnston 1
Vice Chairman and Executive Vice
President and Chief Financial Officer,
PepsiCo, Inc.
Carlos A. Rodriguez 1,2
Executive Chair, 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, The 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.
Board Committees
1. Audit Committee
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 B. Althoff
Executive Vice President and Chief Commercial Officer
Bradford L. Smith
Vice Chair and President
Christopher C. Capossela
Executive Vice President 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
You can contact Microsoft Investor Relations by calling
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
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 2023 Annual Shareholders Meeting will be held
as a virtual-only meeting. Any shareholder can join the
Annual Meeting, while shareholders of record as of
September 29 2023, will be able to vote and submit
questions during the meeting.
Date: Thursday, December 7, 2023
Time: 8:30 a.m. Pacific Time
Virtual Shareholder Meeting:
www.virtualshareholdermeeting.com/MSFT23
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.
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
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 505000
Louisville, KY 40233-5000
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
at:
on
http://www.microsoft.com/investor/AnnualReports/default
.aspx
Relations
Investor
website
the
Environmental, Social, and Governance (ESG)/Corporate
Social Responsibility
Many of our shareholders are focused 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. Microsoft has
made a broad range of environmental and social
commitments to 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.
Registered Shareholder Services
Computershare, our transfer agent, can help you with a
variety of shareholder related services including:
For more about Microsoft’s CSR commitments and
performance, please visit:
www.microsoft.com/transparency.
• 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.
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