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Dear shareholders, colleagues, customers, and partners:
Fiscal year 2024 was a pivotal year for Microsoft. We entered our 50th year as a company and the second year of the AI
platform shift. With these milestones, I’ve found myself reflecting on how Microsoft has remained a consequential company
decade after decade in an industry with no franchise value. And I realize that it’s because—time and time again, when tech
paradigms have shifted—we have seized the opportunity to reinvent ourselves to stay relevant to our customers, our
partners, and our employees. And that’s what we are doing again today.
Microsoft has been a platform and tools company from the start. We were founded in 1975 with a belief in creating
technology that would enable others to create their own. And, nearly 50 years later, this belief remains at the heart of our
mission to empower every person and every organization on the planet to achieve more.
This year, we moved from talking about AI to helping our customers translate it into real outcomes—one person, one
organization, one institution, and one country at a time. We have made remarkable progress on this front across every
industry. For example:
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Coles is generating 1.6 billion daily AI predictions across 850 Australian stores, ensuring every shopper finds
what they need.
•
Unilever is performing thousands of simulations with AI in the time it would take to run tens of laboratory
experiments, as it accelerates its product development.
•
Developers at Itaú, Brazil’s largest private bank, are coding more efficiently using our AI pair programmer,
GitHub Copilot.
•
Khan Academy is making tutoring more accessible for students and helping teachers plan more creative
lessons, using our small language model Phi.
•
Aquafarmers in Indonesia are improving their yields, thanks to an app built with the Azure OpenAI Service, as
well as Azure IoT.
•
In Kenya, street vendors now have access to credit for the first time, thanks to M-Kopa, a social enterprise
using Azure ML to do its forecasting.
•
And enterprise customers and their employees around the world, from Amgen and Disney, to Finastra and
Vodafone, are using Microsoft 365 Copilot to become more creative and productive.
Financially, the year was also marked by record performance. We delivered over $245 billion in annual revenue, up
16 percent year-over-year, and over $109 billion in operating income, up 24 percent.
Going forward, we are focused on three priorities: First, prioritizing fundamentals, with security above all else. We launched
the Secure Future Initiative (SFI) this year, bringing together every part of our organization to advance cybersecurity
protection. Second, driving trustworthy AI innovation across our entire portfolio while continuing to scale our cloud business.
And, finally, managing our cost structure dynamically to generate durable, long-term operating leverage. All three priorities
are critical to our ability to continue thriving as a company as we raise the bar on our operational excellence, with a focus
on continuous improvement across everything we do.
AGE OF AI
If we go back 70 years to the beginning of modern computing, our industry has had two dreams: First, can computers
understand us instead of us having to understand computers? And second, as we digitize more of the world—including
people, places, and things—can computers help us reason, plan, and act more effectively using all that information? Over
the past year, we have had breakthroughs on both fronts.
The core underlying force behind these breakthroughs is scaling laws. Just like Moore’s Law drove the information
revolution, the scaling laws of deep neural networks (DNN) and transformers are driving today’s AI revolution. Up until the
DNN inflection point, progress in compute was keeping up with Moore’s Law—doubling every two years. But we have now
started to see progress in AI performance double roughly every six months.
There are three capabilities coming together because of these scaling laws. First, we have a new natural user interface that
is multimodal. It supports speech, images, and videos—both as input and output. We have memory that retains important
context, recalling both our personal knowledge and data across devices, apps, and the web. And, finally, we have new
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reasoning and planning capabilities that help us understand complex context, complete end-to-end tasks on our behalf, and
reduce our cognitive load.
This new world is being defined by a rich tapestry of AI agents, which can take action on our behalf, including personal
agents across work and life, business process agents, and cross-organizational ones. These agents will be able to work in
concert as a new input to help make small businesses more productive, make multinationals more competitive, make the
public sector more efficient, and improve health and education outcomes broadly.
Microsoft has built three leading platforms to help our customers maximize their opportunity in this emerging agentic era:
Copilot, which you can think of as the new UI for AI—the human interface for this agentic world; the Copilot stack, which
brings together infrastructure, data, and app services to help customers build their own copilots and agents for their own
business processes; and a new category of Copilot devices that are purpose-built for this new era, including the Copilot+
PCs we introduced this year.
OUR OPPORTUNITY
The innovation we have driven over the past year matters only if we translate it into enduring value for our customers. That’s
why, across our tech stack, we are focused on helping people and organizations realize the benefits of AI.
Infrastructure
This year, we expanded our cloud and AI capacity, announcing new investments across five continents. These are long-
term assets to drive new growth for the next decade and beyond, and ensure communities around the world have access
to the compute they need to drive economic growth in this new era.
Our cloud now also offers top performance for AI training and inference and the most diverse selection of AI accelerators,
including the latest from AMD and NVIDIA, as well as our own first-party silicon, Azure Maia, which we introduced last
November.
More broadly, we continued to see sustained revenue growth from migrations as customers turn to Azure. Azure Arc is
helping customers streamline their transition, as they secure, develop, and operate workloads with Azure services
anywhere. We have 36,000 Arc customers, up 90 percent year-over-year. And we remain the hyperscale cloud of choice
for SAP and Oracle workloads.
Data & AI
AI models are now key building blocks for every application. And with Azure AI, we are building out the app server for the
AI age, providing access to the most diverse selection of models to meet customers’ unique cost, latency, and design
considerations. We offer leading frontier models, thanks to our strategic partnership with OpenAI. With Phi-3, which we
announced in April, we offer a family of powerful, small language models. And, with Models as a service, we provide API
access to third-party models, including the latest from Cohere, Meta, and Mistral. In total, we have over 60,000 Azure AI
customers, up nearly 60 percent year-over-year. This year, we also announced a partnership with G42, which will run its AI
applications and services on our cloud, as we collaborate to bring our latest AI technologies to the United Arab Emirates
and other countries.
AI does not get created without data. At the data layer, we are fundamentally rethinking what it means to be an analytics
database or an operational data store in the world of AI. Our Microsoft Intelligent Data Platform provides customers with the
broadest capabilities spanning databases, analytics, business intelligence, and governance—along with seamless
integration with all our AI services. And Microsoft Fabric, our AI-powered, next-generation data platform we made generally
available this year, now has over 14,000 paid customers who can go from data, to insights, to action—all within the same
unified SaaS solution.
Digital & app innovation
From GitHub to Visual Studio, we have the most comprehensive developer tools. GitHub Copilot had a breakout year, as it
became standard issue for developers in every industry. We now have more than 1.8 million paid subscribers and over
77,000 enterprise customers, up 180 percent year-over-year. They are realizing productivity gains of up to 55 percent while
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staying in their flow and bringing the joy back to coding. This year, we also introduced Copilot Workspace, a Copilot-native
developer environment, which helps any developer go from idea, to code, to software—all in natural language.
We are also integrating generative AI across Power Platform, enabling anyone to use natural language to create apps,
automate workflows, or build a website. In total, we now have 48 million monthly active users of Power Platform, up
40 percent year-over-year.
Modern work
Microsoft 365 Copilot is becoming a daily habit for knowledge workers, transforming their work, workflow, and work artifacts.
Adoption has been faster than any other new Microsoft 365 suite. And employees at nearly 60 percent of the Fortune 500
now use Copilot to complete tasks faster, hold more effective meetings, and automate business workflows and processes.
In fact, internal and external studies show as much as a 70 percent improvement in productivity using generative AI for
specific work tasks. And early Microsoft 365 Copilot users were 29 percent faster in a series of general tasks like searching,
writing, and summarizing.
And we’re going further, bringing the Web plus Work plus Pages together as the new AI design system for knowledge work.
With Pages, which we just announced last month, you can take any information from the web or your work and turn it into
a multiplayer, AI-powered canvas. You can ideate with AI and then easily share what you create for collaboration with other
people.
And with Copilot Studio, customers can extend Copilot with agents and build their own agents that proactively respond to
data and events from their own first- and third-party business data. To date, 50,000 organizations have used it. And, just
this week, we announced new capabilities that will make it possible for customers to build autonomous agents using Copilot
Studio.
Microsoft Teams remains essential to how hundreds of millions of people meet, call, chat, collaborate, and do business.
This year, we rolled out to all customers a new version that is up to two times faster while using 50 percent less memory.
And Teams Premium surpassed 3 million seats, up nearly 400 percent year-over-year, as organizations chose it for
advanced features like end-to-end encryption and real-time translation.
Business applications
We’re using this AI moment to redefine our role in business applications, too. Dynamics 365 once again took share, as
organizations use our AI-powered apps to transform their marketing, sales, service, finance, and supply chain functions.
And we are expanding our total addressable market by integrating Copilot into third-party systems as well. Our new
Dynamics 365 Contact Center infuses generative AI throughout the contact center workflow in a customer’s existing CRM.
We are also extending Copilot to specific industries, including healthcare. With DAX Copilot, more than 400 healthcare
organizations are increasing physician productivity and reducing burnout. On average, clinicians save more than five
minutes per patient encounter. And 77 percent say it also improves documentation quality.
Security
As I mentioned earlier, security underpins every layer of our tech stack. We are doubling down on our Secure Future
Initiative, as we implement our principles of secure by design, secure by default, and secure operations. And we are focused
on making continuous progress across the six pillars of the initiative: protect tenants and isolate production systems; protect
identities and secrets; protect networks; protect engineering systems; monitor and detect threats; and accelerate response
and remediation. As part of this commitment, all Microsoft employees now have security as a “core priority,” holding each
one of us accountable for building secure products and services.
We are continuously applying what we are learning and translating it into security innovation for our customers. A great
example is Copilot for Security, which we made generally available this year. It brings together LLMs with domain-specific
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skills informed by our threat intelligence and 78 trillion daily security signals to provide security teams with actionable
insights.
Devices & creativity
This year, we introduced an entirely new category of Windows PCs engineered to unleash the power of distributed AI across
the cloud and edge. Copilot+ PCs are the fastest, most AI-ready Windows PCs ever built. They include a new system
architecture designed to deliver best-in-class performance and breakthrough AI experiences. And we are working across
our entire ecosystem to bring these to life, including with AMD, Intel, and Qualcomm, along with our OEM partners.
Professional social network
LinkedIn continues to see accelerated member growth and record engagement. We surpassed 1 billion members for the
first time this year, as we combine our unique data with this new generation of AI to transform how people learn, sell, and
get hired. LinkedIn Marketing Solutions continues to be a leader in B2B digital advertising, helping companies deliver the
right message, to the right audience, on a safe and trusted platform. And when it comes to our subscription businesses,
Premium signups increased 51 percent, and we are adding even more value to our members and customers with new AI
tools and skilling opportunities.
Search, ads, and news
With Copilot, we’re taking the first steps toward creating an AI companion, one that’s always by your side, helping you feel
smarter and more supported through natural conversations. The refreshed Copilot app we introduced earlier this month
delivers a more intuitive design with more digestible, speedy, and fluent answers. It now adapts to you with a warm tone
and a distinct style, providing not only information but encouragement, feedback, and advice as you navigate life’s everyday
challenges—no matter how big or small. And we’re adding advanced capabilities like Voice and Vision that make it both
more useful and more natural.
We also continue to apply generative AI to pioneer new approaches to how people search and browse. Microsoft Bing and
Edge both took share again this year. And we introduced Copilot Pro, providing access to the latest models for quick answers
and higher-quality image creation, and access to Copilot for Microsoft 365 Personal and Family subscribers.
Thousands of news and entertainment publishers trust us to reach new audiences with Microsoft Start. And we are also
helping advertisers increase their ROI. Copilot in Microsoft Ad Platform helps marketers create campaigns and troubleshoot
using natural language.
Gaming
We are bringing great games to more people on more devices. With our acquisition of Activision Blizzard King, which closed
October 2023, we’ve added hundreds of millions of players to our ecosystem. We now have 20 franchises that have
generated over $1 billion in lifetime revenue—from Candy Crush, Diablo, and Halo, to Warcraft, Elder Scrolls, and Gears of
War. And with Xbox cloud gaming, we continue to innovate to offer players more ways to experience the games they love—
where, when, and how they want. Finally, we brought four of our fan-favorite titles to Nintendo Switch and Sony PlayStation
for the first time, as we continue to extend our content to new platforms.
OUR MISSION
Although we have made outstanding progress over the past year, we cannot take our permission to innovate—let alone
operate—for granted. It is something we must earn.
We always say Microsoft will do well only if the world around us does well. And that’s why we are focused on four enduring
commitments. They keep us grounded, serving as a guide as we make decisions, pushing us to ask critical questions to
ensure the technology we create benefits everyone on the planet, as well as the planet itself.
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How can we expand opportunity?
We are democratizing access to AI and the skills needed to harness its potential, ensuring that every person, organization,
and community can benefit from the opportunities AI brings.
This year, we partnered with 375,000 nonprofits globally, providing $4.7 billion in donated and discounted technology—to
help them build capacity, drive efficiencies, innovate, and increase their impact as they take on the world’s greatest
challenges. Together with our partners, we also made significant strides in skilling. We have trained and certified 14.1 million
people across 202 countries in digital skills as of June 2024. Over 80 percent of the learners were from groups furthest from
opportunity in the digital economy.
And our work doesn’t stop there. We must do more to accelerate the equitable adoption of AI and narrow the digital divide.
That’s why we’ve launched new AI skilling initiatives in partnership with governments, educational institutions, industry, and
civil society—to help millions of people learn to use generative AI, develop AI tools, and lead AI adoption. This includes
people from underserved communities, with a focus on young people, women, rural communities, and the Global South, as
well as employees of social impact organizations.
How can we earn trust?
We recognize that trust is earned, not given. And we remain committed to earning trust every day, spanning cybersecurity,
trustworthy AI, privacy, and digital safety.
Our Secure Future Initiative advances how we design, build, test, and operate our technology to ensure we deliver solutions
that meet the highest possible standard of security. Our first SFI Progress Report highlights updates spanning culture,
governance, technology, and operations, but we recognize that our work on security is never complete. We must and will
do more. Our promise is to continually learn, improve, and adapt to the evolving needs of an increasingly complex security
landscape.
We are focused on building AI that is trustworthy, meaning that it is secure, safe, and private. Our responsible AI practices,
grounded in our foundational AI principles, help ensure we do this from the beginning. And we’re building on this
commitment by introducing new product capabilities across our tech stack, ensuring that both our customers and developers
are safeguarded at every level. Ultimately, these commitments and capabilities are key to fulfilling our mission. The world
is looking to us to help defend and protect them, and we take that responsibility seriously.
In May, we published our first AI Transparency Report, which outlines how we build generative applications responsibly and
support our customers. We also released Goals and Governance: Goals and Lessons for AI, which draws lessons from
other globally governed technologies like civil aviation and nuclear power. Through our Accelerating Foundation Models
Research program, we’ve made grants to hundreds of projects in AI safety and alignment research, AI-driven scientific
discovery, and beneficial applications of AI. And we launched our Global Perspectives Responsible AI Fellowship program,
designed to center the voices of AI experts from the Global South and enable us to better understand AI’s impact on
developing countries.
As we drive AI innovation, we continue to respond to a changing privacy landscape. We provide tools to help our customers
protect their privacy and control their data, and we have published several resources outlining our approach to privacy and
AI for our consumer, commercial, and public sector customers.
Finally, we continue our work to create safe experiences online and protect customers from illegal and harmful content and
conduct. To bolster our efforts to prevent child sexual exploitation and abuse risks, we have made new commitments to
safety by design in our AI services, joined the Tech Coalition’s Lantern Program, and proposed concrete actions that US
policymakers can take to protect the public through regulatory and policy measures.
How can we protect fundamental rights?
We are committed to protecting fundamental rights—extending the benefits of technology while mitigating its potential
harms. For us, this means promoting responsible business practices, expanding connectivity and accessibility, protecting
democracy, and advancing a fair and inclusive society.
Over the past year, as regulators increasingly required greater transparency and process consistency across corporate
supply chains and human rights efforts, we ensured compliance with reporting and due diligence directives. Going forward,
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we’ll continue to respect global human rights and laws and take steps to mitigate the impact of our operations and our
technology on the people in our value chain.
As we build and deploy more AI solutions, connectivity and accessibility are foundational. Since 2017, we’ve extended
access to affordable high-speed internet to over 100 million people, including nearly 40 million in Africa. And we remain
focused on building inclusive, accessible AI that empowers people across the spectrum of disability.
More than 4 billion people will vote this year in their respective elections, making it the biggest election year in history. At
the Munich Security Conference in February, we came together with others across the tech sector and pledged to help
prevent deceptive AI content from interfering with global elections. As part of this pledge, we have worked to empower
campaigns, candidates, election officials, and voters to understand the risks of deceptive AI in elections and to take steps
to protect themselves and democracies. To date, we’ve conducted deepfake trainings in over 20 countries. And our
corresponding public awareness campaign has reached over 355 million people.
Lastly, we continued investing in both strategic national partnerships and community-based projects that leverage data and
insights to enable changes that advance racial equity and fairness in the criminal legal system.
How can we advance sustainability?
Finally, we are on a journey to build a more sustainable future, from addressing our own environmental footprint to
empowering our customers and the world with the technology needed to meet the climate challenge. Over the past year,
we have seen how AI can catalyze environmental progress in remarkable ways—from increasing the capacity of
transmission lines to deliver renewable power, to the discovery of new materials to support energy production and storage,
to empowering the workforce with sustainability skills.
But we also recognize the resource intensity of the infrastructure needed to yield these benefits, which is why we’re
advancing the sustainability of AI, from design to construction to operations, all while working to improve the efficiency of
these technologies. We’re also investing in innovation through Microsoft’s Climate Innovation Fund and our AI for Good
Lab, advancing research and advocating for policies that can drive global impact.
In our latest Environmental Sustainability Report, we shared progress toward our 2030 commitments. We’re on track in
several areas. Where we’re not yet on track, we’re mobilizing to accelerate our progress toward becoming carbon negative,
water positive, and zero waste, as well as to protect and preserve ecosystems.
When it comes to our carbon footprint, we continue to support clean electricity infrastructure through long-term investments
to bring more power onto the grids where we operate. Since setting our carbon negative target, we have contracted over
34 gigawatts of renewable energy, including projects in 24 countries.
In our efforts to become water positive, we provided more than 1.5 million people with access to clean water and sanitation,
achieving our water access target.
Our journey to zero waste includes reducing waste at our campuses and datacenters and advancing circularity for cloud
hardware, packaging, and devices. Our most recent report showed we had a reuse and recycle rate of 89.4 percent for
servers and components across all cloud hardware.
Finally, AI gives new opportunity for ecosystem and biodiversity management with solutions like AI-assisted bioacoustics.
And we’re expanding collaboration with local communities to build and operate datacenters in ways that address local
challenges and create greater benefits. This work is guided by our Sustainability Standards for new construction and our
Datacenter Community Pledge.
Learn more about our progress and learnings as we pursue our commitments in our annual Impact Summary.
OUR CULTURE
Just as our culture has been critical in getting us to this point, it will be critical to our success going forward. At Microsoft,
we think of our culture as being both input and output. To pursue new concepts, we need new capability. To build new
capability, we need a culture that allows us to grow that capability long before it is conventional wisdom. For us, that means
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constantly exercising our growth mindset and confronting our fixed mindset—each one of us, every day. It is the only way
we will succeed.
Our growth mindset culture helps us in our continuous pursuit of high performance. It doesn’t matter what we said about
our culture 10 years ago or even last year if we aren’t practicing it today—by anticipating the unmet and unarticulated needs
of customers; by working together as One Microsoft to deliver the best end-to-end solutions and services; and by actively
seeking diversity and embracing inclusion—to ensure our workforce represents the planet we serve and the products we
build always meet our customers’ needs. In our latest Diversity & Inclusion Report, we share the ways our longstanding
commitment to diversity and inclusion endures, and what we’re learning as we continue to hire, develop, and grow a global
workforce that best supports each other and our customers. This is how we thrive—as individuals, as teams, and as an
organization. And, when we thrive, we can help our customers and the world thrive too.
Giving also remains core to our culture. This year, more than 106,000 employees gave $250 million (including company
match) to nearly 35,000 nonprofits in 111 countries. And our employees volunteered over 1 million hours to causes they
care about. I am deeply grateful for my colleagues’ dedication to making a difference. Together, we can continue to empower
everyone around the world.
**
In closing, this is a consequential time for our company, our industry, and the world. Ultimately, our mission requires that
we translate technology into empowerment for everyone, into real-world impact. At the end of the day, that’s what really
matters.
Nearly two years later, I can’t stop thinking about the Indian farmer I met in January 2023. He was able to apply for complex
government farm subsidies using just his voice, thanks to an app built with GPT 3.5. It was remarkable. A frontier model
developed on the West Coast of the US just months earlier was being used to directly improve the lives of rural farmers on
the other side of the globe.
That rate of diffusion was unlike anything I had seen in my career. And the pace has only increased. Earlier this year, I was
in Thailand, where I met developers using Phi-3 to optimize their operations just days after the small language model was
released.
To me, that represents the true democratization of expertise. Where the internet era put information at our fingertips, AI is
putting expertise at our fingertips. Impact like this is why we are in this industry, and it is what gives all of us at Microsoft
deep meaning in our work.
It is why we are investing in our fundamentals, in our people, and in continued innovation—so that we can help others
achieve more for the long term.
It is not an exaggeration to say that what each of us does right now with the unique opportunity we have been given will
shape the future. And I look forward to seeing how all of us use Microsoft as a platform to make a difference—one customer,
one community, one country at a time.
Satya Nadella
Chairman and Chief Executive Officer
October 18, 2024
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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 25, 2024, there were 81,346
registered holders of record of our common stock.
SHARE REPURCHASES AND DIVIDENDS
Share Repurchases
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, 2024,
$10.3 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)
Shares
Amount
Shares
Amount
Shares
Amount
Year Ended June 30,
2024
2023
2022
First Quarter
11 $
3,560
17 $
4,600
21 $
6,200
Second Quarter
7
2,800
20
4,600
20
6,233
Third Quarter
7
2,800
18
4,600
26
7,800
Fourth Quarter
7
2,800
14
4,600
28
7,800
Total
32 $
11,960
69 $
18,400
95 $
28,033
All repurchases were made using cash resources. Shares repurchased during the first quarter of fiscal year 2022 were
under the share repurchase program approved on September 18, 2019. Shares repurchased during the second quarter of
fiscal year 2022 were under the share repurchase programs approved on September 18, 2019 and September 14, 2021.
All other shares repurchased were under the share repurchase program approved on September 14, 2021. The above table
excludes shares repurchased to settle employee tax withholding related to the vesting of stock awards of $5.3 billion,
$3.8 billion, and $4.7 billion for fiscal years 2024, 2023, and 2022, respectively.
Dividends
Our Board of Directors declared the following dividends:
Declaration Date
Record Date
Payment Date
Dividend
Per Share
Amount
Fiscal Year 2024
(In millions)
September 19, 2023
November 16, 2023
December 14, 2023
$
0.75 $
5,574
November 28, 2023
February 15, 2024
March 14, 2024
0.75
5,573
March 12, 2024
May 16, 2024
June 13, 2024
0.75
5,574
June 12, 2024
August 15, 2024
September 12, 2024
0.75
5,575
Total
$
3.00 $ 22,296
Fiscal Year 2023
September 20, 2022
November 17, 2022
December 8, 2022
$
0.68 $
5,066
November 29, 2022
February 16, 2023
March 9, 2023
0.68
5,059
March 14, 2023
May 18, 2023
June 8, 2023
0.68
5,054
June 13, 2023
August 17, 2023
September 14, 2023
0.68
5,051
Total
$ 2.72 $ 20,230
The dividend declared on June 12, 2024 was included in other current liabilities as of June 30, 2024.
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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
6/19
6/20
6/21
6/22
6/23
6/24
Microsoft Corporation
100.00
153.80
206.72
197.60
264.54
349.91
S&P 500
100.00
107.51
151.36
135.29
161.80
201.54
NASDAQ Computer
100.00
147.90
222.50
173.91
228.85
331.25
* $100 invested on 6/30/19 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 2024 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 committed to making digital technology and artificial intelligence (“AI”) available broadly
and doing so responsibly, with a mission to empower every person and every organization on the planet to achieve more.
We create platforms and tools, powered by AI, that deliver innovative solutions that meet the evolving needs of our
customers. From infrastructure and data, to business applications and collaboration, we provide unique, differentiated value
to customers. We strive to create local opportunity, growth, and impact in every country around the world.
We have entered a new age of AI that will fundamentally transform productivity for every individual, organization, and
industry on earth, while helping us address some of our most pressing challenges. Microsoft’s AI offerings, including Copilot
and our Copilot stack, are already orchestrating a new era of AI transformation, driving better business outcomes across
every role and industry. 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.
We believe AI should be as empowering across communities as it is powerful, and we’re committed to ensuring it is
responsibly designed and built with safety and security from the outset.
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.
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The Ambitions That Drive Us
To achieve our vision, our research and development efforts focus on three interconnected ambitions:
•
Reinvent productivity and business processes.
•
Build the intelligent cloud and intelligent edge platform.
•
Create more personal computing.
Reinvent Productivity and Business Processes
At Microsoft, we provide technology and resources to help our customers create a secure, 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 Microsoft 365, LinkedIn, and Dynamics 365. Microsoft 365 is an AI first platform that brings
together Office, Windows, Copilot, and Enterprise Mobility + Security to help organizations empower their employees.
Copilot for Microsoft 365 combines AI with business data in the Microsoft Graph and Microsoft 365 applications. Microsoft
Teams is a comprehensive platform for communication and collaboration, with meetings, calling, chat, file collaboration,
and the ability to bring all of the applications teams use into a single place. Microsoft Viva is an employee experience
platform that brings together communications, knowledge, learning, resources, and insights.
Together, the Microsoft Cloud, Dynamics 365, Microsoft Teams, and our AI offerings bring a new era of collaborative
applications for every role and business function to get insights and business impact faster. Dynamics 365 is a portfolio of
intelligent business applications that delivers operational efficiency and breakthrough customer experiences. Our role-based
extensions of Microsoft Copilot – Copilot for Sales, Copilot for Service, and Copilot for Finance – bring together the power
of Copilot for Microsoft 365 with role-specific insights and workflow assistance to streamline business processes. Copilot
Studio allows customers to customize Copilot for Microsoft 365 or build their own Copilot. Microsoft Power Platform helps
domain experts drive productivity gains with low-code/no-code tools, robotic process automation, virtual agents, and
business intelligence. Copilot Pro is a consumer subscription service that offers faster and more powerful AI assistance in
Microsoft 365 apps and on the web. LinkedIn combines our unique data with this new generation of AI to transform the way
professionals learn, sell, market, and get hired.
Build the Intelligent Cloud and Intelligent Edge Platform
Digital transformation and adoption of AI continues to revolutionize more business workstreams for organizations in every
sector across the globe. 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 and AI 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. As the foundation of the Microsoft Cloud, Azure uniquely offers hybrid
consistency, developer productivity, data and AI capabilities, and trusted security and compliance.
We offer supercomputing power for AI at scale to run large workloads, complemented by our rapidly expanding portfolio of
AI cloud services and hardware, which includes custom-built silicon and strong partnerships with chip manufacturers. We
have introduced purpose-built cloud infrastructure for AI workloads including a custom AI accelerator, Azure Maia, and a
custom in-house central processing unit, Azure Cobalt.
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. We offer a wide selection of industry-leading frontier
and open models, including from partners, as well as state-of-the-art tooling, and AI-optimized infrastructure, delivering the
Copilot stack for Microsoft, enterprises, and developers. Organizations large and small are deploying Azure AI solutions to
achieve more at scale, more easily, with the proper enterprise-level responsible AI and safety and security protections.
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Azure AI Studio provides 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.
GitHub Copilot is at the forefront of AI-powered software development, giving developers a tool to write code easier and
faster. From GitHub to Visual Studio, we provide a developer tool chain for everyone, no matter the technical experience,
across all platforms.
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.
The Microsoft Intelligent Data Platform fully integrates databases, analytics, and governance. Microsoft Fabric is an end-to-
end, unified analytics platform that brings together all the data and analytics tools that organizations need.
Nuance is a leader in conversational AI and ambient intelligence across industries, including healthcare, financial services,
retail, and telecommunications. Microsoft and Nuance enable organizations to accelerate their business goals with security-
focused, cloud-based solutions infused with AI.
As the rate and pace of cyberthreats continue to accelerate, security is a top priority for every organization. Microsoft offers
customers integrated products addressing security, compliance, identity, management, and privacy across customers’ multi-
cloud, application, and device assets. With Copilot for Security, Microsoft offers an AI cybersecurity product that enables
security professionals to respond to cyberthreats quickly.
Windows 365 enables users to stream a full Windows experience from the Microsoft Cloud to any device.
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 performance, productivity, and creativity, including Copilot in Windows. Windows
11 security and privacy features include operating system security, application security, and user and identity security. Dev
Home is an open-source experience in Windows to help developer productivity. 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. Copilot+ PCs are a new
class of Windows 11 PCs that are powered by a neural processing unit. These PCs use on-device AI for enhanced
performance and features.
Copilot is an AI assistant that helps users navigate the web, answer questions, and create content. Microsoft Edge is our
fast and secure browser that helps protect users’ data and offers enhanced browsing capabilities including quick access to
AI-powered tools, apps, and more. The AI-powered Bing search engine with Copilot delivers better search, more complete
answers, and the ability to generate content.
Microsoft is expanding how billions of people globally access and play video games on PC, console, mobile, and cloud. We
put game development front and center, backed by innovative hardware, experiences, and a subscription service, Xbox
Game Pass, that allows those games to reach more players across more devices. Activision Blizzard, Inc. (“Activision
Blizzard”), a leader in game development and an interactive entertainment content publisher, joined Microsoft in October
2023.
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 AI platform wave across our solution areas. We continue to develop complete, intelligent
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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.
•
Applying AI and ambient intelligence to drive insights, revolutionize many types of work and business
processes, 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 Edge, Bing, Microsoft Teams, Microsoft 365 Consumer, 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.
Since announcing that commitment, we have seen major changes both in the technology sector and in our understanding
of what it will take to meet our climate goals. New technologies, including generative AI, hold promise for new innovations
that can help address the climate crisis. At the same time, the infrastructure and electricity needed for these technologies
create new challenges for meeting sustainability commitments across the tech sector.
In May 2024, we released our Environmental Sustainability Report which looked back at our progress in several areas
during fiscal year 2023. In four areas we are on track, and in each of these we see progress that has the potential to have
global impact beyond our own sustainability work. These are:
•
Reducing our direct operational emissions (Scope 1 and 2).
•
Accelerating carbon removal.
•
Designing for circularity to minimize waste and reusing cloud hardware.
•
Improving biodiversity and protecting more land than we use.
At the same time, there are two areas where we’re not yet on track, and in each of these we are intensively engaged in
work to identify and pursue additional breakthroughs. These are:
•
Reducing our indirect emissions (Scope 3).
•
Reducing our water use and replenishing more water than we consume in our datacenter operations.
Even amid the challenges, we remain optimistic. We’re encouraged by ongoing progress across our campuses and
datacenters, and throughout our value chain.
Addressing Racial Injustice and Inequity
In June 2020, we outlined a series of multi-year commitments designed to address the racial injustice and inequity
experienced by racial and ethnic minorities in the United States, including Black and African American communities. We
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remain committed to addressing racial injustice and inequity and helping improve lived experiences at Microsoft, in
employees’ communities, and beyond.
In fiscal year 2024, we continued to collaborate with partners and worked within neighborhoods and communities to advance
projects and programs. We grew our Nonprofit Tech Acceleration for Black and African American Communities program, to
help more than 3,000 local organizations in nearly 1,900 Black and African American communities use technical solutions
to modernize and streamline operations. We also expanded our Technology Education and Learning Support (“TEALS”)
program to reach nearly 550 high schools across 21 racial equity expansion regions with the support of nearly 1,500
volunteers, 12% of whom identify as Black or African American.
We have committed $150 million in Minority Depository Institutions and funds supporting Black and African American-owned
small businesses. These commitments drive sustained impact by directly enabling an increase of funds into local
communities, improving diverse, small-business access to capital, and increasing skill development. We continue to partner
with diverse-owned banking partners and asset managers to catalyze growth and industry participation. Additionally, we
enriched our supplier pipeline, achieving our goal to spend $500 million with double the number of Black- and African
American-owned suppliers. We have also provided 162 low- or no-interest loans to our small to medium-sized partners
through our Partner Capital Fund.
We also continue to make progress toward our overall commitment to double the number of Black and African American
and Hispanic and Latinx leaders in the U.S. by 2025.
Investing in Digital Skills
Microsoft’s Skills for Jobs initiative aims 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. This initiative brings together classes, Career
Essentials Certificates, and other resources from LinkedIn, GitHub, and Microsoft Learn, and is built on data insights drawn
from LinkedIn’s Economic Graph. Our goal was to train and certify 10 million learners by 2025. As of May 2024, we have
surpassed that goal, training and certifying 12.6 million learners. We also launched a campaign in the United States in 2021
to help skill and recruit 250,000 people into the nation’s 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. The cyber skills initiative has expanded to 27 additional countries that show elevated cyberthreat risks coupled
with significant gaps in their cybersecurity workforces, where we’ve partnered 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. In June 2023, we launched an 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 provide greater access to digital
learning events and resources. Additionally, we extended our reach in rural communities, including through our TechSpark
initiative in the United States. As of June 2024, we’ve helped more than 2.5 million people in 92% of the world’s countries
learn how to use AI.
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. 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 culture also embeds the security of customers and Microsoft as a priority for every employee and
across all of our organizations.
As of June 30, 2024, we employed approximately 228,000 people on a full-time basis, 126,000 in the U.S. and 102,000
internationally. Of the total employed people, 86,000 were in operations, including product support and consulting services,
datacenter operations, and manufacturing and distribution; 81,000 were in product research and development; 45,000 were
in sales and marketing; and 16,000 were in general and administration. Certain employees are subject to collective
bargaining agreements.
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We design our programs to attract, reward, and retain top talent, enable our employees’ continual growth, and reinforce our
culture and values. Our total compensation opportunity is highly differentiated and market competitive. Our intended result
is a global performance and development approach that fosters our culture, drives company performance, and competitive
compensation that ensures equitable pay by role while supporting pay for performance.
Diversity and inclusion are core to our business. As reported in our Global Diversity and Inclusion Reports, we monitor pay
equity and career progress across multiple dimensions. We encourage every person at Microsoft to play an active role in
creating an inclusive environment.
We have invested significantly in employee wellbeing and offer a differentiated benefits package which includes many
physical, emotional, and financial wellness programs. Our Occupational Health and Safety program helps to protect
employees’ safety while they are working. We also have introduced Hybrid Workplace Flexibility guidance to better support
leaders, managers, and employees in hybrid work scenarios.
We believe providing employees with access to continual learning enables them to drive impact for the company. We provide
individuals and teams with access to first and third-party content resources across professions, disciplines, and roles, and
offer skilling opportunities to support employees’ growth while driving organizations’ needs.
Our employee listening systems enable us to gather feedback directly from our workforce to inform our programs and
employee needs globally, giving us real-time insights into ways we can support our employees. As a company, we will
continue to leverage data and research to inform decision making, balancing the needs of the business, team, and individual.
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 Copilot for Microsoft 365.
•
Office Consumer, including Microsoft 365 Consumer and Copilot Pro 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, 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 AI and 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.
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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 with new features including AI tools,
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 designed to offer AI-enabled insights
and productivity: 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, access knowledge, 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. Growth will depend on our ability to
increase the number of LinkedIn members and our ability to continue offering insight and AI-enabled services that provide
value for our members and increase their engagement. LinkedIn revenue is mainly affected by demand from enterprises
and professionals 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”), and supply chain management, as well as other low code
application development platforms and AI offerings, 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 our low code development platforms, such as Power Apps and Power Automate.
Competition
Competitors to Office include software and global application vendors, such as Apple, Cisco Systems, Google, Meta,
Proofpoint, Slack, Symantec, Zoom, and numerous web-based and mobile application competitors as well as local
application developers. Apple distributes versions of its pre-installed application software, such as email and calendar
products, through its PCs, tablets, and phones. Cisco Systems is using its position in enterprise communications equipment
to grow its unified communications business. Google provides a hosted messaging and productivity suite. Meta offers
communication tools to enable productivity and engagement within organizations. Proofpoint and Symantec provide security
solutions across email security, information protection, and governance. Slack provides teamwork and collaboration
software. Zoom offers videoconferencing and cloud phone solutions. 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.
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Dynamics competes with cloud-based and on-premises business solution providers such as Oracle, Salesforce, SAP,
Service Now, UI Path, and WorkDay.
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 and partner services, including Enterprise Support Services, Industry Solutions, Nuance
professional services, Microsoft Partner Network, and Learning Experience.
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, Internet of Things (“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. With Azure’s purpose-built, AI-optimized infrastructure, customers can use a variety of large language
models and developer tools to create 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 and Partner Services
Enterprise and Partner Services, including Enterprise Support Services, Industry Solutions, Nuance professional services,
Microsoft Partner Network, and Learning Experience, assist customers in developing, deploying, and managing Microsoft
server solutions, Microsoft desktop solutions, and Nuance conversational AI and ambient intelligent solutions, along with
providing training and certification to developers and IT professionals on various Microsoft products.
Competition
Azure faces diverse competition from companies such as Amazon, Broadcom, Google, IBM, Oracle, 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 and Google, as
well as products from other emerging competitors, including Anthropic, OpenAI, Meta, and other open source offerings,
many of which are also current or potential partners. Our Azure Security offerings include our cloud security solution and
security information and event management solution, which compete with companies such as Palo Alto Networks and Cisco.
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,
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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 and nearly all computer manufacturers
offer server hardware for the Linux operating system.
We compete to provide enterprise-wide computing and point solutions with numerous commercial software vendors that
offer solutions and middleware technology platforms, software applications for connectivity, security, hosting, database, and
e-business servers. IBM and Oracle lead a group of companies that compete with our enterprise-wide computing solutions.
Commercial competitors for our server applications for PC-based distributed client-server environments include Broadcom,
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 Databricks, IBM,
Oracle, SAP, Snowflake, and other companies. Our system management solutions compete with server management and
server virtualization platform providers, such as BMC, Broadcom, Hewlett-Packard, and IBM. 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 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 and Partner 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 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-party content (such as
Activision Blizzard) 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 Copilot), Microsoft News, Microsoft Edge, and third-
party affiliates.
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.
•
Growth of the AI PC category
•
Attachment of Windows to devices shipped.
•
Customer mix between consumer, small and medium businesses, and large enterprises.
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•
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
Microsoft 365 and our 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, such as Surface (including Copilot+ PCs), 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 game content is developed through 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
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.
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 search engine with Copilot 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.
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Competition
Windows faces competition from various software products and from alternative platforms and devices, mainly from Apple
and Google, and Microsoft Defender for Endpoint competes with CrowdStrike on endpoint security solutions. 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
content from our own first-party game franchises as well as other digital content offerings.
Our Search and news advertising business competes with Google, OpenAI, 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, customer lifecycle operations, information processing, and vendor management and logistics.
The centers in Ireland and Romania support the African, European, and Middle East regions; the centers in India and Ireland
support the Asia-Pacific region; and the centers in Arlington, Virginia, Atlanta, Georgia, Charlotte, North Carolina, Fargo,
North Dakota, Fort Lauderdale, Florida, Redmond, Washington, Reno, Nevada, and San Jose, Costa Rica support the
Americas 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.
RESEARCH AND DEVELOPMENT
Product and Service Development, and Intellectual Property
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, 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, such as quantum
computing and advanced AI for science.
•
Experiences and Devices – focuses on delivering high value end-user experiences across our products,
services, and devices, including Microsoft 365, Windows, Microsoft Teams, and the Surface line of devices.
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•
Microsoft AI – focuses on delivering online experiences targeted at consumers (including Bing, Copilot,
Start/MSN, and other advertising-based services) and developing advanced AI models.
•
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. This engineering group includes
Microsoft Research, one of the world’s largest corporate research organizations, which focuses on fundamental
research in AI, computer science, and a broad range of other disciplines.
•
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 63,000 U.S. and international patents issued and over 23,000 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 engagement with open source software also causes 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
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. This includes continuing to support fundamental research, which provides us with a unique perspective on
future trends and contributes to our innovation.
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DISTRIBUTION, SALES, AND MARKETING
We market and distribute our products and services through the following channels: OEMs, direct, and distributors and
resellers. Our sales 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 Microsoft 365 Consumer.
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
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 of varying sizes that want to purchase our cloud services and on-premise software. We
license these 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. These volume licensing
programs have varying programmatic requirements and benefits to best meet the needs of our customers.
Software Assurance (“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 required to be purchased with certain volume licensing agreements and is an optional purchase with others.
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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 Microsoft products and services organization-wide over a three-year period. Organizations
can elect to purchase perpetual licenses (covered with SA) and/or subscribe to cloud services.
Microsoft Customer Agreement
Microsoft Customer Agreements are simplified purchase agreements presented, accepted, and stored through a digital
experience. Microsoft Customer Agreements are non-expiring agreements that are designed to support all customers over
time, whether purchasing through a partner or directly from Microsoft.
Microsoft Online Subscription Agreement
Microsoft Online Subscription Agreements are designed for small and medium organizations that want to subscribe to,
activate, provision, and maintain cloud services seamlessly and directly via the web. These agreements allow customers to
acquire monthly or annual subscriptions for cloud-based services.
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Microsoft Products and Services Agreement
Microsoft Products and Services Agreements are designed for medium and large organizations that want to license cloud
services and on-premises software as needed, with no organization-wide commitment, under a single, non-expiring
agreement. Organizations purchase perpetual licenses or subscribe to licenses. SA is optional for customers that purchase
perpetual licenses.
Open Value
Open Value agreements are a simple, cost-effective way to acquire the latest Microsoft technology. These agreements are
designed for small and medium organizations that want to license cloud services and on-premises software over a three-
year period. Under Open Value agreements, organizations can elect to purchase perpetual licenses or subscribe to licenses
and SA is included.
Select Plus
A Select Plus agreement is designed for government and academic organizations to acquire on-premises licenses at any
affiliate or department level, while realizing advantages as one organization. Organizations purchase perpetual licenses
and SA is optional.
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 hosted applications and software services to their end
customers. Partners license software over a three-year period and are billed monthly based on units licensed.
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.
GOVERNMENT REGULATION
We are subject to a wide range of laws, regulations, and legal requirements in the U.S. and globally, including those that
may apply to our products and online services offerings, and those that impose requirements related to user privacy,
telecommunications, data storage and protection, advertising, and online content. How these laws and regulations apply to
our business is often unclear, subject to change over time, and sometimes may be inconsistent from jurisdiction to
jurisdiction. To comply with the accelerating global regulatory obligations, we established a regulatory governance
framework and to create a repeatable system-focused approach to regulatory governance with an initial focus on four
domains: Responsible AI, Privacy, Digital Safety, and Cybersecurity. The framework is designed to help us maintain
customer trust and confidence in our products, remain in compliance with regulators around the globe, and effectively scale
our capability to address the growing number of complex regulations. Through the framework, our legal and regulatory
subject matter experts ingest regulations, develop standards and implementation guidance, and, when appropriate, work
with our engineers to develop and implement products to monitor compliance. Our business teams, with legal support,
manage the compliance programs and prepare external regulatory and commercial reporting, and our internal audit teams
conduct reviews of our programs and processes. While we intended to create a unified approach to regulatory compliance,
some of the programs and processes established pursuant to the framework are tailored to meet specific regulatory
obligations, such as with the creation of independent compliance functions required by the European Union (“EU”) Digital
25
Markets Act and the EU Digital Services Act, which oversee, monitor, and assess the company’s compliance with these
acts.
For a description of the risks we face related to regulatory matters, refer to Risk Factors in our fiscal year 2024 Form 10-K.
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, 2024 compared to the year ended June 30, 2023. For a discussion of the year ended June 30, 2023
compared to the year ended June 30, 2022, 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, 2023.
OVERVIEW
Microsoft is a technology company committed to making digital technology and artificial intelligence (“AI”) available broadly
and doing so responsibly, with a mission to empower every person and every organization on the planet to achieve more.
We create platforms and tools, powered by AI, that deliver innovative solutions that meet the evolving needs of our
customers.
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 2024 compared with fiscal year 2023 included:
•
Microsoft Cloud revenue increased 23% to $137.4 billion.
•
Office Commercial products and cloud services revenue increased 14% driven by Office 365 Commercial
growth of 16%.
•
Office Consumer products and cloud services revenue increased 4% and Microsoft 365 Consumer subscribers
grew to 82.5 million.
•
LinkedIn revenue increased 9%.
•
Dynamics products and cloud services revenue increased 19% driven by Dynamics 365 growth of 24%.
•
Server products and cloud services revenue increased 22% driven by Azure and other cloud services growth
of 30%.
•
Windows revenue increased 8% with Windows original equipment manufacturer licensing (“Windows OEM”)
revenue growth of 7% and Windows Commercial products and cloud services revenue growth of 11%.
•
Devices revenue decreased 15%.
•
Xbox content and services revenue increased 50% driven by 44 points of net impact from the Activision Blizzard
Inc. (“Activision Blizzard”) acquisition. The net impact reflects the change of Activision Blizzard content from
third-party to first-party.
•
Search and news advertising revenue excluding traffic acquisition costs increased 12%.
On October 13, 2023, we completed our acquisition of Activision Blizzard for a total purchase price of $75.4 billion,
consisting primarily of cash. The financial results of Activision Blizzard have been included in our consolidated financial
statements since the date of the acquisition. Activision Blizzard is reported as part of our More Personal Computing segment.
Refer to Note 8 – Business Combinations of the Notes to Financial Statements for further discussion.
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Industry Trends
Our industry is dynamic and highly competitive, with frequent changes in both technologies and business models. Each
industry shift is an opportunity to conceive new products, new technologies, or new ideas that can further transform the
industry and our business. At Microsoft, we push the boundaries of what is possible through a broad range of research and
development activities that seek to identify and address the changing demands of customers and users, industry trends,
and competitive forces.
Economic Conditions, Challenges, and Risks
The markets for software, devices, and cloud-based services are dynamic and highly competitive. Our competitors are
developing new software and devices, while also deploying competing cloud-based services for consumers and businesses.
The devices and form factors customers prefer evolve rapidly, 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 did not have
a material impact on reported revenue and expenses from our international operations in fiscal year 2024.
Refer to Risk Factors in our fiscal year 2024 Form 10-K for a discussion of these factors and other risks.
Seasonality
Our revenue fluctuates quarterly and is generally higher in the fourth quarter of our fiscal year. Fourth quarter revenue is
driven by a higher volume of multi-year 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.
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Reportable Segments
We report our financial performance based on the following segments: Productivity and Business Processes, Intelligent
Cloud, and More Personal Computing. The segment amounts included in MD&A are presented on a basis consistent with
our internal management reporting.
Additional information on our reportable segments is contained in Note 19 – Segment Information and Geographic Data of
the Notes to Financial Statements.
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 2024, we made updates to the presentation and method of calculation for certain metrics,
revising our Microsoft Cloud revenue metric to include revenue growth and expanding our Microsoft 365 Consumer
subscribers metric to include Microsoft 365 Basic subscribers, aligning with how we manage our business.
Commercial
Our commercial business primarily consists of Server products and cloud services, Office Commercial, Windows
Commercial, the commercial portion of LinkedIn, Enterprise and partner 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
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
Microsoft Cloud revenue and revenue growth
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
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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
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 Copilot for Microsoft 365
Office Consumer products and cloud services revenue
growth
Revenue from Office Consumer products and cloud
services, including Microsoft 365 Consumer and Copilot
Pro subscriptions, Office licensed on-premises, and other
Office services
Office 365 Commercial seat growth
The number of Office 365 Commercial seats at end of
period where seats are paid users covered by an Office 365
Commercial subscription
Microsoft 365 Consumer subscribers
The number of Microsoft 365 Consumer and Copilot Pro
subscribers at end of period
Dynamics products and cloud services revenue growth
Revenue from Dynamics products and cloud services,
including Dynamics 365, comprising a set of intelligent,
cloud-based applications across ERP, CRM, Power Apps,
and Power Automate; and on-premises ERP and CRM
applications
LinkedIn revenue growth
Revenue from LinkedIn, including Talent Solutions,
Marketing Solutions, Premium Subscriptions, and Sales
Solutions
Server products and cloud services revenue growth
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
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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
Revenue from sales of Windows Pro and non-Pro licenses
sold through the OEM channel
Windows Commercial products and cloud services
revenue growth
Revenue from Windows Commercial products and cloud
services, comprising volume licensing of the Windows
operating system, Windows cloud services, and other
Windows commercial offerings
Devices revenue growth
Revenue from Devices, including Surface, HoloLens, and
PC accessories
Xbox content and services revenue growth
Revenue from Xbox content and services, comprising first-
party content (such as Activision Blizzard) 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 revenue (ex TAC) growth
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)
2024
2023
Percentage
Change
Revenue
$
245,122 $ 211,915
16%
Gross margin
171,008
146,052
17%
Operating income
109,433
88,523
24%
Net income
88,136
72,361
22%
Diluted earnings per share
11.80
9.68
22%
Adjusted gross margin (non-GAAP)
171,008
146,204
17%
Adjusted operating income (non-GAAP)
109,433
89,694
22%
Adjusted net income (non-GAAP)
88,136
73,307
20%
Adjusted diluted earnings per share (non-GAAP)
11.80
9.81
20%
Adjusted gross margin, operating income, net income, and diluted earnings per share (“EPS”) are non-GAAP financial
measures. Prior year non-GAAP financial measures exclude the impact of a $1.2 billion charge in the second quarter of
fiscal year 2023 (“Q2 charge”), which included employee severance expenses, impairment charges resulting from changes
to our hardware portfolio, and costs related to lease consolidation activities. 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.
Fiscal Year 2024 Compared with Fiscal Year 2023
Revenue increased $33.2 billion or 16% driven by growth across each of our segments. Intelligent Cloud revenue increased
driven by Azure. Productivity and Business Processes revenue increased driven by Office 365 Commercial. More Personal
Computing revenue increased driven by Gaming.
Cost of revenue increased $8.3 billion or 13% driven by growth in Microsoft Cloud and Gaming, offset in part by a decline
in Devices.
Gross margin increased $25.0 billion or 17% driven by growth across each of our segments.
31
•
Gross margin percentage increased slightly. Excluding the impact of the change in accounting estimate for the
useful lives of our server and network equipment, gross margin percentage increased 2 points driven by
improvement in More Personal Computing.
•
Microsoft Cloud gross margin percentage decreased slightly to 71%. Excluding the impact of the change in
accounting estimate, Microsoft Cloud gross margin percentage increased slightly driven by improvements in
Azure and Office 365 Commercial, inclusive of scaling our AI infrastructure, offset in part by sales mix shift to
Azure.
Operating expenses increased $4.0 billion or 7% driven by Gaming, with 7 points of growth from the Activision Blizzard
acquisition, and investments in cloud engineering, offset in part by the prior year Q2 charge.
Operating income increased $20.9 billion or 24% driven by growth across each of our segments.
Prior 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.
SEGMENT RESULTS OF OPERATIONS
(In millions, except percentages)
2024
2023
Percentage
Change
Revenue
Productivity and Business Processes
$
77,728 $
69,274
12%
Intelligent Cloud
105,362
87,907
20%
More Personal Computing
62,032
54,734
13%
Total
$
245,122 $ 211,915
16%
Operating Income
Productivity and Business Processes
$
40,540 $
34,189
19%
Intelligent Cloud
49,584
37,884
31%
More Personal Computing
19,309
16,450
17%
Total
$
109,433 $
88,523
24%
Reportable Segments
Fiscal Year 2024 Compared with Fiscal Year 2023
Productivity and Business Processes
Revenue increased $8.5 billion or 12%.
•
Office Commercial products and cloud services revenue increased $5.8 billion or 14%. Office 365 Commercial
revenue grew 16% with seat growth of 7%, driven by small and medium business and frontline worker offerings,
as well as growth in revenue per user. Office Commercial products revenue declined 16% driven by continued
customer shift to cloud offerings.
•
Office Consumer products and cloud services revenue increased $237 million or 4%. Microsoft 365 Consumer
subscribers grew 10% to 82.5 million.
•
LinkedIn revenue increased $1.4 billion or 9% driven by growth across all lines of business – Talent Solutions,
Premium Subscriptions, Marketing Solutions, and Sales Solutions.
•
Dynamics products and cloud services revenue increased $1.0 billion or 19% driven by Dynamics 365.
Dynamics 365 revenue grew 24% driven by growth across all workloads.
Operating income increased $6.4 billion or 19%.
•
Gross margin increased $6.5 billion or 12% driven by growth in Office 365 Commercial. Gross margin
percentage decreased slightly. Excluding the impact of the change in accounting estimate, gross margin
percentage increased slightly driven by improvement in Office 365 Commercial.
•
Operating expenses increased $159 million or 1%.
32
Intelligent Cloud
Revenue increased $17.5 billion or 20%.
•
Server products and cloud services revenue increased $17.8 billion or 22% driven by Azure and other cloud
services. Azure and other cloud services revenue grew 30% driven by growth in our consumption-based
services. Server products revenue increased 3% driven by continued demand for our hybrid solutions, including
Windows Server and SQL Server running in multi-cloud environments.
•
Enterprise and partner services revenue decreased $306 million or 4% driven by declines in Enterprise Support
Services and Industry Solutions.
Operating income increased $11.7 billion or 31%.
•
Gross margin increased $11.6 billion or 19% driven by growth in Azure. Gross margin percentage decreased
slightly. Excluding the impact of the change in accounting estimate, gross margin percentage increased slightly
primarily driven by improvement in Azure, inclusive of scaling our AI infrastructure, offset in part by sales mix
shift to Azure.
•
Operating expenses decreased slightly primarily driven by the prior year Q2 charge, offset in part by
investments in Azure.
More Personal Computing
Revenue increased $7.3 billion or 13%.
•
Windows revenue increased $1.7 billion or 8% driven by growth in Windows Commercial and Windows OEM.
Windows Commercial products and cloud services revenue increased 11% driven by demand for Microsoft
365. Windows OEM revenue increased 7%.
•
Gaming revenue increased $6.0 billion or 39% driven by growth in Xbox content and services. Xbox content
and services revenue increased 50% driven by 44 points of net impact from the Activision Blizzard acquisition.
Xbox hardware revenue decreased 13% driven by lower volume of consoles sold.
•
Search and news advertising revenue increased $418 million or 3%. Search and news advertising revenue
excluding traffic acquisition costs increased 12% driven by higher search volume.
•
Devices revenue decreased $815 million or 15%.
Operating income increased $2.9 billion or 17%.
•
Gross margin increased $6.8 billion or 23% driven by growth in Gaming, with 10 points of net impact from the
Activision Blizzard acquisition, as well as growth in Windows. Gross margin percentage increased driven by
sales mix shift to higher margin businesses and improvement in Devices.
•
Operating expenses increased $3.9 billion or 31% driven by Gaming, with 34 points of growth from the
Activision Blizzard acquisition.
33
OPERATING EXPENSES
Research and Development
(In millions, except percentages)
2024
2023
Percentage
Change
Research and development
$
29,510 $ 27,195
9%
As a percent of revenue
12%
13%
(1)ppt
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 2024 Compared with Fiscal Year 2023
Research and development expenses increased $2.3 billion or 9% driven by Gaming, with 7 points of growth from the
Activision Blizzard acquisition, and investments in cloud engineering.
Sales and Marketing
(In millions, except percentages)
2024
2023
Percentage
Change
Sales and marketing
$
24,456 $ 22,759
7%
As a percent of revenue
10%
11%
(1)ppt
Sales and marketing expenses include payroll, employee benefits, stock-based compensation expense, and other
headcount-related expenses associated with sales and marketing personnel, and the costs of advertising, promotions, trade
shows, seminars, and other programs.
Fiscal Year 2024 Compared with Fiscal Year 2023
Sales and marketing expenses increased $1.7 billion or 7% driven by Gaming, with 6 points of growth from the Activision
Blizzard acquisition.
General and Administrative
(In millions, except percentages)
2024
2023
Percentage
Change
General and administrative
$
7,609 $ 7,575
0%
As a percent of revenue
3%
4%
(1)ppt
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.
Fiscal Year 2024 Compared with Fiscal Year 2023
General and administrative expenses increased slightly as growth from the Activision Blizzard acquisition was offset in part
by the prior year Q2 charge.
34
OTHER INCOME (EXPENSE), NET
The components of other income (expense), net were as follows:
(In millions)
Year Ended June 30,
2024
2023
Interest and dividends income
$
3,157 $ 2,994
Interest expense
(2,935)
(1,968)
Net recognized gains (losses) on investments
(118)
260
Net losses on derivatives
(187)
(456)
Net gains (losses) on foreign currency remeasurements
(244)
181
Other, net
(1,319)
(223)
Total
$
(1,646) $
788
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. 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 2024 Compared with Fiscal Year 2023
Interest and dividends income increased due to higher yields. Interest expense increased due to the issuance of commercial
paper. Net recognized losses on investments increased primarily due to higher equity impairments and lower gains on
equity investments. Net losses on derivatives decreased primarily due to lower losses on equity derivatives. Other, net
primarily reflects net recognized losses on equity method investments.
INCOME TAXES
Effective Tax Rate
Our effective tax rate for fiscal years 2024 and 2023 was 18% and 19%, respectively. The decrease in our effective tax rate
was primarily due to tax benefits from tax law changes, including the impact from the issuance of Notice 2023-55 and Notice
2023-80 by the Internal Revenue Service (“IRS”) and U.S. Treasury Department. Notice 2023-55, issued in the first quarter
of fiscal year 2024, delayed the effective date of final foreign tax credit regulations to fiscal year 2024 for Microsoft. Notice
2023-80, issued in the second quarter of fiscal year 2024, further delayed the effective date of final foreign tax credit
regulations indefinitely.
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 2024, our U.S. income
before income taxes was $62.9 billion and our foreign income before income taxes was $44.9 billion. 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.
The Organisation for Economic Co-operation and Development (“OECD”) published its model rules “Tax Challenges Arising
From the Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two)” which established a global
minimum corporate tax rate of 15% for certain multinational enterprises. Many countries have implemented or are in the
process of implementing the Pillar Two legislation, which will apply to Microsoft beginning in fiscal year 2025. While we do
not currently estimate a material impact to our consolidated financial statements, we continue to monitor the impact as
countries implement legislation and the OECD provides additional guidance.
Uncertain Tax Positions
We remain under audit by the IRS for tax years 2014 to 2017. With respect to the audit for tax years 2004 to 2013, on
September 26, 2023, we received Notices of Proposed Adjustment (“NOPAs”) from the IRS. The primary issues in the
NOPAs relate to intercompany transfer pricing. In the NOPAs, the IRS is seeking an additional tax payment of $28.9 billion
35
plus penalties and interest. As of June 30, 2024, we believe our allowances for income tax contingencies are adequate. We
disagree with the proposed adjustments and will vigorously contest the NOPAs through the IRS’s administrative appeals
office and, if necessary, judicial proceedings. 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 income 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 2023, 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. Prior 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. 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)
2024
2023
Percentage
Change
Gross margin
$
171,008 $
146,052
17%
Severance, hardware-related impairment, and lease consolidation costs
0
152
*
Adjusted gross margin (non-GAAP)
$
171,008 $ 146,204
17%
Operating income
$
109,433 $
88,523
24%
Severance, hardware-related impairment, and lease consolidation costs
0
1,171
*
Adjusted operating income (non-GAAP)
$
109,433 $
89,694
22%
Net income
$
88,136 $
72,361
22%
Severance, hardware-related impairment, and lease consolidation costs
0
946
*
Adjusted net income (non-GAAP)
$
88,136 $
73,307
20%
Diluted earnings per share
$
11.80 $
9.68
22%
Severance, hardware-related impairment, and lease consolidation costs
0
0.13
*
Adjusted diluted earnings per share (non-GAAP)
$
11.80 $
9.81
20%
*
Not meaningful.
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 $75.5 billion and $111.3 billion as of June 30, 2024 and 2023,
respectively. Equity and other investments were $14.6 billion and $9.9 billion as of June 30, 2024 and 2023, 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
36
indices. The settlement risk related to these investments is insignificant given that the short-term investments held are
primarily highly liquid investment-grade fixed-income securities.
Valuation
In general, and where applicable, we use quoted prices in active markets for identical assets or liabilities to determine the
fair value of our financial instruments. This pricing methodology applies to our Level 1 investments, such as U.S. government
securities, common and preferred stock, and mutual funds. If quoted prices in active markets for identical assets or liabilities
are not available to determine fair value, then we use quoted prices for similar assets and liabilities or inputs other than the
quoted prices that are observable either directly or indirectly. This pricing methodology applies to our Level 2 investments,
such as commercial paper, certificates of deposit, U.S. agency securities, foreign government bonds, mortgage- and asset-
backed securities, corporate notes and bonds, and municipal securities. Level 3 investments are valued using internally-
developed models with unobservable inputs. Assets and liabilities measured at fair value on a recurring basis using
unobservable inputs are an immaterial portion of our portfolio.
A majority of our investments are priced by pricing vendors and are generally Level 1 or Level 2 investments as these
vendors either provide a quoted market price in an active market or use observable inputs for their pricing without applying
significant adjustments. Broker pricing is used mainly when a quoted price is not available, the investment is not priced by
our pricing vendors, or when a broker price is more reflective of fair values in the market in which the investment trades.
Our broker-priced investments are generally classified as Level 2 investments because the broker prices these investments
based on similar assets without applying significant adjustments. In addition, all our broker-priced investments have a
sufficient level of trading volume to demonstrate that the fair values used are appropriate for these investments. Our fair
value processes include controls that are designed to ensure appropriate fair values are recorded. These controls include
model validation, review of key model inputs, analysis of period-over-period fluctuations, and independent recalculation of
prices where appropriate.
Cash Flows
Cash from operations increased $31.0 billion to $118.5 billion for fiscal year 2024, primarily due to an increase in cash
received from customers. Cash used in financing decreased $6.2 billion to $37.8 billion for fiscal year 2024, primarily due
to a $5.0 billion decrease in common stock repurchases and a $3.3 billion increase in proceeds from issuance of debt, net
of repayments, offset in part by a $2.0 billion increase in dividends paid. Cash used in investing increased $74.3 billion to
$97.0 billion for fiscal year 2024, primarily due to a $67.5 billion increase in cash used for acquisitions of companies, net of
cash acquired, and purchases of intangible and other assets and a $16.4 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. 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.
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, 2024:
(In millions)
Three Months Ending
September 30, 2024
$
22,529
December 31, 2024
17,664
37
(In millions)
March 31, 2025
12,076
June 30, 2025
5,313
Thereafter
2,602
Total
$
60,184
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,
2024:
(In millions)
2025
Thereafter
Total
Long-term debt: (a)
Principal payments
$
2,250 $
48,971 $
51,221
Interest payments
1,618
27,041
28,659
Construction commitments (b)
29,892
5,499
35,391
Operating and finance leases, including imputed interest (c)
12,250
160,475
172,725
Purchase commitments (d)
68,280
3,742
72,022
Total
$
114,290 $
245,728 $
360,018
(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. As of June 30, 2024, we had a
remaining transition tax liability of $7.6 billion, of which $3.8 billion is short-term and payable in the first quarter of fiscal year
2025.
38
Share Repurchases
During fiscal years 2024 and 2023, we repurchased 32 million shares and 69 million shares of our common stock for
$12.0 billion and $18.4 billion, respectively, through our share repurchase program. All repurchases were made using cash
resources. As of June 30, 2024, $10.3 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 years 2024 and 2023, our Board of Directors declared dividends totaling $22.3 billion and $20.2 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
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 and training. 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.
RECENT ACCOUNTING GUIDANCE
Refer to Note 1 – Accounting Policies of the Notes to Financial Statements for further discussion.
CRITICAL ACCOUNTING ESTIMATES
Our consolidated financial statements and accompanying notes are prepared in accordance with GAAP. Preparing
consolidated financial statements requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenue, and expenses. Critical accounting estimates are those estimates that involve a
significant level of estimation uncertainty and could have a material impact on our financial condition or results of operations.
We have critical accounting estimates in the areas of revenue recognition, impairment of investment securities, goodwill,
research and development costs, legal and other contingencies, income taxes, and business combinations – valuation of
intangible assets.
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 standalone 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
39
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.
40
Research and Development Costs
Costs incurred internally in researching and developing a computer software product are charged to expense until
technological feasibility has been established for the product. Once technological feasibility is established, software costs
are capitalized until the product is available for general release to customers. Judgment is required in determining when
technological feasibility of a product is established. We have determined that technological feasibility for our software
products is reached after all high-risk development issues have been resolved through coding and testing. Generally, this
occurs shortly before the products are released to production. The amortization of these costs is included in cost of revenue
over the estimated life of the products.
Legal and Other Contingencies
The outcomes of legal proceedings and claims brought against us are subject to significant uncertainty. An estimated loss
from a loss contingency such as a legal proceeding or claim is accrued by a charge to income if it is probable that an asset
has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. In determining
whether a loss should be accrued we evaluate, among other factors, the degree of probability of an unfavorable outcome
and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact our
consolidated financial statements.
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.
Business Combinations – Valuation of Intangible Assets
Accounting for business combinations requires significant judgments when allocating the purchase price to the estimated
fair values of assets acquired and liabilities assumed at the acquisition date. Determination of fair value involves estimates
and assumptions which can be complex, most notably with respect to intangible assets. Critical estimates used in the
valuation of intangible assets include, but are not limited to, the amount and timing of projected cash flows, useful lives, and
discount rates. While management’s estimates of fair value are based on assumptions that are believed to be reasonable,
these assumptions are inherently uncertain as they pertain to forward-looking views of our business and market conditions.
The judgments made in this valuation process could materially impact our consolidated financial statements.
41
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
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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
June 30,
2024 Impact
Foreign currency – Revenue
10% decrease in foreign exchange rates
$ (9,605) Earnings
Foreign currency – Investments
10% decrease in foreign exchange rates
(38) Fair Value
Interest rate
100 basis point increase in U.S. treasury interest rates
(1,343) Fair Value
Credit
100 basis point increase in credit spreads
(318) Fair Value
Equity
10% decrease in equity market prices
(1,078) Earnings
43
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INCOME STATEMENTS
(In millions, except per share amounts)
Year Ended June 30,
2024
2023
2022
Revenue:
Product
$ 64,773 $ 64,699 $ 72,732
Service and other
180,349 147,216
125,538
Total revenue
245,122 211,915
198,270
Cost of revenue:
Product
15,272
17,804
19,064
Service and other
58,842
48,059
43,586
Total cost of revenue
74,114
65,863
62,650
Gross margin
171,008 146,052
135,620
Research and development
29,510
27,195
24,512
Sales and marketing
24,456
22,759
21,825
General and administrative
7,609
7,575
5,900
Operating income
109,433
88,523
83,383
Other income (expense), net
(1,646)
788
333
Income before income taxes
107,787
89,311
83,716
Provision for income taxes
19,651
16,950
10,978
Net income
$
88,136 $ 72,361 $
72,738
Earnings per share:
Basic
$
11.86 $
9.72 $
9.70
Diluted
$
11.80 $
9.68 $
9.65
Weighted average shares outstanding:
Basic
7,431
7,446
7,496
Diluted
7,469
7,472
7,540
Refer to accompanying notes.
44
COMPREHENSIVE INCOME STATEMENTS
(In millions)
Year Ended June 30,
2024
2023
2022
Net income
$
88,136 $ 72,361 $ 72,738
Other comprehensive income (loss), net of tax:
Net change related to derivatives
24
(14)
6
Net change related to investments
957
(1,444)
(5,360)
Translation adjustments and other
(228)
(207)
(1,146)
Other comprehensive income (loss)
753
(1,665)
(6,500)
Comprehensive income
$
88,889 $
70,696 $
66,238
Refer to accompanying notes.
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BALANCE SHEETS
(In millions)
June 30,
2024
2023
Assets
Current assets:
Cash and cash equivalents
$
18,315 $
34,704
Short-term investments
57,228
76,558
Total cash, cash equivalents, and short-term investments
75,543
111,262
Accounts receivable, net of allowance for doubtful accounts of $830 and $650
56,924
48,688
Inventories
1,246
2,500
Other current assets
26,021
21,807
Total current assets
159,734
184,257
Property and equipment, net of accumulated depreciation of $76,421 and $68,251
135,591
95,641
Operating lease right-of-use assets
18,961
14,346
Equity and other investments
14,600
9,879
Goodwill
119,220
67,886
Intangible assets, net
27,597
9,366
Other long-term assets
36,460
30,601
Total assets
$
512,163 $ 411,976
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
$
21,996 $
18,095
Short-term debt
6,693
0
Current portion of long-term debt
2,249
5,247
Accrued compensation
12,564
11,009
Short-term income taxes
5,017
4,152
Short-term unearned revenue
57,582
50,901
Other current liabilities
19,185
14,745
Total current liabilities
125,286
104,149
Long-term debt
42,688
41,990
Long-term income taxes
27,931
25,560
Long-term unearned revenue
2,602
2,912
Deferred income taxes
2,618
433
Operating lease liabilities
15,497
12,728
Other long-term liabilities
27,064
17,981
Total liabilities
243,686
205,753
Commitments and contingencies
Stockholders’ equity:
Common stock and paid-in capital – shares authorized 24,000; outstanding 7,434
and 7,432
100,923
93,718
Retained earnings
173,144
118,848
Accumulated other comprehensive loss
(5,590)
(6,343)
Total stockholders’ equity
268,477
206,223
Total liabilities and stockholders’ equity
$
512,163 $
411,976
Refer to accompanying notes.
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CASH FLOWS STATEMENTS
(In millions)
Year Ended June 30,
2024
2023
2022
Operations
Net income
$
88,136 $ 72,361 $ 72,738
Adjustments to reconcile net income to net cash from operations:
Depreciation, amortization, and other
22,287
13,861
14,460
Stock-based compensation expense
10,734
9,611
7,502
Net recognized losses (gains) on investments and derivatives
305
196
(409)
Deferred income taxes
(4,738)
(6,059)
(5,702)
Changes in operating assets and liabilities:
Accounts receivable
(7,191)
(4,087)
(6,834)
Inventories
1,284
1,242
(1,123)
Other current assets
(1,648)
(1,991)
(709)
Other long-term assets
(6,817)
(2,833)
(2,805)
Accounts payable
3,545
(2,721)
2,943
Unearned revenue
5,348
5,535
5,109
Income taxes
1,687
(358)
696
Other current liabilities
4,867
2,272
2,344
Other long-term liabilities
749
553
825
Net cash from operations
118,548
87,582
89,035
Financing
Proceeds from issuance of debt, maturities of 90 days or less, net
5,250
0
0
Proceeds from issuance of debt
24,395
0
0
Repayments of debt
(29,070)
(2,750)
(9,023)
Common stock issued
2,002
1,866
1,841
Common stock repurchased
(17,254)
(22,245)
(32,696)
Common stock cash dividends paid
(21,771)
(19,800)
(18,135)
Other, net
(1,309)
(1,006)
(863)
Net cash used in financing
(37,757)
(43,935)
(58,876)
Investing
Additions to property and equipment
(44,477)
(28,107)
(23,886)
Acquisition of companies, net of cash acquired, and purchases of
intangible and other assets
(69,132)
(1,670)
(22,038)
Purchases of investments
(17,732)
(37,651)
(26,456)
Maturities of investments
24,775
33,510
16,451
Sales of investments
10,894
14,354
28,443
Other, net
(1,298)
(3,116)
(2,825)
Net cash used in investing
(96,970)
(22,680)
(30,311)
Effect of foreign exchange rates on cash and cash equivalents
(210)
(194)
(141)
Net change in cash and cash equivalents
(16,389)
20,773
(293)
Cash and cash equivalents, beginning of period
34,704
13,931
14,224
Cash and cash equivalents, end of period
$
18,315 $
34,704 $
13,931
Refer to accompanying notes.
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STOCKHOLDERS’ EQUITY STATEMENTS
(In millions, except per share amounts)
Year Ended June 30,
2024
2023
2022
Common stock and paid-in capital
Balance, beginning of period
$
93,718 $
86,939 $
83,111
Common stock issued
2,002
1,866
1,841
Common stock repurchased
(5,712)
(4,696)
(5,688)
Stock-based compensation expense
10,734
9,611
7,502
Other, net
181
(2)
173
Balance, end of period
100,923
93,718
86,939
Retained earnings
Balance, beginning of period
118,848
84,281
57,055
Net income
88,136
72,361
72,738
Common stock cash dividends
(22,293)
(20,226)
(18,552)
Common stock repurchased
(11,547)
(17,568)
(26,960)
Balance, end of period
173,144
118,848
84,281
Accumulated other comprehensive loss
Balance, beginning of period
(6,343)
(4,678)
1,822
Other comprehensive income (loss)
753
(1,665)
(6,500)
Balance, end of period
(5,590)
(6,343)
(4,678)
Total stockholders’ equity
$
268,477 $ 206,223 $ 166,542
Cash dividends declared per common share
$
3.00 $
2.72 $
2.48
Refer to accompanying notes.
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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.
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 gaming; solution support; and consulting services.
Service and other revenue also includes sales from online advertising and LinkedIn.
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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
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and need to determine whether there is a discount to be allocated based on the relative SSP of the various products and
services.
In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we
determine the SSP using information that may include market conditions and other observable inputs. We typically have
more than one SSP for individual products and services due to the stratification of those products and services by customers
and circumstances. In these instances, we may use information such as the size of the customer and geographic region in
determining the SSP.
Due to the various benefits from and the nature of our SA program, judgment is required to assess the pattern of delivery,
including the exercise pattern of certain benefits across our portfolio of customers.
Our products are generally sold with a right of return, we may provide other credits or incentives, and in certain instances
we estimate customer usage of our products and services, which are accounted for as variable consideration when
determining the amount of revenue to recognize. Returns and credits are estimated at contract inception and updated at
the end of each reporting period if additional information becomes available. Changes to our estimated variable
consideration were not material for the periods presented.
Contract Balances and Other Receivables
Timing of revenue recognition may differ from the timing of invoicing to customers. We record a receivable when revenue
is recognized prior to invoicing, or unearned revenue when revenue is recognized subsequent to invoicing. For multi-year
agreements, we generally invoice customers annually at the beginning of each annual coverage period. We record a
receivable related to revenue recognized for multi-year on-premises licenses as we have an unconditional right to invoice
and receive payment in the future related to those licenses.
Unearned revenue comprises mainly unearned revenue related to volume licensing programs, which may include SA and
cloud services. Unearned revenue is generally invoiced annually at the beginning of each contract period for multi-year
agreements and recognized ratably over the coverage period. Unearned revenue also includes payments for consulting
services to be performed in the future, LinkedIn subscriptions, Office 365 subscriptions, Xbox subscriptions, Windows post-
delivery support, Dynamics business solutions, and other offerings for which we have been paid in advance and earn the
revenue when we transfer control of the product or service.
Refer to Note 13 – Unearned Revenue for further information, including unearned revenue by segment and changes in
unearned revenue during the period.
Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30
to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined
our contracts generally do not include a significant financing component. The primary purpose of our invoicing terms is to
provide customers with simplified and predictable ways of purchasing our products and services, not to receive financing
from our customers or to provide customers with financing. Examples include invoicing at the beginning of a subscription
term with revenue recognized ratably over the contract period, and multi-year on-premises licenses that are invoiced
annually with revenue recognized upfront.
As of June 30, 2024 and 2023, long-term accounts receivable, net of allowance for doubtful accounts, was $4.9 billion and
$4.5 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.
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Activity in the allowance for doubtful accounts was as follows:
(In millions)
Year Ended June 30,
2024
2023
2022
Balance, beginning of period
$
716 $ 710 $ 798
Charged to costs and other
386
258
157
Write-offs
(218) (252) (245)
Balance, end of period
$
884 $
716 $
710
Allowance for doubtful accounts included in our consolidated balance sheets:
(In millions)
June 30,
2024
2023
2022
Accounts receivable, net of allowance for doubtful accounts
$
830 $
650 $
633
Other long-term assets
54 66 77
Total
$
884 $
716 $
710
As of June 30, 2024 and 2023, other receivables related to activities to facilitate the purchase of server components were
$10.5 billion and $9.2 billion, respectively, and are included in other current assets in our consolidated balance sheets.
We record financing receivables when we offer certain 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, 2024 and 2023, our financing
receivables, net were $4.5 billion and $5.3 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
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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.
Once technological feasibility is reached, such costs are capitalized and amortized to cost of revenue over the estimated
lives of the products.
Sales and Marketing
Sales and marketing expenses include payroll, employee benefits, stock-based compensation expense, and other
headcount-related expenses associated with sales and marketing personnel, and the costs of advertising, promotions, trade
shows, seminars, and other programs. Advertising costs are expensed as incurred. Advertising expense was $1.7 billion,
$904 million, and $1.5 billion in fiscal years 2024, 2023, and 2022, respectively.
Stock-Based Compensation
Compensation cost for stock awards, which include restricted stock units (“RSUs”) and performance stock units (“PSUs”),
is measured at the fair value on the grant date and recognized as expense, net of estimated forfeitures, over the related
service or performance period. The fair value of stock awards is based on the quoted price of our common stock on the
grant date less the present value of expected dividends not received during the vesting period. We measure the fair value
of PSUs using a Monte Carlo valuation model. Compensation cost for RSUs is recognized using the straight-line method
and for PSUs is recognized using the accelerated method.
Compensation expense for the employee stock purchase plan (“ESPP”) is measured as the discount the employee is
entitled to upon purchase and is recognized in the period of purchase.
Income Taxes
Income tax expense includes U.S. and international income taxes, and interest and penalties on uncertain tax positions.
Certain income and expenses are not reported in tax returns and financial statements in the same year. The tax effect of
such temporary differences is reported as deferred income taxes. Deferred tax assets are reported net of a valuation
allowance when it is more likely than not that a tax benefit will not be realized. All deferred income taxes are classified as
long-term in our consolidated balance sheets.
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,
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then a decline in fair value below cost is recorded as an impairment charge in other income (expense), net and a new cost
basis in the investment is established. If market, industry, and/or investee conditions deteriorate, we may incur future
impairments.
Equity investments with readily determinable fair values are measured at fair value. Equity investments without readily
determinable fair values are measured using the equity method or measured at cost with adjustments for observable
changes in price or impairments (referred to as the measurement alternative). We perform a qualitative assessment on a
periodic basis and recognize an impairment if there are sufficient indicators that the fair value of the investment is less than
carrying value. Changes in value are recorded in other income (expense), net.
Investments that are considered variable interest entities (“VIEs”) are evaluated to determine whether we are the primary
beneficiary of the VIE, in which case we would be required to consolidate the entity. We evaluate whether we have (1) the
power to direct the activities that most significantly impact the VIE’s economic performance, and (2) the obligation to absorb
losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. We have determined we
are not the primary beneficiary of any of our VIE investments. Therefore, our VIE investments are not consolidated and the
majority are accounted for under the equity method of accounting.
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
54
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.
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 over the estimated useful life in proportion to the
economic benefits received. 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.
55
Related Party Transactions
In March 2024, we entered into an agreement with Inflection AI, Inc. (“Inflection”), pursuant to which we obtained a non-
exclusive license to Inflection’s intellectual property. Reid Hoffman, a member of our Board of Directors, is a co-founder of
and serves on the board of directors of Inflection. As of the date of the agreement with Inflection, Reprogrammed
Interchange LLC (“Reprogrammed”) and entities affiliated with Greylock Ventures (“Greylock”) each held less than a 10%
equity interest in Inflection. Mr. Hoffman may be deemed to beneficially own the shares held by Reprogrammed and
Greylock by virtue of his relationship with such entities. Mr. Hoffman did not participate in any portions of the meetings of
our Board of Directors or any committee thereof to review and approve the transaction with Inflection.
Recent Accounting Guidance
Segment Reporting – Improvements to Reportable Segment Disclosures
In November 2023, the Financial Accounting Standards Board (“FASB”) issued a new standard to improve reportable
segment disclosures. The guidance expands the disclosures required for reportable segments in our annual and interim
consolidated financial statements, primarily through enhanced disclosures about significant segment expenses. The
standard will be effective for us beginning with our annual reporting for fiscal year 2025 and interim periods thereafter, with
early adoption permitted. We are currently evaluating the impact of this standard on our segment disclosures.
Income Taxes – Improvements to Income Tax Disclosures
In December 2023, the FASB issued a new standard to improve income tax disclosures. The guidance requires disclosure
of disaggregated income taxes paid, prescribes standardized categories for the components of the effective tax rate
reconciliation, and modifies other income tax-related disclosures. The standard will be effective for us beginning with our
annual reporting for fiscal year 2026, with early adoption permitted. We are currently evaluating the impact of this standard
on our income tax disclosures.
56
NOTE 2 — EARNINGS PER SHARE
Basic earnings per share (“EPS”) is computed based on the weighted average number of shares of common stock
outstanding during the period. Diluted EPS is computed based on the weighted average number of shares of common stock
plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive
potential common shares include outstanding stock options and stock awards.
The components of basic and diluted EPS were as follows:
(In millions, except per share amounts)
Year Ended June 30,
2024
2023
2022
Net income available for common shareholders (A)
$ 88,136 $ 72,361 $ 72,738
Weighted average outstanding shares of common stock (B)
7,431
7,446
7,496
Dilutive effect of stock-based awards
38
26
44
Common stock and common stock equivalents (C)
7,469
7,472
7,540
Earnings Per Share
Basic (A/B)
$
11.86 $
9.72 $
9.70
Diluted (A/C)
$
11.80 $
9.68 $
9.65
Anti-dilutive stock-based awards excluded from the calculations of diluted EPS were immaterial during the periods
presented.
NOTE 3 — OTHER INCOME (EXPENSE), NET
The components of other income (expense), net were as follows:
(In millions)
Year Ended June 30,
2024
2023
2022
Interest and dividends income
$
3,157 $ 2,994 $ 2,094
Interest expense
(2,935)
(1,968)
(2,063)
Net recognized gains (losses) on investments
(118)
260
461
Net losses on derivatives
(187)
(456)
(52)
Net gains (losses) on foreign currency remeasurements
(244)
181
(75)
Other, net
(1,319)
(223)
(32)
Total
$
(1,646) $
788 $
333
Other, net primarily reflects net recognized losses on equity method investments.
Net Recognized Gains (Losses) on Investments
Net recognized gains (losses) on debt investments were as follows:
(In millions)
Year Ended June 30,
2024
2023
2022
Realized gains from sales of available-for-sale securities
$ 22 $ 36 $ 162
Realized losses from sales of available-for-sale securities
(98)
(124)
(138)
Impairments and allowance for credit losses
23
(10)
(81)
Total
$
(53) $
(98) $
(57)
57
Net recognized gains (losses) on equity investments were as follows:
(In millions)
Year Ended June 30,
2024
2023
2022
Net realized gains on investments sold
$ 18 $ 75 $ 29
Net unrealized gains on investments still held
146
303
509
Impairments of investments
(229)
(20)
(20)
Total
$
(65) $
358 $
518
NOTE 4 — INVESTMENTS
Investment Components
The components of investments were as follows:
(In millions)
Fair Value
Level
Adjusted
Cost Basis
Unrealized
Gains
Unrealized
Losses
Recorded
Basis
Cash and
Cash
Equivalents
Short-term
Investments
Equity and
Other
Investments
June 30, 2024
Changes in Fair Value Recorded in
Other Comprehensive Income
Commercial paper
Level 2 $
4,666 $
0 $
0 $
4,666 $
4,666 $
0 $
0
Certificates of deposit
Level 2
1,547
0
0
1,547
1,503
44
0
U.S. government securities
Level 1
49,603
4
(2,948)
46,659
14
46,645
0
U.S. agency securities
Level 2
17
0
0
17
0
17
0
Foreign government bonds
Level 2
319
3
(16)
306
0
306
0
Mortgage- and asset-
backed securities
Level 2
944
3
(35)
912
0
912
0
Corporate notes and
bonds
Level 2
9,106
28
(318)
8,816
0
8,816
0
Corporate notes and
bonds
Level 3
1,641
0
(1)
1,640
0
140
1,500
Municipal securities
Level 2
262
0
(13)
249
0
249
0
Municipal securities
Level 3
104
0
(17)
87
0
87
0
Total debt investments
$ 68,209 $
38 $
(3,348) $
64,899 $
6,183 $
57,216 $
1,500
Changes in Fair Value Recorded in
Net Income
Equity investments
Level 1
$
3,547 $
561 $
0 $
2,986
Equity investments
Other
10,114
0
0
10,114
Total equity
investments
$
13,661 $
561 $
0 $
13,100
Cash
$
11,571 $
11,571 $
0 $
0
Derivatives, net (a)
12
0
12
0
Total
$ 90,143 $
18,315 $
57,228 $
14,600
58
(In millions)
Fair Value
Level
Adjusted
Cost Basis
Unrealized
Gains
Unrealized
Losses
Recorded
Basis
Cash and
Cash
Equivalents
Short-term
Investments
Equity and
Other
Investments
June 30, 2023
Changes in Fair Value Recorded in
Other Comprehensive Income
Commercial paper
Level 2 $
16,589 $
0 $
0 $
16,589 $
12,231 $
4,358 $
0
Certificates of deposit
Level 2
2,701
0
0
2,701
2,657
44
0
U.S. government
securities
Level 1
65,237
2
(3,870)
61,369
2,991
58,378
0
U.S. agency securities
Level 2
2,703
0
0
2,703
894
1,809
0
Foreign government
bonds
Level 2
498
1
(24)
475
0
475
0
Mortgage- and asset-
backed securities
Level 2
824
1
(39)
786
0
786
0
Corporate notes and
bonds
Level 2
10,809
8
(583)
10,234
0
10,234
0
Corporate notes and
bonds
Level 3
120
0
0
120
0
120
0
Municipal securities
Level 2
285
1
(18)
268
7
261
0
Municipal securities
Level 3
103
0
(16)
87
0
87
0
Total debt investments
$
99,869 $
13 $
(4,550) $
95,332 $
18,780 $
76,552 $
0
Changes in Fair Value Recorded in
Net Income
Equity investments
Level 1
$
10,138 $
7,446 $
0 $
2,692
Equity investments
Other
7,187
0
0
7,187
Total equity
investments
$
17,325 $
7,446 $
0 $
9,879
Cash
$
8,478 $
8,478 $
0 $
0
Derivatives, net (a)
6
0
6
0
Total
$ 121,141 $
34,704 $
76,558 $
9,879
(a)
Refer to Note 5 – Derivatives for further information on the fair value of our derivative instruments.
Equity investments presented as “Other” in the tables above include investments without readily determinable fair values
measured using the equity method or measured at cost with adjustments for observable changes in price or impairments,
and investments measured at fair value using net asset value as a practical expedient which are not categorized in the fair
value hierarchy. As of June 30, 2024 and 2023, equity investments without readily determinable fair values measured at
cost with adjustments for observable changes in price or impairments were $3.9 billion and $4.2 billion, respectively.
59
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:
Less than 12 Months
12 Months or Greater
Total
Unrealized
Losses
(In millions)
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Total
Fair Value
June 30, 2024
U.S. government and agency
securities
$
529 $
(12)
$
45,821 $
(2,936)
$
46,350 $
(2,948)
Foreign government bonds
79
(2)
180
(14)
259
(16)
Mortgage- and asset-backed securities
201
(1)
409
(34)
610
(35)
Corporate notes and bonds
1,310
(9)
5,779
(310)
7,089
(319)
Municipal securities
38
(1)
243
(29)
281
(30)
Total
$
2,157 $
(25)
$
52,432 $
(3,323)
$
54,589 $
(3,348)
Less than 12 Months
12 Months or Greater
Total
Unrealized
Losses
(In millions)
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Total
Fair Value
June 30, 2023
U.S. government and agency
securities
$
7,950 $
(336)
$
45,273 $
(3,534)
$
53,223 $
(3,870)
Foreign government bonds
77
(5)
391
(19)
468
(24)
Mortgage- and asset-backed securities
257
(5)
412
(34)
669
(39)
Corporate notes and bonds
2,326
(49)
7,336
(534)
9,662
(583)
Municipal securities
111
(3)
186
(31)
297
(34)
Total
$
10,721 $
(398)
$
53,598 $
(4,152)
$
64,319 $
(4,550)
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
The following table outlines maturities of our debt investments as of June 30, 2024:
(In millions)
Adjusted
Cost Basis
Estimated
Fair Value
June 30, 2024
Due in one year or less
$
19,815 $
19,596
Due after one year through five years
38,954
36,779
Due after five years through 10 years
8,028
7,242
Due after 10 years
1,412
1,282
Total
$
68,209 $
64,899
NOTE 5 — DERIVATIVES
We use derivative instruments to manage risks related to foreign currencies, interest rates, equity prices, and credit; to
enhance investment returns; and to facilitate portfolio diversification. Our objectives for holding derivatives include reducing,
eliminating, and efficiently managing the economic impact of these exposures as effectively as possible. Our derivative
programs include strategies that both qualify and do not qualify for hedge accounting treatment.
Foreign Currencies
Certain forecasted transactions, assets, and liabilities are exposed to foreign currency risk. We monitor our foreign currency
exposures daily to maximize the economic effectiveness of our foreign currency hedge positions.
60
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 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, 2024, 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.
61
The following table presents the notional amounts of our outstanding derivative instruments measured in U.S. dollar
equivalents:
(In millions)
June 30,
2024
June 30,
2023
Designated as Hedging Instruments
Foreign exchange contracts purchased
$
1,492 $
1,492
Interest rate contracts purchased
1,100
1,078
Not Designated as Hedging Instruments
Foreign exchange contracts purchased
7,167
7,874
Foreign exchange contracts sold
31,793
25,159
Equity contracts purchased
4,016
3,867
Equity contracts sold
2,165
2,154
Other contracts purchased
2,113
1,224
Other contracts sold
811
581
Fair Values of Derivative Instruments
The following table presents our derivative instruments:
(In millions)
Derivative
Assets
Derivative
Liabilities
Derivative
Assets
Derivative
Liabilities
June 30,
2024
June 30,
2023
Designated as Hedging Instruments
Foreign exchange contracts
$
24 $
(76) $
34 $
(67)
Interest rate contracts
19
0
16
0
Not Designated as Hedging Instruments
Foreign exchange contracts
213
(230)
249
(332)
Equity contracts
63
(491)
165
(400)
Other contracts
12
(3)
5
(6)
Gross amounts of derivatives
331
(800)
469
(805)
Gross amounts of derivatives offset in the balance sheets
(151)
152
(202)
206
Cash collateral received
0
(104)
0
(125)
Net amounts of derivatives
$
180 $
(752) $
267 $
(724)
Reported as
Short-term investments
$
12 $
0 $
6 $
0
Other current assets
149
0
245
0
Other long-term assets
19
0
16
0
Other current liabilities
0
(401)
0
(341)
Other long-term liabilities
0
(351)
0
(383)
Total
$
180 $
(752) $ 267 $ (724)
Gross derivative assets and liabilities subject to legally enforceable master netting agreements for which we have elected
to offset were $304 million and $800 million, respectively, as of June 30, 2024, and $442 million and $804 million,
respectively, as of June 30, 2023.
62
The following table presents the fair value of our derivatives instruments on a gross basis:
(In millions)
Level 1
Level 2
Level 3
Total
June 30, 2024
Derivative assets
$
0 $
327 $
4 $
331
Derivative liabilities
(1)
(799)
0
(800)
June 30, 2023
Derivative assets
0
462
7
469
Derivative liabilities
0
(805)
0
(805)
Gains (losses) on derivative instruments recognized in other income (expense), net were as follows:
(In millions)
Year Ended June 30,
2024
2023
2022
Designated as Fair Value Hedging Instruments
Foreign exchange contracts
Derivatives
$
0 $
0 $
49
Hedged items
0
0
(50)
Excluded from effectiveness assessment
0
0
4
Interest rate contracts
Derivatives
(23)
(65)
(92)
Hedged items
(25)
38
108
Designated as Cash Flow Hedging Instruments
Foreign exchange contracts
Amount reclassified from accumulated other comprehensive loss
(48)
61
(79)
Not Designated as Hedging Instruments
Foreign exchange contracts
367
(73)
383
Equity contracts
(177)
(420)
13
Other contracts
(15)
(41)
(85)
Gains (losses), net of tax, on derivative instruments recognized in our consolidated comprehensive income statements were
as follows:
(In millions)
Year Ended June 30,
2024
2023
2022
Designated as Cash Flow Hedging Instruments
Foreign exchange contracts
Included in effectiveness assessment
$
(14) $ 34 $ (57)
NOTE 6 — INVENTORIES
The components of inventories were as follows:
(In millions)
June 30,
2024
2023
Raw materials
$
394 $
709
Work in process
7
23
Finished goods
845
1,768
Total
$
1,246 $ 2,500
63
NOTE 7 — PROPERTY AND EQUIPMENT
The components of property and equipment were as follows:
(In millions)
June 30,
2024
2023
Land
$
8,163 $
5,683
Buildings and improvements
93,943
68,465
Leasehold improvements
9,594
8,537
Computer equipment and software
93,780
74,961
Furniture and equipment
6,532
6,246
Total, at cost
212,012
163,892
Accumulated depreciation
(76,421)
(68,251)
Total, net
$
135,591 $
95,641
During fiscal years 2024, 2023, and 2022, depreciation expense was $15.2 billion, $11.0 billion, and $12.6 billion,
respectively.
As of June 30, 2024, we have committed $35.4 billion for the construction of new buildings, building improvements, and
leasehold improvements, primarily related to datacenters.
NOTE 8 — BUSINESS COMBINATIONS
Activision Blizzard, Inc.
On October 13, 2023, we completed our acquisition of Activision Blizzard, Inc. (“Activision Blizzard”) for a total purchase
price of $75.4 billion, consisting primarily of 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 financial results of Activision Blizzard have been included in our consolidated financial
statements since the date of the acquisition. Activision Blizzard is reported as part of our More Personal Computing segment.
The purchase price allocation as of the date of acquisition was based on a preliminary valuation and is subject to revision
as more detailed analyses are completed and additional information about the fair value of assets acquired and liabilities
assumed becomes available. The primary areas that remain preliminary relate to the fair values of goodwill and income
taxes.
The major classes of assets and liabilities to which we have preliminarily allocated the purchase price were as follows:
(In millions)
Cash and cash equivalents
$
12,976
Goodwill
50,969
Intangible assets
21,969
Other assets
2,501
Long-term debt
(2,799)
Long-term income taxes
(1,914)
Deferred income taxes
(4,677)
Other liabilities
(3,617)
Total purchase price
$ 75,408
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 Activision Blizzard. Substantially all of the goodwill is
expected to be non-deductible for income tax purposes.
64
Following are the details of the purchase price allocated to the intangible assets acquired:
(In millions, except average life)
Amount
Weighted
Average Life
Marketing-related
$
11,619
24 years
Technology-based
9,689
4 years
Customer-related
661
4 years
Fair value of intangible assets acquired
$
21,969
15 years
Following is the net impact of the Activision Blizzard acquisition on our consolidated income statements since the date of
acquisition:
(In millions)
Year Ended June 30,
2024
Revenue
$ 5,729
Operating loss
(1,362)
The change of Activision Blizzard content from third-party to first-party is reflected in the net impact.
Following are the supplemental consolidated financial results of Microsoft Corporation on an unaudited pro forma basis, as
if the acquisition had been consummated on July 1, 2022:
(In millions, except per share amounts)
Year Ended June 30,
2024
2023
Revenue
$ 247,442 $ 219,790
Net income
88,308
71,383
Diluted earnings per share
11.82
9.55
These pro forma results were based on estimates and assumptions, which we believe are reasonable. They are not the
results that would have been realized had we been a combined company during the periods presented and are not
necessarily indicative of our consolidated results of operations in future periods. The pro forma results include adjustments
related to purchase accounting, primarily amortization of intangible assets. Acquisition costs and other nonrecurring charges
were immaterial and are included in the earliest period presented.
Nuance Communications, Inc.
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)
$
16,326
Intangible assets
4,365
Other assets
42
Other liabilities (b)
(1,972)
Total
$ 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.
65
(b)
Includes $986 million of convertible senior notes issued by Nuance in 2015 and 2017, substantially all of which have
been redeemed.
Following are the details of the purchase price allocated to the intangible assets acquired:
(In millions, except average life)
Amount
Weighted
Average Life
Customer-related
$
2,610
9 years
Technology-based
1,540
5 years
Marketing-related
215
4 years
Total
$
4,365
7 years
NOTE 9 — GOODWILL
Changes in the carrying amount of goodwill were as follows:
(In millions)
June 30,
2022
Acquisitions
Other
June 30,
2023
Acquisitions
Other
June 30,
2024
Productivity and Business
Processes
$
24,811 $
11 $
(47) $
24,775 $
0 $
2 $
24,777
Intelligent Cloud
30,182
223
64
30,469
0
(28)
30,441
More Personal
Computing
12,531
0
111
12,642
51,235(a)
125(a)
64,002
Total
$ 67,524 $ 234 $
128 $
67,886 $
51,235 $
99 $
119,220
(a)
Includes goodwill of $51.0 billion related to Activision Blizzard. See Note 8 – Business Combinations for further
information.
The measurement periods for the valuation of assets acquired and liabilities assumed end as soon as information on the
facts and circumstances that existed as of the acquisition dates becomes available, but do not exceed 12 months.
Adjustments in purchase price allocations may require a change in the amounts allocated to goodwill during the periods in
which the adjustments are determined.
Any change in the goodwill amounts resulting from foreign currency translations and purchase accounting adjustments are
presented as “Other” in the table above. Also included in “Other” are business dispositions and transfers between segments
due to reorganizations, as applicable.
Goodwill Impairment
We test goodwill for impairment annually on May 1 at the reporting unit level, primarily using a discounted cash flow
methodology with a peer-based, risk-adjusted weighted average cost of capital. We believe use of a discounted cash flow
approach is the most reliable indicator of the fair values of the businesses.
No instances of impairment were identified in our May 1, 2024, May 1, 2023, or May 1, 2022 tests. As of June 30, 2024 and
2023, accumulated goodwill impairment was $11.3 billion.
66
NOTE 10 — INTANGIBLE ASSETS
The components of intangible assets, all of which are finite-lived, were as follows:
(In millions)
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
June 30,
2024
2023
Marketing-related
$
16,500 $
(3,101) $
13,399 $
4,935 $
(2,473)$
2,462
Technology-based
21,913
(10,741)
11,172
11,245
(7,589)
3,656
Customer-related
6,038
(3,051)
2,987
7,281
(4,047)
3,234
Contract-based
58
(19)
39
29
(15)
14
Total
$
44,509(a)$
(16,912) $
27,597 $ 23,490 $
(14,124)$ 9,366
(a)
Includes intangible assets of $22.0 billion related to Activision Blizzard. See Note 8 – Business Combinations for
further information.
No material impairments of intangible assets were identified during fiscal years 2024, 2023, or 2022. 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)
Amount
Weighted
Average Life
Amount
Weighted
Average Life
Year Ended June 30,
2024
2023
Marketing-related
$
11,619
24 years $
7
5 years
Technology-based
10,947
4 years
522
7 years
Customer-related
660
4 years
0
0 years
Contract-based
38
4 years
12
3 years
Total
$
23,264
14 years $
541
6 years
Intangible assets amortization expense was $4.8 billion, $2.5 billion, and $2.0 billion for fiscal years 2024, 2023, and 2022,
respectively.
The following table outlines the estimated future amortization expense related to intangible assets held as of June 30, 2024:
(In millions)
Year Ending June 30,
2025
$
5,892
2026
4,471
2027
2,793
2028
1,909
2029
1,728
Thereafter
10,804
Total
$
27,597
67
NOTE 11 — DEBT
Short-term Debt
As of June 30, 2024, we had $6.7 billion of commercial paper issued and outstanding, with a weighted average interest rate
of 5.4% and maturities ranging from 28 days to 152 days. The estimated fair value of this commercial paper approximates
its carrying value. As of June 30, 2023, we had no commercial paper issued or outstanding.
Long-term Debt
The components of long-term debt were as follows:
(In millions, issuance by calendar year)
Maturities
(calendar year)
Stated Interest
Rate
Effective
Interest
Rate
June 30,
2024
June 30,
2023
2009 issuance of $3.8 billion
2039
5.20%
5.24% $
520 $
520
2010 issuance of $4.8 billion
2040
4.50%
4.57%
486
486
2011 issuance of $2.3 billion
2041
5.30%
5.36%
718
718
2012 issuance of $2.3 billion
2042
3.50%
3.57%
454
454
2013 issuance of $5.2 billion
2043
3.75%–4.88%
3.83%–4.92%
314
1,814
2013 issuance of €4.1 billion
2028–2033
2.63%–3.13%
2.69%–3.22%
2,465
2,509
2015 issuance of $23.8 billion
2025–2055
2.70%–4.75%
2.77%–4.78%
9,805
9,805
2016 issuance of $19.8 billion
2026–2056
2.40%–3.95%
2.46%–4.03%
7,930
9,430
2017 issuance of $17.1 billion (a)
2026–2057
3.30%–4.50%
3.38%–5.49%
6,833
8,945
2020 issuance of $10.1 billion (a)
2030–2060
1.35%–2.68%
2.53%–5.43%
10,111
10,000
2021 issuance of $8.2 billion
2052–2062
2.92%–3.04%
2.92%–3.04%
8,185
8,185
2023 issuance of $0.1 billion (a)
2026–2050
1.35%–4.50%
5.16%–5.49%
56
0
2024 issuance of $3.3 billion (a)
2026–2050
1.35%–4.50%
5.16%–5.49%
3,344
0
Total face value
51,221
52,866
Unamortized discount and
issuance costs
(1,227)
(438)
Hedge fair value adjustments (b)
(81)
(106)
Premium on debt exchange
(4,976)
(5,085)
Total debt
44,937
47,237
Current portion of long-term debt
(2,249)
(5,247)
Long-term debt
$
42,688 $ 41,990
(a)
Includes $3.6 billion of debt at face value related to the Activision Blizzard acquisition, the majority of which was
exchanged for Microsoft registered securities in June 2024. See Note 8 – Business Combinations for further
information.
(b)
Refer to Note 5 – Derivatives for further information on the interest rate swaps related to fixed-rate debt.
As of June 30, 2024 and 2023, the estimated fair value of long-term debt, including the current portion, was $42.3 billion
and $46.2 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 2024, 2023, and 2022 was $1.7 billion, $1.7 billion, and $1.9 billion, respectively.
68
The following table outlines maturities of our long-term debt, including the current portion, as of June 30, 2024:
(In millions)
Year Ending June 30,
2025
$
2,250
2026
3,000
2027
9,250
2028
0
2029
1,876
Thereafter
34,845
Total
$
51,221
NOTE 12 — INCOME TAXES
Provision for Income Taxes
The components of the provision for income taxes were as follows:
(In millions)
Year Ended June 30,
2024
2023
2022
Current Taxes
U.S. federal
$
12,165 $
14,009 $
8,329
U.S. state and local
2,366
2,322
1,679
Foreign
9,858
6,678
6,672
Current taxes
$
24,389 $ 23,009 $ 16,680
Deferred Taxes
U.S. federal
$
(4,791) $
(6,146) $
(4,815)
U.S. state and local
(379)
(477)
(1,062)
Foreign
432
564
175
Deferred taxes
$
(4,738) $
(6,059) $
(5,702)
Provision for income taxes
$
19,651 $
16,950 $
10,978
U.S. and foreign components of income before income taxes were as follows:
(In millions)
Year Ended June 30,
2024
2023
2022
U.S.
$
62,886 $
52,917 $
47,837
Foreign
44,901
36,394
35,879
Income before income taxes
$
107,787 $ 89,311 $ 83,716
69
Effective Tax Rate
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,
2024
2023
2022
Federal statutory rate
21.0%
21.0%
21.0%
Effect of:
Foreign earnings taxed at lower rates
(1.4)%
(1.8)%
(1.3)%
Impact of intangible property transfers
0%
0%
(3.9)%
Foreign-derived intangible income deduction
(1.1)%
(1.3)%
(1.1)%
State income taxes, net of federal benefit
1.5%
1.6%
1.4%
Research and development credit
(1.1)%
(1.1)%
(0.9)%
Excess tax benefits relating to stock-based compensation
(1.1)%
(0.7)%
(1.9)%
Interest, net
1.1%
0.8%
0.5%
Other reconciling items, net
(0.7)%
0.5%
(0.7)%
Effective rate
18.2% 19.0% 13.1%
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.
The decrease from the federal statutory rate in fiscal year 2024 and 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. In fiscal years 2024 and 2023, our foreign regional operating center
in Ireland, which is taxed at a rate lower than the U.S. rate, generated 83% and 81% of our foreign income before tax. In
fiscal year 2022, our foreign regional operating centers in Ireland and Puerto Rico, which are taxed at rates lower than the
U.S. rate, generated 71% of our foreign income before tax. Other reconciling items, net consists primarily of tax credits and
GILTI tax, and in fiscal year 2024, includes tax benefits from tax law changes. In fiscal year 2024, tax benefits from tax law
changes primarily relates to the issuance of Notice 2023-55 and Notice 2023-80 by the Internal Revenue Service (“IRS”)
and U.S. Treasury Department. Notice 2023-55, issued in the first quarter of fiscal year 2024, delayed the effective date of
final foreign tax credit regulations to fiscal year 2024 for Microsoft. Notice 2023-80, issued in the second quarter of fiscal
year 2024, further delayed the effective date of final foreign tax credit regulations indefinitely. In fiscal years 2024, 2023,
and 2022, there were no individually significant other reconciling items.
The decrease in our effective tax rate for fiscal year 2024 compared to fiscal year 2023 was primarily due to tax benefits
from tax law changes, including the delay of the effective date of final foreign tax credit regulations. 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.
70
The components of the deferred income tax assets and liabilities were as follows:
(In millions)
June 30,
2024
2023
Deferred Income Tax Assets
Stock-based compensation expense
$
765 $
681
Accruals, reserves, and other expenses
4,381
3,131
Loss and credit carryforwards
1,741
1,441
Amortization
4,159
9,440
Leasing liabilities
6,504
5,041
Unearned revenue
3,717
3,296
Book/tax basis differences in investments and debt
9
373
Capitalized research and development
11,442
6,958
Other
426
489
Deferred income tax assets
33,144
30,850
Less valuation allowance
(1,045)
(939)
Deferred income tax assets, net of valuation allowance
$
32,099 $
29,911
Deferred Income Tax Liabilities
Leasing assets
$
(6,503) $
(4,680)
Depreciation
(3,940)
(2,674)
Deferred tax on foreign earnings
(1,837)
(2,738)
Other
(167)
(89)
Deferred income tax liabilities
$
(12,447) $
(10,181)
Net deferred income tax assets
$
19,652 $
19,730
Reported As
Other long-term assets
$
22,270 $
20,163
Long-term deferred income tax liabilities
(2,618)
(433)
Net deferred income tax assets
$
19,652 $ 19,730
Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and
liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when the taxes are paid or
recovered.
As of June 30, 2024, we had federal, state, and foreign net operating loss carryforwards of $476 million, $899 million, and
$2.6 billion, respectively. The federal and state net operating loss carryforwards have varying expiration dates ranging from
fiscal year 2025 to 2044 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, 2024, 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 $23.4 billion, $23.1 billion, and $16.0 billion in fiscal years 2024, 2023, and 2022,
respectively.
71
Uncertain Tax Positions
Gross unrecognized tax benefits related to uncertain tax positions as of June 30, 2024, 2023, and 2022, were $22.8 billion,
$17.1 billion, and $15.6 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 2024, 2023, and
2022 by $19.6 billion, $14.4 billion, and $13.3 billion, respectively.
As of June 30, 2024, 2023, and 2022, we had accrued interest expense related to uncertain tax positions of $6.8 billion,
$5.2 billion, and $4.3 billion, respectively, net of income tax benefits. The provision for income taxes for fiscal years 2024,
2023, and 2022 included interest expense related to uncertain tax positions of $1.5 billion, $918 million, and $36 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,
2024
2023
2022
Beginning unrecognized tax benefits
$
17,120 $
15,593 $
14,550
Decreases related to settlements
(76)
(329)
(317)
Increases for tax positions related to the current year
1,903
1,051
1,145
Increases for tax positions related to prior years (a)
4,289
870
461
Decreases for tax positions related to prior years
(464)
(60)
(246)
Decreases due to lapsed statutes of limitations
(12)
(5)
0
Ending unrecognized tax benefits
$
22,760 $ 17,120 $ 15,593
(a)
Fiscal year 2024 includes unrecognized tax benefits of $3.4 billion related to the acquisition of Activision Blizzard. See
Note 8 – Business Combinations for further information.
We remain under audit by the IRS for tax years 2014 to 2017. With respect to the audit for tax years 2004 to 2013, on
September 26, 2023, we received Notices of Proposed Adjustment (“NOPAs”) from the IRS. The primary issues in the
NOPAs relate to intercompany transfer pricing. In the NOPAs, the IRS is seeking an additional tax payment of $28.9 billion
plus penalties and interest. As of June 30, 2024, we believe our allowances for income tax contingencies are adequate. We
disagree with the proposed adjustments and will vigorously contest the NOPAs through the IRS’s administrative appeals
office and, if necessary, judicial proceedings. 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 income 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 2023, 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.
72
NOTE 13 — UNEARNED REVENUE
Unearned revenue by segment was as follows:
(In millions)
June 30,
2024
2023
Productivity and Business Processes
$
30,879 $
27,572
Intelligent Cloud
23,117
21,563
More Personal Computing
6,188
4,678
Total
$
60,184 $ 53,813
Changes in unearned revenue were as follows:
(In millions)
Year Ended June 30, 2024
Balance, beginning of period
$
53,813
Deferral of revenue
148,701
Recognition of unearned revenue
(142,330)
Balance, end of period
$
60,184
Revenue allocated to remaining performance obligations, which includes unearned revenue and amounts that will be
invoiced and recognized as revenue in future periods, was $275 billion as of June 30, 2024, of which $269 billion is related
to the commercial portion of revenue. We expect to recognize approximately 45% of our total company remaining
performance obligation 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 17 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,
2024
2023
2022
Operating lease cost
$
3,555 $ 2,875 $ 2,461
Finance lease cost:
Amortization of right-of-use assets
$
1,800 $
1,352 $
980
Interest on lease liabilities
734
501
429
Total finance lease cost
$
2,534 $
1,853 $
1,409
Supplemental cash flow information related to leases was as follows:
(In millions)
Year Ended June 30,
2024
2023
2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
3,550 $ 2,706 $ 2,368
Operating cash flows from finance leases
734
501
429
Financing cash flows from finance leases
1,286
1,056
896
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
6,703
3,514
5,268
Finance leases
11,633
3,128
4,234
73
Supplemental balance sheet information related to leases was as follows:
(In millions, except lease term and discount rate)
June 30,
2024
2023
Operating Leases
Operating lease right-of-use assets
$
18,961 $ 14,346
Other current liabilities
$
3,580 $
2,409
Operating lease liabilities
15,497
12,728
Total operating lease liabilities
$
19,077 $
15,137
Finance Leases
Property and equipment, at cost
$
32,248 $
20,538
Accumulated depreciation
(6,386)
(4,647)
Property and equipment, net
$
25,862 $
15,891
Other current liabilities
$
2,349 $
1,197
Other long-term liabilities
24,796
15,870
Total finance lease liabilities
$
27,145 $
17,067
Weighted Average Remaining Lease Term
Operating leases
7 years
8 years
Finance leases
12 years
11 years
Weighted Average Discount Rate
Operating leases
3.3%
2.9%
Finance leases
3.9%
3.4%
The following table outlines maturities of our lease liabilities as of June 30, 2024:
(In millions)
Year Ending June 30,
Operating
Leases
Finance
Leases
2025
$
4,124 $
3,311
2026
3,549
3,021
2027
2,981
3,037
2028
2,405
3,026
2029
1,924
2,638
Thereafter
6,587
19,116
Total lease payments
21,570
34,149
Less imputed interest
(2,493)
(7,004)
Total
$
19,077 $
27,145
As of June 30, 2024, we had additional operating and finance leases, primarily for datacenters, that had not yet commenced
of $8.6 billion and $108.4 billion, respectively. These operating and finance leases will commence between fiscal year 2025
and fiscal year 2030 with lease terms of 1 year to 20 years.
74
NOTE 15 — CONTINGENCIES
U.S. Cell Phone Litigation
Microsoft Mobile Oy, a subsidiary of Microsoft, along with other handset manufacturers and network operators, is a
defendant in 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. Twelve of these cases were consolidated for certain pre-trial proceedings; the remaining cases are
stayed. In a separate 2009 decision, the Court of Appeals for the District of Columbia held that adverse health effect claims
arising from the use of cellular handsets that operate within the U.S. Federal Communications Commission radio frequency
emission guidelines (“FCC Guidelines”) are pre-empted by federal law. The plaintiffs allege that their handsets either
operated outside the FCC Guidelines or were manufactured before the FCC Guidelines went into effect. The lawsuits also
allege an industry-wide conspiracy to manipulate the science and testing around emission guidelines.
In 2013, the defendants in the consolidated cases moved to exclude the plaintiffs’ expert evidence of general causation on
the basis of flawed scientific methodologies. In 2014, the trial court granted in part and denied in part the defendants’ motion
to exclude the plaintiffs’ general causation experts. The defendants filed an interlocutory appeal to the District of Columbia
Court of Appeals challenging the standard for evaluating expert scientific evidence. In October 2016, the Court of Appeals
issued its decision adopting the standard advocated by the defendants and remanding the cases to the trial court for further
proceedings under that standard. The plaintiffs have filed supplemental expert evidence, portions of which 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. The parties agreed to a stipulated dismissal of the consolidated cases to allow plaintiffs to
appeal the expert testimony order. Plaintiffs appealed the court’s order in August of 2023, and the parties have filed their
briefs on the appeal. A hearing on the status of the stayed cases occurred in December of 2023. In July 2024, the court
entered summary judgment in nine of the stayed cases on the grounds that plaintiffs had agreed to be bound by the general
causation outcome in the consolidated cases.
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. In July 2024, the IDPC provided
LinkedIn with a revised non-public draft decision. There is no set timeline for the IDPC to issue a final decision, at which
time Microsoft will consider its options to appeal.
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, 2024, we accrued aggregate legal liabilities of $641 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.
75
NOTE 16 — STOCKHOLDERS’ EQUITY
Shares Outstanding
Shares of common stock outstanding were as follows:
(In millions)
Year Ended June 30,
2024
2023
2022
Balance, beginning of year
7,432
7,464
7,519
Issued
34
37
40
Repurchased
(32)
(69)
(95)
Balance, end of year
7,434 7,432 7,464
Share Repurchases
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, 2024,
$10.3 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)
Shares
Amount
Shares
Amount
Shares
Amount
Year Ended June 30,
2024
2023
2022
First Quarter
11 $
3,560
17 $
4,600
21 $
6,200
Second Quarter
7
2,800
20
4,600
20
6,233
Third Quarter
7
2,800
18
4,600
26
7,800
Fourth Quarter
7
2,800
14
4,600
28
7,800
Total
32 $
11,960
69 $ 18,400
95 $ 28,033
All repurchases were made using cash resources. Shares repurchased during the first quarter of fiscal year 2022 were
under the share repurchase program approved on September 18, 2019. Shares repurchased during the second quarter of
fiscal year 2022 were under the share repurchase programs approved on September 18, 2019 and September 14, 2021.
All other shares repurchased were under the share repurchase program approved on September 14, 2021. The above table
excludes shares repurchased to settle employee tax withholding related to the vesting of stock awards of $5.3 billion,
$3.8 billion, and $4.7 billion for fiscal years 2024, 2023, and 2022, respectively.
76
Dividends
Our Board of Directors declared the following dividends:
Declaration Date
Record Date
Payment Date
Dividend
Per Share
Amount
Fiscal Year 2024
(In millions)
September 19, 2023
November 16, 2023
December 14, 2023
$
0.75 $
5,574
November 28, 2023
February 15, 2024
March 14, 2024
0.75
5,573
March 12, 2024
May 16, 2024
June 13, 2024
0.75
5,574
June 12, 2024
August 15, 2024
September 12, 2024
0.75
5,575
Total
$
3.00 $
22,296
Fiscal Year 2023
September 20, 2022
November 17, 2022
December 8, 2022
$
0.68 $
5,066
November 29, 2022
February 16, 2023
March 9, 2023
0.68
5,059
March 14, 2023
May 18, 2023
June 8, 2023
0.68
5,054
June 13, 2023
August 17, 2023
September 14, 2023
0.68
5,051
Total
$ 2.72 $ 20,230
The dividend declared on June 12, 2024 was included in other current liabilities as of June 30, 2024.
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,
2024
2023
2022
Derivatives
Balance, beginning of period
$
(27) $
(13) $
(19)
Unrealized gains (losses), net of tax of $(4), $9, and $(15)
(14)
34
(57)
Reclassification adjustments for (gains) losses included in other income
(expense), net
48
(61)
79
Tax expense (benefit) included in provision for income taxes
(10)
13
(16)
Amounts reclassified from accumulated other comprehensive loss
38
(48)
63
Net change related to derivatives, net of tax of $6, $(4), and $1
24
(14)
6
Balance, end of period
$
(3) $
(27) $
(13)
Investments
Balance, beginning of period
$
(3,582) $
(2,138) $
3,222
Unrealized gains (losses), net of tax of $247, $(393), and $(1,440)
915
(1,523)
(5,405)
Reclassification adjustments for losses included in other income
(expense), net
53
99
57
Tax benefit included in provision for income taxes
(11)
(20)
(12)
Amounts reclassified from accumulated other comprehensive loss
42
79
45
Net change related to investments, net of tax of $258, $(373), and $(1,428)
957
(1,444)
(5,360)
Balance, end of period
$
(2,625) $
(3,582) $
(2,138)
Translation Adjustments and Other
Balance, beginning of period
$
(2,734) $
(2,527) $
(1,381)
Translation adjustments and other, net of tax of $0, $0, and $0
(228)
(207)
(1,146)
Balance, end of period
$
(2,962) $
(2,734) $
(2,527)
Accumulated other comprehensive loss, end of period
$
(5,590) $
(6,343) $
(4,678)
77
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,
2024
2023
2022
Stock-based compensation expense
$
10,734 $ 9,611 $ 7,502
Income tax benefits related to stock-based compensation
1,826
1,651
1,293
Stock Plans
Stock awards entitle the holder to receive shares of Microsoft common stock as the award vests. Stock awards generally
vest over a service period of four years or five years.
Executive Incentive Plan
Under the Executive Incentive Plan, the Compensation Committee approves stock awards to executive officers and certain
senior executives. RSUs generally vest ratably over a service period of four years. PSUs generally vest over a performance
period of three years. The number of shares the PSU holder receives is based on the extent to which the corresponding
performance goals have been achieved.
Activity for All Stock Plans
The fair value of stock awards was estimated on the date of grant using the following assumptions:
Year ended June 30,
2024
2023
2022
Dividends per share (quarterly amounts)
$
0.68 – 0.75 $
0.62 – 0.68 $
0.56 – 0.62
Interest rates
3.8% – 5.6%
2.0% – 5.4%
0.03% – 3.6%
During fiscal year 2024, the following activity occurred under our stock plans:
Shares
Weighted Average
Grant-Date Fair Value
(In millions)
Stock Awards
Nonvested balance, beginning of year
96 $
250.37
Granted (a)
41
339.46
Vested
(42)
246.71
Forfeited
(7)
270.59
Nonvested balance, end of year
88 $
292.28
(a)
Includes 1 million of PSUs granted at target and performance adjustments above target levels for each of the fiscal
years 2024, 2023, and 2022.
As of June 30, 2024, total unrecognized compensation costs related to stock awards were $20.3 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 $339.46, $252.59, and $291.22 for fiscal years 2024, 2023, and 2022, respectively. The fair value
of stock awards vested was $16.0 billion, $11.9 billion, and $14.1 billion, for fiscal years 2024, 2023, and 2022, respectively.
As of June 30, 2024, an aggregate of 129 million shares were authorized for future grant under our stock plans.
78
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,
2024
2023
2022
Shares purchased
6
7
7
Average price per share
$
339.46 $ 245.59 $ 259.55
As of June 30, 2024, 68 million shares of our common stock were reserved for future issuance through the ESPP.
Savings Plans
We have savings plans in the U.S. that qualify under Section 401(k) of the Internal Revenue Code, and a number of savings
plans in international locations. Eligible U.S. employees may contribute a portion of their salary into the savings plans,
subject to certain limitations. We match a portion of each dollar a participant contributes into the plans. Employer-funded
retirement benefits for all plans were $1.7 billion, $1.6 billion, and $1.4 billion in fiscal years 2024, 2023, and 2022,
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.
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 Copilot for Microsoft 365.
•
Office Consumer, including Microsoft 365 Consumer and Copilot Pro 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, Power Apps, and Power Automate; and on-premises ERP and CRM applications.
79
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 and partner services, including Enterprise Support Services, Industry Solutions, Nuance
professional services, Microsoft Partner Network, and Learning Experience.
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-party content (such as
Activision Blizzard) 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 Copilot), Microsoft News, Microsoft Edge, and third-
party affiliates.
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,
2024
2023
2022
Revenue
Productivity and Business Processes
$
77,728 $
69,274 $
63,364
Intelligent Cloud
105,362
87,907
74,965
More Personal Computing
62,032
54,734
59,941
Total
$
245,122 $ 211,915 $ 198,270
Operating Income
Productivity and Business Processes
$
40,540 $
34,189 $
29,690
Intelligent Cloud
49,584
37,884
33,203
More Personal Computing
19,309
16,450
20,490
Total
$
109,433 $
88,523 $
83,383
80
No sales to an individual customer or country other than the United States accounted for more than 10% of revenue for
fiscal years 2024, 2023, or 2022. Revenue, classified by the major geographic areas in which our customers were located,
was as follows:
(In millions)
Year Ended June 30,
2024
2023
2022
United States (a)
$
124,704 $
106,744 $
100,218
Other countries
120,418
105,171
98,052
Total
$
245,122 $ 211,915 $ 198,270
(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,
2024
2023
2022
Server products and cloud services
$
97,726 $
79,970 $
67,350
Office products and cloud services
54,875
48,848
44,970
Windows
23,244
21,507
24,732
Gaming
21,503
15,466
16,230
LinkedIn
16,372
14,989
13,631
Search and news advertising
12,576
12,158
11,526
Enterprise and partner services
7,594
7,900
7,605
Dynamics products and cloud services
6,481
5,437
4,687
Devices
4,706
5,521
7,306
Other
45
119
233
Total
$
245,122 $ 211,915 $ 198,270
We have recast certain prior period amounts to conform to the way we internally manage and monitor our business.
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 $137.4 billion, $111.6 billion, and
$91.4 billion in fiscal years 2024, 2023, and 2022, respectively. These amounts are primarily included in Server products
and cloud services, Office products and cloud services, LinkedIn, and Dynamics products and cloud services 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,
2024
2023
2022
United States
$
186,106 $
114,380 $
106,430
Other countries
115,263
72,859
59,938
Total
$
301,369 $ 187,239 $ 166,368
81
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, 2024 and 2023, 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, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each
of the three years in the period ended June 30, 2024, 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, 2024, 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 30, 2024, 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 certain 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.
82
•
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 certain 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 certain 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 certain 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. In the current fiscal year, the Company received Notices of Proposed Adjustments (“NOPAs”)
for the tax years 2004 to 2013, primarily related to intercompany transfer pricing. 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 certain 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.
83
•
We read and evaluated management’s documentation, including relevant accounting policies and information obtained
by management from outside tax specialists, that detailed the basis of the uncertain tax positions.
•
We tested the reasonableness of management’s judgments regarding the future resolution of the uncertain tax
positions, including an evaluation of the technical merits of the uncertain tax positions.
•
For those uncertain tax positions that had not been effectively settled, we evaluated whether management had
appropriately considered new information, including the NOPAs received in the current fiscal year, 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.
Business Combinations – Estimate for Valuation of Acquired Intangible Assets – Refer to Note 8 to the financial
statements
Critical Audit Matter Description
On October 13, 2023, the Company completed the acquisition of Activision Blizzard, Inc. The Company accounted for the
Activision Blizzard, Inc., acquisition as a business combination and, accordingly, allocated the purchase price to the assets
acquired and liabilities assumed based on their respective estimated fair values as of the date of acquisition. Identifiable
intangible assets acquired included marketing-related intangible assets, technology-based intangible assets, and customer-
related intangible assets. The excess of the purchase consideration over the fair value of identifiable assets acquired and
liabilities assumed was recorded as goodwill.
We identified the fair value determination of certain marketing-related and technology-based intangible assets for the
business combination as a critical audit matter due to the significant judgment required in determining their estimated fair
values. Management’s estimates of fair value included assumptions for revenue and expense forecasts and the selection
of appropriate discount rates. There was a high degree of auditor judgment and subjectivity in applying audit procedures
and evaluating the significant assumptions relating to the estimates, including involvement of our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s estimates of the fair value of certain marketing-related and technology-
based intangible assets acquired included the following, among others:
•
We tested the operating effectiveness of internal controls over the business combination, including internal controls
over the revenue and expense forecasts and the selection of appropriate discount rates.
•
We assessed the knowledge, skills, abilities, and objectivity of management’s valuation specialist and evaluated the
work performed.
•
When assessing the reasonableness of assumptions related to forecasted revenue and expenses, we evaluated
whether the assumptions used were reasonable considering historical financial information of Activision Blizzard, Inc.,
and the Company’s forecasted financial information.
•
With the assistance of our fair value specialists, we evaluated the reasonableness of the discount rates by:
-
Testing the source information underlying the discount rates and testing the mathematical accuracy of the calculations.
84
-
Developing a range of independent estimates and comparing those to the discount rates selected by management.
/S/ DELOITTE & TOUCHE LLP
Seattle, Washington
July 30, 2024
We have served as the Company’s auditor since 1983.
85
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. Our assessment of, and conclusion on, the effectiveness of internal control over financial reporting
did not include the internal controls of Activision Blizzard, Inc., acquired on October 13, 2023, which is included in our
consolidated financial statements since the date of acquisition and represented less than 1% of our total assets as of
June 30, 2024 after excluding goodwill and intangible assets acquired, and 2% of our total revenues for the year ended
June 30, 2024. Based on this evaluation, management concluded that the Company’s internal control over financial
reporting was effective as of June 30, 2024. There were no changes in our internal control over financial reporting during
the quarter ended June 30, 2024 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,
2024; their report follows.
86
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, 2024, 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, 2024, 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, 2024, of the Company and our report
dated July 30, 2024, expressed an unqualified opinion on those financial statements.
As described in Report of Management on Internal Control over Financial Reporting, management excluded from its
assessment the internal control over financial reporting at Activision Blizzard, Inc., which was acquired on October 13, 2023,
and whose financial statements constitute less than 1 percent of total assets as of June 30, 2024 after excluding goodwill
and intangible assets acquired, and 2 percent of total revenues for the year ended June 30, 2024. Accordingly, our audit
did not include the internal control over financial reporting at Activision Blizzard, Inc.
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.
87
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 30, 2024
88
DIRECTORS AND EXECUTIVE OFFICERS OF MICROSOFT CORPORATION
DIRECTORS
Satya Nadella
Chairman and Chief Executive Officer,
Microsoft Corporation
Catherine MacGregor 4
Group Chief Executive Officer,
Engie S.A.
Carlos A. Rodriguez 1, 2
Director, Automatic Data
Processing, Inc.
Reid G. Hoffman 4
Partner, Greylock Partners
Mark A. L. Mason 3
Chief Financial Officer, Citigroup Inc.
Charles W. Scharf 2,3
Chief Executive Officer, President,
and Director, Wells Fargo & Company
Hugh F. Johnston 1
Senior Executive Vice President and
Chief Financial Officer,
The Walt Disney Company
Sandra E. Peterson 2,3
Lead Independent Director,
Microsoft Corporation
Operating Partner, Clayton, Dubilier &
Rice, LLC
John W. Stanton 1,4
Founder and Chairman, Trilogy
Partnerships
Teri L. List 1,3
Former Executive Vice President and
Chief Financial Officer, Gap, Inc.
Penny S. Pritzker 4
Founder and Chairman, PSP
Partners, LLC
Emma N. Walmsley 2,4
Chief Executive Officer and Director,
GSK, plc
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
Takeshi Numoto
Executive Vice President and Chief Marketing Officer
Judson B. Althoff
Executive Vice President and Chief Commercial Officer
Bradford L. Smith
Vice Chair and President
Kathleen T. Hogan
Executive Vice President and Chief Human Resources Officer
Christopher D. Young
Executive Vice President, Business Development,
Strategy, and Ventures
Amy E. Hood
Executive Vice President and Chief Financial Officer
89
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 2024 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 30 2024, will be able to vote and submit
questions during the meeting.
Date: Tuesday, December 10, 2024
Time: 8:30 a.m. Pacific Time
Virtual Shareholder Meeting:
www.virtualshareholdermeeting.com/MSFT24
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.
Registered Shareholder Services
Computershare, our transfer agent, can help you with a
variety of shareholder related services including:
•
Change of address
•
Lost stock certificates
•
Transfer of stock to another person
•
Additional administrative services
Computershare also administers a direct stock purchase
plan and a dividend reinvestment program for the
company.
Contact Computershare directly to find out more about
these services and programs at 800-285-7772, option 1,
or visit online at:
https://www.computershare.com/Microsoft
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
on the Investor Relations website at:
http://www.microsoft.com/investor/AnnualReports/default
.aspx
Environmental, Social, and Governance (ESG)
To meet the expectations of our shareholder and other
stakeholders and to and maintain their trust, Microsoft is
committed to conducting our business in ways that are
principled, transparent, and accountable. Microsoft works
with our customers and partners to help the world use
digital technology to address business and societal
challenges around the globe. In advancing this work and
our mission, Microsoft’s management benefits from the
oversight and diverse perspectives offered by the Board
of
Directors
and
its
committees,
including
key
environmental and social matters listed in the charter of
the Board’s Environmental, Social, and Public Policy
Committee.
To learn more about Microsoft’s corporate governance
and our environmental and social practices, please see
our reporting at Microsoft.com/transparency.