8-K
MICROSOFT CORP (MSFT)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) July 26, 2022
Microsoft Corporation
| Washington | 001-37845 | 91-1144442 |
|---|---|---|
| (State or Other Jurisdiction<br> <br>of Incorporation) | (Commission<br> <br>File Number) | (IRS Employer<br> <br>Identification No.) |
| One Microsoft Way, Redmond, Washington | 98052-6399 | |
| --- | --- |
(425) 882-8080
www.microsoft.com/investor
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of exchange on which registered |
|---|---|---|
| Common stock, $0.00000625 par value per share | MSFT | NASDAQ |
| 3.125% Notes due 2028 | MSFT | NASDAQ |
| 2.625% Notes due 2033 | MSFT | NASDAQ |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02. Results of Operations and Financial Condition
On July 26, 2022, Microsoft Corporation issued a press release announcing its financial results for the fiscal quarter and year ended June 30, 2022. A copy of the press release is furnished as Exhibit 99.1 to this report.
In accordance with General Instruction B.2 of Form 8-K, the information in this Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Item 9.01. Financial Statements and Exhibits
(d) Exhibits:
| 99.1 | Press release, dated July 26, 2022, issued by Microsoft Corporation |
|---|---|
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| MICROSOFT CORPORATION | |
|---|---|
| (Registrant) | |
| Date: July 26, 2022 | /S/ ALICE L. JOLLA |
| Alice L. Jolla | |
| Corporate Vice President and Chief Accounting<br>Officer |
EX-99.1
Exhibit 99.1
Microsoft Cloud Strength Drives Fourth Quarter Results
REDMOND, Wash. — July 26, 2022— Microsoft Corp. today announced the following results for the quarter ended June 30, 2022, as compared to the corresponding period of last fiscal year:
| • | Revenue was $51.9 billion and increased 12% (up 16% in constant currency) |
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| • | Operating income was $20.5 billion and increased 8% (up 14% in constant currency) |
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| • | Net income was $16.7 billion and increased 2% (up 7% in constant currency) |
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| • | Diluted earnings per share was $2.23 and increased 3% (up 8% in constant currency) |
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“We see real opportunity to help every customer in every industry use digital technology to overcome today’s challenges and emerge stronger,” said Satya Nadella, chairman and chief executive officer of Microsoft. “No company is better positioned than Microsoft to help organizations deliver on their digital imperative - so they can do more with less.”
“In a dynamic environment we saw strong demand, took share, and increased customer commitment to our cloud platform. Commercial bookings grew 25% and Microsoft Cloud revenue was $25 billion, up 28% year over year,” said Amy Hood, executive vice president and chief financial officer of Microsoft. “As we begin a new fiscal year, we remain committed to balancing operational discipline with continued investments in key strategic areas to drive future growth.”
Impact of Recent Events
In the fourth quarter of fiscal year 2022, evolving macroeconomic conditions and other unforeseen items had an impact on financial results beyond what was included in our forward-looking guidance provided on April 26, 2022.
| • | Unfavorable foreign exchange rate movement within the quarter negatively impacted revenue and diluted<br>earnings per share $(595) million and $(0.04), respectively. Additional details are provided in the Earnings Call Slides. |
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| • | Extended production shutdowns in China that continued through May and a deteriorating PC market in<br>June contributed to a negative impact on Windows OEM revenue of over $(300) million |
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| • | Reductions in advertising spend contributed to a negative impact on LinkedIn as well as Search and<br>news advertising revenue of over $(100) million |
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| • | With the ongoing war in Ukraine, we made the decision to significantly scale down our operations in<br>Russia. As a result, we recorded operating expenses of $126 million related to bad debt expense, asset impairments, and severance. |
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| • | As part of a strategic realignment of our business groups, we recorded employee severance expenses of<br>$113 million, excluding Russia |
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Business Highlights
Revenue in Productivity and Business Processes was $16.6 billion and increased 13% (up 17% in constant currency), with the following business highlights:
| • | Office Commercial products and cloud services revenue increased 9% (up 13% in constant currency)<br>driven by Office 365 Commercial revenue growth of 15% (up 19% in constant currency) |
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| • | Office Consumer products and cloud services revenue increased 9% (up 12% in constant currency) and<br>Microsoft 365 Consumer subscribers grew to 59.7 million |
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| • | LinkedIn revenue increased 26% (up 29% in constant currency) |
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| • | Dynamics products and cloud services revenue increased 19% (up 24% in constant currency) driven by<br>Dynamics 365 revenue growth of 31% (up 36% in constant currency) |
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Revenue in Intelligent Cloud was $20.9 billion and increased 20% (up 25% in constant currency), with the following business highlights:
| • | Server products and cloud services revenue increased 22% (up 26% in constant currency) driven by<br>Azure and other cloud services revenue growth of 40% (up 46% in constant currency) |
|---|
Revenue in More Personal Computing was $14.4 billion and increased 2% (up 5% in constant currency), with the following business highlights:
| • | Windows OEM revenue decreased 2% |
|---|---|
| • | Windows Commercial products and cloud services revenue increased 6% (up 12% in constant currency) |
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| • | Xbox content and services revenue decreased 6% (down 4% in constant currency) |
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| • | Search and news advertising revenue excluding traffic acquisition costs increased 18% (up 21% in<br>constant currency) |
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| • | Surface revenue increased 10% (up 15% in constant currency) |
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Microsoft returned $12.4 billion to shareholders in the form of share repurchases and dividends in the fourth quarter of fiscal year 2022, an increase of 19% compared to the fourth quarter of fiscal year 2021.
Fiscal Year 2022 Results
Microsoft Corp. today announced the following results for the fiscal year ended June 30, 2022, as compared to the corresponding period of last fiscal year:
| • | Revenue was $198.3 billion and increased 18% (up 19% in constant currency) |
|---|---|
| • | Operating income was $83.4 billion and increased 19% (up 21% in constant currency) |
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| • | Net income was $72.7 billion GAAP and increased 19%, and $69.4 billion non-GAAP and increased 15% (up 16% in constant currency) |
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| • | Diluted earnings per share was $9.65 GAAP and increased 20%, and $9.21<br>non-GAAP and increased 16% (up 17% in constant currency) |
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| • | GAAP results include a $3.3 billion net income tax benefit explained in the Non-GAAP Definition section below |
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The following table reconciles our financial results for the fiscal year ended June 30, 2022, reported in accordance with generally accepted accounting principles (GAAP) to non-GAAP financial results. Additional information regarding our non-GAAP definition is provided below. All growth comparisons relate to the corresponding period in the last fiscal year.
| Twelve Months Ended June 30, | |||||
|---|---|---|---|---|---|
| ($ in millions, except per share amounts) | Revenue | ||||
| 2021 AsReported (GAAP) | **** | 168,088 | 69,916 | 61,271 | $8.05 |
| Net income tax<br>benefit related to India Supreme Court decision on withholding taxes | — | — | (620) | (0.08) | |
| 2021 AsAdjusted (non-GAAP) | **** | 168,088 | 69,916 | 60,651 | $7.97 |
| 2022 AsReported (GAAP) | **** | 198,270 | 83,383 | 72,738 | $9.65 |
| Net income tax<br>benefit related to transfer of intangible properties | — | — | (3,291) | (0.44) | |
| 2022 AsAdjusted (non-GAAP) | **** | 198,270 | 83,383 | 69,447 | $9.21 |
| Percentage Change<br>Y/Y (GAAP) | 18% | 19% | 19% | 20% | |
| Percentage Change<br>Y/Y (non-GAAP) | 18% | 19% | 15% | 16% | |
| Percentage Change<br>Y/Y (non-GAAP) Constant Currency | 19% | 21% | 16% | 17% |
All values are in US Dollars.
Business Outlook
Microsoft will provide forward-looking guidance in connection with this quarterly earnings announcement on its earnings conference call and webcast.
Quarterly Highlights, Product Releases, and Enhancements
Every quarter Microsoft delivers hundreds of products, either as new releases, services, or enhancements to current products and services. These releases are a result of significant research and development investments, made over multiple years, designed to help customers be more productive and secure and to deliver differentiated value across the cloud and the edge.
Here are the major product releases and other highlights for the quarter, organized by product categories, to help illustrate how we are accelerating innovation across our businesses while expanding our market opportunities.
Environmental, Social, and Governance (ESG)
To better execute on Microsoft’s mission, we focus our Environmental, Social, and Governance (ESG) efforts where we can have the most positive impact. To learn more about our latest initiatives and priorities, please visit our investor relations ESG website.
Webcast Details
Satya Nadella, chairman and chief executive officer, Amy Hood, executive vice president and chief financial officer, Alice Jolla, chief accounting officer, Keith Dolliver, deputy general counsel, and Brett Iversen, vice president of investor relations, will host a conference call and webcast at 2:30 p.m. Pacific time (5:30 p.m. Eastern time) today to discuss details of the company’s performance for the quarter and certain forward-looking information. The session may be accessed at http://www.microsoft.com/en-us/investor. The webcast will be available for replay through the close of business on July 26, 2023.
Non-GAAP Definition
Transfer of Intangible Properties. In the first quarter of fiscal year 2022, Microsoft transferred certain intangible properties from our Puerto Rico subsidiary to the United States. The transfer of intangible properties resulted in a net tax benefit of $3.3 billion in the first quarter of fiscal 2022, as the value of future United States tax deductions exceeds the current tax liability from the United States Global Intangible Low-Taxed Income tax.
The India SupremeCourt Decision Impact. In March 2021, the India Supreme Court issued a decision on withholding taxes in the case of Engineering Analysis Centre of Excellence Private Limited vs The Commissioner of Income Tax. Microsoft has historically paid India withholding taxes on software sales through distributor withholding and tax audit assessments in India. The India Supreme Court ruled favorably for companies in 86 separate appeals, some dating back to 2012, holding that software sales are not subject to India withholding taxes. Although Microsoft was not a party to the appeals, Microsoft’s software sales in India were determined to be not subject to withholding taxes. Therefore, Microsoft recorded a net income tax benefit of $620 million in the third quarter of fiscal year 2021 to reflect the results of the India Supreme Court decision impacting fiscal year 1996 through fiscal year 2016.
Microsoft has provided non-GAAP financial measures related to the transfer of intangible properties and the India Supreme Court decision to aid investors in better understanding our performance. Microsoft believes these non-GAAP measures assist investors by providing additional insight into its operational performance and help clarify trends affecting its business. For comparability of reporting, management considers non-GAAP measures in conjunction with GAAP financial results in evaluating business performance. The non-GAAP financial measures presented in this release should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.
Constant Currency
Microsoft presents constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars using the average exchange rates from the comparative period rather than the actual exchange rates in effect during the respective periods. All growth comparisons relate to the corresponding period in the last fiscal year. Microsoft has provided this non-GAAP financial information to aid investors in better understanding our performance. The non-GAAP financial measures presented in this release should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.
Financial Performance Constant Currency Reconciliation
| Three Months Ended June 30, | |||||
|---|---|---|---|---|---|
| ($ in millions, except per share amounts) | Revenue | ||||
| 2021 AsReported (GAAP) | **** | 46,152 | 19,095 | 16,458 | $2.17 |
| 2022 AsReported (GAAP) | **** | 51,865 | 20,534 | 16,740 | $2.23 |
| Percentage Change<br>Y/Y (GAAP) | 12% | 8% | 2% | 3% | |
| ConstantCurrency Impact | **** | (1,685) | (1,159) | (825) | $(0.11) |
| Percentage Change<br>Y/Y (non-GAAP) Constant Currency | 16% | 14% | 7% | 8% |
All values are in US Dollars.
| Twelve Months Ended June 30, | |||||
|---|---|---|---|---|---|
| ($ in millions, except per share amounts) | Revenue | ||||
| 2021 AsReported (GAAP) | **** | 168,088 | 69,916 | 61,271 | $8.05 |
| 2021 AsAdjusted (non-GAAP) | **** | 168,088 | 69,916 | 60,651 | $7.97 |
| 2022 AsReported (GAAP) | **** | 198,270 | 83,383 | 72,738 | $9.65 |
| 2022 AsAdjusted (non-GAAP) | **** | 198,270 | 83,383 | 69,447 | $9.21 |
| Percentage Change<br>Y/Y (GAAP) | 18% | 19% | 19% | 20% | |
| Percentage Change<br>Y/Y (non-GAAP) | 18% | 19% | 15% | 16% | |
| ConstantCurrency Impact | **** | (2,087) | (1,292) | (1,163) | $(0.15) |
| Percentage Change<br>Y/Y (non-GAAP) Constant Currency | 19% | 21% | 16% | 17% |
All values are in US Dollars.
Segment Revenue Constant Currency Reconciliation
| Three Months Ended June 30, | ||||
|---|---|---|---|---|
| ($ in millions) | Productivity and<br><br><br>Business Processes | |||
| 2021 AsReported (GAAP) | **** | 14,691 | 17,375 | $14,086 |
| 2022 AsReported (GAAP) | **** | 16,600 | 20,909 | $14,356 |
| Percentage Change<br>Y/Y (GAAP) | 13% | 20% | 2% | |
| ConstantCurrency Impact | **** | (584) | (728) | $(373) |
| Percentage Change<br>Y/Y (non-GAAP) Constant Currency | 17% | 25% | 5% |
All values are in US Dollars.
Selected Product and Service Revenue Constant Currency Reconciliation
| Three Months Ended June 30, 2022 | ||||||
|---|---|---|---|---|---|---|
| Percentage Change<br><br><br>Y/Y (GAAP) | Constant Currency<br><br><br>Impact | Percentage Change<br><br><br>Y/Y (non-GAAP)<br><br><br>Constant Currency | ||||
| OfficeCommercial products and cloud services | **** | 9% | **** | 4% | **** | 13% |
| Office 365Commercial | **** | 15% | **** | 4% | **** | 19% |
| OfficeConsumer products and cloud services | **** | 9% | **** | 3% | **** | 12% |
| **** | 26% | **** | 3% | **** | 29% | |
| Dynamicsproducts and cloud services | **** | 19% | **** | 5% | **** | 24% |
| Dynamics365 | **** | 31% | **** | 5% | **** | 36% |
| Serverproducts and cloud services | **** | 22% | **** | 4% | **** | 26% |
| Azure andother cloud services | **** | 40% | **** | 6% | **** | 46% |
| WindowsOEM | **** | (2)% | **** | 0% | **** | (2)% |
| WindowsCommercial products and cloud services | **** | 6% | **** | 6% | **** | 12% |
| Xbox contentand services | **** | (6)% | **** | 2% | **** | (4)% |
| Search andnews advertising excluding traffic acquisition costs | **** | 18% | **** | 3% | **** | 21% |
| Surface | **** | 10% | **** | 5% | **** | 15% |
About Microsoft
Microsoft (Nasdaq “MSFT” @microsoft) enables digital transformation for the era of an intelligent cloud and an intelligent edge. Its mission is to empower every person and every organization on the planet to achieve more.
Forward-Looking Statements
Statements in this release that are “forward-looking statements” are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of factors such as:
| • | intense competition in all of our markets that may lead to lower revenue or operating margins; |
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| • | increasing focus on cloud-based services presenting execution and competitive risks; |
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| • | significant investments in products and services that may not achieve expected returns; |
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| • | acquisitions, joint ventures, and strategic alliances that may have an adverse effect on our<br>business; |
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| • | impairment of goodwill or amortizable intangible assets causing a significant charge to earnings; |
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| • | cyberattacks and security vulnerabilities that could lead to reduced revenue, increased costs,<br>liability claims, or harm to our reputation or competitive position; |
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| • | disclosure and misuse of personal data that could cause liability and harm to our reputation; |
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| • | the possibility that we may not be able to protect information stored in our products and services<br>from use by others; |
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| • | abuse of our advertising or social platforms that may harm our reputation or user engagement; |
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| • | the development of the internet of things presenting security, privacy, and execution risks; |
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| • | issues about the use of artificial intelligence in our offerings that may result in competitive harm,<br>legal liability, or reputational harm; |
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| • | excessive outages, data losses, and disruptions of our online services if we fail to maintain an<br>adequate operations infrastructure; |
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| • | quality or supply problems; |
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| • | government litigation and regulatory activity relating to competition rules that may limit how we<br>design and market our products; |
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| • | potential consequences under trade, anti-corruption, and other laws resulting from our global<br>operations; |
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| • | laws and regulations relating to the handling of personal data that may impede the adoption of our<br>services or result in increased costs, legal claims, fines, or reputational damage; |
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| • | claims against us that may result in adverse outcomes in legal disputes; |
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| • | uncertainties relating to our business with government customers; |
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| • | additional tax liabilities; |
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| • | the possibility that we may fail to protect our source code; |
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| • | legal changes, our evolving business model, piracy, and other factors may decrease the value of our<br>intellectual property; |
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| • | claims that Microsoft has infringed the intellectual property rights of others; |
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| • | damage to our reputation or our brands that may harm our business and operating results; |
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| • | adverse economic or market conditions that may harm our business; |
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| • | catastrophic events or geo-political conditions, such as the COVID-19 pandemic, that may disrupt our business; |
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| • | exposure to increased economic and operational uncertainties from operating a global business,<br>including the effects of foreign currency exchange and |
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| • | the dependence of our business on our ability to attract and retain talented employees. |
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For more information about risks and uncertainties associated with Microsoft’s business, please refer to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections of Microsoft’s SEC filings, including, but not limited to, its annual report on Form 10-K and quarterly reports on Form 10-Q, copies of which may be obtained by contacting Microsoft’s Investor Relations department at (800) 285-7772 or at Microsoft’s Investor Relations website at http://www.microsoft.com/en-us/investor.
All information in this release is as of June 30, 2022. The company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the company’s expectations.
Formore information, press only:
Microsoft Media Relations, WE Communications for Microsoft, (425) 638-7777, rrt@we-worldwide.com
For moreinformation, financial analysts and investors only:
Brett Iversen, Vice President, Investor Relations, (425) 706-4400
Note to editors: For more information, news and perspectives from Microsoft, please visit the Microsoft News Center at http://www.microsoft.com/news. Web links, telephone numbers, and titles were correct at time of publication, but may since have changed. Shareholder and financial information, as well as today’s 2:30 p.m. Pacific time conference call with investors and analysts, is available at http://www.microsoft.com/en-us/investor.
MICROSOFT CORPORATION
INCOME STATEMENTS
(In millions, except per share amounts) (Unaudited)
| Three Months Ended<br><br><br>June 30, | |||||
|---|---|---|---|---|---|
| 2022 | |||||
| Revenue: | |||||
| Product | **** | 17,956 | 18,938 | 72,732 | $71,074 |
| Service and other | **** | 33,909 | 27,214 | 125,538 | 97,014 |
| Total revenue | **** | 51,865 | 46,152 | 198,270 | 168,088 |
| Cost of revenue: | |||||
| Product | **** | 4,357 | 4,287 | 19,064 | 18,219 |
| Service and other | **** | 12,072 | 9,704 | 43,586 | 34,013 |
| Total cost of revenue | **** | 16,429 | 13,991 | 62,650 | 52,232 |
| Gross margin | **** | 35,436 | 32,161 | 135,620 | 115,856 |
| Research and development | **** | 6,849 | 5,687 | 24,512 | 20,716 |
| Sales and marketing | **** | 6,304 | 5,857 | 21,825 | 20,117 |
| General and administrative | **** | 1,749 | 1,522 | 5,900 | 5,107 |
| Operating income | **** | 20,534 | 19,095 | 83,383 | 69,916 |
| Other income (expense), net | **** | (47) | 310 | 333 | 1,186 |
| Income before income taxes | **** | 20,487 | 19,405 | 83,716 | 71,102 |
| Provision for income taxes | **** | 3,747 | 2,947 | 10,978 | 9,831 |
| Net income | **** | 16,740 | 16,458 | 72,738 | $61,271 |
| Earnings per share: | |||||
| Basic | **** | 2.24 | 2.19 | 9.70 | $8.12 |
| Diluted | **** | 2.23 | 2.17 | 9.65 | $8.05 |
| Weighted average shares outstanding: | |||||
| Basic | **** | 7,474 | 7,527 | 7,496 | 7,547 |
| Diluted | **** | 7,506 | 7,581 | 7,540 | 7,608 |
All values are in US Dollars.
MICROSOFT CORPORATION
COMPREHENSIVE INCOME STATEMENTS
(In millions) (Unaudited)
| Three Months Ended<br><br><br>June 30, | |||||
|---|---|---|---|---|---|
| 2022 | |||||
| Net income | **** | 16,740 | 16,458 | 72,738 | $61,271 |
| Other comprehensive income (loss), net of tax: | |||||
| Net change related to derivatives | **** | (2) | (11) | 6 | 19 |
| Net change related to investments | **** | (1,313) | 132 | (5,360) | (2,266) |
| Translation adjustments and other | **** | (887) | 239 | (1,146) | 873 |
| Other comprehensive income (loss) | **** | (2,202) | 360 | (6,500) | (1,374) |
| Comprehensive income | **** | 14,538 | 16,818 | 66,238 | $59,897 |
All values are in US Dollars.
MICROSOFT CORPORATION
BALANCE SHEETS
(In millions) (Unaudited)
| Assets | ||
| Current assets: | ||
| Cash and cash equivalents | 13,931 | $14,224 |
| Short-term investments | 90,826 | 116,110 |
| Total cash, cash equivalents, and short-term<br>investments | 104,757 | 130,334 |
| Accounts receivable, net of allowance for doubtful accounts of<br>633 and 751 | 44,261 | 38,043 |
| Inventories | 3,742 | 2,636 |
| Other current assets | 16,924 | 13,393 |
| Total current assets | 169,684 | 184,406 |
| Property and equipment, net of accumulated depreciation of<br>59,660 and 51,351 | 74,398 | 59,715 |
| Operating lease right-of-use assets | 13,148 | 11,088 |
| Equity investments | 6,891 | 5,984 |
| Goodwill | 67,524 | 49,711 |
| Intangible assets, net | 11,298 | 7,800 |
| Other long-term assets | 21,897 | 15,075 |
| Total assets | 364,840 | $333,779 |
| Liabilities and stockholders’<br>equity | ||
| Current liabilities: | ||
| Accounts payable | 19,000 | $15,163 |
| Current portion of long-term debt | 2,749 | 8,072 |
| Accrued compensation | 10,661 | 10,057 |
| Short-term income taxes | 4,067 | 2,174 |
| Short-term unearned revenue | 45,538 | 41,525 |
| Other current liabilities | 13,067 | 11,666 |
| Total current liabilities | 95,082 | 88,657 |
| Long-term debt | 47,032 | 50,074 |
| Long-term income taxes | 26,069 | 27,190 |
| Long-term unearned revenue | 2,870 | 2,616 |
| Deferred income taxes | 230 | 198 |
| Operating lease liabilities | 11,489 | 9,629 |
| Other long-term liabilities | 15,526 | 13,427 |
| Total liabilities | 198,298 | 191,791 |
| Commitments and contingencies | ||
| Stockholders’ equity: | ||
| Common stock and<br>paid-in capital—shares authorized 24,000; outstanding 7,464 and 7,519 | 86,939 | 83,111 |
| Retained earnings | 84,281 | 57,055 |
| Accumulated other comprehensive income (loss) | (4,678) | 1,822 |
| Total stockholders’ equity | 166,542 | 141,988 |
| Total liabilities and stockholders’ equity | 364,840 | $333,779 |
All values are in US Dollars.
MICROSOFT CORPORATION
CASH FLOWS STATEMENTS
(In millions) (Unaudited)
| Three Months Ended June 30, | |||||
|---|---|---|---|---|---|
| 2022 | |||||
| Operations | |||||
| Net income | **** | 16,740 | 16,458 | 72,738 | $61,271 |
| Adjustments to reconcile net income to net cash from operations: | |||||
| Depreciation, amortization, and other | **** | 3,979 | 3,344 | 14,460 | 11,686 |
| Stock-based compensation expense | **** | 1,997 | 1,571 | 7,502 | 6,118 |
| Net recognized losses (gains) on investments and derivatives | **** | 157 | (416) | (409) | (1,249) |
| Deferred income taxes | **** | 283 | (34) | (5,702) | (150) |
| Changes in operating assets and liabilities: | |||||
| Accounts receivable | **** | (12,634) | (11,606) | (6,834) | (6,481) |
| Inventories | **** | (461) | (388) | (1,123) | (737) |
| Other current assets | **** | (2,570) | (2,086) | (709) | (932) |
| Other long-term assets | **** | (575) | (1,013) | (2,805) | (3,459) |
| Accounts payable | **** | 2,659 | 1,617 | 2,943 | 2,798 |
| Unearned revenue | **** | 12,546 | 11,397 | 5,109 | 4,633 |
| Income taxes | **** | (991) | (32) | 696 | (2,309) |
| Other current liabilities | **** | 3,455 | 3,755 | 2,344 | 4,149 |
| Other long-term liabilities | **** | 44 | 143 | 825 | 1,402 |
| Net cash from operations | **** | 24,629 | 22,710 | 89,035 | 76,740 |
| Financing | |||||
| Cash premium on debt exchange | **** | 0 | 0 | 0 | (1,754) |
| Repayments of debt | **** | 0 | 0 | (9,023) | (3,750) |
| Common stock issued | **** | 461 | 450 | 1,841 | 1,693 |
| Common stock repurchased | **** | (8,757) | (7,177) | (32,696) | (27,385) |
| Common stock cash dividends paid | **** | (4,632) | (4,214) | (18,135) | (16,521) |
| Other, net | **** | (341) | (430) | (863) | (769) |
| Net cash used in financing | **** | (13,269) | (11,371) | (58,876) | (48,486) |
| Investing | |||||
| Additions to property and equipment | **** | (6,871) | (6,452) | (23,886) | (20,622) |
| Acquisition of companies, net of cash acquired, and purchases of intangible and<br>other assets | **** | (1,263) | (501) | (22,038) | (8,909) |
| Purchases of investments | **** | (4,919) | (14,877) | (26,456) | (62,924) |
| Maturities of investments | **** | 1,237 | 7,246 | 16,451 | 51,792 |
| Sales of investments | **** | 3,225 | 3,297 | 28,443 | 14,008 |
| Other, net | **** | (1,138) | 434 | (2,825) | (922) |
| Net cash used in investing | **** | (9,729) | (10,853) | (30,311) | (27,577) |
| Effect of foreign exchange rates on cash and cash equivalents | **** | (198) | 36 | (141) | (29) |
| Net change in cash and cash equivalents | **** | 1,433 | 522 | (293) | 648 |
| Cash and cash equivalents, beginning of period | **** | 12,498 | 13,702 | 14,224 | 13,576 |
| Cash and cash equivalents, end of period | **** | 13,931 | 14,224 | 13,931 | $14,224 |
All values are in US Dollars.
MICROSOFT CORPORATION
SEGMENT REVENUE AND OPERATING INCOME
(In millions) (Unaudited)
| Three Months Ended<br><br><br>June 30, | |||||
|---|---|---|---|---|---|
| 2022 | |||||
| Revenue | |||||
| Productivity and Business Processes | **** | 16,600 | 14,691 | 63,364 | $53,915 |
| Intelligent Cloud | **** | 20,909 | 17,375 | 75,251 | 60,080 |
| More Personal Computing | **** | 14,356 | 14,086 | 59,655 | 54,093 |
| Total | **** | 51,865 | 46,152 | 198,270 | $168,088 |
| Operating Income | |||||
| Productivity and Business Processes | **** | 7,234 | 6,435 | 29,687 | $24,351 |
| Intelligent Cloud | **** | 8,681 | 7,787 | 32,721 | 26,126 |
| More Personal Computing | **** | 4,619 | 4,873 | 20,975 | 19,439 |
| Total | **** | 20,534 | 19,095 | 83,383 | $69,916 |
All values are in US Dollars.
MICROSOFT CORPORATION
FOURTH QUARTER FINANCIAL HIGHLIGHTS
All growth comparisons relate to the corresponding period in the last fiscal year.
SUMMARY
Revenue increased $5.7 billion or 12% driven by growth in Intelligent Cloud and Productivity and Business Processes. Intelligent Cloud revenue increased driven by Azure and other cloud services. Productivity and Business Processes revenue increased driven by Office 365 Commercial and LinkedIn. More Personal Computing revenue increased driven by Search and news advertising.
Cost of revenue increased $2.4 billion or 17% driven by growth in Microsoft Cloud.
Gross margin increased $3.3 billion or 10% driven by growth in Intelligent Cloud and Productivity and Business Processes.
| • | Gross margin percentage decreased. Excluding the impact of the change in accounting estimate for the<br>useful lives of our server and network equipment, gross margin percentage was relatively unchanged as sales mix shift to cloud was offset by improvement in cloud services. |
|---|---|
| • | Microsoft Cloud gross margin percentage decreased slightly to 69%. Excluding the impact of the change<br>in accounting estimate, Microsoft Cloud gross margin percentage increased 1 point driven by improvement across our cloud services, offset in part by sales mix shift to Azure and other cloud services. |
| --- | --- |
Operating expenses increased $1.8 billion or 14% driven by investments in cloud engineering, LinkedIn, and Nuance.
Operating income increased $1.4 billion or 8% driven by growth in Intelligent Cloud and Productivity and Business Processes.
Revenue, gross margin, and operating income included an unfavorable foreign currency impact of 4%, 5%, and 6%, respectively. Cost of revenue and operating expenses both included a favorable foreign currency impact of 2%.
SEGMENT INFORMATION
Productivity and Business Processes
Revenue increased $1.9 billion or 13%.
| • | Office Commercial products and cloud services revenue increased $807 million or 9%. Office 365<br>Commercial revenue grew 15% driven by seat growth of 14%, with continued momentum in small and medium business and frontline worker offerings, as well as growth in revenue per user. Office Commercial products revenue declined 32% driven by continued<br>customer shift to cloud offerings. |
|---|---|
| • | Office Consumer products and cloud services revenue increased $136 million or 9% driven by<br>Microsoft 365 Consumer subscription revenue. Microsoft 365 Consumer subscribers grew 15% to 59.7 million. |
| --- | --- |
| • | LinkedIn revenue increased $768 million or 26% driven by our Talent Solutions and Marketing<br>Solutions businesses. |
| --- | --- |
| • | Dynamics products and cloud services revenue increased 19% driven by Dynamics 365 growth of 31%. |
| --- | --- |
Operating income increased $799 million or 12%.
| • | Gross margin increased $1.4 billion or 12% driven by growth in Office 365 Commercial and<br>LinkedIn. Gross margin percentage decreased slightly. Excluding the impact of the change in accounting estimate, gross margin percentage increased 1 point driven by improvement across all cloud services. |
|---|---|
| • | Operating expenses increased $593 million or 12% driven by investments in LinkedIn and cloud<br>engineering. |
| --- | --- |
Revenue, gross margin, and operating income included an unfavorable foreign currency impact of 4%, 5%, and 7%, respectively. Operating expenses included a favorable foreign currency impact of 2%.
Intelligent Cloud
Revenue increased $3.5 billion or 20%.
| • | Server products and cloud services revenue increased $3.4 billion or 22% driven by Azure and<br>other cloud services. Azure and other cloud services revenue grew 40% driven by growth in our consumption-based services. Server products revenue decreased 2% due to a strong prior year comparable that included benefit from an increase in multi-year<br>agreements that carry higher in-quarter revenue recognition, offset in part by demand for our hybrid solutions and Nuance. |
|---|---|
| • | Enterprise Services revenue increased $94 million or 5% driven by growth in Enterprise Support<br>Services, offset in part by a decline in Microsoft Consulting Services. |
| --- | --- |
Operating income increased $894 million or 11%.
| • | Gross margin increased $1.9 billion or 15% driven by growth in Azure and other cloud services.<br>Gross margin percentage decreased. Excluding the impact of the change in accounting estimate, gross margin percentage decreased 2 points driven by sales mix shift to Azure and other cloud services, offset in part by improvement in Azure and other<br>cloud services. |
|---|---|
| • | Operating expenses increased $981 million or 20% driven by investments in Azure and Nuance. |
| --- | --- |
Revenue, gross margin, and operating income included an unfavorable foreign currency impact of 5%, 4%, and 7%, respectively. Operating expenses included a favorable foreign currency impact of 2%.
More Personal Computing
Revenue increased $270 million or 2%.
| • | Windows revenue increased $49 million or 1% primarily driven by growth in Windows Commercial,<br>offset in part by a decrease in Windows OEM. Windows Commercial products and cloud services revenue increased 6% driven by demand for Microsoft 365. Windows OEM revenue decreased 2% driven by production shutdowns and a deteriorating PC market. |
|---|---|
| • | Search and news advertising revenue increased $390 million or 15%. Search and news advertising<br>revenue excluding traffic acquisition costs increased 18% driven by higher search volume and revenue per search. |
| --- | --- |
| • | Surface revenue increased $136 million or 10% driven by commercial sales. |
| --- | --- |
| • | Gaming revenue decreased $259 million or 7% driven by a decrease in Xbox content and<br>services and Xbox hardware. Xbox content and services revenue decreased 6% driven by lower engagement hours and monetization in third-party and first-party content, offset in part by growth in Xbox Game Pass<br>subscriptions. Xbox hardware revenue decreased 11%. |
| --- | --- |
Operating income decreased $254 million or 5%.
| • | Gross margin was relatively unchanged. Gross margin percentage decreased driven by increased usage of<br>Windows Commercial cloud services. |
|---|---|
| • | Operating expenses increased $262 million or 8% driven by investments in Windows and Search and<br>news advertising. |
| --- | --- |
Revenue, gross margin, and operating income included an unfavorable foreign currency impact of 3%, 4%, and 5%, respectively. Operating expenses included a favorable foreign currency impact of 2%.
OPERATING EXPENSES
| • | Research and development expenses increased $1.2 billion or 20% driven by investments in cloud<br>engineering and LinkedIn. |
|---|---|
| • | Sales and marketing expenses increased $447 million or 8% driven by Nuance, which contributed 3<br>points of growth, and investments in LinkedIn. Sales and marketing included a favorable foreign currency impact of 3%. |
| --- | --- |
| • | General and administrative expenses increased $227 million or 15% driven by investments in<br>corporate functions, legal expenses, and Nuance, which contributed 5 points of growth, offset in part by lower business taxes. General and administrative included a favorable foreign currency impact of 2%. |
| --- | --- |
OTHER INCOME (EXPENSE), NET
Other income (expense), net was $(47) million driven by net losses on investments, including mark-to-market losses on our equity portfolio.
INCOME TAXES
The current quarter effective tax rate was 18% compared to 15% in the prior year. The increase in our effective tax rate was primarily due to changes in the mix of our income before income taxes between the U.S. and foreign countries, as well as tax benefits in the prior year from an agreement between the U.S. and China related to transfer pricing and from the conclusion of a foreign tax audit.
REMAINING PERFORMANCE OBLIGATIONS
Revenue allocated to remaining performance obligations, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods, was $193 billion as of June 30, 2022, of which $189 billion is related to the commercial portion of revenue. We expect to recognize approximately 45% of this revenue over the next 12 months and the remainder thereafter.