8-K
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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

of Incorporation)

 

(Commission

File Number)

 

(IRS Employer

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))

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
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)

   

Operating income was $20.5 billion and increased 8% (up 14% in constant currency)

   

Net income was $16.7 billion and increased 2% (up 7% in constant currency)

   

Diluted earnings per share was $2.23 and increased 3% (up 8% in constant currency)

“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 earnings per share $(595) million and $(0.04), respectively. Additional details are provided in the Earnings Call Slides.

   

Extended production shutdowns in China that continued through May and a deteriorating PC market in June contributed to a negative impact on Windows OEM revenue of over $(300) million

   

Reductions in advertising spend contributed to a negative impact on LinkedIn as well as Search and news advertising revenue of over $(100) million

   

With the ongoing war in Ukraine, we made the decision to significantly scale down our operations in Russia. As a result, we recorded operating expenses of $126 million related to bad debt expense, asset impairments, and severance.

   

As part of a strategic realignment of our business groups, we recorded employee severance expenses of $113 million, excluding Russia


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) driven by Office 365 Commercial revenue growth of 15% (up 19% in constant currency)

   

Office Consumer products and cloud services revenue increased 9% (up 12% in constant currency) and Microsoft 365 Consumer subscribers grew to 59.7 million

   

LinkedIn revenue increased 26% (up 29% in constant currency)

   

Dynamics products and cloud services revenue increased 19% (up 24% in constant currency) driven by Dynamics 365 revenue growth of 31% (up 36% in constant currency)

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 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)

   

Xbox content and services revenue decreased 6% (down 4% in constant currency)

   

Search and news advertising revenue excluding traffic acquisition costs increased 18% (up 21% in constant currency)

   

Surface revenue increased 10% (up 15% in constant currency)

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)

   

Net income was $72.7 billion GAAP and increased 19%, and $69.4 billion non-GAAP and increased 15% (up 16% in constant currency)

   

Diluted earnings per share was $9.65 GAAP and increased 20%, and $9.21 non-GAAP and increased 16% (up 17% in constant currency)

   

GAAP results include a $3.3 billion net income tax benefit explained in the Non-GAAP Definition section below


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  

 

    

  Operating  

  Income  

 

    

  Net Income  

 

    

  Diluted  

  Earnings per  

  Share  

 

 

  2021 As Reported (GAAP)

  

 

$168,088

 

  

 

$69,916

 

  

 

$61,271

 

  

 

$8.05

 

  Net income tax benefit related to India Supreme Court decision on withholding taxes

  

 

—  

 

  

 

—  

 

  

 

(620)

 

  

 

(0.08)

 

  2021 As Adjusted (non-GAAP)

  

 

$168,088

 

  

 

$69,916

 

  

 

$60,651

 

  

 

$7.97

 

  2022 As Reported (GAAP)

  

 

$198,270

 

  

 

$83,383

 

  

 

$72,738

 

  

 

$9.65

 

  Net income tax benefit related to transfer of intangible properties

  

 

—  

 

  

 

—  

 

  

 

(3,291)

 

  

 

(0.44)

 

  2022 As Adjusted (non-GAAP)

  

 

$198,270

 

  

 

$83,383

 

  

 

$69,447

 

  

 

$9.21

 

  Percentage Change Y/Y (GAAP)

  

 

18%

 

  

 

19%

 

  

 

19%

 

  

 

20%

 

  Percentage Change Y/Y (non-GAAP)

  

 

18%

 

  

 

19%

 

  

 

15%

 

  

 

16%

 

  Percentage Change Y/Y (non-GAAP) Constant Currency

  

 

19%

 

  

 

21%

 

  

 

16%

 

  

 

17%

 

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 Supreme Court 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  

 

    

  Operating  

  Income  

 

    

  Net Income  

 

    

  Diluted  

  Earnings per  

  Share  

 

 

  2021 As Reported (GAAP)

  

 

$46,152

 

  

 

$19,095

 

  

 

$16,458

 

  

 

$2.17

 

  2022 As Reported (GAAP)

  

 

$51,865

 

  

 

$20,534

 

  

 

$16,740

 

  

 

$2.23

 

  Percentage Change Y/Y (GAAP)

  

 

12%

 

  

 

8%

 

  

 

2%

 

  

 

3%

 

  Constant Currency Impact

  

 

$(1,685)

 

  

 

$(1,159)

 

  

 

$(825)

 

  

 

$(0.11)

 

  Percentage Change Y/Y (non-GAAP) Constant Currency

  

 

16%

 

  

 

14%

 

  

 

7%

 

  

 

8%

 

 

     

Twelve Months Ended June 30,

 

 

   ($ in millions, except per share amounts)

 

  

  Revenue  

 

    

  Operating  

  Income  

 

    

  Net Income  

 

    

  Diluted  

  Earnings per  

  Share  

 

 

  2021 As Reported (GAAP)

  

 

$168,088

 

  

 

$69,916

 

  

 

$61,271

 

  

 

$8.05

 

  2021 As Adjusted (non-GAAP)

  

 

$168,088

 

  

 

$69,916

 

  

 

$60,651

 

  

 

$7.97

 

  2022 As Reported (GAAP)

  

 

$198,270

 

  

 

$83,383

 

  

 

$72,738

 

  

 

$9.65

 

  2022 As Adjusted (non-GAAP)

  

 

$198,270

 

  

 

$83,383

 

  

 

$69,447

 

  

 

$9.21

 

  Percentage Change Y/Y (GAAP)

  

 

18%

 

  

 

19%

 

  

 

19%

 

  

 

20%

 

  Percentage Change Y/Y (non-GAAP)

  

 

18%

 

  

 

19%

 

  

 

15%

 

  

 

16%

 

  Constant Currency Impact

  

 

$(2,087)

 

  

 

$(1,292)

 

  

 

$(1,163)

 

  

 

$(0.15)

 

  Percentage Change Y/Y (non-GAAP) Constant Currency

  

 

19%

 

  

 

21%

 

  

 

16%

 

  

 

17%

 

Segment Revenue Constant Currency Reconciliation

 

     

Three Months Ended June 30,

 

 

   ($ in millions)

 

  

Productivity and

Business Processes

 

    

Intelligent Cloud

 

    

More Personal

      Computing      

 

 

  2021 As Reported (GAAP)

  

 

$14,691

 

  

 

$17,375

 

  

 

$14,086

 

  2022 As Reported (GAAP)

  

 

$16,600

 

  

 

$20,909

 

  

 

$14,356

 

  Percentage Change Y/Y (GAAP)

  

 

13%

 

  

 

20%

 

  

 

2%

 

  Constant Currency Impact

  

 

$(584)

 

  

 

$(728)

 

  

 

$(373)

 

  Percentage Change Y/Y (non-GAAP) Constant Currency

  

 

17%

 

  

 

25%

 

  

 

5%

 


Selected Product and Service Revenue Constant Currency Reconciliation

 

     

Three Months Ended June 30, 2022

 

 
     

Percentage Change

Y/Y (GAAP)

 

    

Constant Currency

Impact

 

    

Percentage Change

Y/Y (non-GAAP)

Constant Currency

 

 

  Office Commercial products and cloud services

  

 

9%

 

  

 

4%

 

  

 

13%

 

  Office 365 Commercial

  

 

15%

 

  

 

4%

 

  

 

19%

 

  Office Consumer products and cloud services

  

 

9%

 

  

 

3%

 

  

 

12%

 

  LinkedIn

  

 

26%

 

  

 

3%

 

  

 

29%

 

  Dynamics products and cloud services

  

 

19%

 

  

 

5%

 

  

 

24%

 

  Dynamics 365

  

 

31%

 

  

 

5%

 

  

 

36%

 

  Server products and cloud services

  

 

22%

 

  

 

4%

 

  

 

26%

 

  Azure and other cloud services

  

 

40%

 

  

 

6%

 

  

 

46%

 

  Windows OEM

  

 

(2)%

 

  

 

0%

 

  

 

(2)%

 

  Windows Commercial products and cloud services

  

 

6%

 

  

 

6%

 

  

 

12%

 

  Xbox content and services

  

 

(6)%

 

  

 

2%

 

  

 

(4)%

 

  Search and news 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;

 

   

increasing focus on cloud-based services presenting execution and competitive risks;

 

   

significant investments in products and services that may not achieve expected returns;

 

   

acquisitions, joint ventures, and strategic alliances that may have an adverse effect on our business;

 

   

impairment of goodwill or amortizable intangible assets causing a significant charge to earnings;

 

   

cyberattacks and security vulnerabilities that could lead to reduced revenue, increased costs, liability claims, or harm to our reputation or competitive position;

 

   

disclosure and misuse of personal data that could cause liability and harm to our reputation;


   

the possibility that we may not be able to protect information stored in our products and services from use by others;

 

   

abuse of our advertising or social platforms that may harm our reputation or user engagement;

 

   

the development of the internet of things presenting security, privacy, and execution risks;

 

   

issues about the use of artificial intelligence in our offerings that may result in competitive harm, legal liability, or reputational harm;

 

   

excessive outages, data losses, and disruptions of our online services if we fail to maintain an adequate operations infrastructure;

 

   

quality or supply problems;

 

   

government litigation and regulatory activity relating to competition rules that may limit how we design and market our products;

 

   

potential consequences under trade, anti-corruption, and other laws resulting from our global operations;

 

   

laws and regulations relating to the handling of personal data that may impede the adoption of our services or result in increased costs, legal claims, fines, or reputational damage;

 

   

claims against us that may result in adverse outcomes in legal disputes;

 

   

uncertainties relating to our business with government customers;

 

   

additional tax liabilities;

 

   

the possibility that we may fail to protect our source code;

 

   

legal changes, our evolving business model, piracy, and other factors may decrease the value of our intellectual property;

 

   

claims that Microsoft has infringed the intellectual property rights of others;

 

   

damage to our reputation or our brands that may harm our business and operating results;

 

   

adverse economic or market conditions that may harm our business;

 

   

catastrophic events or geo-political conditions, such as the COVID-19 pandemic, that may disrupt our business;

 

   

exposure to increased economic and operational uncertainties from operating a global business, including the effects of foreign currency exchange and

 

   

the dependence of our business on our ability to attract and retain talented employees.

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.

For more information, press only:

Microsoft Media Relations, WE Communications for Microsoft, (425) 638-7777, rrt@we-worldwide.com

For more information, 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

June 30,

    

Twelve Months Ended

June 30,

 
    

     2022

    

          2021

    

     2022

    

         2021

 

 

 

 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 

 

 

 


MICROSOFT CORPORATION

COMPREHENSIVE INCOME STATEMENTS

(In millions) (Unaudited)

 

    

Three Months Ended

June 30,

    

Twelve Months Ended

June 30,

 
    

         2022

    

         2021

    

         2022

    

         2021

 

 

 

 Net income

  

 

$16,740 

 

  

 

$16,458 

 

  

 

$72,738 

 

  

 

$61,271 

 

  

 

 

    

 

 

    

 

 

    

 

 

 

 Other comprehensive income (loss), net of tax:

           

 Net change related to derivatives

  

 

(2) 

 

  

 

(11) 

 

  

 

 

  

 

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 

 

  

 

 

    

 

 

    

 

 

    

 

 

 


MICROSOFT CORPORATION

BALANCE SHEETS

(In millions) (Unaudited)

 

     June 30,
2022 
    

June 30,

2021 

 

 

 

 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 investments

  

 

104,757 

 

  

 

130,334 

 

 Accounts receivable, net of allowance for doubtful accounts of $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 $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’ 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 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 

 

  

 

 

    

 

 

 


MICROSOFT CORPORATION

CASH FLOWS STATEMENTS

(In millions) (Unaudited)

 

     Three Months Ended 
June 30, 
     Twelve Months Ended 
June 30, 
 
                 2022                  2021                  2022                  2021  

 

 

 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

                          (1,754)   

 Repayments of debt

                   (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 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   
  

 

 

    

 

 

    

 

 

    

 

 

 


MICROSOFT CORPORATION

SEGMENT REVENUE AND OPERATING INCOME

(In millions) (Unaudited)

 

    

Three Months Ended

June 30,

     Twelve Months Ended
June 30,
 
     2022      2021       2022      2021   

 

 

 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   
  

 

 

    

 

 

    

 

 

    

 

 

 


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 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 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 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 customer shift to cloud offerings.


   

Office Consumer products and cloud services revenue increased $136 million or 9% driven by 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 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 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 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 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 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 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. 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 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, 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 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 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 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 Windows Commercial cloud services.

 

   

Operating expenses increased $262 million or 8% driven by investments in Windows and Search and 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 engineering and LinkedIn.

 

   

Sales and marketing expenses increased $447 million or 8% driven by Nuance, which contributed 3 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 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.