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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the Quarterly Period Ended December 31, 2022

 

 

 

OR

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the Transition Period From                  to

Commission File Number 001-37845

 

MICROSOFT CORPORATION

 

 

Washington

 

91-1144442

(STATE OF INCORPORATION)

 

(I.R.S. ID)

 

ONE MICROSOFT WAY, REDMOND, Washington 98052-6399

(425) 882-8080

www.microsoft.com/investor

 

 

 

 

 

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 (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer 

 

Accelerated Filer 

Non-accelerated Filer 

 

Smaller Reporting Company 

 

 

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.    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding as of January 19, 2023

 

 

 

 

 

 

 

Common Stock, $0.00000625 par value per share

 

 

7,443,803,533 shares

 

 

 

 

 


 

 

MICROSOFT CORPORATION

FORM 10-Q

For the Quarter Ended December 31, 2022

INDEX

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

 

 

 

a)

Income Statements for the Three and Six Months Ended December 31, 2022 and 2021

3

 

 

 

 

 

 

 

b)

Comprehensive Income Statements for the Three and Six Months Ended December 31, 2022 and 2021

4

 

 

 

 

 

 

 

c)

Balance Sheets as of December 31, 2022 and June 30, 2022

5

 

 

 

 

 

 

 

d)

Cash Flows Statements for the Three and Six Months Ended December 31, 2022 and 2021

6

 

 

 

 

 

 

 

e)

Stockholders’ Equity Statements for the Three and Six Months Ended December 31, 2022 and 2021

7

 

 

 

 

 

 

 

f)

Notes to Financial Statements

8

 

 

 

 

 

 

 

g)

Report of Independent Registered Public Accounting Firm

30

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

31

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

49

 

 

 

 

 

 

Item 4.

Controls and Procedures

49

 

 

 

 

 

PART II. 

OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

50

 

 

 

 

 

 

Item 1A.

Risk Factors

50

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

65

 

 

 

 

 

 

Item 6.

Exhibits

66

 

 

 

 

 

SIGNATURE

67

 

 

 

2


PART I

Item 1

 

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INCOME STATEMENTS

 

(In millions, except per share amounts) (Unaudited)

 

Three Months Ended
December 31,

 

 

Six Months Ended
December 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2022

 

2021

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

$

16,517

 

$

20,779

 

$

32,258

 

$

37,410

 

Service and other

 

 

36,230

 

 

30,949

 

 

70,611

 

 

59,635

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

Total revenue

 

 

52,747

 

 

51,728

 

 

102,869

 

 

97,045

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

 

5,690

 

 

6,331

 

 

9,992

 

 

10,123

 

Service and other

 

 

11,798

 

 

10,629

 

 

22,948

 

 

20,483

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cost of revenue

 

 

17,488

 

 

16,960

 

 

32,940

 

 

30,606

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross margin

 

 

35,259

 

 

34,768

 

 

69,929

 

 

66,439

 

Research and development

 

 

6,844

 

 

5,758

 

 

13,472

 

 

11,357

 

Sales and marketing

 

 

5,679

 

 

5,379

 

 

10,805

 

 

9,926

 

General and administrative

 

 

2,337

 

 

1,384

 

 

3,735

 

 

2,671

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

20,399

 

 

22,247

 

 

41,917

 

 

42,485

 

Other income (expense), net

 

 

(60

)

 

268

 

 

(6

)

 

554

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

20,339

 

 

22,515

 

 

41,911

 

 

43,039

 

Provision for income taxes

 

 

3,914

 

 

3,750

 

 

7,930

 

 

3,769

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

16,425

 

$

18,765

 

$

33,981

 

$

39,270

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

2.20

 

$

2.50

 

$

4.56

 

$

5.23

 

Diluted

 

$

2.20

 

$

2.48

 

$

4.54

 

$

5.19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

7,451

 

 

7,505

 

 

7,454

 

 

7,509

 

Diluted

 

 

7,473

 

 

7,555

 

 

7,479

 

 

7,561

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to accompanying notes.

3


PART I

Item 1

 

COMPREHENSIVE INCOME STATEMENTS

 

(In millions) (Unaudited)

 

Three Months Ended
December 31,

 

 

 

Six Months Ended
December 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2022

 

 

2021

 

 

 

2022

 

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

16,425

 

 

$

18,765

 

 

$

33,981

 

 

$

39,270

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change related to derivatives

 

 

(32

)

 

 

0

 

 

 

(25

)

 

 

2

 

Net change related to investments

 

 

348

 

 

 

(743

)

 

 

(1,549

)

 

 

(1,165

)

Translation adjustments and other

 

 

570

 

 

 

(103

)

 

 

(205

)

 

 

(222

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

886

 

 

 

(846

)

 

 

(1,779

)

 

 

(1,385

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

17,311

 

 

$

17,919

 

 

$

32,202

 

 

$

37,885

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to accompanying notes.

4


PART I

Item 1

 

BALANCE SHEETS

 

(In millions) (Unaudited)

 

 

 

 

 

 

 

 

 

 

December 31,

2022

 

 

June 30,
2022

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

15,646

 

 

$

13,931

 

Short-term investments

 

 

83,862

 

 

 

90,826

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cash, cash equivalents, and short-term investments

 

 

99,508

 

 

 

104,757

 

Accounts receivable, net of allowance for doubtful accounts of $485 and $633

 

 

35,833

 

 

 

44,261

 

Inventories

 

 

2,980

 

 

 

3,742

 

Other current assets

 

 

19,502

 

 

 

16,924

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

157,823

 

 

 

169,684

 

Property and equipment, net of accumulated depreciation of $63,459 and $59,660

 

 

82,755

 

 

 

74,398

 

Operating lease right-of-use assets

 

 

13,624

 

 

 

13,148

 

Equity investments

 

 

7,097

 

 

 

6,891

 

Goodwill

 

 

67,905

 

 

 

67,524

 

Intangible assets, net

 

 

10,354

 

 

 

11,298

 

Other long-term assets

 

 

24,994

 

 

 

21,897

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

364,552

 

 

$

364,840

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

15,354

 

 

$

19,000

 

Current portion of long-term debt

 

 

3,997

 

 

 

2,749

 

Accrued compensation

 

 

9,030

 

 

 

10,661

 

Short-term income taxes

 

 

3,553

 

 

 

4,067

 

Short-term unearned revenue

 

 

36,982

 

 

 

45,538

 

Other current liabilities

 

 

12,802

 

 

 

13,067

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

81,718

 

 

 

95,082

 

Long-term debt

 

 

44,119

 

 

 

47,032

 

Long-term income taxes

 

 

24,169

 

 

 

26,069

 

Long-term unearned revenue

 

 

2,644

 

 

 

2,870

 

Deferred income taxes

 

 

289

 

 

 

230

 

Operating lease liabilities

 

 

11,998

 

 

 

11,489

 

Other long-term liabilities

 

 

16,479

 

 

 

15,526

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

181,416

 

 

 

198,298

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock and paid-in capital – shares authorized 24,000; outstanding 7,447 and 7,464

 

 

90,225

 

 

 

86,939

 

Retained earnings

 

 

99,368

 

 

 

84,281

 

Accumulated other comprehensive loss

 

 

(6,457

)

 

 

(4,678

)

 

 

 

 

 

 

 

 

 

 

 

 

Total stockholders’ equity

 

 

183,136

 

 

 

166,542

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

364,552

 

 

$

364,840

 

 

 

 

 

 

 

 

 

 

 

Refer to accompanying notes.

 

5


PART I

Item 1

 

 

CASH FLOWS STATEMENTS

 

(In millions) (Unaudited)

 

Three Months Ended

December 31,

 

 

 

Six Months Ended

December 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2022

 

 

2021

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

16,425

 

 

$

18,765

 

 

$

33,981

 

 

$

39,270

 

Adjustments to reconcile net income to net cash from operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, amortization, and other

 

 

3,648

 

 

 

3,496

 

 

 

6,438

 

 

 

6,708

 

Stock-based compensation expense

 

 

2,538

 

 

 

1,897

 

 

 

4,730

 

 

 

3,599

 

Net recognized losses (gains) on investments and derivatives

 

 

214

 

 

 

(307

)

 

 

192

 

 

 

(671

)

Deferred income taxes

 

 

(1,305

)

 

 

183

 

 

 

(2,496

)

 

 

(5,787

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(3,164

)

 

 

(5,543

)

 

 

8,565

 

 

 

4,943

 

Inventories

 

 

1,305

 

 

 

394

 

 

 

762

 

 

 

(383

)

Other current assets

 

 

(392

)

 

 

830

 

 

 

(724

)

 

 

1,770

 

Other long-term assets

 

 

(65

)

 

 

(908

)

 

 

(731

)

 

 

(1,506

)

Accounts payable

 

 

(2,058

)

 

 

235

 

 

 

(3,625

)

 

 

(236

)

Unearned revenue

 

 

(5,186

)

 

 

(4,343

)

 

 

(8,508

)

 

 

(7,228

)

Income taxes

 

 

(2,863

)

 

 

(2,057

)

 

 

(2,453

)

 

 

596

 

Other current liabilities

 

 

1,819

 

 

 

1,745

 

 

 

(2,205

)

 

 

(2,398

)

Other long-term liabilities

 

 

257

 

 

 

93

 

 

 

445

 

 

 

343

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash from operations

 

 

11,173

 

 

 

14,480

 

 

 

34,371

 

 

 

39,020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repayments of debt

 

 

(750

)

 

 

0

 

 

 

(1,750

)

 

 

(4,826

)

Common stock issued

 

 

243

 

 

 

291

 

 

 

818

 

 

 

903

 

Common stock repurchased

 

 

(5,459

)

 

 

(7,433

)

 

 

(11,032

)

 

 

(15,117

)

Common stock cash dividends paid

 

 

(5,066

)

 

 

(4,652

)

 

 

(9,687

)

 

 

(8,858

)

Other, net

 

 

(317

)

 

 

(192

)

 

 

(581

)

 

 

(364

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in financing

 

 

(11,349

)

 

 

(11,986

)

 

 

(22,232

)

 

 

(28,262

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additions to property and equipment

 

 

(6,274

)

 

 

(5,865

)

 

 

(12,557

)

 

 

(11,675

)

Acquisition of companies, net of cash acquired, and purchases of intangible and other assets

 

 

(679

)

 

 

(850

)

 

 

(1,028

)

 

 

(2,056

)

Purchases of investments

 

 

(11,599

)

 

 

(2,505

)

 

 

(16,612

)

 

 

(12,814

)

Maturities of investments

 

 

6,928

 

 

 

5,253

 

 

 

13,590

 

 

 

14,115

 

Sales of investments

 

 

4,775

 

 

 

2,895

 

 

 

7,486

 

 

 

8,525

 

Other, net

 

 

(301

)

 

 

(89

)

 

 

(1,161

)

 

 

(506

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in investing

 

 

(7,150

)

 

 

(1,161

)

 

 

(10,282

)

 

 

(4,411

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of foreign exchange rates on cash and cash equivalents

 

 

88

 

 

 

106

 

 

 

(142

)

 

 

33

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

(7,238

)

 

 

1,439

 

 

 

1,715

 

 

 

6,380

 

Cash and cash equivalents, beginning of period

 

 

22,884

 

 

 

19,165

 

 

 

13,931

 

 

 

14,224

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

15,646

 

 

$

20,604

 

 

$

15,646

 

 

$

20,604

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to accompanying notes.

 

6


PART I

Item 1

 

 

STOCKHOLDERS’ EQUITY STATEMENTS

 

(In millions, except per share amounts) (Unaudited)

 

Three Months Ended

December 31,

 

 

 

Six Months Ended

December 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2022

 

 

2021

 

 

 

2022

 

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock and paid-in capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

88,535

 

 

$

83,751

 

 

$

86,939

 

 

$

83,111

 

 

Common stock issued

 

 

243

 

 

 

291

 

 

 

818

 

 

 

903

 

 

Common stock repurchased

 

 

(1,090

)

 

 

(1,411

)

 

 

(2,261

)

 

 

(