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msft-10q_20221231.htm

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

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.

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.

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.

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.

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	)		(3,088