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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 September 30, 2023

 

 

 

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 October 19, 2023

 

 

 

Common Stock, $0.00000625 par value per share

7,432,262,329 shares

 

 

 


 

MICROSOFT CORPORATION

FORM 10-Q

For the Quarter Ended September 30, 2023

INDEX

 

 

Page

PART I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

a)

Income Statements for the Three Months Ended September 30, 2023 and 2022

3

 

 

 

 

 

b)

Comprehensive Income Statements for the Three Months Ended September 30, 2023 and 2022

4

 

 

 

 

 

c)

Balance Sheets as of September 30, 2023 and June 30, 2023

5

 

 

 

 

 

d)

Cash Flows Statements for the Three Months Ended September 30, 2023 and 2022

6

 

 

 

 

 

e)

Stockholders’ Equity Statements for the Three Months Ended September 30, 2023 and 2022

7

 

 

 

 

 

f)

Notes to Financial Statements

8

 

 

 

 

 

g)

Report of Independent Registered Public Accounting Firm

29

 

 

 

 

Item 2.

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

30

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

43

 

 

 

 

Item 4.

Controls and Procedures

43

 

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

 

Item 1.

Legal Proceedings

44

 

 

 

 

Item 1A.

Risk Factors

44

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

58

 

 

 

 

 

Item 5.

Other Information

59

 

 

 

 

Item 6.

Exhibits

60

 

 

 

 

SIGNATURE

61

 

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 September 30,

 

2023

2022

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

Product

 

$

15,535

 

$

15,741

 

Service and other

 

 

40,982

 

 

34,381

 

 

 

 

 

 

 

 

Total revenue

56,517

50,122

 

 

 

 

 

 

 

 

Cost of revenue:

 

 

 

 

 

Product

 

 

3,531

 

4,302

 

Service and other

 

 

12,771

 

 

11,150

 

 

 

 

 

 

 

 

Total cost of revenue

16,302

15,452

 

 

 

 

 

 

 

 

Gross margin

40,215

34,670

 

Research and development

6,659

6,628

 

Sales and marketing

5,187

5,126

 

General and administrative

1,474

1,398

 

 

 

 

 

 

 

 

 

Operating income

26,895

21,518

 

Other income, net

389

 

54

 

 

 

 

 

 

 

 

 

Income before income taxes

27,284

21,572

 

Provision for income taxes

4,993

4,016

 

 

 

 

 

 

 

 

 

Net income

$

22,291

 

$

17,556

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

Basic

$

3.00

 

$

2.35

 

Diluted

$

2.99

 

$

2.35

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

Basic

7,429

7,457

 

Diluted

7,462

7,485

 

 

 

 

 

 

 

 

 

Refer to accompanying notes.

3


PART I

Item 1

 

COMPREHENSIVE INCOME STATEMENTS

 

(In millions) (Unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

2023

2022

 

 

 

Net income

$

22,291

 

$

17,556

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

Net change related to derivatives

21

 

7

 

Net change related to investments

(260

)

(1,897

)

Translation adjustments and other

(355

)

(775

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss

(594

)

(2,665

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

$

21,697

 

$

14,891

 

 

 

 

 

 

 

 

 

Refer to accompanying notes.

4


PART I

Item 1

 

BALANCE SHEETS

 

(In millions) (Unaudited)

 

 

 

 

September 30,

2023

June 30,
2023

 

 

 

 

 

 

 

 

Assets

Current assets:

Cash and cash equivalents

$

80,452

$

34,704

Short-term investments

63,499

76,558

 

 

 

 

 

 

 

 

 

Total cash, cash equivalents, and short-term investments

143,951

111,262

Accounts receivable, net of allowance for doubtful accounts of $512 and $650

36,953

48,688

Inventories

3,000

2,500

Other current assets

23,682

21,807

 

 

 

 

 

 

 

Total current assets

207,586

184,257

Property and equipment, net of accumulated depreciation of $69,486 and $68,251

102,502

95,641

Operating lease right-of-use assets

 

 

15,435

 

 

 

14,346

 

Equity investments

11,423

9,879

Goodwill

67,790

67,886

Intangible assets, net

8,895

9,366

Other long-term assets

32,154

30,601

 

 

 

 

 

 

 

 

Total assets

$

445,785

$

411,976

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$

19,307

$

18,095

Short-term debt

 

 

25,808

 

 

 

0

 

Current portion of long-term debt

 

 

3,748

 

 

 

5,247

 

Accrued compensation

6,990

11,009

Short-term income taxes

8,035

 

4,152

Short-term unearned revenue

46,429

50,901

Other current liabilities

14,475

14,745

 

 

 

 

 

 

 

Total current liabilities

124,792

104,149

Long-term debt

41,946

41,990

Long-term income taxes

 

 

22,983

 

 

 

25,560

 

Long-term unearned revenue

2,759

2,912

Deferred income taxes

470

433

Operating lease liabilities

 

 

13,487

 

 

 

12,728

 

Other long-term liabilities

18,634

17,981

 

 

 

 

 

 

 

Total liabilities

225,071

205,753

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

Stockholders’ equity:

Common stock and paid-in capital – shares authorized 24,000; outstanding 7,431 and 7,432

95,508

93,718

Retained earnings

132,143

118,848

Accumulated other comprehensive loss

(6,937

)

(6,343

)

 

 

 

 

 

 

 

Total stockholders’ equity

220,714

206,223

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

$

445,785

$

411,976

 

 

 

Refer to accompanying notes.

5


PART I

Item 1

 

CASH FLOWS STATEMENTS

 

(In millions) (Unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

2023

2022

 

 

Operations

Net income

$

22,291

 

$

17,556

 

Adjustments to reconcile net income to net cash from operations:

 

 

 

Depreciation, amortization, and other

3,921

 

2,790

 

Stock-based compensation expense

2,507

 

2,192

 

Net recognized losses (gains) on investments and derivatives

14

 

(22

)

Deferred income taxes

(568

)

(1,191

)

Changes in operating assets and liabilities:

 

 

 

Accounts receivable

11,034

 

11,729

 

Inventories

(505

)

 

 

(543

)

Other current assets

(796

)

(332

)

Other long-term assets

(2,013

)

(666

)

Accounts payable

1,214

 

(1,567

)

Unearned revenue

 

 

(4,126

)

 

 

(3,322

)

Income taxes

 

 

1,425

 

 

 

410

 

Other current liabilities

(4,106

)

(4,024

)

Other long-term liabilities

291

 

188

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash from operations

30,583

 

23,198

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financing

 

 

 

 

Proceeds from issuance of debt, maturities of 90 days or less, net

 

 

18,692

 

 

 

0

 

Proceeds from issuance of debt

 

 

7,073

 

 

 

0

 

Repayments of debt

(1,500

)

(1,000

)

Common stock issued

685

 

575

 

Common stock repurchased

(4,831

)

(5,573

)

Common stock cash dividends paid

(5,051

)

(4,621

)

Other, net

(307

)

(264

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash from (used in) financing

14,761

 

(10,883

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investing

 

 

 

 

Additions to property and equipment

(9,917

)

(6,283

)

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

(1,186

)

(349

)

Purchases of investments

(8,460

)

(5,013

)

Maturities of investments

15,718

 

6,662

 

Sales of investments

5,330

 

2,711

 

Other, net

 

 

(982

)

 

 

(860

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash from (used in) investing

503

 

(3,132

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of foreign exchange rates on cash and cash equivalents

(99

)

(230

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

45,748

 

8,953

 

Cash and cash equivalents, beginning of period

34,704

 

13,931

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

$

80,452

 

$

22,884

 

 

 

 

 

 

 

 

 

 

Refer to accompanying notes.

6


PART I

Item 1

 

STOCKHOLDERS’ EQUITY STATEMENTS

 

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

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

2023

2022

 

 

 

 

Common stock and paid-in capital

 

 

Balance, beginning of period

$

93,718

$

86,939

 

Common stock issued

685

 

 

575

 

Common stock repurchased

(1,401

)

(1,171

)

Stock-based compensation expense

2,507

 

2,192

 

Other, net

(1

)

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, end of period

95,508

88,535

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained earnings

 

 

 

Balance, beginning of period

118,848

84,281

 

Net income

22,291

 

17,556

 

Common stock cash dividends

(5,571

)

 

(5,064

)

Common stock repurchased

(3,425

)

 

(4,399

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, end of period

132,143

 

92,374

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated other comprehensive loss

 

 

Balance, beginning of period

(6,343

)

(4,678

)

Other comprehensive loss

(594

)

(2,665

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, end of period

(6,937

)

(7,343

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total stockholders’ equity

$

220,714

$

173,566

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.75

 

 

$

0.68

 

 

 

 

 

 

 

 

 

 

Refer to accompanying notes.

7


PART I

Item 1

 

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 — ACCOUNTING POLICIES

Accounting Principles

Our unaudited interim consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, the unaudited interim consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in the Microsoft Corporation fiscal year 2023 Form 10-K filed with the U.S. Securities and Exchange Commission on July 27, 2023.

We have recast certain prior period amounts to conform to the current period presentation. The recast of these prior period amounts had no impact on our consolidated balance sheets, consolidated income statements, or consolidated cash flows statements.

Principles of Consolidation

The consolidated financial statements include the accounts of Microsoft Corporation and its subsidiaries. Intercompany transactions and balances have been eliminated.

Estimates and Assumptions

Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Examples of estimates and assumptions include: for revenue recognition, determining the nature and timing of satisfaction of performance obligations, and determining the standalone selling price of performance obligations, variable consideration, and other obligations such as product returns and refunds; loss contingencies; product warranties; the fair value of and/or potential impairment of goodwill and intangible assets for our reporting units; product life cycles; useful lives of our tangible and intangible assets; allowances for doubtful accounts; the market value of, and demand for, our inventory; stock-based compensation forfeiture rates; when technological feasibility is achieved for our products; the potential outcome of uncertain tax positions that have been recognized in our consolidated financial statements or tax returns; and determining the timing and amount of impairments for investments. Actual results and outcomes may differ from management’s estimates and assumptions due to risks and uncertainties.

Financial Instruments

Investments

We consider all highly liquid interest-earning investments with a maturity of three months or less at the date of purchase to be cash equivalents. The fair values of these investments approximate their carrying values. In general, investments with original maturities of greater than three months and remaining maturities of less than one year are classified as short-term investments. Investments with maturities beyond one year may be classified as short-term based on their highly liquid nature and because such marketable securities represent the investment of cash that is availab