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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, 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 January 25, 2024

 

 

 

Common Stock, $0.00000625 par value per share

7,430,436,229 shares

 

 

 


 

MICROSOFT CORPORATION

FORM 10-Q

For the Quarter Ended December 31, 2023

INDEX

 

 

Page

PART I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

a)

Income Statements for the Three and Six Months Ended December 31, 2023 and 2022

3

 

 

 

 

 

b)

Comprehensive Income Statements for the Three and Six Months Ended December 31, 2023 and 2022

4

 

 

 

 

 

c)

Balance Sheets as of December 31, 2023 and June 30, 2023

5

 

 

 

 

 

d)

Cash Flows Statements for the Three and Six Months Ended December 31, 2023 and 2022

6

 

 

 

 

 

e)

Stockholders’ Equity Statements for the Three and Six Months Ended December 31, 2023 and 2022

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

48

 

 

 

 

Item 4.

Controls and Procedures

48

 

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

 

Item 1.

Legal Proceedings

49

 

 

 

 

Item 1A.

Risk Factors

49

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

63

 

 

 

 

 

Item 5.

Other Information

64

 

 

 

 

Item 6.

Exhibits

65

 

 

 

 

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,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2023

2022

 

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

$

18,941

 

$

16,517

 

 

$

34,476

 

$

32,258

 

Service and other

 

 

43,079

 

 

36,230

 

 

 

84,061

 

 

70,611

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

62,020

52,747

 

 

 

118,537

 

 

102,869

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

 

5,964

 

5,690

 

 

 

9,495

 

 

9,992

 

Service and other

 

 

13,659

 

 

11,798

 

 

 

26,430

 

 

22,948

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cost of revenue

19,623

17,488

 

 

 

35,925

 

 

32,940

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross margin

42,397

35,259

 

 

 

82,612

 

 

69,929

 

Research and development

7,142

6,844

 

 

 

13,801

 

 

13,472

 

Sales and marketing

6,246

5,679

 

 

 

11,433

 

 

10,805

 

General and administrative

1,977

2,337

 

 

 

3,451

 

 

3,735

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

27,032

20,399

 

 

 

53,927

 

 

41,917

 

Other expense, net

(506

)

(60

)

 

 

(117

)

 

(6

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

26,526

20,339

 

 

 

53,810

 

 

41,911

 

Provision for income taxes

4,656

3,914

 

 

 

9,649

 

 

7,930

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

21,870

 

$

16,425

 

 

$

44,161

 

$

33,981

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

Basic

$

2.94

 

$

2.20

 

 

$

5.94

 

$

4.56

 

Diluted

$

2.93

 

$

2.20

 

 

$

5.92

 

$

4.54

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

Basic

7,432

7,451

 

 

 

7,431

 

 

7,454

 

Diluted

7,468

7,473

 

 

 

7,465

 

 

7,479

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2023

2022

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

Net income

$

21,870

 

$

16,425

 

$

44,161

 

$

33,981

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

Net change related to derivatives

(3

)

(32

)

 

18

 

 

(25

)

Net change related to investments

1,331

 

348

 

 

1,071

 

 

(1,549

)

Translation adjustments and other

660

 

570

 

 

305

 

 

(205

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

1,988

 

886

 

 

1,394

 

 

(1,779

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

$

23,858

 

$

17,311

 

$

45,555

 

$

32,202

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to accompanying notes.

4


PART I

Item 1

 

BALANCE SHEETS

 

(In millions) (Unaudited)

 

 

 

 

December 31,

2023

June 30,
2023

 

 

 

 

 

 

 

 

Assets

Current assets:

Cash and cash equivalents

$

17,305

$

34,704

Short-term investments

63,712

76,558

 

 

 

 

 

 

 

 

 

Total cash, cash equivalents, and short-term investments

81,017

111,262

Accounts receivable, net of allowance for doubtful accounts of $591 and $650

42,831

48,688

Inventories

1,615

2,500

Other current assets

21,930

21,807

 

 

 

 

 

 

 

Total current assets

147,393

184,257

Property and equipment, net of accumulated depreciation of $72,949 and $68,251

112,308

95,641

Operating lease right-of-use assets

 

 

16,398

 

 

 

14,346

 

Equity investments

13,367

9,879

Goodwill

118,931

67,886

Intangible assets, net

29,896

9,366

Other long-term assets

32,265

30,601

 

 

 

 

 

 

 

 

Total assets

$

470,558

$

411,976

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$

17,695

$

18,095

Short-term debt

 

 

27,041

 

 

 

0

 

Current portion of long-term debt

 

 

2,250

 

 

 

5,247

 

Accrued compensation

8,813

11,009

Short-term income taxes

5,787

 

4,152

Short-term unearned revenue

43,068

50,901

Other current liabilities

16,362

14,745

 

 

 

 

 

 

 

Total current liabilities

121,016

104,149

Long-term debt

44,928

41,990

Long-term income taxes

 

 

25,890

 

 

 

25,560

 

Long-term unearned revenue

2,966

2,912

Deferred income taxes

2,548

433

Operating lease liabilities

 

 

14,155

 

 

 

12,728

 

Other long-term liabilities

20,787

17,981

 

 

 

 

 

 

 

Total liabilities

232,290

205,753

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

Stockholders’ equity:

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

97,480

93,718

Retained earnings

145,737

118,848

Accumulated other comprehensive loss

(4,949

)

(6,343

)

 

 

 

 

 

 

 

Total stockholders’ equity

238,268

206,223

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

$

470,558

$

411,976

 

 

 

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,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2023

2022

 

 

2023

 

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

Operations

 

 

 

 

 

 

 

 

Net income

$

21,870

 

$

16,425

 

 

$

44,161

 

 

$

33,981

 

Adjustments to reconcile net income to net cash from operations:

 

 

 

 

 

 

 

 

 

 

 

Depreciation, amortization, and other

5,959

 

3,648

 

 

 

9,880

 

 

 

6,438

 

Stock-based compensation expense

2,828

 

2,538

 

 

 

5,335

 

 

 

4,730

 

Net recognized losses on investments and derivatives

198

 

214

 

 

 

212

 

 

 

192

 

Deferred income taxes

(1,702

)

(1,305

)

 

 

(2,270

)

 

 

(2,496

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

(2,951

)

(3,164

)

 

 

8,083

 

 

 

8,565

 

Inventories

1,474

 

 

 

1,305

 

 

 

969

 

 

 

762

 

Other current assets

725

 

(392

)

 

 

(71

)

 

 

(724

)

Other long-term assets

(1,427

)

(65

)

 

 

(3,440

)

 

 

(731

)

Accounts payable

(2,521

)

(2,058

)

 

 

(1,307

)

 

 

(3,625

)

Unearned revenue

 

 

(5,538

)

 

 

(5,186

)

 

 

(9,664

)

 

 

(8,508

)

Income taxes

 

 

(1,554

)

 

 

(2,863

)

 

 

(129

)

 

 

(2,453

)

Other current liabilities

1,518

 

1,819

 

 

 

(2,588

)

 

 

(2,205

)

Other long-term liabilities

(26

)

257

 

 

 

265

 

 

 

445

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash from operations

18,853

 

11,173

 

 

 

49,436

 

 

 

34,371

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financing

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

(8,490

)

 

 

0

 

 

 

10,202

 

 

 

0

 

Proceeds from issuance of debt

 

 

10,773

 

 

 

0

 

 

 

17,846

 

 

 

0

 

Repayments of debt

(2,916

)

(750

)

 

 

(4,416

)

 

 

(1,750

)

Common stock issued

261

 

243

 

 

 

946

 

 

 

818

 

Common stock repurchased

(4,000

)

(5,459

)

 

 

(8,831

)

 

 

(11,032

)

Common stock cash dividends paid

(5,574

)

(5,066

)

 

 

(10,625

)

 

 

(9,687

)

Other, net

(201

)

(317

)

 

 

(508

)

 

 

(581

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash from (used in) financing

(10,147

)

(11,349

)

 

 

4,614

 

 

 

(22,232

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investing

 

 

 

 

 

 

 

 

 

 

 

 

Additions to property and equipment

(9,735

)

(6,274

)

 

 

(19,652

)

 

 

(12,557

)

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

(65,029

)

(679

)

 

 

(66,215

)

 

 

(1,028

)

Purchases of investments

(4,258

)

(11,599

)

 

 

(12,718

)

 

 

(16,612

)

Maturities of investments

4,150

 

6,928

 

 

 

19,868

 

 

 

13,590

 

Sales of investments

1,600

 

4,775

 

 

 

6,930

 

 

 

7,486

 

Other, net

 

 

1,347

 

 

 

(301

)

 

 

365

 

 

 

(1,161

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in investing

(71,925

)

(7,150

)

 

 

(71,422

)

 

 

(10,282

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of foreign exchange rates on cash and cash equivalents

72

 

88

 

 

 

(27

)

 

 

(142

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

(63,147

)

(7,238

)

 

 

(17,399

)

 

 

1,715

 

Cash and cash equivalents, beginning of period

80,452

 

22,884

 

 

 

34,704

 

 

 

13,931

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

$

17,305

 

$

15,646

 

 

$

17,305

 

 

$

15,646

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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,