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2020-09-30
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, 2021
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
|
|
|
|
|
|
|
|
Securities registered pursuant to Section 12(g) of the Act:
|
|
|
|
|
|
|
|
|
|
|
|
none
|
|
|
|
|
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 21, 2021
|
|
|
|
|
|
|
|
|
Common Stock, $0.00000625 par value per share
|
|
|
7,507,980,444 shares
|
|
MICROSOFT CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 2021
INDEX
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,
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
16,631
|
|
|
$
|
15,803
|
|
|
Service and other
|
|
|
28,686
|
|
|
|
21,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
45,317
|
|
|
|
37,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
3,792
|
|
|
|
3,597
|
|
|
Service and other
|
|
|
9,854
|
|
|
|
7,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
13,646
|
|
|
|
11,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
31,671
|
|
|
|
26,152
|
|
|
Research and development
|
|
|
5,599
|
|
|
|
4,926
|
|
|
Sales and marketing
|
|
|
4,547
|
|
|
|
4,231
|
|
|
General and administrative
|
|
|
1,287
|
|
|
|
1,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
20,238
|
|
|
|
15,876
|
|
|
Other income, net
|
|
|
286
|
|
|
|
248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
20,524
|
|
|
|
16,124
|
|
|
Provision for income taxes
|
|
|
19
|
|
|
|
2,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
20,505
|
|
|
$
|
13,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.73
|
|
|
$
|
1.84
|
|
|
Diluted
|
|
$
|
2.71
|
|
|
$
|
1.82
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
7,513
|
|
|
|
7,566
|
|
|
Diluted
|
|
|
7,567
|
|
|
|
7,637
|
|
|
|
|
Refer to accompanying notes.
3
PART I
Item 1
COMPREHENSIVE INCOME STATEMENTS
|
(In millions) (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
20,505
|
|
|
$
|
13,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
Net change related to derivatives
|
|
|
2
|
|
|
|
4
|
|
|
|
Net change related to investments
|
|
|
(422
|
)
|
|
|
(201
|
)
|
|
|
Translation adjustments and other
|
|
|
(119
|
)
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
(539
|
)
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
19,966
|
|
|
$
|
13,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refer to accompanying notes.
4
PART I
Item 1
BALANCE SHEETS
|
(In millions) (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
|
June 30,
2021
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
19,165
|
|
|
$
|
14,224
|
|
|
Short-term investments
|
|
|
111,450
|
|
|
|
116,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents, and short-term investments
|
|
|
130,615
|
|
|
|
130,334
|
|
|
Accounts receivable, net of allowance for doubtful accounts of
$536 and $751
|
|
|
27,349
|
|
|
|
38,043
|
|
|
Inventories
|
|
|
3,411
|
|
|
|
2,636
|
|
|
Other current assets
|
|
|
12,951
|
|
|
|
13,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
174,326
|
|
|
|
184,406
|
|
|
Property and equipment, net of accumulated depreciation of
$52,469 and $51,351
|
|
|
63,772
|
|
|
|
59,715
|
|
|
Operating lease right-of-use assets
|
|
|
11,575
|
|
|
|
11,088
|
|
|
Equity investments
|
|
|
6,393
|
|
|
|
5,984
|
|
|
Goodwill
|
|
|
50,455
|
|
|
|
49,711
|
|
|
Intangible assets, net
|
|
|
7,794
|
|
|
|
7,800
|
|
|
Other long-term assets
|
|
|
21,103
|
|
|
|
15,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
335,418
|
|
|
$
|
333,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders’ equity
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
14,832
|
|
|
$
|
15,163
|
|
|
Current portion of long-term debt
|
|
|
3,249
|
|
|
|
8,072
|
|
|
Accrued compensation
|
|
|
6,894
|
|
|
|
10,057
|
|
|
Short-term income taxes
|
|
|
6,272
|
|
|
|
2,174
|
|
|
Short-term unearned revenue
|
|
|
38,465
|
|
|
|
41,525
|
|
|
Other current liabilities
|
|
|
10,816
|
|
|
|
11,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
80,528
|
|
|
|
88,657
|
|
|
Long-term debt
|
|
|
50,039
|
|
|
|
50,074
|
|
|
Long-term income taxes
|
|
|
25,715
|
|
|
|
27,190
|
|
|
Long-term unearned revenue
|
|
|
2,550
|
|
|
|
2,616
|
|
|
Deferred income taxes
|
|
|
212
|
|
|
|
198
|
|
|
Operating lease liabilities
|
|
|
10,050
|
|
|
|
9,629
|
|
|
Other long-term liabilities
|
|
|
14,346
|
|
|
|
13,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
183,440
|
|
|
|
191,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
Common stock and paid-in capital – shares authorized 24,000;
outstanding 7,510
and 7,519
|
|
|
83,751
|
|
|
|
83,111
|
|
|
Retained earnings
|
|
|
66,944
|
|
|
|
57,055
|
|
|
Accumulated other comprehensive income
|
|
|
1,283
|
|
|
|
1,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
151,978
|
|
|
|
141,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
335,418
|
|
|
$
|
333,779
|
|
|
|
|
|
|
|
|
|
|
|
Refer to accompanying notes.
5
PART I
Item 1
CASH FLOWS
STATEMENTS
|
(In millions) (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
Operations
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
20,505
|
|
|
$
|
13,893
|
|
|
Adjustments to reconcile net income to net cash from
operations:
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization, and other
|
|
|
3,212
|
|
|
|
2,645
|
|
|
Stock-based compensation expense
|
|
|
1,702
|
|
|
|
1,456
|
|
|
Net recognized gains on investments and derivatives
|
|
|
(364
|
)
|
|
|
(128
|
)
|
|
Deferred income taxes
|
|
|
(5,970
|
)
|
|
|
(11
|
)
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
10,486
|
|
|
|
8,843
|
|
|
Inventories
|
|
|
(777
|
)
|
|
|
(808
|
)
|
|
Other current assets
|
|
|
940
|
|
|
|
(54
|
)
|
|
Other long-term assets
|
|
|
(598
|
)
|
|
|
(62
|
)
|
|
Accounts payable
|
|
|
(471
|
)
|
|
|
315
|
|
|
Unearned revenue
|
|
|
(2,885
|
)
|
|
|
(3,064
|
)
|
|
Income taxes
|
|
|
2,653
|
|
|
|
(983
|
)
|
|
Other current liabilities
|
|
|
(4,143
|
)
|
|
|
(2,951
|
)
|
|
Other long-term liabilities
|
|
|
250
|
|
|
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from operations
|
|
|
24,540
|
|
|
|
19,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
|
|
|
|
|
|
|
|
|
|
Repayments of debt
|
|
|
(4,826
|
)
|
|
|
0
|
|
|
Common stock issued
|
|
|
612
|
|
|
|
545
|
|
|
Common stock repurchased
|
|
|
(7,684
|
)
|
|
|
(6,743
|
)
|
|
Common stock cash dividends paid
|
|
|
(4,206
|
)
|
|
|
(3,856
|
)
|
|
Other, net
|
|
|
(172
|
)
|
|
|
(235
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing
|
|
|
(16,276
|
)
|
|
|
(10,289
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
|
|
|
|
|
|
|
|
|
|
Additions to property and equipment
|
|
|
(5,810
|
)
|
|
|
(4,907
|
)
|
|
Acquisition of companies, net of cash acquired, and purchases of
intangible and other assets
|
|
|
(1,206
|
)
|
|
|
(481
|
)
|
|
Purchases of investments
|
|
|
(10,309
|
)
|
|
|
(14,580
|
)
|
|
Maturities of investments
|
|
|
8,862
|
|
|
|
14,266
|
|
|
Sales of investments
|
|
|
5,630
|
|
|
|
2,414
|
|
|
Other, net
|
|
|
(417
|
)
|
|
|
(2,083
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
|
|
|
(3,250
|
)
|
|
|
(5,371
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rates on cash and cash equivalents
|
|
|
(73
|
)
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
4,941
|
|
|
|
3,629
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
14,224
|
|
|
|
13,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
19,165
|
|
|
$
|
17,205
|
|
|
|
|
|
|
|
|
|
|
|
Refer to accompanying notes.
6
PART I
Item 1
STOCKHOLDERS’ EQUITY STATEMENTS
|
(In millions, except per share amounts) (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
Common stock and paid-in capital
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
83,111
|
|
|
$
|
80,552
|
|
|
Common stock issued
|
|
|
612
|
|
|
|
815
|
|
|
Common stock repurchased
|
|
|
(1,677
|
)
|
|
|
(1,732
|
)
|
|
Stock-based compensation expense
|
|
|
1,702
|
|
|
|
1,456
|
|
|
Other, net
|
|
|
3
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
|
83,751
|
|
|
|
81,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
|
57,055
|
|
|
|
34,566
|
|
|
Net income
|
|
|
20,505
|
|
|
|
13,893
|
|
|
Common stock cash dividends
|
|
|
(4,651
|
)
|
|
|
(4,231
|
)
|
|
Common stock repurchased
|
|
|
(5,965
|
)
|
|
|
(5,003
|
)
|
|
Cumulative effect of accounting changes
|
|
|
0
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
|
66,944
|
|
|
|
39,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
|
1,822
|
|
|
|
3,186
|
|
|
Other comprehensive loss
|
|
|
(539
|
)
|
|
|
(86
|
)
|
|
Cumulative effect of accounting changes
|
|
|
0
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
|
1,283
|
|
|
|
3,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
$
|
151,978
|
|
|
$
|
123,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share
|
|
$
|
0.62
|
|
|
$
|
0.56
|
|
|
|
|
|
|
|
|
|
|
|
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 2021 Form 10-K filed with the U.S. Securities and
Exchange Commission (“SEC”) on July 29, 2021.
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 (“SSP”) 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, including uncertainty in the current economic
environment due to COVID-19.
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 available for current
operations.
Debt investments are classified as available-for-sale and realized
gains and losses are recorded using the specific identification
method. Changes in fair value, excluding credit losses and
impairments, are recorded in other comprehensive income. Fair value
is calculated based on publicly available market information or
other estimates determined by management. If the cost of an
investment exceeds its fair value, we evaluate, among other
factors, general market conditions, credit quality of debt
instrument issuers, and the extent to which the fair value is less
than cost. To determine credit losses, we employ a systematic
methodology that considers available quantitative and qualitative
evidence. In addition, we consider specific adverse conditions
related to the financial health of, and business outlook for, the
investee. If we have plans to sell the security or it is more
likely than not that we will be required to sell the security
before recovery, then a decline in fair value below cost is
recorded as an impairment charge in other income (expense), net and
a new cost basis in the investment is established. If market,
industry, and/or investee conditions deteriorate, we may incur
future impairments.
8
PART I
Item 1
Equity investments with readily determinable fair values are
measured
at fair value.
Equity investments without readily determinable fair values
are
measured
using the equity method
or
measured at cost with adjustments for
observable
changes in price or impairments
(referred to as the measurement alternative). We perform a
qualitative assessment on a
periodic
basis and recognize an impairment if there are sufficient
indicators
that the fair value of the investment is less than carrying
value.
Changes in
value
are
recorded in
other income (expense), net.
Derivatives
Derivative instruments are recognized as either assets or
liabilities and measured at fair value. The accounting for changes
in the fair value of a derivative depends on the intended use of
the derivative and the resulting designation.
For derivative instruments designated as fair value hedges, gains
and losses are recognized in other income (expense), net with
offsetting gains and losses on the hedged items. Gains and losses
representing hedge components excluded from the assessment of
effectiveness are recognized in other income (expense), net.
For derivative instruments designated as cash flow hedges, gains
and losses are initially reported as a component of other
comprehensive income and subsequently recognized in other income
(expense), net with the corresponding hedged item. Gains and losses
representing hedge components excluded from the assessment of
effectiveness are recognized in other income (expense), net.
For derivative instruments that are not designated as hedges, gains
and losses from changes in fair values are primarily recognized in
other income (expense), net.
Fair Value Measurements
We account for certain assets and liabilities at fair value. The
hierarchy below lists three levels of fair value based on the
extent to which inputs used in measuring fair value are observable
in the market. We categorize each of our fair value
measurements in one of these three levels based on the lowest level
input that is significant to the fair value measurement in its
entirety. These levels are:
|
|
•
|
Level
1 – inputs are
based upon unadjusted quoted prices for identical instruments in
active markets. Our Level 1 investments include U.S. government
securities, common and preferred stock, and mutual funds. Our
Level 1 derivative assets and liabilities include those actively
traded on exchanges.
|
|
|
•
|
Level
2 – inputs are
based upon quoted prices for similar instruments in active markets,
quoted prices for identical or similar instruments in markets that
are not active, and model-based valuation techniques (e.g. the
Black-Scholes model) for which all significant inputs are
observable in the market or can be corroborated by observable
market data for substantially the full term of the assets or
liabilities. Where applicable, these models project future cash
flows and discount the future amounts to a present value using
market-based observable inputs including interest rate curves,
credit spreads, foreign exchange rates, and forward and spot prices
for currencies. Our Level 2 investments include commercial paper,
certificates of deposit, U.S. agency securities, foreign government
bonds, mortgage- and asset-backed securities, corporate notes and
bonds, and municipal securities. Our Level 2 derivative assets and
liabilities include certain over-the-counter forward, option and
swap contracts.
|
|
|
•
|
Level
3 – inputs are
generally unobservable and typically reflect management’s estimates
of assumptions that market participants would use in pricing the
asset or liability. The fair values are therefore determined using
model-based techniques, including option pricing models and
discounted cash flow models. Our Level 3 assets and liabilities
include investments in corporate notes and bonds, municipal
securities, and goodwill and intangible assets, when they are
recorded at fair value due to an impairment
charge. Unobservable inputs used in the models are significant
to the fair values of the assets and liabilities.
|
We measure equity investments without readily determinable fair
values on a nonrecurring basis. The fair values of these
investments are determined based on valuation techniques using the
best information available, and may include quoted market prices,
market comparables, and discounted cash flow projections.
Our other current financial assets and current financial
liabilities have fair values that approximate their carrying
values.
9
PART I
Item 1
Contract Balances and Other Receivables
As of September 30, 2021 and June 30, 2021, other receivables due
from suppliers were $854 million and $965 million, respectively,
and are included in accounts receivable, net in our consolidated
balance sheets.
As of both September 30, 2021 and June 30, 2021, long-term accounts
receivable, net of allowance for doubtful accounts, was $3.4
billion and is included in other long-term assets in our
consolidated balance sheets.
We record financing receivables when we offer certain of our
customers the option to acquire our software products and services
offerings through a financing program in a limited number of
countries. As of September 30, 2021 and June 30, 2021, our
financing receivables, net were $3.8 billion and $4.4 billion,
respectively, for short-term and long-term financing receivables,
which are included in other current assets and other long-term
assets in our consolidated balance sheets. We record an allowance
to cover expected losses based on troubled accounts, historical
experience, and other currently available evidence.
Recent Accounting Guidance
Accounting for Income Taxes
In December 2019, the FASB issued a new standard to simplify the
accounting for income taxes. The guidance eliminates certain
exceptions related to the approach for intraperiod tax allocation,
the methodology for calculating income taxes in an interim period,
and the recognition of deferred tax liabilities for outside basis
differences related to changes in ownership of equity method
investments and foreign subsidiaries. The guidance also simplifies
aspects of accounting for franchise taxes and enacted changes in
tax laws or rates, and clarifies the accounting for transactions
that result in a step-up in the tax basis of goodwill. We adopted
the standard effective July 1, 2021. Adoption of the standard did
not have a material impact on our consolidated financial
statements.
NOTE 2 — EARNINGS PER
SHARE
Basic earnings per share (“EPS”) is computed based on the weighted
average number of shares of common stock outstanding during the
period. Diluted EPS is computed based on the weighted average
number of shares of common stock plus the effect of dilutive
potential common shares outstanding during the period using the
treasury stock method. Dilutive potential common shares include
outstanding stock options and stock awards.
The components of basic and diluted EPS were as follows:
|
(In millions, except earnings per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
Net income available for common shareholders (A)
|
|
$
|
20,505
|
|
|
$
|
13,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average outstanding shares of common stock (B)
|
|
|
7,513
|
|
|
|
7,566
|
|
|
Dilutive effect of stock-based awards
|
|
|
54
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock and common stock equivalents (C)
|
|
|
7,567
|
|
|
|
7,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (A/B)
|
|
$
|
2.73
|
|
|
$
|
1.84
|
|
|
Diluted (A/C)
|
|
$
|
2.71
|
|
|
$
|
1.82
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive stock-based awards excluded from the calculations of
diluted EPS were immaterial during the periods presented.
10
PART I
Item 1
NOTE 3 — OTHER INCOME
(EXPENSE), NET
The components of other income (expense), net were as follows:
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and dividends income
|
|
$
|
520
|
|
|
$
|
570
|
|
|
Interest expense
|
|
|
(539
|
)
|
|
|
(589
|
)
|
|
Net recognized gains on investments
|
|
|
371
|
|
|
|
125
|
|
|
Net gains (losses) on derivatives
|
|
|
(7
|
)
|
|
|
3
|
|
|
Net gains (losses) on foreign currency remeasurements
|
|
|
(65
|
)
|
|
|
139
|
|
|
Other, net
|
|
|
6
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
286
|
|
|
$
|
248
|
|
|
|
|
|
|
|
|
|
|
|
Net Recognized Gains (Losses) on Investments
Net recognized gains (losses) on debt investments were as
follows:
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains from sales of available-for-sale securities
|
|
$
|
19
|
|
|
$
|
19
|
|
|
Realized losses from sales of available-for-sale securities
|
|
|
(7
|
)
|
|
|
(5
|
)
|
|
Impairments and allowance for credit losses
|
|
|
(3
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9
|
|
|
$
|
17
|
|
|
|
|
|
|
|
|
|
|
|
Net recognized gains (losses) on equity investments were as
follows:
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gains on investments sold
|
|
$
|
37
|
|
|
$
|
17
|
|
|
Net unrealized gains on investments still held
|
|
|
325
|
|
|
|
100
|
|
|
Impairments of investments
|
|
|
0
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
362
|
|
|
$
|
108
|
|
|
|
|
|
|
|
|
|
|
|
11
PART I
Item 1
NOTE
4 — INVESTMENTS
Investment Components
The components of investments were as follows:
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(In millions)
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Fair Value
Level
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Adjusted
Cost Basis
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Unrealized
Gains
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Unrealized
Losses
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Recorded
Basis
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Cash
and Cash
Equivalents
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Short-term
Investments
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Equity
Investments
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September 30, 2021
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Changes in Fair Value Recorded in Other Comprehensive Income
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Commercial paper
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Level 2
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$
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8,183
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$
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0
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$
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0
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$
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8,183
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$
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4,686
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$
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3,497
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$
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0
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Certificates of deposit
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Level 2
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3,054
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0
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0
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3,054
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2,809
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245
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0
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U.S. government securities
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Level 1
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89,437
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3,382
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(134
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)
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92,685
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3
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92,682
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0
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U.S. agency securities
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Level 2
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2,943
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1
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0
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2,944
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1,119
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1,825
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0
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Foreign government bonds
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Level 2
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3,130
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6
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(4
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)
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3,132
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2,487
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645
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0
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Mortgage- and asset-backed securities
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Level 2
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3,461
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20
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(7
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)
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3,474
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0
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3,474
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0
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Corporate notes and bonds
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Level 2
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8,346
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205
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(13
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)
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8,538
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0
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8,538
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0
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Corporate notes and bonds
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Level 3
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53
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0
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0
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53
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0
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53
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0
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Municipal securities
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Level 2
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306
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58
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0
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364
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0
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364
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0
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Municipal securities
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Level 3
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103
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0
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(7
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96
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0
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96
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0
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Total debt investments
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$
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119,016
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$
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3,672
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$
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(165
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)
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$
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122,523
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$
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11,104
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$
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111,419
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$
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0
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Changes in Fair Value Recorded in Net Income
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Equity investments
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Level 1
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$
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1,781
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$
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1,198
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$
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0
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$
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583
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Equity investments
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Other
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5,810
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0
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0
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5,810
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Total equity investments
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$
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7,591
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$
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1,198
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$
|
0
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$
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6,393
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