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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 March 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

 

 

 

 

 

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 April 21, 2022

 

 

 

 

 

 

 

Common Stock, $0.00000625 par value per share

 

 

7,479,033,135 shares

 

 

 

 

 


 

 

MICROSOFT CORPORATION

FORM 10-Q

For the Quarter Ended March 31, 2022

INDEX

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

 

 

 

a)

Income Statements for the Three and Nine Months Ended March 31, 2022 and 2021

3

 

 

 

 

 

 

 

b)

Comprehensive Income Statements for the Three and Nine Months Ended March 31, 2022 and 2021

4

 

 

 

 

 

 

 

c)

Balance Sheets as of March 31, 2022 and June 30, 2021

5

 

 

 

 

 

 

 

d)

Cash Flows Statements for the Three and Nine Months Ended March 31, 2022 and 2021

6

 

 

 

 

 

 

 

e)

Stockholders’ Equity Statements for the Three and Nine Months Ended March 31, 2022 and 2021

7

 

 

 

 

 

 

 

f)

Notes to Financial Statements

8

 

 

 

 

 

 

 

g)

Report of Independent Registered Public Accounting Firm

32

 

 

 

 

 

 

Item 2.

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

33

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

51

 

 

 

 

 

 

Item 4.

Controls and Procedures

51

 

 

 

 

 

PART II. 

OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

52

 

 

 

 

 

 

Item 1A.

Risk Factors

52

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

66

 

 

 

 

 

 

Item 6.

Exhibits

67

 

 

 

 

 

SIGNATURE

68

 

 

 

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
March 31,

 

 

 

Nine Months Ended
March 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2022

 

 

2021

 

 

 

2022

 

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

$

17,366

 

 

$

16,873

 

 

$

54,776

 

 

$

52,136

 

Service and other

 

 

31,994

 

 

 

24,833

 

 

 

91,629

 

 

 

69,800

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

 

Total revenue

 

 

49,360

 

 

 

41,706

 

 

 

146,405

 

 

 

121,936

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

 

4,584

 

 

 

4,277

 

 

 

14,707

 

 

 

13,932

 

Service and other

 

 

11,031

 

 

 

8,768

 

 

 

31,514

 

 

 

24,309

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cost of revenue

 

 

15,615

 

 

 

13,045

 

 

 

46,221

 

 

 

38,241

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross margin

 

 

33,745

 

 

 

28,661

 

 

 

100,184

 

 

 

83,695

 

Research and development

 

 

6,306

 

 

 

5,204

 

 

 

17,663

 

 

 

15,029

 

Sales and marketing

 

 

5,595

 

 

 

5,082

 

 

 

15,521

 

 

 

14,260

 

General and administrative

 

 

1,480

 

 

 

1,327

 

 

 

4,151

 

 

 

3,585

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

20,364

 

 

 

17,048

 

 

 

62,849

 

 

 

50,821

 

Other income (expense), net

 

 

(174

)

 

 

188

 

 

 

380

 

 

 

876

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

20,190

 

 

 

17,236

 

 

 

63,229

 

 

 

51,697

 

Provision for income taxes

 

 

3,462

 

 

 

1,779

 

 

 

7,231

 

 

 

6,884

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

16,728

 

 

$

15,457

 

 

$

55,998

 

 

$

44,813

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

2.23

 

 

$

2.05

 

 

$

7.46

 

 

$

5.93

 

Diluted

 

$

2.22

 

 

$

2.03

 

 

$

7.41

 

 

$

5.88

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

7,493

 

 

 

7,539

 

 

 

7,504

 

 

 

7,554

 

Diluted

 

 

7,534

 

 

 

7,597

 

 

 

7,552

 

 

 

7,617

 

 

 

 

 

 

 

 

 

 

 

 

Refer to accompanying notes.

3


PART I

Item 1

 

COMPREHENSIVE INCOME STATEMENTS

 

(In millions) (Unaudited)

 

Three Months Ended
March 31,

 

 

 

Nine Months Ended
March 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2022

 

 

2021

 

 

 

2022

 

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

16,728

 

 

$

15,457

 

 

$

55,998

 

 

$

44,813

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change related to derivatives

 

 

6

 

 

 

18

 

 

 

8

 

 

 

30

 

Net change related to investments

 

 

(2,882

)

 

 

(1,705

)

 

 

(4,047

)

 

 

(2,398

)

Translation adjustments and other

 

 

(37

)

 

 

(218

)

 

 

(259

)

 

 

634

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss

 

 

(2,913

)

 

 

(1,905

)

 

 

(4,298

)

 

 

(1,734

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

13,815

 

 

$

13,552

 

 

$

51,700

 

 

$

43,079

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to accompanying notes.

4


PART I

Item 1

 

BALANCE SHEETS

 

(In millions) (Unaudited)

 

 

 

 

 

 

 

 

 

 

March 31,

2022

 

 

June 30,
2021

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

12,498

 

 

$

14,224

 

Short-term investments

 

 

92,195

 

 

 

116,110

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cash, cash equivalents, and short-term investments

 

 

104,693

 

 

 

130,334

 

Accounts receivable, net of allowance for doubtful accounts of $505 and $751

 

 

 

32,613

 

 

 

38,043

 

Inventories

 

 

3,296

 

 

 

2,636

 

Other current assets

 

 

13,320

 

 

 

13,393

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

153,922

 

 

 

184,406

 

Property and equipment, net of accumulated depreciation of $58,053 and $51,351

 

 

70,298

 

 

 

59,715

 

Operating lease right-of-use assets

 

 

12,916

 

 

 

11,088

 

Equity investments

 

 

6,907

 

 

 

5,984

 

Goodwill

 

 

67,371

 

 

 

49,711

 

Intangible assets, net

 

 

11,348

 

 

 

7,800

 

Other long-term assets

 

 

21,845

 

 

 

15,075

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

344,607

 

 

$

333,779

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

16,085

 

 

$

15,163

 

Current portion of long-term debt

 

 

1,749

 

 

 

8,072

 

Accrued compensation

 

 

9,067

 

 

 

10,057

 

Short-term income taxes

 

 

4,646

 

 

 

2,174

 

Short-term unearned revenue

 

 

34,027

 

 

 

41,525

 

Other current liabilities

 

 

11,865

 

 

 

11,666

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

77,439

 

 

 

88,657

 

Long-term debt

 

 

48,177

 

 

 

50,074

 

Long-term income taxes

 

 

26,483

 

 

 

27,190

 

Long-term unearned revenue

 

 

2,769

 

 

 

2,616

 

Deferred income taxes

 

 

304

 

 

 

198

 

Operating lease liabilities

 

 

11,357

 

 

 

9,629

 

Other long-term liabilities

 

 

15,154

 

 

 

13,427

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

181,683

 

 

 

191,791

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock and paid-in capital – shares authorized 24,000; outstanding 7,483 and 7,519

 

 

85,767

 

 

 

83,111

 

Retained earnings

 

 

79,633

 

 

 

57,055

 

Accumulated other comprehensive income (loss)

 

 

(2,476

)

 

 

1,822

 

 

 

 

 

 

 

 

 

 

 

 

 

Total stockholders’ equity

 

 

162,924

 

 

 

141,988

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

344,607

 

 

$

333,779

 

 

 

 

 

 

 

 

 

 

Refer to accompanying notes.

 

5


PART I

Item 1

 

 

CASH FLOWS STATEMENTS

 

(In millions) (Unaudited)

 

Three Months Ended

March 31,

 

 

 

Nine Months Ended

March 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

16,728

 

 

$

15,457

 

 

$

55,998

 

 

$

44,813

 

Adjustments to reconcile net income to net cash from operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, amortization, and other

 

 

3,773

 

 

 

2,936

 

 

 

10,481

 

 

 

8,342

 

Stock-based compensation expense

 

 

1,906

 

 

 

1,525

 

 

 

5,505

 

 

 

4,547

 

Net recognized losses (gains) on investments and derivatives

 

 

105

 

 

 

(351

)

 

 

(566

)

 

 

(833

)

Deferred income taxes

 

 

(198

)

 

 

(88

)

 

 

(5,985

)

 

 

(116

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

857

 

 

 

290

 

 

 

5,800

 

 

 

5,125

 

Inventories

 

 

(279

)

 

 

(329

)

 

 

(662

)

 

 

(349

)

Other current assets

 

 

91

 

 

 

478

 

 

 

1,861

 

 

 

1,154

 

Other long-term assets

 

 

(724

)

 

 

(885

)

 

 

(2,230

)

 

 

(2,446

)

Accounts payable

 

 

520

 

 

 

833

 

 

 

284

 

 

 

1,181

 

Unearned revenue

 

 

(209

)

 

 

(473

)

 

 

(7,437

)

 

 

(6,764

)

Income taxes

 

 

1,091

 

 

 

1,074

 

 

 

1,687

 

 

 

(2,277

)

Other current liabilities

 

 

1,287

 

 

 

1,590

 

 

 

(1,111

)

 

 

394

 

Other long-term liabilities

 

 

438

 

 

 

122

 

 

 

781

 

 

 

1,259

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash from operations

 

 

25,386

 

 

 

22,179

 

 

 

64,406

 

 

 

54,030

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash premium on debt exchange

 

 

0

 

 

 

(1,754

)

 

 

0

 

 

 

(1,754

)

Repayments of debt

 

 

(4,197

)

 

 

(500

)

 

 

(9,023

)

 

 

(3,750

)

Common stock issued

 

 

477

 

 

 

396

 

 

 

1,380

 

 

 

1,243

 

Common stock repurchased

 

 

(8,822

)

 

 

(6,930

)

 

 

(23,939

)

 

 

(20,208

)

Common stock cash dividends paid

 

 

(4,645

)

 

 

(4,221

)

 

 

(13,503

)

 

 

(12,307

)

Other, net

 

 

(158

)

 

 

(183

)

 

 

(522

)

 

 

(339

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in financing

 

 

(17,345

)

 

 

(13,192

)

 

 

(45,607

)

 

 

(37,115

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additions to property and equipment

 

 

(5,340

)

 

 

(5,089

)

 

 

(17,015

)

 

 

(14,170

)

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

 

 

(18,719

)

 

 

(7,512

)

 

 

(20,775

)

 

 

(8,408

)

Purchases of investments

 

 

(8,723

)

 

 

(18,375

)

 

 

(21,537

)

 

 

(48,047

)

Maturities of investments

 

 

1,099

 

 

 

15,016

 

 

 

15,214

 

 

 

44,546

 

Sales of investments

 

 

16,693

 

 

 

5,876

 

 

 

25,218

 

 

 

10,711

 

Other, net

 

 

(1,181

)

 

 

400

 

 

 

(1,687

)

 

 

(1,356

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in investing

 

 

(16,171

)

 

 

(9,684

)

 

 

(20,582

)

 

 

(16,724

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of foreign exchange rates on cash and cash equivalents

 

 

24

 

 

 

(33

)

 

 

57

 

 

 

(65

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

(8,106

)

 

 

(730

)

 

 

(1,726

)

 

 

126

 

Cash and cash equivalents, beginning of period

 

 

20,604

 

 

 

14,432

 

 

 

14,224

 

 

 

13,576

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

12,498

 

 

$

13,702

 

 

$

12,498

 

 

$

13,702

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to accompanying notes.

 

6


PART I

Item 1

 

 

STOCKHOLDERS’ EQUITY STATEMENTS

 

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

 

Three Months Ended

March 31,

 

 

 

Nine Months Ended

March 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2022

 

 

2021

 

 

 

2022

 

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock and paid-in capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

84,528

 

 

$

81,896

 

 

$

83,111

 

 

$

80,552

 

Common stock issued

 

 

477

 

 

 

396

 

 

 

1,380

 

 

 

1,513

 

Common stock repurchased

 

 

(1,313

)

 

 

(1,528

)

 

 

(4,401

)

 

 

(4,322

)

Stock-based compensation expense

 

 

1,906

 

 

 

1,525

 

 

 

5,505

 

 

 

4,547

 

Other, net

 

 

169

 

 

 

19

 

 

 

172

 

 

 

18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, end of period

 

 

85,767

 

 

 

82,308

 

 

 

85,767

 

 

 

82,308

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

75,045

 

 

 

44,973

 

 

 

57,055

 

 

 

34,566

 

Net income

 

 

16,728

 

 

 

15,457

 

 

 

55,998

 

 

 

44,813

 

Common stock cash dividends

 

 

(4,634

)

 

 

(4,214

)

 

 

(13,931

)

 

 

(12,665

)

Common stock repurchased

 

 

(7,506

)

 

 

(5,481

)

 

 

(19,489

)

 

 

(15,947

)

Cumulative effect of accounting changes

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(32

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, end of period

 

 

79,633

 

 

 

50,735

 

 

 

79,633

 

 

 

50,735

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

437

 

 

 

3,367

 

 

 

1,822

 

 

 

3,186

 

Other comprehensive loss

 

 

(2,913

)

 

 

(1,905

)

 

 

(4,298

)

 

 

(1,734

)

Cumulative effect of accounting changes

 

 

0

 

 

 

0

 

 

 

0

 

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, end of period

 

 

(2,476

)

 

 

1,462

 

 

 

(2,476

)

 

 

1,462

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total stockholders’ equity

 

$

162,924

 

 

$

134,505

 

 

$

162,924

 

 

$

134,505

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.62

 

 

$

0.56

 

 

$

1.86

 

 

$

1.68

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 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.

Contract Balances and Other Receivables

As of March 31, 2022 and June 30, 2021, other receivables due from suppliers were $1.0 billion and $965 million, respectively, and are included in accounts receivable, net in our consolidated balance sheets.

9


PART I

Item 1

 

As of March 31, 2022 and June 30, 2021, long-term accounts receivable, net of allowance for doubtful accounts, was $3.6 billion and $3.4 billion, respectively, 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 March 31, 2022 and June 30, 2021, our financing receivables, net were $2.4 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

March 31,

 

 

 

Nine Months Ended

March 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2022

 

 

2021

 

 

 

2022

 

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

Net income available for common shareholders (A)

 

$

  16,728

 

 

$

15,457

 

 

$

55,998

 

 

$

  44,813

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average outstanding shares of common stock (B)

 

 

7,493

 

 

 

7,539

 

 

 

7,504

 

 

 

7,554

 

Dilutive effect of stock-based awards

 

 

41

 

 

 

58

 

 

 

48

 

 

 

63

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock and common stock equivalents (C)

 

 

7,534

 

 

 

7,597

 

 

 

7,552

 

 

 

  7,617

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings Per Share