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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, 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 January 20, 2022

 

 

 

 

 

 

 

Common Stock, $0.00000625 par value per share

 

 

7,496,866,428 shares

 

 

 

 

 


 

 

MICROSOFT CORPORATION

FORM 10-Q

For the Quarter Ended December 31, 2021

INDEX

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

 

 

 

a)

Income Statements for the Three and Six Months Ended December 31, 2021 and 2020

3

 

 

 

 

 

 

 

b)

Comprehensive Income Statements for the Three and Six Months Ended December 31, 2021 and 2020

4

 

 

 

 

 

 

 

c)

Balance Sheets as of December 31, 2021 and June 30, 2021

5

 

 

 

 

 

 

 

d)

Cash Flows Statements for the Three and Six Months Ended December 31, 2021 and 2020

6

 

 

 

 

 

 

 

e)

Stockholders’ Equity Statements for the Three and Six Months Ended December 31, 2021 and 2020

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

64

 

 

 

 

 

 

Item 6.

Exhibits

65

 

 

 

 

 

SIGNATURE

66

 

 

 

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,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

2020

 

 

 

2021

 

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

$

20,779

 

 

$

19,460

 

 

$

37,410

 

 

$

35,263

 

Service and other

 

 

30,949

 

 

 

23,616

 

 

 

59,635

 

 

 

44,967

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

 

51,728

 

 

 

43,076

 

 

 

97,045

 

 

 

80,230

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

 

6,331

 

 

 

6,058

 

 

 

10,123

 

 

 

9,655

 

Service and other

 

 

10,629

 

 

 

8,136

 

 

 

20,483

 

 

 

15,541

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cost of revenue

 

 

16,960

 

 

 

14,194

 

 

 

30,606

 

 

 

25,196

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross margin

 

 

34,768

 

 

 

28,882

 

 

 

66,439

 

 

 

55,034

 

Research and development

 

 

5,758

 

 

 

4,899

 

 

 

11,357

 

 

 

9,825

 

Sales and marketing

 

 

5,379

 

 

 

4,947

 

 

 

9,926

 

 

 

9,178

 

General and administrative

 

 

1,384

 

 

 

1,139

 

 

 

2,671

 

 

 

2,258

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

22,247

 

 

 

17,897

 

 

 

42,485

 

 

 

33,773

 

Other income, net

 

 

268

 

 

 

440

 

 

 

554

 

 

 

688

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

22,515

 

 

 

18,337

 

 

 

43,039

 

 

 

34,461

 

Provision for income taxes

 

 

3,750

 

 

 

2,874

 

 

 

3,769

 

 

 

5,105

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

18,765

 

 

$

15,463

 

 

$

39,270

 

 

$

29,356

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

2.50

 

 

$

2.05

 

 

$

5.23

 

 

$

3.88

 

Diluted

 

$

2.48

 

 

$

2.03

 

 

$

5.19

 

 

$

3.85

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

7,505

 

 

 

7,555

 

 

 

7,509

 

 

 

7,561

 

Diluted

 

 

7,555

 

 

 

7,616

 

 

 

7,561

 

 

 

7,627

 

 

 

 

 

 

 

 

 

 

 

 

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,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

2020

 

 

 

2021

 

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

18,765

 

 

$

15,463

 

 

$

39,270

 

 

$

29,356

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change related to derivatives

 

 

0

 

 

 

8

 

 

 

2

 

 

 

12

 

Net change related to investments

 

 

(743

)

 

 

(492

)

 

 

(1,165

)

 

 

(693

)

Translation adjustments and other

 

 

(103

)

 

 

741

 

 

 

(222

)

 

 

852

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

(846

)

 

 

257

 

 

 

(1,385

)

 

 

171

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

17,919

 

 

$

15,720

 

 

$

37,885

 

 

$

29,527

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to accompanying notes.

4


PART I

Item 1

 

BALANCE SHEETS

 

(In millions) (Unaudited)

 

 

 

 

 

 

 

 

 

 

December 31,
2021

 

 

June 30,
2021

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

20,604

 

 

$

14,224

 

Short-term investments

 

 

104,765

 

 

 

116,110

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cash, cash equivalents, and short-term investments

 

 

125,369

 

 

 

130,334

 

Accounts receivable, net of allowance for doubtful accounts of $551 and $751

 

 

33,520

 

 

 

38,043

 

Inventories

 

 

3,019

 

 

 

2,636

 

Other current assets

 

 

12,280

 

 

 

13,393

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

174,188

 

 

 

184,406

 

Property and equipment, net of accumulated depreciation of $55,277 and $51,351

 

 

67,214

 

 

 

59,715

 

Operating lease right-of-use assets

 

 

12,354

 

 

 

11,088

 

Equity investments

 

 

6,994

 

 

 

5,984

 

Goodwill

 

 

50,921

 

 

 

49,711

 

Intangible assets, net

 

 

7,462

 

 

 

7,800

 

Other long-term assets

 

 

21,256

 

 

 

15,075

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

340,389

 

 

$

333,779

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

15,314

 

 

$

15,163

 

Current portion of long-term debt

 

 

4,998

 

 

 

8,072

 

Accrued compensation

 

 

7,782

 

 

 

10,057

 

Short-term income taxes

 

 

3,731

 

 

 

2,174

 

Short-term unearned revenue

 

 

34,001

 

 

 

41,525

 

Other current liabilities

 

 

11,684

 

 

 

11,666

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

77,510

 

 

 

88,657

 

Long-term debt

 

 

48,260

 

 

 

50,074

 

Long-term income taxes

 

 

26,121

 

 

 

27,190

 

Long-term unearned revenue

 

 

2,768

 

 

 

2,616

 

Deferred income taxes

 

 

199

 

 

 

198

 

Operating lease liabilities

 

 

10,774

 

 

 

9,629

 

Other long-term liabilities

 

 

14,747

 

 

 

13,427

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

180,379

 

 

 

191,791

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock and paid-in capital – shares authorized 24,000; outstanding 7,500 and 7,519

 

 

84,528

 

 

 

83,111

 

Retained earnings

 

 

75,045

 

 

 

57,055

 

Accumulated other comprehensive income

 

 

437

 

 

 

1,822

 

 

 

 

 

 

 

 

 

 

 

 

 

Total stockholders’ equity

 

 

160,010

 

 

 

141,988

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

340,389

 

 

$

333,779

 

 

 

 

 

 

 

 

 

 

 

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,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

 

2020

 

 

 

2021

 

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

18,765

 

 

$

15,463

 

 

$

39,270

 

 

$

29,356

 

Adjustments to reconcile net income to net cash from operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, amortization, and other

 

 

3,496

 

 

 

2,761

 

 

 

6,708

 

 

 

5,406

 

Stock-based compensation expense

 

 

1,897

 

 

 

1,566

 

 

 

3,599

 

 

 

3,022

 

Net recognized gains on investments and derivatives

 

 

(307

)

 

 

(354

)

 

 

(671

)

 

 

(482

)

Deferred income taxes

 

 

183

 

 

 

(17

)

 

 

(5,787

)

 

 

(28

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(5,543

)

 

 

(4,008

)

 

 

4,943

 

 

 

4,835

 

Inventories

 

 

394

 

 

 

788

 

 

 

(383

)

 

 

(20

)

Other current assets

 

 

830

 

 

 

730

 

 

 

1,770

 

 

 

676

 

Other long-term assets

 

 

(908

)

 

 

(1,499

)

 

 

(1,506

)

 

 

(1,561

)

Accounts payable

 

 

235

 

 

 

33

 

 

 

(236

)

 

 

348

 

Unearned revenue

 

 

(4,343

)

 

 

(3,227

)

 

 

(7,228

)

 

 

(6,291

)

Income taxes

 

 

(2,057

)

 

 

(2,368

)

 

 

596

 

 

 

(3,351

)

Other current liabilities

 

 

1,745

 

 

 

1,755

 

 

 

(2,398

)

 

 

(1,196

)

Other long-term liabilities

 

 

93

 

 

 

893

 

 

 

343

 

 

 

1,137

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash from operations

 

 

14,480

 

 

 

12,516

 

 

 

39,020

 

 

 

31,851

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repayments of debt

 

 

0

 

 

 

(3,250

)

 

 

(4,826

)

 

 

(3,250

)

Common stock issued

 

 

291

 

 

 

302

 

 

 

903

 

 

 

847

 

Common stock repurchased

 

 

(7,433

)

 

 

(6,535

)

 

 

(15,117

)

 

 

(13,278

)

Common stock cash dividends paid

 

 

(4,652

)

 

 

(4,230

)

 

 

(8,858

)

 

 

(8,086

)

Other, net

 

 

(192

)

 

 

79

 

 

 

(364

)

 

 

(156

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in financing

 

 

(11,986

)

 

 

(13,634

)

 

 

(28,262

)

 

 

(23,923

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additions to property and equipment

 

 

(5,865

)

 

 

(4,174

)

 

 

(11,675

)

 

 

(9,081

)

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

 

 

(850

)

 

 

(415

)

 

 

(2,056

)

 

 

(896

)

Purchases of investments

 

 

(2,505

)

 

 

(15,092

)

 

 

(12,814

)

 

 

(29,672

)

Maturities of investments

 

 

5,253

 

 

 

15,264

 

 

 

14,115

 

 

 

29,530

 

Sales of investments

 

 

2,895

 

 

 

2,421

 

 

 

8,525

 

 

 

4,835

 

Other, net

 

 

(89

)

 

 

327

 

 

 

(506

)

 

 

(1,756

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in investing

 

 

(1,161

)

 

 

(1,669

)

 

 

(4,411

)

 

 

(7,040

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of foreign exchange rates on cash and cash equivalents

 

 

106

 

 

 

14

 

 

 

33

 

 

 

(32

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

1,439

 

 

 

(2,773

)

 

 

6,380

 

 

 

856

 

Cash and cash equivalents, beginning of period

 

 

19,165

 

 

 

17,205

 

 

 

14,224

 

 

 

13,576