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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

)