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
Cash and cash equivalents, end of period	$	20,604		$	14,432		$	20,604		$	14,432

Refer to accompanying notes.