NOTE 9 — INTANGIBLE ASSETS
The components of intangible assets, all of which are finite-lived, were as follows:
(In millions) |
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|
Gross |
|
|
Accumulated |
|
|
Net Carrying Amount |
|
||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
September 30, 2022 |
|
|
June 30, 2022 |
|
||||||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||||
Technology-based |
|
$ |
11,409 |
|
|
$ |
(7,253 |
) |
|
$ |
4,156 |
|
|
$ |
11,277 |
|
|
$ |
(6,958 |
) |
|
$ |
4,319 |
|
Customer-related |
|
|
7,343 |
|
|
|
(3,407 |
) |
|
|
3,936 |
|
|
|
7,342 |
|
|
|
(3,171 |
) |
|
|
4,171 |
|
Marketing-related |
|
|
4,941 |
|
|
|
(2,237 |
) |
|
|
2,704 |
|
|
|
4,942 |
|
|
|
(2,143 |
) |
|
|
2,799 |
|
Contract-based |
|
|
21 |
|
|
|
(9 |
) |
|
|
12 |
|
|
|
16 |
|
|
|
(7 |
) |
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
23,714 |
|
|
$ |
(12,906 |
) |
|
$ |
10,808 |
|
|
$ |
23,577 |
|
|
$ |
(12,279 |
) |
|
$ |
11,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets amortization expense was $633 million and $439 million for the three months ended September 30, 2022 and 2021, respectively.
The following table outlines the estimated future amortization expense related to intangible assets held as of September 30, 2022:
(In millions) |
|
|
|
|
---|---|---|---|---|
|
|
|
|
|
|
|
|
|
|
Year Ending June 30, |
|
|
|
|
|
|
|||
2023 (excluding the three months ended September 30, 2022) |
|
$ |
2,033 |
|
2024 |
|
|
2,408 |
|
2025 |
|
|
1,666 |
|
2026 |
|
|
1,244 |
|
2027 |
|
|
826 |
|
Thereafter |
|
|
2,631 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
10,808 |
|
|
|
|
|
|
NOTE 11 — INCOME TAXES
Effective Tax Rate
Our effective tax rate was 19% and 0% for the three months ended September 30, 2022 and 2021, respectively. The increase in our effective tax rate for the current quarter compared to the prior year was primarily due to a $3.3 billion net income tax benefit in the first quarter of fiscal year 2022 related to the transfer of intangible properties and a decrease in tax benefits relating to stock-based compensation.
In the first quarter of fiscal year 2022, we transferred certain intangible properties from our Puerto Rico subsidiary to the U.S. The transfer of intangible properties resulted in a $3.3 billion net income tax benefit in the first quarter of fiscal year 2022, as the value of future U.S. tax deductions exceeded the current tax liability from the U.S. global intangible low-taxed income tax.
Our effective tax rate was lower than the U.S. federal statutory rate for the three months ended September 30, 2022, primarily due to earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations center in Ireland.
Uncertain Tax Positions
As of September 30, 2022 and June 30, 2022, unrecognized tax benefits and other income tax liabilities were $16.7 billion and $16.3 billion, respectively, and are included in long-term income taxes in our consolidated balance sheets.
We settled a portion of the Internal Revenue Service (“IRS”) audit for tax years 2004 to 2006 in fiscal year 2011. In February 2012, the IRS withdrew its 2011 Revenue Agents Report related to unresolved issues for tax years 2004 to 2006 and reopened the audit phase of the examination. We also settled a portion of the IRS audit for tax years 2007 to 2009 in fiscal year 2016, and a portion of the IRS audit for tax years 2010 to 2013 in fiscal year 2018. In the second quarter of fiscal year 2021, we settled an additional portion of the IRS audits for tax years 2004 to 2013 and made a payment of $1.7 billion, including tax and interest. We remain under audit for tax years 2004 to 2017.
As of September 30, 2022, the primary unresolved issues for the IRS audits relate to transfer pricing, which could have a material impact in our consolidated financial statements when the matters are resolved. We believe our allowances for income tax contingencies are adequate. We have not received a proposed assessment for the unresolved key transfer pricing issues and do not expect a final resolution of these issues in the next 12 months. Based on the information currently available, we do not anticipate a significant increase or decrease to our tax contingencies for these issues within the next 12 months.
We are subject to income tax in many jurisdictions outside the U.S. Our operations in certain jurisdictions remain subject to examination for tax years 1996 to 2022, some of which are currently under audit by local tax authorities. The resolution of each of these audits is not expected to be material to our consolidated financial statements.
NOTE 8 — GOODWILL
Changes in the carrying amount of goodwill were as follows:
(In millions) |
|
June 30, 2022 |
|
|
Acquisitions |
|
|
Other |
|
|
September 30, 2022 |
|
||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Productivity and Business Processes |
|
$ |
24,811 |
|
|
$ |
11 |
|
|
$ |
(106 |
) |
|
$ |
24,716 |
|
Intelligent Cloud |
|
|
30,182 |
|
|
|
8 |
|
|
|
76 |
|
|
|
30,266 |
|
More Personal Computing |
|
|
12,531 |
|
|
|
0 |
|
|
|
(54 |
) |
|
|
12,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
67,524 |
|
|
$ |
19 |
|
|
$ |
(84 |
) |
|
$ |
67,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The measurement periods for the valuation of assets acquired and liabilities assumed end as soon as information on the facts and circumstances that existed as of the acquisition dates becomes available, but do not exceed 12 months. Adjustments in purchase price allocations may require a change in the amounts allocated to goodwill during the periods in which the adjustments are determined.
Any change in the goodwill amounts resulting from foreign currency translations and purchase accounting adjustments are presented as “Other” in the table above. Also included in “Other” are business dispositions and transfers between segments due to reorganizations, as applicable.
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, |
|
2022 |
|
|
2021 |
|
||
|
|
|
|
|
||||
Net income available for common shareholders (A) |
|
$ |
17,556 |
|
|
$ |
20,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average outstanding shares of common stock (B) |
|
|
7,457 |
|
|
|
7,513 |
|
Dilutive effect of stock-based awards |
|
|
28 |
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock and common stock equivalents (C) |
|
|
7,485 |
|
|
|
7,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (A/B) |
|
$ |
2.35 |
|
|
$ |
2.73 |
|
Diluted (A/C) |
|
$ |
2.35 |
|
|
$ |
2.71 |
|
|
|
|
|
|
|
|
|
|
Anti-dilutive stock-based awards excluded from the calculations of diluted EPS were immaterial during the periods presented.
NOTE 10 — DEBT
The components of debt were as follows:
(In millions, issuance by calendar year) |
|
Maturities (calendar year) |
|
Stated Interest Rate |
|
|
Effective Interest Rate |
|
|
September 30, 2022 |
|
|
June 30, 2022 |
|
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
2009 issuance of $3.8 billion |
|
|
|
|
2039 |
|
|
|
|
5.20% |
|
|
|
|
5.24% |
|
|
$ |
520 |
|
|
$ |
520 |
|
|
2010 issuance of $4.8 billion |
|
|
|
|
2040 |
|
|
|
|
4.50% |
|
|
|
|
4.57% |
|
|
|
486 |
|
|
|
486 |
|
|
2011 issuance of $2.3 billion |
|
|
|
|
2041 |
|
|
|
|
5.30% |
|
|
|
|
5.36% |
|
|
|
718 |
|
|
|
718 |
|
|
2012 issuance of $2.3 billion |
|
|
2022 |
– |
2042 |
|
|
2.13% |
– |
3.50% |
|
|
2.24% |
– |
3.57% |
|
|
|
1,204 |
|
|
|
1,204 |
|
|
2013 issuance of $5.2 billion |
|
|
2023 |
– |
2043 |
|
|
2.38% |
– |
4.88% |
|
|
2.47% |
– |
4.92% |
|
|
|
2,814 |
|
|
|
2,814 |
|
|
2013 issuance of €4.1 billion |
|
|
2028 |
– |
2033 |
|
|
2.63% |
– |
3.13% |
|
|
2.69% |
– |
3.22% |
|
|
|
2,251 |
|
|
|
2,404 |
|
|
2015 issuance of $23.8 billion |
|
|
2025 |
– |
2055 |
|
|
2.70% |
– |
4.75% |
|
|
2.77% |
– |
4.78% |
|
|
|
9,805 |
|
|
|
10,805 |
|
|
2016 issuance of $19.8 billion |
|
|
2026 |
– |
2056 |
|
|
2.40% |
– |
3.95% |
|
|
2.46% |
– |
4.03% |
|
|
|
9,430 |
|
|
|
9,430 |
|
|
2017 issuance of $17.0 billion |
|
|
2027 |
– |
2057 |
|
|
3.30% |
– |
4.50% |
|
|
3.38% |
– |
4.53% |
|
|
|
8,945 |
|
|
|
8,945 |
|
|
2020 issuance of $10.0 billion |
|
|
|
|
2060 |
|
|
|
|
2.68% |
|
|
|
|
2.68% |
|
|
|
10,000 |
|
|
|
10,000 |
|
|
2021 issuance of $8.2 billion |
|
|
|
|
2062 |
|
|
|
|
3.04% |
|
|
|
|
3.04% |
|
|
|
8,185 |
|
|
|
8,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total face value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,358 |
|
|
|
55,511 |
|
|
Unamortized discount and issuance costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(461 |
) |
|
|
(471 |
) |
|
Hedge fair value adjustments (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(111 |
) |
|
|
(68 |
) |
|
Premium on debt exchange |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,164 |
) |
|
|
(5,191 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,622 |
|
|
|
49,781 |
|
|
Current portion of long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,248 |
) |
|
|
(2,749 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
45,374 |
|
|
$ |
47,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Refer to Note 5 – Derivatives for further information on the interest rate swaps related to fixed-rate debt. |
---|
As of September 30, 2022 and June 30, 2022, the estimated fair value of long-term debt, including the current portion, was $46.1 billion and $50.9 billion, respectively. The estimated fair values are based on Level 2 inputs.
Debt in the table above is comprised of senior unsecured obligations and ranks equally with our other outstanding obligations. Interest is paid semi-annually, except for the Euro-denominated debt, which is paid annually.
The following table outlines maturities of our long-term debt, including the current portion, as of September 30, 2022:
(In millions) |
|
|
|
|
---|---|---|---|---|
|
|
|
|
|
|
|
|
|
|
Year Ending June 30, |
|
|
|
|
|
|
|
|
|
2023 (excluding the three months ended September 30, 2022) |
|
$ |
1,750 |
|
2024 |
|
|
5,250 |
|
2025 |
|
|
2,250 |
|
2026 |
|
|
3,000 |
|
2027 |
|
|
8,000 |
|
Thereafter |
|
|
34,108 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
54,358 |
|
|
|
|
|
|
NOTE 16 — ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table summarizes the changes in accumulated other comprehensive income (loss) by component:
(In millions) |
|
|
|
|||||
---|---|---|---|---|---|---|---|---|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
2022 |
|
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
$ |
(13 |
) |
|
$ |
(19 |
) |
Unrealized losses, net of tax of $(11) and $(3) |
|
|
(40 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
Reclassification adjustments for losses included in other income (expense), net |
|
|
59 |
|
|
|
15 |
|
Tax benefit included in provision for income taxes |
|
|
(12 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive income (loss) |
|
|
47 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change related to derivatives, net of tax of $1 and $0 |
|
|
7 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
(6 |
) |
|
$ |
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
$ |
(2,138 |
) |
|
$ |
3,222 |
|
Unrealized losses, net of tax of $(510) and $(110) |
|
|
(1,925 |
) |
|
|
(415 |
) |
|
|
|
|
|
|
|
|
|
Reclassification adjustments for (gains) losses included in other income (expense), net |
|
|
35 |
|
|
|
(9 |
) |
Tax expense (benefit) included in provision for income taxes |
|
|
(7 |
) |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive income (loss) |
|
|
28 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change related to investments, net of tax of $(503) and $(112) |
|
|
(1,897 |
) |
|
|
(422 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
(4,035 |
) |
|
$ |
2,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation Adjustments and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
$ |
(2,527 |
) |
|
$ |
(1,381 |
) |
Translation adjustments and other, net of tax of $0 and $0 |
|
|
(775 |
) |
|
|
(119 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
(3,302 |
) |
|
$ |
(1,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss), end of period |
|
$ |
(7,343 |
) |
|
$ |
1,283 |
|
|
|
|
|
|
|
|
|
|
NOTE 17 — SEGMENT INFORMATION AND GEOGRAPHIC DATA
In its operation of the business, management, including our chief operating decision maker, who is also our Chief Executive Officer, reviews certain financial information, including segmented internal profit and loss statements prepared on a basis not consistent with GAAP. During the periods presented, we reported our financial performance based on the following segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing.
We have recast certain prior period amounts to conform to the way we internally manage and monitor our business.
Our reportable segments are described below.
Productivity and Business Processes
Our Productivity and Business Processes segment consists of products and services in our portfolio of productivity, communication, and information services, spanning a variety of devices and platforms. This segment primarily comprises:
|
• |
Office Commercial (Office 365 subscriptions, the Office 365 portion of Microsoft 365 Commercial subscriptions, and Office licensed on-premises), comprising Office, Exchange, SharePoint, Microsoft Teams, Office 365 Security and Compliance, and Microsoft Viva. |
---|
|
• |
Office Consumer, including Microsoft 365 Consumer subscriptions, Office licensed on-premises, and other Office services. |
---|
|
• |
LinkedIn, including Talent Solutions, Marketing Solutions, Premium Subscriptions, and Sales Solutions. |
---|
|
• |
Dynamics business solutions, including Dynamics 365, comprising a set of intelligent, cloud-based applications across ERP, CRM, Customer Insights, Power Apps, and Power Automate; and on-premises ERP and CRM applications. |
---|
Intelligent Cloud
Our Intelligent Cloud segment consists of our public, private, and hybrid server products and cloud services that can power modern business and developers. This segment primarily comprises:
|
• |
Server products and cloud services, including Azure and other cloud services; SQL Server, Windows Server, Visual Studio, System Center, and related Client Access Licenses (“CALs”); and Nuance and GitHub. |
---|
|
• |
Enterprise Services, including Enterprise Support Services, Microsoft Consulting Services, and Nuance professional services. |
---|
More Personal Computing
Our More Personal Computing segment consists of products and services that put customers at the center of the experience with our technology. This segment primarily comprises:
|
• |
Windows, including Windows original equipment manufacturer (“OEM”) licensing and other non-volume licensing of the Windows operating system; Windows Commercial, comprising volume licensing of the Windows operating system, Windows cloud services, and other Windows commercial offerings; patent licensing; and Windows Internet of Things. |
---|
|
• |
Devices, including Surface, HoloLens, and PC accessories. |
---|
|
• |
Gaming, including Xbox hardware and Xbox content and services, comprising first- and third-party content (including games and in-game content), Xbox Game Pass and other subscriptions, Xbox Cloud Gaming, third-party disc royalties, advertising, and other cloud services. |
---|
|
• |
Search and news advertising. |
---|
Revenue and costs are generally directly attributed to our segments. However, due to the integrated structure of our business, certain revenue recognized and costs incurred by one segment may benefit other segments. Revenue from certain contracts is allocated among the segments based on the relative value of the underlying products and services, which can include allocation based on actual prices charged, prices when sold separately, or estimated costs plus a profit margin. Cost of revenue is allocated in certain cases based on a relative revenue methodology. Operating expenses that are allocated primarily include those relating to marketing of products and services from which multiple segments benefit and are generally allocated based on relative gross margin.
In addition, certain costs incurred at a corporate level that are identifiable and that benefit our segments are allocated to them. These allocated costs include legal, including settlements and fines, information technology, human resources, finance, excise taxes, field selling, shared facilities services, and customer service and support. Each allocation is measured differently based on the specific facts and circumstances of the costs being allocated.
Segment revenue and operating income were as follows during the periods presented:
(In millions) |
|
|
|
|||||
---|---|---|---|---|---|---|---|---|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Three Months Ended September 30, |
|
2022 |
|
|
2021 |
|
||
|
|
|
|
|
|
|
||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Productivity and Business Processes |
|
$ |
16,465 |
|
|
$ |
15,039 |
|
Intelligent Cloud |
|
|
20,325 |
|
|
|
16,912 |
|
More Personal Computing |
|
|
13,332 |
|
|
|
13,366 |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
Total |
|
$ |
50,122 |
|
|
$ |
45,317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Productivity and Business Processes |
|
$ |
8,323 |
|
|
$ |
7,581 |
|
Intelligent Cloud |
|
|
8,978 |
|
|
|
7,681 |
|
More Personal Computing |
|
|
4,217 |
|
|
|
4,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
21,518 |
|
|
$ |
20,238 |
|
|
|
|
|
|
|
|
|
|
No sales to an individual customer or country other than the United States accounted for more than 10% of revenue for the three months ended September 30, 2022 or 2021. Revenue, classified by the major geographic areas in which our customers were located, was as follows:
(In millions) |
|
|
|
|||||
---|---|---|---|---|---|---|---|---|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Three Months Ended September 30, |
|
2022 |
|
|
2021 |
|
||
|
|
|
|
|
|
|
||
United States (a) |
|
$ |
25,867 |
|
|
$ |
22,830 |
|
Other countries |
|
|
24,255 |
|
|
|
22,487 |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
Total |
|
$ |
50,122 |
|
|
$ |
45,317 |
|
|
|
|
|
|
|
|
|
|
(a) |
Includes billings to OEMs and certain multinational organizations because of the nature of these businesses and the impracticability of determining the geographic source of the revenue. |
---|
Revenue, classified by significant product and service offerings, was as follows:
(In millions) |
|
|
|
|||||
---|---|---|---|---|---|---|---|---|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Three Months Ended September 30, |
|
2022 |
|
|
2021 |
|
||
|
|
|
|
|
|
|
||
Server products and cloud services |
|
$ |
18,388 |
|
|
$ |
15,070 |
|
Office products and cloud services |
|
|
11,548 |
|
|
|
10,808 |
|
Windows |
|
|
5,313 |
|
|
|
5,674 |
|
|
|
|
3,663 |
|
|
|
3,136 |
|
Gaming |
|
|
3,610 |
|
|
|
3,593 |
|
Search and news advertising |
|
|
2,928 |
|
|
|
2,656 |
|
Enterprise Services |
|
|
1,876 |
|
|
|
1,791 |
|
Devices |
|
|
1,448 |
|
|
|
1,414 |
|
Other |
|
|
1,348 |
|
|
|
1,175 |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
Total |
|
$ |
50,122 |
|
|
$ |
45,317 |
|
|
|
|
|
|
|
|
|
|
Our Microsoft Cloud revenue, which includes Azure and other cloud services, Office 365 Commercial, the commercial portion of LinkedIn, Dynamics 365, and other commercial cloud properties, was $25.7 billion and $20.7 billion for the three months ended September 30, 2022 and 2021, respectively. These amounts are primarily included in Server products and cloud services, Office products and cloud services, and LinkedIn in the table above.
Assets are not allocated to segments for internal reporting presentations. A portion of amortization and depreciation is included with various other costs in an overhead allocation to each segment. It is impracticable for us to separately identify the amount of amortization and depreciation by segment that is included in the measure of segment profit or loss.
The components of investments were as follows:
(In millions) |
|
Fair Value Level |
|
|
Adjusted Cost Basis |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Recorded Basis |
|
|
Cash and Cash Equivalents |
|
|
Short-term Investments |
|
|
Equity Investments |
|
|||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Fair Value Recorded in Other Comprehensive Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper |
|
Level 2 |
|
|
$ |
6,286 |
|
|
$ |
2 |
|
|
$ |
0 |
|
|
$ |
6,288 |
|
|
$ |
5,662 |
|
|
$ |
626 |
|
|
$ |
0 |
|
Certificates of deposit |
|
Level 2 |
|
|
|
2,570 |
|
|
|
0 |
|
|
|
0 |
|
|
|
2,570 |
|
|
|
2,531 |
|
|
|
39 |
|
|
|
0 |
|
U.S. government securities |
|
Level 1 |
|
|
|
76,079 |
|
|
|
7 |
|
|
|
(4,232 |
) |
|
|
71,854 |
|
|
|
1,955 |
|
|
|
69,899 |
|
|
|
0 |
|
U.S. agency securities |
|
Level 2 |
|
|
|
5,815 |
|
|
|
5 |
|
|
|
(9 |
) |
|
|
5,811 |
|
|
|
4,352 |
|
|
|
1,459 |
|
|
|
0 |
|
Foreign government bonds |
|
Level 2 |
|
|
|
493 |
|
|
|
0 |
|
|
|
(36 |
) |
|
|
457 |
|
|
|
0 |
|
|
|
457 |
|
|
|
0 |
|
Mortgage- and asset-backed securities |
|
Level 2 |
|
|
|
845 |
|
|
|
0 |
|
|
|
(45 |
) |
|
|
800 |
|
|
|
0 |
|
|
|
800 |
|
|
|
0 |
|
Corporate notes and bonds |
|
Level 2 |
|
|
|
11,373 |
|
|
|
1 |
|
|
|
(825 |
) |
|
|
10,549 |
|
|
|
0 |
|
|
|
10,549 |
|
|
|
0 |
|
Corporate notes and bonds |
|
Level 3 |
|
|
|
76 |
|
|
|
0 |
|
|
|
0 |
|
|
|
76 |
|
|
|
0 |
|
|
|
76 |
|
|
|
0 |
|
Municipal securities |
|
Level 2 |
|
|
|
372 |
|
|
|
8 |
|
|
|
(22 |
) |
|
|
358 |
|
|
|
0 |
|
|
|
358 |
|
|
|
0 |
|
Municipal securities |
|
Level 3 |
|
|
|
104 |
|
|
|
0 |
|
|
|
(7 |
) |
|
|
97 |
|
|
|
0 |
|
|
|
97 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt investments |
|
|
|
|
$ |
104,013 |
|
|
$ |
23 |
|
|
$ |
(5,176 |
) |
|
$ |
98,860 |
|
|
$ |
14,500 |
|
|
$ |
84,360 |
|
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Fair Value Recorded in Net Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity investments |
|
Level 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,616 |
|
|
$ |
1,147 |
|
|
$ |
0 |
|
|
$ |
469 |
|
Equity investments |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,370 |
|
|
|
0 |
|
|
|
0 |
|
|
|
6,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Total equity investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,986 |
|
|
$ |
1,147 |
|
|
$ |
0 |
|
|
$ |
6,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,237 |
|
|
$ |
7,237 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Derivatives, net (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
0 |
|
|
|
18 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
114,101 |
|
|
$ |
22,884 |
|
|
$ |
84,378 |
|
|
$ |
6,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
Fair Value Level |
|
|
Adjusted Cost Basis |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Recorded Basis |
|
|
Cash and Cash Equivalents |
|
|
Short-term Investments |
|
|
Equity Investments |
|
|||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Fair Value Recorded in Other Comprehensive Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper |
|
Level 2 |
|
|
$ |
2,500 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
2,500 |
|
|
$ |
2,498 |
|
|
$ |
2 |
|
|
$ |
0 |
|
Certificates of deposit |
|
Level 2 |
|
|
|
2,071 |
|
|
|
0 |
|
|
|
0 |
|
|
|
2,071 |
|
|
|
2,032 |
|
|
|
39 |
|
|
|
0 |
|
U.S. government securities |
|
Level 1 |
|
|
|
79,696 |
|
|
|
29 |
|
|
|
(2,178 |
) |
|
|
77,547 |
|
|
|
9 |
|
|
|
77,538 |
|
|
|
0 |
|
U.S. agency securities |
|
Level 2 |
|
|
|
419 |
|
|
|
0 |
|
|
|
(9 |
) |
|
|
410 |
|
|
|
0 |
|
|
|
410 |
|
|
|
0 |
|
Foreign government bonds |
|
Level 2 |
|
|
|
506 |
|
|
|
0 |
|
|
|
(24 |
) |
|
|
482 |
|
|
|
0 |
|
|
|
482 |
|
|
|
0 |
|
Mortgage- and asset-backed securities |
|
Level 2 |
|
|
|
727 |
|
|
|
1 |
|
|
|
(30 |
) |
|
|
698 |
|
|
|
0 |
|
|
|
698 |
|
|
|
0 |
|
Corporate notes and bonds |
|
Level 2 |
|
|
|
11,661 |
|
|
|
4 |
|
|
|
(554 |
) |
|
|
11,111 |
|
|
|
0 |
|
|
|
11,111 |
|
|
|
0 |
|
Corporate notes and bonds |
|
Level 3 |
|
|
|
67 |
|
|
|
0 |
|
|
|
0 |
|
|
|
67 |
|
|
|
0 |
|
|
|
67 |
|
|
|
0 |
|
Municipal securities |
|
Level 2 |
|
|
|
368 |
|
|
|
19 |
|
|
|
(13 |
) |
|
|
374 |
|
|
|
0 |
|
|
|
374 |
|
|
|
0 |
|
Municipal securities |
|
Level 3 |
|
|
|
103 |
|
|
|
0 |
|
|
|
(6 |
) |
|
|
97 |
|
|
|
0 |
|
|
|
97 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt investments |
|
|
|
|
$ |
98,118 |
|
|
$ |
53 |
|
|
$ |
(2,814 |
) |
|
$ |
95,357 |
|
|
$ |
4,539 |
|
|
$ |
90,818 |
|
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Fair Value Recorded in Net Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity investments |
|
Level 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,590 |
|
|
$ |
1,134 |
|
|
$ |
0 |
|
|
$ |
456 |
|
Equity investments |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,435 |
|
|
|
0 |
|
|
|
0 |
|
|
|
6,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
8,025 |
|
|
$ |
1,134 |
|
|
$ |
0 |
|
|
$ |
6,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
8,258 |
|
|
$ |
8,258 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Derivatives, net (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
0 |
|
|
|
8 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
111,648 |
|
|
$ |
13,931 |
|
|
$ |
90,826 |
|
|
$ |
6,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Refer to Note 5 – Derivatives for further information on the fair value of our derivative instruments. |
---|
NOTE 12 — UNEARNED REVENUE
Unearned revenue by segment was as follows:
(In millions) |
|
|
|
|
|
|
||
---|---|---|---|---|---|---|---|---|
|
|
|
|
|
|
|
||
|
|
|
||||||
|
|
September 30, 2022 |
|
|
June 30, |
|
||
|
|
|
||||||
Productivity and Business Processes |
|
$ |
22,405 |
|
|
$ |
24,558 |
|
Intelligent Cloud |
|
|
17,294 |
|
|
|
19,371 |
|
More Personal Computing |
|
|
4,190 |
|
|
|
4,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
43,889 |
|
|
$ |
48,408 |
|
|
|
|
|
|
|
|
|
|
Changes in unearned revenue were as follows:
(In millions) |
|
|
|
|
---|---|---|---|---|
|
|
|||
|
|
|||
Three Months Ended September 30, 2022 |
|
|||
|
|
|||
Balance, beginning of period |
|
$ |
48,408 |
|
Deferral of revenue |
|
|
23,577 |
|
Recognition of unearned revenue |
|
|
(28,096 |
) |
|
|
|||
|
|
|
|
|
Balance, end of period |
|
$ |
43,889 |
|
|
|
|
|
|
Revenue allocated to remaining performance obligations, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods, was $183 billion as of September 30, 2022, of which $180 billion is related to the commercial portion of revenue. We expect to recognize approximately 45% of this revenue over the next 12 months and the remainder thereafter.
NOTE 3 — OTHER INCOME (EXPENSE), NET
The components of other income (expense), net were as follows:
(In millions) |
|
|
|
|
|
||||
---|---|---|---|---|---|---|---|---|---|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
2022 |
|
|
2021 |
|
|
||
|
|
|
|
|
|
|
|
|
|
Interest and dividends income |
|
$ |
641 |
|
|
$ |
520 |
|
|
Interest expense |
|
|
(500 |
) |
|
|
(539 |
) |
|
Net recognized gains on investments |
|
|
13 |
|
|
|
371 |
|
|
Net gains (losses) on derivatives |
|
|
9 |
|
|
|
(7 |
) |
|
Net losses on foreign currency remeasurements |
|
|
(78 |
) |
|
|
(65 |
) |
|
Other, net |
|
|
(31 |
) |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
54 |
|
|
$ |
286 |
|
|
|
|
|
|
|
|
|
|
|
|
Net Recognized Gains (Losses) on Investments
Net recognized gains (losses) on debt investments were as follows:
(In millions) |
|
|
|
|
||||
---|---|---|---|---|---|---|---|---|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
2022 |
|
|
2021 |
|
||
|
|
|
|
|
|
|
|
|
Realized gains from sales of available-for-sale securities |
|
$ |
3 |
|
|
$ |
19 |
|
Realized losses from sales of available-for-sale securities |
|
|
(20 |
) |
|
|
(7 |
) |
Impairments and allowance for credit losses |
|
|
(18 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(35 |
) |
|
$ |
9 |
|
|
|
|
|
|
|
|
|
|
Net recognized gains (losses) on equity investments were as follows:
(In millions) |
|
|
|
|
||||
---|---|---|---|---|---|---|---|---|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
2022 |
|
|
2021 |
|
||
|
|
|
|
|
|
|
|
|
Net realized gains on investments sold |
|
$ |
83 |
|
|
$ |
37 |
|
Net unrealized gains (losses) on investments still held |
|
|
(28 |
) |
|
|
325 |
|
Impairments of investments |
|
|
(7 |
) |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
48 |
|
|
$ |
362 |
|
|
|
|
|
|
|
|
|
|
NOTE 13 — LEASES
We have operating and finance leases for datacenters, corporate offices, research and development facilities, Microsoft Experience Centers, and certain equipment. Our leases have remaining lease terms of less than 1 year to 19 years, some of which include options to extend the leases for up to 5 years, and some of which include options to terminate the leases within 1 year.
The components of lease expense were as follows:
(In millions) |
|
|
|
|
|
|||
---|---|---|---|---|---|---|---|---|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
2022 |
|
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
Operating lease cost |
|
$ |
662 |
|
|
$ |
588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance lease cost: |
|
|
|
|
|
|
|
|
Amortization of right-of-use assets |
|
$ |
189 |
|
|
$ |
226 |
|
Interest on lease liabilities |
|
|
113 |
|
|
|
104 |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
Total finance lease cost |
|
$ |
302 |
|
|
$ |
330 |
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information related to leases was as follows:
(In millions) |
|
|
|
|
||||
---|---|---|---|---|---|---|---|---|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
2022 |
|
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
|
$ |
654 |
|
|
$ |
566 |
|
Operating cash flows from finance leases |
|
|
113 |
|
|
|
104 |
|
Financing cash flows from finance leases |
|
|
256 |
|
|
|
200 |
|
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations: |
|
|
|
|
|
|
|
|
Operating leases |
|
|
1,189 |
|
|
|
1,171 |
|
Finance leases |
|
|
611 |
|
|
|
1,389 |
|
|
|
|
|
|
|
|
|
|
Supplemental balance sheet information related to leases was as follows:
(In millions, except lease term and discount rate) |
|
|
|
|
|
|
||
---|---|---|---|---|---|---|---|---|
|
|
|
|
|
|
|
||
|
|
|
||||||
|
|
September 30, 2022 |
|
|
June 30, 2022 |
|
||
|
|
|
||||||
Operating Leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease right-of-use assets |
|
$ |
13,347 |
|
|
$ |
13,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities |
|
$ |
2,224 |
|
|
$ |
2,228 |
|
Operating lease liabilities |
|
|
11,660 |
|
|
|
11,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating lease liabilities |
|
$ |
13,884 |
|
|
$ |
13,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance Leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, at cost |
|
$ |
17,322 |
|
|
$ |
17,388 |
|
Accumulated depreciation |
|
|
(3,475 |
) |
|
|
(3,285 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
13,847 |
|
|
$ |
14,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities |
|
$ |
1,055 |
|
|
$ |
1,060 |
|
Other long-term liabilities |
|
|
13,575 |
|
|
|
13,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total finance lease liabilities |
|
$ |
14,630 |
|
|
$ |
14,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Remaining Lease Term |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases |
|
|
8 years |
|
|
|
8 years |
|
Finance leases |
|
|
11 years |
|
|
|
12 years |
|
|
|
|
|
|
|
|
|
|
Weighted Average Discount Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases |
|
|
2.4% |
|
|
|
2.1% |
|
Finance leases |
|
|
3.2% |
|
|
|
3.1% |
|
|
|
|
|
|
|
|
|
|
The following table outlines maturities of our lease liabilities as of September 30, 2022:
(In millions) |
|
|
|
|
|
|
||
---|---|---|---|---|---|---|---|---|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Year Ending June 30, |
|
Operating Leases |
|
|
Finance Leases |
|
||
|
|
|
||||||
2023 (excluding the three months ended September 30, 2022) |
|
$ |
1,913 |
|
|
$ |
1,107 |
|
2024 |
|
|
2,327 |
|
|
|
1,480 |
|
2025 |
|
|
2,060 |
|
|
|
1,796 |
|
2026 |
|
|
1,706 |
|
|
|
1,477 |
|
2027 |
|
|
1,409 |
|
|
|
1,482 |
|
Thereafter |
|
|
5,960 |
|
|
|
10,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total lease payments |
|
|
15,375 |
|
|
|
17,370 |
|
Less imputed interest |
|
|
(1,491 |
) |
|
|
(2,740 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
13,884 |
|
|
$ |
14,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2022, we have additional operating and finance leases, primarily for datacenters, that have not yet commenced of $6.5 billion and $10.5 billion, respectively. These operating and finance leases will commence between fiscal year 2023 and fiscal year 2028 with lease terms of less than 1 year to 18 years.
NOTE 14 — CONTINGENCIES
U.S. Cell Phone Litigation
Microsoft Mobile Oy, a subsidiary of Microsoft, along with other handset manufacturers and network operators, is a defendant in 46 lawsuits, including 45 lawsuits filed in the Superior Court for the District of Columbia by individual plaintiffs who allege that radio emissions from cellular handsets caused their brain tumors and other adverse health effects. We assumed responsibility for these claims in our agreement to acquire Nokia’s Devices and Services business and have been substituted for the Nokia defendants. Nine of these cases were filed in 2002 and are consolidated for certain pre-trial proceedings; the remaining cases are stayed. In a separate 2009 decision, the Court of Appeals for the District of Columbia held that adverse health effect claims arising from the use of cellular handsets that operate within the U.S. Federal Communications Commission radio frequency emission guidelines (“FCC Guidelines”) are pre-empted by federal law. The plaintiffs allege that their handsets either operated outside the FCC Guidelines or were manufactured before the FCC Guidelines went into effect. The lawsuits also allege an industry-wide conspiracy to manipulate the science and testing around emission guidelines.
In 2013, the defendants in the consolidated cases moved to exclude the plaintiffs’ expert evidence of general causation on the basis of flawed scientific methodologies. In 2014, the trial court granted in part and denied in part the defendants’ motion to exclude the plaintiffs’ general causation experts. The defendants filed an interlocutory appeal to the District of Columbia Court of Appeals challenging the standard for evaluating expert scientific evidence. In October 2016, the Court of Appeals issued its decision adopting the standard advocated by the defendants and remanding the cases to the trial court for further proceedings under that standard. The plaintiffs have filed supplemental expert evidence, portions of which were stricken by the court. A hearing on general causation took place in September of 2022.
Other Contingencies
We also are subject to a variety of other claims and suits that arise from time to time in the ordinary course of our business. Although management currently believes that resolving claims against us, individually or in aggregate, will not have a material adverse impact in our consolidated financial statements, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future.
As of September 30, 2022, we accrued aggregate legal liabilities of $264 million. While we intend to defend these matters vigorously, adverse outcomes that we estimate could reach approximately $500 million in aggregate beyond recorded amounts are reasonably possible. Were unfavorable final outcomes to occur, there exists the possibility of a material adverse impact in our consolidated financial statements for the period in which the effects become reasonably estimable.
NOTE 6 — INVENTORIES
The components of inventories were as follows:
(In millions) |
|
|
|
|
|
|
||
---|---|---|---|---|---|---|---|---|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
|
September 30, 2022 |
|
|
June 30, 2022 |
|
||
|
|
|
||||||
Raw materials |
|
$ |
1,143 |
|
|
$ |
1,144 |
|
Work in process |
|
|
51 |
|
|
|
82 |
|
Finished goods |
|
|
3,074 |
|
|
|
2,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,268 |
|
|
$ |
3,742 |
|
|
|
|
|
|
|
|
|
|
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