Quarterly Report (10-q)

Date : 23/10/2019 @ 22h11
Source : Edgar (US Regulatory)
Valeur : Microsoft Corporation (MSFT)
Cours : 151.5  0.14 (0.09%) @ 16h14
Microsoft Cours Graphique

Quarterly Report (10-q)

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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 September 30, 2019

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

2.125% Notes due 2021

 

MSFT

 

New York Stock Exchange

3.125% Notes due 2028

 

MSFT

 

New York Stock Exchange

2.625% Notes due 2033

 

MSFT

 

New York Stock Exchange

 

 

 

 

 

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 October 18, 2019

 

 

 

 

 

Common Stock, $0.00000625 par value per share

 

 

7,628,805,618 shares

 

 

 

 

 

 


 

MICROSOFT CORPORATION

FORM 10-Q

For the Quarter Ended September 30, 2019

INDEX

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

 

 

 

a)

Income Statements for the Three Months Ended September 30, 2019 and 2018

3

 

 

 

 

 

 

 

b)

Comprehensive Income Statements for the Three Months Ended September 30, 2019 and 2018

4

 

 

 

 

 

 

 

c)

Balance Sheets as of September 30, 2019 and June 30, 2019

5

 

 

 

 

 

 

 

d)

Cash Flows Statements for the Three Months Ended September 30, 2019 and 2018

6

 

 

 

 

 

 

 

e)

Stockholders’ Equity Statements for the Three Months Ended September 30, 2019 and 2018

7

 

 

 

 

 

 

 

f)

Notes to Financial Statements

8

 

 

 

 

 

 

 

g)

Report of Independent Registered Public Accounting Firm

28

 

 

 

 

 

 

Item 2.

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

29

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

41

 

 

 

 

 

 

Item 4.

Controls and Procedures

41

 

 

 

 

 

PART II. 

OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

42

 

 

 

 

 

 

Item 1A.

Risk Factors

42

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

54

 

 

 

 

 

 

Item 6.

Exhibits

55

 

 

 

 

 

SIGNATURE

56

 

 

 

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 September 30,

 

2019

 

 

2018

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

Product

 

$

15,768

 

 

$

  17,299

 

Service and other

 

 

17,287

 

 

 

11,785

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

 

33,055

 

 

 

29,084

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue:

 

 

 

 

 

 

 

 

Product

 

 

3,305

 

 

 

3,649

 

Service and other

 

 

7,101

 

 

 

6,256

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cost of revenue

 

 

10,406

 

 

 

9,905

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross margin

 

 

22,649

 

 

 

19,179

 

Research and development

 

 

4,565

 

 

 

3,977

 

Sales and marketing

 

 

4,337

 

 

 

4,098

 

General and administrative

 

 

1,061

 

 

 

1,149

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

12,686

 

 

 

9,955

 

Other income, net

 

 

0

 

 

 

266

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

12,686

 

 

 

10,221

 

Provision for income taxes

 

 

2,008

 

 

 

1,397

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

10,678

 

 

$

8,824

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

Basic

 

$

1.40

 

 

$

1.15

 

Diluted

 

$

1.38

 

 

$

1.14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

7,634

 

 

 

7,673

 

Diluted

 

 

7,710

 

 

 

7,766

 

 

 

 

 

 

 

 

 

 

 

Refer to accompanying notes.

3


PART I

Item 1

 

COMPREHENSIVE INCOME STATEMENTS

 

(In millions) (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

2019

 

 

2018

 

 

 

 

 

Net income

 

$

10,678

 

 

$

8,824

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

Net change related to derivatives

 

 

(2

)

 

 

(45

)

Net change related to investments

 

 

577

 

 

 

(261

)

Translation adjustments and other

 

 

(296

)

 

 

(55

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

279

 

 

 

(361

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

10,957

 

 

$

8,463

 

 

 

 

 

 

 

 

 

 

 

Refer to accompanying notes. Refer to Note 15 – Accumulated Other Comprehensive Income (Loss) for further information.

4


PART I

Item 1

 

BALANCE SHEETS

 

(In millions) (Unaudited)

 

 

 

 

 

 

 

 

 

 

September 30,
2019

 

 

June 30,
2019

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

13,117

 

 

$

11,356

 

Short-term investments

 

 

123,519

 

 

 

122,463

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cash, cash equivalents, and short-term investments

 

 

136,636

 

 

 

133,819

 

Accounts receivable, net of allowance for doubtful accounts of $303 and $411

 

 

19,087

 

 

 

29,524

 

Inventories

 

 

2,622

 

 

 

2,063

 

Other current assets

 

 

7,551

 

 

 

10,146

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

165,896

 

 

 

175,552

 

Property and equipment, net of accumulated depreciation of $36,971 and $35,330

 

 

38,409

 

 

 

36,477

 

Operating lease right-of-use assets

 

 

7,890

 

 

 

7,379

 

Equity investments

 

 

2,684

 

 

 

2,649

 

Goodwill

 

 

42,113

 

 

 

42,026

 

Intangible assets, net

 

 

7,508

 

 

 

7,750

 

Other long-term assets

 

 

14,455

 

 

 

14,723

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

278,955

 

 

$

286,556

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

8,574

 

 

$

9,382

 

Current portion of long-term debt

 

 

3,017

 

 

 

5,516

 

Accrued compensation

 

 

4,676

 

 

 

6,830

 

Short-term income taxes

 

 

3,440

 

 

 

5,665

 

Short-term unearned revenue

 

 

29,904

 

 

 

32,676

 

Other current liabilities

 

 

8,507

 

 

 

9,351

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

58,118

 

 

 

69,420

 

Long-term debt

 

 

66,478

 

 

 

66,662

 

Long-term income taxes

 

 

28,457

 

 

 

29,612

 

Long-term unearned revenue

 

 

4,122

 

 

 

4,530

 

Deferred income taxes

 

 

234

 

 

 

233

 

Operating lease liabilities

 

 

6,659

 

 

 

6,188

 

Other long-term liabilities

 

 

8,826

 

 

 

7,581

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

172,894

 

 

 

184,226

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock and paid-in capital – shares authorized 24,000; outstanding 7,634 and 7,643

 

 

78,882

 

 

 

78,520

 

Retained earnings

 

 

27,240

 

 

 

24,150

 

Accumulated other comprehensive loss

 

 

(61

)

 

 

(340

)

 

 

 

 

 

 

 

 

 

 

 

 

Total stockholders’ equity

 

 

106,061

 

 

 

102,330

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

278,955

 

 

$

286,556

 

 

 

 

 

 

 

 

 

 

 

Refer to accompanying notes.

 

5


PART I

Item 1

 

CASH FLOWS STATEMENTS

 

(In millions) (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

2019

 

 

2018

 

 

 

 

 

Operations

 

 

 

 

 

 

 

 

Net income

 

$

10,678

 

 

$

8,824

 

Adjustments to reconcile net income to net cash from operations:

 

 

 

 

 

 

 

 

Depreciation, amortization, and other

 

 

2,971

 

 

 

2,837

 

Stock-based compensation expense

 

 

1,262

 

 

 

1,107

 

Net recognized losses (gains) on investments and derivatives

 

 

11

 

 

 

(240

)

Deferred income taxes

 

 

(177

)

 

 

(247

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

10,090

 

 

 

9,194

 

Inventories

 

 

(561

)

 

 

(956

)

Other current assets

 

 

(438

)

 

 

(677

)

Other long-term assets

 

 

(333

)

 

 

21

 

Accounts payable

 

 

(547

)

 

 

(395

)

Unearned revenue

 

 

(2,892

)

 

 

(2,441

)

Income taxes

 

 

(3,336

)

 

 

(1,091

)

Other current liabilities

 

 

(3,320

)

 

 

(2,322

)

Other long-term liabilities

 

 

410

 

 

 

43

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash from operations

 

 

13,818

 

 

 

13,657

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financing

 

 

 

 

 

 

 

 

Repayments of debt

 

 

(2,500

 

 

0

 

Common stock issued

 

 

427

 

 

 

360

 

Common stock repurchased

 

 

(4,912

)

 

 

(3,744

)

Common stock cash dividends paid

 

 

(3,510

)

 

 

(3,220

)

Other, net

 

 

286

 

 

 

(780

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in financing

 

 

(10,209

)

 

 

(7,384

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investing

 

 

 

 

 

 

 

 

Additions to property and equipment

 

 

(3,385

)

 

 

(3,602

)

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

 

 

(462

)

 

 

(245

)

Purchases of investments

 

 

(23,390

)

 

 

(19,551

)

Maturities of investments

 

 

19,082

 

 

 

5,214

 

Sales of investments

 

 

6,379

 

 

 

15,231

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in investing

 

 

(1,776

)

 

 

(2,953

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of foreign exchange rates on cash and cash equivalents

 

 

(72

)

 

 

(129

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

1,761

 

 

 

3,191

 

Cash and cash equivalents, beginning of period

 

 

11,356

 

 

 

11,946

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

13,117

 

 

$

15,137

 

 

 

 

 

 

 

 

 

 

 

Refer to accompanying notes.

 

6


PART I

Item 1

 

STOCKHOLDERS’ EQUITY STATEMENTS

 

(In millions) (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

2019

 

 

2018

 

 

 

 

 

Common stock and paid-in capital

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

78,520

 

 

$

71,223

 

Common stock issued

 

 

427

 

 

 

360

 

Common stock repurchased

 

 

(1,326

)

 

 

(1,387

)

Stock-based compensation expense

 

 

1,262

 

 

 

1,107

 

Other, net

 

 

(1

)

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, end of period

 

 

78,882

 

 

 

71,303

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained earnings

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

24,150

 

 

 

13,682

 

Net income

 

 

10,678

 

 

 

8,824

 

Common stock cash dividends

 

 

(3,887

)

 

 

(3,528

)

Common stock repurchased

 

 

(3,701

)

 

 

(2,376

)

Cumulative effect of accounting changes

 

 

0

 

 

 

677

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, end of period

 

 

27,240

 

 

 

17,279

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated other comprehensive income (loss)

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

(340

)

 

 

(2,187

)

Other comprehensive income (loss)

 

 

279

 

 

 

(361

)

Cumulative effect of accounting changes

 

 

0

 

 

 

(67

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, end of period

 

 

(61

)

 

 

(2,615

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total stockholders’ equity

 

$

  106,061

 

 

$

85,967

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.51

 

 

$

0.46

 

 

 

 

 

 

 

 

 

 

 

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 2019 Form 10-K filed with the U.S. Securities and Exchange Commission on August 1, 2019.

 

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 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.

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 other-than-temporary impairments, are recorded in other comprehensive income (“OCI”). Debt investments are impaired when a decline in fair value is judged to be other-than-temporary. Fair value is calculated based on publicly available market information or other estimates determined by management. We employ a systematic methodology on a quarterly basis that considers available quantitative and qualitative evidence in evaluating potential impairment of our investments. 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 duration and extent to which the fair value is less than cost. We also evaluate whether 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. In addition, we consider specific adverse conditions related to the financial health of and business outlook for the investee, including industry and sector performance, changes in technology, and operational and financing cash flow factors. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded in other income (expense), net and a new cost basis in the investment is established.

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 quarterly 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 OCI and subsequently recognized in earnings with the corresponding hedged item. Gains and losses representing hedge components excluded from the assessment of effectiveness are recognized in earnings.

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 primarily include certain over-the-counter 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, 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.

9


PART I

Item 1

 

Contract Balances

As of September 30, 2019 and June 30, 2019, long-term accounts receivable, net of allowance for doubtful accounts, was $2.3 billion and $2.2 billion, respectively, and is included in other long-term assets in our consolidated balance sheets.

Recent Accounting Guidance

Recently Adopted Accounting Guidance

Financial Instruments – Targeted Improvements to Accounting for Hedging Activities

In August 2017, the Financial Accounting Standards Board (“FASB”) issued new guidance related to accounting for hedging activities. This guidance expands strategies that qualify for hedge accounting, changes how many hedging relationships are presented in the financial statements, and simplifies the application of hedge accounting in certain situations. We adopted the standard effective July 1, 2019. As we did not hold derivative instruments requiring an adjustment upon adoption, there was no impact in our consolidated financial statements. Adoption of the standard enhanced the presentation of the effects of our hedging instruments and the hedged items in our consolidated financial statements to increase the understandability of the results of our hedging strategies.

Recent Accounting Guidance Not Yet Adopted

Financial Instruments – Credit Losses

In June 2016, the FASB issued a new standard to replace the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. We will be required to use a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. The standard will be adopted upon the effective date for us beginning July 1, 2020. Adoption of the standard will be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date to align our credit loss methodology with the new standard. We are currently evaluating the impact of this standard in our consolidated financial statements, including accounting policies, processes, and systems.

 

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,

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

 

Net income available for common shareholders (A)

 

$

  10,678

 

 

$

  8,824

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average outstanding shares of common stock (B)

 

 

7,634

 

 

 

7,673

 

Dilutive effect of stock-based awards

 

 

76

 

 

 

93

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock and common stock equivalents (C)

 

 

  7,710

 

 

 

  7,766

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings Per Share

 

 

 

 

 

 

 

 

 

 

 

 

Basic (A/B)

 

$

1.40

 

 

$

1.15

 

Diluted (A/C)

 

$

1.38

 

 

$

1.14

 

 

 

 

Anti-dilutive stock-based awards excluded from the calculations of diluted EPS were immaterial during the periods presented.

 

10


PART I

Item 1

 

NOTE 3 — OTHER INCOME (EXPENSE), NET

The components of other income (expense), net were as follows:

 

(In millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

 

2019

 

 

 

2018

 

 

 

 

 

 

 

 

 

 

Interest and dividends income

 

$

724

 

 

$

681

 

Interest expense

 

 

  (637

)

 

 

  (674

)

Net recognized gains (losses) on investments

 

 

(57

)

 

 

243

 

Net gains (losses) on derivatives

 

 

46

 

 

 

(3

)

Net gains (losses) on foreign currency remeasurements

 

 

(58

)

 

 

5

 

Other, net

 

 

(18

)

 

 

14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

0

 

 

$

266

 

 

 

 

 

 

 

 

 

 

 

Net Recognized Gains (Losses) on Investments

Net recognized gains (losses) on debt investments were as follows:

 

(In millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

 

2019

 

 

 

2018

 

 

 

 

 

 

 

 

 

 

Realized gains from sales of available-for-sale securities

 

$

  7

 

 

$

  7

 

Realized losses from sales of available-for-sale securities

 

 

(4

)

 

 

(85

)

Other-than-temporary impairments of investments

 

 

(4

)

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

(1

)

 

$

(78

)

 

 

 

 

 

 

 

 

 

 

Net recognized gains (losses) on equity investments were as follows:

 

(In millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

 

2019

 

 

 

2018

 

 

 

 

 

 

 

 

 

 

Net realized gains on investments sold

 

$

22

 

 

$

203

 

Net unrealized gains on investments still held

 

 

(56

)

 

 

118

 

Impairments of investments

 

 

(22

)

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

(56

)

 

$

321

 

 

 

 

 

 

 

 

 

 

 

11


PART I

Item 1

 

NOTE 4 — INVESTMENTS

Investment Components

The components of investments were as follows:

 

(In millions)

 

Fair Value 
Level

 

 

 

Cost Basis

 

 

 

Unrealized

Gains

 

 

 

Unrealized

Losses

 

 

 

Recorded

Basis

 

 

 

Cash

and Cash

Equivalents

 

 

 

Short-term

Investments

 

 

 

Equity

Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in Fair Value Recorded in Other Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

Level 2

 

 

$

4,613

 

 

$

0

 

 

$

0

 

 

$

4,613

 

 

$

4,339

 

 

$

274

 

 

$

0

 

Certificates of deposit

 

Level 2

 

 

 

1,920

 

 

 

0

 

 

 

0

 

 

 

1,920

 

 

 

1,134

 

 

 

786

 

 

 

0

 

U.S. government securities

 

Level 1

 

 

 

104,575

 

 

 

2,483

 

 

 

(57

)

 

 

107,001

 

 

 

617

 

 

 

106,384

 

 

 

0

 

U.S. agency securities

 

Level 2

 

 

 

749

 

 

 

0

 

 

 

0

 

 

 

749

 

 

 

200

 

 

 

549

 

 

 

0

 

Foreign government bonds

 

Level 2

 

 

 

6,196

 

 

 

4

 

 

 

(11

)

 

 

6,189

 

 

 

2,129

 

 

 

4,060

 

 

 

0

 

Mortgage- and asset-backed securities

 

Level 2

 

 

 

3,438

 

 

 

12

 

 

 

(2

)

 

 

3,448

 

 

 

0

 

 

 

3,448

 

 

 

0

 

Corporate notes and bonds

 

Level 2

 

 

 

7,550

 

 

 

128

 

 

 

(9

)

 

 

7,669

 

 

 

0

 

 

 

7,669

 

 

 

0

 

Corporate notes and bonds

 

Level 3

 

 

 

13

 

 

 

0

 

 

 

0

 

 

 

13

 

 

 

0

 

 

 

13

 

 

 

0

 

Municipal securities

 

Level 2

 

 

 

242

 

 

 

55

 

 

 

0

 

 

 

297

 

 

 

0

 

 

 

297

 

 

 

0

 

Municipal securities

 

Level 3

 

 

 

12

 

 

 

0

 

 

 

0

 

 

 

12

 

 

 

0

 

 

 

12

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total debt investments

 

 

 

 

$

129,308

 

 

$

2,682

 

 

$

(79

)

 

$

131,911

 

 

$

8,419

 

 

$

123,492

 

 

$

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in Fair Value Recorded in Net Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity investments

 

Level 1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

995

 

 

$

498

 

 

$

0

 

 

$

497

 

Equity investments

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,187

 

 

 

0

 

 

 

0

 

 

 

2,187

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total equity investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

3,182

 

 

$

498

 

 

$

0

 

 

$

2,684