Microsoft 2013 Annual Report Download - page 33

Interest on the notes is paid semi-annually, except for the euro-denominated debt securities on which interest is paid
annually. As of June 30, 2013, the aggregate unamortized discount for our long-term debt, including the current portion,
was $65 million.
Notes
The Notes are senior unsecured obligations and rank equally with our other unsecured and unsubordinated debt
outstanding.
Convertible Debt
In June 2013, we paid cash of $1.25 billion for the principal amount of our zero coupon convertible unsecured debt and
elected to deliver cash for the $96 million excess obligation resulting from the conversion of the notes. Each $1,000
principal amount of notes was convertible into 30.68 shares of Microsoft common stock at a conversion price of $32.59
per share. As of June 30, 2012, the net carrying amount of the convertible debt and the unamortized discount were $1.2
billion and $19 million, respectively.
In connection with the issuance of the notes in 2010, we entered into capped call transactions with certain option
counterparties with a strike price equal to the conversion price of the notes. Upon conversion of the notes in June 2013,
we exercised the capped calls. The bulk of the capped calls were physically settled by acquiring 29 million shares of our
own common stock for $938 million. The remaining capped calls were net cash settled for $24 million.
Credit Facility
In June 2013, we established a commercial paper program for the issuance and sale of up to $1.3 billion in commercial
paper. As of June 30, 2013, we have not issued any commercial paper under this program.
In June 2013, we entered into a $1.3 billion credit facility, which will serve as a back-up for our commercial paper
program. As of June 30, 2013, we were in compliance with the only financial covenant in the credit agreement, which
requires us to maintain a coverage ratio of at least three times earnings before interest, taxes, depreciation, and
amortization to interest expense, as defined in the credit agreement. The credit facility expires on June 24, 2018. No
amounts were drawn against the credit facility since its inception.
Unearned Revenue
Unearned revenue at June 30, 2013 comprised mainly unearned revenue from volume licensing programs. Unearned
revenue from volume licensing programs represents customer billings for multi-year licensing arrangements paid for either
at inception of the agreement or annually at the beginning of each coverage period and accounted for as subscriptions
with revenue recognized ratably over the coverage period. Unearned revenue at June 30, 2013 also included payments
for: post-delivery support and consulting services to be performed in the future; Xbox LIVE subscriptions and prepaid
points; OEM minimum commitments; Microsoft Dynamics business solutions products; Skype prepaid credits and
subscriptions; and other offerings for which we have been paid in advance and earn the revenue when we provide the
service or software, or otherwise meet the revenue recognition criteria.
The following table outlines the expected future recognition of unearned revenue as of June 30, 2013:
(In millions)
Three Months Ending,
September 30, 2013
$ 7,790
December 31, 2013
6,571
March 31, 2014
4,252
June 30, 2014
2,026
Thereafter
1,760
Total
$ 22,399