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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, 2020

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

 

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 24, 2020

 

 

 

 

 

Common Stock, $0.00000625 par value per share

 

 

7,583,440,247 shares

 

 

 

 

 


 

MICROSOFT CORPORATION

FORM 10-Q

For the Quarter Ended March 31, 2020

INDEX

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

 

 

 

a)

Income Statements for the Three and Nine Months Ended March 31, 2020 and 2019

3

 

 

 

 

 

 

 

b)

Comprehensive Income Statements for the Three and Nine Months Ended March 31, 2020 and 2019

4

 

 

 

 

 

 

 

c)

Balance Sheets as of March 31, 2020 and June 30, 2019

5

 

 

 

 

 

 

 

d)

Cash Flows Statements for the Three and Nine Months Ended March 31, 2020 and 2019

6

 

 

 

 

 

 

 

e)

Stockholders’ Equity Statements for the Three and Nine Months Ended March 31, 2020 and 2019

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

47

 

 

 

 

 

 

Item 4.

Controls and Procedures

47

 

 

 

 

 

PART II. 

OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

48

 

 

 

 

 

 

Item 1A.

Risk Factors

48

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

61

 

 

 

 

 

 

Item 6.

Exhibits

62

 

 

 

 

 

SIGNATURE

63

 

 

 

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,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

2019

 

 

 

2020

 

 

 

2019

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

$

15,871

 

 

$

15,448

 

 

$

49,894

 

 

$

48,966

 

Service and other

 

 

19,150

 

 

 

15,123

 

 

 

55,088

 

 

 

43,160

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

 

35,021

 

 

 

30,571

 

 

 

104,982

 

 

 

92,126

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

 

3,376

 

 

 

3,441

 

 

 

11,647

 

 

 

12,975

 

Service and other

 

 

7,599

 

 

 

6,729

 

 

 

22,092

 

 

 

19,523

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cost of revenue

 

 

10,975

 

 

 

10,170

 

 

 

33,739

 

 

 

32,498

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross margin

 

 

24,046

 

 

 

20,401

 

 

 

71,243

 

 

 

59,628

 

Research and development

 

 

4,887

 

 

 

4,316

 

 

 

14,055

 

 

 

12,363

 

Sales and marketing

 

 

4,911

 

 

 

4,565

 

 

 

14,181

 

 

 

13,251

 

General and administrative

 

 

1,273

 

 

 

1,179

 

 

 

3,455

 

 

 

3,460

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

12,975

 

 

 

10,341

 

 

 

39,552

 

 

 

30,554

 

Other income (expense), net

 

 

(132

)

 

 

145

 

 

 

62

 

 

 

538

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

12,843

 

 

 

10,486

 

 

 

39,614

 

 

 

31,092

 

Provision for income taxes

 

 

2,091

 

 

 

1,677

 

 

 

6,535

 

 

 

5,039

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

10,752

 

 

$

8,809

 

 

$

33,079

 

 

$

26,053

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.41

 

 

$

1.15

 

 

$

4.34

 

 

$

3.39

 

Diluted

 

$

1.40

 

 

$

1.14

 

 

$

4.30

 

 

$

3.36

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

7,602

 

 

 

7,672

 

 

 

7,619

 

 

 

7,679

 

Diluted

 

 

7,675

 

 

 

7,744

 

 

 

7,693

 

 

 

7,759

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

2019

 

 

 

2020

 

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

10,752

 

 

$

8,809

 

 

$

33,079

 

 

$

26,053

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change related to derivatives

 

 

(36

)

 

 

(33

)

 

 

(42

)

 

 

(93

)

Net change related to investments

 

 

3,508

 

 

 

714

 

 

 

3,665

 

 

 

1,334

 

Translation adjustments and other

 

 

(541

)

 

 

67

 

 

 

(607

)

 

 

(252

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

2,931

 

 

 

748

 

 

 

3,016

 

 

 

989

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

13,683

 

 

$

9,557

 

 

$

36,095

 

 

$

27,042

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to accompanying notes.

4


PART I

Item 1

 

BALANCE SHEETS

 

(In millions) (Unaudited)

 

 

 

 

 

 

 

 

 

 

March 31,
2020

 

 

June 30,
2019

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

11,710

 

 

$

11,356

 

Short-term investments

 

 

125,916

 

 

 

122,463

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cash, cash equivalents, and short-term investments

 

 

137,626

 

 

 

133,819

 

Accounts receivable, net of allowance for doubtful accounts of $446 and $411

 

 

22,699

 

 

 

29,524

 

Inventories

 

 

1,644

 

 

 

2,063

 

Other current assets

 

 

8,536

 

 

 

10,146

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

170,505

 

 

 

175,552

 

Property and equipment, net of accumulated depreciation of $41,512 and $35,330

 

 

41,221

 

 

 

36,477

 

Operating lease right-of-use assets

 

 

8,448

 

 

 

7,379

 

Equity investments

 

 

2,660

 

 

 

2,649

 

Goodwill

 

 

42,064

 

 

 

42,026

 

Intangible assets, net

 

 

6,855

 

 

 

7,750

 

Other long-term assets

 

 

13,696

 

 

 

14,723

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

285,449

 

 

$

286,556

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

9,246

 

 

$

9,382

 

Current portion of long-term debt

 

 

3,748

 

 

 

5,516

 

Accrued compensation

 

 

6,254

 

 

 

6,830

 

Short-term income taxes

 

 

3,296

 

 

 

5,665

 

Short-term unearned revenue

 

 

27,012

 

 

 

32,676

 

Other current liabilities

 

 

9,151

 

 

 

9,351

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

58,707

 

 

 

69,420

 

Long-term debt

 

 

62,862

 

 

 

66,662

 

Long-term income taxes

 

 

28,888

 

 

 

29,612

 

Long-term unearned revenue

 

 

3,385

 

 

 

4,530

 

Deferred income taxes

 

 

185

 

 

 

233

 

Operating lease liabilities

 

 

7,248

 

 

 

6,188

 

Other long-term liabilities

 

 

9,673

 

 

 

7,581

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

170,948

 

 

 

184,226

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock and paid-in capital – shares authorized 24,000; outstanding 7,590 and 7,643

 

 

79,813

 

 

 

78,520

 

Retained earnings

 

 

32,012

 

 

 

24,150

 

Accumulated other comprehensive income (loss)

 

 

2,676

 

 

 

(340

)

 

 

 

 

 

 

 

 

 

 

 

 

Total stockholders’ equity

 

 

114,501

 

 

 

102,330

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

285,449

 

 

$

286,556

 

 

 

 

 

 

 

 

 

 

 

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,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

10,752

 

 

$

8,809

 

 

$

33,079

 

 

$

26,053

 

Adjustments to reconcile net income to net cash from operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, amortization, and other

 

 

3,118

 

 

 

2,926

 

 

 

9,292

 

 

 

8,758

 

Stock-based compensation expense

 

 

1,338

 

 

 

1,172

 

 

 

3,940

 

 

 

3,462

 

Net recognized losses (gains) on investments and derivatives

 

 

52

 

 

 

(95

)

 

 

(140

)

 

 

(470

)

Deferred income taxes

 

 

(206

)

 

 

(320

)

 

 

(436

)

 

 

(740

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

891

 

 

 

460

 

 

 

6,778

 

 

 

7,258

 

Inventories

 

 

181

 

 

 

12

 

 

 

419

 

 

 

710

 

Other current assets

 

 

94

 

 

 

(14

)

 

 

(179

)

 

 

(864

)

Other long-term assets

 

 

124

 

 

 

(517

)

 

 

(726

)

 

 

(969

)

Accounts payable

 

 

546

 

 

 

(197

)

 

 

(8

)

 

 

(1,032

)

Unearned revenue

 

 

(736

)

 

 

20

 

 

 

(6,564

)

 

 

(4,543

)

Income taxes

 

 

765

 

 

 

276

 

 

 

(3,042

)

 

 

(879

)

Other current liabilities

 

 

695

 

 

 

649

 

 

 

(1,136

)

 

 

(1,017

)

Other long-term liabilities

 

 

(110

)

 

 

339

 

 

 

725

 

 

 

350

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash from operations

 

 

17,504

 

 

 

13,520

 

 

 

42,002

 

 

 

36,077

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repayments of debt

 

 

(3,000

)

 

 

0

 

 

 

(5,518

)

 

 

(3,000

)

Common stock issued

 

 

342

 

 

 

274

 

 

 

1,003

 

 

 

834

 

Common stock repurchased

 

 

(7,059

)

 

 

(4,753

)

 

 

(17,177

)

 

 

(14,910

)

Common stock cash dividends paid

 

 

(3,876

)

 

 

(3,526

)

 

 

(11,272

)

 

 

(10,290

)

Other, net

 

 

(1,052

)

 

 

404

 

 

 

(805

) 

 

 

(835

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in financing

 

 

(14,645

)

 

 

(7,601

)

 

 

(33,769

)

 

 

(28,201

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additions to property and equipment

 

 

(3,767

)

 

 

(2,565

)

 

 

(10,697

)

 

 

(9,874

)

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

 

 

(329

)

 

 

(269

)

 

 

(871

)

 

 

(2,107

)

Purchases of investments

 

 

(15,910

)

 

 

(5,846

)

 

 

(58,311

)

 

 

(42,255

)

Maturities of investments

 

 

17,247

 

 

 

5,893

 

 

 

47,559

 

 

 

14,889

 

Sales of investments

 

 

2,810

 

 

 

1,424

 

 

 

14,559

 

 

 

30,831

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash from (used in) investing

 

 

51

 

 

 

(1,363

)

 

 

(7,761

)

 

 

(8,516

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of foreign exchange rates on cash and cash equivalents

 

 

(64

)

 

 

18

 

 

 

(118

)

 

 

(94

)

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

2,846

 

 

 

4,574

 

 

 

354

 

 

 

(734

)

Cash and cash equivalents, beginning of period

 

 

8,864

 

 

 

6,638

 

 

 

11,356

 

 

 

11,946