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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 December 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 January 21, 2021

 

 

 

 

 

Common Stock, $0.00000625 par value per share

 

 

7,542,215,767 shares

 

 

 

 

 

 


 

 

MICROSOFT CORPORATION

FORM 10-Q

For the Quarter Ended December 31, 2020

INDEX

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

 

 

 

a)

Income Statements for the Three and Six Months Ended December 31, 2020 and 2019

3

 

 

 

 

 

 

 

b)

Comprehensive Income Statements for the Three and Six Months Ended December 31, 2020 and 2019

4

 

 

 

 

 

 

 

c)

Balance Sheets as of December 31, 2020 and June 30, 2020

5

 

 

 

 

 

 

 

d)

Cash Flows Statements for the Three and Six Months Ended December 31, 2020 and 2019

6

 

 

 

 

 

 

 

e)

Stockholders’ Equity Statements for the Three and Six Months Ended December 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

December 31,

 

 

 

Six Months Ended

December 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

 

2019

 

 

 

2020

 

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

$

19,460

 

 

$

18,255

 

 

$

35,263

 

 

$

34,023

 

Service and other

 

 

23,616

 

 

 

18,651

 

 

 

44,967

 

 

 

35,938

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

 

43,076

 

 

 

36,906

 

 

 

80,230

 

 

 

69,961

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

 

6,058

 

 

 

4,966

 

 

 

9,655

 

 

 

8,271

 

Service and other

 

 

8,136

 

 

 

7,392

 

 

 

15,541

 

 

 

14,493

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cost of revenue

 

 

14,194

 

 

 

12,358

 

 

 

25,196

 

 

 

22,764

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross margin

 

 

28,882

 

 

 

24,548

 

 

 

55,034

 

 

 

47,197

 

Research and development

 

 

4,899

 

 

 

4,603

 

 

 

9,825

 

 

 

9,168

 

Sales and marketing

 

 

4,947

 

 

 

4,933

 

 

 

9,178

 

 

 

9,270

 

General and administrative

 

 

1,139

 

 

 

1,121

 

 

 

2,258

 

 

 

2,182

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

17,897

 

 

 

13,891

 

 

 

33,773

 

 

 

26,577

 

Other income, net

 

 

440

 

 

 

194

 

 

 

688

 

 

 

194

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

18,337

 

 

 

14,085

 

 

 

34,461

 

 

 

26,771

 

Provision for income taxes

 

 

2,874

 

 

 

2,436

 

 

 

5,105

 

 

 

4,444

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

15,463

 

 

$

11,649

 

 

$

29,356

 

 

$

22,327

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

2.05

 

 

$

1.53

 

 

$

3.88

 

 

$

2.93

 

Diluted

 

$

2.03

 

 

$

1.51

 

 

$

3.85

 

 

$

2.90

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

7,555

 

 

 

7,621

 

 

 

7,561

 

 

 

7,628

 

Diluted

 

 

7,616

 

 

 

7,691

 

 

 

7,627

 

 

 

7,701

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to accompanying notes.

3


PART I

Item 1

 

COMPREHENSIVE INCOME STATEMENTS

 

(In millions) (Unaudited)

 

Three Months Ended

December 31,

 

 

Six Months Ended

December 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

Net income

 

$

15,463

 

 

$

11,649

 

 

$

29,356

 

 

$

22,327

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change related to derivatives

 

 

8

 

 

 

(4

)

 

 

12

 

 

 

(6

)

Net change related to investments

 

 

(492

)

 

 

(420

)

 

 

(693

)

 

 

157

 

Translation adjustments and other

 

 

741

 

 

 

230

 

 

 

852

 

 

 

(66

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

257

 

 

 

(194

)

 

 

171

 

 

 

85

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

15,720

 

 

$

11,455

 

 

$

29,527

 

 

$

22,412

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to accompanying notes.

4


PART I

Item 1

 

BALANCE SHEETS

 

(In millions) (Unaudited)

 

 

 

 

 

 

 

 

 

 

December 31,
2020

 

 

June 30,
2020

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

14,432

 

 

$

13,576

 

Short-term investments

 

 

117,536

 

 

 

122,951

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cash, cash equivalents, and short-term investments

 

 

131,968

 

 

 

136,527

 

Accounts receivable, net of allowance for doubtful accounts of $642 and $788

 

 

27,312

 

 

 

32,011

 

Inventories

 

 

1,924

 

 

 

1,895

 

Other current assets

 

 

12,769

 

 

 

11,482

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

173,973

 

 

 

181,915

 

Property and equipment, net of accumulated depreciation of $47,715 and $43,197

 

 

51,737

 

 

 

44,151

 

Operating lease right-of-use assets

 

 

10,298

 

 

 

8,753

 

Equity investments

 

 

3,794

 

 

 

2,965

 

Goodwill

 

 

44,219

 

 

 

43,351

 

Intangible assets, net

 

 

6,555

 

 

 

7,038

 

Other long-term assets

 

 

13,561

 

 

 

13,138

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

304,137

 

 

$

301,311

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

12,770

 

 

$

12,530

 

Current portion of long-term debt

 

 

5,387

 

 

 

3,749

 

Accrued compensation

 

 

6,838

 

 

 

7,874

 

Short-term income taxes

 

 

1,562

 

 

 

2,130

 

Short-term unearned revenue

 

 

30,402

 

 

 

36,000

 

Other current liabilities

 

 

10,527

 

 

 

10,027

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

67,486

 

 

 

72,310

 

Long-term debt

 

 

55,136

 

 

 

59,578

 

Long-term income taxes

 

 

26,701

 

 

 

29,432

 

Long-term unearned revenue

 

 

2,985

 

 

 

3,180

 

Deferred income taxes

 

 

174

 

 

 

204

 

Operating lease liabilities

 

 

8,875

 

 

 

7,671

 

Other long-term liabilities

 

 

12,544

 

 

 

10,632

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

173,901

 

 

 

183,007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock and paid-in capital – shares authorized 24,000; outstanding 7,546 and 7,571

 

 

81,896

 

 

 

80,552

 

Retained earnings

 

 

44,973

 

 

 

34,566

 

Accumulated other comprehensive income

 

 

3,367

 

 

 

3,186

 

 

 

 

 

 

 

 

 

 

 

 

 

Total stockholders’ equity

 

 

130,236

 

 

 

118,304

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

304,137

 

 

$

301,311

 

 

 

 

 

 

 

 

 

 

 

Refer to accompanying notes.

 

5


PART I

Item 1

 

 

CASH FLOWS STATEMENTS

 

(In millions) (Unaudited)

 

Three Months Ended

December 31,

 

 

 

Six Months Ended

December 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

2019

 

 

 

2020

 

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

15,463

 

 

$

11,649

 

 

$

29,356

 

 

$

22,327

 

Adjustments to reconcile net income to net cash from operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, amortization, and other

 

 

2,761

 

 

 

3,203

 

 

 

5,406

 

 

 

6,174

 

Stock-based compensation expense

 

 

1,566

 

 

 

1,340

 

 

 

3,022

 

 

 

2,602

 

Net recognized gains on investments and derivatives

 

 

(354

)

 

 

(203

)

 

 

(482

)

 

 

(192

)

Deferred income taxes

 

 

(17

)

 

 

(53

)

 

 

(28

)

 

 

(230

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(4,008

)

 

 

(4,203

)

 

 

4,835

 

 

 

5,887

 

Inventories

 

 

788

 

 

 

799

 

 

 

(20

)

 

 

238

 

Other current assets

 

 

730

 

 

 

165

 

 

 

676

 

 

 

(273

)

Other long-term assets

 

 

(1,499

)

 

 

(517

)

 

 

(1,561

)

 

 

(850

)

Accounts payable

 

 

33

 

 

 

(7

)

 

 

348

 

 

 

(554

)

Unearned revenue

 

 

(3,227

)

 

 

(2,936

)

 

 

(6,291

)

 

 

(5,828

)

Income taxes

 

 

(2,368

)

 

 

(471

)

 

 

(3,351

)

 

 

(3,807

)

Other current liabilities

 

 

1,755

 

 

 

1,489

 

 

 

(1,196

)

 

 

(1,831

)

Other long-term liabilities

 

 

893

 

 

 

425

 

 

 

1,137

 

 

 

835

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash from operations

 

 

12,516

 

 

 

10,680

 

 

 

31,851

 

 

 

24,498

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repayments of debt

 

 

(3,250

)

 

 

(18

)

 

 

(3,250

)

 

 

(2,518

)

Common stock issued

 

 

302

 

 

 

234

 

 

 

847

 

 

 

661

 

Common stock repurchased

 

 

(6,535

)

 

 

(5,206

)

 

 

(13,278

)

 

 

(10,118

)

Common stock cash dividends paid

 

 

(4,230

)

 

 

(3,886

)

 

 

(8,086

)

 

 

(7,396

)

Other, net

 

 

79

 

 

 

(39

)

 

 

(156

)

 

 

247

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in financing

 

 

(13,634

)

 

 

(8,915

)

 

 

(23,923

)

 

 

(19,124

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additions to property and equipment

 

 

(4,174

)

 

 

(3,545

)

 

 

(9,081

)

 

 

(6,930

)

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

 

 

(415

)

 

 

(80

)

 

 

(896

)

 

 

(542

)

Purchases of investments

 

 

(15,092

)

 

 

(19,011

)

 

 

(29,672

)

 

 

(42,401

)

Maturities of investments

 

 

15,264

 

 

 

11,230

 

 

 

29,530

 

 

 

30,312

 

Sales of investments

 

 

2,421

 

 

 

5,370

 

 

 

4,835

 

 

 

11,749

 

Other, net

 

 

327

 

 

 

0

 

 

 

(1,756

)

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in investing

 

 

(1,669

)

 

 

(6,036

)

 

 

(7,040

)

 

 

(7,812

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of foreign exchange rates on cash and cash equivalents

 

 

14