UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
| SECURITIES | EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended March 31, 2004
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 0-14278
MICROSOFT CORPORATION
(Exact name of registrant as specified in its charter)
| Washington (State or other jurisdiction of incorporation or organization) |
91-1144442 (I.R.S. Employer Identification No.) |
| One Microsoft Way, Redmond, Washington (Address of principal executive office) |
98052-6399 (Zip Code) |
Registrant’s telephone number, including area code: (425) 882-8080
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 x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
The number of shares outstanding of the registrant’s common stock as of April 23, 2004 was 10,794,692,690.
FORM 10-Q
For the Quarter Ended March 31, 2004
INDEX
| Page | ||||||||
| Part I. |
||||||||
| Item 1. | ||||||||
| a) | Income Statements for the Three and Nine Months Ended March 31, 2003 and 2004 |
1 | ||||||
| b) | 2 | |||||||
| c) | Cash Flows Statements for the Three and Nine Months Ended March 31, 2003 and 2004 |
3 | ||||||
| d) | Stockholders’ Equity Statements for the Three and Nine Months Ended March 31, 2003 and 2004 |
4 | ||||||
| e) | 5 | |||||||
| f) | 17 | |||||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
18 | ||||||
| Item 3. | 34 | |||||||
| Item 4. | 35 | |||||||
| Part II |
||||||||
| Item 1. | 35 | |||||||
| Item 2. | 35 | |||||||
| Item 6. | 36 | |||||||
| 37 | ||||||||
INCOME STATEMENTS
(In millions, except earnings per share)(Unaudited)
| Three Months Ended March 31 |
Nine Months Ended March 31 |
|||||||||||||||
| 2003(1) |
2004 |
2003(1) |
2004 |
|||||||||||||
| Revenue |
$ | 7,835 | $ | 9,175 | $ | 24,122 | $ | 27,543 | ||||||||
| Operating expenses: |
||||||||||||||||
| Cost of revenue |
1,274 | 1,411 | 4,755 | 5,235 | ||||||||||||
| Research and development |
1,692 | 1,538 | 4,914 | 6,120 | ||||||||||||
| Sales and marketing |
1,700 | 1,928 | 5,274 | 5,900 | ||||||||||||
| General and administrative |
425 | 3,020 | 1,174 | 4,387 | ||||||||||||
| Total operating expenses |
5,091 | 7,897 | 16,117 | 21,642 | ||||||||||||
| Operating income |
2,744 | 1,278 | 8,005 | 5,901 | ||||||||||||
| Losses on equity investees and other |
(19 | ) | (11 | ) | (53 | ) | (26 | ) | ||||||||
| Investment income |
472 | 1,012 | 888 | 2,617 | ||||||||||||
| Income before income taxes |
3,197 | 2,279 | 8,840 | 8,492 | ||||||||||||
| Provision for income taxes |
1,055 | 964 | 2,792 | 3,014 | ||||||||||||
| Net income |
$ | 2,142 | $ | 1,315 | $ | 6,048 | $ | 5,478 | ||||||||
| Earnings per share: |
||||||||||||||||
| Basic |
$ | 0.20 | $ | 0.12 | $ | 0.56 | $ | 0.51 | ||||||||
| Diluted |
$ | 0.20 | $ | 0.12 | $ | 0.55 | $ | 0.50 | ||||||||
| Weighted average shares outstanding: |
||||||||||||||||
| Basic |
10,715 | 10,785 | 10,720 | 10,796 | ||||||||||||
| Diluted |
10,837 | 10,856 | 10,930 | 10,899 | ||||||||||||
| (1) | The three and nine months ended March 31, 2003 results have been restated for retroactive adoption of the fair value recognition provisions of SFAS 123, Accounting for Stock-Based Compensation, as discussed in Note 2. |
See accompanying notes.
1
BALANCE SHEETS
(In millions)(Unaudited)
| June 30 2003(1) |
March 31 2004 | |||||
| Assets |
||||||
| Current assets: |
||||||
| Cash and equivalents |
$ | 6,438 | $ | 9,348 | ||
| Short-term investment |
42,610 | 47,059 | ||||
| Total cash and short-term investments |
49,048 | 56,407 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $242 and $157 |
5,196 | 4,937 | ||||
| Inventories |
640 | 542 | ||||
| Deferred income taxes |
2,506 | 1,748 | ||||
| Other |
1,583 | 1,636 | ||||
| Total current assets |
58,973 | 65,270 | ||||
| Property and equipment, net |
2,223 | 2,258 | ||||
| Equity and other investments |
13,692 | 15,155 | ||||
| Goodwill |
3,128 | 3,110 | ||||
| Intangible assets, net |
384 | 599 | ||||
| Deferred income taxes |
2,161 | 1,583 | ||||
| Other long-term assets |
1,171 | 1,792 | ||||
| Total assets |
$ | 81,732 | $ | 89,767 | ||
| Liabilities and stockholders’ equity |
||||||
| Current liabilities: |
||||||
| Accounts payable |
$ | 1,573 | $ | 1,412 | ||
| Accrued compensation |
1,416 | 1,224 | ||||
| Income taxes |
2,044 | 3,175 | ||||
| Short-term unearned revenue |
7,225 | 5,949 | ||||
| Other |
1,716 | 4,224 | ||||
| Total current liabilities |
13,974 | 15,984 | ||||
| Long-term unearned revenue |
1,790 | 1,577 | ||||
| Other long-term liabilities |
1,056 | 1,626 | ||||
| Commitments and contingencies |
||||||
| Stockholders’ equity: |
||||||
| Common stock and paid-in capital—shares authorized 24,000; outstanding 10,771 and 10,777 |
49,234 | 53,975 | ||||
| Retained earnings, including accumulated other comprehensive income of $1,840 and $2,025 |
15,678 | 16,605 | ||||
| Total stockholders’ equity |
64,912 | 70,580 | ||||
| Total liabilities and stockholders’ equity |
$ | 81,732 | $ | 89,767 | ||
| (1) | The June 30, 2003 balance sheet has been restated for retroactive adoption of the fair value recognition provisions of SFAS 123, Accounting for Stock-Based Compensation, as discussed in Note 2. |
See accompanying notes.
2
CASH FLOWS STATEMENTS
(In millions)(Unaudited)
| Three Months Ended March 31 |
Nine Months Ended March 31 |
|||||||||||||||
| 2003(1) |
2004 |
2003(1) |
2004 |
|||||||||||||
| Operations |
||||||||||||||||
| Net income |
$ | 2,142 | $ | 1,315 | $ | 6,048 | $ | 5,478 | ||||||||
| Depreciation, amortization, and other noncash items |
383 | 249 | 931 | 877 | ||||||||||||
| Stock-based compensation |
978 | 748 | 3,084 | 4,995 | ||||||||||||
| Net recognized (gains)/losses on investments |
(17 | ) | (512 | ) | 598 | (1,112 | ) | |||||||||
| Stock option income tax benefits |
329 | 135 | 990 | 772 | ||||||||||||
| Deferred income taxes |
169 | 54 | (1,362 | ) | (925 | ) | ||||||||||
| Unearned revenue |
2,463 | 2,793 | 9,056 | 7,781 | ||||||||||||
| Recognition of unearned revenue |
(2,770 | ) | (3,119 | ) | (8,308 | ) | (9,268 | ) | ||||||||
| Accounts receivable |
823 | 697 | 1,225 | 369 | ||||||||||||
| Other current assets |
51 | 63 | 418 | 356 | ||||||||||||
| Other long-term assets |
(9 | ) | (6 | ) | (31 | ) | 35 | |||||||||
| Other current liabilities |
(384 | ) | 1,951 | 38 | 2,931 | |||||||||||
| Other long-term liabilities |
11 | 602 | 421 | 679 | ||||||||||||
| Net cash from operations |
4,169 | 4,970 | 13,108 | 12,968 | ||||||||||||
| Financing |
||||||||||||||||
| Common stock issued |
485 | 568 | 1,389 | 1,452 | ||||||||||||
| Common stock repurchased |
(839 | ) | (1,608 | ) | (5,272 | ) | (3,383 | ) | ||||||||
| Common stock dividend |
(857 | ) | — | (857 | ) | (1,729 | ) | |||||||||
| Net cash used for financing |
(1,211 | ) | (1,040 | ) | (4,740 | ) | (3,660 | ) | ||||||||
| Investing |
||||||||||||||||
| Additions to property and equipment |
(182 | ) | (213 | ) | (618 | ) | (552 | ) | ||||||||
| Acquisition of companies, net of cash acquired |
(12 | ) | — | (891 | ) | (4 | ) | |||||||||
| Purchases of investments |
(25,106 | ) | (19,580 | ) | (71,197 | ) | (66,555 | ) | ||||||||
| Maturities of investments |
710 | 361 | ||||||||||||||