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, 2005
| ¨ | 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 | 91-1144442 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| One Microsoft Way, Redmond, Washington | 98052-6399 | |
| (Address of principal executive office) | (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 March 31, 2005 was 10,804,353,235
FORM 10-Q
For the Quarter Ended March 31, 2005
INDEX
| Page | ||||||||
| Part I. |
||||||||
| Item 1. |
||||||||
| a) |
Income Statements for the Three and Nine Months Ended March 31, 2004 and 2005 |
1 | ||||||
| b) |
2 | |||||||
| c) |
Cash Flows Statements for the Three and Nine Months Ended March 31, 2004 and 2005 |
3 | ||||||
| d) |
Stockholders’ Equity Statements for the Three and Nine Months Ended March 31, 2004 and 2005 |
4 | ||||||
| e) |
5 | |||||||
| f) |
13 | |||||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
14 | ||||||
| Item 3. |
34 | |||||||
| Item 4. |
35 | |||||||
| Part II |
||||||||
| Item 1. |
36 | |||||||
| Item 2. |
36 | |||||||
| Item 6. |
36 | |||||||
| 37 | ||||||||
INCOME STATEMENTS
(In millions, except earnings per share)(Unaudited)
| Three Months Ended March 31, |
Nine Months Ended March 31 | |||||||||||
| 2004 |
2005 |
2004 |
2005 | |||||||||
| Revenue |
$ | 9,175 | $ | 9,620 | $ | 27,543 | $ | 29,627 | ||||
| Operating expenses: |
||||||||||||
| Cost of revenue |
1,411 | 1,399 | 5,235 | 4,790 | ||||||||
| Research and development |
1,538 | 1,508 | 6,120 | 4,493 | ||||||||
| Sales and marketing |
1,928 | 2,098 | 5,900 | 5,907 | ||||||||
| General and administrative |
3,020 | 1,286 | 4,387 | 2,865 | ||||||||
| Total operating expenses |
7,897 | 6,291 | 21,642 | 18,055 | ||||||||
| Operating income |
1,278 | 3,329 | 5,901 | 11,572 | ||||||||
| Investment income and other |
1,001 | 496 | 2,591 | 1,195 | ||||||||
| Income before income taxes |
2,279 | 3,825 | 8,492 | 12,767 | ||||||||
| Provision for income taxes |
964 | 1,262 | 3,014 | 4,213 | ||||||||
| Net income |
$ | 1,315 | $ | 2,563 | $ | 5,478 | $ | 8,554 | ||||
| Earnings per share: |
||||||||||||
| Basic |
$ | 0.12 | $ | 0.24 | $ | 0.51 | $ | 0.79 | ||||
| Diluted |
$ | 0.12 | $ | 0.23 | $ | 0.50 | $ | 0.78 | ||||
| Weighted average shares outstanding: |
||||||||||||
| Basic |
10,785 | 10,856 | 10,796 | 10,869 | ||||||||
| Diluted |
10,856 | 10,931 | 10,899 | 10,934 | ||||||||
See accompanying notes.
1
BALANCE SHEETS
(In millions)
| June 30, 2004(1) |
March 31, 2005 |
||||||
| (Unaudited) | |||||||
| Assets |
|||||||
| Current assets: |
|||||||
| Cash and equivalents |
$ | 14,304 | $ | 3,782 | |||
| Short-term investments |
46,288 | 33,812 | |||||
| Total cash and short-term investments |
60,592 | 37,594 | |||||
| Accounts receivable, net of allowances of $166 and $177 |
5,890 | 5,610 | |||||
| Inventories |
421 | 340 | |||||
| Deferred income taxes |
2,097 | 1,780 | |||||
| Other |
1,566 | 1,269 | |||||
| Total current assets |
70,566 | 46,593 | |||||
| Property and equipment, net |
2,326 | 2,321 | |||||
| Equity and other investments |
12,210 | 11,772 | |||||
| Goodwill |
3,115 | 3,111 | |||||
| Intangible assets, net |
569 | 468 | |||||
| Deferred income taxes |
1,829 | 714 | |||||
| Other long-term assets |
1,774 | 1,296 | |||||
| Total assets |
$ | 92,389 | $ | 66,275 | |||
| Liabilities and stockholders’ equity |
|||||||
| Current liabilities: |
|||||||
| Accounts payable |
$ | 1,717 | $ | 1,636 | |||
| Accrued compensation |
1,339 | 1,289 | |||||
| Income taxes |
3,478 | 3,479 | |||||
| Short-term unearned revenue |
6,514 | 6,275 | |||||
| Other |
1,921 | 3,460 | |||||
| Total current liabilities |
14,969 | 16,139 | |||||
| Long-term unearned revenue |
1,663 | 1,666 | |||||
| Other long-term liabilities |
932 | 1,097 | |||||
| Commitments and contingencies—see Note 8 |
|||||||
| Stockholders’ equity: |
|||||||
| Common stock and paid-in capital—shares authorized 24,000; outstanding 10,862 and 10,804 |
56,396 | 58,829 | |||||
| Retained earnings (deficit), including accumulated other comprehensive income of $1,119 and $1,744 |
18,429 | (11,456 | ) | ||||
| Total stockholders’ equity |
74,825 | 47,373 | |||||
| Total liabilities and stockholders’ equity |
$ | 92,389 | $ | 66,275 | |||
| (1) | Derived from audited financial statements—see Note 1 |
See accompanying notes.
2
CASH FLOWS STATEMENTS
(In millions)(Unaudited)
| Three Months Ended March 31 |
Nine Months Ended March 31 |
|||||||||||||||
| 2004 |
2005 |
2004 |
2005 |
|||||||||||||
| Operations |
||||||||||||||||
| Net income |
$ | 1,315 | $ | 2,563 | $ | 5,478 | $ | 8,554 | ||||||||
| Depreciation, amortization, and other noncash items |
249 | 282 | 877 | 573 | ||||||||||||
| Stock-based compensation |
748 | 617 | 4,995 | 1,913 | ||||||||||||
| Net recognized (gains)/losses on investments |
(512 | ) | (223 | ) | (1,112 | ) | 16 | |||||||||
| Stock option income tax benefits |
135 | 37 | 772 | 264 | ||||||||||||
| Deferred income taxes |
54 | (292 | ) | (925 | ) | 69 | ||||||||||
| Unearned revenue |
2,793 | 3,212 | 7,781 | 9,165 | ||||||||||||
| Recognition of unearned revenue |
(3,119 | ) | (3,241 | ) | (9,268 | ) | (9,469 | ) | ||||||||
| Accounts receivable |
697 | 1,001 | 369 | 464 | ||||||||||||
| Other current assets |
63 | (130 | ) | 356 | 41 | |||||||||||
| Other long-term assets |
(6 | ) | 40 | 35 | 65 | |||||||||||
| Other current liabilities |
1,951 | 993 | 2,931 | 810 | ||||||||||||
| Other long-term liabilities |
602 | 144 | 679 | 164 | ||||||||||||
| Net cash from operations |
4,970 | 5,003 | 12,968 | 12,629 | ||||||||||||
| Financing |
||||||||||||||||
| Common stock issued |
568 | 354 | 1,452 | 1,636 | ||||||||||||
| Common stock repurchased |
(1,608 | ) | (2,427 | ) | (3,383 | ) | (3,751 | ) | ||||||||
| Common stock cash dividends |
— | (885 | ) | (1,729 | ) | (35,253 | ) | |||||||||
| Net cash from financing |
(1,040 | ) | (2,958 | ) | (3,660 | ) | (37,368 | ) | ||||||||
| Investing |
||||||||||||||||
| Additions to property and equipment |
(213 | ) | (203 | ) | (552 | ) | (552 | ) | ||||||||
| Acquisition of companies, net of cash acquired |
— | (11 | ) | (4 | ) | (12 | ) | |||||||||
| Purchases of investments |
(20,437 | ) | (13,085 | ) | (68,819 | ) | (58,798 | ) | ||||||||
| Maturities of investments |
361 | 1,454 | 3,836 | 28,191 | ||||||||||||
| Sales of investments |
19,152 | 10,032 | 58,624 | 45,339 | ||||||||||||
| Net cash from investing |
(1,137 | ) | (1,813 | ) | (6,915 | ) | 14,168 | |||||||||