MSFT 10q

ONE MICROSOFT WAY , REDMOND , washington 98052-6399
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol
Common stock, $0.00000625 par value per share MSFT

2.125% Notes due 2021 MSFT
Securities registered pursuant to Section 12(g) of the Act:
NONE
Name of exchange on which registered
NASDAQ
NASDAQ
NASDAQ
NASDAQ
Class Outstanding as of April 24, 2020
Common Stock, $0.00000625 par value per share 7,583,440,247 shares

INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
a)
b)
c)
d)
e)
f)
g)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
SIGNATURE
NANCIAL INFORMATION
Financial Statements
Income Statements for the Three and Nine Months Ended March 31, 2020 and 2019
Comprehensive Income Statements for the Three and Nine Months Ended March 31, 2020 and 2019
Balance Sheets as of March 31, 2020 and June 30, 2019
Cash Flows Statements for the Three and Nine Months Ended March 31, 2020 and 2019
Stockholders’ Equity Statements for the Three and Nine Months Ended March 31, 2020 and 2019
Notes to Financial Statements
Report of Independent Registered Public Accounting Firm
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Controls and Procedures
THER INFORMATION
Legal Proceedings
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Exhibits
Page
30
31
47
47
48
48
61
62
63
ITEM 1. FINANCIAL STATEMENTS
Thr
(In millions, except per share amounts) (Unaudited)
2020
Revenue:
Product $ 15,871
Service and other 19,150
Total revenue 35,021
Cost of revenue:
Product 3,376
Service and other 7,599
Total cost of revenue 10,975
Gross margin 24,046

Research and development 4,887
Sales and marketing 4,911
General and administrative 1,273
Operating income 12,975

Other income (expense), net (132)
Income before income taxes 12,843

Provision for income taxes 2,091
Net income $ 10,752
Earnings per share:

Basic $ 1.41
Diluted $ 1.40
Weighted average shares outstanding:

Basic 7,602
Diluted 7,675
Three Months Ended Nine Months Ended
March 31, March 31,
2019 2020
$ 15,448 $ 49,894 $ 48,966

15,123 55,088
30,571 104,982
3,441 11,647
6,729 22,092
10,170 33,739
20,401 71,243
4,316 14,055
4,565 14,181
1,179 3,455
10,341 39,552
145 62
10,486 39,614
1,677 6,535
$ 8,809 $ 33,079 $ 26,053
$ 1.15 $ 4.34 $ 3.39

$ 1.14 $ 4.30 $ 3.36
7,672 7,619
7,744 7,693
Nine Months Ended
March 31,
2019
$ 48,966
43,160
92,126
12,975
19,523
32,498
59,628
12,363
13,251
3,460
30,554
538
31,092
5,039
$ 26,053
$ 3.39
$ 3.36
7,679
7,759
COMPREHENSIVE INCOME STATEMENTS
Three Mo
(In millions) (Unaudited)
2020
Net income $ 10,752
Other comprehensive income (loss), net of tax:

Net change related to derivatives (36)
Net change related to investments 3,508
Translation adjustments and other (541)
Other comprehensive income 2,931
Comprehensive income $ 13,683

March 31, March 31,
2019 2020
$ 8,809 $ 33,079 $ 26,053
(33) (42)
714 3,665
67 (607)
748 3,016
$ 9,557 $ 36,095 $ 27,042

Nine Months Ended
March 31,
2019
$ 26,053
(93)
1,334
(252)
989
$ 27,042
BALANCE SHEETS
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Total cash, cash equivalents, and short-term investments

Accounts receivable, net of allowance for doubtful accounts of $446 and $411
Inventories
Other current assets
Total current assets

Property and equipment, net of accumulated depreciation of $41,512 and $35,330
Operating lease right-of-use assets
Equity investments
Goodwill
Intangible assets, net
Other long-term assets
Total assets
Liabilities and stockholders’ equity

Current liabilities:
Accounts payable
Current portion of long-term debt
Accrued compensation
Short-term income taxes
Short-term unearned revenue
Other current liabilities
Total current liabilities

Long-term debt
Long-term income taxes
Long-term unearned revenue
Deferred income taxes
Operating lease liabilities
Other long-term liabilities
Total liabilities
Commitments and contingencies

Stockholders’ equity:
Common stock and paid-in capital – shares authorized 24,000; outstanding 7,590 and 7,643
Retained earnings
Accumulated other comprehensive income (loss)
Total stockholders’ equity
Total liabilities and stockholders’ equity

March 31, June 30,
2020 2019
$ 11,710 $ 11,356
125,916 122,463
137,626 133,819
22,699 29,524
1,644 2,063
8,536 10,146
170,505 175,552
41,221 36,477
8,448 7,379
2,660 2,649
42,064 42,026
6,855 7,750
13,696 14,723
$ 285,449 $ 286,556
$ 9,246 $ 9,382
3,748 5,516
6,254 6,830
3,296 5,665
27,012 32,676
9,151 9,351
58,707 69,420
62,862 66,662
28,888 29,612
3,385 4,530
185 233
7,248 6,188
9,673 7,581
170,948 184,226
79,813 78,520
32,012 24,150
2,676 (340)
114,501 102,330
$ 285,449 $ 286,556
CASH FLOWS STATEMENTS
Operations
Net income
Adjustments to reconcile net income to net cash from operations:
Depreciation, amortization, and other
Stock-based compensation expense
Net recognized losses (gains) on investments and derivatives
Deferred income taxes
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Other current assets
Other long-term assets
Accounts payable
Unearned revenue
Income taxes
Other current liabilities
Other long-term liabilities
Net cash from operations
Financing
Repayments of debt
Common stock issued
Common stock repurchased
Common stock cash dividends paid
Other, net
Net cash used in financing
Investing
Additions to property and equipment
Acquisition of companies, net of cash acquired, and purchases of intangible and other assets
Purchases of investments
Maturities of investments
Sales of investments
Net cash from (used in) investing
Effect of foreign exchange rates on cash and cash equivalents
Net change in cash and cash equivalents

Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period

Three Months Ended
March 31,
2020 2019 2020
$ 10,752 $ 8,809 $ 33,079
3,118 2,926
1,338 1,172
52 (95)
(206) (320)
891 460
181 12
94 (14)
124 (517)
546 (197)
(736) 20
765 276
695 649
(110) 339
17,504 13,520
(3,000) 0
342 274
(7,059) (4,753)
(3,876) (3,526)
(1,052) 404
(14,645) (7,601)
(3,767) (2,565)
(329) (269)
(15,910) (5,846)
17,247 5,893
2,810 1,424
51 (1,363)
(64) 18
2,846 4,574
8,864 6,638
$ 11,710 $ 11,212 $ 11,710

Nine Months Ended
March 31,
2020 2019
$ 33,079 $ 26,053
9,292 8,758
3,940 3,462
(140) (470)
(436) (740)
6,778 7,258
419 710
(179) (864)
(726) (969)
(8) (1,032)
(6,564) (4,543)
(3,042) (879)
(1,136) (1,017)
725 350
42,002 36,077
(5,518) (3,000)
1,003 834
(17,177) (14,910)
(11,272) (10,290)
(805) (835)
(33,769) (28,201)
(10,697) (9,874)
(871) (2,107)
(58,311) (42,255)
47,559 14,889
14,559 30,831
(7,761) (8,516)
(118) (94)
354 (734)
11,356 11,946
$ 11,710 $ 11,212
STOCKHOLDERS’ EQUITY STATEMENTS
Three Mon
2020
Common stock and paid-in capital

Balance, beginning of period $ 79,625
Common stock issued 342
Common stock repurchased (1,492)
Stock-based compensation expense 1,338
Other, net 0
Balance, end of period 79,813
Retained earnings
Balance, beginning of period 30,739
Net income 10,752
Common stock cash dividends (3,865)
Common stock repurchased (5,614)
Cumulative effect of accounting changes 0
Accumulated other comprehensive income (loss)

Balance, beginning of period (255)
Other comprehensive income 2,931
Cumulative effect of accounting changes 0
Total stockholders’ equity $ 114,501
Cash dividends declared per common share $ 0.51

March 31, March 31,
2019 2020
$ 77,556 $ 78,520 $ 71,223

274 1,003
(1,218) (3,649)
1,172 3,940
7 (1)
77,791 79,813
16,585 24,150
8,809 33,079
(3,518) (11,627)
(3,538) (13,590)
0 0
18,338 32,012
(2,013) (340)
748 3,016
0 0
(1,265) 2,676
$ 94,864 $ 114,501 $ 94,864
$ 0.46 $ 1.53 $ 1.38

Nine Months Ended
March 31,
2019
$ 71,223
6,521
(3,433)
3,462
18
77,791
13,682
26,053
(10,592)
(11,482)
677
18,338
(2,187)
989
(67)
(1,265)
$ 94,864
$ 1.38
Accounting for Income Taxes
(In millions, except earnings per share)
2020
Net income available for common shareholders (A) $ 10,752
Weighted average outstanding shares of common stock (B) 7,602

Dilutive effect of stock-based awards 73
Common stock and common stock equivalents (C) 7,675
Earnings Per Share
Basic (A/B) $ 1.41

Diluted (A/C) $ 1.40
Three Months Ended Nine Mon
March 31,
2019 2020
$ 8,809 $ 33,079
7,672 7,619
72 74
7,744 7,693
$ 1.15 $ 4.34
$ 1.14 $ 4.30
Nine Months Ended
March 31,
2019
$ 26,053
7,679
80
7,759
$ 3.39
$ 3.36
T
(In millions)
2020
Interest and dividends income $ 673

Interest expense (614)
Net recognized gains (losses) on investments (101)
Net gains on derivatives 49
Net gains (losses) on foreign currency remeasurements (136)
Other, net (3)
Total ($132)
March 31, March 31,
2019 2020 2019
$ 668 $ 2,085 $ 2,053

(671) (1,905)
44 4
51 136
37 (218)
16 (40)
$ 145 $ 62 $ 538
Nine Months Ended
March 31,
2019
$ 2,053
(2,017)
381
89
(32)
64
$ 538
Net Recognized Gains (Losses) on Investments
(In millions)
2020
Realized gains from sales of available-for-sale securities $ 9

Realized losses from sales of available-for-sale securities (7)
Other-than-temporary impairments of investments (7)
Total ($5)
March 31,
2019 2020
$ 6 $ 30
(10) (17)
0 (12)
($4) $ 1
Nine Months Ended
March 31,
2019
$ 19
(100)
(7)
($88)
(In millions)
2020
Net realized gains (losses) on investments sold ($5)

Net unrealized gains (losses) on investments still held (22)
Impairments of investments (69)
Total ($96)
March 31,
2019 2020
$ 5 $ 70
50 33
(7) (100)
$ 48 $ 3
Nine Months Ended
March 31,
2019
$ 238
241
(10)
$ 469
Investment Components
Fair Value
(In millions) Level
March 31, 2020
Changes in Fair Value Recorded in Other Comprehensive Income
Commercial paper Level 2

Certificates of deposit Level 2
U.S. government securities Level 1
U.S. agency securities Level 2
Foreign government bonds Level 2
Mortgage- and asset-backed securities Level 2
Corporate notes and bonds Level 2
Municipal securities Level 2
Total debt investments
Changes in Fair Value Recorded in Net Income
Equity investments Level 1

Equity investments Other
Total equity investments
Cash
Derivatives, net (a)
Total
Unrealized
Cost Basis Gains
$ 5,164 $ -
2,446 0
96,481 6,543
2,124 0
7,255 3
3,952 16
7,444 107
49 0
312 46
84 0
$ 125,311 $ 6,715
Unrealized Recorded
Losses Basis
$ - $ 5,164
0 2,446
(13) 103,011
0 2,124
(13) 7,245
(37) 3,931
(138) 7,413
0 49
(5) 353
0 84
($206) $ 131,820
$ 1,426
2,473
$ 3,899
$ 4,583
(16)
$ 140,286
Cash
and Cash
Equivalents
$ 1,442 $ 3,722
1,984
496
458
1,476
0
32
0
0
0
$ 5,888 $ 125,932
$ 1,239 $ -
0
$ 1,239 $ -
$ 4,583 $ -
0
$ 11,710 $ 125,916
Short-term Equity
Investments Investments
$ 3,722 $ -
462 0
102,515 0
1,666 0
5,769 0
3,931 0
7,381 0
49 0
353 0
84 0
$ 125,932 $ -
$ - $ 187
0 2,473
$ - $ 2,660
$ - $ -
(16) 0
$ 125,916 $ 2,660
Fair Value
(In millions) Level
June 30, 2019
Changes in Fair Value Recorded in Other Comprehensive Income
Commercial paper Level 2

Certificates of deposit Level 2
U.S. government securities Level 1
U.S. agency securities Level 2
Foreign government bonds Level 2
Mortgage- and asset-backed securities Level 2
Total debt investments
Changes in Fair Value Recorded in Net Income
Equity investments Level 1

Equity investments Other
Total equity investments
Cash
Derivatives, net (a)
Total
Unrealized
Cost Basis Gains
$ 2,211 $ -
2,018 0
104,925 1,854
988 0
6,350 4
3,554 10
7,437 111
15 0
242 48
7 0
$ 127,747 $ 2,027
Unrealized Recorded
Losses Basis
$ - $ 2,211
0 2,018
(104) 106,675
0 988
(8) 6,346
(3) 3,561
(7) 7,541
0 15
0 290
0 7
($122) $ 129,652
$ 973
2,085
$ 3,058
$ 3,771
(13)
$ 136,468
Cash
and Cash Short-term
Equivalents Investments
$ 1,773 $ 438
1,430 588
769 105,906
698 290
2,506 3,840
0 3,561
0 7,541
0 15
0 290
0 7
$ 7,176 $ 122,476
$ 409 $ -
0 0
$ 409 $ -
$ 3,771 $ -
0 (13)
$ 11,356 $ 122,463
Equity
Investments
$ -
0
0
0
0
0
0
0
0
0
$ -
$ 564
2,085
$ 2,649
$ -
0
$ 2,649
Unrealized Losses on Debt Investments
Less than 1
(In millions) Fair Value
March 31, 2020
U.S. government and agency securities $ 1,703

Foreign government bonds 481
Mortgage- and asset-backed securities 2,180
Corporate notes and bonds 3,469
Municipal securities 75
Total $ 7,908
Less than 12 Months 12 Months or Greater
Unrealized
Losses Fair Value
($4) $ 372 ($9)

(6) 8
(32) 134
(126) 41
(5) 1
($173) $ 556 ($33)

12 Months or Greater
Unrealized Total
Losses Fair Value
($9) $ 2,075
(7) 489
(5) 2,314
(12) 3,510
0 76
($33) $ 8,464
Total
Unrealized
Losses
($13)
(13)
(37)
(138)
(5)
($206)
Less than 1
(In millions) Fair Value
June 30, 2019
U.S. government and agency securities $ 1,491

Foreign government bonds 25
Mortgage- and asset-backed securities 664
Corporate notes and bonds 498
Total $ 2,678
Less than 12 Months 12 Months or Greater
Unrealized
Losses Fair Value
($1) $ 39,158 ($103)

0 77
(1) 378
(3) 376
($5) $ 39,989 ($117)

12 Months or Greater
Unrealized Total
Losses Fair Value
($103) $ 40,649
(8) 102
(2) 1,042
(4) 874
($117) $ 42,667
Total
Unrealized
Losses
($104)
(8)
(3)
(7)
($122)
Debt Investment Maturities
Estimated
(In millions) Cost Basis Fair Value
March 31, 2020
Due in one year or less $ 39,008 $ 39,109

Due after one year through five years 48,552
Due after five years through 10 years 35,789
Due after 10 years 1,962
Total $ 125,311 $ 131,820

Estimated
Fair Value
$ 39,109
51,106
39,458
2,147
$ 131,820
Credit-Risk-Related Contingent Features
March 31, June 30
(In millions) 2020 2019
Designated as Hedging Instruments
Foreign exchange contracts purchased $ 635 $ -

Foreign exchange contracts sold 7,049
Interest rate contracts purchased 1,280
Not Designated as Hedging Instruments
Foreign exchange contracts purchased 11,044

Foreign exchange contracts sold 10,970
Other contracts purchased 1,694
Other contracts sold 567
June 30,
2019
$ -
6,034
0
14,889
15,614
2,007
456
Fair Values of Derivative Instruments
Derivative
(In millions) Assets
Designated as Hedging Instruments
Foreign exchange contracts $ 9

Interest rate contracts 80
Foreign exchange contracts 301

Other contracts 22
Gross amounts of derivatives 412

Gross amounts of derivatives offset in the balance sheet (128)
Cash collateral received 0
Net amounts of derivatives $ 284
Reported as
Short-term investments ($16)

Other current assets 222
Other long-term assets 78
Other current liabilities 0
Other long-term liabilities 0
Total $ 284
Derivative Derivative
Liabilities Assets
March 31,
2020
($141) $ -
0 0
(356) 204
(156) 46
(653) 250
134 (113)
(46) 0
($565) $ 137
$ - ($13)
0 146
0 4
(393) 0
(172) 0
($565) $ 137
Derivative
Liabilities
June 30,
2019
($93)
0
(172)
(7)
(272)
114
(78)
($236)
$ -
0
0
(221)
(15)
($236)
(In millions) Level 1 Level 2
March 31, 2020
Derivative assets $ 8 $ 403

Derivative liabilities (3) (650)
June 30, 2019
Derivative assets 0 247

Derivative liabilities 0 (272)
Level 3 Total
$ 1 $ 412
0 (653)
3 250
0 (272)
(In millions) Revenue
Designated as Fair Value Hedging Instruments
Foreign exchange contracts

Derivatives $ -
Hedged items 0
Excluded from effectiveness assessment 0
Interest rate contracts
Derivatives 0
Hedged items 0
Designated as Cash Flow Hedging Instruments

Amount reclassified from accumulated other comprehensive income 0
Excluded from effectiveness assessment 0
Foreign exchange contracts 0

Other contracts 0
Three Mon
2020
Other
Income
(Expense),
Net Revenue
($23) $ -
32 0
35 0
91 0
(92) 0
(12) 66
0 0
(98) 0
16 0
Three Months Ended
March 31,
2019 2020
Other Other
Income Income
(Expense), (Expense),
Net Revenue Net
$ 81 $ - $ 30
(81) 0
48 0
0 0
0 0
0 0
(21) 0
(87) 0
22 0
Nine Months Ended
March 31,
2020 2019
Other Other
Income Income
(Expense), (Expense),
Net Revenue Net
$ 30 $ - $ 19
(27) 0 (19)
118 0 121
78 0 0
(80) 0 0
(9) 246 0
0 0 (62)
(217) 0 (196)
18 0 27
Three Months Ended
(In millions) March 31,
###
Designated as Cash Flow Hedging Instruments

Included in effectiveness assessment ($46) $ 31
e Months Ended Nine Months Ended
March 31, March 31,
### ### ###
$ 31 ($50) $ 145
(In millions)
March 31, June 30,

2020 2019
Raw materials $ 655 $ 399

Work in process 86 53
Finished goods 903 1,611
Total $ 1,644 $ 2,063

June 30,
(In millions) 2019 Acquisitions
Productivity and Business Processes $ 24,277 $ 7

Intelligent Cloud 11,351
More Personal Computing 6,398
Total $ 42,026 $ 300

March 31,
Acquisitions Other 2020
$ 7 ($130) $ 24,154
197 (14) 11,534
96 (118) 6,376
$ 300 ($262) $ 42,064

Gross
Carrying Accumulated
(In millions) Amount Amortization
Technology-based $ 7,899 ($6,235)

Customer-related 4,675 (2,169)
Marketing-related 4,157 (1,520)
Contract-based 474 (426)
Total $ 17,205 ($10,350)

Net Gross
Carrying Carrying Accumulated
Amount Amount Amortization
March 31,
2020
$ 1,664 $ 7,691 ($5,771)

2,506 4,709
2,637 4,165
48 574
$ 6,855 $ 17,139 ($9,389)

Net
Accumulated Carrying
Amortization Amount
June 30,
2019
($5,771) $ 1,920
(1,785) 2,924
(1,327) 2,838
(506) 68
($9,389) $ 7,750
(In millions)
Year Ending June 30,
2020 (excluding the nine months ended March 31, 2020) $ 354
2021 1,369
2022 1,278
2023 1,099
2024 758
Thereafter 1,997
Total $ 6,855
Maturities
(In millions, issuance by calendar year) (calendar year)
2009 issuance of $3.8 billion 2,039

2010 issuance of $4.8 billion ### – 2,040
2013 issuance of €4.1 billion ### – 2,033
2014 issuance
Total face value

Unamortized discount and issuance costs
Hedge fair value adjustments (a)
Total debt
Current portion of long-term debt
Long-term debt
Effective
Stated Interest Interest March 31,
Rate Rate 2020
5.20% 5.24% $ 750

3.00% – 4.50% 3.14% – 4.57%
4.00% – 5.30% 4.08% – 5.36%
2.13% – 3.50% 2.24% – 3.57%
2.38% – 4.88% 2.47% – 4.92%
2.13% – 3.13% 2.23% – 3.22%
2.00% – 4.75% 2.09% – 4.78%

1.55% – 3.95% 1.64% – 4.03%
2.40% – 4.50% 2.52% – 4.53%
$ 62,862
March 31, June 30,
2020 2019
$ 750
2,000 2,000
1,500 1,500
1,650 1,650
3,500 3,500
4,443 4,613
0 18
20,500 22,000
17,250 19,750
15,500 17,000
67,093 72,781
(563) (603)
80 0
66,610 72,178
(3,748) (5,516)
$ 66,662
(In millions)
Year Ending June 30,
2021 $ 3,750
2022 7,920
2023 2,750
2024 5,250
Thereafter 47,423
Total $ 67,093
Uncertain Tax Positions
(In millions)
March 31, June 30,

2020 2019
Productivity and Business Processes $ 14,077 $ 16,831

Total $ 30,397 $ 37,206

June 30,
2019
$ 16,831
16,988
3,387
$ 37,206
(In millions)
Nine Months Ended March 31, 2020
Balance, beginning of period $ 37,206

Deferral of revenue 49,749
Recognition of unearned revenue (56,558)
Balance, end of period $ 30,397

Three Months Ended
2020
Operating lease cost $ 522 $ 431
Finance lease cost:

Amortization of right-of-use assets $ 135 $ 100
Interest on lease liabilities 87
Total finance lease cost $ 222 $ 165

March 31, March 31,
2019 2020 2019
$ 431 $ 1,465 $ 1,254
$ 100 $ 423 $ 262

65 249 179
$ 165 $ 672 $ 441

(In millions)
Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases $ 505
Operating cash flows from finance leases
Financing cash flows from finance leases
Right-of-use assets obtained in exchange for lease obligations:

Operating leases
Finance leases
Three Months Ended
March 31,
2020 2019 2020
$ 505 $ 425 $ 1,437

87 65 249
110 66 293
680 730 2,611

259 658 2,611
Nine Months Ended
March 31,
2019
$ 1,229
179
167
1,698
1,722
(In millions, except lease term and discount rate)
March 31,
2020
Operating Leases
Operating lease right-of-use assets $ 8,448
Other current liabilities $ 1,557

Operating lease liabilities 7,248
Total operating lease liabilities $ 8,805
Finance Leases
Property and equipment, at cost $ 9,366

Accumulated depreciation (1,198)
Property and equipment, net $ 8,168
Other current liabilities $ 470

Other long-term liabilities 8,140
Total finance lease liabilities $ 8,610
Weighted Average Remaining Lease Term
Operating leases 7 years

Finance leases 13 years
Weighted Average Discount Rate
Operating leases 2.9%

Finance leases 4.1%
June 30,
2019
$ 7,379
$ 1,515
6,188
$ 7,703
$ 7,041
(774)
$ 6,267
$ 317
6,257
$ 6,574
7 years
13 years
3.0%
4.6%
(In millions)
Year Ending June 30, Operating Leases
2020 (excluding the nine months ended March 31, 2020) $ 483
2021 1,810
2022 1,627
2023 1,445
2024 1,226
Thereafter 3,764
Total lease payments 10,355

Less imputed interest (1,550)
Total $ 8,805
Finance Leases
$ 196
796
811
818
830
7,601
11,052
(2,442)
$ 8,610
Share Repurchases
(In millions) Shares Amount
Fiscal Year 2020
First Quarter 29 $ 4,000

Second Quarter 32 4,600
Third Quarter 37 6,000
Total 98 $ 14,600
Shares Amount
2019
24 $ 2,600
57 6,100
36 3,899
117 $ 12,599
Dividends
Declaration Date Record Date Payment Date
Fiscal Year 2020
September 18, 2019 November 21, 2019 December 12, 2019

December 4, 2019 February 20, 2020 March 12, 2020
March 9, 2020 May 21, 2020 June 11, 2020
Total
Fiscal Year 2019
September 18, 2018 November 15, 2018 December 13, 2018

November 28, 2018 February 21, 2019 March 14, 2019
March 11, 2019 May 16, 2019 June 13, 2019
Total
Dividend
Per Share Amount
(In millions)
$ 0.51 $ 3,886
0.51 3,876
0.51 3,871
$ 1.53 $ 11,633
$ 0.46 $ 3,544
0.46 3,526
0.46 3,521
$ 1.38 $ 10,591
(In millions)
Derivatives
Balance, beginning of period

Unrealized gains (losses), net of tax of $(12), $0, $(13), and $2
Reclassification adjustments for (gains) losses included in earnings

Tax expense (benefit) included in provision for income taxes
Amounts reclassified from accumulated other comprehensive income (loss)
Net change related to derivatives, net of tax of $(10), $(2), $(12), and $(5)
Balance, end of period
Investments

Unrealized gains, net of tax of $932, $189, $977, and $337
Reclassification adjustments for (gains) losses included in other income (expense), net
Tax benefit included in provision for income taxes
Amounts reclassified from accumulated other comprehensive income (loss)
Net change related to investments, net of tax of $933, $190, $977, and $354
Cumulative effect of accounting changes

Translation Adjustments and Other

Translation adjustments and other, net of tax of $(51), $1, $(59), and $0
Accumulated other comprehensive income (loss), end of period

Three Months Ended
March 31,
2020 2019
($6) $ 113 $ -
(46) 31
12 (66)
(2) 2
10 (64)
(36) (33)
($42) $ 80 ($42)
$ 1,645 ($297) $ 1,488

3,504 711
5 4
(1) (1)
4 3
3,508 714
0 0
$ 5,153 $ 417 $ 5,153

($1,894) ($1,829) ($1,828)
(541) 67
($2,435) ($1,762) ($2,435)
$ 2,676 ($1,265) $ 2,676

Nine Months Ended
March 31,
2020 2019
$ - $ 173
(50) 146
9 (246)
(1) 7
8 (239)
(42) (93)
($42) $ 80
$ 1,488 ($850)
3,666 1,267
(1) 84
0 (17)
(1) 67
3,665 1,334
0 (67)
$ 5,153 $ 417
($1,828) ($1,510)
(607) (252)
($2,435) ($1,762)
$ 2,676 ($1,265)
Three Months Ended
2020 2019
Revenue

Total $ 35,021 $ 30,571
Operating Income

Total $ 12,975 $ 10,341

March 31, March 31,
2019 2020 2019
$ 10,242 $ 34,646 $ 30,113

9,649 34,995 27,594
10,680 35,341 34,419
$ 30,571 $ 104,982 $ 92,126
$ 3,979 $ 14,752 $ 11,875

3,208 12,980 9,418
3,154 11,820 9,261
$ 10,341 $ 39,552 $ 30,554

Three Months Ended
2020 2019
United States (a) $ 17,428 $ 15,372

Other countries 17,593 15,199
Total $ 35,021 $ 30,571

Nine Months Ended
March 31,
2020 2019
$ 53,847 $ 46,899
51,135 45,227
$ 104,982 $ 92,126
Three Months Ended
2020 2019
Server products and cloud services $ 10,490 $ 8,053

Office products and cloud services 8,920
Windows 5,220
Gaming 2,349
Search advertising 1,986
LinkedIn 2,050
Enterprise Services 1,633
Devices 1,412
Other 961
Total $ 35,021 $ 30,571

March 31, March 31,
2019 2020 2019
$ 8,053 $ 29,801 $ 22,902

7,889 26,369 23,258
4,944 16,166 14,603
2,363 8,218 9,333
1,911 6,140 5,675
1,696 6,061 4,919
1,542 4,790 4,513
1,423 4,662 4,632
750 2,775 2,291
$ 30,571 $ 104,982 $ 92,126

(In millions, except percentages and per share amounts)
2020
Revenue $ 35,021
Gross margin 24,046
Operating income 12,975
Net income 10,752
Diluted earnings per share 1.40
Non-GAAP net income 10,752

Non-GAAP diluted earnings per share 1.40
Three Months Ended Percentage
March 31, Change
2019
$ 30,571 15%
20,401 18%
10,341 25%
8,809 22%
1.14 23%
8,809 22%
1.14 23%
Nine Months Ended Percentage
March 31, Change
2020 2019
$ 104,982 $ 92,126 14%

71,243 59,628 19%
39,552 30,554 29%
33,079 26,053 27%
4.30 3.36 28%
33,079 26,210 26%

4.30 3.38 27%
Three Months Ended
(In millions, except percentages) March 31,
2020 2019
Revenue

Total $ 35,021 $ 30,571
Operating Income

Total $ 12,975 $ 10,341

Three Months Ended Percentage Nine
March 31, Change
2019 2020
$ 10,242 15% $ 34,646

9,649 27% 34,995
10,680 3% 35,341
$ 30,571 15% $ 104,982
$ 3,979 20% $ 14,752

3,208 42% 12,980
3,154 15% 11,820
$ 10,341 25% $ 39,552

March 31, Change
2019
$ 30,113 15%
27,594 27%
34,419 3%
$ 92,126 14%
$ 11,875 24%
9,418 38%
9,261 28%
$ 30,554 29%
Research and Development
Three Months Ended
2020 2019
Research and development $ 4,887 $ 4,316

As a percent of revenue 14% 14%
Percentage Nine Months Ended
Change March 31,
###
13% $ 14,055 $ 12,363

0ppt 13%
e Months Ended Percentage
March 31, Change
###
$ 12,363 14%
13% 0ppt
Sales and Marketing
Three Months Ended
2020 2019
Sales and marketing $ 4,911 $ 4,565

Change March 31,
###
8% $ 14,181 $ 13,251
(1)ppt 14%
e Months Ended Percentage
March 31, Change
###
$ 13,251 7%
14% 0ppt
General and Administrative
Three Months Ended
2020 2019
General and administrative $ 1,273 $ 1,179

Change March 31,
2020 2019
8% $ 3,455 $ 3,460
0ppt 3% 4%
Percentage
Change
0%
(1)ppt
Nine Months Ended March 31, 2020 Compared with Nine Months Ended March 31, 2019
T
(In millions)
2020
Interest and dividends income $ 673

Interest expense (614)
Net recognized gains (losses) on investments (101)
Net gains on derivatives 49
Net gains (losses) on foreign currency remeasurements (136)
Other, net (3)
Total ($132)
March 31, March 31,
2019 2020 2019
$ 668 $ 2,085 $ 2,053

(671) (1,905)
44 4
51 136
37 (218)
16 (40)
$ 145 $ 62 $ 538
Nine Months Ended
March 31,
2019
$ 2,053
(2,017)
381
89
(32)
64
$ 538
Uncertain Tax Positions
(In millions, except percentages and per share amounts)
2020
Net income $ 10,752

Net charge related to the TCJA 0
Non-GAAP net income $ 10,752
Diluted earnings per share $ 1.40

Net charge related to the TCJA 0
Non-GAAP diluted earnings per share $ 1.40

Three Months Ended Percentage
March 31, Change
2019
$ 8,809 22%
0 *
$ 8,809 22%
$ 1.14 23%
0 *
$ 1.14 23%
March 31, Change
2020 2019
$ 33,079 $ 26,053 27%

0 157 *
$ 33,079 $ 26,210 26%
$ 4.30 $ 3.36 28%

0 0.02 *
$ 4.30 $ 3.38 27%

Unearned Revenue
(In millions)
Three Months Ending
June 30, 2020 $ 12,528

September 30, 2020 7,017
December 31, 2020 5,252
March 31, 2021 2,215
Thereafter 3,385
Total $ 30,397
TY SECURITIES AND USE OF PROCEEDS
Total Number Average
of Shares Price Paid
Period Purchased Per Share
January 1, 2020 – January 31, 2020 9,390,412 $ 163.90

February 1, 2020 – February 29, 2020 9,360,179 177.52
March 1, 2020 – March 31, 2020 18,203,465 153.78
36,954,056
Total Number Approximate
of Shares Dollar Value of
Purchased as Shares That May
Average Part of Publicly Yet be Purchased
Price Paid Announced Plans Under the Plans
Per Share or Programs or Programs
(In millions)
$ 163.90 9,390,412 $ 1,262

177.52 9,360,179 39,600
153.78 18,203,465 36,801
36,954,056
Declaration Date Record Date Payment Date
March 9, 2020 May 21, 2020 June 11, 2020

Dividend
Per Share Amount
(In millions)
$ 0.51 $ 3,871
CERTIFICATIONS
/s/ SATYA NADELLA

Satya Nadella
Chief Executive Officer
CERTIFICATIONS
/s/ AMY E. HOOD

Amy E. Hood
Executive Vice President and
Chief Financial Officer
(18 U.S.C. SECTION 1350)
/s/ SATYA NADELLA

Satya Nadella
Chief Executive Officer
(18 U.S.C. SECTION 1350)
/s/ AMY E. HOOD

Amy E. Hood
Executive Vice President and
Chief Financial Officer

MSFT 10q

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ONE MICROSOFT WAY , REDMOND , washington 98052-6399

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol

Common stock, $0.00000625 par value per share MSFT

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.00000625 par value per share 7,583,440,247 shares

Item 1. Financial Statements

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Item 4. Controls and Procedures

Item 1. Legal Proceedings

Item 1A. Risk Factors

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

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

Notes to Financial Statements

Report of Independent Registered Public Accounting Firm

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Quantitative and Qualitative Disclosures About Market Risk

Controls and Procedures

Unregistered Sales of Equity Securities and Use of Proceeds

Total revenue 35,021

Total cost of revenue 10,975

Gross margin 24,046

Operating income 12,975

Income before income taxes 12,843

Net income $ 10,752

Earnings per share:

Weighted average shares outstanding:

$ 15,448 $ 49,894 $ 48,966

$ 8,809 $ 33,079 $ 26,053

$ 1.15 $ 4.34 $ 3.39

Net income $ 10,752

Other comprehensive income (loss), net of tax:

Other comprehensive income 2,931

Comprehensive income $ 13,683

$ 8,809 $ 33,079 $ 26,053

$ 9,557 $ 36,095 $ 27,042

(In millions) (Unaudited)

Total cash, cash equivalents, and short-term investments

Total current assets

Liabilities and stockholders’ equity

Total current liabilities

Commitments and contingencies

Total stockholders’ equity

Total liabilities and stockholders’ equity

(In millions) (Unaudited)

Net cash from operations

Net cash used in financing

Net cash from (used in) investing

Effect of foreign exchange rates on cash and cash equivalents

Net change in cash and cash equivalents

Cash and cash equivalents, end of period

2020 2019 2020

$ 10,752 $ 8,809 $ 33,079

$ 11,710 $ 11,212 $ 11,710

Common stock and paid-in capital

Balance, end of period 79,813

Balance, end of period 32,012

Accumulated other comprehensive income (loss)

Balance, end of period 2,676

Total stockholders’ equity $ 114,501

Cash dividends declared per common share $ 0.51

$ 77,556 $ 78,520 $ 71,223

$ 94,864 $ 114,501 $ 94,864