UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported) October 23, 2014

 

 

Microsoft Corporation

(Exact Name of Registrant as Specified in Its Charter)

 

 

Washington

(State or Other Jurisdiction of Incorporation)

 

0-14278		91-1144442
(Commission File Number)		(IRS Employer Identification No.)

 

One Microsoft Way, Redmond, Washington		98052-6399
(Address of Principal Executive Offices)		(Zip Code)

(425) 882-8080

(Registrant’s Telephone Number, Including Area Code)

 

(Former Name or Former Address, if Changed Since Last Report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

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Item 2.02. Results of Operations and Financial Condition

On October 23, 2014, Microsoft Corporation issued a press release announcing its financial results for the fiscal quarter ended September 30, 2014. A copy of the press release is furnished as Exhibit 99.1 to this report.

In accordance with General Instruction B.2 of Form 8-K, the information in this Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 9.01. Financial Statements and Exhibits

(d) Exhibits:

99.1 Press release, dated October 23, 2014, issued by Microsoft Corporation

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

				MICROSOFT CORPORATION
				(Registrant)
Date: October 23, 2014				/s/ FRANK H. BROD
				Frank H. Brod
				Corporate Vice President, Finance and Administration; Chief Accounting Officer

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INDEX TO EXHIBITS

 

Exhibit No.		Description
99.1		Press release dated October 23, 2014

Exhibit 99.1

Microsoft Cloud Strength and Hardware Progress Drive Record First-Quarter Revenue

Strong performance across commercial and consumer segments delivers revenue of $23.20 billion.

REDMOND, Wash. — October 23, 2014 — Microsoft Corp. today announced revenue of $23.20 billion for the quarter ended September 30, 2014. Gross margin, operating income and diluted earnings per share (“EPS”) for the quarter were $14.93 billion, $5.84 billion and $0.54 per share, respectively.

These financial results include $1.14 billion of integration and restructuring expenses, or an $0.11 per share negative impact, related to both Microsoft’s restructuring plan announced in July 2014 and the ongoing integration of the Nokia Devices and Services (“NDS”) business.

The following table notes the impact of the integration and restructuring expenses on the company’s financial performance (“Noted Items”). This financial information is provided to aid investors in better understanding the company’s performance. All growth comparisons relate to the corresponding period in the last fiscal year.

 

		Three Months Ended September 30,
($ in millions, except per share amounts and percentages)		Revenue				Gross Margin				Operating Income				Diluted EPS
2013 As Reported (GAAP)			$18,529				$13,384				$6,334			$0.62
2014 As Reported (GAAP)			$23,201				$14,928				$5,844			$0.54
% Y/Y (GAAP)			25%				12%				(8)%			(13)%
2014 Impact of Noted Items			-				-				$(1,140)			$(0.11)

“We are innovating faster, engaging more deeply across the industry, and putting our customers at the center of everything we do, all of which positions Microsoft for future growth,” said Satya Nadella, chief executive officer of Microsoft. “Our teams are delivering on our core focus of reinventing productivity and creating platforms that empower every individual and organization.”

“We delivered a strong start to the year, with continued cloud momentum and meaningful progress across our device businesses,” said Amy Hood, executive vice president and chief financial officer of Microsoft. “We will continue to invest in high-growth opportunities and drive efficiencies across the organization to deliver long-term shareholder value.”

Devices and Consumer revenue grew 47% to $10.96 billion, with the following business highlights:

 

•

Office 365 Home and Personal subscribers totaled more than 7 million, representing more than 25% sequential growth over the previous quarter.

 

•

Surface Pro 3 momentum drove Surface revenue of $908 million.

 

•

New Windows consumer licensing programs drove positive unit growth while OEM non-Pro revenue declined 1%.

 

•

Total Xbox console sales were 2.4 million, growing 102%, and Xbox One launched in 28 new markets.

 

•

Phone hardware revenue exceeded $2.6 billion with ongoing focus on execution discipline.

Commercial revenue grew 10% to $12.28 billion, with the following business highlights:

 

•

Server products and services revenue increased 13%, with double-digit growth for SQL Server, System Center and Windows Server.

 

•

Office Commercial products and services revenue grew 5% as customers transition to Office 365.

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•

Commercial cloud revenue grew 128% driven by Office 365, Azure and Dynamics CRM.

 

•

Lync, SharePoint and Exchange, our productivity server offerings, collectively grew double-digits.

 

•

Windows volume licensing revenue increased 10%.

“Customers are embracing our latest technologies from Surface Pro 3 and Office 365 to Azure and SQL Server,” said Kevin Turner, chief operating officer of Microsoft. “Through great execution by our sales teams and our partners, we have been able to deliver our truly differentiated value to the marketplace.”

Business Outlook

Microsoft will provide forward-looking guidance in connection with this quarterly earnings announcement on its earnings conference call and webcast.

Webcast Details

Satya Nadella, chief executive officer, Amy Hood, executive vice president and chief financial officer, Frank Brod, chief accounting officer, John Seethoff, deputy general counsel, and Chris Suh, general manager of Investor Relations, will host a conference call and webcast at 2:30 p.m. PDT (5:30 p.m. EDT) today to discuss details of the company’s performance for the quarter and certain forward-looking information. The session may be accessed at http://www.microsoft.com/investor. The webcast will be available for replay through the close of business on October 23, 2015.

Noted Items Definition

Integration and restructuring expenses include employee severance expenses and costs associated with the consolidation of facilities and manufacturing operations, including asset write-downs and contract termination costs, resulting from Microsoft’s restructuring plan. Integration and restructuring expenses also include systems consolidation and other business integration expenses, as well as transaction fees and direct acquisition costs, associated with the acquisition of NDS.

Integration and restructuring expenses were $1.14 billion during the three months ended September 30, 2014, due mainly to restructuring charges of $1.05 billion, including employee severance expenses and the write-down of certain assets in connection with the restructuring plan.

About Microsoft

Founded in 1975, Microsoft (Nasdaq “MSFT”) is the worldwide leader in software, services, devices and solutions that help people and businesses realize their full potential.

Forward-Looking Statements

Statements in this release that are “forward-looking statements” are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of factors such as:

 

•

intense competition in all of Microsoft’s markets;

 

•

increasing focus on services presents execution and competitive risks;

 

•

significant investments in new products and services that may not be profitable;

 

•

acquisitions, joint ventures, and strategic alliances may have an adverse effect on our business;

 

•

impairment of goodwill or amortizable intangible assets causing a significant charge to earnings;

 

•

Microsoft’s continued ability to earn expected revenues from its intellectual property rights;

 

•

claims that Microsoft has infringed the intellectual property rights of others;

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•

the possibility of unauthorized disclosure of significant portions of Microsoft’s source code;

 

•

cyber-attacks and security vulnerabilities in Microsoft products that could reduce revenue or lead to liability;

 

•

disclosure of personal data that could cause liability and harm to Microsoft’s reputation;

 

•

outages, data losses, and disruptions of our online services if we fail to maintain an adequate operations infrastructure;

 

•

government litigation and regulation that may limit how Microsoft designs and markets its products;

 

•

potential liability under anti-corruption and trade protection laws resulting from our international operations;

 

•

Microsoft’s ability to attract and retain talented employees;

 

•

adverse results in legal disputes;

 

•

unanticipated tax liabilities;

 

•

our hardware and software products may experience quality or supply problems;

 

•

exposure to increased economic and operational uncertainties from operating a global business;

 

•

catastrophic events or geo-political conditions may disrupt our business; and

 

•

adverse economic or market conditions may harm our business.

For more information about risks and uncertainties associated with Microsoft’s business, please refer to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections of Microsoft’s SEC filings, including, but not limited to, its annual report on Form 10-K and quarterly reports on Form 10-Q, copies of which may be obtained by contacting Microsoft’s Investor Relations department at (800) 285-7772 or at Microsoft’s Investor Relations website at http://www.microsoft.com/investor.

All information in this release is as of October 23, 2014. The company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the company’s expectations.

For more information, press only:

Rapid Response Team, Waggener Edstrom Worldwide, (503) 443-7070, rrt@waggeneredstrom.com

For more information, financial analysts and investors only:

Chris Suh, general manager, Investor Relations, (425) 706-4400

Note to editors: For more information, news and perspectives from Microsoft, please visit the Microsoft News Center at http://www.microsoft.com/news/. Web links, telephone numbers, and titles were correct at time of publication, but may since have changed. Shareholder and financial information, as well as today’s 2:30 p.m. PDT conference call with investors and analysts, is available at http://www.microsoft.com/investor.

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MICROSOFT CORPORATION

INCOME STATEMENTS

(In millions, except per share amounts)(Unaudited)

 

		Three Months Ended September 30,
		2014				2013
Revenue		$	23,201			$	18,529
Cost of revenue			8,273				5,145
Gross margin			14,928				13,384
Research and development			3,065				2,767
Sales and marketing			3,728				3,304
General and administrative			1,151				979
Integration and restructuring			1,140				0
Operating income			5,844				6,334
Other income, net			52				74
Income before income taxes			5,896				6,408
Provision for income taxes			1,356				1,164
Net income		$	4,540			$	5,244
Earnings per share:
Basic		$	0.55			$	0.63
Diluted		$	0.54			$	0.62
Weighted average shares outstanding:
Basic			8,249				8,339
Diluted			8,351				8,434
Cash dividends declared per common share		$	0.31			$	0.28

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MICROSOFT CORPORATION

COMPREHENSIVE INCOME STATEMENTS

(In millions)(Unaudited)

 

		Three Months Ended September 30,
		2014				2013
Net income		$	4,540			$	5,244
Other comprehensive income (loss):
Net unrealized gains (losses) on derivatives (net of tax effects of $4 and $(3))			319				(26)
Net unrealized gains (losses) on investments (net of tax effects of $(102) and $492)			(189)				952
Translation adjustments and other (net of tax effects of $(47) and $33)			(81)				62
Other comprehensive income			49				988
Comprehensive income		$	4,589			$	6,232

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MICROSOFT CORPORATION

BALANCE SHEETS

(In millions)(Unaudited)

 

		September 30, 2014				June 30, 2014
Assets
Current assets:
Cash and cash equivalents		$	6,302			$	8,669
Short-term investments (including securities loaned of $180 and $541)			82,891				77,040
Total cash, cash equivalents, and short-term investments			89,193				85,709
Accounts receivable, net of allowance for doubtful accounts of $269 and $301			12,887				19,544
Inventories			3,141				2,660
Deferred income taxes			1,784				1,941
Other			5,434				4,392
Total current assets			112,439				114,246
Property and equipment, net of accumulated depreciation of $15,373 and $14,793			13,229				13,011
Equity and other investments			13,943				14,597
Goodwill			20,081				20,127
Intangible assets, net			6,693				6,981
Other long-term assets			3,271				3,422
Total assets		$	169,656			$	172,384
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable		$	6,769			$	7,432
Short-term debt			3,500				2,000
Current portion of long-term debt			1,748				0
Accrued compensation			3,740				4,797
Income taxes			903				782
Short-term unearned revenue			20,713				23,150
Securities lending payable			191				558
Other			7,130				6,906
Total current liabilities			44,694				45,625
Long-term debt			18,472				20,645
Long-term unearned revenue			1,825				2,008
Deferred income taxes			2,714				2,728
Other long-term liabilities			11,781				11,594
Total liabilities			79,486				82,600
Commitments and contingencies
Stockholders’ equity:
Common stock and paid-in capital - shares authorized 24,000; outstanding 8,255 and 8,239			68,362				68,366
Retained earnings			18,051				17,710
Accumulated other comprehensive income			3,757				3,708
Total stockholders’ equity			90,170				89,784
Total liabilities and stockholders’ equity		$	169,656			$	172,384

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MICROSOFT CORPORATION

CASH FLOWS STATEMENTS

(In millions)(Unaudited)

 

		Three Months Ended September 30,
		2014				2013
Operations
Net income		$	4,540			$	5,244
Adjustments to reconcile net income to net cash from operations:
Depreciation, amortization, and other			1,428				954
Stock-based compensation expense			646				635
Net recognized losses on investments and derivatives			55				93
Excess tax benefits from stock-based compensation			(502)				(205)
Deferred income taxes			301				404
Deferral of unearned revenue			8,022				7,436
Recognition of unearned revenue			(10,643)				(9,677)
Changes in operating assets and liabilities:
Accounts receivable			6,627				6,617
Inventories			(483)				(667)
Other current assets			(280)				(556)
Other long-term assets			279				(81)
Accounts payable			(659)				(276)
Other current liabilities			(1,166)				(1,255)
Other long-term liabilities			189				(461)
Net cash from operations			8,354				8,205
Financing
Proceeds from issuance of short-term debt, maturities of 90 days or less, net			2,999				712
Proceeds from issuance of debt			0				588
Repayments of debt			(1,500)				(1,000)
Common stock issued			216				203
Common stock repurchased			(2,888)				(2,188)
Common stock cash dividends paid			(2,307)				(1,916)
Excess tax benefits from stock-based compensation			502				205
Net cash used in financing			(2,978)				(3,396)
Investing
Additions to property and equipment			(1,282)				(1,231)
Acquisition of companies, net of cash acquired, and purchases of intangible and other assets			(141)				(15)
Purchases of investments			(24,085)				(14,768)
Maturities of investments			1,693				347
Sales of investments			16,445				11,117
Securities lending payable			(367)				(64)
Net cash used in investing			(7,737)				(4,614)
Effect of exchange rates on cash and cash equivalents			(6)				24
Net change in cash and cash equivalents			(2,367)				219
Cash and cash equivalents, beginning of period			8,669				3,804
Cash and cash equivalents, end of period		$	6,302			$	4,023

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MICROSOFT CORPORATION

SEGMENT REVENUE AND GROSS MARGIN

(In millions)(Unaudited)

 

		Three Months Ended September 30,
		2014				2013
Revenue
Devices and Consumer Licensing		$	4,093			$	4,484
Computing and Gaming Hardware			2,453				1,409
Phone Hardware			2,609				0
Devices and Consumer Other			1,809				1,554
Commercial Licensing			9,873				9,611
Commercial Other			2,407				1,602
Corporate and Other			(43)				(131)
Total revenue		$	23,201			$	18,529
Gross Margin
Devices and Consumer Licensing		$	3,818			$	3,920
Computing and Gaming Hardware			479				205
Phone Hardware			478				0
Devices and Consumer Other			312				324
Commercial Licensing			9,100				8,805
Commercial Other			805				274
Corporate and Other			(64)				(144)
Total gross margin		$	14,928			$	13,384