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) August 3, 2017
Microsoft Corporation
(Exact Name of Registrant as Specified in Its Charter)
Washington
(State or Other Jurisdiction
of Incorporation)
| 001-37845 | 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)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). 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. ☐
Item 7.01. Regulation FD Disclosure
Beginning July 1, 2017, Microsoft Corporation (the “Company”) elected to early adopt the new accounting standards for revenue recognition and leases. The Company is furnishing this Form 8-K under Regulation FD to present the Company’s previously reported financial information on a basis consistent with the standards. Beginning with the quarter ending September 30, 2017, the Company’s financial information will reflect adoption of the standards with prior periods adjusted accordingly.
Revenue from Contracts with Customers
In May 2014, the Financial Accounting Standards Board (“FASB”) issued a new standard related to revenue recognition. The Company elected to early adopt the standard effective July 1, 2017 using the full retrospective method, which requires the Company to restate each prior reporting period presented consistent with the standard.
Adoption of the standard had a material impact on the Company’s consolidated income statements and balances sheets, but had no impact to cash from or used in operating, financing, or investing on the consolidated cash flows statements. The most significant impact of the standard relates to the Company’s accounting for software license revenue. Specifically, for Windows 10, the Company recognizes revenue predominantly at the time of billing and delivery rather than ratably over the life of the related device. For certain multi-year, commercial software subscriptions that include both distinct software licenses and Software Assurance, the Company recognizes license revenue at the time of contract execution rather than over the subscription period. Due to the complexity of certain commercial license subscription contracts, the actual revenue recognition treatment required under the standard depends on contract-specific terms and in some instances may vary from recognition at the time of billing. Revenue recognition related to the Company’s hardware, cloud offerings such as Office 365, LinkedIn, and professional services remains substantially unchanged.
Leases
In February 2016, the FASB issued a new standard related to leases. The Company elected to early adopt the standard effective July 1, 2017 using a modified retrospective approach, which requires the Company to recognize and measure leases at the beginning of the earliest period presented. The Company elected to apply the available practical expedients on adoption.
Adoption of the standard had a material impact on the Company’s consolidated balance sheets, but did not have a material impact on the consolidated income statements and had no impact to cash from or used in operating, financing, or investing on the consolidated cash flows statements. The most significant impact of the standard is the recognition of right-of-use assets and lease liabilities for operating leases on the consolidated balance sheets. The Company’s accounting for capital leases remains substantially unchanged.
Financial Information
Refer to Exhibit 99.1 for financial information on a basis consistent with the new standards for fiscal year 2017 and 2016.
The Company will host a conference call webcast at 1:30 p.m. Pacific time (4:30 p.m. Eastern time) on August 3, 2017 to discuss the new standards. The session may be accessed on the Microsoft Investor Relations website at http://www.microsoft.com/en-us/investor.
In accordance with General Instruction B.2 of Form 8-K, the information in this Current Report on Form 8-K, 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 Microsoft’s Financial Information Restated for the New Standards
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: August 3, 2017 |
/S/ FRANK H. BROD | |
| Frank H. Brod | ||
| Corporate Vice President, Finance and Administration; Chief Accounting Officer | ||
INDEX TO EXHIBITS
| Exhibit No. |
Description | |
| 99.1 | Microsoft’s Financial Information Restated for the New Standards | |
Exhibit 99.1
MICROSOFT CORPORATION
INCOME STATEMENTS
(In millions, except per share amounts)(Unaudited)
| Restated for New
|
Previously Reported
|
Change
|
||||||||||||||||||||||||||
| Year Ended June 30, | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||
|
Revenue: |
||||||||||||||||||||||||||||
| Product |
$63,811 | $67,336 | $57,190 | $61,502 | $6,621 | $5,834 | ||||||||||||||||||||||
| Service and other |
32,760 | 23,818 | 32,760 | 23,818 | 0 | 0 | ||||||||||||||||||||||
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||||||||||||||||||
| Total revenue |
96,571 | 91,154 | 89,950 | 85,320 | 6,621 | 5,834 | ||||||||||||||||||||||
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| Cost of revenue: |
||||||||||||||||||||||||||||
| Product |
15,175 | 17,880 | 15,175 | 17,880 | 0 | 0 | ||||||||||||||||||||||
| Service and other |
19,086 | 14,900 | 19,086 | 14,900 | 0 | 0 | ||||||||||||||||||||||
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||||||||||||||||||
| Total cost of revenue |
34,261 | 32,780 | 34,261 | 32,780 | 0 | 0 | ||||||||||||||||||||||
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|
||||||||||||||||||
| Gross margin |
62,310 | 58,374 | 55,689 | 52,540 | 6,621 | 5,834 | ||||||||||||||||||||||
| Research and development |
13,037 | 11,988 | 13,037 | 11,988 | 0 | 0 | ||||||||||||||||||||||
| Sales and marketing |
15,461 | 14,635 | 15,539 | 14,697 | (78) | (62) | ||||||||||||||||||||||
| General and administrative |
4,481 | 4,563 | 4,481 | 4,563 | 0 | 0 | ||||||||||||||||||||||
| Impairment and restructuring |
306 | 1,110 | 306 | 1,110 | 0 | 0 | ||||||||||||||||||||||
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||||||||||||||||||
| Operating income |
29,025 | 26,078 | 22,326 | 20,182 | 6,699 | 5,896 | ||||||||||||||||||||||
| Other income (expense), net |
876 | (439) | 823 | (431) | 53 | (8) | ||||||||||||||||||||||
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||||||||||||||||||
| Income before income taxes |
29,901 | 25,639 | 23,149 | 19,751 | 6,752 | 5,888 | ||||||||||||||||||||||
| Provision for income taxes |
4,412 | 5,100 | 1,945 | 2,953 | 2,467 | 2,147 | ||||||||||||||||||||||
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| Net income |
$25,489 | $20,539 | $21,204 | $16,798 | $4,285 | $3,741 | ||||||||||||||||||||||
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|
Earnings per share: |
||||||||||||||||||||||||||||
| Basic |
$3.29 | $2.59 | $2.74 | $2.12 | $0.55 | $0.47 | ||||||||||||||||||||||
| Diluted |
$3.25 | $2.56 | $2.71 | $2.10 | $0.54 | $0.46 | ||||||||||||||||||||||
Restated results reflect the adoption of the new standards related to revenue recognition and leases. Previously reported results were derived from audited financial statements included in the Annual Report on Form 10-K for the year ended June 30, 2017.
MICROSOFT CORPORATION
BALANCE SHEETS
(In millions)(Unaudited)
| Restated for New
|
Previously Reported
|
Change
|
||||||||||||||||||||||||||||||
| June 30, | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||||||
| Assets |
||||||||||||||||||||||||||||||||
| Current assets: |
||||||||||||||||||||||||||||||||
| Cash and cash equivalents |
$7,663 | $6,510 | $7,663 | $6,510 | $0 | $0 | ||||||||||||||||||||||||||
| Short-term investments (including securities loaned of $3,694, $204, $3,694, and $204) |
125,318 | 106,730 | 125,318 | 106,730 | 0 | 0 | ||||||||||||||||||||||||||
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| Total cash, cash equivalents, and short-term investments |
132,981 | 113,240 | 132,981 | 113,240 | 0 | 0 | ||||||||||||||||||||||||||
| Accounts receivable, net of allowance for doubtful accounts of $345, $392, $405, and $426 |
22,431 | 20,636 | 19,792 | 18,277 | 2,639 | 2,359 | ||||||||||||||||||||||||||
| Inventories |
2,181 | 2,251 | 2,181 | 2,251 | 0 | 0 | ||||||||||||||||||||||||||
| Other |
5,103 | 6,061 | 4,897 | 5,892 | 206 | 169 | ||||||||||||||||||||||||||
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||||||||||||||||||||||
| Total current assets |
162,696 | 142,188 | 159,851 | 139,660 | 2,845 | 2,528 | ||||||||||||||||||||||||||
| Property and equipment, net of accumulated depreciation of $24,179, $19,800, $24,179, and $19,800 |
23,734 | 18,356 | 23,734 | 18,356 | 0 | 0 | ||||||||||||||||||||||||||
| Operating lease right-of-use assets |
6,555 | 5,198 | 0 | 0 | 6,555 | 5,198 | ||||||||||||||||||||||||||
| Equity and other investments |
6,023 | 10,431 | 6,023 | 10,431 | 0 | 0 | ||||||||||||||||||||||||||
| Goodwill |
35,122 | 17,872 | 35,122 | 17,872 | 0 | 0 | ||||||||||||||||||||||||||
| Intangible assets, net |
10,106 | 3,733 | 10,106 | 3,733 | 0 | 0 | ||||||||||||||||||||||||||
| Other long-term assets |
6,076 | 5,119 | 6,250 | 3,416 | (174) | 1,703 | ||||||||||||||||||||||||||
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||||||||||||||||||||||
| Total assets |
$250,312 | $202,897 | $241,086 | $193,468 | $9,226 | $9,429 | ||||||||||||||||||||||||||
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| Liabilities and stockholders’ equity |
||||||||||||||||||||||||||||||||
| Current liabilities: |
||||||||||||||||||||||||||||||||
| Accounts payable |
$7,390 | $6,898 | $7,390 | $6,898 | $0 | $0 | ||||||||||||||||||||||||||
| Short-term debt |
9,072 | 12,904 | 9,072 | 12,904 | 0 | 0 | ||||||||||||||||||||||||||
| Current portion of long-term debt |
1,049 | 0 | 1,049 | 0 | 0 | 0 | ||||||||||||||||||||||||||
| Accrued compensation |
5,819 | 5,264 | 5,819 | 5,264 | 0 | 0 | ||||||||||||||||||||||||||
| Income taxes |
718 | 580 | 718 | 580 | 0 | 0 | ||||||||||||||||||||||||||
| Short-term unearned revenue |
24,013 | 20,177 | 34,102 | 27,468 | (10,089) | (7,291) | ||||||||||||||||||||||||||
| Securities lending payable |
97 | 294 | 97 | 294 | 0 | 0 | ||||||||||||||||||||||||||
| Other |
7,587 | 6,985 | 6,280 | 5,949 | 1,307 | 1,036 | ||||||||||||||||||||||||||
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| Total current liabilities |
55,745 | 53,102 | 64,527 | 59,357 | (8,782) | (6,255) | ||||||||||||||||||||||||||
| Long-term debt |
76,073 | 40,557 | 76,073 | 40,557 | 0 | 0 | ||||||||||||||||||||||||||
| Long-term unearned revenue |
2,643 | 2,016 | 10,377 | 6,441 | (7,734) | (4,425) | ||||||||||||||||||||||||||
| Deferred income taxes |
5,734 | 6,313 | 531 | 1,476 | 5,203 | 4,837 | ||||||||||||||||||||||||||
| Operating lease liabilities |
5,372 | 4,257 | 0 | 0 | 5,372 | 4,257 | ||||||||||||||||||||||||||
| Other long-term liabilities |
17,034 | 13,562 | 17,184 | 13,640 | (150) | (78) | ||||||||||||||||||||||||||
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| Total liabilities |
162,601 | 119,807 | 168,692 | 121,471 | (6,091) | (1,664) | ||||||||||||||||||||||||||
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| Commitments and contingencies |
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| Stockholders’ equity: |
||||||||||||||||||||||||||||||||
| Common stock and paid-in capital - shares authorized 24,000; outstanding 7,708, 7,808, 7,708, and 7,808 |
69,315 | 68,178 | 69,315 | 68,178 | 0 | 0 | ||||||||||||||||||||||||||
| Retained earnings |
17,769 | 13,118 | 2,648 | 2,282 | 15,121 | 10,836 | ||||||||||||||||||||||||||
| Accumulated other comprehensive income |
627 | 1,794 | 431 | 1,537 | 196 | 257 | ||||||||||||||||||||||||||
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| Total stockholders’ equity |
87,711 | 83,090 | 72,394 | 71,997 | 15,317 | 11,093 | ||||||||||||||||||||||||||
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| Total liabilities and stockholders’ equity |
$250,312 | $202,897 | $241,086 | $193,468 | $9,226 | $9,429 | ||||||||||||||||||||||||||
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Restated results reflect the adoption of the new standards related to revenue recognition and leases. Previously reported results were derived from audited financial statements included in the Annual Report on Form 10-K for the year ended June 30, 2017.
MICROSOFT CORPORATION
SEGMENT REVENUE AND OPERATING INCOME (LOSS)
(In millions)(Unaudited)
| Restated for New
|
Previously Reported
|
Change
|
||||||||||||||||||||||
| Year Ended June 30, | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||
|
Revenue |
||||||||||||||||||||||||
| Productivity and Business Processes |
$29,870 | $25,792 | $30,444 | $26,487 | $(574) | $(695) | ||||||||||||||||||
| Intelligent Cloud |
27,407 | 24,952 | 27,440 | 25,042 | (33) | (90) | ||||||||||||||||||
| More Personal Computing |
39,294 | 40,410 | 38,773 | 40,434 | 521 | (24) | ||||||||||||||||||
| Corporate and Other |
0 | 0 | (6,707) | (6,643) | 6,707 | 6,643 | ||||||||||||||||||
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| Total revenue |
$96,571 | $91,154 | $89,950 | $85,320 | $6,621 | $5,834 | ||||||||||||||||||
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| Operating income (loss) |
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| Productivity and Business Processes |
$11,389 | $11,756 | $11,913 | $12,418 | $(524) | $(662) | ||||||||||||||||||
| Intelligent Cloud |
9,127 | 9,249 | 9,138 | 9,315 | (11) | (66) | ||||||||||||||||||
| More Personal Computing |
8,815 | 6,183 | 8,288 | 6,202 | 527 | (19) | ||||||||||||||||||
| Corporate and Other |
(306) | (1,110) | (7,013) | (7,753) | 6,707 | 6,643 | ||||||||||||||||||
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| Total operating income |
$29,025 | $26,078 | $22,326 | $20,182 | $6,699 | $5,896 | ||||||||||||||||||
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Restated results reflect the adoption of the new standards related to revenue recognition and leases. Previously reported results were derived from audited financial statements included in the Annual Report on Form 10-K for the year ended June 30, 2017.
MICROSOFT CORPORATION
QUARTERLY INFORMATION
(In millions, except per share amounts)(Unaudited)
| Fiscal Year 2017
Quarter Ended |
September 30 | December 31 | March 31 | June 30 | ||||||||||||||||||||||||||||||||||||||||
|
Restated |
Previously Reported |
Restated for New Standards |
Previously Reported |
Restated for New Standards |
Previously Reported |
Restated for New Standards |
Previously Reported |
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|
Revenue |
$21,928 | $20,453 | $25,826 | $24,090 | $23,212 | $22,090 | $25,605 | $23,317 | ||||||||||||||||||||||||||||||||||||
| Gross margin |
14,084 | 12,609 | 15,925 | 14,189 | 15,152 | 14,030 | 17,149 | 14,861 | ||||||||||||||||||||||||||||||||||||
| Operating income |
6,715 | 5,225 | 7,905 | 6,177 | 6,723 | 5,594 | 7,682 | 5,330 | ||||||||||||||||||||||||||||||||||||
| Net income |
5,667 | 4,690 | 6,267 | 5,200 | 5,486 | 4,801 | 8,069 | 6,513 | ||||||||||||||||||||||||||||||||||||
| Basic earnings per share |
0.73 | 0.60 | 0.81 | 0.67 | 0.71 | 0.62 | 1.05 | 0.84 | ||||||||||||||||||||||||||||||||||||
| Diluted earnings per share |
0.72 | 0.60 | 0.80 | 0.66 | 0.70 | 0.61 | 1.03 | 0.83 | ||||||||||||||||||||||||||||||||||||
| Fiscal Year 2016
Quarter Ended |
September 30 | December 31 | March 31 | June 30 | ||||||||||||||||||||||||||||||||||||||||
|
Restated |
Previously Reported |
Restated for New Standards |
Previously Reported |
Restated for New Standards |
Previously Reported |
Restated for New Standards |
Previously Reported |
|||||||||||||||||||||||||||||||||||||
|
Revenue |
$20,910 | $20,379 | $25,253 | $23,796 | $21,517 | $20,531 | $23,474 | $20,614 | ||||||||||||||||||||||||||||||||||||
| Gross margin |
13,703 | 13,172 | 15,381 | 13,924 | 13,795 | 12,809 | 15,495 | 12,635 | ||||||||||||||||||||||||||||||||||||
| Operating income |
6,316 | 5,793 | 7,489 | 6,026 | 6,277 | 5,283 | 5,996 | 3,080 | ||||||||||||||||||||||||||||||||||||
| Net income |
5,069 | 4,902 | 5,938 | 5,018 | 4,305 | 3,756 | 5,227 | 3,122 | ||||||||||||||||||||||||||||||||||||
| Basic earnings per share |
0.63 | 0.61 | 0.75 | 0.63 | 0.55 | 0.48 | 0.67 | 0.40 | ||||||||||||||||||||||||||||||||||||
| Diluted earnings per share |
0.63 | 0.61 | 0.74 | 0.62 | 0.54 | 0.47 | 0.66 | 0.39 | ||||||||||||||||||||||||||||||||||||
Restated results reflect the adoption of the new standards related to revenue recognition and leases. Previously reported results were derived from the financial statements included in the Annual Report on Form 10-K for the year ended June 30, 2017.